2024 (12) TMI 884 - AT - IBC

Section 7 application dismissed as time-barred after eight-year delay following project failure and partial refund

The NCLAT Principal Bench dismissed a Section 7 application filed by financial creditors against a corporate debtor, ruling it was time-barred. The ... Admission of section 7 application - time limitation - Corporate Debtor has able to prove discharge of liability or not - sufficient grounds made out to invoke Section 65 of the IBC for imposing any penalty on the Financial Creditor. Whether Section 7 Application filed by Respondents No. 1 to 3, the Financial Creditor herein was barred by time? - HELD THAT:- The project having not commenced within seven months from execution of Agreement, the Plan having not been sanctioned within a period of 6 months and grace period of one month from 16.05.2010, the Project never commenced and under Clause 8, the cause of action arose to Financial Creditor to claim refund of the said investment and the said cause of action cannot remain arrested or suspended till the Financial Creditor exercise its option under Clause 6. Limitation for filing the proceeding for claiming refund of investment long expired after three years from 16.12.2010 i.e., in 15.12.2013 itself. Long silence of the Financial Creditor after 16.12.2010 till filing of Police Complaint by Corporate Debtor itself speaks volumes of the ground realities and State of Affairs between the Parties. We, thus are satisfied that Application filed by the Financial Creditor was hopelessly barred by time and deserves to be rejected. Adjudicating Authority had only adverted to the one part of the submission of the Appellant that on commencement of limitation from 30.07.2019, the Application was barred by time, without adverting to and finding out as to when the cause of action arose for filing the Section 7 Application to the Financial Creditor. As and above the cause of action for filing the Application arose on 16.12.2010 and Section 7 Application which was filed by the Financial Creditor was hopelessly barred by time. In the present case, the Project did not commence within 6 months and 1 month grace period, which was provided in the MoU when Project did not commence, cause of action arose to the Financial Creditor as per Clause 8 of AoA noted above. Hence the submission of the Respondent that there being continuous obligation, limitation will not commence cannot be accepted. In view of admission of Financial Creditor, that out of ₹3 Crores paid by the Financial Creditor to the Corporate Debtor, whether Corporate Debtor has able to prove discharge of liability of balance amount of ₹1.7 Crores? - HELD THAT:- The fact that right after execution of the Agreement on 16.05.2010 till sending of the Police Complaint by Corporate Debtor on 04.07.2019, there is not even the letter of demand of any amount from Financial Creditor to the Corporate Debtor towards refund of ₹3 Crores speaks for itself. The letter dated 15.10.2011 was sent by the Financial Creditor, acknowledging the receipt of the payment of ₹1.3 Crores. A Submission was advanced by the Counsel for the Financial Creditor that after receipt of the letter dated 15.10.2011, Corporate Debtor never wrote back to the Financial Creditor that there was other amounts paid by to the Thakkars - The letter dated 15.10.2011 which was sent by the Financial Creditor was only towards acknowledgement of ₹1.3 Crores. When we read the said letter, the said letter does not indicate that Financial Creditor had complaint of non-receipt of any balance amount apart from ₹1.3 Crores. Thus, the said letter 15.10.2011 cannot read to mean that no amount was paid by the Corporate data towards refund of ₹3 Crores received by them. The Financial Creditor initiated the proceedings by filing Section 7 Application only after Police Complaint was filed by the Corporate Debtor on 04.07.2019, making allegations against Thakkars. Financial Creditor found an opportunity to launch a proceeding after the receipt of the Police Complaint dated 04.07.2019. It is satisfied that Corporate Debtor had refunded the amount of ₹1.7 Crore to Thakkars and their Company, which was meant for refund to the Investors towards their amount of ₹3 Crores - Silence of Financial Creditor for long 8 years of not writing even letter to Corporate Debtor or Vendors/Thakkars clearly indicates that refund of ₹3 Crores was satisfied. Thus, the Developers have refunded the amount of ₹1.7 Crores through Thakkars and its Companies for payment to Investors. Whether sufficient grounds have been made out to invoke Section 65 of the IBC for imposing any penalty on the Financial Creditor? - HELD THAT:- On looking into the Reply which was filed by the Corporate Debtor to Section 7 Application, although it was pleaded that there is a collusion between Financial