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Sanjay Sarin v. The Authorised Officer, Canara Bank and Others

Citation

Date

Brief

REED 2022 NCLAT Del 08201

Court

High Court

Subject 

Corporate Insolvency - Loan – Guarantor of loan - Petitioner, who stood as a guarantor to a loan facility, was aggrieved with the recovery action initiated by the bank - against the borrower and himself under the SARFAESI Act, 2002. According to him, once a resolution plan qua the borrower was approved under Section 31 of the IBC, 2016, the bank’s claims stood addressed - It could not have sought recovery for amounts over and above the amount approved by the NCLT, and was seeking a mandamus to that effect - was the petition maintainable for the above reliefs, was the short question before the High Court

August 7, 2022

Bench

Delhi

Applicable Law

Article 226, Constitution of India
Sections 30(2), 30(4), 31, 31(1), 33(3), 238, Insolvency and Bankruptcy Code, 2016
Sections 13, 13(2), 13(4), 14, 17, SARFAESI Act, 2002

In the present case, the Petitioner approached the High Court aggrieved with: (i) Respondent No. 2’s failure in adhering to the timelines of payments under the resolution plan, since as on date, 15 out of 24 instalments payable to Respondent No. 1 were still pending; and (ii) proceedings initiated by Respondent No. 1 under Section 13(4) of the SARFAESI Act; (iii) the institution of proceedings against the Petitioner by Respondent No. 1 for taking possession of the dwelling unit of the Petitioner and for appointment of a receiver, under Sections 14 of the SARFAESI Act before the Chief Metropolitan Magistrate, Karkardooma District Court.
The law relating to maintainability of a writ petition in matters relating to SARFAESI Act is no longer res integra. The Supreme Court in Phoenix ARC Pvt. Ltd. v. Vishwa Bharti Vidya Mandir and Ors., REED 2022 SC 01201 has held that “where proceedings are initiated under the SARFAESI Act, and the borrower is aggrieved by any of the actions of the bank for which the borrower has remedy under the SARFAESI Act, no writ petition should be entertained”. Similar views have been expressed by the High Court in M/s Trinkeshwar Developers and Builders Pvt. Ltd. v. North Municipal Corporation & Ors., REED 2022 Del 02227, wherein it was held that “a petitioner cannot invoke the writ jurisdiction of the court under Article 226 of the Constitution of India to indirectly seek the relief which the petitioner has failed to obtain otherwise”. As noted above, the Petitioner’s challenge to the action of Respondent No. 1 was already the subject-matter of challenge before the DRT, which was pending adjudication, and therefore, the present writ cannot be entertained.
The Petitioner also raised a grievance regarding the proceedings being in derogation of the Approval Order of the NCLT, and implored for the High Court’s intervention on the ground that there was no other remedy available. This contention was founded on the plea that, with the approval of the resolution plan, the guarantors’ liabilities were also discharged. This contention had been categorically negated by the Supreme Court in Lalit Kumar Jain v. Union of India, REED 2021 SC 05510.
On a bare perusal of the judgment of Lalit Kumar Jain v. Union of India, REED 2021 SC 05510, it was clear that the Supreme Court had, in very clear terms, held that discharge of the corporate debtor from a debt owed by it to its creditors, by way of an involuntary process such as insolvency proceedings, did not absolve the guarantor of its liability since it arises out of an independent contract. Thus, the passing of a resolution plan does not ipso facto discharge the personal guarantor. The judgment of the Supreme Court in State Bank of India v. V. Ramakrishnan and Another, REED 2018 SC 08560 also puts forth the aforementioned principle, and is contrary to the proposition canvassed by the Petitioner. As regards the extent of liability of a personal guarantor is concerned, the same would have to be determined in light of the agreement between the borrower, i.e., the corporate debtor, and the personal guarantor, for which the appropriate forum would be the Debt Recovery Tribunal and not the High Court. Thus, if the Petitioner is not absolved of his liability, the proceedings initiated by the bank under the SARFAESI Act cannot be held to be unconstitutional or in derogation of the Approval Order of the NCLT.
In relation to the other grievance raised by Respondent No. 1 qua non-implementation of the resolution plan, it must be noted that the aggrieved party was actually Respondent No. 1, who had not been paid in terms of the resolution plan approved by NCLT.
The High Court also taken note of Section 33(3) of the IBC, which envisages a liquidation process in the event of contravention of a resolution plan. Under this provision, Respondent No. 1 certainly has the right to proceed against the collateral securities for recovery of its dues, which are independent of the resolution plan approved by the NCLT. If the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected, may make an application to the Adjudicating Authority for an order for liquidation. Where a resolution applicant succeeds as a corporate debtor, but fails to comply with its assurance in terms of the resolution plan, then subsequent step to be taken has been specified in Section 33(3) of the IBC. This is the scheme under the IBC, and if the Parliament, in its wisdom, has only provided the remedy of a liquidation process under Section 33(3) of IBC as a consequence of non-implementation of the resolution plan by the concerned corporate debtor, the High Court cannot create another remedy just because the afore-noted remedy is not sufficient or suitable for the Petitioner. Therefore, Petitioner’s grievance regarding non-implementation of the resolution plan, too, cannot be a ground for the High Court to entertain the instant petition.
The Appeal was dismissed.

