NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Comp. Appeal (AT) (Ins) No. 797 of 2019

IN THE MATTER OF:

MEENA V KOTHARI
R/O 802, SUMMER HEIGHTS,
K.M. MUNSHI MARG,
OPP. BHARAT VIDYA BHAVAN,
MUMBAI
(THROUGH HER SPECIAL POWER
OF ATTORNEY HOLDER
MR. DILIP V. KOTHARI VIDE SPA DATED 06.07.2019)
…APPELLANT
Versus
M/S MABEREST HOTELS PVT. LTD.
(CIN: U55101GA1972PTC000142)
HAVING ITS REGSITERED OFFICE AT:-
18TH JUNE ROAD, HOTEL FIDALGO, PANAJI, GOA-
403001
THROUGH ITS DIRECTOR

…RESPONDENT
Present:
For Appellant:- Mr. Chandra Shekhar Yadav, Advocate for Appellant.
For Respondent:-Mr. Dhruv Tamta, Advocate for Respondent.

JUDGEMENT
(17.02.2020)

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Jarat Kumar Jain. J.

This Appeal has been preferred by Meena V. Kothari (Financial Creditors)

against the Order dated 29.03.2019 passed by Adjudicating Authority (National

Company Law Tribunal) Mumbai, Bench Mumbai.

2. By the impugned order, the Adjudicating Authority rejected the

Application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (In Short

I&B Code) preferred by Meena V Kothari.

3. Brief facts of this case are that on 12.08.2002 the Appellant (Financial

Creditor) advanced a loan of Rs. 10 Laks to Respondent (Corporate Debtor) as a

temporary financial assistance. The loan was to be repaid with the interest at

the rate of 18% per annum as soon as financial crisis is over within reasonable

time i.e., 6 months to 12 months. The Corporate Debtor acknowledged the debt

vide balance confirmation letters at the end of every financial year i.e., on 31

.03.2003 to 31.03.2006 and 01.04.2007. The Financial Creditor wrote a letter

dated 17.09.2007 by registered post demanding loan amount but the Corporate

Debtor failed to repay the loan amount with interest. Thereafter, financial

creditor served a legal notice dated 23.10.2007 but the corporate debtor neither

paid the loan nor replied the notice. Therefore, the Financial Creditor filed

winding up Petition No. 25/2009 before the Bombay High Court, Bench at Goa.

The Hon’ble High Court disposed of the Petition in view of the agreed terms

between the parties directing inter alia that the Financial Creditor shall file a

Civil Suit for recovery of amount claimed before Civil Court. Thereafter, the

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Financial Creditor filed a Civil suit No. 165/2010 before the Civil Court of Junior

Division at Punji, Seeking recovery of loan amount along-with interest. Civil

Court vide order dated 05.10.2018 rejected plaint under Order 11 Rule 7(d) of

CPC holding that the last balance confirmation is on 01.04.2007 hence, suit

ought to have been filed within 3 years from 01.04.2007. Whereas the suit is

filed on 15.10.10 which is beyond the period of 3 years and therefore, barred by

law of limitation. The Financial Creditor preferred an Appeal No. RCA 1580/2018

Challenging the Order dated 05.10.18, the Appeal is pending before the Court of

District Judge at Punji (Goa). Thereafter, the Financial Creditor filed an

application under Section 7 of I&B Code, on 17.04.2018.

4. The Adjudicating Authority by the impugned order rejected the application

on the ground that the debt is not due i.e., not payable hence there is no question

of default in repayment of debt.

5. Learned Counsel for the Appellant submits that the Adjudicating Authority

erroneously held that the claim of the Financial Creditor is contingent upon the

final decision of Civil Court and unless the same is decided the debt of the

Financial Creditor cannot be said to be in existence and due. This Tribunal in

the case of Company Appeal (AT) (Ins) No. 323/2019 (Neeraj Jain Vs. Yes Bank

Ltd. & Anr.) decided on 10.04.2019 held that Section 7 being an independent

proceeding is nothing to do with the pendency of Criminal Case relating to

misappropriation of funds. This Tribunal in the case of Comp. App. (AT) (Ins) No.

1021/2019 (Karan Goeal Vs. M/s Pashupati Jewellers & Ors.) decided on

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01.10.2019 held that merely because suit has been filed by the Financial

Creditor and pending, cannot be ground to reject the application under Section

7 of the I&B Code.

