Akaant MittalExperts Corner

In this three – part series, I shall be discussing the if a decree or an arbitral award or a settlement deed can form the basis of a financial or operational debt under the IB Code.


The Insolvency and Bankruptcy Code, 2016 took effect on 1-12-2016, and the Government of India has since enforced most of the sections of the Code pertaining to corporate insolvency through numerous notifications. The Code has resulted in a paradigm shift in India’s insolvency and bankruptcy law, both for corporate entities and for individuals.


The IB Code differentiates between financial creditors and operational creditors. Financial creditors are those having a relationship with the corporate debtor that is purely a financial contract, such as a loan or a debt security. Whereas, operational creditors are those who have due from the debtor on account of transactions made for the operational working of the debtor.[1] In order to seeking a resolution process against a corporate debtor, therefore, a creditor must either have a claim of a financial debt or an operational debt against such debtor.


Now issues have arisen when such creditors have sought to base their claims on

(i) a decree by a court; or an arbitral award; or

(ii) settlement agreement between the creditor(s) and the corporate debtor.

The first part of the series shall deal with whether a decree constitutes a financial debt.


The jurisprudence on this issue generally has held that it is essential that the claim of a financial creditor must be based on the transaction between the debtor and creditor and not on the decree issued by a court or tribunal in any other case between the debtor and creditor.


A decree-holder cannot initiate a corporate insolvency resolution process by using the decree or recovery certificate issued by the Debts Recovery Tribunal or Real Estate Regulatory Authority (RERA) or any other authority under any other law.[2] The rationale is that an “amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money”[3]. Resultantly, the same cannot be termed to fall within the ambit of any of the clauses enumerated under Section 5(8), IB Code.[4]


The NCLAT has maintained that the proceedings under the IB Code are not recovery proceedings. Therefore, when a creditor seeks indirect execution of such decrees or recovery certificates by filing an application under Section 7, IB Code, the same can tantamount to “fraudulent or malicious initiation of insolvency proceedings for a purpose other than for the resolution of insolvency” and hence, actionable under Section 65, IB Code.[5]


In other words, the underlying idea is that the adjudicating authority does not become an executing court wherein any petitioner who obtains a decree instead of getting the same executed before the appropriate civil courts, circumvents and seeks such execution indirectly through the proceedings under Section 7 of the IB Code.


Similar opinion was maintained in the matter of Akram Khan v. Bank of India Ltd.,[6] wherein the NCLAT opined that the application under Section 7 of the IB Code seems to be made for the purposes of execution of a decree passed by the Debts Recovery Tribunal in favour of the “financial creditor”. Hence, the creditor approached the adjudicating authority, for the purpose other than for the resolution of insolvency, or liquidation and resultantly falls foul of Section 65 of the IB Code. Similar view was taken in C. Shivakumar Reddy v. Dena Bank.[7]


One query that could certainly be posed is that why does a creditor rely on a decree or an arbitral award to establish a financial or an operational debt. One particular reason for that could be to prevent the claim being hit by the law of limitation. According to Section 238-A of the IB Code, the Limitation Act, 1963 applies to the IB Code and therefore, an application under Sections 7 or 9 or Section 10 of the IB Code has to be filed within 3 years of the date of default. Therefore, when the date of default predated the year 2013 but the creditor filed the application under Section 7 of the IB Code on 7-1-2019; the creditor sought to place reliance on the decree by the Debts Recovery Tribunal which was passed on 22-10-2016 to argue that their claim was within limitation.[8] However, the same was still rejected by the NCLAT holding that the limitation will start from the date of default and not the date when the recovery certificate was issued by the Debts Recovery Tribunal.[9]


However, a diverging stance was taken in Ugro Capital Ltd. v. Bangalore Dehydration and Drying Equipment Co. (P) Ltd.,[10] where specific argument was taken that the creditor had not prosecuted the judgment and decree obtained in 2015 before a civil court and instead has come before the adjudicating authority by filing an application under Section 7 of the IB Code. The NCLAT setting aside the order of the adjudicating authority, had directed the latter to admit the application under Section 7 of the IB Code. The NCLAT referring to the definition of the term “creditor” in the IB Code, in categorical terms, stated:


“[i]t is important to point out that the definition of creditor provided in Section 5(10) of the IB Code provides that “creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.


Based on the decree of the court this petition was filed under Section 7 of the Code. Since the definition of word creditor in IB Code includes decree-holder, therefore if a petition is filed for the realisation of decretal amount, then it cannot be dismissed on the ground that applicant should have taken steps for filing execution case in civil court.”


In fact, in the above-mentioned case, the NCLAT calculated the limitation for filing the application under Section 7 from the date of the decree.


