2022 (3) TMI 1262 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Dishonor of Cheque - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Time limitation - lifting of Corporate veil - Whether the application is filed within the period of limitation and whether the MoUs between the Financial Creditors and Corporate Debtor are executed under proper authorization? - HELD THAT - The present Application which is filed after three years from the date of the MoU or from the date on which the six months falls, which is also beyond three years, is based on a cheque dated 19.11.2020 which is issued by the authorized signatories of LEPL Ventures Private Limited. The date of MoU being 23.06.2016, six months from then would be ending by 23.12.2016. If three years is construed from 23.12.2016, the three years period would be completed by 23.12.2019. Hence, clearly the limitation for filing a suit, based on the MoUs, stands expired by the date of this application. The contention is that by virtue of the cheque dated 19.11.2020, the debt stands acknowledged and hence, a fresh limitation starts from 19.11.2020. In support of the said contention, the Counsel for the Financial Creditor relies on certain judgments. A judgment of the Hon'ble Supreme Court reported in between Hindustan Apparel Industries Vs. Fair Deal Corporation, New Delhi 2000 (5) TMI 1095 - GUJARAT HIGH COURT , in which the Supreme Court considered the judgment of Patna High Court in Rajpatiprasad's Case Vs. Kaushlya Kuer 1980 (8) TMI 213 - PATNA HIGH COURT , wherein the view expressed was that all the post-dated cheques in satisfaction of dues would amount to acknowledgment of liability irrespective of the fact whether the cheques were subsequently dishonoured was relied upon - In the Judgment of the Supreme Court in Hindustan Apparel Industries, the Patna High Court has already held that a post-dated cheque would amount to acknowledgement of liability irrespective of it being dishonoured subsequently. It is also observed that a statement written in the form of a cheque will obviously amount to an acknowledgment in writing. What is important to be noticed from the judgments discussed by the Supreme Court as observed by the Supreme Court is, in the first place a cheque is undoubtedly an acknowledgement of right or debt or liability and when the same is not issued as a post-dated cheque, date of issuance of the cheque would assume importance, whether subsequently it is honoured or dishonoured. It is thus at the stage of issuance of the cheque that there surfaces an intention on the part of the debtor to acknowledge the liability/right/debt owing to the person in whose favour the cheque is issued. If the cheque is honoured it would amount to part payment in writing and the same would fall under Section 19 of the Act (Section 20 of the Previous Act). Hence, according to Section 18 the acknowledgement of liability should be made before the expiration of the prescribed period for a suit or application in respect of the debt. If the acknowledgement is beyond the said period it does not amount to acknowledgment in terms of Section 18 of the Limitation Act. The Supreme Court held that the statement on which the plea of acknowledgment is founded must relate to a present subsisting liability and indicate the existence of jural relationship between the parties - Hence the contention of the Counsel for the Corporate Debtor that unless the acknowledgement is in writing as specified under Section 18(1) it is not a valid acknowledgement as per Section 25(3) of Indian Contract Act, gets nullified since, issuance of cheque is held to be an acknowledgement in writing. There is no doubt that this Tribunal has jurisdiction to lift the corporate veil, to understand the genuineness of the transaction. But for the purpose of understanding the genuineness of the transaction, if evidence need to be taken, the Tribunal would not have jurisdiction. In this case, from the terms of the MoU itself, it can be concluded that there is no concluded contract between the parties and that the due date for the debt has not arrived and consequently no default has been committed. The Petition is liable to be dismissed. If the Financial Creditor is bent upon realizing the amounts he has to get the performance of the MoUs done by approaching the appropriate Forum, but not by way of an application under Section 7 of IBC, 2016 - Petition dismissed.

Summary

Issues Involved:
1. Limitation Period and Authorization of MoUs
2. Existence of Debt and Default under Section 3(12) of IBC

Detailed Analysis:

I. Limitation Period and Authorization of MoUs
The application seeks to initiate the Corporate Insolvency Resolution Process (CIRP) based on two Memorandums of Understanding (MoUs) dated 25.10.2015 and 23.06.2016. The Corporate Debtor contends that the MoUs are not binding as they were not executed with proper authorization. Specifically, the MoUs were signed by individuals without clear authority to bind the Corporate Debtor. The tribunal noted that there was no evidence of authorization for Mr. Ramesh Lingamaneni to sign the MoUs on behalf of the Corporate Debtor, hence concluding that the MoUs do not bind the Corporate Debtor.

Furthermore, the tribunal examined whether the application was filed within the limitation period. The MoUs stipulated various obligations and repayment schedules, and the default dates were calculated based on these schedules. The tribunal found that the application was filed beyond the three-year limitation period from the date of default, which ended on 23.12.2019. The Financial Creditor argued that the issuance of a cheque on 19.11.2020 acknowledged the debt, thus extending the limitation period. However, the tribunal noted that the cheque was issued without a clear basis linking it to the MoUs and did not constitute a valid acknowledgment under Section 18 of the Limitation Act, as it was issued after the expiration of the prescribed period.

II. Existence of Debt and Default under Section 3(12) of IBC
The tribunal analyzed whether there was any debt due and whether any default had occurred under Section 3(12) of the IBC. The first MoU (25.10.2015) outlined that the Investor advanced amounts to the Company for various purposes, with specific repayment dates and collateral security provisions. The second MoU (23.06.2016) restructured the transaction and specified further obligations, including the formation of a joint venture and the sale of property to repay the debt.

The tribunal found that the obligations under the MoUs were not fulfilled, making the contracts non-concluded. The MoUs stipulated that the failure to repay would lead to the sale of secured properties, not to filing a suit or application for recovery. The tribunal concluded that the right to file for CIRP did not arise as the obligations under the MoUs were not met, and no default had occurred in the legal sense.

The tribunal also addressed the Financial Creditor's argument regarding the acknowledgment of debt through the issuance of a cheque. It held that the issuance of a cheque does not automatically extend the limitation period if it is issued after the expiration of the original limitation period. Moreover, the tribunal found no clear nexus between the cheque and the liability under the MoUs, further weakening the Financial Creditor's case.

III. Result
The tribunal dismissed the application, concluding that the Financial Creditor had not demonstrated a valid, enforceable debt or default under the IBC. The tribunal advised that the Financial Creditor should seek enforcement of the MoUs through appropriate forums rather than through an application under Section 7 of the IBC.

Conclusion:
The application for initiating CIRP was dismissed due to the lack of proper authorization for the MoUs, the expiration of the limitation period, and the absence of a concluded contract and enforceable debt. The tribunal emphasized that the Financial Creditor should pursue other legal avenues to enforce the MoUs.