Insolvency (IBC)

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Judgment dated 28.8.2020

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(i) Insolvency and Bankruptcy Code, 2016,  Section 7 -  Forgery and fraud  - Allegations of forgery and fraud are not decided in proceedings under Sections 433 and 434 of the Companies Act, 1956 for winding up of a company - Such disputes necessarily have to be adjudicated in a regular suit, on the basis of evidence, including forensic examination reports – The averments made in the winding up petition ex facie show that the claim of the Creditors  was hotly disputed -  The debtor company relied on certain documents signed by the creditors -  Creditors claimed that letters attributed to them, even alleged letters addressed by them to the Income Tax Authorities were forged - Disputes as to whether the signatures of the Creditors (Petitioners in winding up petition) are forged or whether records have been fabricated can be adjudicated upon evidence including forensic evidence in a regular suit and not in proceedings under Section 7 of the IBC - Companies Act, 1956, Sections 433 and 434. #2020 SCeJ 1505 

 

(ii) Pleadings - Alternative defences  - Alternative defences are permissible to contest a claim -  Open to the  party , to refute a claim by taking the plea of limitation and also to contend that no amount was in fact due and payable - Insolvency and Bankruptcy Code, 2016,  Section 7. #2020 SCeJ 1505 

Held, Appellate Authority was not inclined to accept the submission of the Appellant, that the entire amount had been paid, for two purported reasons. The first reason was that the Correlation Statement showed payments of certain amounts amounting to Rs.53,05,000/- in favour of Customs, Chennai and payments amounting to Rs.1,75,000/- in favour of one K. The Respondents, as Financial Creditors had disputed that these payments were towards the dues of the Financial Creditors. The second reason was that, if the total amount had been paid, there was no reason for the Appellant Company to take the plea that the amount was not payable, the same being barred by limitation. It is well settled in law that alternative defences are permissible to contest a claim. It was thus open to the Appellant Company, to refute the claim of the Respondents by taking the plea of limitation and also to contend that no amount was in fact due and payable by the Appellant Company to the Respondents. #2020 SCeJ 1505 

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(iii) Insolvency and Bankruptcy Code, 2016,  Section 3(11), 7 -  Legally recoverable debt  - For the applicant invoking the Corporate Insolvency Resolution Process, to prima facie show the existence in his favour, of a legally recoverable debt -  In other words, the respondent had to show that the debt is not barred by limitation. #2020 SCeJ 1505 

Held,  Proposition of law which emerges from Innoventive Industries Ltd. vs. ICICI Bank and Anr., (2018) 1 SCC 407, is that the Insolvency Resolution Process begins when a default takes place. In other words, once a debt or even part thereof becomes due and payable, the resolution process begins. Section 3(11) defines 'debt' as a liability or obligation in respect of a claim and the claim means a right to payment even if it is disputed - The Code gets triggered the moment default is of Rs.1,00,000/- or more - Once the Adjudicating Authority is satisfied that a default has occurred, the application must be admitted, unless it is otherwise incomplete and not in accordance with the rules -  The judgment is however, not an authority for the proposition that a petition under Section 7 of the IBC has to be admitted, even if the claim is ex facie barred by limitation.

Further held, "42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application." B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 relied in Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd., (2019) 9 SCC 158. #2020 SCeJ 1505 

 

(iv) Limitation Act 1963, Schedule Part II , clauses (19) to (21) - Period of limitation for initiation of a suit for recovery of money lent, is three years from the date on which the loan is paid - The last loan amount is said to have been advanced in 2004-2005 - In the winding up petition, there is not a whisper of any agreed date by which the alleged loan was to be repaid -  In the instant case, apparently the debt was barred by limitation even in the year 2012, when winding up proceedings were initiated - Insolvency and Bankruptcy Code, 2016,  Section 7. #2020 SCeJ 1505 

 

(v) Insolvency and Bankruptcy Code, 2016,  Section 3(11), 7 -   A personal Loan to a Promoter or a Director of a company cannot trigger the Corporate Resolution Process under the IBC. #2020 SCeJ 1505 

Held, as observed cogent records including letters signed by the Respondent Nos. 1 and 2 which evince that on 6th October, 2007, Respondent No.2 resigned from the Board of the Appellant Company and at that time the Respondent No.2 requested the Appellant Company to treat the share application money of Rs.90,00,000/- as share application money of Mr. M. Krishnan and to issue shares for aforesaid value to Mr. M. Krishnan. The amount was to be treated as a personal loan from the Respondent No.2 to Mr. M. Krishnan. A personal Loan to a Promoter or a Director of a company cannot trigger the Corporate Resolution Process under the IBC. #2020 SCeJ 1505  

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(vi) Insolvency and Bankruptcy Code, 2016,  Section 3(11), 5(8),  7 -    Share money  - The payment received for shares, cannot be a debt, not to speak of financial debt - Shares of a company are transferable subject to restrictions, if any, in its Articles of Association and attract dividend when the company makes profits.  #2020 SCeJ 1505 

 

Held, 'financial debt’ defined in Section 5(8) makes it clear that 'financial debt means a debt along with interest, if any, disbursed against the consideration for time value of money and would include money raised or borrowed against the payment of interest; amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; 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; receivables sold or discounted other than any receivables sold on non-recourse basis or any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing. Explanation to Section 5(8) relates to real estate projects. The payment received for shares, duly issued to a third party at the request of the payee as evident from official records, cannot be a debt, not to speak of financial debt. Shares of a company are transferable subject to restrictions, if any, in its Articles of Association and attract dividend when the company makes profits. #2020 SCeJ 1505 

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