The National Company Law Court (“NCLT”), Mumbai Bench, consisting of Justice PN Deshmukh (Judicial Member) and Mr. Kapal Kumar Vohra (technical member), when examining an application filed in Gateway Offshore Private Limited and Anr. against Runwal Realtors Pvt. ltd., ruled that a written contract cannot be considered a precondition for proving the existence of a financial debt and that the procuring authority must be satisfied that the debtor company is not drawn into the process of corporate insolvency resolution (“CIRP”) dishonest for purposes other than insolvency resolution. The order was placed on 10.06.2022.
Offshore Gateway Pvt. ltd. and Goodhope Software Pvt. ltd. (“the applicants”) had jointly provided a financial facility to Runwal Realtors Pvt. ltd. (“Defendant”) in the amount of Rs.4,43,00,000/- and Defendant had defaulted in reimbursement of the same.
Accordingly, the claimants filed an application under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC) before the NCLT Mumbai Bench (“Arbitration Authority”), seeking the commencement of the CIRP against the Respondent.
Arguments of the applicants
The claimants contended that the amount of Rs.4,43,00,000/- was disbursed as a loan to the defendant with interest at the rate of 9% per annum to be repaid no later than June 2018, which the defendant did not did not.
The Respondent’s Arguments
Defendant contested the claim on the issue of maintainability, arguing that the transaction between the parties was not classified as a Financial Debt. There was no loan agreement, no communication in the form of letters or emails to support the claim and the claimants do not have any license to operate as non-banking financial companies.
We relied on the judgment of the Supreme Court in Swiss Ribbons vs Union of India(2019) 4 SCC 17, to support the proposition that in the absence of documentary evidence or a loan agreement, the claim cannot be substantiated.
Decision of the contracting authority
The contracting authority relied on the NCLAT judgment in Narendra Kumar Agarwal and Ors. v Monotrone Leasing Private Limited and Ors., Company Appeal (AT) (Insolvency) No. 549 of 2020, in which it was held that the written contract cannot be treated as an essential element or precondition for proving the existence of financial debt. The Chamber observed that the Applicants had not adduced any other evidence in the form of a loan agreement, promissory note, contract or any other document to support their assertion that there was had a financial debt and a default thereof. Accordingly, the Chamber ruled as follows:
“However, in the absence of any written document indicating the purpose of the said operations, it cannot be presumed that they were intended for a loan as claimed by the Financial Creditor.
In light of the facts and circumstances above, we believe that even if a written contract cannot be considered a precondition for proving the existence of a financial debt, the procuring authority must be satisfied that the debtor company is not drawn into the settlement of the company’s insolvency. Dealing in bad faith for any purpose other than the resolution of insolvency.”
The motion was denied by the bench.
Case title: Gateway Offshore Private Limited and Anr. against Runwal Realtors Private Limited, CP (IB) 954/MB/CI/2019
Counsel for the Applicant: Mr. Umair A. Ansari.
Counsel for the Respondent: Mr. Anit Soni.
Submitted by: Pallavi Mishra