Creditor and Thakkars and they have colluded with each other with mala fide intention to cheat the Corporate Debtor, but there are no averment that Section 7 Application has been filed fraudulently or with malicious intent. In the facts of the present case, especially when Corporate Debtor has not pleaded that proceedings have been initiated maliciously with fraudulent intent, the ingredients of Section 65 are not fulfilled, hence Notice under Section 65 is discharged. The detail facts and opinion given by the IRP were wholly uncalled for IRP who is giving a certificate on 15.07.2022 is not supposed to know the events and facts which transpired between the Parties from 16.05.2010. Learned Counsel for the IRP submits that in view of the `Form–2’ requiring Optional Certificate, the IRP has given the Option Certificate and there was no mala fide intention of the IRP or an intent to help the Financial Creditor. The Optional Certificate was not necessary, and the use of the word “Optional” itself indicates that unless IRP is aware of the facts and events, he is not required to give facts or opinion - Section 7 Application filed by the Financial Creditor was hopelessly barred by time and was nothing but abuse of process of the Court by the Financial Creditor. Section 7 Application filed by the Financial Creditor dismissed - appeal allowed. Issues Involved:1. Whether the Section 7 Application filed by the Financial Creditor was barred by limitation.2. Whether the Corporate Debtor discharged its liability of the balance amount of Rs. 1.7 Crores.3. Whether there are sufficient grounds to invoke Section 65 of the IBC for imposing any penalty on the Financial Creditor.Issue-wise Detailed Analysis:Issue 1: Limitation of Section 7 ApplicationThe Corporate Debtor contended that the Section 7 Application was barred by limitation. The Memorandum of Understanding (MoU), Articles of Understanding (AoU), and Articles of Agreement (AoA) dated 16.05.2010 outlined the redevelopment project. The MoU stipulated that the Developer was to get the plan sanctioned within six months with a grace period of one month. The AoA allowed the Investors to terminate the agreement if the Developer failed to comply within this timeframe, with the obligation to return Rs. 3 Crores with 18% interest. The project did not commence, and the building plan was never approved. The Corporate Debtor argued that the cause of action arose after the expiration of the seven-month period from the execution of the MoU, i.e., on 16.12.2010. The Financial Creditor claimed that the limitation period began on 30.07.2019, when they terminated the agreement. However, the tribunal found that the cause of action under Clause 8 of the AoA, which allowed the Investors to claim back their investment if the project did not commence, was independent of the termination option. The cause of action arose when the project did not commence, and the limitation period began on 16.12.2010, expiring on 15.12.2013. The Section 7 Application filed in 2022 was deemed hopelessly barred by time.Issue 2: Discharge of Liability by the Corporate DebtorThe Corporate Debtor asserted that they had refunded Rs. 1.3 Crores directly to the Financial Creditor and an additional Rs. 1.7 Crores to the Thakkars for onward payment to the Financial Creditor. The tribunal noted that the AoU and AoA involved the Thakkars as Vendors, who were responsible for obtaining the investment. Payments made to the Thakkars and their company, Vision Infraventures Pvt. Ltd., were supported by bank statements. The tribunal found that the Corporate Debtor had refunded the amount of Rs. 1.7 Crores through the Thakkars for payment to the Investors. The long silence of the Financial Creditor, who did not demand any amount for over eight years, indicated that the refund was satisfied. The tribunal held that the Corporate Debtor had discharged its liability.Issue 3: Invocation of Section 65 of the IBCThe tribunal issued a notice to the Financial Creditor to show cause why they should not be proceeded against under Section 65 of the IBC, which deals with fraudulent or malicious initiation of proceedings. The Corporate Debtor alleged collusion between the Financial Creditor and the Thakkars but did not specifically plead malicious intent in the Section 7 Application. The tribunal, citing the Supreme Court's ruling, found that the ingredients of Section 65 were not fulfilled, as there was no specific plea of malicious intent. Consequently, the notice under Section 65 was discharged.Conclusion:The tribunal concluded that the Section 7 Application filed by the Financial Creditor was hopelessly barred by time and constituted an abuse of the court process. The appeal was allowed, and the order admitting the Section 7 Application was set aside. The parties were directed to bear their own costs.