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2022 (2) TMI 624
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....d 31.12.2019 in CP NO.1347/MB/C-II/2019 (Filed by the 1st Respondent/Applicant/Financial Creditor under Section 7 of the I&B Code, 2016) at paragraph 4 to 10 had observed the following "4.1 The Financial Creditor had advanced on 28.10.2009 Rs. 5,25,22,000/- and on 18.12.2010 Rs. 10,00,000/- vide two different cheques a loan aggregating to Rs. 5,35,00,000/-. 4.2 The Financial Creditor submits that the Corporate Debtor had falsely alleged that Rs. 5,35,00,000/- was not provided as a loan but as an advance for acquiring from the Corporate Debtor, floor space index of 15,500 square metres to be consumed on portion of the larger Property. 4.3 The Financial Creditor thereafter addressed a letter dated 28.03.2019, reiterating that the amount of Rs. 5,35,00,000/- was an advance by way of a loan and that the same was repayable on demand along with interest at the rate of 18% interest on quarterly interest. Vide said letter dated 28.03.2019 the Financial Creditor has demanded the loan back and refuted all other excuses of the Debtor, as claimed by the Petitioner. 4.4 The Applicant has also in its Petition enclosed a copy of the "Recall and Demand" Notice t....
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....010. Accordingly, the cause of action accrued in 2010. 6.6 The Financial Creditor's claim therefore on face of it is barred by law of limitation. The Financial Creditor's claim proceed on the basis that default occurred on 13.04.2018 i.e. absolutely false and bogus and clever attempt to bring the claim within limitation. Findings: 7. The Bench heard the arguments of the Financial Creditor and perused the records. 8. It is established that debt is due on part of the Corporate Debtor which is corroborated from Confirmation of Accounts dated 01.04.2011, 01.04.2017 and 01.04.2018, Bank certificate issued by Bank of India, Malad (West) dated 30.03.2019 and Bank statement issued by Bank of India evidencing a sum of Rs. 5,35,00,000/- credited to the Corporate Debtor. 9. It is claimed that on the date of default the total debt due was Rs. 28,62,55,961/-, however, the charging of interest was contested. At this juncture it worth to place on record the definition of "Financial Debt' as prescribed u/s 5(8) and (f) of the Code wherein a Financial Debt means a debt along with interest, if any, which is disbursed against the consideration for the time....
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....rom 2010, the claim is on the face of it, is barred by limitation, by virtue of Article 137 of the Limitation Act. 8. The Learned Counsel for the Appellant takes a stand that the 1st Respondent by filing a Section 7 Application under the I&B Code, before the 'Adjudicating Authority', under the garb of a 'Debt' is arm twisting and coercing the payment against the spirit of the I&B Code. 9. The Learned Counsel for the Appellant proceeds to point out that the Company during September, 2009 was negotiating with the Directors of one Lok Housing and Constructions Ltd and Lok Holding Ltd (Lok Group) for the acquisition from Lok Group certain immovable properties admeasuring 2,30,209 sq mtrs, situated at Ambernath Village, Thane Distt. 10. It is represented on behalf of the Appellant that the Directors of the Financial Creditors/1st Respondent knew that the Directors of the Company in a personal manner and expressed an interest in acquiring from the Company a Floor Space Index of 15,500 sq mtrs to be consumed on a portion admeasuring 8800 sq mtrs or thereabout out of a large property that was mutually earmarked between the Financial Creditors and the Company pursuant to the conclu....
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....n and in fact, the Application before the 'Adjudicating Authority' (under Section 7 of the Code) was filed in April, 2019 after the expiry of more than 6 years from payment of the alleged due and it is barred by 'Limitation'. 16. According to the Learned Counsel for the 'Appellant' the alleged default had occurred from the time interest was not paid i.e., 2010 to 2011 and no action was taken, no claim was made from the Company or no steps for recovery of interest by the 'Financial Creditor' were taken for 8 years and till 2018, when the first letter was issued to the company. 17. The Learned Counsel for the 'Appellant' projects an argument that the 'Balance Sheet' for the year 2009-10 to 2018-19 do not show the said amount the head 'Loan on the liability side of the Balance Sheet'. However, the said amount are shown under the head 'Current Liabilities- Long Term Liabilities (Advance for property) and not as Loan sum. Indeed, there is not reflection of 'Debt' in the 'Balance Sheet' and hence, cannot be an 'Acknowledgment of Debt' within the meaning of Section 18 of the Limitation Act. 18. The Learned Counsel for the 'Appellant' submits that the 'Debt' was time barred as on ....
