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TMI Blog2022 (10) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... crores is shown in the balance sheets for the successive years but significantly no interest amount pertaining to the debt is shown as being outstanding and liable to the purported financial creditor. Quite obviously the principal amount of loan gets changed due to the settlement entered into by the corporate debtor with its secured creditors including Deepak Vegpro Pvt. Ltd. When there is discrepancy between the amount appearing in the balance sheets itself from one year to another, and in addition, there is a huge discrepancy between the amount claimed in default in section 7 application and the amount appearing as purported debt, the existence of debt as claimed and the jural relationship are very much doubtful - In the present case, it is found that the amount of loan given by IDBI, which was in default in the year 1998. This loan was taken over by SASF for a total consideration of Rs.2.50 crores by an Assignment Deed executed on 17.1.2007, the alleged loan was assigned by SASF to Deepak Vegpro Pvt. Ltd., after a no objection by the corporate debtor. The claim of the appellant that the loan was due and payable by the corporate debtor is contested by the Respondent by statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal has been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (in short IBC ) by Deepak Vegpro Pvt. Ltd. who is aggrieved by the order dated 5.9.2019 passed by the Adjudicating Authority (NCLT, Kolkata) while dismissing CP(IB) No. 265/KB/2018 (hereinafter called Impugned Order ). 2. Deepak Vegpro Pvt. Ltd., as financial creditor, filed an application under section 7 of the IBC against the corporate debtor Shree Hari Agro Industries Ltd., claiming that a debt and interest thereon amounting to total of Rs.412.52 crores is due and payable to it by the corporate debtor. The facts of the case are that the Appellant obtained a term loan of Rs.4,50,00,000.00 from the Industrial Development Bank of India (in short IDBI ) on 11.7.1996, which was to be repaid in 20 quarterly instalments with interest @ 21% p.a. and the said loan agreement and deed of hypothecation of immovable property and mortgage of movable assets were signed on 11.7.1996. As per terms of the said loan agreement, the first instalment fell due and payable on 1.4.1998, and when the Respondent defaulted in repayment of the debt, IDBI issued a formal notice to recall the entire loan amount on 26.4.2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal that his section 7 application was rejected on the grounds that: (i) The debt is time barred; (ii) There is discrepancy in the debt amount which is payable and claimed in section 7 application and the debt amount that is mentioned in the balance sheets cited by the appellant; (iii) There is pending litigation due to family dispute between two groups of the Data Family and after division in the family assets, the issue of this loan is being used to settle scores; and (iv) No demand notice was issued by the Appellant after assignment of the loan in 2007 till 2018. 6. We heard the arguments of the Learned Counsels for both the parties and perused the record. 7. The Learned Counsel for Appellant has submitted that the term loan taken by the Respondent of Rs. 4.50 crores from IDBI with compound interest @ 21% p.a. with repayment in quarterly instalments secured by hypothecation of moveable property and mortgage of immovable property of the corporate debtor. Since the loan was not repaid in time, IDBI recalled the loan in 1998. He has further submitted that IDBI initiated proceedings before the DRT, and IDBI assigned the loan along with associated securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due and payable by the Respondent. He has claimed that the finding in the Impugned Order, that since there is discrepancy in the amount claimed by the Appellant in his section 7 application and the amount of debt acknowledged as liability in the corporate debtor s balance sheets is erroneous as the Adjudicating Authority has to merely see whether the acknowledgement is of an amount greater than the threshold value of Rs.1 lakh and not go into the precise amount of the alleged debt. 10. The Learned Counsel for Appellant has also cited the judgment of Hon ble Supreme Court in the matter of Innoventive Industries Ltd. vs. ICICI Bank (2018 1 SCC 407) in support of his contention that once the Appellant s status as a financial creditor is established and the admitted debt liability is more than Rs. 1 lakh, which is the threshold monetary limit for consideration of section 7 application, the application is liable to be admitted. 11. On the point that the Appellant s section 7 application was dismissed due to alleged family settlement and related dispute between two groups of the same family, the Learned Counsel for Appellant has submitted that the family settlement documents do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the background of family settlement with an amount of Rs. 2.50 crores paid by the corporate debtor in purchasing the loan from SASF, the balance sheets of the corporate debtor show a reduced secured debt amount of Rs.1.35 crores. He has further argued that the amount of secured debt shown in the balance sheets should be read with the notes in the balance sheets, and in particular the note in the balance sheet for the FY 2008-09 shows that no repayment schedule is attached to the said loan. He has also stated that there is no interest amount shown as liability in the balance sheet which also goes to show that the amount of Rs. 1.35 crores is not a loan but a financial contribution of Deepak Vegpro Pvt. Ltd. to the corpus of the corporate debtor and not a loan and it has been placed in the section of secured credit in the balance sheets for ease of accounting. In such a situation, he has argued, the amount appearing in the balance sheets is not a loan and hence is not covered in the definition of financial debt . 14. The Learned Senior Counsel of Respondent has insisted that even if the debt is taken to be a financial debt, the balance sheet documents placed on record by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on its maker by an involved or a farfetched process of reasoning. 