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2020 (8) TMI 741 - SC - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Advance made to Proprietorship firm in 2003 and 2004 - the firm was taken over by the Company - conversion of loan into share - Corporate Debtor failed to make repayment of its dues - time limitation - Existence of financial debit - HELD THAT - This Applicant, has not placed any material disclosing how this debt is still alive after lapse of three years from the date of disbursement. Whenever any claim is made, when it is beyond three years period as envisaged under Article 136 of the Limitation Act, the person making claim is bound to disclose and explain as to how the debt claim is not barred by limitation. No such effort has been made by these Applicants to prove that this is within limitation. Even if the Corporate Debtor statement is taken as true, the limitation would start running from the year 2007. Since the winding up petition was filed in the year 2013, even from the year 2007, these Applicants could have filed winding proceedings within three years from thereof, not in the year 2013, Conceding everything as stated by the applicants, then also the debt claim would remain barred by limitation. The NCLT rightly refused to admit the application under Section 7 of the IBC, holding the same to be barred by limitation. The Appellate Tribunal has erred in law in reversing the judgment and order of the earlier Adjudicating Authority. The Adjudicating Authority rightly rejected the application as barred by limitation. The Appellate Authority patently erred in law in reversing the decision of the adjudicating authority and admitting the application. Existence of financial debit - HELD THAT - Explanation to Section 5(8) which relates to real estate projects is of no relevance in the facts and circumstances of this case. The payment received for shares, duly issued to a third party at the request of the payee as evident from official records, cannot be a debt, not to speak of financial debt. Shares of a company are transferable subject to restrictions, if any, in its Articles of Association and attract dividend when the company makes profits. Appeal allowed.
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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