Chiragsala Sales Pvt. Ltd. Vs Vaishno Devi Traders Pvt. Ltd. (NCLT Guwahati)
Introduction: The case of Chiragsala Sales Pvt. Ltd. vs. Vaishno Devi Traders Pvt. Ltd. at NCLT Guwahati revolves around a critical question – is the amount claimed by the Financial Creditor a Financial Debt under sec. 7 of the Code? To address this, we’ll analyze the Code’s definition of financial debt and scrutinize the terms of the Memorandum of Understanding (MoU) dated 23.09.2019.
Detailed Analysis:
Section 10 – Definition of Financial Debt: The Code, in section 5(8), defines financial debt encompassing various forms of indebtedness, including money borrowed, acceptance credits, notes, debentures, lease liabilities, receivables, derivative transactions, and indemnity obligations. This definition forms the basis for determining whether the claimed amount qualifies as a financial debt.
Terms of the MoU: The MoU outlines the intention and business arrangement between the parties. It highlights the acquisition of land through an e-auction, financial contributions, establishment of a new company (New Holding Co.), and the transfer and development of the acquired land by the New Holding Co. Notably, the Second Party invested Rs. 2,50,00,000/- in the Subject Land.
Interpretation of Financial Debt: Considering the Code’s definition and the MoU’s terms, it’s evident that the Rs. 3 Crore provided by the Financial Creditor constitutes an investment in the Subject Land, not a loan. This aligns with the Corporate Debtor’s argument, emphasizing the absence of loan documentation and security.
Corporate Debtor’s Defense: The Corporate Debtor contends that the Financial Creditor, engaged in financing and investments, conveniently omitted the MoU in the IBC proceeding. Drawing on the NCLAT precedent in M/s Jagbasera Infratech Pvt. Ltd. v. Rawal Variety Construction Ltd., which excludes amounts invested in partnership business or joint ventures from the financial debt definition, the Corporate Debtor seeks dismissal of the CP.
Conclusion: In conclusion, this analysis leads to the rejection of CP (IB) No. 33/GB/2022. The bench finds no merit in considering the claimed amount as a financial debt, and the CP is deemed liable for rejection. Imposing a cost of Rs. 1 Lakh on the Financial Creditor, payable to ROC, Guwahati NER, emphasizes the need for transparency and adherence to legal procedures.
This detailed examination reveals the intricacies of the case and underscores the importance of legal definitions and documentation in insolvency proceedings. The Corporate Debtor’s defense, supported by the MoU’s terms, challenges the characterization of the claimed amount, emphasizing the need for a comprehensive understanding of financial transactions in the context of the Insolvency and Bankruptcy Code.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The present application has been filed by the Financial Creditor- Chiragsala Sales Pvt. Ltd. under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, to initiate Corporate Insolvency Resolution Process in the matter of Vaishno Devi Traders Private Limited.
2. Brief facts as stated by the Petitioner are as follows:
2.1 The Petitioner/Financial Creditor is a Private Limited Company, incorporated on 30.03.1995 under the provisions of the Companies Act, 1956. The Financial Creditor is engaged in the business of investment & finance, having its registered office at 61A, Park Street Ambassador, Suite 55, Kolkata780001. Copy of Incorporation Certificate & Master Data of the Financial Creditor as downloaded from the MCA Portal has been annexed.
2.2 The Respondent/Corporate Debtor is a Private Limited Company incorporated under the provisions of the Companies Act, 1956, having its registered office at N.H. 37, Beltola, Guwahati, Assam- 781 028. The Authorized share capital of the Corporate Debtor is Rs. 5,00,00,000.00 and the paid-up share capital is Rs. 4,49,70,000.00. A copy of the Master Data of the Corporate Debtor as downloaded from the MCA Portal has been annexed.
2.3 The Corporate Debtor herein approached the Financial Creditor for the purpose of obtaining financial loan for the participation in the e-Auction held by Canara Bank for sale of land standing in the name of Prism Alloys Pvt. Ltd. Out of the total sale consideration of the Rs. 6,11,00,000.00 (Rupees Six Crore Eleven Lakh Only) Rs. 3,00,00,000.00 was paid by the Financial Creditor, which was disbursed in 5 tranches on following dates (from 19.09.2019 to 02.01 .2020):
