2022 (11) TMI 160 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - whether the loan advanced by Respondent No. 2 to the corporate debtor regarding which the promissory note has been executed is a financial debt - whether the letter dated 7.6.2016 constitutes admission of such debt and whether the date of dishonouring of cheques i.e. 16.12.2016 is the date of default? HELD THAT - The ledger statement regarding confirmation on account of the corporate debtor for the period 1.4.2014 to 2015, which was sent by the corporate debtor to Respondent No. 2 (attached at page 97 of the appeal paperbook) clearly shows that interest on unsecured loan amount of Rs.170625/- was paid on 9.4.2014, further an amount of Rs.172500/- was paid on 20.11.2014 and an amount of Rs.341250 was paid on 20.06.2015 - the argument of Respondent No. 2 that the question of demanding payment on account of the promissory note during the existence did not arise till June, 2016 when he approached the corporate debtor for repayment of the loan amount convincing. The three-cheques bearing no. 964293 dated 22.10.2016 for an amount of Rs. 50,00,000/-, cheque no. 958801 dated 22.10.2016 for an amount of Rs.3,41,250/- and cheque no. 964332 dated 27.10.2016 for an amount Rs.1,72,500/- (copies at page 81 of appeal paperbook) relating to the principal loan amount and the interest thereon were presented in the bank for realisation, when they were dishonoured and the advice notes have been sent by the Central Bank of India regarding dishonouring of the three cheques with the comments Account Closed - While no date of default is mentioned in the promissory note or any other document such loan agreement has been produced, we are of the view that corporate debtor s letter dated 7.6.2016 states very clearly the existence of the loan and also the fact that on depositing the cheque with the bank of Respondent No. 2, the same will definitely be honoured and the dishonouring of cheques will be taken as default for which the financial creditor can take legal action. Thus the date 16.12.2016 has been correctly considered as the date of default by the Adjudicating Authority, which the said cheques were dishonoured. Respondent No. 2 deposited the cheques in accordance with date of the cheques, i.e. 22.10.2016. Therefore, it also supports the contention of the Financial Creditor that the date of 16.12.2016, when these cheques were dishonoured, has been correctly considered as the date of default - the Adjudicating Authority has not committed any error in admitting the section 7 application. Appeal dismissed.

Summary

Issues Involved:
1. Admission of Section 7 application under IBC.
2. Determination of default and limitation period.
3. Acknowledgment of debt and its impact on limitation.
4. Nature of the transaction and its qualification as financial debt.
5. Examination of relevant judgments cited by the appellant.

Issue-wise Detailed Analysis:

1. Admission of Section 7 Application under IBC:
The appellant challenged the admission of the Section 7 application filed by Respondent No. 1, which initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, Varsha Corporation Limited. The appellant argued that the application was barred by limitation as it was filed beyond the three-year period stipulated for a promissory note payable on demand.

2. Determination of Default and Limitation Period:
The appellant contended that no demand for repayment was made during the life of the promissory note (up to 23.2.2015), and thus, no default could be determined during this period. The appellant further argued that the Section 7 application filed on 25.10.2019, was clearly barred by limitation, as it was filed more than seven years after the promissory note's issuance. The appellant also cited letters dated 7.6.2017 and 16.1.2017, claiming they were beyond the limitation period and could not be used to acknowledge the debt under Section 18 of the Limitation Act, 1963.

3. Acknowledgment of Debt and Its Impact on Limitation:
The respondent argued that the corporate debtor was paying interest on the loan, and thus, there was no reason to demand repayment until 2016. The respondent referred to a letter dated 7.6.2016, where the corporate debtor admitted receiving the loan and issued cheques towards repayment. The respondent claimed the date of default was 16.12.2016, when the cheques were dishonored, making the Section 7 application within the three-year limitation period.

4. Nature of the Transaction and Its Qualification as Financial Debt:
The tribunal examined whether the loan advanced by Respondent No. 2 constituted a financial debt. The ledger statement and TDS details corroborated the payment of interest by the corporate debtor, supporting the respondent's claim that the loan was a financial debt. The tribunal found the respondent's argument convincing that the demand for repayment did not arise until June 2016, and the date of default was correctly considered as 16.12.2016.

5. Examination of Relevant Judgments Cited by the Appellant:
The appellant cited several judgments to support their contention. The tribunal noted that in the case of Anita Jindal vs. M/s. Jindal Buildtech Pvt. Ltd., the Section 7 application was dismissed as it related to recovery of past dues. However, in the present case, it was a clear case of loan disbursement for running the enterprise, and the loan repayment was in default. The tribunal also examined the judgments in Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt. Ltd. and Pawan Kumar vs. Utsav Securities Pvt. Ltd., concluding that the existence of a financial debt was established without ambiguity in the present case.

Conclusion:
The tribunal concluded that the Adjudicating Authority did not commit any error in admitting the Section 7 application. The appeal was dismissed as devoid of merit, with no order as to costs.