Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) held that ‘Working Capital’ provided by an investor cannot be considered as ‘Financial Debt’.

Instant company petition was filed seeking to initiate Corporate Insolvency Resolution Process against the Corporate Debtor alleging that the Corporate Debtor committed default in making payment to the Financial Creditor.

Petition was filed by invoking the provisions of Section 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Since the Corporate Debtor failed to make payment of a sum of Rs 7,02,682, a petition was filed before the Adjudicating Authority.

Financial Creditor submitted that a Restaurant Operation and Services Agreement (ROSA) was signed between the parties on, as per which the investor would finance furnish and equip restaurants whereas the respondent operating partner was to provide day to day Operations and Management Services for the running of the business.

Analysis, Law and Decision

Bench noted that the total claim of the petitioner was based on Article 2 Section 4 of the Agreement regarding working capital.

Article 2, Section 4: Capital Expenditure

“…The Capital Expenditure to be incurred by the Investor with respect to each of the Restaurants is capped at Rs. 35,00,000/-, excluding goods and service tax. Provided however, the Operating Partner shall use reasonable endeavours to minimize the actual Capital Expenditure for each Restaurant. In the event the Capital Expenditure exceeds the aforesaid amount, the Investor may, at its discretion, approve and incur the same…”

 Financial Creditor submitted that it provided a loan of Rs 7.02 lakhs.

Bench noted that all the three premises from where the restaurants were operating was rented in the name of the Financial Creditor under Leave and License Agreement and the Corporate Debtor was not a party.

Further, the total claim mentioned was a claim to Rent Commission and Maintenance, none of which amounted to a Financial Debt.

Adding to the above, Tribunal noted that there was no disbursement to the respondent and all the payments were related to the third party.

Hence, no money was received by the Corporate Debtor in its account. The Petitioner failed to produce any bank statement showing that the said amount had gone into the respondent’s account.

Therefore, about Rs. 7.02 lakhs did not come into the account of the Corporate Debtor but were paid by the Financial Creditor.

Bench even opined that Article 2 Section 4 never mentions that it is a working capital loan, it only says that in the event of Operating Partners requires the Working Capital for the initial period till a Restaurant has achieved break even, the Investor shall provide the same in a manner as may be mutually agreed between the parties.

Hence, the Tribunal stated that,

“…it was not a loan and till the achievement of the ‘break even’ the investor was to provide the Working Capital.”

 Further, it was also noted that the petitioner was trying to make out a case not as an Investor in the restaurant project but as a creditor which was contrary to the documents executed between the parties.

Corporate Debtor clearly brought out that the said restaurants never ‘broke even’ and therefore, there was no obligation on the part of the respondent to pay an amount which had been provided by way of working Capital.

Therefore, while concluding the matter, Bench held that the amount which was being claimed as Financial Debt was not a Debt at all and at best was a payment due after the restaurant business ‘breaks even’.

Hence, the amount claimed of Rs 7,02,682/- does not qualify as a Financial Debt under Section 5(8) of the Code and is not default under Section 3(12) of the Code. [Plutusone Hospitality (P) Ltd. v. Busabong & Co. (P) Ltd., CP No. 4395/IBC/MB/2019, decided on 26-7-2021]

Advocates before the Tribunal:

For the Applicant: Mr Shyam Kapadia, Advocate

For the Respondent: Mr Nausher Kohli, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, (Whole Time Member) while holding the Noticees liable for manipulative trade practises explained,

“Establishment of direct quantified damage/loss to an investor in personam is not an essential ingredient to prove the charges of the price manipulation. The very acts of marking up the price of scrip higher by manipulative trading practices even by a selected few persons can induce the investors in rem.”


