2022 (2) TMI 1130 - AT - Insolvency and Bankruptcy

Appellate Tribunal reverses decision, upholds application under Insolvency and Bankruptcy Code.

Smt. Sushila Lakhotia Versus Zeal Developers Pvt. Ltd.

Smt. Sushila Lakhotia Versus Zeal Developers Pvt. Ltd. - TMI Issues:- Rejection of Application under Section 7 of Insolvency and Bankruptcy Code, 2016 by Adjudicating Authority- Interpretation of Investment Agreement and debt admission by Corporate Debtor- Observations made by Adjudicating Authority regarding the clarity of purpose in legal notices- Error in Adjudicating Authority's conclusion on the existence of debtAnalysis:1. The Appellant filed an appeal against the rejection of their application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The dispute arose from an Investment Agreement dated 01st April, 2014 between the Appellant and the Corporate Debtor, where the Appellant invested Rs. 75 Lacs. The Corporate Debtor acknowledged receiving the amount and agreed to pay the remaining sum when the project started generating revenue.2. The Adjudicating Authority, in its order, noted discrepancies in the legal notices issued by the Appellant and raised concerns about the clarity of purpose. The Authority found the Investment Agreement to be vague, lacking essential details such as completion date of the project and interest components. The Authority concluded that the parties did not approach the Tribunal with clean hands, leading to the dismissal of the application.3. The Appellant argued that the Investment Agreement and subsequent correspondence with the Corporate Debtor clearly established the existence of debt, as admitted by the Corporate Debtor. The Corporate Debtor's response to the legal notice confirmed the debt and the agreement to pay the outstanding amount once the project became profitable.4. Upon review of the evidence, the Appellate Tribunal found merit in the Appellant's submissions. The Investment Agreement and the Corporate Debtor's response indicated the acknowledgment of the debt and the commitment to repay the outstanding amount. The Tribunal concluded that the Adjudicating Authority erred in dismissing the application and set aside the Impugned Order dated 28th May, 2019.5. The Tribunal directed the Adjudicating Authority to admit the application within one month and allowed the parties to explore a settlement if desired. The appeal was allowed, overturning the decision of the Adjudicating Authority and emphasizing the acknowledgment of the debt by the Corporate Debtor based on the Investment Agreement and subsequent correspondence.