In conclusion, it can be said that majorly the courts had taken an adverse view when an application seeking initiation of a resolution process is supported by a decree or an arbitral award[11]. The impression that the same seems to be communicated to the courts is that the creditor has approached it with a mala fide motive, which is why the provision of Section 65 IB Code[12] is referred to it.[13]


However, the same must now be revisited on account of the ruling of the Supreme Court in Dena Bank v. C. Shivakumar Reddy[14]. One of the issues in this case was the financial creditor had relied on the recovery certificate issued by the Debts Recovery Tribunal to establish the claim of a financial debt and to contend that the application under Section 7 was filed in the period of limitation. Setting aside the ruling of the NCLAT, the Supreme Court accepted the submission of the financial creditor, holding:

126… In this case, the appellant financial creditor had, amongst other documents, also relied upon the final judgment and order dated 27-3-2017 passed by the Debts Recovery Tribunal and the subsequent recovery certificate dated 25-5-2017 which constituted cause of action for initiation of proceedings under Section 7 of the IB Code.

Clearly, therefore, a decree can now constitute a financial debt.


From the foregoing discussion, it is clear that the jurisprudence of the NCLAT wherein claim based on a decree was look with skepticism as to whether the same amounts to misuse of the provision of the IB Code, needs revisiting. In light of the ruling of the Supreme Court in Dena Bank[15], a claim can most certainly be based on a decree. However, it must be mentioned here that the claim upon which a decree is rendered must satisfy the fundamental ingredients of a financial debt, since in Dena Bank[16], it was a financial creditor that had secured the decree.


† Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is the author of the commentary “Insolvency and Bankruptcy Code – Law and Practice”.

The author gratefully acknowledges the research and assistance of Sh. Mahesh Kumar, 4th Year, B.A.LLB. (Hons.), student at Sharda University, Greater Noida, Uttar Pradesh, in writing this series.

[1] The Report of the Bankruptcy Law Reforms Committee, Volume 1: Rationale and Design (Nov. 2015), Ch. 5.2.1

[2] See, Sushil Ansal v. Ashok Tripathi, 2020 SCC OnLine NCLAT 680.

[3] 2020 SCC OnLine NCLAT 680, para 20.

[4] 2020 SCC OnLine NCLAT 680.

[5] See, G. Eswara Rao v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 416; Sushil Ansal v. Ashok Tripathi, 2020 SCC OnLine NCLAT 680.

[6] 2019 SCC OnLine NCLAT 1427.

[7] 2019 SCC OnLine NCLAT 907.

[8] Digamber Bhondwe v. JM Financial Asset Reconstruction Co. Ltd., 2020 SCC OnLine NCLAT 399.

[9] Digamber Bhondwe v. JM Financial Asset Reconstruction Co. Ltd., 2020 SCC OnLine NCLAT 399, para 18.

[10] 2020 SCC OnLine NCLAT 149.

[11] See HDFC Bank Ltd. v. Bhagwan Das Auto Finance Ltd., 2019 SCC OnLine NCLAT 1338.

[12] IB Code, S. 65(1) states:

“65. Fraudulent or malicious initiation of proceedings.— (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.”

[13] See HDFC Bank Ltd. v. Bhagwan Das Auto Finance Ltd., 2019 SCC OnLine NCLAT 1338; G. Eswara Rao v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 416.

[14] 2021 SCC OnLine SC 330.

[15] (2021) 10 SCC 330.

[16] (2021) 10 SCC 330.

Case BriefsSupreme Court

Supreme Court: In a case where it was argued before the Court that an offence under Section 138 of the Negotiable Instruments Act was not made out as the dishonourment alleged is of the cheques which were issued by way of ‘security’ and not towards discharge of any debt, the bench of MR Shah and AS Bopanna*, JJ has held that a cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance and that there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque.

The Court explained that ‘security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound.

“If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which   is   issued   as   security   would   mature   for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow.”

When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security.

Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an ‘on demand promissory note’ and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute.

“When a cheque is issued even though as ‘security’ the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.”

[Sripati Singh v. State of Jharkhand, 2021 SCC OnLine SC 1002, decided on 28.10.2021]


For appellant: Advocate M.C. Dhingra

For respondents: Advocate Raj Kishor Choudhary and Keshav Murthy

*Judgment by: Justice AS Bopanna

Know Thy Judge | Justice A. S. Bopanna

Case BriefsDistrict Court

Additional Chief Metropolitan Magistrate, Mayo Hall Unit, Bengaluru: Vani A. Shetty, XVII Additional Judge, Court of Small Causes & ACMM, addressed a matter with respect to the liability of the accused in a case of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.

In the present case, the accused was tried for the offence punishable under Section 138 of the Negotiable Instruments Act.

Factual Background

Complainant with an intention to have a South Africa trip paid Rs 24 lakhs to the accused to book the tickets. But the accused failed to book the tickets and repaid a sum of Rs 14.5 lakhs to the complainant and sought time for the payment of balance amount of Rs 9.5 lakhs. Towards the discharge of the said liability, the accused issued a cheque for Rs 4,50,000 assuring that the cheque would be honoured if presented for payment.