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....orporate Debtor while returning the loan which is sufficient to show that there was financial debt. Regarding there being no agreement or demand promissory note or such other document etc., leaned Counsel for the Appellant submits that Section 10 of the Contract Act, 1872 shows that agreement could be even oral. 5. Learned Counsel for the Appellant further submits that 'financial contract" as defined in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 does not debar oral contract and financial contract can be oral in terms of Section 10 of the Contract Act. According to him Section 7 application under IBC should not have been rejected. 6. We have gone through the records and the impugned order. Merely pointing out that TDS was deducted would not be sufficient to conclude that there was financial debt. TDS can be deducted for various reasons. 7. As regards relying on Section 10 of the Contract Act, 1872, in our view IBC is a complete code in itself. Section 238 of IBC has overriding effect on provisions inconsistent with IBC. The 'Financial contract' is defined in "Insolvency and Bankruptcy (Application to Adjudicating Auth....
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....12; making it clear that three-years from that date had long since elapsed when the Winding up Petition under Section 433(e) was filed on 21st October, 2016." 31. "We therefore allow Civil Appeal (Diary No. 16521 of 2019) and dispose of the Writ Petition (Civil) No.455 of 2019 by holding that the Winding up Petition filed on 21st October, 2016 being beyond the period of three-years mentioned in Article 17 of the Limitation Act s time-barred, and cannot therefore be proceeded with any further. Accordingly, the impugned judgment of the NCLAT and the judgment of the CL is set aside. 24. The Learned Counsel for the 'Appellant' places reliance on the Judgment of the Hon'ble Supreme Court dated 18.09.2019 in "Gaurav Horgovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd. & Anr. (vide Civil Appeal No. 4952 of 2019) wherein at paragraph-6 it is observed as under: 6. "Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being 'an application" which is filed under Section7, would fall only within the residuary article 137. As rightly pointed out by....
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.... 29. The Learned Counsel for the 1st Respondent points out that there are continuous acknowledgments in the 'Confirmation letters and 'Balance Sheets' and under the acknowledgement letters and 'Balance Sheets' are admitted for an extension of time under Section 18 of the Limitation Act. FIRST RESPONDENT'S DECISIONS: 30. The Learned Counsel for the 1st Respondent refers to the decision of the Hon'ble Supreme Court in Innoventive Industries Vs. ICICI Bank & Anr.' (2018) 1 SCC 407 at Spl. Pg. 437, 438 & 439 wherein in paragraphs 27,28 & 30 it served observed as under: 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean ....
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....ty or obligation in respect of a "claim" which is due from any person. "Claim" then means either a right to payment or a right to payment arising out of breach of contract, and this claim can be made whether or not such right to payment is reduced to judgment. Then comes "default", which in turn refers to non-payment of debt when whole or any part of the debt has become due and payable and is not paid by the corporate debtor. Learned counsel for the Petitioners relied upon the judgment in Union of India v. Raman Iron Foundry (1974) 2 SCC 231, and, in particular relied strongly upon the sentence reading: "11....Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority." 69.It is precisely to do away with judgments such as Raman Iron Foundry (supra) that "claim" is defined to mean a right to payment or a right to remedy for breach of contract whether or not such right is reduced to judgment. What is clear, therefore, is that a debt is a liability or obligation in respect of a right to payment, even if it arises ....
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....or the time value of money is also clear as the money that is "disbursed" is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money's equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment). 72. Shri Krishnan Venugopal took us to the ACT Borrower's Guide to the LMA's Investment Grade Agreements by Slaughter and May (Fifth Edition, 2017). In this book "financial indebtedness" is defined thus: "Definition of Financial Indebtedness (Investment Grade Agreements) "Financial Indebtedness" means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of a....
