Dismissed

In the matter of Hydroxy Systems Private Limited Cp (Ib) No. 139-7-HDB-2022

NCLT9 Jan 2023

Case brief

AI extract

What is this about?

The National Company Law Tribunal dismissed a Section 7 Insolvency petition filed by Needa Green Energy against Hydroxy Systems. The Tribunal rejected the application, holding that the applicant failed to establish the existence of a due and payable financial debt, citing contradictory police statements and lack of an executed debt acknowledgment.

What did the court decide?

The application under Section 7 of the IBC was dismissed with no costs ordered to be paid.

In the matter of Hydroxy Systems Private Limited Cp (Ib)… — Insolvency and Bankruptcy | NCLT (2023)

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S.No.1

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IN THE NATIONAL COMPANY LAW TRIBUNAL HYDERABAD BENCH – 1 ATTENDANCE CUM ORDER SHEET OF THE HEARING HELD ON 09-01-2023 AT 10:30 AM

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Company Petition IB/139/2022 U/s 7 of IBC, 2016

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IN THE MATTER OF: Needa Green Energy Pvt Ltd

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…Financial Creditor

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Hydroxy Systems Pvt Ltd …Corporate Debtor

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C O R A M:-

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DR. VENKATA RAMAKRISHNA BADARINATH NANDULA, HON’BLE MEMBER (JUDICIAL) SH. CHARAN SINGH, HON’BLE MEMBER (TECHNICAL)

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O R D E R

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Order in Company Petition IB/139/2022 pronounced. Recorded vide separate sheets as per the terms and conditions mentioned in the order.

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SD SD

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MEMBER (T) MEMBER (J)

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somdutt

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1IN THE NATIONAL COMPANY LAW TRIBUNAL HYDERABAD BENCH – 1

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CP (IB) No. 139/7/HDB/2022

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Under Section 7 of the Insolvency & Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

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BETWEEN:-

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M/s.Needa Green Energy Private Limited Represented by its Managing Director Durga Mahesh Siripurapu Registered Office at Hyndava Technopark, 2^nd Floor, Plot No.12, Survey 64, Madhapur Village, Serilingampally Mandal, Rangareddy District, Hyderabad-500081.

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… Financial Creditor

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Versus

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M/s. Hydroxy Systems Private Limited

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Represented by its authorised person Mr.Venkata Satish Kumar Bhojireddy, 28-229, BHEL Township, Near Ashok Nagar, Ramachandrapuram, Hyderabad-502032.

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… Corporate Debtor

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Date of Order: 09.01.2023

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CORAM:-

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DR. VENKATA RAMAKRISHNA BADARINATH NANDULA, HON’BLE MEMBER (JUDICIAL) SH. CHARAN SINGH, HON’BLE MEMBER (TECHNICAL)

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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PARTIES/COUNSELS APPEARANCE:-

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For the Financial Creditor: Shri. V.S.R.Avadhani, Ms.Prabha Prasad, Counsels.

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For the Corporate Debtor: Ms.Sarvani Desiraju, Counsel

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PER: BENCH

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1. This Petition is filed by M/s. Needa Green Energy Private Limited (hereinafter referred to as “Financial Creditor”) under Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) against M/s. Hydroxy Systems Private Limited (hereinafter referred to as “Corporate Debtor”), alleging non-payment of Rs. 1,43,62,668/- (Rupees One Crore forty three lakhs sixty two thousand six hundred and sixty eight Only) , including interest is said to be due and payable by Corporate Debtor to Financial Creditor.

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2. The contentions put forth by the Financial Creditor are :

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a. The Financial Creditor is a company incorporated on 23.03.2016 duly registered with the Registrar of Companies, Telangana with CIN: U74900TG2016PTC104084. The registered office is same as mentioned in the cause title. The Corporate Debtor is a Private Limited company incorporated on 31.05.2013 duly registered with the Registrar of Companies, Telangana with CIN:

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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U74140TG2013PTC088094. The registered office is same as mentioned in the cause title.

