Dismissed

In the matter of Birla Tyres Limited [I.a. (I.B.C) No. 957-KB-2023 in Company Petition (Ib) No. 250-KB-2021]

NCLT18 Oct 2023I.A. (I.B.C) No. 957-KB-2023 in Company Petition (IB) No. 250-KB-2021

Case brief

AI extract

What is this about?

This Tribunal dismissed an application under Section 60(5) of the I&B Code filed by a creditor against a Resolution Professional. The Court held that the RP was correct in rejecting the claim as financial debt because the applicant failed to substantiate disbursement of money against time value of money.

What did the court decide?

Application for vacation of RP's rejection order and restoration of claim status was dismissed.

In the matter of Birla Tyres Limited [I.a. (I.B.C) No… — Insolvency and Bankruptcy | NCLT (2023)

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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Company Petition (IB) No. 250/KB/2021

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An Application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016.

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IN THE MATTER OF:

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SRF Limited … Operational Creditor. Verses Birla Tyres Limited … Corporate Debtor.

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AND

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IN THE MATTER OF:

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Kesoram Industries Limited … Applicant.

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Verses

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Pratim Bayal,

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Resolution Professional

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of Birla Tyres Limited (now in CIRP) … Respondent.

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Date of Hearing: August 02, 2023 Date of Pronouncement: October 18, 2023

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CORAM:

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SMT. BIDISHA BANERJEE, HON’BLE MEMBER (JUDICIAL) SHRI BALRAJ JOSHI, HON’BLE MEMBER (TECHNICAL)

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Appearance:

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For Applicant in I.A. (I.B.C.) No. 957/KB/2023:

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1. Mr. Tridib Bose, Adv.

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2. Mr. Debargha Basu, Adv.

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3. Mr. Shounak Mukherje, Adv.

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4. Mr. Rahul Poddar, Adv.

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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In Company Petition (IB) No. 250/KB/2021

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For Resolution Professional:

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1. Mr. Joy Saha, Sr. Adv.

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2. Mr. Shanak Mitra, Adv.

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3. Mr. Sayantak Das, Adv.

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4. Mr. Amandeep Singh, Adv.

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ORDER

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PER Bidisha Banerjee, Member (Judicial):

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1. This Court is congregated through hybrid mode.

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2. This instant Application has been filed by Kesoram Industries Limited, Applicant herein, under Section 60(5) of the Insolvency and Bankruptcy Code for brevity I&B Code read with other Rule 11 of the NCLT Rules, 2016 against Pratim Bayal, Resolution Professional (RP) of the Birla Tyres Limited (in CIRP), Respondent herein, seeking the following reliefs as:

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a) An Order be passed declaring the decision of the RP as contained in his email dated April 19, 2023, being Annexure “P-12” hereto, rejecting the claim of the Applicant as illegal, null and void;

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b) An order be passed setting aside the decision of the RP contained in his email dated April 19, 2023;

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c) Pass an Order directing the RP to restore the claim of the Application as a Financial Creditor;

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d) Pending hearing of the present application, the RP be restrained from giving effect to and/or further effect to the email dated April 19, 2023, and further restraining the RP from altering the claim of the Applicant in the list of Creditors of the Corporate Debtor;

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e) Ad-interim order or any other order, may deem fit and proper .

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Page 2 of 13

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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3. Submission made by the Applicant:

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3.1. The Ld. Counsel for the Applicant submits that vide an order dated May 05, 2022, the Corporate Resolution Insolvency Process (CIRP) was initiated in respect of the Corporate Debtor (Birla Tyres Limited) and Mr. Seikh Abdul Salam was appointed as IRP. On May 07, 2022, the RP, Mr. Seikh Abdul Salam made a public announcement in in Form A inviting the claims of the creditors of the Corporate Debtor duly submitted its proof of claim for a claim amount of Rs. 5,18,28,91,359/-. The said claim of the Applicant was duly admitted by the RP to the tune of Rs. 5,16,39,06,248/as an unsecured financial creditor.

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3.2. It is further submitted that vide an order dated October 31, 2022, Mr. Salam was replaced by Mr. Pritam Bayal (Respondent herein) as the RP of Birla Tyres Limited.

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3.3. It is contended that on December 23, 2022, the Applicant received an email from the RP, annexed at Page 206 to this Applicant being Annexure “P-8”, seeking additional information and/or documents in relation to the claim of the Applicant on the plea of a direction passed by this Adjudicating Authority in case of Seaview Merchants Pvt. Ltd. v. Ashish Vincom Pvt Ltd. C.P (IB) No. 2011/KB/2019 reported in (2021) ibclaw.in 276 NCLT.