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....deemable shares. The precise scope of this limb can be uncertain. Ideally, from the Borrower's perspective, if there are additional categories of debt which should be included in "Financial Indebtedness", these should be described specifically and this catch- all paragraph, deleted. A few strong Borrowers do achieve that position. Most, however are required to accept the "catch-all" and will therefore need to consider which of their liabilities might be caught by it, and whether specific exclusions might be required." 74. What is clear from what Shri Venugopal has read to us is that a wide range of transactions are subsumed by paragraph (f) and that the precise scope of paragraph (f) is uncertain. Equally, paragraph (f) seems to be a "catch all" provision which is really residuary in nature, and which would subsume within it transactions which do not, in fact, fall under any of the other sub-clauses of Section 5(8). 75. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is "catch all" in nature. This is clear from the words "any amount" and "any other transaction" which mean....
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....ary use" i.e. for use in the construction project so long as it is intended by the agreement to give "something equivalent" to money back to the home buyers. The "something equivalent" in these matters is obviously the flat/apartment. Also of importance is the expression "commercial effect". "Commercial" would generally involve transactions having profit as their main aim. Piecing the threads together, therefore, so long as an amount is "raised" under a real estate agreement, which is done with profit as the main aim, such amount would be subsumed within Section 5(8)(f) as the sale agreement between developer and home buyer would have the "commercial effect" of a borrowing, in that, money is paid in advance for temporary use so that a flat/apartment is given back to the lender. Both parties have "commercial" interests in the same - the real estate developer seeking to make a profit on the sale of the apartment, and the flat/apartment purchaser profiting by the sale of the apartment. Thus construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would, in fact, be subsumed within Section 5(8)(f) even without adverting to the e....
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....r sub-section (3) of Section 25 of the Indian Contract Act, 1872, a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits, is a valid contract. Moreover, in the instant case, the appellant has submitted before us that the respondent, in his balance sheet prepared for every year subsequent to the loan advanced by the appellant, had shown the amount as deposits from friends. A copy of the balance sheet as on 31-3-1997 is also produced before us. If the amount borrowed by the respondent is shown in the balance sheet, it may amount to acknowledgment and the creditor might have a fresh period of limitation from the date on which the acknowledgment was made. However, we do not express any final opinion on all these aspects, as these are matters to be agitated before the Magistrate by way of defence of the respondent. 34. The Learned Counsel for the 1st Respondent relies on the decision of the Hon'ble Supreme Court in "Usha Rectifier Corporation (India) Limited [presently know....
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....would be deemed to have been removed from the premises immediately for such consumption or utilization. Therefore, the contention that no such duty could be levied unless it is shown that they were taken out from the factory premises is without any merit. 13. Submission was also made regarding use of the extended period limitation contending inter alia that such extended period of limitation could not have been used by the respondent. The aforesaid contention is also found to be without any merit as the appellant has not obtained L-4 licence nor they had disclosed the fact of manufacturing of the aforesaid goods to the department. The aforesaid knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the appellant and suppression of relevant facts, the extended period of limitation was rightly invoked by the department. 35. The Learned Counsel for the 1st Respondent cites the Judgment of this Tribunal in "Shobhnath and Others V. Prism Industrial Complex 2019 SCC OnLine NCLAT 1095" dated 06.08.2019 (vide Comp Apo (AT)(INS) 557 of 2018]wherein at paragraphs-10 and 12 it is observed as under: ....
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.... (a) to (i) of Section 5(8) embody the nature of transactions which are included in the definition of 'financial debt'. It includes money borrowed against the payment of interest. Clause (f) of Section 5(8) specifically deals with amount raised under any other transaction having the commercial effect of a borrowing which also includes a forward sale or purchase agreement. It is manifestly clear that money advanced by a Promoter, Director or a Shareholder of the Corporate Debtor as a stakeholder to improve financial health of the Company and boost its economic prospects, would have the commercial effect of borrowing on the part of Corporate Debtor notwithstanding the fact that no provision is made for interest thereon. Due to fluctuations in market and the risks to which it is exposed, a Company may at times feel the heat of resource crunch and the stakeholders like Promoter, Director or a Shareholder may, in order to protect their legitimate interests be called upon to respond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long term borrowings. Once it is so, it cannot be said that the d....