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b. It is submitted by the Financial Creditor that, Corporate debtor has approached the Financial Creditor for Financial Loan, wherein the financial creditor transferred an amount of Rs.65 Lakhs to the corporate debtor’s bank account. Later on 10.10.2019, corporate debtor vide draft MOU admitted the debt of 65 lakhs, but didn’t came forward to sign the MOU, which was incomplete.

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c. Subsequently based on the understanding between the parties financial creditor has transferred further amount of Rs.43,59,000/from February 2020 till August 2020. Thus as per the creditor books of account the amount of debt stood to Rs.1,43,62,668/- ( principal amount of Rs.1,08,59,000/- with interest @ 12%).

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d. Though financial creditor has made several requests and reminders for repayment of loan there was no response from the corporate debtor. Since there is no response from the corporate debtor, financial creditor left with no other option, issued legal notice to the corporate debtor on 17.03.2022. Even the said notices were also returned with postal remarks as “Addressee left without instructions”.

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e. It is averred that notice is deemed to be served as laid by Hon’ble Supreme Court in re “Parameswaram Unit vs Kannan (2017) 5 SCC 737”. Thus due to failure on the part of the Corporate debtor to repay the amount, the financial creditor has filed this Application to initiate CIRP against the corporate debtor.

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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3. The contentions put forth by the Corporate Debtor in its Counter are :

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a. Corporate Debtor denied the averments made by the financial creditor and submitted that the petition is liable to be dismissed.

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b. It is averred that corporate debtor Company has invested crores in its research to develop technology and subsequently machines that can use the technology. The company has filed patents regarding the technology with the patent office in India and in the process of filing the patents in US, Europe and Latin America.

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c. It is averred that the Petitioner Company came to know about the development of technology by the corporate debtor and sought assistance for repairing the equipment of the petitioner, and gave part amount towards repairs and research activities.

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d. It is averred that both sides has agreed to collaborate on few projects, with some mutual understanding providing some shares to the corporate debtor. Later on, the respondent has come to know that no shares have been issued by the petitioner to the respondent. With regard to these issues, Petitioner filed frivolous complaints, and thus subsequently, the promotors of the Corporate debtor Company were forced to file quash petitions, i.e Crl P.No 5135/2021 and 5743/2021, which are pending adjudication before Hon’ble High Court.

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e. It is further averred that based on the understanding between the parties, one of the project granted by Guntur Municipal

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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Corporation was agreed to be undertaken through the petitioner company, for which revenues were agreed to be shared between the petitioner and respondent. It is averred that the correspond amounts mentioned by the petitioner which are incorrectly termed as financial debt. Further submitted that petitioner itself stated that certain portions of amounts mentioned hereunder were given towards supply of machinery, data knowledge and technology, but filed the petition stating that the amounts were given for deposit.

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f. It is averred that the amount of Rs.65,00,000/- given by the Petitioner is for conducting the research for the Petitioner Company and to repair its machinery. The MOU referred to by the Petitioner is not executed and registered, thus it does not bind any party in the eye of law.

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g. It is averred that the amount of Rs.43,59,000/- as claimed by the Petitioner which is transferred to the respondent in the period of February 2020 to August 2020 was in fact towards various expenses regarding research and also for purchasing the equipment’s for the petitioners work.

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h. It is averred that the amount of Rs.1,43,62,668/- as claimed by the Petitioner is denied and submitted that respondent should not pay any amount to the Petitioner and the present application is merely an arm-twisting mechanism to recover dues not owed to the corporate debtor.

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i. Thus prayed the Tribunal to dismiss the Petition with exemplary costs.

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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4. Rejoinder filed by the financial creditor:

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a. It is averred that corporate debtor has brought certain facts and documents which are not related to the present petition.

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b. It is averred that the police compliant and the subsequent FIR’s referred to by the Corporate Debtor pertains to different transactions and not related to this petition. It is averred that the transactions mentioned under the police compliant are no way connected to the present petition. It is further submitted that the contract issued by Guntur Municipal Corporation is to the Petitioner and not to the respondent. It is further averred that corporate debtor has not placed any document to show the amounts received were paid. In fact corporate debtor is trying to mislead the Tribunal by bringing irrelevant and unrelated facts. The bank account of corporate debtor clearly shows the amount was received and further the email dated 25.03.2020 addressed by the corporate debtor to the financial creditor clearly shows that as per the agreement between the parties the remaining amount was transferred to the corporate debtor which was confirmed by the concerned officer of the corporate debtor. The copy of email is annexed at page no.8 to the rejoinder.

