2022 (5) TMI 314 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt - privity of contract between Petitioner and Corporate Debtor - HELD THAT - The material on record evidences that the Supplementary Deed was executed between the Tridhaatu Group and the Prince Care Group and signed accordingly by their representatives. It is the main case of the Appellant that there is a privity of contract between the Appellant and the Corporate Debtor Company having regard to the principal outstanding amount being reflected in the Balance Sheet for the year ending March 2019; the Supplementary Retirement Deed executed by the continuing partners of the Corporate Debtor recording the factum of unsecured loans and finally the cheques issued by the Corporate Debtor in favour of the Appellant towards payment of the due amount - It is evident from the material on record that both the Retirement Deed dated 12/08/2016 and the Supplementary Retirement Deed dated 13/08/2016 were entered into between the Tridhaatu Group and Prince Care Group , to which the Corporate Debtor Tridhaatu Aranya Developers LLP is not a party. The Corporate Debtor is a Limited Liability Partnership incorporated under the provisions of the Limited Liability Partnership Act, 2008, and is a body incorporate independent of its partners. It is to be seen whether any debt/liability has been taken up by a partner in the name of the LLP. In the Application under Section 7 of the Code filed by the Appellant herein the Corporate Debtor is described as an LLP, and as a part of the Tridhaatu Group . The Corporate Debtor is a distinct legal entity and the aforenoted Deeds do not construe any privity of contract between the Corporate Debtor and the Appellant and further establishes that mere issuance of these 2 cheques does not construe liability having consideration for time value of money . Further, the LLP Retirement Deed refers to a lumpsum amount of Rs.45,08,08,384/- to be paid by the Tridhaatu Group . It is the case of the Respondent that out of this sum, a sum of Rs.6,13,34,457/- is towards miscellaneous expenses and the remaining amount is not bifurcated and is towards One Time Settlement - It is an admitted fact that there were disputes between the Appellant and continuing partners of the Respondent LLP. It is also evident from the Supplementary Deed which records that the parties may exchange ownership of facts to settle their obligations. It is pertinent to mention that the Appellant has for the first time, in this Appeal has pleaded that the partners can bind the LLP and relies on cheque copies and the Balance Sheet reference. The onus to establish that the amount which is due and payable falls within the ambit of the definition of Financial Debt , as defined under Section 5(8) of the Code, is on the Appellant herein. There is no ascertained sum crystallised as due and payable . To reiterate, there is no documentary evidence filed to prove that the two cheques amount to acknowledgement of any Financial Debt , especially in the light of the fact that the Retirement Deed and the Supplementary Retirement Deeds have been entered into between the Tridhaatu Group and Prince Care Group , for which the Respondent/ Corporate Debtor is not a party - the amounts do not possess the essential ingredients of Financial Debt as defined under Section 5(8) of the Code. This Tribunal has also observed in a catena of Judgements that IBC is not a recovery proceeding or a Code for settlement of collateral disputes. Appeal dismissed.

Summary

Issues Involved:
1. Privity of Contract between Petitioner and Corporate Debtor.
2. Existence of Financial Debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
3. Limitation and Acknowledgment of Debt in Balance Sheets.
4. Applicability of LLP Retirement and Supplementary Retirement Deeds.

Detailed Analysis:

1. Privity of Contract:
The Adjudicating Authority observed that there was no privity of contract between the Petitioner and the Corporate Debtor. The LLP agreement and the Supplementary Retirement Deed were not signed by both parties. The Tribunal noted, "there is no privity of contract between Petitioner and Corporate Debtor," and further emphasized that "a mere reference to certain liability while handing out cheques, confirmation of liability, it cannot be construed that there is a binding agreement of any debt due."

2. Existence of Financial Debt:
The Tribunal assessed whether the Petitioner demonstrated the basic ingredients of financial debt. It concluded that the Petitioner failed to show that the debt was disbursed against the consideration for time value and money. The Tribunal stated, "the Petitioner has failed to demonstrate the basic ingredients of financial debt along with interest, if any, which is disbursed against consideration for time value and money." The cheques presented as security did not establish any financial debt.

3. Limitation and Acknowledgment of Debt:
The Appellant argued that the claims were within the period of limitation due to acknowledgments in the Balance Sheets. However, the Tribunal found that these acknowledgments were for accounting purposes and did not constitute a financial debt. The Tribunal noted, "the acknowledgement in the Balance Sheets is only for the sake of accounting purpose and the same cannot be read dehors the facts."

4. Applicability of LLP Retirement and Supplementary Retirement Deeds:
The Tribunal scrutinized the LLP Retirement Agreement and the Supplementary Retirement Deed. It concluded that these agreements were between the 'Tridhaatu Group' and 'Prince Care Group' and did not bind the Corporate Debtor. The Tribunal stated, "both the Retirement Deed dated 12/08/2016 and the Supplementary Retirement Deed dated 13/08/2016 were entered into between the 'Tridhaatu Group' and 'Prince Care Group', to which the 'Corporate Debtor' 'Tridhaatu Aranya Developers LLP' is not a party."

Assessment and Conclusion:
The Tribunal concluded that the amounts claimed did not possess the essential ingredients of 'Financial Debt' as defined under Section 5(8) of the Code. It emphasized that the IBC is not a recovery proceeding or a code for settling collateral disputes. The Tribunal stated, "the 'amounts' do not possess the essential ingredients of 'Financial Debt' as defined under Section 5(8) of the Code." Consequently, the appeal was dismissed, with the Tribunal finding no reason to interfere with the Adjudicating Authority's order.