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TMI Blog2022 (11) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... f debt and default , and does not require any further Agreements in writing. Time Limitation - HELD THAT:- The Hon ble Supreme Court in DENA BANK (NOW BANK OF BARODA) VERSUS C. SHIVAKUMAR REDDY AND ANR. [ 2021 (8) TMI 315 - SUPREME COURT ] while discussing at length Sections 14 18 of the Limitation Act, 1962 has also observed that the Judgement and/or decree for money in favour of the Financial Creditor, passed by DRT, or any other Tribunal or Court, or the issuance of a certificate of recovery in favour of the Financial Creditor, would gave rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the Code, if the dues of the Corporate Debtor under the Judgement/decree or any part thereof remained unpaid. Breach of Principles of Natural Justice - HELD THAT:- The matter was adjourned several times on request of the Corporate Debtor, on the ground that the matter would be settled. The record shows that on 24.01 2019, Corporate Debtor was directed to file the Reply on or before 31.01.2019. On 31.01.2019 the matter was adjourned on request of both parties on the ground of settlement. On 14.02.2019, the matter was again ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate in I.A. No. 2106 of 2019. For I.A. No. 4316/2019: Mr. Shikhil Suri, Advocate in I.A. No. 4316/2019. For I.A. No. 2609/2019: Mr. Rajendra R. Mishra, Advocate in I.A. No. 2609/2019. For the Respondent No. 2: Ms. Anjali Sharma Ms. Simmi Bhamrah, Advocates for R-2. JUDGEMENT [Per; Shreesha Merla, Member (T)] 1. Challenge in this Appeal namely Company Appeal (AT) (Insolvency) No. 644 of 2019 is to the Impugned Order dated 03.06.2019 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in C.P. (IB) No. 4135/I B/MB/2018, whereby the Learned Adjudicating Authority has admitted the Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as The Code ), preferred by the first Respondent/ M/s. USV Private Limited . The Adjudicating Authority in the Impugned Order has observed as follows: 3. The Petitioner submitted that the debt is arising out of a Financial transaction wherein the Corporate Debtor borrowed money from the petitioner for repayment of loan taken by the Corporate Debtor from a third party namely Vipal Healthcare Pvt. Ltd. Hence the debt is a financial deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any consideration for time value of money . In the meantime, the Corporate Debtor was declared as an NPA in 2002. The Respondent issued a Notice under Section 433 read with Section 434 of the Companies Act, 1956 calling upon the Corporate Debtor to pay the debts based on the cheques issued. A suit was filed before the Hon ble Bombay High Court on the basis of these cheques and it was subsequently transferred to the City Civil Court, Mumbai, whereunder the Respondent took fresh summons for Judgement. However, no Financial Agreement evidencing the same was placed on record. The City Civil Court on 17.11.2017 observed that the cheques given were a non-gratuitous act and was covered under Section 17 of the Indian Contract Act, 1872. It was also observed that the suit was maintainable under Order 37 Rule 1(2)(ii). The Learned Court inter alia granted conditional leave to the Corporate Debtor to defend the suit on deposition of an amount of Rs.52.07 Lakhs/- on or before the next date. A decree was passed directing USV to recover the amount of Rs.52.07 Lakhs/- along with interest at 9% p.a. from the date of the suit to its actual realization. It is submitted that no executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suhsil Ansal Vs. Ashok Tripathi Comp. App. (AT) (Ins.) No. 452 of 2020 passed by this Tribunal in support of his case that in the absence of any written arrangement, the first Respondent cannot be termed as a Financial Creditor . Although the Company had a money decree against it, there was no default on behalf of the Corporate Debtor as per the provisions of the Code. A default can only be said to occur when the decree is rendered as non-executable for the want of monies or funds of the Judgement debtor. It is argued that in this case, the Corporate Debtor had offered to secure the debt by offering its Assets which are of greater value than the purported claim. The right to sue under the Code occurs from the date when the default occurs, which in the present case is beyond the Limitation period prescribed. Learned Counsel placed reliance on the following Judgements in support of his case that the period of Limitation is three years from the date when the right to apply accrues and in the present case, the account of the Corporate Debtor was declared as NPA in 2002 which is the relevant date for calculating the Limitation period: o Babulal Vardharji G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of the Financial Debt by the Corporate Debtor in its letter dated 10.02.1998 and therefore the argument that there is no written contract cannot be sustained. Reliance is placed on the Judgement of this Tribunal in Narendra Kumar Agarwal Vs. Monotrone Leasing Pvt. Ltd. Comp. App. (AT) (Ins.) No. 549/2020 in which this Tribunal has observed that the written contract cannot be treated as an essential element to prove the Financial Debt if the transaction s nature is proved otherwise . Moreover, the City Civil Court Order conclusively establishes existence of debt and default . As regarding Limitation, the Learned Counsel submitted that the suit was decreed on 19.12.2017 and the debt has been acknowledged by the Corporate Debtor in their Balance Sheets 2014-15 and the Section 7 Application was filed in the year 2019 and therefore it cannot be said to be barred by Limitation . As regarding breach of principles of Natural Justice, it is submitted by the Learned Counsel that the Corporate Debtor was given several opportunities to file their Reply from 10.01.2019 to 01.05.2019, but they failed to do so and therefore the right to file Reply was forfeited. