The National Company Law Appellate Tribunal, Principal Bench, New Delhi, comprising the Chairperson Justice Ashok Bhushan and the Technical Member Ms. Shreesha Merla held that any Agreement by a Corporate Debtor with third parties cannot dilute the debt due to Financial Creditors.
The bench was hearing an Appeal where three questions were raised for consideration: Question (1) - Whether the amount of Rs.3.5 crore disbursed by the Financial Creditor to the Corporate Debtor between 02.12.2016 to 15.12.2016 is a financial debt within the meaning of Section 5(8) of the I&B Code or the amount was advanced towards 50% equity share in M/s SPT – the US Company? Question (2) - Whether the liability of the Corporate Debtor to return Rs.3.5 crore received from the Financial Creditor could have arisen only when the Corporate Debtor received the amount of USD 0.80 Million from the Investor – Ajay Kumar Jain and the Agreement dated 14.07.2018 being a contingent contract in so far as payment of Rs.3.5 crores of Financial Creditor is not enforceable by virtue of Section 33 of the Contract Act? Question (3) - Whether the amount of Rs.3.5 crore paid by the Financial Creditor to the Corporate Debtor was towards the Deal Fee payable to the Appellant as per the Agreement dated 04.12.2016?
The first question to be considered was as to whether the amount of Rs.3.5 crores paid by the Financial Creditor to the account of Corporate Debtor is a ‘financial debt’ within the meaning of Section 5(8) of the I&B Code or was investment/ payment for acquiring 50% equity share of M/s SPT – the US Company. It is needed to first notice the details of the payment made by the Financial Creditor to the Corporate Debtor totalling to Rs.3.5 crores. In Section 7 Application filed by the Financial Creditor details of payments totalling to Rs.3.5 crores have been given.
The Agreement which was relied on by both the parties unequivocally contains the acknowledgement of the Corporate Debtor towards liability to refund the amount of Rs.3.5 crore to the Financial Creditor and the Agreement mentions the mechanism to return the amount. The Agreement Clause 3.3 also mentions giving an IDBI cheque of Rs.3.5 crore to the Financial Creditor which raises a clear presumption of owing debt by the Corporate Debtor to the Financial Creditor. The above Agreement between the parties makes it clear that the Corporate Debtor has acknowledged the liability to refund the aforesaid amount of Rs.3.5 crore. The acknowledgement to refund the aforesaid amount of Rs.3.5 crore also proves that amount of Rs.3.5 crore was a financial debt.
Section 5(8) Sub-clause (f) covers any amount raised under any other transaction having the commercial effect of a borrowing. There cannot be any denial to the commercial effect of the transaction since it is on the record that the amount which was given by the Financial Creditor was credited in the IDBI Bank account of the Corporate Debtor from which the EMD for participation in the auction of M/s Sona BLW Precision Forge. Inc was paid. The case of the Appellant that the said amount of Rs.3.5 crore given by the Financial Creditor was the purchase price of the 50% equity share in M/s SPT is not supported by the materials on the record. The amount of USD 1.5 Million was sent by the Financial Creditor to the M/s SPT directly on 23.12.2018 as share application money which amount can be said to be the amount sent for equity shares that equity shares were never given to the Financial Creditor. Thus, the case of the Appellant that amount of Rs.3.5 crore be treated as an investment only towards the purchase of equity share is not supported from the record rather materials including acknowledgement of the Corporate Debtor clearly prove that the aforesaid amount comes within the definition of ‘financial debt’ under Section 5(8)(f) of the I&B Code. We, thus, are satisfied that the amount of Rs.3.5 crore is a ‘financial debt’ and the application filed under Section 7 was fully maintainable by the Financial Creditor.
For the Second question - From the Agreement dated 14.07.2018, it was clear that the Financial Creditor was not a party to the Agreement. The Agreement was in between the US Company, the Appellant – Director of the Corporate Debtor and Ajay Kumar Jain – Investor. Clause 5 on which much reliance has been placed by the counsel of the Appellant contemplated that amount of Rs.3.5 crore shall be paid to the Financial Creditor by the Corporate Debtor within three days of receipt of USD 0.80 Million. USD 0.80 Million was to be received by the Corporate Debtor from the Investor – Ajay Kumar Jain who was to invest USD 5.2 Million.
As noticed, the Financial Creditor being not part of the Agreement dated 14.07.2018, the submission that payment to the Financial Creditor was contingent contract was without any foundation. Agreement dated 14.07.2018 was an agreement between third parties of which Financial Creditor was not part therefore the question of non-payment by Corporate Debtor to the Financial Creditor on the basis of such agreement does not arise, nor by Agreement dated 14.07.2018 the liability to pay the debt of the Financial Creditor can be diluted. Any Agreement by the Corporate Debtor with third parties cannot dilute the debt due to Financial Creditor.
For the Third Question, the counsel for the Appellant submitted that the amount of Rs.3.5 crore paid to the Appellant was towards Deal Fee which in fact the Appellant was not liable to refund but as a goodwill gesture he promised to repay the same provided he receives the same from Mr. Ajay Kumar Jain. The Appellant referred to an agreement dated 04.12.2016 to submit that said agreement refers to Deal Fee of USD 1 Million. In the Agreement dated 04.12.2016, Deal Fee was referred to a fee of USD 1 Million which was included in the total project cost which was the total project cost for acquiring M/s Sona BLW Precision Forge. Inc. M/s Sona BLW Precision Forge. Inc. was under Bankruptcy Laws of USA. The said company was to be acquired by bidding. There is no indication in the Agreement that any Deal Fee is to be paid to the Appellant who claims to be a technocrat by the Financial Creditor. Counsel for the Respondent, Mr. Ravi Chirania had rightly in his submission stated that this argument has been raised in this Appeal only and before the Adjudicating Authority never such plea was raised nor any submission made regarding this. The Reply filed by the Corporate Debtor before the Adjudicating Authority clearly indicates that the submission regarding the Deal Fee payable to the Appellant was never taken. In the entire detailed Reply filed by the Corporate Debtor which runs into 41 pages no place, even indication has been given that any Deal Fee was to be paid to the Appellant by the Financial Creditor. The Appellate Authority, thus, found this submission hollow and meritless.
In view of the foregoing discussion, the Appellate Authority were of the considered opinion that the Adjudicating Authority did not commit any error in admitting the Application under Section 7. The Appeal was dismissed.
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