2022 (4) TMI 528 - AT - Insolvency and Bankruptcy

Tribunal affirms admission of Section 7 Application citing acknowledgment of debt in financial statements.

Rajesh Kedia Ex-Director of Ajanta Paper and General Products Ltd. Versus Phoenix ARC Private Limited, Mr. Rajesh Kumar Mittal, IRP for Ajanta Paper and General Products Ltd.

The Tribunal upheld the Adjudicating Authority's decision to admit the Section 7 Application against the Appellant, ruling that the claim for interest was ... Initiation of CIRP - - time limitation - assignment of debt - It is the main case of the Appellant that since the ‘interest' portion has never been reflected in the Balance Sheet since 2012, it cannot be claimed now at this belated stage and is barred by Limitation - HELD THAT:- In the Assignment Agreement dated 04/12/2014 entered into between the UTI and the first Respondent, it is specifically stated in Clause (E) that ‘the Borrower had failed to make payment in respect of the Financial Assistance due and payable to the Assignors in accordance with the applicable terms and conditions and an aggregate sum of ₹ 79,26,21,750/- as on 30/09/2014 in respect of the Financial Assistance granted by Assignors is outstanding against the Borrower, as per books of accounts maintained by the Assignors.’ - it is clear that the debt has been assigned to the first Respondent and as on the date of the assignment it is stated that an amount of ₹ 79,66,21,750/- is ‘due and payable’ by the ‘Corporate Debtor’. Be that as it may, it is not within the domain of the Adjudicating Authority to decide the ‘amount of debt’ at the stage of admission of Section 7 Application. Quantum of payment of debt - HELD THAT:- The same does not fall for consideration before the Adjudicating Authority at the stage of ‘admission’ of the Application under Section 7 of the Code. The only requirement is that the minimum outstanding debt should be more than the threshold amount provided for under the Code. The actual amount of ‘Claim’ is to be ascertained by the Resolution Professional after collating the ‘Claims’ and their verification which comes at a later stage - this Tribunal is satisfied that there is an admission of ‘debt’ and ‘default’ as defined under the Code - there are no illegality or infirmity in the Impugned Order. Appeal dismissed. Issues Involved:1. Whether the Adjudicating Authority was justified in admitting the Section 7 Application against the Appellant.2. Whether the claim for interest is barred by limitation.3. Whether the quantum of the debt amount was exaggerated and if it affects the admission of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.Detailed Analysis:Issue 1: Justification of Admitting the Section 7 ApplicationThe main point for consideration is whether the Adjudicating Authority was justified in admitting the Section 7 Application against the Appellant. The Tribunal observed that the Balance Sheets from 31/03/2003 to 31/03/2019 show acknowledgment of debentures amounting to Rs. 5,00,00,000/-. The Auditor’s Report for the year ending 31/03/2017 indicated an acknowledgment of debentures and default for Rs. 10,62,92,521/- due to the first Respondent. The Tribunal held that the acknowledgment in the Balance Sheets constitutes acknowledgment under Section 18 of the Limitation Act, 1963, extending the limitation period. The Tribunal referenced the Supreme Court's judgment in ‘Dena Bank (erstwhile Bank of Baroda) Vs. C. Shivakumar Reddy & Anr.’, which supports the view that acknowledgment of debt in financial statements extends the limitation period. Therefore, the Tribunal concluded that the Section 7 Application is not barred by limitation and the Adjudicating Authority was justified in admitting the application.Issue 2: Claim for Interest and LimitationThe Appellant contended that the interest portion has never been reflected in the Balance Sheet since 2012 and hence, the claim for interest is barred by limitation. However, the Tribunal noted that the Balance Sheets and Financial Statements for the years ending March 2012, 2015, and 2017 showed acknowledgment of liability, which extended the limitation period by three years. The Tribunal emphasized that Section 18 of the Limitation Act applies to proceedings under the Insolvency and Bankruptcy Code, 2016, and acknowledgment of debt in financial statements extends the limitation period. Thus, the Tribunal held that the claim for interest is not barred by limitation.Issue 3: Exaggeration of Debt AmountThe Appellant argued that the actual debentures for the ‘Corporate Debtor’ were only for Rs. 5,00,00,000/-, but the first Respondent made an exaggerated claim of Rs. 96,01,00,00,000/-, including excessive interest, which is barred by limitation. The Tribunal noted that the Assignment Agreement dated 04/12/2014 between UTI and the first Respondent stated that an amount of Rs. 79,26,21,750/- was due and payable by the ‘Corporate Debtor’. The Tribunal referenced the Supreme Court’s judgment in ‘M/s. Innoventive Industries Ltd. Vs. ICICI & Anr.’, which held that the Code gets triggered the moment the default exceeds the threshold amount, and the quantum of the debt amount does not affect the admission of the application under Section 7. The Tribunal concluded that the dispute over the quantum of the debt does not fall for consideration at the stage of admission of the Section 7 Application. The actual amount of the claim is to be ascertained by the Resolution Professional after collating and verifying the claims. Therefore, the Tribunal found no illegality or infirmity in the Impugned Order dated 07/10/2021, passed by the Adjudicating Authority.Conclusion:For all the aforementioned reasons, the Tribunal dismissed the appeal and upheld the Adjudicating Authority's order admitting the Section 7 Application. No order as to costs was made.