Vyomesh Shah v. Union of India and Others

Citation

Date

Brief

REED 2022 SC 08531

Court

Supreme Court

Subject 

Corporate Insolvency – Question of validity of few sections of Insolvency and Bankruptcy Code, 2016

August 4, 2022

Bench

N.A.

Applicable Law

Sections 95(1), 96(1), 97(5), 99(1), 99(2), 99(4), 99(5), 99(6), 100, Insolvency and Bankruptcy Code, 2016

It was submitted that the issues involved in these writ petitions were similar and akin to those involved in other petitions pending in this Court questioning the validity of Sections 95(1), 96(1), 97(5), 99(1), 99(2), 99(4), 99(5), 99(6) and 100 of the Insolvency and Bankruptcy Code, 2016, wherein notices have been issued with interim orders.
In the meanwhile, petitioner(s) shall not transfer, alienate, encumber or dispose of any of their assets or legal rights or beneficial interest therein; and the Resolution Professional shall not proceed with filling of the report. If the report has been filed, the same shall not be acted upon.

Agarwal Veneers v. Fundtonic Service Private Limited

Citation

Date

Brief

REED 2022 NCLAT Del 08540

Court

NCLAT

Subject 

Corporate Insolvency - Appeal – Filed by the Operational Creditor under section 9 – against the order of the Adjudicating authority – wherein the AA rejected the section 9 Application of the Appellant on the ground - not fulfilling of pre-requisite of demand notice under section 8 of the Insolvency and Bankruptcy Code, 2016

August 4, 2022

Bench

New Delhi

Applicable Law

Sections 8, 8(1), 8(2), 8(2)(a)(ii), 8(4), 8(5), 9, 9(3)(c), 20, 65, Insolvency and Bankruptcy Code, 2016
Rule 8(1), Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
Regulation 7, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

