TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 384
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....pro Pvt. Ltd., as financial creditor, filed an application under section 7 of the IBC against the corporate debtor Shree Hari Agro Industries Ltd., claiming that a debt and interest thereon amounting to total of Rs.412.52 crores is due and payable to it by the corporate debtor. The facts of the case are that the Appellant obtained a term loan of Rs.4,50,00,000.00 from the Industrial Development Bank of India (in short 'IDBI') on 11.7.1996, which was to be repaid in 20 quarterly instalments with interest @ 21% p.a. and the said loan agreement and deed of hypothecation of immovable property and mortgage of movable assets were signed on 11.7.1996. As per terms of the said loan agreement, the first instalment fell due and payable on 1.4.1998, and when the Respondent defaulted in repayment of the debt, IDBI issued a formal notice to recall the entire loan amount on 26.4.2000 and initiated proceedings against the Respondent on 22.9.2000 for recovery of the outstanding debt before the Debt Recovery Tribunal, Jaipur. The Appellant has further stated that the Respondent made a reference to the Board for Industrial and Financial Reconstruction (in short 'BIFR') and it was declared a Sick Ind....
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....tion due to family dispute between two groups of the Data Family and after division in the family assets, the issue of this loan is being used to settle scores; and (iv) No demand notice was issued by the Appellant after assignment of the loan in 2007 till 2018. 6. We heard the arguments of the Learned Counsels for both the parties and perused the record. 7. The Learned Counsel for Appellant has submitted that the term loan taken by the Respondent of Rs. 4.50 crores from IDBI with compound interest @ 21% p.a. with repayment in quarterly instalments secured by hypothecation of moveable property and mortgage of immovable property of the corporate debtor. Since the loan was not repaid in time, IDBI recalled the loan in 1998. He has further submitted that IDBI initiated proceedings before the DRT, and IDBI assigned the loan along with associated securities to SASF on 30.9.2014, which was further assigned by SASF to the Appellant on 17.1.2007 through an Assignment Agreement after obtaining consent of the corporate debtor for a consideration of Rs. 2.50 crores. He has claimed that thus the appellant has stepped into the shoes of IDBI along with all the rights and responsibilities tha....
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....y see whether the acknowledgement is of an amount greater than the threshold value of Rs.1 lakh and not go into the precise amount of the alleged debt. 10. The Learned Counsel for Appellant has also cited the judgment of Hon'ble Supreme Court in the matter of Innoventive Industries Ltd. vs. ICICI Bank (2018 1 SCC 407) in support of his contention that once the Appellant's status as a financial creditor is established and the admitted debt liability is more than Rs. 1 lakh, which is the threshold monetary limit for consideration of section 7 application, the application is liable to be admitted. 11. On the point that the Appellant's section 7 application was dismissed due to alleged family settlement and related dispute between two groups of the same family, the Learned Counsel for Appellant has submitted that the family settlement documents do not include any reference to the corporate debtor, and therefore, it is separate from the businesses included in the family settlement, and in no way affected by the family settlement and any litigation that may be going on between the family members. 12. The Learned Counsel for Appellant has also argued that the contention of the Responde....
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....e notes in the balance sheets, and in particular the note in the balance sheet for the FY 2008-09 shows that no repayment schedule is attached to the said loan. He has also stated that there is no interest amount shown as liability in the balance sheet which also goes to show that the amount of Rs. 1.35 crores is not a loan but a financial contribution of Deepak Vegpro Pvt. Ltd. to the corpus of the corporate debtor and not a loan and it has been placed in the section of secured credit in the balance sheets for ease of accounting. In such a situation, he has argued, the amount appearing in the balance sheets is not a loan and hence is not covered in the definition of 'financial debt'. 14. The Learned Senior Counsel of Respondent has insisted that even if the debt is taken to be a financial debt, the balance sheet documents placed on record by the appellant do not show that it is the same debt amount which is in default, and therefore the entries in the balance sheets cannot to be taken to provide acknowledgement of the original debt of IDBI and so the application under section 7 is not within limitation. Thus, he has surmised that none of the ingredients of section 7 of IBC are fu....
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....be imposed on its maker by an involved or a farfetched process of reasoning." 18. The Learned Counsel for Respondent has also cited the judgment of the Hon'ble Supreme Court in the matter of Reliance Assets Reconstruction Company Limited vs. Hotel Poonja International Private Limited [(2021) 7 SCC 352], wherein it is held that, "19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, the limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation." 19. In connection with the amounts shown in section 7 application and that in the balance sheets, the Learned Senior Counsel for Respondent has argued that the acknowledgm....