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3.4. It is further contended that by an email dated December 27, 2022, annexed at Page 215 being Annexure “P-10” to the Application, the Applicant informed the RP that its claim has already been admitted and available on the website of ibbi.gov.in and no re-verification should be entertainable.

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3.5. The Ld. Counsel for the Applicant further submits that in response, by email dated December 28, 2022, annexed at Page 216 being Annexure “P-11” to the Application, the RP reiterated the position contained in his previous email dated December 23, 2022, referring Section 25 of the I&B Code requiring him to preserve and protect the assets of the Corporate

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Page 3 of 13

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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Debtor. The Applicant on the same day i.e., on December 28, 2022, replied to the RP stating that the provisions of the Code do not authorize the RP to recheck and/or reverify and/or relook into an admitted claim and that the RP can merely revise the amount of admitted claim on the basis of additional information.

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3.6. The Ld. Counsel for the Applicant further contends that the RP by an email dated April 19, 2023, sans dealing with the objections raised by the applicant stated that he is unable to verify and admit the claim of the Applicant and in justification referred to the provisions of Regulation 8 and 10 of the CIRP Regulations.

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3.7. The Ld. Counsel for the Applicant claims that once the claim of the applicant herein was submitted and reflected in the list of creditors, the RP cannot embark upon the process of re-verification of an admitted claim.

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4. Reply given by the Respondent (Resolution Professional):

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4.1. The Ld. Counsel for the Respondent per contra submits that initially, the Applicant claiming to be a Financial Creditor of the Corporate Debtor, had filed a claim in Form C, dated May 16, 2022, amounting to Rs. 5,18,28,98,356/-. In Form C, it was mentioned, without any supporting documents or proof, that the claim pertained to an alleged “InterCompany Loan given from time to time along with accrued interest thereon”. A copy of the “Form C” submitted by the Applicant is annexed at Page 15-16 to the Reply Affidavit. Further, with Form C, no primary documents such as proof of disbursement of loan were provided.

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4.2. The Ld. Counsel for the Respondent further claims that a purported Balance Confirmation from the Corporate Debtor as on April 30, 2022, was furnished on May 2, 2022, only three days prior to the commencement of the CIRP in respect to the Corporate Debtor. It is claimed that the balance

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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confirmation was also vague and cryptic in nature, referring to “InterCompany Loans” without any supporting documents.

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4.3. The Ld. Counsel for the Respondent submits that it is a settled position of law that to qualify as a “financial debt” under the I&B Code, disbursement of money is essential and there was neither any money disbursement statement furnished by the Applicant to the Bank Account of the Corporate Debtor nor any loan agreement. Thus, the latter RP after re-verification of the claim has rejected the claim of the Applicant and classified the Applicant as a “Related Party”.

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5. Ld. Counsel for the Applicant submits through Rejoinder:

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5.1. That, the allegation made by the Respondent (RP) is mala fide, misconceived and not maintainable by law at all. It is claimed that once a claim is admitted, cannot be rejected by the RP.

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6. Analysis and Findings:

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6.1. Heard the rival contention of both parties and perused the documents placed before us.

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6.2. It is evident that the Applicant has furnished Form C dated May 16, 2022, in which it has claimed the debt incurred to the Corporate Debtor as an “Inter-Company Loan given from time to time along with accrued interest thereon” (at Point no. 7 of the Form C) and the Applicant is a Financial Creditor, having total claim of Rs. 518,28,98,356/-. The Form C filed by the Applicant, annexed at Page 15-16 to the Reply Affidavit is reproduced hereunder as:

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Page 5 of 13

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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In Company Petition (IB) No. 250/KB/2021

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Page 6 of 13

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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In Company Petition (IB) No. 250/KB/2021

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6.3. Further, it is also evident that in the “Balance Confirmation” as on April 30, 2022, of the Corporate Debtor, the outstanding payable to Kesoram Industries Limited (Applicant herein) is also classified, as an “Inter- Company Loan” .

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Page 7 of 13

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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6.4. We would rely upon the judgment passed by this Adjudicating Authority in the case of Seaview Merchants Private Limited v. Ashish Vincom Private Limited reported in MANU/NC/3611/2021 , where the ratio of the Hon’ble High Court of Bombay in Durga Prasad Mandelia v. Registrar of Companies, Maharashtra , reported in MANU/MH/0003/1985 was reiterated as under:

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“9. Albeit, it is well settled principle that the Inter-Corporate Deposits are financial debts but in a transaction of a deposit of money or a loan, a relationship between the parties must come into existence, mere transfer of money from one account to another would not constitute loan/deposits unless the intention of the parties are considered and substantiated with valid documents .”