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....Appeal (AT) (Insolvency) No. 143,175 & 176 of 2017 decided on 21st May, 2018 to buttress his point that the Respondent No.1 is not a 'Financial Creditor'. We have carefully gone through the aforesaid judgments in 'Dr. B. V. S. Laxmi (Supra)', wherein this Appellate Tribunal noticed that there was nothing on record to suggest that the Corporate Debtor borrowed the money and the creditor failed to establish that the Corporate Debtor had raised the amount under any other transaction having commercial effect of borrowing. The judgment relied upon, on facts, is distinguishable and is not attracted to the facts of instant case. In 'Macksoft Tech Pvt. Ltd. & Ors. (Supra)', this Appellate Tribunal held as under:- "37. Grant of loan and to get benefit of development is object of the Respondent - ('Financial Creditor'), as apparent from their 'Memorandum of Association'. Thus, we find that there is a 'disbursement' made by the Respondent - ('Financial Creditor') against the 'consideration for the value of money'. The investment was made to derive benefit of development of 'Q-City', which is the consideration for time value of money. Thus, we find that the Respondent - ('Financial Cr....
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....editor; and an intention to continue it and till it is lawfully determined must also be evident as per decision 'Venkata' V. 'Parthasarathy' 16 Mad page 220. An acknowledgement does not create a new right. 36. The Present case centres around mixed question of 'Facts' and 'Law'. The 1st Respondent/Bank, as per the format, as mentioned at para 20 of this judgement, had given the date of 'Default' / 'NPA' as 01.01.2016 and that the Section 7 of the application of 'I&B' Code was filed before the Adjudicating Company Appeal (AT) (Insolvency) No. 236 of 2020 32 Authority 01.04.2019, by the 1st Respondent / Bank. Prima facie, the Appeal needs to be allowed, if this is the single ground. However, in the instant case, the 1st Respondent/Bank had obtained balance confirmations certificate, the last one being 31.03.2017 as mentioned elaborately in Para 21 of this judgement. Although, this Appellate Tribunal had largely held in 'Rajendra Kumar Tekriwal' Vs. 'Bank of Baroda' in Company Appeal (AT) (Ins) No. 225 of 2020 and in Jagdish Prasad Sarada Vs. Allahabad Bank in Company Appeal (AT) (Ins) No. 183 of 2020, (both being three Members Bench) had taken a stand that the Limitation Act,....
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....ffect from 1st January, 1997 interest was paid and received at 18% per annum. That the confirmation of the balance in the plaintiff s account implied an agreement to pay interest upto the date on which it was paid is not disputed. Indeed it cannot be disputed. It would be stretching thing to suggest that the defendant paid interest without there being any agreement to do so. 40. There is nothing, apart from the Counsels submission, that this agreement to pay interest was restricted to the period for which it was to be paid. If interest has been paid in the past and the balance is confirmed by the debtor and the creditor, then subject to anything to the contrary it would imply a promise to continue to pay interest at that rate on the balance confirmed. It is not necessary in such circumstance for an express and independent stipulation that the balance therein would be paid with interest. This must be implied. To hold to the contrary would run counter to the basis on and the purpose for which parties have accounts stated and deprive such documents of any commercial efficacy. A catena of judgments of various Courts has affirmed the principle that implied in an accoun....
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....qua Banker is that of a debtor, and not trustee". It follows that ordinarily a deposit of an amount in the current account of a bank creates a debt; but it need not necessarily involve a contract of loan. Whether a deposit amounts to a loan depends upon the terms of the contract whereunder the deposit is made. In the context of s. 4(1) of the Act, can it be said that the depositor in the present case lent money to the Bank ? When a person deposits free currency in the current account of a bank in order to draw it whenever necessary for the _purpose for which it was given, it is not possible to hold that he enter% into a contract of loan with the bank within the meaning of S. 4(1) of the Act. He only deposits the money for the said purpose. Should we hold that such a transaction is a loan, many an honest man who deposits foreign exchange in a bank in a foreign country where he is staying for a short time to draw it for his requirements will be committing an offence. That could not have been the intention of the Legislature. If such a deposit is not a loan, it follows that the appellant cannot be held to have contravened the provisions of S. 4(1) of the Act." 41. The Learned Couns....
