2024 (12) TMI 1034 - AT - IBC

Dismissal of Application u/s 7 of IBC - amount advanced by the Appellant qualifies as a financial debt under Section 5(8) of the IBC or not - Appellant s Petition is barred by limitation or not. Whether the amount advanced by the Appellant qualifies as a financial debt under Section 5(8) of the IBC with the confirmation of accounts, TDS deduction and other material on record? - Whether the Appellant s Petition is barred by limitation? - HELD THAT - The Respondent has claimed that the confirmation of accounts was forged or issued by unauthorised individuals. It is noticed that there are repeated emails issued to the Appellant from the accountant, namely Mr Dilip Mohanty, who is the Chief Accountant of the group company, namely Supreme and Company Private Limited. In fact, he has signed the documents in the confirmation of accounts which is material on record. He has been corresponding with the Appellant on the email address of [email protected]. It is to be noted that Respondent Company is one of the companies of the Group Company of Supreme. Thus, we find that claim of forgery of confirmation of accounts of the Respondent is unsubstantiated and cannot be accepted as an argument of defence. With respect to the issue of limitation, it is noted that the Respondent has provided an acknowledgement through the confirmation of accounts and tax on interest with deductions as per Form 26AS, the latest of which being in FY 2020-21. This provides an acknowledgement of debt and provides a fresh starting point for the limitation period and extends the limitation. The demand notice was issued on 12.03.2022 and Section 7 Application was filed on 02.12.2022, which is well within three years from the date of last acknowledgment in FY 2020-21. Respondent s argument that the Petition was barred by limitation is untenable and needs to be rejected. It is to be noted that the loan is also recorded in the balance sheet of the Appellant even though as other liabilities instead of loan and this does not negate the existence of a financial debt and therefore the conclusion of the Adjudicating Authority that this is not a financial debt cannot be sustained. Even if this material on record not relied, there is sufficient other material on record to establish debt and default. Whether the dismissal of the Section 7 Petition by the Adjudicating Authority is sustainable or not? - HELD THAT - The debt and default is established in the matter. In fact, the Respondent has not even bothered to appear before this Tribunal to defend its case. Under these conditions when the Appellant has been able to establish the debt and default, the finding of the Adjudicating Authority dismissing the Section 7 Petition cannot be sustained. Accordingly, the order of the Adjudicating Authority dated 21.11.2023 is set aside. The Corporate Debtor, namely Brick and Mortar Realty Private Limited, is ordered to be proceeded under Section 7 of the Code. Appeal allowed.

Summary

Issues Involved:

I. Whether the amount advanced by the Appellant qualifies as a financial debt under Section 5(8) of the IBC with the confirmation of accounts, TDS deduction, and other material on record?

II. Whether the Appellant's Petition is barred by limitation?

III. Whether the dismissal of the Section 7 Petition by the Adjudicating Authority is sustainable or not?

Issue-wise Detailed Analysis:

I. Qualification as Financial Debt:

The primary issue is whether the amount advanced by the Appellant qualifies as a "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The definition includes money borrowed against the payment of interest. In this case, the Appellant disbursed a loan of Rs. 1.5 crores in five installments, supported by bank statements. Although there was no written agreement specifying the interest rate, the Respondent paid interest at 12% per annum, as evidenced by a payment of Rs. 14,69,688 on 14.02.2017 and TDS deductions under Section 194A of the Income Tax Act. The Respondent also acknowledged its liability through confirmations of accounts for the financial years 2014-15, 2016-17, and subsequent years. The Tribunal found sufficient material to conclude that the loan transaction met the "time value of money" test, thus qualifying as a financial debt.

II. Limitation:

The Appellant's Petition was challenged on the grounds of being barred by limitation. However, the Tribunal noted that the Respondent acknowledged the debt through confirmations of accounts and TDS deductions, with the latest acknowledgment in FY 2020-21. This acknowledgment provided a fresh starting point for the limitation period. The demand notice was issued on 12.03.2022, and the Section 7 Application was filed on 02.12.2022, both within the three-year limitation period from the last acknowledgment. Therefore, the Tribunal rejected the Respondent's argument of the Petition being barred by limitation.

III. Sustainability of Dismissal by Adjudicating Authority:

The Adjudicating Authority dismissed the Section 7 Petition due to the absence of a formal written loan agreement, citing RBI guidelines that mandate written agreements for NBFCs. However, the Tribunal emphasized that the IBC does not mandate a written agreement to establish financial debt. The IBC, enacted in 2016, holds supremacy over the RBI Circular dated July 2015, as per Section 238 of the IBC, which provides an overriding effect over other laws. The Tribunal also referred to judgments in 'Narendra Kumar Aggarwal v. Monotrone Leasing Pvt. Ltd.' and 'Agarwal Polysacks Ltd. v. K.K. Agro Foods and Storage Ltd.', which supported the validity of oral agreements for inter-corporate loans under the IBC if supported by other relevant documents. The Tribunal concluded that the absence of a written agreement does not negate the existence of a financial debt.

Conclusion and Order:

The Tribunal found that the debt and default were established based on the material on record, and the Respondent's failure to appear before the Tribunal further supported this conclusion. Consequently, the Tribunal set aside the Adjudicating Authority's order dated 21.11.2023, dismissing the Section 7 Petition. The Corporate Debtor, Brick and Mortar Realty Private Limited, was ordered to be proceeded against under Section 7 of the IBC, with the NCLT, Kolkata Bench, directed to issue the necessary order within 30 days.