The brief point for consideration which arose in this Appeal was whether the Adjudicating Authority was justified in rejecting the Section 9 Application preferred by the Appellant herein.
The Appellant/Operational Creditor strongly contested that the Adjudicating Authority has wrongly observed that the demand notice under Section 8 of the Code was issued by an advocate and was therefore not valid.
The Adjudicating Authority in para 9 of the impugned order has observed that the demand notice which is a prerequisite for filing of the Application under Section 9 is bad as no document was produced by the Applicant/Appellant showing that the advocate who has signed the Application is associated with the Company for a long period and can take such steps on behalf of the Company.
The Appellate Authority were of the considered view that as far as this issued was concerned, an advocate can, on behalf of the Company issue a demand notice under Section 8 and no such document is required to establish his ‘period of association’ with the said Company. At this juncture, reliance was placed on the observations of the Supreme Court in ‘Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., REED 2017 SC 12675, where the Apex Court observed, “49. Since there is no clear disharmony between the two parliamentary statues in the present case which cannot be resolved by harmonious interpretation, it is clear that both statutes must be read together. Also, we must not forget that Section 30 of the Advocates Act deals with the fundamental right under Article 19(1) (g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code together with the Adjudicating Authority Rules and Forms thereunder would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order”.
Therefore, the Appellate Authority were of the earnest view that the observation by the Adjudicating Authority in para -9 be set aside.
However, the Application was not dismissed on this ground alone. A perusal of the impugned order shows that the Adjudicating Authority had dismissed the Application even on merits, the grounds being that the Corporate Debtor is an’ MSME’ and a ‘going concern’ and a ‘viable entity’.
It was also observed by the Adjudicating Authority that the Operational Creditor had filed the Petition as a tool of recovery and that the Code is not intended to be a substitute to a Recovery Forum. Further, the Adjudicating Authority had also noted that the Appellant/Applicant had not produced on record any bank statements to show that payments were received from the Corporate Debtor against the invoices based on which the claims have been raised.
It was relevant to mention here, that the relevant provisions of the Code along with the concerned Regulations which establish that the Application should be complete and only then the Adjudicating Authority may decide to admit the Application.
As per the Insolvency and Bankruptcy Code, 2016 and relevant Regulations therein, that unless the Operational Creditor along with its application furnishes a copy of the invoices, the bank statements and the financial accounts, the Adjudicating Authority is empowered to reject an incomplete Application.
The Appellate Authority noted the contention of the Counsel for the Appellant that merely because the Corporate Debtor was a going concern and an MSME, the Adjudicating Authority ought not to have rejected the Application on this ground. The Preamble of IBC is carefully worded to describe the spirit and objective of the Code to be ‘Reorganisation’ and ‘Insolvency Resolution’, specifically omitting the word ‘Recovery’. The Parliament has made a conscious effort to ensure that there is a significant difference between ‘Resolution’ and ‘Recovery’. The Hon’ble Supreme Court has time and again observed that the fundamental intent of IBC is ‘maximising the value of assets’ in the process of ‘Resolution’.
In Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REED 2017 SC 09545, the Apex Court has examined in detail the United Nations Legislative Guide on Insolvency, in which the IBC finds its roots. Any Application to commence CIRP can be denied when the Creditor is using Insolvency as an inappropriate substitute for Debt Recovery Procedures, the Appellate Authority noted.
If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise. This Tribunal in Binani Industries Limited v. Bank of Baroda & Another, REED 2018 NCLAT Del 11524, has differentiated between ‘Recovery’ and ‘Resolution’ and has observed that IBC is not a Recovery Proceeding. ‘Recovery’ dispossesses the ‘Corporate Debtor’ of its assets while a Resolution is an effort to keep it afloat. Further, this Tribunal in Asset Advisory Services v. VSS Projects, REED 2021 NCLAT 09523, and also in Praveen Kumar Mundra v. CIL Securities Limited, REED 2019 NCLAT Del 05544, has noted that CIRP cannot be initiated with fraudulent intent ‘for any purpose other than the Resolution of Insolvency or Liquidation’ and therefore it is clearly covered under Section 65 of the Code.
The Hon’ble Supreme court in Vidarbha Industries Power Limited v. Axis Bank Limited., REED 2022 SC 07529, had observed that even if there is a ‘debt’ and ‘default’, the Adjudicating Authority should use its discretion in admitting/ rejecting an application. In the instant case, the Adjudicating Authority had rightly rejected the Application on this ground too.
For all the aforenoted reasons, the Appeal was failed on merits and was accordingly dismissed.

Anita Jindal v. Jindal Buildtech Private Limited and Another

Citation

Date

Brief

REED 2022 NCLAT Del 08512

Court

NCLAT

Subject 

Corporate Insolvency – Appeal - Appellant, here was the Shareholder and Ex-Director of the Corporate Debtor preferred the Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 - against the Order passed by the Adjudicating Authority - admitting the Section 7 Application preferred by the second Respondent

August 3, 2022

Bench

New Delhi

Applicable Law

Sections 7, 7(3), 61, 65, 65(1), Insolvency and Bankruptcy Code, 2016
Section 138, Negotiable Instruments Act, 1881

The Appellate Tribunal was of the ernest view that seeking to initiate CIRP, in the factual matrix of the attendant case, was only with an intention for ‘Recovery’ of their dues and opposes the very spirit, point and purpose of the Code. The Appellate Authority held that ‘A Recovery Proceeding’ of this nature does fall within the scope and ambit of the words ‘for any purpose other than Resolution’, as defined under Section 65(1) of the Code. Having regard to the facts and circumstances of the case on hand, the Appeal was allowed and the Order of the Adjudicating Authority was set aside. In effect, Order passed by the Adjudicating Authority appointing ‘Interim Resolution Professional’, declaring moratorium, freezing of account and all other Order passed by Adjudicating Authority pursuant to the Impugned Order, were set aside. The Appellate Authority were conscious of the fact that pursuant to an interim direction of this Tribunal, the constitution of the CoC had remained stayed. The Adjudicating Authority will now close the proceedings. The first Respondent Company was released from all the rigours of law and was allowed to function independently through its Board of Directors with immediate effect.

