By Pooja Punjabi Oberai | Pramod S. Prabhudesai
Chartered Accountants
10. P. Suresh vs. Super Foodis Pvt. Ltd. IBA/541/2019 – NCLT Chennai Date of order: 20th December,
2019
Section 7 read with section 1(d) of the
Insolvency and Bankruptcy Code, 2016 – A franchise agreement that is disputed
before a High Court could not be regarded as a financial contract – Any claim
for insolvency on account on unpaid royalty under such a contract could not be
proceeded with
FACTS
Mr. P (‘Financial Creditor’) entered into a
franchise agreement with S Co (‘Corporate Debtor’) to run a vegetarian
restaurant for a period of three years from 12th August, 2016 to 11th
August, 2019. The agreement stipulated the use of brand name, quality standards
for the operations of the restaurant and 5% running royalty on the gross sale
value to the financial creditor. In the meantime, in January, 2018, the
management of the corporate debtor was changed and it was alleged that the
financial creditor was promised by the new management that they will discharge
the loan liability, if any, due from the corporate debtor and subsequently the
new management took over on 1st March, 2019. It was submitted that
there was a loan liability of Rs. 29,95,461 due to the corporate debtor on 31st
March, 2018.
With regard to the provisions of the
franchise agreement, the financial creditor alleged that there was a sum of Rs.
33,24,962 which was payable to him. On 19th December, 2018 the
financial creditor terminated the franchise agreement and sought for removal of
the sign board and surrender of all articles bearing the trademark ‘Sangeethas
Desi Mane’; but in spite of the said notice the corporate debtor continued to
use the trademark. The financial creditor filed a suit for infringement of
registered trademark which was pending before the High Court of Madras.
The entire claim of the financial creditor
was based on the alleged entry in the financial statements of the corporate
debtor which is also a subject matter of dispute in the case referred to above.
It was submitted by the corporate debtor
that the validity of the franchise agreement and entries in the balance sheet
were all a subject matter of dispute before the High Court. The High Court vide
order dated 18th July, 2018 had held that issues under dispute are
questions of fact which will have to be proved on trial. The corporate debtor
thus submitted that the subject issue as regards the payment of the unsecured
loan and the default was in itself an issue before the High Court.
HELD
The Tribunal
heard both the parties at length. It examined the provisions of sections 7 and
1(d) of the Code read with Rule 4 of IBBI (Application to Adjudicating
Authority) Rules, 2016 and Regulation 8 of IBBI (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016. It was observed that the financial
creditor had to demonstrate before the Tribunal that there was a ‘financial
contract’, the amount disbursed as per the loan / debt, the tenure of the loan
/ debt, interest payable and conditions of repayment.
Relying on the
decision in the matter of Prayag Polytech Pvt. Ltd. vs. Sivalik
Enterprises Pvt. Ltd. IB-312/(ND)/2019, it was observed that in order
to invoke provisions of section 7 of the Code and for initiation of CIRP
against the corporate debtor, the following conditions were required to be
satisfied: (i) there must be a disbursal of loan; (ii) disbursal should be made
against consideration for time value of money; and (iii) default should have
arisen in payment of interest or in payment of principal, or both, on part of
the corporate debtor. All the above conditions were required to be satisfied by
the financial creditor.
The Tribunal observed that in the absence
of a ‘financial contract’ it was not possible to ascertain the actual amount of
disbursal. There was no financial contract except the franchise agreement which
did not state the consideration for time value of money being granted to the
corporate debtor. Assuming there was a disbursal, the default had arisen in
absence of a financial instrument specifying unambiguously the term of the
financial debt within which it is repayable. In any case, the entire agreement
was in dispute before the High Court.
Thus, the Tribunal held
that default could not be ascertained in the absence of a requisite document
and the application was dismissed.
11. Tony Joseph vs. Union of India [2020] 117 taxmann.com 948 (Kerala) Date of order: 10th July, 2020
The disqualified directors
of the company did not intend to continue – Since the directors were
disqualified, their DIN and DSC were deactivated – Directors urged that their
DIN and DSC be activated so as to enable them to file returns and make
statutory uploadings of form STK-2 so as to enable a ‘strike off’ of name of
company – It was held that directors should approach ROC for activation of DIN
and DSC and ROC should pass appropriate orders
FACTS
The directors of the
company were disqualified for the reason that the company did not file annual
returns in time. Accordingly, their DIN and DSC have been deactivated taking
recourse to the provisions u/s 164(2) of the Companies Act, 2013.
The directors submitted
that they do not intend to continue with the company. However, it was urged
that they seek to file the returns and make statutory uploadings so as to
enable a ‘strike off’ of the company. They therefore sought to upload form
STK-2 to enable ‘strike off’ of the company from the Registrar of Companies.
HELD
It was
noticed by the Court that the directors have not produced any request made by
them before the ROC in this behalf. In case the directors approach ROC seeking
an activation of the DIN and DSC for the purpose of uploading form STK-2, the
ROC shall take up the application and pass appropriate orders in accordance
with the law on the same within a period of two weeks from its receipt.