But the cheque came to be dishonoured on the grounds of ‘payment stopped by drawer’. Thereafter the complainant got issued a legal notice demanding repayment of the cheque amount within 15 days. Due to no response from the accused, an instant complaint was filed.

In view of sufficient ground to proceed further, a criminal case was registered against the accused, and she was summoned.

Question for Consideration:

Whether the complainant proved that the accused has committed an offence punishable under Section 138 of the NI Act, 1881?

Analysis, Law and Decision

While analyzing the matter, Bench stated that in order to constitute an offence under Section 138 NI Act, the cheque shall be presented to the bank within a period of 3 months from its date. On dishonour of cheque, the drawer or holder of the cheque may cause demand notice within 30 days from the date of dishonour, demanding to repay within 15 days from the date of service of the notice.

“If the drawer of the cheque fails to repay the amount within 15 days from the date of service of notice, the cause of action arises for filing the complaint.”

In the present matter, the complainant had complied with all the mandatory requirements of Section 138 and 142 of the NI Act.

Section 118 of the NI Act lays down that until the contrary Is proved, it shall be presumed that every Negotiable Instrument was made or drawn for consideration.

Section 139 NI Act contemplated that unless the contrary is proved, it shall be presumed that the holder of the cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole of any debt or liability.

In a catena of decisions, it has been repeatedly observed that in the proceeding under Section 138 of NI Act, the complainant is not required to establish either the legality or the enforceability of the debt or liability since he can avail the benefit of presumption under Sections 118 and 139 of the NI Act in his favour.

Further, it was observed that by virtue of the presumptions, accused had to establish that the cheque in question was not issued towards any legally enforceable debt or liability.

Later in the year 2006, the Supreme Court in the decision of M.S. Narayan Menon v. State of Kerala, (2006 SAR Crl. 616), has held that the presumption available under Section 118 and 139 of N.I. Act can be rebutted by raising a probable defence and the onus cast upon the accused is not as heavy as that of the prosecution.

Further, in the Supreme Court decision of Krishna Janarshana Bhat v. Dattatreya G. Hegde, (2008 Vo.II SCC Crl.166), the Supreme Court held that the existence of legally recoverable debt was not a presumption under Section 138 NI Act and the accused has a constitutional right to maintain silence and therefore, the doctrine of reverse burden introduced by Section 139 of the NI Act should be delicately balanced.

Bench, in conclusion, observed that the presumption mandated by Section 139 of NI Act does indeed include the existence of legally enforceable debt or liability, it is a rebuttable presumption, open to the accused to raise defence wherein the existence of the legally enforceable debt or liability can be contested.

If the accused is able to raise a probable defence, which creates doubt about the existence of legally enforceable debt or liability, the onus shifts back to the complainant.

Court stated that if the accused was able to probabalise that the disputed cheque was issued due to the intervention and pressure of the police, it may not be justified to draw the presumption contemplated under Section 139 NI Act.

It was added that if the police would have really interfered, the accused could have produced some evidence to show the intervention of the police. But there was absolutely no evidence on record to show that cheque was issued either due to pressure of police or due to some other compulsion.

In Court’s opinion, the Court was required to draw the presumption under Section 139 NI Act in favour of the complainant.

Court noted that in the present matter, accused at no point in time asked the complainant to pay the balance amount. Instead, she had kept quiet by enjoying the huge amount of Rs 24 lakhs which clearly indicated that the non-purchase of the ticket was not on account of the non-payment of the remaining amount. Further, there was no forfeiture clause.

For the above, Bench stated that in the absence of the forfeiture clause, the accused could not have retained the amount of the complainant with her, the said was barred by the doctrine of unlawful enrichment under Section 70 of the Indian Contract Act, 1872.

Hence, even if it was held that the complainant was a defaulter in respect of the payment of the remaining amount, the accused was legally liable to repay the amount received by her from the complainant.

In view of the above reasons, guilt of the accused was proved under Section 138 NI Act. [Srinivas Builders and Developers v. Shyalaja, CC No. 57792 of 2018, decided on 13-10-201]

Advocates before the Court:

For the Complainant: V.N.R., Advocate

For the Accused: J.R., Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi Bench, New Delhi –The Coram of P.S.N Prasad, Judicial Member and Narender Kumar Bhola,  Technical Member were inclined to allow the process of CIRP, considering the debt acknowledged by the corporate debtor.

In the pertinent matter the corporate debtor approached the operational creditor for supply of image scanner manufactured by the operational creditor. It was alleged that the operational creditor had to send various reminders through emails, text messages and phones for the payment of the goods purchased by the corporate debtor. Pursuant to which even a demand notice was duly served upon.The petitioner thus submitted that since corporate debtor has acknowledged the debt, therefore the petition under Section 9 of IBC, 2016 should be allowed and the CIR process to be initiated against the corporate debtor.