Sh. Anshdeep Chaddha v. S.E. Power Limited and Another

Citation

Date

Brief

REED 2022 NCLAT Del 08511

Court

NCLAT

Subject 

Corporate Insolvency - Appeal - Filed by the Appellant under Section 61 of the Insolvency and Bankruptcy Code 2016 - against the order passed by the Adjudicating Authority

August 3, 2022

Bench

New Delhi

Applicable Law

Section 34(1), Code of Civil Procedure, 1908
Sections 9, 9(5), 12A, 61, Insolvency and Bankruptcy Code, 2016
Rule 11, National Company Law Tribunal Rules, 2016

The Appellate Tribunal came to the firm view that initiation of CIRP was not warranted when Corporate Debtor was in a position to pay back the dues and had already paid back the dues under the threat of the Code and initiation of CIRP, the Respondent No.1 was raising a post frivolous claim by enhanced claim resulting from interest and other associated cost was unwarranted and unhealthy under the provisions of the Code. The Code has a prime object for ease of doing business.
The Apex Court repeatedly settled the law that the purpose of the Code is not chasing for payment rather for ease of doing business and improving the wealth of the CD. The Supreme Court had already settled the matter that the provision of the Code is not intended to be a substitute to be a recovery forum.
Section 9(5) of the Code specifically makes it clear that if there is a dispute, it is not the job of the ‘Adjudicating Authority’ or the ‘Appellate Authority’ to assess the dispute whether they will get the claim or not, but on certain perception of judicial assessment if it looks that the claim of dispute is genuine and the Operational Creditor has no other purpose except to put the CD into doldrum and to collapse its business then naturally it is not accepted from either provision of the Code or law laid on the subject to initiate CIRP. Section 9(5) of the Code.
In view of the above facts and circumstances of the case as also law laid down on the subject, the Appellate Authority set-aside the impugned order passed by the Adjudicating Authority. In the result, ‘Corporate Debtor’ was released from the rigor of the ‘Corporate Insolvency Resolution Process’. All actions taken by the ‘Interim Resolution Professional’/ ‘Resolution Professional’ and ‘Committee of Creditors’, if any, were declared illegal and set-aside. The Resolution Professional was directed to handover the records and assets of the ‘Corporate Debtor’ to the Director of the ‘Corporate Debtor’ immediately.
The matter was remitted back to the Adjudicating Authority to decide the fee and cost of the ‘Corporate Insolvency Resolution Process’ as incurred by the ‘Interim Resolution Professional, which was to be borne and paid by the Operational Creditor. The Appeal was allowed with the aforesaid observations and directions.

Rakesh Kumar Jain v. Jagdish Singh Nain and Others

Citation

Date

Brief

REED 2022 NCLAT Del 08508

Court

NCLAT

Subject 

Corporate Insolvency - Appeal - Preferred by the Resolution Professional – Who aggrieved by the order passed by the Adjudicating Authority in I.A. filed under section 66 of IBC

August 3, 2022

Bench

New Delhi

Applicable Law

Sections 9, 14, 14(1)(a), 60(5), 60(5)(a), 66, 66(2), 69, Insolvency and Bankruptcy Code, 2016