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided as hereunder: Name of the Project Amount Sanctioned Book Outstanding Amt. Assigned (in Crores) Date of Sanction of SBIHFL Date of NPA Lok Everest 14.95 14.63 7.31 28.03.1995 30.04.1997 Lok Sarita 5.00 5.00 2.50 23.03.1996 31.12.1997 Lok Dhara Lok Upavan II 9.95 6.72 3.36 27.04.1995 31.08.1998 TOTAL 29.90 26.35 13.17 It is submitted that the Appellant submitted a compromise proposal on 08.06.2006 and on 13.08.2012. Another settlement was advised by the Applicant SBI vide letter dated 25.04.2015 which again failed due to non-payment by the Appellant. SBI also initiated action under SARFAESI Act 2002 and issued Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rum; that the Code is not a recovery proceeding; the Applicant cannot be allowed to obstruct a settlement between two private parties; that the Applicant made a payment of only Rs.2.5Crs./- instead of the complete amount of Rs.5Crs./- have agreed in terms of the JVA and therefore failed to adhere to the terms of the JVA; all disputes between the parties were settled by way of a modificatory JVA executed between the Appellant and the Corporate Debtor ; the Applicant failed to take benefit of the MJV and raised disputes against the Corporate Debtor through Arbitration which was eventually settled through an award in respect of which execution has been filed and therefore their Claim is not maintainable. 7. I.A. No. 4316/2019: I.A. No. 4316/2019 has been preferred by the Applicants Mr. Hitesh Ramji Javeri and Ors. seeking intervention on the ground that they are 4.92% Shareholders of the total paid up capital of the Corporate Debtor . It is submitted that the Applicants had invested a sum of Rs.5,05,55,481/- towards subscription of 23Lakhs Equity Shares and it is only due to their deliberate non-compliance and indulgence by the Promoters of the Corporate Debtor , that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the Applicant and the Corporate Debtor is prior to the year 2000 and that they should first approach Resolution Professional with respect to their claims as the Corporate Debtor is under Insolvency. If the Applicant is still aggrieved it can file separate proceedings for verification of its claim and redressal of its grievances, but it cannot be permitted to intervene. 9. I.A. No. 2614/2019 I.A. 2614/2019 has been preferred by M/s. Lok Everest Co-operative Housing Society Ltd. seeking to intervene on the ground that it is a Creditor of Lok Housing and Constructions Ltd./ Corporate Debtor , and has large dues in the form of corpus fund of Rs.195.67Lakhs/- together with the interest, clubhouse fees, for which claims made order pending for final hearing before the NCDRC. It is also submitted that they have already filed their claims on 25.06.2019 before the RP. It is also submitted that the Appellant is disqualified as Director of the Corporate Debtor , in view of continued defaults in compliance with the SEBI Regulations, SEBI had delisted the Company on 05.11.2018, to other Directors who have resigned in the year 2017 itself and the accounts of the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inable, keeping in view, that there was a Tri-patriate Arrangement, entered into between the Corporate Debtor , VHPL and the first Respondent on 10.02.1998, which reads as follows: 12. This document shows that there was an understanding between the parties in respect of the fresh loan issued by the Respondent to the Corporate Debtor and unused thereof by the Respondent to make payments to the VHPL. It is an admitted fact that the Corporate Debtor made a part payment of the said debt on 15.04.1998 by paying a sum of Rs.1,23,767/-. The said letter addressed by the Corporate Debtor is reproduced as hereunder: 13. This fact is also recorded in the City Civil Court Order. We are of the considered view that the existence of Financial Debt and its default has been admitted and confirmed by the Corporate Debtor , and therefore the absence of any Written Agreement cannot be said to be an essential element to prove the Financial Debt , as the nature of transaction has been established that there was a debt and default thereof. The City Civil Court Order passed a decree confirming the debt. At this juncture, we place reliance on the Judgement of this Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the ratio of B.K. Educational Services has, in any manner, been altered by this Court. As noticed, in B.K. Educational Services, it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out. The findings