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TMI Blog2023 (7) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... from out of lease rental. IFS further clearly contemplated that after units are merged with JNIL, the liability for payment of the balance loans and interest shall be on JNIL. In the arbitration proceedings MKJ Group filed an Application under Section 31(6) of the Arbitration and Conciliation Act claiming for an Interim Award for an amount of Rs. 102,26,78,728/- which amount according to the MKJ Group was admitted in the balance sheet of Corporate Debtor JNIL. The Application praying for Interim Award for aforesaid amount by MKJ Group was dismissed by Sole Arbitrator on 26th November, 2014 which order was not challenged. It is clear that in the arbitration proceedings which was between two groups i.e. BLS and MKJ Groups. MKJ Group claimed the amount paid by CIAL towards installments to the lenders and claim of Rs. 102,26,78,728/- was made which claim was repelled in the arbitration proceedings thus the claim of assignor of the Appellant was very much raised as a counter claim. It is admitted fact that after approval of the scheme of arrangement by the High Court on 13th April, 2013, payment of servicing of the loan is being done by the JNIL for which there is no dispute - th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing I.A. filed by the Corporate Debtor for dismissing the Section 7 Application - appeal dismissed. - Company Appeal ( AT ) ( Insolvency ) No. 350 of 2023 - - - Dated:- 4-7-2023 - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Ms. Varsha Himatsingka, Mr. Rajat Sinha, Advocates For the Respondents : Mr. Ramji Srinivasan, Sr. Advocate with Mr. Rahul Pandey, Mr. Shivam Shukla, Mr. Devansh Srivastava, Mr. Mahesh Agrawal, Ms. Shurti Pandey, Ms. Namrata Saragoi, Mr. Shreya Edupuganti, Mr. Diwakar, Advocates JUDGMENT ASHOK BHUSHAN , J. 1. This Appeal has been filed by the Appellant challenging Order dated 09.02.2023 passed by National Company Law Tribunal, Mumbai Bench, Court-II (hereinafter referred to as The Adjudicating Authority ) by which order, the Adjudicating Authority allowed I.A. No. 2973 of 2022 filed by the Corporate Debtor-Jaiswal Neco Industries Limited, Respondent (hereinafter referred to as JNIL ) praying for dismissal of Section 7 Application of Insolvency and Bankruptcy Code, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96 which although initially was rejected by the Civil Judge but the Order was reversed by Hon ble Bombay High Court vide Judgment and Order dated 28th July, 2011. The Hon ble High Court held that suit was not maintainable in view of the arbitration clause. f. On 20th June, 2011, BLS Group initiated arbitration proceeding against MKJ Group alleging delay in adjudication on the part of the MKJ Group in implementing the IFS. In the arbitration, various claims were raised by the BLS Group including monetary claims with interest. Hon ble Bombay High Court appointed on 12th August, 2011 sole arbitrator. In the arbitration proceeding, MKJ Group filed an Application under Section 31(6) of the Arbitration and Conciliation Act, 1996 seeking Interim Award for an amount of Rs. 102,26,78,728/- being the amount allegedly admitted by BLS Group owed to CIAL which was payment towards lenders of Strip Mill Division. The Counter Claim was filed by MKJ Group in the Arbitration. g. On 16th April, 2013, Hon ble Bombay High Court approved the scheme of merger, the Strip Mill Division was eventually demerged and absorbed by GNIL. GNIL thereafter serviced the Bank Loans of Strip Mill Division from Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the I.A. and dismissed Section 7 Application. l. The Adjudicating Authority by the Impugned Order held that claim made by Financial Creditor emanates from an IFS dated 31st July, 2008 between the members of the Jayaswal Family, alleged debt was the subject matter of arbitration proceedings which having been amicably settled and compromised between the parties, nothing can be said to be due and payable from the Corporate Debtor. m. The Adjudicating Authority further held that CIAL has paid certain banks and institutions money against loans availed by the Strip Mill Division which according to the CIAL was liable to be paid by the JNIL. The Adjudicating Authority held that there has been no disbursement to the Corporate Debtor-JNIL and no money has been received by JNIL for time value of money. The Adjudicating Authority held that there is no financial debt. n. Aggrieved by the order of the Adjudicating Authority, this Appeal has been filed. 4. We have heard Mr. Krishnendu Datta, Learned Sr. Counsel for the Appellant and Mr. Ramji Srinivasan, Learned Sr. Counsel for the Respondent. 