2022 (10) TMI 439 - AT - Insolvency and Bankruptcy

Adjudicating Authority's Error in Rejecting Insolvency Application Reversed

Adventz Finance Private Limited Versus Jai Annanya Investments Private Limited

The Adjudicating Authority erred in rejecting the Section 7 application under the Insolvency and Bankruptcy Code. The order was set aside, and the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - amounts which were granted as Inter Corporate Deposit to the Corporate Debtor - existence of debt and dispute or not - HELD THAT:- The financial statement clearly mentions the Inter Corporate Deposit of Rs.1,43,37,53,247/-. Similarly, with regard to other financial years mention of total Inter Corporate Deposit is given. The Adjudicating Authority has drawn adverse inference against the Financial Creditor only relying on few names of companies to whom Inter Corporate Deposit was given and whose names were mentioned in the note in the Independent Auditor’s Report, but as noted above the names in the Report were with regard to those companies with whom litigations were going on - the details of total Inter Corporate Deposits, which runs to Rs.143 Crores, has been reflected in the financial statements and the Adjudicating Authority without adverting to the relevant material jumped to conclusion that financial creditor has failed to prove Inter Corporate Deposit given to the Corporate Debtor, which finding is unsustainable. It is also relevant to notice that Corporate Debtor has also made payments in the years 2015, 2016, 2017 till the financial year 2018-19 which details are all mentioned in the Part IV of the application. It is further relevant to notice that Corporate Debtor although once appeared before the Adjudicating Authority but neither filed any reply nor appeared thereafter and Adjudicating Authority proceeded ex-parte against the Corporate Debtor. In this appeal also despite service of notice, Corporate Debtor did not appear. There is not even dispute to allegations and case set up by the Financial Creditor against the Corporate Debtor. The Adjudicating Authority committed error in rejecting Section 7 application - appeal allowed. Issues Involved:1. Rejection of Section 7 application under Insolvency and Bankruptcy Code, 2016.2. Acknowledgement of debt by the Corporate Debtor.3. Mention of Inter Corporate Deposit in the Independent Auditor's Report.4. Date of default mentioned in the application.5. Payments made by the Corporate Debtor.Issue-wise Detailed Analysis:1. Rejection of Section 7 Application under Insolvency and Bankruptcy Code, 2016:The appeal was filed by the Financial Creditor against the order dated 12.01.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, which rejected the Section 7 application. The Financial Creditor argued that the Adjudicating Authority erred in not considering the acknowledgements in writing issued by the Corporate Debtor, where the debt was acknowledged. The Adjudicating Authority also erred in observing that the Independent Auditor's Report did not mention the Corporate Debtor among the companies to whom Inter Corporate Deposit was advanced.2. Acknowledgement of Debt by the Corporate Debtor:The Corporate Debtor had acknowledged its debt through various correspondences. The letter dated 14.05.2014 from the Corporate Debtor requested an Inter Corporate Deposit (ICD) of Rs.40 Crore, which was accepted on 16.05.2014. The Corporate Debtor had repaid some amounts and made deductions on account of Tax Deducted at Source, with Form 26 AS filed. A legal notice dated 04.01.2016 was issued due to defaults, which the Corporate Debtor replied to on 03.02.2016, acknowledging the debt and explaining the inability to repay due to SEBI's adverse directions. The Corporate Debtor's reply confirmed the debt and their efforts to manage funds to repay.3. Mention of Inter Corporate Deposit in the Independent Auditor's Report:The Adjudicating Authority noted that the Independent Auditor's Report for Financial Years 2014-15 to 2018-19 did not mention the Corporate Debtor among companies to whom Inter Corporate Deposit was advanced. However, the Financial Creditor argued that the report mentioned only those companies against whom litigations were ongoing. The financial statements reflected the total Inter Corporate Deposits of Rs.1,43,37,53,247/-, indicating the existence of such deposits, including the one given to the Corporate Debtor.4. Date of Default Mentioned in the Application:The Adjudicating Authority observed that the application did not mention the date of default. However, the Part IV of the application under the column 'Amount claimed to be in default and the date on which the default occurred' provided specific details, including amounts and dates of defaults. The details were annexed as Annexure-XVI, contradicting the Adjudicating Authority's observation.5. Payments Made by the Corporate Debtor:The Corporate Debtor made payments in 2015, 2016, 2017, and up to the financial year 2018-19, as detailed in Part IV of the application. Despite appearing once before the Adjudicating Authority, the Corporate Debtor neither filed any reply nor appeared thereafter, leading to ex-parte proceedings. In the appeal, the Corporate Debtor did not appear despite notice, indicating no dispute to the Financial Creditor's allegations.Conclusion:The Adjudicating Authority committed an error in rejecting the Section 7 application. The order dated 12.01.2022 was set aside, and the Section 7 application (CP (IB) No. 2119/KB/2019) was revived before the Adjudicating Authority, which was directed to pass an order of admission along with all consequential directions within one month from the date of the order. The appeal was allowed accordingly.