In the present facts of the case there is absolutely no inconsistency or repugnancy between Section 14(1)(a) and Section 66 of IBC. Section 14 of IBC is a bar against institution and prosecution of any suits or proceedings or execution of orders and decrees in other courts or Tribunals but not a bar to pass appropriate order in the pending proceedings against the resolution professional or suspended directors and related parties, before the Adjudicating Authority, during the insolvency resolution process or liquidation process. On the other hand, Section 66 of IBC empowered the Tribunal to pass appropriate orders when the suspended directors or insolvency professional of the Corporate Debtor carried on fraudulent trading or business during resolution process. Therefore, the Adjudicating Authority passed the impugned order only by exercising power that conferred on it by Section 66 of IBC. Hence, the contention that during moratorium, the Adjudicating Authority shall not pass an order impugned in this appeal is unsustainable, without any merit. If such contention is accepted by the Appellate Tribunal, Section 66 of IBC would become otiose or redundant.
The impugned order was passed directing the Respondent Nos. 2 to 21 to contribute Rs. 2687.27 lacs to the assets of Corporate Debtor. Respondent No. 2 is resolution professional of HBN Homes Colonizers Ltd. and not a Corporate Debtor, the other respondents or related parties viz. different companies, thus the order was passed against insolvency resolution professional and other companies who indulged in fraudulent trade or business to defeat the rights of creditors of corporate debtor, as they are jointly and severally liable for such fraudulent trading or business. Therefore, the Appellate Authority found no illegality in order passed by the Adjudicating Authority.
In addition to the above discussion, Section 60(5)(a) of IBC permits the Adjudicating Authority to pass any order on any application or proceeding by or against the corporate debtor or corporate person notwithstanding anything to the contrary contained in any other law for the time being in force. Non-obstante clause contained in Section 60(5) authorizes the Tribunal to pass such orders and the present order was one such order passed under Section 66 of IBC, exercising power under Section 60(5)(a) of IBC.
On overall consideration of the facts and law and on harmonious construction of Section 14(1)(a), Section 66 read with Section 60(5)(a), to make the statute (IBC) effective and workable, the Appellate Authority held that the order passed by the Adjudicating Authority was in accordance with law, warrants no interference of the Appellate Tribunal. As the Appeal was devoid of merits, consequently the Appeal was dismissed.

Sudhir Kumar Goel and Another v. Shashi Oil and Fats Private Limited and Others

Citation

Date

Brief

REED 2022 NCLAT Del 08515

Court

NCLAT

Subject 

Corporate Insolvency – Appeal – Filed by the Appellants against the order passed by the Adjudication Authority - Appellants in both the cases were ex-promoters and ex-members of the Respondent No. 1

August 3, 2022

Bench

New Delhi

Applicable Law

Sections 230, 231, 232, Companies Act, 2013
Sections 7, 29A(c), 29A(h), 33(2), 52, 54, 54(2), 240A, Insolvency and Bankruptcy Code, 2016
Section 13(4), SARFAESI Act, 2002

Having gone through the impugned order and examined submissions made by the Counsels for the parties, particularly facts disclosed in the Memo of Appeal filed by the Appellants, it was noted by the Appellate authority that it was not in dispute & rather accepted by the Appellants in their own Memo of Appeal on account of adverse financial situation the company/corporate debtor defaulted in the payment of installments to Allahabad Bank due to which the account of the Company was declared NPA. It was also not in dispute that Allahabad Bank assigned all its title interest & benefits in respect of the debts of the Company to Respondent No.2 through a deed of assignment at a price of Rs. 5.75 Crore. CIRP proceedings against the Company was initiated on 20.03.2018. This was also not in dispute that on 17.12.2018, CoC rejected the Resolution Plan submitted by the Appellants. The Appellant submitted the revised proposal on 03.01.2020. Revised Proposal was approved & accepted by Financial Creditor but since March/April 2020 Country was put under lockdown by the Government and as also from 22.03.2020 due to global pandemic no application could be filed before NCLT for approval of the revised proposal duly accepted by the Financial Creditor. Liquidator was however informed. Thereafter the, liquidator proceeded with auction notice from 12.08.2020 & on 29.08.2020 and finally the property was sold to the successful bidder for Rs. 3.78 Crore.
Considering all these aspects CA No. 143 of 2021 seeking dissolution of the Company was filed by the liquidator of the Company/Respondent No.1 which was listed on 07.07.2021 which was not served on the Appellants and the Adjudicating Authority allowed the same IA and the Company was purportedly dissolved on 15.07.2021. Once the Company was dissolved under Section 54 of the Code, nothing remained.
In view of provisions contained in Section 54 of the IBC, once after the completion of liquidation an application is filed by the liquidator of a Corporate Debtor for its dissolution to the Adjudicating Authority, who had no option but to pass an order of dissolution. In the present case the Adjudicating Authority had simply complied with the provisions under Section 54(2) of the Code. It was very much clear that the Company was fully dissolved. This dissolution happened when the company was liquidated.
Before parting with order, it was apt to clarify that there was no need to go into the matter further as to when the Appellants submitted the OTS/ other proposals & the Financial Creditor/CoC had not accepted their proposals. The equity though not applicable under IBC, even remotely same cannot come into play at this juncture. The role of the Appellate Tribunal was also restricted within the four walls of the ‘Code’ & passing of order under Section 54 of the Code brings the Corporate Debtor to a closed chapter. Accordingly, the Appellate Authority did not find any merit in the appeals and both the Appeals were dismissed.

