Observing that the short-term loans advanced by few Appellants on exorbitant rates of interest (40% to 60% per annum) were covered under Extortionate Credit Transactions as prohibited under Section 50(1) of the Insolvency and Bankruptcy Code, 2016, the NCLAT has set aside the entire transactions as illegal and void and held them as not entitled to any relief.
Regarding other appellants, where similar transactions were prior to 2 years preceding the insolvency commencement date, the Appellate Tribunal was of the view that though technically these may not be covered under Section 50(1), the claim of exorbitant rates of interest was extortionate regarding interest and thus illegal.
It however held that these appellants can make their claims for principal amount as Unsecured Creditors.
The NCLAT earlier observed that the said advancement of loans by the individuals may be at the behest of Directors in collusion with the individuals as no reasonable person would agree to such transaction.
Relying on Section 60(5) of IBC, the NCLAT in the case Anamika Singh v. Shinhan Bank [Judgement dated 24-06-2020] also rejected the plea that since neither the RP nor the liquidator made any application for avoidance of such transactions to the Adjudicating Authority, Section 50(1) will not be attracted.