Adjudicating Authority's Error in Rejecting Insolvency Application Reversed

The Adjudicating Authority erred in rejecting the Section 7 application under the Insolvency and Bankruptcy Code. The order was set aside, and the application was revived for admission, with directions to be issued within one month. The appeal by the Financial Creditor was allowed.

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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.

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