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c. Therefore, as per the facts and circumstances, petitioner prayed the Tribunal to admit the case under section 7 of IBC.

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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5. Financial Creditor has filed the written submissions by reiterating the same facts mentioned in the petition and the rejoinder.

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6. In the light of the above contentions the point emerges for consideration is:

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Whether a financial debt as claimed by the Financial Creditor is due and payable by the Corporate Debtor, if so, whether the Corporate Debtor defaulted in repayment of the same?

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7. We have heard Ms.Prabha Prasad, Learned Counsel for Financial Creditor and Ms.Sarvani Desiraju, Counsel for Corporate Debtor. Perused the record.

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8. At the outset it may be stated that this Application being one under Section 7 of IBC, it is imperative for the Applicant to establish the existence of a duly enforceable financial debt for a sum over one crore as on date of filing this Application, which is payable by the corporate debtor and its default.

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9. Hon’ble Supreme Court of Inida, in re, Vidarbha Industries Power Limited v. Axis Bank Limited [Civil Appeal No.4633 of 2021], held that it is not mandatory for the Tribunal to allow the Application filed under Section 7 of IBC, merely on establishing an enforceable date and its default. Reference in this regard can be made to the ruling of Supreme Court, of India, in re, Vidarbha Industries Power Limited v. Axis Bank Limited [Civil Appeal No.4633 of 2021]:

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“90. We are clearly of the view that the Adjudicating Authority(NCLT) as also the Appellate Tribunal(NCLAT) fell in error in holding that once it was found that a debt existed and a corporate debtor was in default in payment

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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of the debt there would be no option to the Adjudicating Authority(NCLT) but to admit the petition under Section 7 of IBC”.

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10. Therefore in the light of the above legal frame, we wish to proceed to decide the above point taking in the consideration the factual matrix of the case and the record placed before us by both parties.

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11. According to the learned Counsel for the financial creditor, the corporate debtor has approached the financial creditor for financial assistance, and pursuant thereto the financial creditor initially transferred an amount of Rs.65,00,000/- to the Bank account of the corporate debtor and under a Memorandum of Understanding dated 10.10.2019 the corporate debtor had admitted the said debt of Rs.65,00,000/-, however, didn’t come forward to sign the said MOU. The said unsigned ( by corporate debtor) MOU has been filed.

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12. Learned Counsel further submitted that subsequently between February 2020 and August 2020 another a sum of Rs.43,59,000/- has been transferred, to the Bank Account of the corporate debtor at the request of the corporate debtor. In support of the plea of transfer of the said amount learned Counsel for financial creditor placed reliance on the books of account of the financial creditor besides letter from the auditor dated 17.03.2022, wherein the Auditor has declared that in all a sum of Rs. 1,08,59,000/- has been transferred by way of RTGS to the account of the corporate debtor. Copies of the above statements and the letter are also filed. Learned Counsel further submits that all these transfers being loan amounts carried interest @12% p.a.

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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13. Learned Counsel further submits that despite of several requests, the corporate debtor failed to discharge the above debt. Therefore, a legal notice dated 17.03.2022 has been sent to the corporate debtor as to, well as its Directors and all the registered letters returned unserved stating that addressee left without instructions. Placing reliance on the ruling of Hon’ble Supreme Court, in re, “Parameswaram Unit vs Kannan (2017) 5 SCC 737” , learned counsel submits that there is deemed service of notice on the corporate debtor and its directors. Despite receipt of notice, as the corporate debtor failed in discharging the above debt, the present Application has been filed for initiation of CIRP against the corporate debtor.