Stressed Assets Stabilisations Funds (SASF) v. Sky Lead Chemicals Limited

Citation

Date

Brief

REED 2022 NCLAT Del 08505

Court

NCLAT

Subject 

Corporate Insolvency – Limitation – Appeal – Filed by the Financial Creditor, against the order of the Adjudication Authority – Whereas the AA dismissed the section 7 IBC Petition of the Appellant on the ground of limitation

August 3, 2022

Bench

New Delhi

Applicable Law

Sections 7, 238A, Insolvency and Bankruptcy Code, 2016
Article 137, Limitation Act, 1963
Section 18, Limitation Act, 1963
Section 2(h)(ii), RDB Act, 1993
Sections 15(1), 17(3), 22, Sick Industrial Companies (Special Provisions) Act, 1985

Keeping in mind the provisions of the Insolvency and Bankruptcy Code, 2016 and law laid down on the subject, it was not in dispute that the dues of the Corporate Debtor were falling within the provisions of Section 18 of the Limitation Act and since debt and default was not in dispute & dues were payable in fact and law and was in accordance with the provisions of the Code, so Section 7 of the Code is attracted.
The Apex Court had already settled the law that Balance Sheet dues so reflected appropriately in the Balance Sheet and that too a duly audited Balance Sheet will act as an acknowledgement of debt under Section 18 of the Limitation Act, 1963 & hence initiation of CIRP was permissible under Section 7 of the “Code”.
Hence, the Appellate Authority were unable to sustain the views of Adjudicating Authority which is not in consonance with the provisions of the code. The Appeal was accordingly allowed and impugned order was set aside.

Oyster Steel and Iron Private Limited v. Laxmi Foils Private Limited

Citation

Date

Brief

REED 2022 NCLAT Del 08521

Court

NCLAT

Subject 

Corporate Insolvency - Appeal - Filed by the Appellant-Operation Creditor under Section 61 of the Insolvency and Bankruptcy Code 2016 - against the order passed by the Adjudicating Authority – Wherein the AA rejected the section 9 Application on the ground of ‘existence of disputes’ between the parties

August 3, 2022

Bench

New Delhi

Applicable Law

Sections 8, 9, 9(5)(d), 9(5)(2)(d), 61, Insolvency and Bankruptcy Code, 2016

It was very much clear that the parties were not in a harmonious relationship and rather the Appellant –Director had initiated multiple litigations which also involved, the some of the transactions captured in this case. The Debit Notes so sent by the CD/Respondent to the Appellant/OC were bearing an acknowledgement. The Appellate Tribunal was not in a position to examine whether it was forged or not forged. It can only be done by the Trial Court/ Civil Court.
It apparently looked astonishing how a firm will keep mum from 2016 to 2018 when such huge amounts were due from the CD and thereafter initiated the petition under the Code for expeditious release of payment under the fear of the Code where the management changes from the existing management of the CD to the Resolution Professional of the CD.
The claim of the Respondent was that the Appellant had never delivered the contracted quantity and they were supporting it by way of emails. What was not in dispute that the Operational Creditor/Appellant was supplied of raw material and the CD /Respondent was a manufacturer and supplier of qualitative range of aluminium Hot rolled plats etc.
It was also apparent while going through both the Appeal and the reply by the Respondent that the industry practice for adjustment of rates and quantity/quality adjustment in release of payments was generally done through Debits Notes or Discounts.
There was some dispute with respect to supply of Form-C. Even the Operational Creditor had claimed for not getting Form-C resulted into additional tax and penalty was not backed by challan.
It was also not in dispute that the Demand notice had been replied by CD through its counsel’s letter dated 30.11.2018 wherein multiple issues had been raised by the Respondent/CD where the CD/Respondent was not only disputing the dues even the issue of Form-C, the issue of business practice, the business relationship keeping silence for dues from 2016 onwards and issue on demand notice for chasing of payment which was not legally due and payable.
All these reflected that the parties were in multiple litigation and hence the Operational creditor in order to bring pressure on the CD has adopted the provisions of the Code to get disputed payment realized from the CD. The provisions of the Code cannot be used for chasing of payment and moreover where there was a business dispute. The Supreme Court had already settled the matter that the “provision of the Code is not intended to be a substitute to be a recovery forum, and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked. The Code cannot be used whenever there is existence of real dispute and also whenever the intention is to use the Code as a means for chasing of payment or building pressure for releasing the payments.”
The Supreme Court in Mobilox Innovations Pvt. Ltd v. Kirusa Software Pvt. Ltd., REED 2017 SC 09545, has held at para 40 that “It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”
In view of the aforesaid facts and circumstances of the case and the law laid down on the subject, the Appellate Authority were constrained to uphold the view of the Adjudicating Authority. Accordingly, the Appeal was dismissed.

