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

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

The Tribunal dismissed the Appeal as the Appellant failed to establish the financial debt and default required for initiating Corporate Insolvency ... Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- As per the provisions of law the Financial Creditor has to furnish the details of the default. The Appellant / Applicant has failed to establish that the Corporate Debtor owed an amount to the Appellant and it defaulted. Further, the Appellant failed to establish the debt and default except in Part-IV of Form-I stating the total amount of debt granted Rs.4,62,92,880/- and there is no evidence with regard to disbursal of amount from the account of the Appellant against the consideration for the time value of money. The outgoing parties confirmed the terms of MoU dated 22.06.2017 and also confirmed the consideration as final settled amounts towards their shareholding and other liabilities - the Appellant contend that it issued a demand letter dated 25.06.2018 and 18.07.2018 addressed to the present Directors claiming balance of amount Rs.4,62,92,880/-. In the very same letter, the Proprietor of the Appellant admitted the receipt of amount Rs.32 lacs on 16.04.2018. In response to the letter dated 25.06.2018, the Corporate Debtor vide its reply dated 14.07.2018 addressed to the Proprietor of the Appellant stating that the balance amount claimed by it do not contain any account ledger substantiating the balance outstanding and requested to provide the year wise ledger of last 5 years of both the accounts i.e. the Appellant and the Proprietor (Mr. Ravinder Singh). The Appellant has not produced any reply or response to the letter dated 14.07.2018 nor produced any documentary evidence to establish the debt owed by the Corporate Debtor. The Appellant failed to establish with documentary evidence that there is a debt and default. The Adjudicating Authority passed a reasoned order and no interference is called for. Appeal dismissed. 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.