2022 (2) TMI 1130 - AT - Insolvency and Bankruptcy

Rejection of application filed under section 7 of IBC - Corporate Debtor failed to make repayment of its dues - Corporate Debtor clearly admitted its debt and mentioned that Appellant shall be paid - HELD THAT - The Investment Agreement dated 01st April.2014 is on record which clearly mentions that Appellant has invested and paid 75 Lacs which was received by the Corporate Debtor. The Payment of ₹ 75 Lacs is evidenced by the Agreement itself. It is submitted that Appellant was allotted 2000 sq. ft. out of which 1000 sq. ft. was sought to be bought back by the Corporate Debtor with regard to which correspondences were entered - the notice which was issued by the Appellant on 12th July, 2018 was replied by the Respondent/Corporate Debtor where the Corporate Debtor clearly admitted the debt and mentioned that Appellant shall be paid. The Investment Agreement as well as the Reply submitted by the Corporate Debtor itself indicate that the amount was received by the Corporate Debtor and Corporate Debtor itself say that it has paid ₹ 25 Lacs and agreed to make payment of the remaining amount when the project shall start paying back, there is clear admission of the debt on behalf of Corporate Debtor and Adjudicating Authority has committed error in observing that there is no debt proved by the Appellant. Learned Counsel for the Appellant has also referred to several materials to indicate that project is complete and hence payment has become due. The Adjudicating Authority has committed error in rejecting the Application - appeal allowed.

Summary

Issues:
- Rejection of Application under Section 7 of Insolvency and Bankruptcy Code, 2016 by Adjudicating Authority
- Interpretation of Investment Agreement and debt admission by Corporate Debtor
- Observations made by Adjudicating Authority regarding the clarity of purpose in legal notices
- Error in Adjudicating Authority's conclusion on the existence of debt

Analysis:
1. The Appellant filed an appeal against the rejection of their application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The dispute arose from an Investment Agreement dated 01st April, 2014 between the Appellant and the Corporate Debtor, where the Appellant invested ?75 Lacs. The Corporate Debtor acknowledged receiving the amount and agreed to pay the remaining sum when the project started generating revenue.

2. The Adjudicating Authority, in its order, noted discrepancies in the legal notices issued by the Appellant and raised concerns about the clarity of purpose. The Authority found the Investment Agreement to be vague, lacking essential details such as completion date of the project and interest components. The Authority concluded that the parties did not approach the Tribunal with clean hands, leading to the dismissal of the application.

3. The Appellant argued that the Investment Agreement and subsequent correspondence with the Corporate Debtor clearly established the existence of debt, as admitted by the Corporate Debtor. The Corporate Debtor's response to the legal notice confirmed the debt and the agreement to pay the outstanding amount once the project became profitable.

4. Upon review of the evidence, the Appellate Tribunal found merit in the Appellant's submissions. The Investment Agreement and the Corporate Debtor's response indicated the acknowledgment of the debt and the commitment to repay the outstanding amount. The Tribunal concluded that the Adjudicating Authority erred in dismissing the application and set aside the Impugned Order dated 28th May, 2019.

5. The Tribunal directed the Adjudicating Authority to admit the application within one month and allowed the parties to explore a settlement if desired. The appeal was allowed, overturning the decision of the Adjudicating Authority and emphasizing the acknowledgment of the debt by the Corporate Debtor based on the Investment Agreement and subsequent correspondence.