NCLT Indore Holds Mere Shareholding Overlap Can't Establish Collusion, Admits Plea Against Organic World

The Indore Bench of the National Company Law Tribunal (NCLT) on 3 August admitted a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) against Organic World Private Limited over a default of approximately Rs. 2.24 crore.

A Bench comprising Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta admitted the application filed by Tanay Securities & Services Private Limited, holding that mere overlap in shareholding, without anything more, could not establish collusion or defeat a genuine financial debt. It observed:

“Mere overlap of shareholding interest, without more, cannot lead to an inference of collusion, particularly when the transaction has been consistently reflected and acknowledged in the statutory records and financial statements of the Corporate Debtor itself. We are, therefore, satisfied that the subject transaction, notwithstanding the aforesaid shareholding pattern, has taken place in the ordinary course of commercial dealings and bears the character of a bona fide credit transaction between two independent corporate entities, and does not detract from the completeness of the Application under Section 7 of the IBC.”

Tanay Securities had approached the Tribunal seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Organic World for default of approximately Rs. 2.24 crore, including interest. It claimed that it had advanced unsecured loans totalling Rs. 2.60 crore between September 2020 and January 2021, of which Rs. 45 lakh was subsequently repaid.

Organic World opposed the application, contending that the parties had common promoter and shareholder links and that the loan was effectively advanced in the capacity of a promoter. It also argued that its secured dues to State Bank of India remained outstanding and, therefore, repayment of the unsecured loan could not be treated as a default. It further relied on pending proceedings under Sections 241 and 242 of the Companies Act, 2013.

The Tribunal found that the loan transaction was supported by bank records, ledger accounts, auditors' reports and TDS certificates. Organic World had also acknowledged the unsecured loan in its communication dated 5 September 2024, while seeking additional time for repayment.

It held that the loan, which carried interest at 2% per annum, qualified as a financial debt under Section 5(8)(f) of the IBC, which covers amounts raised under transactions having the commercial effect of borrowing. It observed that the source or motivation of the lender was immaterial once the money had been disbursed against consideration for the time value of money.

On the common shareholding issue, the Bench noted that Tanay Securities' promoters were never directors of Organic World and were not involved in its day-to-day management. It held that even if an individual shareholder had a familial relationship with one of Tanay Securities' directors, that circumstance alone could not make Tanay Securities a promoter of Organic World. It also held that proceedings under Sections 241 and 242 of the Companies Act concerning another entity could not defeat an otherwise complete Section 7 application.

Accordingly, the NCLT held that the debt was a financial debt, that Organic World had committed a default and that the Section 7 application satisfied the requirements of the IBC.