National Company Law Appellate Tribunal, New Delhi: A Division Bench comprising of Ashok Bhushan,* J., and Barun Mitra (Technical Member), remarked that a Corporate Debtor cannot take any benefit of criminal proceedings initiated by filing an application under S. 156 of CrPC which were initiated subsequent to receipt of demand notice under S. 8 of the Insolvency and Bankruptcy Code 2016 (IBC).
Factual Matrix
In the instant matter, the Corporate Debtor used to purchase Cotton from time to time from the Operational Creditor (Respondent) and the Operational Creditor supplied goods to Corporate Debtor from its office in Ahmedabad. The appellant, Director of the Corporate Debtor and Director of the Operational Creditor with the Director of Rishabh Texco (P) Ltd. entered into a Compromise Agreement dated 21-02-2017 to adjust an amount of Rs. 80 Lakh as part payment of combined outstanding liability of Corporate Debtor to Operational Creditor as well as to Rishabh Texco (P) Ltd.
After issuing a Demand Notice under S. 8 of the IBC, the Operational Creditor preferred an application under S. 9 of the IBC for recovery of amount due by the Corporate Debtor to the Operational Creditor. The Corporate Debtor is reply reiterating its stand as in the reply to Demand Notice that amount due to the Operational Creditor has been adjusted by payment made to sister companies of the Operational Creditor – Shiv Shakti International and Harsh Trading Company.
The Adjudicating Authority vide order dated 27-04-2022 admitted the S. 9 application on the grounds that there was a debt and the Corporate Debtor defaulted in making the payment of debt. Aggrieved by the impugned order dated 27-04-2022 passed by the Adjudicating Authority, the appellant preferred an appeal before the NCLAT challenging the same.
Appellant’s Contentions
The appellant contended that no amount is due to the Operational Creditor by the Corporate Debtor as the same has been adjusted by payment made to sister companies of the Operational Creditor. The appellant further contended that a criminal proceeding was initiated by the Corporate Debtor by filing an application under S. 156 of the CrPC, as a result a FIR has been registered under Ss. 420, 467, 468, 471 and 120-B of the IPC and a Report under S. 173(2) of the CrPC was also filed.
Respondent’s Contentions
The respondent contended that the Operational Debt remains unpaid and the same is clearly reflected in the balance sheet of the Corporate Debtor, moreover, the argument that he said due has been adjusted is contrary to the Corporate Debtor’s own balance sheet. The respondent further contended that the concerned criminal proceedings were initiated after S. 8 Notice was given by the Operational Creditor therefore no credit can be taken of said proceedings by the appellant in the present proceedings.
NCLAT’s Observation and Verdict
The NCLAT observed that (1) there is no denial by the Corporate Debtor of entitlement of dues to the Operational Creditor, (2) the balance sheet of the Corporate Debtor in itself is contrary to the Corporate Debtor’s argument that the dues payable are adjusted by making payment to sister companies of the Operational Creditor, (3) the settlement agreement contains an acknowledgement of liability by the appellant towards the Operational Creditor, (4) the Corporate Debtor himself has not taken any set off of the said amount, therefore, the Adjudicating Authority has rightly rejected the appellant’s defence that no amount is due to the Operational Creditor.
The NCLAT observed that the
“…Appellant cannot take any benefit of Criminal Proceedings initiated by the Appellant by filing an Application under Section 156 of the CrPC which proceedings were initiated subsequent to receipt of Demand Notice.”
The NCLAT opined that the Adjudicating Authority has committed on error in admitting S. 9 application as the same has to be considered and decided based on material regarding the debt and default and in the present case there is a debt which remained unpaid by the corporate Debtor to the Operational Creditor.
The NCLAT dismissed the present appeal on not finding any error in the impugned order passed by the Adjudicating Authority admitting S. 9 application.
[Subhash Chand Gupta v. Bhavesh Texo Fab (P) Ltd., 2023 SCC OnLine NCLAT 212, order dated 11-05-2023]
*Judgment by Justice Ashok Bhushan
Messiah of the sufferers: Bidding adieu to Justice Ashok Bhushan
Advocates who appeared in this case :
Mr. Srijan Mehrotra, Counsel for the Appellant;
Mr. Avtaar Singh, Counsel for the Respondent No. 1;
Mr. Sandeep Kumar, Counsel for the Respondent No. 2.