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2020 (8) TMI 741 - SC - Insolvency and Bankruptcy


Issues Involved:
1. Whether the claim of the Respondents was barred by limitation.
2. Whether the Respondents were Financial Creditors of the Appellant Company.
3. Whether there was any financial debt due from the Appellant Company to the Respondents.
4. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable.

Detailed Analysis:

1. Limitation:
The NCLT dismissed the application filed by the Respondents under Section 7 of the Insolvency and Bankruptcy Code, 2016, holding that the claim was barred by limitation. The NCLT meticulously recorded details of the payments made by the Appellant Company and/or its predecessor in interest to the Respondents and considered the letters written by the Respondents to the Income Tax Authorities. It was observed that the last loan amount was advanced in 2004-2005, and the winding up proceedings were initiated in 2012, which was beyond the three-year limitation period stipulated under Article 137 of the Limitation Act, 1963. The Supreme Court affirmed this view, stating that the application under Section 7 of the IBC was ex facie barred by limitation.

2. Financial Creditor Status:
The NCLT held that the Respondents were not Financial Creditors of the Appellant Company. The Appellant Company had taken over the business of the proprietorship concern, M/s Radha Exports, along with its assets and liabilities. However, the Respondents failed to prove that there was any debt due from the Appellant Company to them. The Supreme Court reiterated that a personal loan to a Promoter or a Director of a company cannot trigger the Corporate Resolution Process under the IBC. The Respondents' claim that the amount of ?90,00,000/- was treated as share application money and not a loan further supported this conclusion.

3. Existence of Financial Debt:
The NCLT found that the Respondents had failed to prove the existence of any financial debt due from the Appellant Company. The Appellant Company had produced proof of payments, and there were no financial transactions between the Appellant Company and the Respondents after 23rd March 2006. The Supreme Court agreed with this finding, emphasizing that the Respondents did not provide any material evidence to show that the debt was still alive after the lapse of three years from the date of disbursement.

4. Maintainability of Application under Section 7 of IBC:
The Supreme Court held that the application under Section 7 of the IBC was not maintainable. The definition of 'financial debt' in Section 5(8) of the IBC makes it clear that it means a debt along with interest, disbursed against the consideration for time value of money. The payment received for shares, duly issued to a third party at the request of the payee, cannot be considered a debt, let alone a financial debt. The Supreme Court set aside the impugned judgment and order of the Appellate Tribunal, restoring the order of the Adjudicating Authority dismissing the application.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgment and order of the Appellate Tribunal and restoring the order of the Adjudicating Authority. The application under Section 7 of the IBC was dismissed as barred by limitation, and it was held that there was no financial debt in existence between the parties. The Respondents were not Financial Creditors of the Appellant Company, and the application under Section 7 of the IBC was not maintainable.

 

 

 

 

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