6. Learned Counsel for the Appellant further submits that the Hon’ble

Supreme Court in the case of Innovative Industries Ltd. Vs. ICICI Bank & Anr.

(2018) 1 SCC 407 held that claim mean a right to payment even if it is disputed.

In the present case, it is admitted fact that the Financial Creditor advanced a

loan of Rs. 10 Lakh at the interest of 18% per annum and the loan has not been

repaid to the Financial Creditor in such circumstances, the order passed by the

Adjudicating Authority is liable to be set aside.

7. On the other hand, learned counsel for the Respondent supports the

impugned order and submits that as per the Section 238-A of I&B Code the

provision of Limitation Act, 1963 shall apply to the proceedings before the

Adjudicating Authority. The last balance confirmation is on 01.04.2007 by the

Corporate Debtor therefore, the application ought to be filed within 3 years from

01.04.2007 i.e., till 31.03.2010. However, the Application has been filed on

17.04.18 therefore, claim is time barred.

8. Having heard learned counsel for the parties, we have gone through the

record.

9. Firstly, we would like to refer the judgement of the Hon’ble Supreme Court

in the case of Innovative Industries Ltd. (Supra):

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“(27) The Scheme of the Code is to ensure that when a default takes

place, in the sense that a debt becomes due and is not paid, the

insolvency resolution process begins. Default is defined in Section 3(12)

in very wide terms as meaning non-payment of a debt once it becomes

due and payable, which includes non-payment of even part thereof or

an instalment amount. For the meaning of “debt” we have to go to

Section 3(11), which in turn tells us that a debt means a liability of

obligation in respect of a “claim” and for the meaning of “Claim” we

have to go b ack to Section 3(6) which defines “Claim” to mean a right

to payment even if it is disputed. The code gets triggered the moment

default is of rupees one lakh or more (Section 4). The corporate

insolvency resolution process may be triggered by the corporate debtor

itself or a financial creditor or operational creditor. A distinction is made

by the code between debts owed to financial creditors and operational

creditors. A financial creditor has been defined under Section 5(7) as a

person to whom a financial debt is owed and a financial debt is defined

in Section 5(8) to mean a debt which is disbursed against consideration

for the time value of money. As opposed to this, an operational creditor

means a person to whom an operational debt is owed and an

operational debt under Section 5(21) means a claim in respect of

provision of goods or services”

“(28) When it comes to a financial creditor triggering the process,

Section 7 becomes relevant. Under the Explanation to Section 7(1), a

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default is in respect of a financial debt owed to any financial creditor

of the corporate debtor- it need not be a debt owed to the applicant

financial creditor. Under Section 7(2), an application is to be made

under sub-section (1) in such form and manner as is prescribed, which

takes us to the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the application is made by a

financial creditor in Form 1 accompanied by documents and records

required therein. Form 1 is a detailed form in 5 parts, which requires

particulars of the applicant in Part I, particulars of the corporate debtor

in Part II, particulars of the proposedinterim resolution professional in

Part III, particulars of the financial debt in part IV and documents,

records and evidence of default in part V. Under Rule 4(3), the applicant

is to dispatch a copy of the application filed with the adjudicating

authority by registered post or speed post to the registered office of the

corporate debtor. The speed, within which the adjudicating authority is

to ascertain the existence of a default form the records of the

information utility or on the basis of the of evidence 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

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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 sub-section (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.”

10. In the said case, the Hon’ble Supreme Court, held that when the

Adjudicating Authority is satisfied on the basis of record that the debt is payable

in law or in fact and there is default, the Adjudicating Authority is required to

admit the application. Thus, in the present case, we have to consider that when

the debt is payable in law or in fact and when default is occurred. In the

application under Section 7 of I&B Code, it is pleaded that Rs. 10 laks of loan as

temporary assistance was granted on interest at the rate of 18% Per annum on

dated 12.08.2002 and the loan was to be repaid as soon as Financial Crisis is

over within reasonable time i.e. 6 to 12 months. It is further pleaded that the

Corporate Debtor has acknowledged the debt by balance confirmation letters and

lastly on 01.04.2007. It means the loan was not advanced for any fixed period

and the due date of debt was extended. It is also pleaded that the Financial

Creditor wrote a letter dated 17.09.2007 by Registered post demanding the loan

amount but the Corporate Debtor failed to repay the amount.

