TaxTMI 
TaxTMI 
2024 (4) TMI 239
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.... be noticed for deciding this Appeal are:- 2.1. The Financial Creditor by Loan Agreement dated 13.06.2017 extended facility of Rs. 18,09,00,000/- to the Corporate Debtor- 'Shweta Housing & Hospitality Private Limited'. The facility was to be repaid in the instalments with the interest @14% from 15.08.2017 till 15.05.2022 in 58 instalments. The Corporate Debtor except paying three instalments did not make any further payment to the Financial Creditor. Financial Creditor issued a Demand Notice dated 01.12.2021 recalling the outstanding dues of Rs. 35,90,58,448/-. The Financial Creditor also initiated arbitration proceedings as per the Loan Agreement in which an award dated 04.02.2020 was given. The Corporate Debtor having not made the payment, Section 7 application was filed by the Financial Creditor on 31.01.2022. Reply was filed by the Corporate Debtor to Section 7 application. The Financial Creditor has also for seeking enforcement of ex parte arbitral award filed an execution application before the Delhi High Court on 22.07.2021. Corporate Debtor filed his objection in the execution application which is claimed to be pending. The Adjudicating Authority vide impugned order 18.12.....
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....thin time. In the loan recall and termination notice dated 24.01.2019 debt shown as Rs.27,03,77,188/-. Section 7 application thus can be sustained even if the arbitral award is not to be looked into. It is further submitted that the arbitral award cannot be disregarded in the proceeding under Section 7 which is the summary proceeding. The arbitral award till date has not been set aside under Section 34 of the Arbitration & Conciliation Act. It is further submitted that in the balance sheet of the Corporate Debtor, the financial debt has been very well acknowledged the balance sheets are of the Corporate Debtor himself. 5. We have considered the submissions of the Counsel for the parties and perused the record. 6. From the submissions of the Counsel for the parties, following questions arise for consideration in this Appeal are:- (i) Whether the application under Section 7 filed by the Appellant on 31.01.2022 was barred by time? (ii) Whether the arbitral award dated 04.02.2020 needs to be ignored in proceedings under Section 7, the objection of the Corporate Debtor being pending before the Delhi High Court in the proceeding for execution of the arbitral award? (iii) Whether ....
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....f certain instalments by the Corporate Debtor, the Financial Creditor prematurely and illegally terminated the Loan Agreement on 24th January 2019. In any event, it is the case of the Financial Creditor that no instalments have been paid by the Corporate Debtor. It is submitted that the Corporate Debtor made the payment of instalments amounting Rs. 40 lacs. I crave leave to produce a detailed payment schedule at a later stage, if so required." 9. The Corporate Debtor itself pleaded that he has paid Rs.40 lakhs. It has been submitted during the submissions of the parties that only three instalments could be paid by the Appellant. The date of default as given in Part-IV is 04.02.2020 i.e. the date of arbitral award. The Adjudicating Authority has noticed the date of default in Section 7 and came to the conclusion that the application is well within the time filed on 31.01.2022. The submission which has been much pressed by the Counsel for the Appellant is that the arbitral award is void and need not be looked into, hence, date of default cannot be taken as 04.02.2020. Section 3 of the Limitation Act casts an obligation on a Court to consider as to whether application filed is withi....
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.... that the Corporate Debtor has put the award dated 04.02.2020 for execution before the Delhi High Court in which objections have been filed by the Appellant on 22.11.2021 which objections are pending consideration. The Adjudicating Authority in the impugned order although has noted the submissions with regard to award dated 04.02.2020 but observed that the contention regarding appointment of arbitrator cannot be looked into and adjudicated by the Tribunal. 12. The challenge to the arbitral award dated is 04.02.2020 pending before the Delhi High Court with regard to which objections have already been filed by the Corporate Debtor. We are of the view that it is not necessary to express any opinion with regard to rival contentions of the parties in relation to award dated 04.02.2020. 13. Learned Counsel for the Respondent has submitted before us that even if the award dated 04.02.2020 is disregarded the debt and default is proved, hence, there was no illegality in admitting Section 7 application. The contention of the parties regarding debt and default shall be examined hereinafter. QUSESTION NO. 3 & 4 14. The question to be answered is as to whether even if arbitral award dated ....
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....For ANS Associates Neelina Chatterjee Partner C.C.: Client" 15. We may further notice that the Adjudicating Authority in the impugned order has referred to Certificate dated 09.03.2022 issued by the National E-Governance Service Limited evidencing the default. In paragraph 20 of the order, Adjudicating Authority has noticed following:- "20. It is clear that repayment of only 3(three) out of 58(Fifty-eight) instalments have been made as acknowledged by the Corporate Debtor in its Reply. Therefore, it is not incorrect to hold that the Corporate Debtor has defaulted on the repayment of the outstanding loan amount. Moreover, apart from all the above documents, the Financial Creditor has also submitted the Certificate dated 09.03.2022 issued by the National E- Governance Service Limited (NESL) evidencing the default. In view thereof, we are satisfied that there is debt and default as mandated under the Code." 16. From the above facts, it is clear that debt and default is fully established and even if the arbitral award dated 04.02.2020 is not taken into consideration the debt and default is proved on the part of the Corporate Debtor. We may refer to the judgment of the Ho....
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....atisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing- i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational credi....
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....of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the or....
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.... the remaining original petitioners were aggrieved by the settlement process, they would be at liberty to approach the adjudicating authority again in accordance with law. The adjudicating authority's decision was also upheld by the appellate authority, who supported its conclusions. 34. The adjudicating authority has clearly acted outside the terms of its jurisdiction under Section 7(5) IBC. The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute." ( emphasis in original and supplied ) 11. Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. "Default" is defined under sub-section (12) of Section 3 IBC which reads thus: "3. Definitions.-In this Code, unless the context oth....