Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai Bench: This Bench comprising Mr V.P. Singh and Mr Ravikumar Duraisamy as members dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of corporate insolvency resolution process (CIRP), holding that the same had been filed on wrong facts by giving false information.

Petitioner approached the respondent to render certain services at its manufacturing plant in Tamil Nadu, for which it made an advance payment of Rs 44, 00,000. However, despite repeated reminders, respondent failed in the scheduled delivery. Petitioner, vide a legal notice, called upon the respondent to return advance payment and also compensate it for the financial loss suffered. Thus, the present petition was filed for initiation of against the respondent.

Petitioner submitted particulars of claim, records of respondent’s bank account, bank certificate and demand notice. Respondent filed counter affidavit highlighting irregularities in the instant petition. It was also submitted that delay was on account of the modification instructions given by the employees of petitioner and that the petitioner was not really interested in getting his work done but only interested in making a claim against respondent.

The Tribunal opined that Operational Debt as defined under Section 5(21) of the Act means “a claim in respect of the provision of goods or services including employment or debt in respect of the repayment of dues arising under any law.” Refund of advance money was not in connection with the goods/services including employment or a debt in respect of repayment of dues.

Further, the petitioner ought to have crystallized the damages then only, it could have claimed the amount of compensation. The alleged compensation amount had not even been quantified by the petitioner. Since petitioner’s claim had not been adjudicated by any competent authority in law, hence, it could not be described as operational debt.

In view of the above, it was held that petition had been filed with an ulterior motive to get insolvency petition admitted. Thus, the petition was dismissed imposing a cost of Rs 10 lakhs on the petitioner.[TATA Chemicals Ltd. v. Raj Process Equipments and Systems (P) Ltd., CP 21/I&BP/NCLT/MAH/2018, Order dated 30-11-2018]

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National Company Law Appellate Tribunal (NCLAT): The Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) directed the National Company Law Tribunal (Ahmedabad) to pass appropriate order on application filed by Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 without adjourning the matter further.

The present appeal was preferred by Corporate Debtor against an order of NCLT whereby it had adjourned the matter giving time to Financial Creditor for submitting clarifications/removal of defects. Pratik Tripathi, Company Secretary appearing for Corporate Debtor submitted that the matter was pending for one year and NCLT had not passed any order either admitting or rejecting the application filed under Section 7.

The Appellate Tribunal noted that the matter in issue was already settled in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 which made clear that NCLT is not required to decide mismatch of ‘debt’ and it cannot be a ground reject the claim if the amount due is more than Rs 1 lakh and there is a ‘default’. The Appellate Tribunal did not see any reason as to why NCLT kept adjourning the case which was pending for admission since 2017. It was categorically observed,

“The Insolvency Code provides a specific time frame to complete the process and the Adjudicating Authority should take it seriously and cannot adjourn the matter on one or the other ground…”

In such view of the matter, the appeal was disposed of by directing NCLT decide the pending application on merits on the next date without adjourning the matter. [Dhar Textile Mills Ltd. v. Asset Reconstruction Co. (India) Ltd., 2019 SCC OnLine NCLAT 3, Order dated 07-01-2019]

Case BriefsHigh Courts

Bombay High Court: A Single Judge bench comprising of M.G. Giratkar, J. dismissed a revision petition filed against the judgment of Judicial Magistrate and confirmed by Additional Sessions Judge, Nagpur whereby the petitioner was convicted for offence punishable under Section 138 of Negotiable Instruments Act, 1881.

The petitioner and the complainant were businessmen. They entered into a transaction whereby the complainant provided a hand loan of Rs 50,000 to the petitioner. The petitioner issued a cheque which was presented to the bank by the complainant on default of repayment of the amount. It was returned by the bank with remark “insufficient fund”. The complainant initiated legal proceedings which culminated in petitioner’s conviction as mentioned above.

Notably, the complainant did not adduce any evidence to show that the advanced Rs 50,000 to the petitioner. However, he held a cheque and an acknowledgment slip. The petitioner did not dispute his signatures on the documents.

The High Court relied on K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510 for the proposition that where signature on the cheque is admitted to be that of accused, the presumption envisaged in Section 118 of the Negotiable Instruments Act can legally be inferred that cheque was drawn for consideration on the date which it bears. Furthermore, Section 139 enjoins on the Court to presume that holder of the cheque received it for discharge of debt or liability and burden is on the accused to rebut this presumption. In the present case, nothing was brought on record to show that the accused did not receive Rs 50,000. Also, he did not deny his signatures on the cheque and acknowledgment. As such, the Court held that there was no illegality in the impugned judgment. Th revision petition was dismissed. [Amol v. State of Maharashtra, 2018 SCC OnLine Bom 6682, dated 22-12-2018]

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National Company Law Appellate Tribunal (NCLAT): A Two-Member Bench comprising of S.J. Mukhopadhaya (Chairperson) and Bansi Lal Bhat (Member-Judicial), JJ. dismissed an appeal filed against the order of National Company Law Tribunal (New Delhi).