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11. Thereafter the Financial Creditor, demanding the loan served legal notice

dated 23.10.2007 and call upon the Corporate Debtor to repay the loan amount

within a period of 3 weeks from the receipt of the notice. The Notice was served

on Corporate Debtor on 04.11.2007. After receipt of the notice the Corporate

Debtor has to repay the loan within a period of 3 weeks i.e. till 25.11.2007 thus

after service of notice on 04.11.2007 the debt becomes due and payable. The

Corporate Debtor has not repaid the loan till 25.11.2007 and committed default

hence the date of default is 25.11.2007. In the application under Section 7 of

I&B Code, the Financial Creditor has to mention the date of default however, no

such date is mentioned in the application. The Financial Creditor has to file the

application under Section 7 of I&B Code, within 3 years from the date of default

as held by Hon’ble Supreme Court in the case of B.K. Educational Service Pvt.

Ltd. Vs. Parag Gupta and Associates: [2018 SCC ONLINE 1921]

“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.”

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12. In this Case the right to sue accrues when a default occurred i.e.

25.11.2007. The Financial Creditor has filed the application under Section 7 of

I&B Code, on 17.04.2018, i.e. after 3 years from the date of default apparently

the application is time barred.

13. The Adjudicating Authority rejected the application on the ground that

after final decision of Civil suit, the debt become due; this tribunal in the case of

Karan Goyal (Supra) held as under:

“from the aforesaid finding of the Hon’ble Supreme Court, it is clear

that once the Adjudicating Authority is satisfied on the basis of

records that the debt is payable and there is default, the

Adjudicating Authority is required to admit the application. The

Respondent – M/s Pashupati Jewellers having enclosed the copy of

the ‘Corporate Guarantee and Undertaking’ Agreement dated 07.

04.2017 instituted on e-Stamp, issued by Government of National

Capital Territory of Delhi, it was not open to the Adjudicating

Authority to deliberate on the issue whether e-Stamp is a forged

document or not. Merely because a suit has been filed by the

Appellant and pending, cannot be a ground to reject the application

under Section 7 of the I&B Code. Pre-existing dispute cannot be a

subject matter of Section 7, though it may be relevant under Section

9 of the I&B Code”

14. This Tribunal in the case of Neeraj Jain (Supra) held as under:

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“Having heard Mr. Darpan Wadhawa, learned Senior Counsel for

the Appellant and Mr. Anant A. Pavgi, learned counsel for the

‘Interim Resolution Professional’, we are of the view that an

application under Section 7 being an independent proceeding has

nothing to do with the pendency of the Criminal Case relating to

misappropriation of the funds by the Chief Financial Office of the

‘Corporate Debtor’ and the employees of the banks. The Bank

which is the ‘Financial Creditor’ is a separate entity from the Chief

Financial Officer of the ‘Corporate Debtor’ or the individual

employees of the Bank(s), if any, involved. The Pendency of the

investigation or trial cannot be a ground to refuse an application

under Section 7 if the application is complete and there is a debt

and default. The I&B Code being a complete code will prevail over

the other Acts and no person can take advantage of the pendency

of the case to stall Insolvency and Bankruptcy proceeding filed

under Section 7”

15. With the above discussion, we are unable to agree with the findings of the

Adjudicating Authority that the claim of the Financial Creditor is contingent

upon the final decision of Civil suit and unless the same is decided the debt of

Financial Creditor cannot be said to be in existence and due. As we discussed

above the debt was due on 04.11.2007 when the legal notice was served on the

Corporate Debtor. However, the Corporate Debtor failed to repay the loan and

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committed the default with effect from 25.11.2007 and this application is filed

after 3 years from the date of default. Thus, the application is time barred.

16. With the above discussion we are of the view that the application under

Section 7 of I&B Code, is barred by limitation, therefore, the application is liable

to be rejected. The Adjudicating Authority rejected the application on the ground

that debt is not due i.e not payable according to us, it is not correct.

Accordingly, the Appeal is dismissed. However, no order as to costs.

(Justice Jarat Kumar Jain)

Member (Judicial)

(Mr. Balvinder Singh)

Member (Technical)

(Dr. Ashok Kumar Mishra)

Member (Technical)

NEW DELHI

SC/kam/

Comp. Appeal (AT) (Ins) No. 797 of 2019