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....the copy of the Bank Statement issued by Bank of India, Malad West Branch was attached to the application evidencing a sum of Rs. 5,35,00,000/-. Further, the copy of the confirmation of accounts dated 01.04.2011, 01.04.2017, 01.04.2018 Peacock Constructions Pvt Ltd acknowledging the sum due to 'the 1st Respondent/Good Value Financial Services Pvt Ltd' was annexed with the application. Moreover, the copy of reminder letter dated 13.04.2018 issued by the 1st Respondent to Peacock Construction Pvt Ltd was also enclosed, together with the application. 46. The 'Corporate Debtor' in its reply to CP No. 1437 of 2019 had averred that the 1st Respondent/Applicant/Financial Creditor is not a 'Financial Creditor as the claims is not of 'Financial Debt' and the transaction is not a loan transaction. Further, the 'Corporate Debtor' took a stand that there was no contract for charging the rate of interest and for claiming the compound interest. The 1st Respondent/Financial Creditor had never debited interest in its own account. There is no term defined or produced which would signify that when the payment was required to be made, there is Agreement or Contract produced on record which would s....
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....tor' was called upon by the Financial Creditor to pay the amount due along with interest. DEFINITIONS UNDER I & B CODE 53. CLAIM Section 3(6) of the Code defines claim meaning (a) A right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. (b) Right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured" 54. Corporate Debtor Section 3(8) of the Code defines 'Corporate Debtor' meaning a corporate person who owes a debt to any person. As a matter of fact, 'Debt' means an obligation or liability in regard to a claim due from any person and includes i) a 'Financial Debt' ii) an Operational Debt 55. CREDITOR Section 3(10) of the Code defines 'Creditor' meaning any person to whom a debt is owed and includes a Financial Creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. The definition under Section 3(10) of the Code 'Creditor' i....
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.... i) There must be an acknowledgement of liability in respect of the property or right in question. ii) It ought to be the person against whom such property or right is claimed. iii) An acknowledgment is to relate to a current subsisting liability. An acknowledgement must be clear and unambiguous one, especially admitting liability in respect of the debt claimed in this regard. An acknowledgement must be prior to the expiry to the period prescribed for a suit or an application of such property or right as per decision 'Bank of India V. James Fernandez' reported in AIR 1988 Ker at page 89 iv) An acknowledgment under Section 18 of the Limitation Act means an admission of the truth of the concerned person's liability and the same may be either expressed or implied as the case may be. v) An acknowledgement of liability need not be accompanied by promise to pay either expressly or even by an implication as per decision Food Corporation of India V. Assam State Co-op Marketing and Consumers Federation Ltd 2005 (1) JCR 49 (SC) 62. If before the lapse of the prescribed period for a suit in respect of any property or right, there is a written ack....
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....claim of the 1st Respondent/Financial Creditor is repudiated by the 'Corporate Debtor' by stating that the total consideration agreed to be paid for by the 1st Respondent/Financial Creditor towards the purchase of FSI and its entitlement to consume the same on the said portion was Rs. 10 crores only of which only a sum of Rs. 5,35,00,000/- was paid by the Financial Creditor to it. 68. The fact that a sum of Rs. 5,35,00,000/- was paid by the Financial Creditor to the Corporate Debtor through two cheques (one cheque dated 28.10.2009 for Rs. 5,25,00,000/-) and another cheque dated 18.12.2010 for Rs. 10,00,000/-is not disputed. Hence, a sum of Rs. 5,35,00,000/- is a 'Financial Debt' coming under Section 5(8)(f) of the I&B Code, in the considered opinion of this Tribunal. The 1st Respondent/Applicant is a 'Financial Creditor' as per Section 5(7) of the Code. Even though the rate of interest @ 18% for Rs. 5,35,00,000/- is disputed on the side of the 'Corporate Debtor' because of the fact that the sum paid was not provided as a 'loan' etc, the Corporate Debtor is clearly in 'Default' of the 'Debt' due and payable in law. 69. Before the 'Adjudicating Authority' the 1st Respondent/Fin....