NCLT had admitted the application filed by the respondent (operational creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 and passed order of moratorium. The appellant (promoter of the corporate debtor) submitted that there were cases under Section 138 and 141 of the Negotiable Instruments Act, 1881 pending before the competent court of jurisdiction. The appellant relied on R. Vijayan v. Baby, (2012) 1 SCC 260 for the proposition that proceedings under Section 138 arena of recovery of money. Therefore, according to the appellant, there existed a dispute between the parties and hence the said application could not be admitted.

The Appellate Tribunal was not inclined to accept the submissions of the appellant. It referred to Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and was of the opinion that “pendency of the case under Sections 138 and 141, even if accepted as recovery proceeding, cannot be held to be a dispute pending before a court of law.” Therefore, the Appellate Tribunal held that the pendency of the case as aforementioned actually amounted to admission of debt endnote existence of dispute. The appeal was, thus, dismissed. [Sudhi Sachdev v. APPL Industries Ltd., 2018 SCC OnLine NCLAT 775, dated 13-11-2018]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Jayant Nath, J. allowed an application filed by the plaintiff seeking a decree on admission under Order 13-A Rule 3 of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015.

The suit was filed for recovery of certain sums along with interest. The plaintiff submitted that as per the balance sheet of the defendant, a sum of Rs 2,25,38,966 was payable to the plaintiff. The defendant challenged the suit on the ground of limitation. The petitioner, relying upon earlier judgments of the Court, contended that acknowledgment in the balance sheet by the defendant extended the period of limitation.

The High Court after considering submissions of the parties, cited the observations in Shahi Exports (P) Ltd. v. CMD Buildtech (P) Ltd., 2013 SCC OnLine Del 3739 including inter alia: “It is hardly necessary to cite authorities in support of the well-established position that an entry made in the company’s balance sheet amounts to an acknowledgment of the debt and has the effect of extending the period of limitation under Section 18 of the Limitation Act, 1963.”

Relying on the above case, the Court held that acknowledgment of debt in the balance sheet extends the period of limitation. On the basis of such position in law, the suit was held to be within the limitation period. The application was accordingly allowed. [Zest Systems (P) Ltd. v. Centre for Vocational Entrepreneurship Studies,2018 SCC OnLine Del 12116, dated 19-09-2018]

Case BriefsHigh Courts

Karnataka High Court: A Division bench comprising of Dinesh Maheshwari and Krishna N. Dixit, JJ. dismissed a writ petition filed by fugitive industrialist Vijay Mallya, against order requiring pre-deposit of Rs. 3101 crores in order to maintain appeal against fixation of liability for debt due to banks.

The factual background of the case revolves around the default in payment of debts taken by petitioner’s company Kingfisher Airlines Ltd. from a consortium of banks. The consortium of banks instituted a petition for recovery of their money in the Debt Recovery Tribunal (DRT), Karnataka wherein the petitioner was held liable for the recovery of money. Aggrieved by the said order, the petitioner preferred an appeal in Debt Recovery Appellate Tribunal (DRAT) which was dismissed for want of appearance and non-compliance of office objections. An application was filed by the petitioner seeking restoration of the appeal whereupon DRAT directed him to deposit a sum of Rs 3101 crores and observed that in case of failure of compliance, the appeal would be liable to dismissed automatically. The petitioner did not make such deposit and consequently, the appeal stood dismissed. Thereafter, the petitioner filed another application seeking restoration of the dismissed appeal and praying enlargement of time for making the deposit. The Hon’ble Tribunal dismissed this application holding that there was no substance in the prayers of petitioner. It is against this order of DRAT, that the instant writ petition has been filed, praying for quashing of the said order.

The court discussed the effect of amendment in the year 2016 on Section 21 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and opined that the amendment did not relate to the right of appeal as such but to the conditions subject to which the said right would become exercisable. It was noted that prior to the 2016 amendment, the borrower had an absolute and unconditional right to appeal and the proviso to Section 21 conferred power on DRAT to waive off or limit the condition of pre-deposit. But after the amendment, this absolute discretion of DRAT was restricted and now it only has the power to reduce the pre-deposit to not less than 25% of the decretal sum. This trimming of DRAT’s power being essentially an amendment by way of substitution was held to be retrospective in operation. In order to give force to its reasoning, the court relied on the decision of Full Bench of this High Court in Hassan Cooperative Milk Producers Societies Union Ltd. v State of Karnataka, 2014 SCC OnLine Kar 2924.

The High Court also adverted to the facts of the case and expressed serious doubts over bonafides of the proceedings and the seriousness of the petitioner in pursuing his remedies. As such, it was held that the DRAT’s requirement of pre-deposit for maintaining the appeal was legitimate and the writ petition was dismissed for being bereft of substance and merits. [Vijay Mallya v. State Bank of India, WP (C) No. 22111of 2018, decided on 05-10-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial)  dismissed an appeal filed against the order of the National Company Law Tribunal, Chennai whereby the application filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted.

