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TMI Blog2024 (4) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... cided by the Court - thus the time being even if 04.02.2020 is not taken as date of default, proceed to examine as to whether application is filed within the limitation. As noted above, the amount was to be paid in 58 instalments. 1st instalment is to be paid in 15.08.2017 and last on 15.05.2022. It is pleaded by the Corporate Debtor itself that it has paid only Rs.40 Lakhs which at best will cover first three instalments. Thus, even if it is taken that the default committed on 15.11.2017, the application filed on 31.01.2022 is well within time - When the entire loan was recalled, the cause of action arose to initiate proceeding and application filed on 31.01.2022 from loan recall notice is also well within time. Thus, from any view of the matter, the application filed by the Financial Creditor on 31.01.2022 was well within time and the Adjudicating Authority did not commit any error in rejecting the submission of the Appellant that the Application is barred by time. Whether the arbitral award dated 04.02.2020 needs to be ignored in proceedings under Section 7, the objection of the Corporate Debtor being pending before the Delhi High Court in the proceeding for execution of the arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,00,000/- to the Corporate Debtor- Shweta Housing Hospitality Private Limited . The facility was to be repaid in the instalments with the interest @14% from 15.08.2017 till 15.05.2022 in 58 instalments. The Corporate Debtor except paying three instalments did not make any further payment to the Financial Creditor. Financial Creditor issued a Demand Notice dated 01.12.2021 recalling the outstanding dues of Rs. 35,90,58,448/-. The Financial Creditor also initiated arbitration proceedings as per the Loan Agreement in which an award dated 04.02.2020 was given. The Corporate Debtor having not made the payment, Section 7 application was filed by the Financial Creditor on 31.01.2022. Reply was filed by the Corporate Debtor to Section 7 application. The Financial Creditor has also for seeking enforcement of ex parte arbitral award filed an execution application before the Delhi High Court on 22.07.2021. Corporate Debtor filed his objection in the execution application which is claimed to be pending. The Adjudicating Authority vide impugned order 18.12.2023 admitted Section 7 application. This Appeal has been filed challenging the said order. 3. Learned Counsel for the Appellant challengin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained even if the arbitral award is not to be looked into. It is further submitted that the arbitral award cannot be disregarded in the proceeding under Section 7 which is the summary proceeding. The arbitral award till date has not been set aside under Section 34 of the Arbitration Conciliation Act. It is further submitted that in the balance sheet of the Corporate Debtor, the financial debt has been very well acknowledged the balance sheets are of the Corporate Debtor himself. 5. We have considered the submissions of the Counsel for the parties and perused the record. 6. From the submissions of the Counsel for the parties, following questions arise for consideration in this Appeal are:- (i) Whether the application under Section 7 filed by the Appellant on 31.01.2022 was barred by time? (ii) Whether the arbitral award dated 04.02.2020 needs to be ignored in proceedings under Section 7, the objection of the Corporate Debtor being pending before the Delhi High Court in the proceeding for execution of the arbitral award? (iii) Whether debt and default was proved in the proceedings under Section 7? (iv) Whether the Adjudicating Authority committed error in admitting Section 7 applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the Corporate Debtor made the payment of instalments amounting Rs. 40 lacs. I crave leave to produce a detailed payment schedule at a later stage, if so required. 9. The Corporate Debtor itself pleaded that he has paid Rs.40 lakhs. It has been submitted during the submissions of the parties that only three instalments could be paid by the Appellant. The date of default as given in Part-IV is 04.02.2020 i.e. the date of arbitral award. The Adjudicating Authority has noticed the date of default in Section 7 and came to the conclusion that the application is well within the time filed on 31.01.2022. The submission which has been much pressed by the Counsel for the Appellant is that the arbitral award is void and need not be looked into, hence, date of default cannot be taken as 04.02.2020. Section 3 of the Limitation Act casts an obligation on a Court to consider as to whether application filed is within limitation as prescribed by the Limitation Act, 1963. It is also well settled that even if no defence is raised by the Defendant regarding plea of limitation, the question of limitation has to be looked into and decided by the Court. We, thus, for the time being even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions with regard to award dated 04.02.2020 but observed that the contention regarding appointment of arbitrator cannot be looked into and adjudicated by the Tribunal. 12. The challenge to the arbitral award dated is 04.02.2020 pending before the Delhi High Court with regard to which objections have already been filed by the Corporate Debtor. We are of the view that it is not necessary to express any opinion with regard to rival contentions of the parties in relation to award dated 04.02.2020. 13. Learned Counsel for the Respondent has submitted before us that even if the award dated 04.02.2020 is disregarded the debt and default is proved, hence, there was no illegality in admitting Section 7 application. The contention of the parties regarding debt and default shall be examined hereinafter. QUSESTION NO. 3 4 14. The question to be answered is as to whether even if arbitral award dated 04.02.2020 is not considered for the purposes of debt and default whether there are sufficient materials on the record to prove that debt and default was proved. As noticed above, Section 7 application was filed relying on Loan Agreement between the parties dated 13.06.2017. In the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has noticed following:- 20. It is clear that repayment of only 3(three) out of 58(Fifty-eight) instalments have been made as acknowledged by the Corporate Debtor in its Reply. Therefore, it is not incorrect to hold that the Corporate Debtor has defaulted on the repayment of the outstanding loan amount. Moreover, apart from all the above documents, the Financial Creditor has also submitted the Certificate dated 09.03.2022 issued by the National E- Governance Service Limited (NESL) evidencing the default. In view thereof, we are satisfied that there is debt and default as mandated under the Code. 16. From the above facts, it is clear that debt and default is fully established and even if the arbitral award dated 04.02.2020 is not taken into consideration the debt and default is proved on the part of the Corporate Debtor. We may refer to the judgment of the Hon ble Supreme Court in M. Suresh Kumar Reddy vs. Canara Bank and Ors.- (2023) 8 SCC 387 where the Hon ble Supreme Court after noticing the earlier judgments had held that when debt and default is proved, the Adjudicating Authority has to admit the application unless it is incomplete. In paragraphs 9 to 14, Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. *** 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) IBC. The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute. ( emphasis in original and supplied ) 11. Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. Default is defined under sub-section (12) of Section 3 IBC which reads thus: 3. Definitions. In this Code, unless the context otherwise requires *** (12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be; Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the case of E.S. Krishnamurthy. While disposing of review petition by order dated 22-9- 2022, this Court held thus : (Vidarbha Industries Power case, SCC p. 323, paras 6-7) 6. The elucidation in para 90 and other paragraphs [of the judgment under review] were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case. 7. To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes. 14. Thus, it was clarified by the order in review that the decision in Vidarbha Industries was in the setting of facts of the case before this Court. Hence, the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. The view taken in Innoventive Industries still holds good. 17. We, thus, find that there was sufficient materials brought by the financial creditor on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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