 A show caused notice (SCN) was issued by SEBI against the Noticees to ascertain whether the unusual price movement noticed in the scrip of Anukaran Commercial Enterprises Ltd.(“the Company”) was normal or it was caused by unscrupulous acts leading to any possible manipulation of the price of the scrip of the Company. The shares of the Company were listed on BSE. The price of the scrip saw an abnormal rise, which was not supported by any corporate announcements or material changes in the business activities of the Company. In this period, the first trade was executed at INR 35.15 whereas the last trade was executed at INR 256.25 and the scrip witnessed a sharp increase in price by INR 221.20 with just 60 trades executed within a period of 43 trading days. It is noticed that 16 entities sold the shares of the Company at a price higher than the last traded price (“LTP”) and contributed to the positive LTP. The investigation further revealed that out of the said 16 sellers, top 03 sellers have contributed more than 65% to the market positive LTP variance of the scrip.


 Regarding allegations against Noticee 1, the Board observed that, he had executed trades in minuscule quantities as over the period of 20 days, he had sold only 12 shares and further over a period of 15 trading days, and he preferred to sell only 1 share at a time aggregating to 15 shares. The notice 1 had been indulged in execution of sell trades with a minimum possible lot on each day, with an apparent motive to set a high closing price of the scrip, by contributing to the LTP variance to maximum possible limit, fixed by the Stock Exchange. It was also observed that, transfer of 100 shares of the Company to Noticee 1 by Noticee 2 was not genuine and was done only for the purpose of enabling manipulation in the price of the shares. Noticing the unique and unusual pattern of selling 01 share at a time on a continuous basis over a long period, trading in miniscule quantities by the Noticee no. 1 immediately after receipt of those 100 shares from notice 2, that consistently resulted in contributing to the LTP etc., the Board had reached to the findings that, the transactions were carried out with some ulterior motive to disturb market mechanism by artificially raising the price of shares of the Company.

It was further noticed that, Noticee 3 and Noticee 4 were involved in short selling of the shares, and by executing such trades in minimal quantities, they had indulged in the manipulation of the price of the scrip of the Company. Noticee 3 and 4 were involved in a series of unusual elements such as, absence of any other sellers on those trading days; execution of (short sale) trades at the fag end of the day leaving no time to off-set the contract; no intention of making profits; all trades being executed at prices higher than the LTP, no genuine effort to consolidate their shares stock when the scrip was witnessing price rise on a continuous basis etc. Therefore, there could not be any motive except; intention to carry out an agenda to manipulate the price.

The Board, while holding the Noticees liable for violating Regulation 3 (a), (b), (c), (d) and 4 (1), 4(2), (a) and (e) of PFUTP Regulations expressed,  “The market is governed by written rules and well established market practices have evolved over the period of time and any person resorting to any peculiar pattern of trading which has a cascading effect of distorting the market mechanism by way of creating artificial trading, leading to rise in the price of a scrip through manipulative trades by no means can be held as normal and fair trading in the market.”


On the basis of above considerations, the Board restrained all the Noticees from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities or being associated with the securities market in any manner, for a period of six months. It was directed that, the existing holding of securities including the holding of units of mutual funds of the Noticees shall remain frozen. Further, all open positions, if any, of the aforesaid Noticees in the F&O segment of the stock exchange, were permitted to be squared off, irrespective of the prohibition imposed by this Order.[Anukarana Commercial Enterprises Ltd., In Re., 2021 SCC OnLine SEBI 3, decided on 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Venugopal M. (Judicial Member) and V.P. Singh (Technical Member) and Shreesha Merla (Technical Member), while addressing the present Company Appeal observed that:

No penalty can be saddled either under Section 65(1) or (2) of the Code without recording an opinion that a prima facie case is established to suggest that a person ‘fraudulently’ or with malicious intent for the purpose other than the resolution of Insolvency or Liquidation or with an intent to defraud any person has filed the Application.

The instant appeal emanates from the Order passed by National Company Law Tribunal Delhi whereby application under Section 7 of the Insolvency and Bankruptcy Code 2016 was admitted.

Factual Matrix

Corporate Debtor is a builder of High-End Project wherein a flat was booked for a total sale consideration of Rs 3,80,10,000. 

Respondents were the second purchasers of the above-stated flat booked vide Agreement Buyer Agreement. As per Agreement, the completion period was 36 months plus six months as a grace period, i.e. February 2015.