Firstly, the appellant (shareholder of the Corporate Debtor) submitted that the respondent is not a Financial Creditor as defined in Section 5(7) read with Section 5(8). However, on facts, the Appellate Tribunal rejected the submission. It was found that the Rajkumar Impex Ghana Ltd. (subsidiary of the Corporate Debtor) had applied for a loan which was provided by Stanbic Bank Ghana Ltd. The Corporate Debtor executed guarantee in favour of the Bank for the said loan. As such, the Bank became a Financial Creditor. Secondly, the admission of application filed by the respondent under Section 7 for initiation of Corporate Insolvency Resolution Process was assailed. It was challenged on the ground that NCLT while admitting the application, did not record reasons in writing.

The Appellate Tribunal rejected the second submission filed by the appellant as well. It observed that application under Section 7 is not a recovery proceeding or proceeding for determining of a claim on merit that can be decided only by a court of competent jurisdiction. An application under Sections 7, 9 or 10 of the Code not being a money claim or suit and not being an adversarial litigation, NCLT is not required to write a detailed decision as to which are the evidence relied upon for its satisfaction. NCLT is only required to be satisfied that there is a debt and default had occurred. In the present case, NCLT had held that a prima facie case was made out by the applicant. As such, NCLT expressed its satisfaction about existence of debt and default. Thus, the appeal was dismissed holding it to be sans merit. [V.R. Hemantraj v. Stanbic Bank Ghana Ltd.,2018 SCC OnLine NCLAT 451, dated 29-08-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema, Member (Judicial), allowed an appeal filed against the order of National Company Law Tribunal, Mumbai whereby an application preferred by the respondent (Operational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted; order of moratorium was passed; and Insolvency Resolution Professional was appointed.

The appellant (Corporate Debtor), referring to the emails exchanged between the parties, submitted that there was an existence of dispute prior to issuing of demand notice under Section 8(1). The dispute as alleged was regarding the quantum of payment, which was subsequently settled and the agreed amount plus GST had already been paid to the respondent. It is pertinent to note that originally, as submitted by the respondent, the appellant agreed to pay a fee of Rs 1 crore as brokerage towards the TATA-Neptune deal. However, the respondent accepted that the same was settled at Rs 75 lakhs plus GST, part payment of which was already done. The appellant submitted that though there was an existence of dispute, inspite of the same the NCLT admitted respondent’s application under Section 9 and passed the order impugned.

For settling the issue at hand, the Appellate Tribunal made a reference to the Supreme Court decision in Innoventive Industries Ltd. v. ICICI Bank(2018) 1 SCC 407 and perused Section 7 (when it comes to financial creditor triggering the process, this section becomes relevant) and Section 9 of the Code. It was observed that the Supreme Court, in the case mentioned herein, held that in a petition under Section 9, the Corporate Debtor has a right to show that there is an existence of dispute  about the quality of goods and services provided, as well as a right to dispute the debt including the quantum of payment. In view of the Appellate Tribunal, the emails exchanged between the parties clearly show that negotiations were going on relating to the quantum of payment. Originally, the payment to be made was Rs 1 crore which was finally settled at Rs 75 lakh. In such circumstances, it could be accepted that there was an existence of dispute about the payment of the debt. The Appellate Tribunal held, if the debt has been disputed, the question of default does not arise. Accordingly, the appeal filed by the Corporate Debtor was allowed; the order impugned passed by the National Company Law Tribunal, Mumbai was set aside, and the application preferred by Operational Creditor was dismissed. [Nayan Shah v. Viral Rajarashi Mehta, 2018 SCC OnLine NCLAT 411, dated 29-06-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial), dismissed an appeal filed by the Operational Creditor against the judgment of the National Company Law Tribunal, Mumbai whereby appellant’s application under Section 9 I&B Code was dismissed.

The appellant had filed an application for initiation of Insolvency Resolution Process against the Corporate Debtor. Before the NCLT, the respondent submitted that the principal amount of debt due was already paid. The NCLT dismissed the application of the appellant. Aggrieved thus, the present appeal was filed. The appellant, placing reliance on Section 3(11) of the Code which defines debt, contended that debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. It was submitted that the debt as defined in the Code, includes the interest due on the principal amount as well.

The Appellate Tribunal was of the view that such submission was untenable. It is NCLT, not every interest that can be treated as a debt. If in terms of the agreement, interest is payable to the Operational or Financial Creditor, then the debt will include interest; otherwise, the principal amount is to be treated as debt which is the liability in respect of the claim that can be made from the Corporate Debtor. The Court noted that in the present matter, the principal amount had already been paid, and as per the agreement, no interest was payable. As such, the application under Section 9 on the basis of entitlement of payment of interest was not maintainable. The appeal was accordingly dismissed. [Krishna Enterprises v. Gammon India Ltd.,2018 SCC OnLine NCLAT 360, dated 27-07-2018]