The Tribunal after perusing the written submissions and arguments advanced by the operational creditor was of the opinion that the corporate debtor through emails has acknowledged the debt. Resultantly, the Tribunal was inclined to admit the application to initiate the process of CIRP of the corporate debtor. And further declared moratorium, and appointed an Insolvency Resolution Professional to take charge of the respondent corporate debtor.

It further stated that the supply of essential goods or services of the corporate debtor shall not be terminated, suspended or interrupted during moratorium period.[CSII India Pvt. Ltd. v. Telexcell Information Systems Limited, IB-411/ND/2020, 05-10-2021]

Agatha Shukla, Editorial Assistant has reported this brief.

Counsel for the Parties:

Operational Creditor:

Kshitiz Karjee & Mrinal Agarwal (Advocates)

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Rajiv Sahai Endlaw and Asha Menon, JJ., held that the pawnor, merely by his act of delivering his own goods to a creditor in consideration of a credit facility granted to the debtor/borrower, by legal fiction becomes liable for the entire debt, would be detrimental to trade and commerce, with borrowings becoming difficult to obtain owing to persons not agreeing to make a pledge of their goods for credit to another, for the fear of becoming liable for more than the value of goods.

Legal Question for Consideration

Whether by virtue of Section 176 of the Indian Contract Act, 1872, the pawnor, even if different from borrower or the principal debtor, becomes liable for payment of the entire debt, even if has not furnished any guarantee for repayment of the entire debt i.e. over and above the value of the pawned goods?

Facts pertinent to the matter

Respondent 1 had filed the original application before the Debt Recovery Tribunal, Delhi under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 along with pendente lite and future interest, jointly and severally from respondent 2 and petitioner.

Aggrieved from the order of DRAT, of dismissal of his appeal, the petitioner filed the instant petition.

Analysis, Law, Decision

It was noted that the counsel for respondent 1 Bank had fairly admitted that there was no document whereunder the petitioner had undertaken liability as a borrower, in his personal capacity or as a guarantor for repayment of the dues of respondent 2 Company to the respondent 1 Bank.

Bench on an interpretation of Clause 2.1 of the Share Pledge Agreement was unable to agree with the contention of respondent 1 Bank that the petitioner became liable for the entire debt.

Further, it was stated that,

In the Share Pledge Agreement,

  • while the respondent 1 Bank is described as the Bank, the respondent 2 Company is described as the Borrower and the petitioner is described as the Pledgor; the same is indicative of the role of the petitioner in the agreement being confined to that of a pledgor/pawnor, as distinct from a borrower; had the intent been, of the petitioner along with the respondent 2 Company borrowing the monies and being liable for repayment thereof, the petitioner, besides as a pledgor, would also have been described as a borrower;
  • Clause 2.1 merely notes the agreement to be for the benefit of the respondent 1 Bank; merely by stating so, the petitioner did not and could not in law have become liable for more than that for which he expressly became liable under the Share Pledge Agreement; the pledge made by the petitioner under the agreement was also for the benefit of the respondent 1 Bank and thus merely from the statement that the agreement was for the benefit of the respondent 1 Bank, it does not follow that the benefit to the respondent 1 Bank flowing from the petitioner was more than that undertaken by the petitioner or provided in the agreement;
  • the petitioner pledged his shares as security for due discharge and repayment of Obligations under the Finance Documents; it is not the case that under the Finance Documents the petitioner is personally liable; and,
  • the parties expressly agreed that in the event of any default by the borrower, the respondent 1 Bank would be entitled to transfer or register in its name the pledged shares and to receive all amounts payable with respect thereto and to sell the same; there is no clause, that on any default or breach by the respondent 2 Company as borrower, the petitioner would become personally liable for the borrowings of respondent 2 Company.

Supreme Court, in State of Maharashtra v. M.N. Kaul, AIR 1967 SC 1634, while answering the question of whether the guarantee subject matter thereof was enforceable, held, “That depends upon the terms under which the guarantor bound himself. Under the law he cannot be made liable for more than he has undertaken”

In Central Bank of India v. Virudhunagar Steel Rolling Mills Ltd., (2015) 16 SCC 207, held that,

“…had the intent been to make the directors personally liable for the outstanding liabilities of the company also, it could have been so provided in the letter of guarantee and the directors were thus not personally liable for the dues of prior to the date they signed the letter of guarantee. It was further held that since the deed of guarantee was drafted by the bank, in case of doubt, had to be read against the bank.”

In the instant matter, High Court dismissed the contention of the respondent 1 Bank that the petitioner admitted his liability before the Recovery Officer.

