2022 (12) TMI 373 - AT - Insolvency and Bankruptcy

Tribunal dismisses Appeal due to failure in proving financial debt under I&B Code

M/s Ravinder Construction Company Versus Kalinga Sponge Iron Limited

M/s Ravinder Construction Company Versus Kalinga Sponge Iron Limited - TMI Issues Involved:1. Whether the Appellant has established a case for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016.2. Validity of the Memorandum of Understanding (MoU) dated 22.06.2017 and its implications on the alleged debt.3. Whether the Appellant has provided sufficient evidence to prove the existence of financial debt and default by the Corporate Debtor.4. The impact of the Balance Sheets and other financial documents on the claim of the Appellant.5. The authenticity and relevance of the demand letters and the responses thereto.6. Whether the Appeal is frivolous and vexatious, warranting exemplary costs.Issue-Wise Detailed Analysis:1. Establishing a Case for CIRP Under Section 7 of the I&B Code, 2016:The Appellant filed an application under Section 7 of the I&B Code, 2016, seeking initiation of CIRP against the Corporate Debtor for defaulting on a financial debt of Rs. 4,62,92,880/-. The Adjudicating Authority dismissed the application, noting the Appellant's failure to establish the debt and default. The Tribunal emphasized the necessity for the Financial Creditor to furnish records of default, which the Appellant failed to provide.2. Validity of the MoU Dated 22.06.2017:The Respondent argued that the MoU dated 22.06.2017, which involved a settlement amount of Rs. 26 crores, was a full and final settlement of all liabilities, including the Appellant's claims. The Adjudicating Authority observed that the Appellant, who was a signatory to the MoU, had acknowledged the terms, including the final settlement amount. The Tribunal found no evidence to contradict the validity of the MoU and its implications on the alleged debt.3. Evidence of Financial Debt and Default:The Appellant relied on the Balance Sheet for the Financial Year 2015-16, showing an outstanding amount of Rs. 6,73,86,240/-. However, the Tribunal noted that the Balance Sheet for the year 2017-18 indicated no amount due to the Appellant. The Adjudicating Authority found discrepancies in the ledger sheets and a lack of supporting evidence, such as bank statements, to substantiate the claim of financial debt and default.4. Impact of Balance Sheets and Financial Documents:The Tribunal highlighted that the Balance Sheet for the year 2017-18, audited by the same auditor, showed no amount due to the Appellant. The Appellant's reliance on earlier Balance Sheets was insufficient to prove the debt, especially in light of the subsequent MoU and financial statements indicating otherwise.5. Authenticity and Relevance of Demand Letters:The Appellant issued demand letters on 25.06.2018 and 18.07.2018, claiming the outstanding amount. The Corporate Debtor's response on 14.07.2018 requested detailed ledger accounts, which the Appellant failed to provide. The Tribunal found that the demand letters, issued after the settlement and release of personal guarantees, lacked credibility and supporting evidence.6. Frivolous and Vexatious Appeal:The Tribunal concluded that the Appeal was frivolous and vexatious, wasting the Tribunal's time. Consequently, the Tribunal imposed exemplary costs of Rs. 1,00,000/- on the Appellant, payable to the Prime Minister's Relief Fund within one month.Conclusion:The Tribunal dismissed the Appeal, affirming the Adjudicating Authority's decision. The Appellant failed to prove the existence of financial debt and default, and the MoU dated 22.06.2017 was deemed a full and final settlement of liabilities. The Tribunal imposed exemplary costs on the Appellant for filing a frivolous and vexatious Appeal.