Appellant contended that after adjusting the payments made by the Original buyer, the respondent paid a total sum of Rs 2,75,55,186 as against the total cost of the flat as Rs 3,80,10,000. The last payment was made by the respondents on 26-08-2013, and after that, despite several reminders, no payment was made.

Respondents opted for a Construction linked plan but failed to pay the instalments on time.

Appellants submitted that the respondents are defaulters. Therefore, Corporate Debtor was constrained to cancel their allotment.

Respondents initiated the proceedings under Section 7 of the Insolvency and Bankruptcy Code against the appellant.

Appellant pleaded that the proceedings initiated by respondents 1 and 2 are against the provisions of the Code and have been done so, to pressurise the Corporate Debtor.

Further, respondent 1/Homebuyer submitted that as per the Agreement, possession was to be handed over within 36 months from the date of commencement of the construction or execution of the Agreement, whichever is later.

Despite the assurances, the Appellant failed to deliver the possession of the said unit to the Respondents. Therefore, the Respondents/Financial Creditor had filed the Application under Section 7 of the Code.

NCLT observed that the Corporate Debtor did not hand over the possession of the flat to the Financial Creditor as the construction work could not be completed within the stipulated time and there was no proof of extension of time by the Authority concerned. A debt of more than Rs 1 lakh was due and payable, which the Corporate Debtor failed to pay.

In view of the above circumstances, application wad admitted by NCLT and the same has been challenged in the instant appeal.

Issues for Consideration:

  1. Whether the Corporate Debtor has committed default in not completing the Construction of the flat in time and handing over possession of the same in terms of Agreement?
  2. Whether Financial Creditor/Home Buyer committed default in making payment of the instalments as per ‘ABA’ under construction link Plan?
  3. Whether the Application under Section 7 of the Code is filed fraudulently with malicious intent for the purposes other than for the Resolution of Insolvency or liquidation, as defined under Section 65 of the I&B Code, 2016?
  4. Whether the application is barred by limitation?

Analysis and Decision

On considering the above-stated issues, Bench observed that the Corporate had committed default in completing the construction work of the flat n time and failed to deliver the possession on the stipulated date as per the Agreement.

In a reply to a notice, Corporate Debtor himself admitted that unlike other builders who have abandoned the project and stopped the work, it is completing the Project which is at the final stage where flooring and finishing work is underway.

It was observed from the Agreement that under the Construction linked payment plan, it is mandatory to issue demand notice for instalments in the commencement of respective stages of Construction by speed post or courier.

In the instant case, there was no evidence to show that the demand notice at the respective stages of Construction was ever sent to the Allottee. Whereas, Clause 2.18 of the Agreement makes it mandatory to send the Notice to the Allottee under Construction linked plan. No compliance of conditions of Clause 2.17 and 2.18 were made in the instant case.

Hence, in the present case, it is difficult to ascertain as to when Instalment became due, at the start of the respective stage of the Construction.

Bench observed that:

Mandatory condition of issuing Notice through speed post or courier to the Allottee, at every stage of Construction as per Agreement has not been followed.

Hence, it cannot be concluded that the allotted committed any default in paying the instalment when due and the fact that the flat was to be delivered latest by 2nd week of February 2016, but construction work was still going on in the year 2018 also cannot be denied.

Justification for Invoking Section 65 of the Code

In accordance with the Supreme Court decision in Pioneer’ Urban Land Infrastructure v. Union of India, (2019) 8 S SCC 416, Corporate Debtor has the responsibility to furnish the details of default. It was held that:

“Under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of Insolvency. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it.”

Bench stressed upon the point that Section 65 of the Code is not meant to negate the process under Section 7 or 9 of the Code. Penal action under Section 65 can be taken only when the provision of the Code has been invoked fraudulently, with malicious intent.

In the Supreme Court decision of Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, it was held that:

“…in order to protect the corporate debtor from being dragged into the corporate insolvency resolution process mala fide, the Code prescribes penalties.”

