2023 (1) TMI 300 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Financial Creditors - time limitation - date of default - acknowledgement of debt in writing in the balance sheets - HELD THAT - Section 7 Application was filed by the Appellant on 05th April, 2019. There was negotiated settlement between the parties dated 04.12.2008. It can safely be accepted that the period of limitation did not expire till the parties entered into negotiated settlement. Under the negotiated settlement, payments were made by the Respondent from time to time. Last payment was made on 30th April, 2014, the negotiated Settlement was cancelled by the Appellant by Letter dated 11th July, 2014. There can be no doubt that when the settlement was cancelled on 11th July, 2014, the amount became due with effect from 11th July, 2014. The Application under Section 7 has been filed on 05th April, 2019. We need to first examine as to whether there is any acknowledgement by the Corporate Debtor during the said period for the extension of limitation since without extension of limitation during the period, the Application was obviously filed beyond three years from the date when amount became due. The letter written by Corporate Debtor indicates that letter mentions about the default in compliance of allotment of 10 lac equity shares of 10 each. Letter never acknowledged any default of the original amount or the amount which became due in loan recall notice issued by the Appellant on 04.03.2004. As noted above by cancelling the negotiated settlement vide letter dated 11th July, 2014 original liability of the Respondent under the loan agreement was sought to be restored. When we look into the loan recall notice dated 04.03.2004, the amount which was claimed in the loan recall notice, was Rs. 24,69,59,120/- with further interest with effect from 01st January, 2004. The letter dated 2nd July 2015 is neither any acknowledgement of amount referred to in recall notice nor can be treated to be acknowledgement of the amount as claimed by the Appellant in the Section 7 Application. The next letter which has been relied on by the Appellant is letter dated 03.10.2017. Letter dated 03.10.2017 was written by the Corporate Debtor to the Appellant with regard to buy back shares of Rs. 1 Crore which according to the Respondent was only default of the negotiated settlement - the above letter also cannot be treated to be acknowledgement of liability and amount claimed by the Appellant in the loan recall notice dated 04.03.2004 or the amount which became due as per Appellant after the revocation of negotiated settlement on 11th July, 2014. The letter dated 03.10.2017 cannot be read to be any acknowledgement or dues as is now claimed by the Appellant in their application. In Section 7 Application, date of default was mentioned as 04.03.2004 and the letter cannot be read to be acknowledgment of the dues which are now sought to be claimed in Section 7 Application nor can be said to be any acknowledgment of the amount as referred to in the Loan Recall Notice dated 04.03.2004 or the amount which according to the Appellant became due after cancellation of the negotiated settlement dated 11th July, 2014. It is clear that Adjudicating Authority was convinced that there is no genuine claim by the Financial Creditor. We fully endorse the view taken by the Adjudicating Authority that after negotiated settlement between the parties on 04.12.2008, cash component of Rs. 7.5 Crores was paid admittedly within time allowed and default was only of nonallotment of 10 lakhs equity shares of Rs. 10 each. The cancellation of negotiated settlement was only on the ground that Respondent failed to comply the allotment of equity shares and execution of buy back agreement. We have already extracted the letter dated 11th July, 2014 by which negotiated settlement was cancelled by the Appellant. When the cancellation of negotiated settlement was only on the ground that Respondent failed to allot 10 lakhs equity shares with face value of Rs. 10 each and failed to buy back the shares at price giving minimum yield of 13%p.a. the claim at best could have been confined to the above amount. Application having been filed for claiming amount of Rs. 265.02 Crores is clearly exorbitant and unconscionable and not genuine. One of the object of the Trust is to arrive at One Time Settlement and taking measures to enforce the available securities for effective and efficacious recovery under the SARFAESI Act, 2002 restructuring or reconstruction of assets was to act as trustee, managers and administrators. The object of trust is not to completely annihilate the Corporate Debtor. The action of the Appellant in completely ignoring the negotiated settlement and after realizing the entire cash component again embarking on recovery of entire amount, is not in accordance with the object and purpose for which trust has been created. Appeal dismissed.

Summary

Issues Involved:
1. Barred by Limitation
2. Principal of Acquiescence and Estoppel
3. Genuineness of Financial Creditor's Claim
4. Acknowledgement of Debt
5. Calculation of Default Amount

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed on April 5, 2019, with the date of default mentioned as March 4, 2004. The appellant argued that the limitation period was extended due to acknowledgements of debt by the respondent in balance sheets and letters. However, the tribunal found that none of the letters or balance sheets acknowledged the debt as claimed by the appellant. The tribunal concluded that the application was barred by limitation as it was filed beyond the three-year period from the date the right to sue accrued.

2. Principal of Acquiescence and Estoppel:
The respondent argued that the application was barred by the principle of acquiescence and estoppel. The tribunal observed that the respondent had paid the cash component of Rs. 7.5 crores as per the negotiated settlement, and the only default was the non-allotment of 10 lakh equity shares and failure to buy back the shares. The tribunal found that the financial creditor's claim was not genuine and was based on an unconscionable agreement.

3. Genuineness of Financial Creditor's Claim:
The tribunal held that the financial creditor's claim was not genuine. The tribunal noted that after the negotiated settlement, the respondent had paid the cash component of Rs. 7.5 crores, and the only default was related to the equity shares. The tribunal found that the financial creditor had inflated the claim amount to Rs. 265.02 crores based on whimsical interest rates, penal interest rates, and liquidated damages, which was not justified. The tribunal concluded that the financial creditor's claim was exorbitant and unconscionable.

4. Acknowledgement of Debt:
The appellant relied on letters dated July 2, 2015, and October 3, 2017, and balance sheets to argue that there were acknowledgements of debt. The tribunal found that the letters and balance sheets did not acknowledge the debt as claimed by the appellant. The letters referred to the default in compliance with the allotment of equity shares and did not acknowledge the original loan amount or the amount claimed in the loan recall notice dated March 4, 2004. The tribunal concluded that there was no acknowledgement of the debt that could extend the limitation period.

5. Calculation of Default Amount:
The appellant claimed an amount of Rs. 265.02 crores, which included the original loan amount and interest calculated up to the date of the application. The tribunal found that the claim was based on an unconscionable agreement and was not justified. The tribunal noted that the negotiated settlement was revoked due to the respondent's failure to allot equity shares and buy back the shares, and the claim should have been confined to the amount related to the equity shares. The tribunal concluded that the financial creditor's claim was exorbitant and not genuine.

Conclusion:
The tribunal dismissed the application under Section 7 of the IBC, finding that it was barred by limitation, the financial creditor's claim was not genuine, and there was no acknowledgement of debt that could extend the limitation period. The tribunal also found that the financial creditor's claim was exorbitant and unconscionable, and the application was not a fit case for admission or initiation of Corporate Insolvency Resolution Process (CIRP). The appeal was dismissed.