Court stated that banks are also known to, besides the borrower, make others also on whose surety/guarantee the said credit facilities are extended to the borrower, sign a plethora of documents, again in their standard form. From the conduct of the respondent 1 Bank not making the petitioner sign any such documents, the only inference is that the petitioner was not intended to be liable for dues of respondent 2 Company save to the extent of the value of the shares pledged by the respondent 2 Company.

Moving, further, with the analysis, Bench elaborated that Section 172 provides bailment of goods as security for payment of a debt is called a “pledge” and the bailor is called the “pawnor” and the bailee, the “pawnee”.

In Court’s opinion, none of the provisions preceding or following Section 176 provide for the pawnor, by virtue of the pledge, even if not otherwise liable for the payment of debt, by a legal fiction becoming so liable for payment for debt, even beyond the value of the pawned goods.

“…we hesitate to, merely on the basis of Section 176 hold that a pawnee can recover from the pawnor anything beyond the value of the goods which the pawnor has pledged, unless the pawnor has separately from the pledge also made himself liable for the debt.”

Therefore, Bench decided that under Section 176 of the Contract Act, the pawnor, if not otherwise liable for the debt as a borrower or as a guarantor or otherwise, does not merely from the act of making a pledge, become liable to the creditor/pawnee, for anything more than the value of the goods pledged.

Hence, DRAT erred in holding the petitioner as a pawnor become liable for the entire debt for which pledge was made even without being a borrower and even in the absence of having promised so.

In view of the above discussion, a petition was disposed of. [Ajoy Khanderia v. Barclays Bank, 2021 SCC OnLine Del 3740, decided on 20-07-2021]

Advocates before the Court:

For the Petitioner:

Mr Rajeeve Mehra, Sr. Adv. with Mr Kanishk Ahuja and Ms Neha Bhatia, Advs

For the Respondent:

Mr R.P. Aggarwal and Ms Manisha Agrawal, Advs.

Additional Read:

Section 176 – Pawnee’s right where pawnor makes default. – If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.”

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal- A Coram of Anant Bijay Singh, J. (Judicial Member) and Shreesha Merla (Technical Member) dismissed an appeal while affirming the impugned order where the appellant made a default in making payments.

In the present case, the Respondent was the operational creditor who sold, supplied and delivered goods to the Appellant. The goods were delivered under 12 bills for an aggregate amount of Rs. 7,15,940. The appellant paid a sum of Rs. 40,000/- through a cheque dated 16-02-2016, which was even adjusted to the running amount. The Appellant issued a cheque dated 12-01-2016 of Rs. 44,298/- which later got dishonoured for the reason “Payment stopped by drawer”. Subsequently, a demand notice was sent for the payment of the unpaid operation debt. However, there was no reply to the notice. The Appellant accepted and acknowledged the confirmation of accounts sent by the respondent. Therefore a default in cheque was realised and now the question was, what is the date of payment in the circumstances of this case for the purpose of Section 20 of the Limitation Act. Thus the provisions of Section 8 and 9 on Insolvency and Bankruptcy Code read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 were invoked. Therefore, legal proceeding under Section 138 of the Negotiable Instrument Act was initiated.

On perusal of the records, it was held, that the issuance of cheque indicates acknowledgement of the debt although the cheque dishonoured for the reason “payment stopped by drawer”. It was also noted that “the respondent made part payment on 16-02-2016, after which no payment was made and cheque issue on 12-01-2016 was returned dishonoured”. Also, the cheque was well within the period of limitation, therefore period of limitation and fresh limitation is out of bound, as contended by the Appellants. Hence, on finding no infirmity with the impugned order, the appeal was dismissed.[Rajendreakumar Kudanmal Jain, In re, Company Appeal (AT) (Insolvency) No. 366 of 2020, decided on 04-03-2021]

Case BriefsHigh Courts

Delhi High Court: Subramonium Prasad, J., addressed a matter wherein it was reiterated that the initial burden of proving the burden of the non-existence of debt is on the accused under Section 118 of Negotiable Instruments Act, 1881.

The instant revision petition was filed against the order passed dismissing the appeal and affirming the Metropolitan Magistrate’s order convicting the petitioner for offences punishable under Section 138 of Negotiable Instruments Act, 1881.

Petitioner has also challenged the order wherein the petitioner has been sentenced to undergo imprisonment for a period of two months and also directed the petitioner to pay an amount of Rs 13 lakhs as fine payable as compensation to the respondent as per the provision of Section 143 (1) of NI Act read with Section 357 (1)(3) of CrPC.

Facts that lead to the case

Respondent financed a bus for the petitioner by giving a loan and in discharge of the liability, petitioner handed over the cheques in favour of the respondent. When the said cheques were deposited they were returned as unpaid/dishonored for the reason ‘Funds Insufficient’.

Petitioner submitted that the vehicle was handed over to the respondent company for getting the vehicle converted to CNG but the said vehicle was never returned to the petitioner nor the accounts related to the hire purchase were settled. In fact, the blank cheques given to the respondent earlier were misused.