5. Mr. Krishnendu Datta, Learned Sr. Counsel appearing for the Appellant submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs. 104,43,67,347.94/- was stemmed from IFS and the same debt was under consideration in the arbitration proceeding by virtue of counter claim filed by MKJ Group. MKJ Group filed counter claim of same amount of Rs. 104,43,67,347.94/- and also filed an Application under Section 31(6) of the Arbitration and Conciliation Act for interim award which came to be rejected. Arbitration Proceedings having been amicably settled between the parties there can be no debt subsisting. It is submitted that in the arbitration proceedings monetary claim which was claimed by the JNIL for losses and damages suffered for running the Strip Mill Division was much more than the amount of Rs. 104,43,67,347.94/-. It is submitted that payments claimed based on the balance sheet entry is hopelessly misplaced since JNIL had categorically disputed the debt in its different balance sheet notes. Appellant has referred to balance sheet of 2015-16, 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21 and referred to the notes where the claim was disputed. Balance sheet has to be read with the notes on to account hence the case of the Appellant that there is acknowledgement of debt is wholly incorrect. The cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual repayment of interest and principle of the Units. BLS Group agrees to pay total interest and principle payments in priority in accordance with the Sixth Schedule, including all other incidental amounts due to the Bankers of the Units on due dates. 9. Clause 18 of the IFS contemplated that demerge/merger/settlement of all inter company shall be completed within three months. There is no doubt between the parties that initially till August, 2010 payments of interest and loans were serviced and thereafter from August, 2010 till March, 2013, CIAL made payment of interest of the loan to the Lenders and according to the CIAL the payment made during the said period by CIAL was Rs. 104,43,67,347.94/-. We have noticed above that after August, 2010 when CIAL had to make payment of interest to the Loan, a suit No. 584/2011 was filed by MKJ Group seeking declaration that non-payment of the debt of lenders by BLS Group was contrary to the IFS and direction was sought to BLS Group to reimburse the amount of more than Rs. 30 Crores which was paid by CIAL till March, 2021. Suit was ultimately dismissed on account of arbitration clause i.e. Clause 27 in the IFS. Arbitration Proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with interest was on the CIAL. IFS contemplated demerger of Strip Mill Division of CIAL from CIAL to JNIL. All units were being run by JNIL on lease rental basis. We have noticed clause 7(l) of the IFS which clearly contemplates that all units are being run by JNIL on lease rental basis and on basis of payment of monthly rentals, repayment of loan and interest is being provided. IFS does not transfer the liability of payment of loan on JNIL nor the said transaction can be treated to be any kind of disbursement to the Corporate Debtor for time value of money. The clause clearly contemplated that once all the units are merged with JNIL the liability for the payment of balance loans and interest shall be on the JNIL. It is admitted fact that after approval of the scheme of arrangement by the High Court on 13th April, 2013, payment of servicing of the loan is being done by the JNIL for which there is no dispute. We do not find any error in the finding of the Adjudicating Authority that there is no financial debt owed by JNIL to the CIAL on basis of which an Application under Section 7 to be filed either by CIAL or its assignee. From the sequence of events as noted above it is cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a sum of Rs. 70027.00 lakhs from CIAL towards the loss suffered by it due to delay/withholding the merger of Strip Mill Division of CIAL with a mala fide intention which is pending before the Hon ble Civil Judge Senior Division, Nagpur. 13. From the sequence of events as noted above it is clear that the JNIL has been disputing the claim of Rs. 10432.79/- lakhs as reflected in the balance sheet of Corporate Debtor as credited in the books of account at the time of merger of Strip Mill Division which liability was disputed by JNIL which is apparent from proceedings in the arbitration as noted above. Appellant itself in his Appeal has brought on record Annexure A- 16 Letter dated 20th September, 2014 which was written by the Respondent denying its liability. It is useful to extract letter dated 20th September, 2014 written by the Respondent filed as Annexure A-16 by the Corporate Debtor. The Letter dated 20th September, 2014 was written in response to the Letter dated 15th September, 2014 written by CIAL claiming an amount of Rs. 102,26,78,728/-. It is useful to extract the entire Letter dated 20th September, 2014: To Millind Bodhankar Abhijit Group Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it has to be looked into as to whether any entry is unqualified or has been entered into with caveats which has to be examined on case to case basis. In 35 of the Judgment, following has been laid down: 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 acknowledgements 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 (supra), 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 cas ..... 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