2022 (5) TMI 311 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT - The Petitioner has filed certain documents in the form of supplementary affidavit on 21.03.2022 and annexed two letters date 03.01.1997 and 13.09.2002, and annexed a Memorandum of Understanding executed on 03.01.1997 between the Petitioner and the Respondent, where the loan amount of Rs. 50,00,000/- has been agreed to give to the Respondent at the rate of 24% p.a. for the period of two years beginning from 03.01.1997. Time Limitation - HELD THAT - As per the MOU dated 03.01.1997, the loan has been agreed to be given for two years. As per the MOU executed between the parties, as per clause 1 at page 14 of the Supplementary Affidavit, the Ist default occurred on 03.01.1999. The letter dated 13.09.2002 has been given by the Respondent admitting the loan has been obtained from the Petitioner is annexed at page 17 of the supplementary affidavit - There is no explanation as to what happened between 14.09.2002 upto 27.07.2014 - almost (12) twelve long years. Thereafter, from 28.07.2014 upto the date of demand notice i.e. 28.05.2021, there is a long period that has elapsed which will be approx, seven (07) years. The petitioner is repetitively showing the recent acknowledgements submitted by the Respondent in the form of Reply to the demand notice dated 28.05.2021 annexed at page 59 of the petition in which the Respondent has admitted its inability to repay the loan. This bench is of the view that, Petitioner has not filed any Record of default recorded with the Information Utility, as per section 7(3)(a), nor the Petitioner has filed the certified copy of entries in the relevant account in the bankers' book as defined in clause (3) of section 2 of the Bankers' Books Evidence Act, 1891 and nor an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired, as per Regulation 2A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016. Hence on the point of proof of debt and limitation the petitioner has failed to establish a case on merits. Petition dismissed.

Summary

Issues:
- Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process.
- Default on financial debt repayment by the Corporate Debtor.
- Acknowledgment of debt by the Corporate Debtor.
- Limitation period for filing the application.
- Proof of debt and limitation requirements under the Insolvency and Bankruptcy Code.

Analysis:
1. The application was filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor, a Public Limited Company engaged in Building and Construction work. The Financial Creditor had advanced a substantial amount for a residential project in 1997, which faced hindrances due to land acquisition by the Delhi Development Authority in 2004. A settlement agreement in 2014 confirmed the liability of the Corporate Debtor to pay a specified amount to the creditors.

2. The Financial Creditor contended that the Corporate Debtor failed to pursue compensation proceedings due to financial constraints, leading to doubts about compliance with the settlement agreement. Despite acknowledging the debt, the Corporate Debtor expressed inability to repay, prompting the Financial Creditor to file the application. The Corporate Debtor did not dispute the debt or produce evidence of repayment despite receiving a statutory demand notice.

3. Concerns regarding the limitation period for filing the application arose, with the Petitioner submitting documents supporting the loan disbursement in 1997. However, the bench noted gaps in evidence between 2002 and 2014, raising questions about continuity and adherence to limitation requirements. The absence of records of default, certified bank account entries, or court orders on debt non-payment weakened the Petitioner's case on proof of debt and limitation.

4. The bench dismissed the petition due to the Petitioner's failure to establish a strong case on merit, highlighting the lack of evidence regarding default records, bank account entries, and court orders on debt non-payment. The decision emphasized the importance of meeting the proof of debt and limitation requirements under the Insolvency and Bankruptcy Code for a successful application under Section 7.