in paragraph 12 in Jignesh Shah makes it clear that the Court indeed applied the principles so stated in B.K. Educational Services, and held that the winding up petition filed beyond three years from the date of default was barred by time. 34.1. Even in the later decisions, this Court has consistently applied the declaration of law in B.K. Educational Services (supra). As noticed, in the case of Vashdeo R. Bhojwani (supra), this Court rejected the contention suggesting continuing cause of action for the purpose of application under Section 7 of the Code while holding that the limitation started ticking from the date of issuance of recovery certificate dated 24.12.2001. Again, in the case of Gaurav Hargovindbhai Dave ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as 08.07.2011 in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement. In this view of the matter, reliance on the decision in Mahaveer Cold Storage Pvt. Ltd. does not advance the cause of the respondent No. 2. 36. The submissions made on behalf of respondents that the rules of limitation are not meant to destroy the rights of the parties and reference to the decision in N. Balakrishnan (supra) are also misplaced. Application of the rules of limitation to CIRP (by virtue of Section 238-A of the Code read with the above-referred consistent decisions of this Court) does not, in any manner, deal with any of the rights of respondent No. 2; it only bars recourse to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Undertaking Act vide notification dated 01.04.2002, which was valid till 31.03.03. This notification has been renewed from time to time and enforced till 25.04.2014. Fresh summons for Judgement by the first Respondent was given on 18.02.2017, pursuant to the liberty granted by the Hon ble Court vide order dated 23.11.2016. The suit was decreed on 19.12.2017. The debt was acknowledged by the Corporate Debtor in their balance sheets of FY 2014 15. On 29.10.2018, the first Respondent in its capacity of Financial Creditor filed an Application on 29.10.2018 before the Adjudicating Authority and therefore the Application is well within the Limitation period. 18. As regarding breach of Principles of Natural Justice, we have observed from the record that the matter was adjourned several times on request of the Corporate Debtor , on the ground that the matter would be settled. The record shows that on 24.01 2019, Corporate Debtor was directed to file the Reply on or before 31.01.2019. On 31.01.2019 the matter was adjourned on request of both parties on the ground of settlement. On 14.02.2019, the matter was again adjourned and the Corporate Debtor did not file their Reply. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place, in the sense that a debt becomes due and is not paid. Some of the relevant provisions of the IBC, are reproduced here for convenience: 3. Definitions.-In this Code, unless the context otherwise requires- * * * (6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (7) corporate person means a company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; (8) corporate debtor means a corporate person who owes a debt to any person; * * * (10) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; * * * 6. Persons who may initiate corporate insolvency resolution process.-Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 7. Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the adjudicating authority when a default has occurred. Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the adjudicating authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same. (5) Where the adjudicating authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, 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: Provided that the adjudicating authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the adjudicating authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The adjudicating authority shall communicate- (a) the order under clause (a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a Decree Holder . As the definition of the word Creditor in the Code includes a Decree Holder if a Petition is filed for realisation of the decretal amount, it cannot be dismissed on the ground that the Section 7 Application should have been taken steps for filing execution case in the Civil Court. Section 3(11) of the Code defines debt as a liability in respect of a claim, and Section 3(6) of the Code defines term claim to mean a right to payment, whether or not such right has been reduced to judgement. Therefore, if the submission on behalf of the Corporate Debtor is accepted, it would mean that a claim is excluded from being a financial debt even if reduced to Judgement by way of a recovery certificate. 22. For all the aforenoted reasons, we are of the considered view that there is no illegality or infirmity in the Impugned Order, passed by the Adjudicating Authority in admitting the Section 7 Application, keeping in view the ratio laid down by the Hon ble Supreme Court in M/s. Innoventive Industries Ltd. (Supra). Hence, this Appeal fails and is accordingly dismissed. We are also conscious of the fact that several opportunities were given before the Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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