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14. Per contra, Learned Counsel Ms.Sarvani Desiraju, while vehemently denying the plea of Financial Creditor that a financial debt of sum of Rs. 1,08,59,000/- , is due and payable by the corporate debtor and that the same has been defaulted. According to the learned counsel for corporate debtor the corporate debtor is engaged in the field of research and developing technology having qualified scientists, technicians and research associates. It is further submitted that upon coming to know about the technology developed by the corporate debtor, the financial creditor approached the corporate debtor with a view to collaborate and also sought assistance in obtaining repairs for the equipment of the financial creditor which required a particular know-how.

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15. Learned Counsel further submitted that the theory of financial creditor in advancing ‘loan’ to the corporate debtor carrying interest

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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12% is liable to be held as false, when the undisputed statement of the financial creditor made in the FIR, Lodged before Ramachandrapuram police, which statement has been registered as case in FIR No.475/2021 and FIR No.558/2021 against the corporate debtor. In this context learned counsel for corporate debtor refers to para 5 of the police complaints, which is as follows:

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“ To complete our trails, he demanded us and forcibly taken about Rs.60 lakhs with false promises to supply necessary machinery, date, knowledge and develop our company. He made us to believe him and we transferred Rs.60 lakhs to his Companies Bank Account from our Companies Bank Account and the details are given below. On our demand, he hypothecated his land documents as surety, but on enquiry, they were found to be false and fake. ”

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16. Thus according to the learned counsel for the corporate debtor when the very theory of advancing loan of a sum of Rs. 65,00,000/- to the corporate debtor itself is falsified by the above undisputed statement of the financial creditor, the plea of existence of a financial debt or its default by the corporate debtor does not arise at all.

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17. Having heard the learned counsel for both sides and on perusal of the record, at the outset it may be stated that it is the specific pela of the Applicant that the corporate debtor has taken sum of Rs.65,00,000/and the same shall carry interest @12% p.a. Similarly, the corporate debtor has taken loan of Rs.43,59,000/- from the financial creditor and both the above amounts were transferred to the Bank Accounts of the corporate debtor. However, this statement, is falsified by the

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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statement made by the financial creditor before the Ramachandrapuram Police, basing on which the police have registered an FIR No.475/2021 and 558/2021, which is as below:

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18. That apart, the MOU dated 10.10.2019 relied on by the financial creditor for the purpose of asserting that the corporate debtor had admitted availing of Rs.65 lakhs as loan, admittedly is not signed by the corporate debtor. Therefore, same does not bind the corporate debtor.

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As per the Hon’ble Supreme Court of India, in re,

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86.Even though Section 7 (5)(a) of the IBC may confer discretionary power on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. If the facts and circumstances warrant exercise of discretion in a particular manner, discretion would have to be exercised in that manner.

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Ordinarily, the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition.

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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88.The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative.

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19. Further in so far as payment of interest on the amount transferred to the account of the corporate debtor is concerned no agreement between the parties for payment of interest has been filed. The only document relied by the Applicant in this regard is the certificate issued by the manager of the corporate debtor, which is self-serving and we don’t wish to place any reliance on the said aspect.

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20. Therefore, claim for payment of interest as made by the financial creditor is devoid of any basis when found that there is no agreement for payment of interest over the sum which admittedly agreed by the corporate debtor. However this finding of ours will have no bearing on our conclusion that there is no financial debt due and payable by the corporate debtor, in as much as, as per the definition of the financial debt under Section 5(8) of I&B Code, it is not mandatory that debt claimed shall bear interest nextly principal . The Principal sum claimed as due and payable itself being Rs.1,08,59,000/-.

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Hon’ble Supreme Court, of India in re Vidarbha Industries Power Limited v. Axis Bank Limited [Civil Appeal No.4633 of 2021], had held as follows:

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CP (IB) No. 139/7/HDB/2022 Date of Order: 09.01.2023

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“88. The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative”.

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21. Therefore, upon careful examination the respective contentions and records, we are fully satisfied, that the Applicant failed in establishing existence of any financial debt of sum over one crore due and payable by the corporate debtor. Therefore the Application is liable to be rejected in terms of Section 7(5)(3) of IBC. We therefore, hereby reject the Application.

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22. Hence CP No.139/7/HDB/2022, is dismissed with no costs.

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Charan Singh Dr. Venkata Ramakrishna Badarinath Nandula Member Technical Member Judicial

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Pavani