Though Metropolitan magistrate found the petitioner’s deposition to be inconsistent and found that the bus was already sold by the petitioner.

Metropolitan Magistrate, therefore, held that the accused/petitioner was not been able to rebut the presumption that the cheques had been paid for the discharge of any liability and hence convicted under Section 138 NI Act.

Analysis, Law and Decision

Section 118 of the NI Act raises a presumption that a cheque is issued for consideration until the contrary is proved. It is well settled that the initial burden in this regard lies on the accused to prove the non-existence of debt by bringing on record such facts and circumstances which would lead the Court to believe the non-existence of debt either by direct evidence or by preponderance of probabilities.

In the instant matter, other than mere ipsi dixit of the petitioner there was no debt due and payable nothing was on record to show that the cheques were not issued for discharge of liability for the bus.

Bench stated that the purpose of introducing Section 138 of the NI Act was to bring sanctity in commercial transactions.

Further, the Court noted that the lower courts on perusal of records came to the conclusion that the cheques were given in discharge of the debt.

While expressing that the scope of revision petition under Sections 397/401 CrPC read with Section 482 CrPC is extremely narrow Court referred the following Supreme Court decisions:

State v. Manimaran, (2019) 13 670

State of Haryana v. Rajmal, (2011) 14 SCC 326

In view of the above discussion, Bench did not find any that required the interference in the lower court’s judgment.

Further, the Court added that the respondent did not file the books of accounts was not fatal to the case of the respondent. It was open to the petitioner to produce his books of accounts to rebut the presumption and bring out a prima facie case that there was no debt due and payable on the date the cheques were dishonoured.

Petitioner failed to show as to how there was no subsisting debt on the date when the cheques were dishonoured due to insufficiency of funds.

In view of the above discussion, the revision petition was dismissed. [G.D. Kataria v. AVL Leasing & Financing Ltd., 2020 SCC OnLine Del 1056, decided on 03-02-2021]

Advocates for the parties:

Petitioner: Medhanshu Tripathi, Advocate

Respondent: Anuj Soni, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): The Division Bench of Justice A.I.S Cheena (Judicial Member) and V.P. Singh (Technical Member) reinforced that in the matter of guarantee, CIRP can proceed simultaneously against the Principal Borrower as well as Guarantor.

The instant appeal was filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) against the impugned order dated 04-03-2020 passed by Adjudicating Authority.

Appellant –State Bank of India filed the Application against Respondent –Athena Energy Ventures Private Limited — Corporate Debtor who was Corporate Guarantor for Athena Chattisgarh Power Ltd.

The application was filed as Borrower committed default in repayment of the financial assistance provided to the Borrower.

It has been stated that the borrower availed financial assistance from the appellant bank and other banks, in the consortium and had executed necessary documents in favour of the appellant and other consortium banks.

When the need for the Borrower increased, the Respondent which is a joint venture and promoter of Borrower came forward and executed corporate guarantee and documents in favour of the Appellant and other consortium of banks.

It has been added that respondent was under the obligation to see that amounts availed under the finance from the appellant was repaid by the borrower.

Due to the default bein committed by the borrower, appellant had filed an application under Section 7 of the IBC against the borrower before the adjudicating authority.

The instant application was filed under Section 7 of IBC to seek initiation of CIRP against Respondent-Corporate Guarantor.

Respondent opposed the application claiming that the application was arising out of the very same transaction and very same common loan agreement as amended by first amendment agreement followed by the Second Amendment Agreement and thus the application filed by the appellant against respondent was duplicating the claim which was not permissible.

Decision of the Adjudicating Authority

Relying on the decision of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.2019 SCC OnLine NCLAT 81 the Adjudicating Authority declined to admit the Application as it was on the same set of facts, claim and default for which CIRP was already initiated and was in progress and where according to the Adjudicating Authority, the claim of Applicant had already been admitted. Thus, the Application of the Appellant against the Respondent came to be rejected.

Hence, the present appeal was filed against the above Judgment of the Adjudicating Authority.

Analysis and Decision 

The main issue which Bench referred to was:

“Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default?”

Bench stated that this Tribunal while dealing with the above-stated issue referred to the Judgment in the matter of Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, where the scheme of the Code was discussed by the Supreme Court. This Court took note of the definition of Financial Creditor and financial debt, and raised the question whether for the same very claim and for same very default, the Application under Section 7 against the other Corporate Debtor (Guarantor 1) can be “initiated”.

Further, adding to the above, Tribunal stated that considering the issues which were before this Tribunal when the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. was decided, it is clear that the issue was relating to question whether CIRP can be initiated against two Corporate Guarantors simultaneously for the same set of debt and default. The issue was not whether Application can be filed against the Principal Borrower as well as the Corporate Guarantor. The observations made in the Judgement that second application for the same set of claim and default can not be admitted against the Corporate Guarantor or Principal Borrower was not an issue in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.