Lepakshi Knowledge Hub Private Limited v. Global Emerging Markets India Limited and Another

Citation

Date

Brief

REED 2022 NCLAT Chen 08528

Court

NCLAT

Subject 

Corporate Insolvency - Appellant/ Corporate Debtor/ Shareholder of the 2nd Respondent, preferred Appeal – against the order of the AA – Wherein the AA admitted the section 7 Application

August 1, 2022

Bench

Chennai

Applicable Law

Section 34, Arbitration and Conciliation Act, 1996
Sections 2(31), 2(87), 179, 186, 186(4), Companies Act, 2013
Sections 3(11), 3(12), 4, 5(6), 5(7), 5(8), 7, 65, 75, 238, Insolvency and Bankruptcy Code, 2016
Rules 4, 4(3), Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
Section 18, Limitation Act, 1963

In the instant case, it was pertinently pointed out by the Appellate Tribunal that the Memorandum of Understanding dated 07.01.2012 was entered into between the 1st Respondent/ Financial Creditor/ Petitioner and the Appellant/ Lepakshi Knowledge Hub Private Limited. It was latently and patently quite clear that the money received in terms of the `Inter-Corporate Deposit’ dated 19.03.2012, was to deal with the expenses of the 2nd Respondent/ Corporate Debtor/ LST. Because of the fact that the transfer of money as per `Inter-Corporate Deposit’ was not in controversy/ disputed, the stance of the 2nd Respondent/ LST that in the Balance Sheets the money in question was not described as `Inter-Corporate Deposit’, but only mentioned under the caption `other investments had no legs to stand.
In so far as the pleas of the 2nd Respondent/ LST pertaining to the Arbitration they have no bearing in deciding the Section 7 Application filed under the I & B Code, 2016. Since the 2nd Respondent/ Corporate Debtor had not repaid the amount received as per `Inter-Corporate Deposit’ dated 19.03.2012 with interest at 18% per annum (for six months period, interest free), through a Letter dated 19.09.2020, the 1st Respondent/ Financial Creditor had recalled the amount received from the 2nd Respondent/ LST.
In the instant case, considering the fact that the receipt of Rs. 5 Crores was tacitly admitted by the 2nd Respondent/ LST by way of an acknowledgement as per the Balance Sheets of the 1st Respondent/ Financial Creditor for the period from 2011-12 to 2018-19, the main CP(IB)/98/BB/2021 filed by the 1st Respondent/ Financial Creditor/ Petitioner, before the Adjudicating Authority was maintainable in Law, based on the filing of the Petition on 06.07.2021 and signed by the Counsel for the 1st Respondent/ Financial Creditor/ Petitioner dated 07.07.2021 and looking at from that angle, the main CP (IB)/98/BB/2021 was not barred by limitation.
Be that as it may, in view of the aforementioned detailed discussions and for foregoing reasons, the Appellate Tribunal came to an inescapable and inevitable conclusion that the 1st Respondent/ Petitioner/ Financial Creditor had established the aspect of subsisting ‘Debt’ and ‘Default’ which are the pre-requisites for an ‘admission’ of an ‘Application’ filed under Section 7 of the I & B Code, 2016. Moreover, the Adjudicating Authority, in the considered opinion of the Appellate Tribunal cannot traverse the finer aspects of violation of contract between the ‘Parties’ in the light of the fact that it was an Adjudicating Authority in a summary proceeding and not a Civil Code, where an evidence can be let in by the ‘Parties’ in an elaborate manner.
The proceedings under the I & B Code, 2016, were not adversarial in character and in the instant case, the Adjudicating Authority cannot determine the default sum as per Section 4 of the I & B Code, 2016.
Looking at from any point of view, both the Appeal did not have merits. Resultly, both the appeals were dismissed.