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(Emphasis Added)

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6.5. It is also a settled position of law that to establish a “financial debt”, the statement of the disbursement of money is essential. In this context, we would refer Section 5(8) of the I&B Code, reproduced verbatim as:

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(8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes

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xxx xxx xxx xxx

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6.6. Further, we would rely upon the judgment of the Hon’ble Apex Court is the case of Anuj Jain v. Axis Bank Limited reported in (2020) 8 SCC 401: MANU/SC/0228/2020 that:

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“ The essentials for financial debt and financial creditor ’

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“43. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota

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of doubt that for a debt to become 'financial debt' for the purpose

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money . It may include any of the methods for raising money or incurring liability by the modes prescribed in Sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per Sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in Sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in Sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said Sub-clauses (a) to (i) of Section 5(8) would be falling within the ambit of 'financial debt' only if it carries the essential elements stated in the principal Clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential

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element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code .’

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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“ This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money .”

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(Emphasis Added)

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6.7. Further, we would also refer to the decision passed by the Hon’ble NCLAT, New Delhi, in the case of B.V.S. Lakshmi v. Geometrix Laser Solutions Private Limited, reported in MANU/NL/0221/2017 that:

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“30. In the present case, the Appellant has failed to bring on record any evidence to suggest that she disbursed the money has been made against 'consideration for the time value of money'. There is nothing on the record to suggest that the Respondents borrowed the money. In absence of such evidence , the Appellant cannot claim that the loan if any given by the Appellant comes within the meaning of 'financial debt' in terms of sub-section (8)(a) of Section 5 of the 'I & B Code' .”

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(Emphasis Added)

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6.8. Thus, from the statutory provisions and decisions supra, it is clear that to bring any existence of debt within the ambit of the definition of “Financial Debt”, disbursement of money is sine qua non and in the instant application nothing in record substantiates that the money has been disbursed by the Applicant to Corporate Debtor. We are further of the view that though it is shown as an “Inter-Company Debt”, the applicant has failed to prove the transaction as a deposit of money or a loan from the Applicant’s account to the Corporate Debtor’s Account before the initiation of CIRP as well as a relationship between the parties which proves that it is a mere transaction of money from one account to another account.

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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In Company Petition (IB) No. 250/KB/2021

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6.9. Further, we would refer to Regulation 14 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (in short “CIRP Regulations”) that:

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14. Determination of amount of claim .

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(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him . (2) The interim resolution professional or the resolution professional , as the case may be, shall revise the amounts of claims admitted , including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision .

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6.10. Thus, we are of the view that the Respondent (Resolution Professional of the Corporate Debtor) has rightly revised the claim which was previously admitted by the latter RP on the basis of additional information and documents, when he came across the additional information warranting such revision.

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6.11. We would rely upon the judgment of the Hon’ble Apex Court in Ram Kanai Jamini Ranjan Pal Pvt. Ltd. v. Member, Board of Revenue, W. Bengal reported in (1976) 3 SCC 369: MANU/SC/0342/1976 that:

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“ The word ‘revise’ occurring therein (which in dictionary is described as meaning to ‘re-examine, to review, to correct, or to amend the fault’ ) is not hedged or qualified by any condition or limitation .”

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(Emphasis Added)

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6.12. In this present case, the latter RP after re-verification of the claim has rejected the claim of the Applicant on grounds of no substantial evidence

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023 In Company Petition (IB) No. 250/KB/2021

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supporting the disbursement of amount claim furnished by the Applicant as well as no financial transaction recorded in Corporate Debtor’s account that reflects any such transaction related to alleged inter-company loan was done. The same was informed by the RP to the Applicant by Email dated April 19, 2023, annexed at Page 219 being Annexure “P-12” to the Application. Hence, the claim of the applicant is rightly rejected by the Resolution Professional of the Corporate Debtor (Birla Tyres Limited). The Email dated April 19, 2023 , is reproduced as under:

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IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH [SPECIAL], COURT NO. II KOLKATA

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I.A. (I.B.C) No. 957/KB/2023

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In Company Petition (IB) No. 250/KB/2021

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7. In terms of view above, this instant application being I.A. (I.B.C) No. 957/KB/2023 is dismissed.

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8. No Costs.