Apart from the above observations, the decision in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. did not notice sub-sections 2 and 3 of Section 60 of IBC.

In Sub-Section 2, the earlier words were “bankruptcy of a personal guarantor of such corporate debtor”. These words were later on substituted by the words “liquidation or bankruptcy of a corporate guarantor or personal guarantor as the case may be, of such Corporate Debtor”. These words were substituted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

In the matter of SBI v. Ramakrishnan, (2018) 17 SCC 394, which was pronounced 3 days before the above-stated amendment, Section 60 (2) and (3) as they stood before the amendment was enforced.

Bench observed that,

If the provisions of Section 60(2) and (3) are kept in view, it can be said that IBC has no aversion to simultaneously proceeding against the Corporate Debtor and Corporate Guarantor.

If two applications can be filed, for the same amount against Principal Borrower and Guarantor keeping in view the above provisions, the Applications can also be maintained.

It is for such reason that Section 60 (3) provides that if insolvency resolution process or liquidation or bankruptcy proceedings of a Corporate Guarantor or Personal Guarantor as the case may be of the Corporate Debtor is pending in any Court or Tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such Corporate Debtor.

Tribunal also found substance in the argument placed by the appellant’s counsel in regard to the Report of Insolvency Law Committee. ILC rightly referred to the subsequent Judgment of Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd.,2019 SCC OnLine NCLAT 592 which permitted simultaneously initiation of CIRP’s against Principal Borrower and its Corporate Guarantors.

Adding to the above, the Bench also stated that ILC rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment.

Hence Tribunal observed that simultaneously remedy is central to a contract of guarantee and where Principal Borrower and surety are undergoing CIRP, the Creditor should be able to file claims in CIRP of both of them.IBC does not prevent this.

Under the Contract of Guarantee, it is only when the Creditor would receive the amount, the question of no more due or adjustment would arise.

While parting with its decision, Tribunal held that it is clear in the matter of guarantee, CIRP can proceed against the Principal Borrower as well as Guarantor.

Tribunal in view of the above-stated reasons could not interpret the law as interpreted in the matter of “Piramal.”

Hence, the decision of the Adjudicating Authority was upheld. [State Bank of India v. Athena Energy, 2020 SCC OnLine NCLAT 774, decided on 24-11-2020]

Advocates who appeared in the instant case:

For Appellant: Advocates V.M. Kannan, Sambit Panja and Sanjay Kapur.

For Respondent: Ramesh Babu Paluta, Advocate

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India (IBBI) notified the following Amendment Regulations, 2020:

(a) the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2016

(b) the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020

(c) the Insolvency and Bankruptcy Board of India (Information Utilities) (Amendment) Regulations, 2020

2. The Insolvency and Bankruptcy Code, 2016 (Code) enables a financial creditor (FC), among others, to initiate corporate insolvency resolution process (CIRP) against a corporate debtor (CD). The FC, along with the application, is required to furnish “record of the default recorded with the information utility or such other record or evidence of default as may be specified”. In exercise of this power, the IBBI amended the Regulations to specify two ‘other record or evidence of default’, namely, (a) certified copy of entries in the relevant account in the bankers’ book, and (b) order of a court or tribunal that has adjudicated upon the non-payment of a debt.

3. The Code defines financial information to mean certain records and ‘such other information as may be specified’. In exercise of this power, the IBBI amended the Regulations to specify public announcement made under the Code as financial information. It mandated the Information Utilities to disseminate the public announcement to its registered users, who are creditors of the CD undergoing insolvency proceeding. This is in addition to publishing the public announcement in the newspapers and websites as required in the Regulations.

4. The Regulations provide that the Interim Resolution Professional (IRP) / Resolution Professional (RP) shall verify every claim and thereupon maintain a list of creditors and update it. He is required to file the list of creditors with the Adjudicating Authority (AA) and display it on the website, if any, of the CD. The IBBI amended the Regulations to require the IRP/RP to submit the list of creditors on an electronic platform for dissemination on its website. This will improve transparency and enable stakeholders to ascertain the details of their claims at a central place.

5. The resolution plan usually provides payment of debts to the creditors of the CD. In the interest of transparency, the IBBI amended the Regulations to require the RP to intimate each claimant the principle or formulae for payment of debts under a resolution plan, within 15 days of the order of the AA approving such resolution plan.

6. The Code envisages early closure of the liquidation process so that the assets of the CD are released for alternate uses expeditiously. However, the process takes longer where the liquidation estate includes a ‘not readily realisable asset’. To facilitate quick closure of the liquidation process, the IBBI amended the Regulations to enable the liquidator to assign or transfer a ‘not readily realisable asset’ to any person in consultation with the stakeholders’ consultation committee. For this purpose, “not readily realisable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets, and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions. Thus, a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed of assets amongst stakeholders, with the approval of the AA.