18. The Learned Counsel for Respondent has also cited the judgment of the Hon ble Supreme Court in the matter of Reliance Assets Reconstruction Company Limited vs. Hotel Poonja International Private Limited [(2021) 7 SCC 352], wherein it is held that, 19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, the limitation started ticking on 27th March 2003, when a Recovery Certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Applicant for the Financial Year ending 2009 was rs.1,35,00,000/-. The financial year ending 31.03.2016 referred to on the side of the applicant discloses an amount of Rs. 1,35,00,000/- as the amount payable to Deepak Vegpro (P) Ltd., and as per the terms and condition given in the note read as There is no pre-defined/specified repayment schedule for this loan . On the other hand the present application has been filed claiming Rs.40044.15 lacs. The amount evidently acknowledged as per the financial statement for the year ending 31.3.2016 cannot be taken as an acknowledgment of debt as claimed by the applicant. Accordingly, we are of the considered view that the claim, if any, is barred by law of limitation. 21. In the light of the contention of both the Learned Counsels and reliance placed on the balance sheets placed on record regarding acknowledgement or otherwise of the alleged financial debt, we look at the financial statements referred to by the Appellant, which include balance sheets FY 2006-07 going continuously up to FY 2015-16 to claim that the debt owned by the corporate debtor was acknowledged therein, year after year. A perusal of the balance sheet for FY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest, liquidated damages or any other claims agreed for waiver in full. The waived amount aggregating to rs.268.65 lacs was accordingly written back and cr4edited to Capital Reserve Account out of which an amount aggregating to Rs.40.65 lacs outstanding to M/s. Kedar Nath Ravindra Kumar HUF, Smt. Anita Agarwal, M/s. Shree Hari Industries, M/s. versa Trading company are subject to verification with proper relevant document or pending consent of these parties in this regard. 4. Interest accrued and due to financial Institutions amount to Rs. 709.96 lacs as at 31.3.2008 towards interest including simple interest, compound interest, penal interest, liquidated damages etc. has also been written back in the books of accounts of the Company in terms of one time settlement agreed and settled with them accordingly written back and credited to Capital Reserve Account to that extent. xx xx xx xx 22. From a close perusal of balance sheets and the alleged loan amount that appears in the name of Deepak Vegpro Pvt. Ltd. and the Notes to the Accounts , it is quite clear that the original loan amount of Rs. 4.50 crores became Rs. 1.35 crores in the balance sheet for the FY 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Counsel for Respondent has cited the judgment of Hon ble Supreme Court in the matter of Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC Online SC 321 wherein it is held as follows: - 35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by section 134 (7). Equally, the auditor s report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court holds as follows: 21. It is now well settled that a writing to be an acknowledgment of liability must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship in regard to an existing liability. The admission need not be in regard to any precise amount nor by expressed words .. An acknowledgment made with referenced to a liability, cannot extend limitation for a time-barred liability or a claim that was not made at the time of acknowledgment or some other liability relating to other transactions. Any admission of jural relationship in regard to the ascertained sum due or a pending claim, cannot be an acknowledgment for a new additional claim for damages. 27. Another judgment cited by the Learned Senior Counsel for Respondent relates to the matter of Tilak Ram and Others vs. Nathu and Others (AIR 1967 SC 935) wherein Hon ble Supreme Court holds as follows: - 12. The right of redemption no doubt is of the essence of any inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me that the due amount is a financial debt under the IBC, there is no default in repayment of the alleged loan. 30. In the present case, we find that the amount of loan given by IDBI, which was in default in the year 1998. This loan was taken over by SASF for a total consideration of Rs.2.50 crores by an Assignment Deed executed on 17.1.2007, the alleged loan was assigned by SASF to Deepak Vegpro Pvt. Ltd., after a no objection by the corporate debtor. The claim of the appellant that the loan was due and payable by the corporate debtor is contested by the Respondent by stating that after the assignee of IDBI/SASF loan to Deepak Vegpro Pvt. Ltd., the remaining amount of Rs. 1.35 crores is considered as an investment and not any loan transaction. In support of his contention, the Respondent has claimed that there was no repayment plan for the remaining amount of Rs. 1.35 crores agreed to between the Appellant and the Respondent and more importantly, between the years 2008 and 2018, and consequently no demand was made for the pending amount. That the said alleged loan appears in the cases before BIFR and AAIFR cannot be taken as making any demand or acknowledgement of the said loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional, it may, by order, admit such application: or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application. Xxx xxx xxx xxx 37. A plain reading of the above-stated provision under section 7 and the use of the word may in clause (a) of sub-section (2) of section 7 makes it clear that the Adjudicating Authority has the discretion to either admit it or reject the application, of course depending on the facts of the case and whether such facts and circumstances call for admission of the section 7 application. The language of section 7 can be contrasted with the language of section 9 where no word such as may is used in sub-section (5) of section 9 and an exhaustive list of conditions given in clause (i) of sub-section (5) of section 9 are satisfied. 38. Recently, in the matter of Vidarbha Industries Power Ltd v. Axis Bank Ltd.,2022 SCC OnLine SC 841, decided on 12.07.2022, Hon ble Supreme held as follows: - The existence of a financial debt and default in payment thereof only gave the financial cre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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