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.... this loan". On the other hand the present application has been filed claiming Rs.40044.15 lacs. The amount evidently acknowledged as per the financial statement for the year ending 31.3.2016 cannot be taken as an acknowledgment of debt as claimed by the applicant. Accordingly, we are of the considered view that the claim, if any, is barred by law of limitation." 21. In the light of the contention of both the Learned Counsels and reliance placed on the balance sheets placed on record regarding acknowledgement or otherwise of the alleged financial debt, we look at the financial statements referred to by the Appellant, which include balance sheets FY 2006-07 going continuously up to FY 2015-16 to claim that the debt owned by the corporate debtor was acknowledged therein, year after year. A perusal of the balance sheet for FY 2006-07 (attached at pp.421-436 of the appeal paperbook, vol. III) shows the existence of a secured loan amounting to Rs. 4.50 crores from the Deepak Vegpro Pvt. Ltd. As per record placed in the appeal, this is the first time the alleged loan appears in a balance sheet in the name of Deepak Vegpro Pvt. Ltd. Again, in the balance sheet for FY 2007-08 (attached at....
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.... subject to verification with proper relevant document or pending consent of these parties in this regard. 4. Interest accrued and due to financial Institutions amount to Rs. 709.96 lacs as at 31.3.2008 towards interest including simple interest, compound interest, penal interest, liquidated damages etc. has also been written back in the books of accounts of the Company in terms of one time settlement agreed and settled with them accordingly written back and credited to Capital Reserve Account to that extent. xx xx xx xx" 22. From a close perusal of balance sheets and the alleged loan amount that appears in the name of Deepak Vegpro Pvt. Ltd. and the 'Notes to the Accounts', it is quite clear that the original loan amount of Rs. 4.50 crores became Rs. 1.35 crores in the balance sheet for the FY 2008-09 and thereafter continued as such in the balance sheets of the following years. Notably in the balance sheet for the FY 2008-09, when the loan amount of Rs. 4.50 crores became Rs. 1.35 crores, the 'Notes to Accounts' (supra) clearly indicate that the company entered into settlements with its secured creditors, namely, Industrial Investment Bank of India (in short 'IIBI') and Deep....
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....y, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by section 134 (7). Equally, the auditor's report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made thereby extending limitation under Section 18 of the Limitation Act. (Emphasis supplied) 25. The Hon'ble Supreme Court has ruled in the matter of Reliance Assets Reconstruction Company Limited vs. Hotel Poonja International Private Limited [(2021) 7 SCC 352] regarding the necessity of existence of a jural rel....
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........ ............................................ An acknowledgment made with referenced to a liability, cannot extend limitation for a time-barred liability or a claim that was not made at the time of acknowledgment or some other liability relating to other transactions. Any admission of jural relationship in regard to the ascertained sum due or a pending claim, cannot be an acknowledgment for a new additional claim for damages." 27. Another judgment cited by the Learned Senior Counsel for Respondent relates to the matter of Tilak Ram and Others vs. Nathu and Others (AIR 1967 SC 935) wherein Hon'ble Supreme Court holds as follows: - " 12. The right of redemption no doubt is of the essence of any inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or the right claimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on it....
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....eepak Vegpro Pvt. Ltd., after a no objection by the corporate debtor. The claim of the appellant that the loan was due and payable by the corporate debtor is contested by the Respondent by stating that after the assignee of IDBI/SASF loan to Deepak Vegpro Pvt. Ltd., the remaining amount of Rs. 1.35 crores is considered as an investment and not any loan transaction. In support of his contention, the Respondent has claimed that there was no repayment plan for the remaining amount of Rs. 1.35 crores agreed to between the Appellant and the Respondent and more importantly, between the years 2008 and 2018, and consequently no demand was made for the pending amount. That the said alleged loan appears in the cases before BIFR and AAIFR cannot be taken as making any demand or acknowledgement of the said loan. Moreover, the Appellant has claimed that his loan was acknowledged through the balance sheets and therefore we are considering the balance sheets to examine the acknowledgement, if any, of the said loan and consequently if the loan is within limitation for the purpose of admission of section 7 application. 31. We find that he judgment of the Hon'ble Supreme Court in the matter of Asse....
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.... (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause;" 34. Further the 'd....
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....djudicating Authority has the discretion to either admit it or reject the application, of course depending on the facts of the case and whether such facts and circumstances call for admission of the section 7 application. The language of section 7 can be contrasted with the language of section 9 where no word such as 'may' is used in sub-section (5) of section 9 and an exhaustive list of conditions given in clause (i) of sub-section (5) of section 9 are satisfied. 38. Recently, in the matter of Vidarbha Industries Power Ltd v. Axis Bank Ltd.,2022 SCC OnLine SC 841, decided on 12.07.2022, Hon'ble Supreme held as follows: - "The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was required to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the overall financial health and viability of the Corporate Debtor under its existing management." 39. Thus the Hon'ble Supre....