# In the matter of SMS Foundation & Investment LLP vs. Harsha Exito Engineering Private Limited Company Appeal (AT) (CH) (Ins) No. 364-2022

> NCLAT judgment dated 2023-07-04. Citation: TCN-2023-NCLAT-00408. The case involves an appeal against an order dated 08/07/2022 passed by the National Company…

- **Court:** NCLAT
- **Order date:** 4 Jul 2023
- **Citation:** TCN-2023-NCLAT-00408
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclat-new-delhi/sms-foundation-investment-llp-vs-harsha-exito-engineering-private-limited-compan-5a596687

## Summary

### Background

The case involves an appeal against an order dated 08/07/2022 passed by the National Company Law Tribunal (NCLT), Chennai Bench, in IA(IBC)/753/2021 in IBA/471/2020. The applicant, M/s SMS Foundation and Investment LLP, filed the appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, after the NCLT dismissed their application. The core issue revolves around whether the applicant's claim should be admitted as a financial creditor, considering their relationship with the corporate debtor and a disputed Memorandum of Understanding (MoU) regarding share transfer and loan agreements.

## Facts

M/s SMS Foundation & Investment LLP (Appellant) filed an appeal against an order passed by the National Company Law Tribunal (NCLT), Chennai Bench, which dismissed their application to be considered a financial creditor of M/s. Harsha Exito Engineering Private Limited (Corporate Debtor). The Appellant claimed that they had provided a loan of Rs. 16.00 Crores to the Corporate Debtor, which was later converted into a loan with 15% interest per annum. A Memorandum of Understanding (MoU) dated 02/08/2019 was entered into between the Appellant and the Shareholders of the Corporate Debtor for the infusion of funds, with the existing promoters agreeing to sell 46.5% of the total issued Equity Shares. The Appellant infused Rs. 15,47,23,307/- between August 2019 and

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## Issues and analysis

### Issue 1: Whether the claim of the Applicant is required to be admitted in the capacity as a Financial …

**Ratio:** The legal principle is that a financial creditor must have disbursed against the

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**Reasoning:** The court reasoned that the documentary evidence, including the MoU dated 02/08/2019,

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**Interpretation:** The interpretation is that the nature of the transaction (loan vs. equity) is

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**Application:** The court applied this principle to the facts by finding that the MoU and the

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## Parties

- **Judges:** M. Venu…; Shreesha…
- **Appellants:** M/s SMS Foundation…
- **Respondents:** M/s. Harsha Exito…

## Timeline

- **2019-08-02 — MoU Date…**: Memorandum of Understanding (MoU) was entered into between the Appellant and the…
- **2019-08-01 — Investment Per…**: Appellant infused funds between August…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 61 — Appeals and Appellate Authority](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-61)

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