2020 (5) TMI 276 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - application rejected on the ground that it is barred by limitation and no financial debt is in existence - HELD THAT - If there is a debt and default, normally the Adjudicating Authority is bound to admit the application provided the corporate debtor with evidence takes plea that it is not payable in law or in fact. Time Limitation - HELD THAT - The matter relating to the Income-tax pending with the office of the Assistant Commissioner of the Income-tax, Chennai, whereby letter dated June 26, 2012, the Assistant Commissioner of Income-tax referred to the balance-sheet of M/s. Radha Exports (India) P. Ltd. showing therein the name of Smt. Shobha Jayaram (the second appellant) and stated that on verification it found that a sum of ₹ 90,00,000 for loan advanced by Smt. Shobha Jayaram to the proprietary concern M/s. Radha Exports transferred as share application money after the incorporation of M/s. Radha Exports (India) P. Ltd. - the demand notice was issued by the appellants to the corporate debtor on December 7, 2017 under the I B Code to which the corporate debtor replied on December 14, 2017. The matter was again moved before the Adjudicating Authority which by impugned order dated April 12, 2018 passed in C. P. No. 77/IB/CB/2018 allowed to withdraw the application with liberty to the appellants to file afresh application. It is only thereafter application under section 7 was filed in Form 1 on April 25, 2018. The claim of the appellants is not barred by limitation as at appropriate stage, the appellants moved application under section 433(e) of the Companies Act, 2013 for winding up of the company. In view of the amendments made, the I and B Code was given effect and section 433 having been deleted from the Companies Act, 2013, the appellants had no other option but to move an application under the provisions of the I and B Code . Financial creditors or not - HELD THAT - Admittedly, the amount as shown by the Assistant Commissioner of Income-tax amounting to ₹ 90,00,000 shows that the amount is disbursed by the second appellant-Smt. Shoba Jayaram for consideration of time value of money and it is subsequently converted as share application money of the corporate debtor . However, no share was issued by the corporate debtor in spite of the demand notice - In that view of the matter, the appellants not being the operational creditors , there was no occasion for them to issue demand notice under section 8(1) and for the said reason, if the Adjudicating Authority allowed them to withdraw the application under section 9 of the I and B Code to enable the appellants to file application under section 7, we hold that sub-sequent application was maintainable, as we find that financial debt is payable to the appellants, particularly the second appellant as there is a default and the corporate debtor has failed to make out a case that it is barred by limitation and is not payable in law, we hold that this was a fit case for Adjudicating Authority to admit the application under section 7 and initiate corporate insolvency resolution process against M/s. Radha Exports (India) P. Ltd . The Adjudicating Authority having failed to notice the aforesaid fact while wrongly erred that the appellants are not financial creditors , we set aside the impugned order dated December 19, 2018 and remit the case to the Adjudicating Authority, Chennai with direction to admit the application after notice to the corporate debtor so as to enable the corporate debtor to settle the claim prior to the admission of application under section 7 of the I and B Code - Appeal allowed.

Summary

Issues:
1. Application under section 7 of the Insolvency and Bankruptcy Code, 2016 rejected on grounds of limitation and non-existence of financial debt.
2. Claim of appellants as financial creditors disputed by corporate debtor.
3. Question of whether the amount payable to the appellant is barred by limitation.
4. Claim of appellants as financial creditors and initiation of corporate insolvency resolution process.
5. Adjudicating Authority's failure to recognize appellants as financial creditors.

Issue 1:
The Adjudicating Authority rejected the application under section 7 of the Insolvency and Bankruptcy Code, 2016, citing limitation and absence of financial debt. The appellants contended that they were financial creditors and that the debt was not time-barred.

Issue 2:
The corporate debtor disputed the claim of the appellants as financial creditors based on a correlation statement showing payments made to Customs, Chennai, and Mr. Kulasekaran. The court did not accept the argument that the total amount had been paid, as the purpose of the payments was not clearly correlated.

Issue 3:
The court considered whether the amount payable to the appellants was barred by limitation. It noted that the appellants had previously taken steps under the Companies Act, 2013, which necessitated the subsequent application under the Insolvency and Bankruptcy Code.

Issue 4:
Regarding the claim of the appellants as financial creditors, the court found that the amount disbursed by the second appellant for the time value of money and converted into share application money qualified as a financial debt. The failure of the corporate debtor to issue shares despite the demand notice indicated a default, justifying the initiation of the corporate insolvency resolution process.

Issue 5:
The Adjudicating Authority incorrectly determined that the appellants were not financial creditors. The court set aside the order and directed the case to be remitted to the Adjudicating Authority for admission of the application under section 7, allowing the corporate debtor an opportunity to settle the claim before admission.

In summary, the judgment addressed the rejection of an application under the Insolvency and Bankruptcy Code, 2016, due to limitation and the absence of financial debt. It analyzed the dispute over the appellants' status as financial creditors, the potential limitation on the amount payable, and the necessity of initiating the corporate insolvency resolution process. The court clarified the nature of the debt, the default by the corporate debtor, and the need for proper recognition of the appellants as financial creditors, ultimately remitting the case for further proceedings.