Hence, from the above discussion, it is clear that

the Code provides stringent action under Section 65 against the person who initiates proceedings under the Code fraudulently or with malicious intent, for the purpose other than the resolution of Insolvency or liquidation under the Code.

Requirement for levying penalty under Section 65 IBC is that a ‘prima facie’ opinion is required to be arrived at that a person has filed the petition for initiation of proceedings fraudulently or with malicious intent.

While parting with the decision, Tribunal held that the Real Estate Developer failed to prove that Allottee is a speculative Investor and is not genuinely interested in purchasing the flat and initiated proceeding under the Code to pressurise the Corporate Debtor.

Thus, Tribunal found no justification to invoke Section 65 of the I&B Code against the Allottee.


NCLT’s order requires no interference. [Amit Katyal v. Meera Ahuja, 2020 SCC OnLine NCLAT 748, decided on 09-11-2020]

Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing a matter with regard to money laundering by way of ponzi schemes, stated that,

“Act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors.”

Petitioner has sought bail in a complaint case pending before Sessions Judge, Special Court under PMLA.


Case under Sections 406, 420, 468, 471 and 34 of Penal Code and Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was registered on the basis of a complaint alleging that the complainant had been cheated and defrauded by alluring to invest Rs 10,000 in the attractive investment scheme of Fine Indiasales (P) Ltd.

Complainant further submitted that he had introduced 20 more people to invest in the said scheme.

Complainant neither received the financial product nor the product voucher as per the agreement with FIPL.

FIPL collected huge amounts of money from the public and ultimately duped huge amount from innocent public by giving false assurance of high return for their deposit of money.

In view of the above, complainant requested for an investigation.

FIPL floated a fraudulent scheme

According to the investigation it was found that, FIPL had floated a fraudulent scheme with a terminal ulterior motive to siphon off the funds collected from public.

Ponzi Scheme

The advertised scheme of FIPL, ex-facie appeared to be a bodacious Ponzi scheme, inducing the susceptible depositors by way of misrepresentation, promising immediate refund in case of any default and timely payment of return on the part of FIPL.

Investigation prima facie established that the accused persons connected with  FIPL not only criminally conspired and cheated the depositors but also lured them into the scheme with a rogue mindset.

Machiavellian Layering | Shell Companies

Investigation revealed that the said money, stained with the sweat, tears and blood of multitudes of innocent people has since been moved around and subjected to Machiavellian layering through a myriad of shell companies and bogus transactions.

The collected amount was immediately transferred to different bank accounts of individuals as well as firms under the management and control of the Promotors/Directors/Shareholders of the said FIPL which is nothing but an act of sheltering.

Money Laundering

Modus Operandi adopted while transferring the prodigious sum of ill-gotten wealth with the singular intention of concealing the original source of funds and to project the tainted money as untainted ex facie constitute the offence of money laundering.

Court’s Observation

On the cursory look, Court prima facie observed that dishonesty, untruth and greed eroded the faith of common investors.

One of the significant stages of money laundering is “layering”, and in the present case, multiple use of corporate vehicles was done and the amount was layered further.

The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets.

“…laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.”

Proceeds of Crime

Petitioner along with others attempted to project the “proceeds of crime” as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions.

Financial Terrorism

Bench added to its analysis that, offence of money laundering is nothing but an act of “financial terrorism” that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

Supreme Court’s opinion

Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society.

Faustain bargain

Perpetrators of such deviant “schemes,” including the petitioner in the present case, who promise utopia to their unsuspecting investors seem to have entered in a proverbial “Faustian bargain” and are grossly unmindful of untold miseries of the faceless multitudes who are left high and dry and consigned to the flames of suffering.

Reputational Damage of the Country

Abuse of financial system in the manner that occurred in the present case can inflict the reputation of the country in the world of business and commerce.

Alleged offence of money laundering committed by the petitioner is serious in nature and the petitioner’s role is not unblemished.

Hence, Court refused bail to the accused/petitioner. [Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544 , decided on 13-07-2020]

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