7. There may be a creditor who may not be willing to wait for the completion of the liquidation process for realisation of his debt. The IBBI amended the Regulations to enable a creditor to assign or transfer the debt due to it to any other person in accordance with the laws for the time being in force dealing with such assignment or transfer.

Insolvency and Bankruptcy Board of India

[Press Release dt. 13-11-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Coram of Venugopal M. (Judicial Member) and Shreesha Merla (Technical Member), while addressing the present company appeal observed that,

“…subject lease rentals arising out of use and occupation of a cold storage unit which is for Commercial Purpose is an ‘Operational Debt’ as envisaged under Section 5 (21) of the I&B Code.”

National Company Law Tribunal, Mumbai’s Order has been challenged in the present appeal.

Leave & License Agreement

National Agriculture Co-operative Marketing Federation of India Ltd./Operational Creditor and the Corporate Debtor entered into a Leave and License Agreement for the usage of cold storage facilities for a period of 3 years.

As per Clause 1.14 of the said Agreement, in case of default in payment of any monthly licence fee, the Corporate Debtor would be liable to pay an interest @ 21% p.a. for the delayed period.

Default in Payment

The first respondent stated that the Corporate Debtor defaulted in the payment of monthly rentals. Further, the first respondent stated that the Corporate Debtor acknowledged and confirmed the ‘outstanding debt’ but despite a number of reminders and eviction notice, the debt was not paid.

In view of the above, a demand notice under in Form 3 under Section 8 of I&B Code, 2016 was issued.

Corporate Debtor denied all the above-stated claims and sought the renewal of Leave and License Agreement.

Counsel for the Appellant vehemently argued that the ‘Adjudicating Authority’ had passed an ‘Ex-Parte Order’ without giving it a sufficient opportunity to be heard.

Tribunal | Decision Analysis

Opportunity of being heard

Tribunal found force in appellant counsel’s submission that the appellant was in custody during the period and hence the minimal delay of 9 days ought to be condoned.

Tribunal noted that letters dated 15-07-2019 and 18-09-2019 were received by the Advocate for the Corporate Debtor which establish that the Corporate Debtor was aware of the proceedings.

Additionally, the Corporate Debtor is a Private Limited Company and it cannot be stated that it could not have been represented by any other person merely because the Director of the Corporate Debtor Company, was in custody.

Hence in view of the above-stated reasons, tribunal opined that sufficient opportunity was given.

  • Whether due, if any, arising from the ‘Leave and license Agreement’ is construed as an ‘Operational Debt’?
  •  Whether there is any ‘Pre-Existing Dispute’ prior to the issuance of the Demand Notice?

Criteria to prove a ‘Debt’ as an ‘Operational Debt’

(a) Claim in respect of provisions for goods and services
(b) Employment or debt in respect of dues and
(c) Such repayment of dues which should arise under any law in force at that time.

Whether the First Respondent by providing ‘Lease’ would be treated as an ‘Operational Creditor’, it is necessary to ascertain whether the First Respondent is providing services to the Corporate Debtor and whether the alleged dues fall within the meaning of Section 5 (21) of the Code?

Appellant’s Counsel relied on the Tribunal’s decision in M. Ravindranath Reddy v. G. Kishan,2020 SCC OnLine NCLAT 84 wherein it was observed that the appellant being a tenant, having not made any claim in respect of the provisions of the goods or services and debt in respect of repayment of dues does not arise under any law for the time being in force payable to the Central Government or State Government.

Tribunal stated that since the law has not gone into defining goods or services– hence, one has to rely on general usage of the terms so used in the law, with due regard to the context in which the same has been used.

Bankruptcy Law Reforms Committee (BLRC), in its report dated November 2015 recommends the treatment of lessors/landlords as Operational Creditors. However, in the definition adopted by the Legislature only claims relating to ‘Goods and Services’ were included within the definition and purview of ‘Operational Debt’.

In view of the terms and conditions of the Leave and License Agreement, appellants have leased out the premises for ‘Commercial Purpose’ which comes under the meaning of ‘Service’ for the purpose of Section 5(21) of the I&B Code, 2016.

Therefore, as the premises in the case on hand is leased out for ‘Commercial Purpose’, the cold storage owner/NAFED on collection is required to pay ‘service tax’ which is reflected in the tax invoices and ‘Ledger Accounts’ which is part of the record filed.

Further, with regard to issue number second, it was noted that though the Agreement was terminated, yet the Corporate Debtor continued to be in possession of the said storage facility and even sought an extension for a further period of 2 years.

Hence, Tribunal stated that ‘Debt’ was ‘ due and payable’.

Test of ‘existence of a dispute’ | Pre-Existing Dispute

It is evident on applying the test of ‘existence of dispute’ that without going into merits of the disputes, the argument raised by the Appellant cannot be construed as a plausible contention requiring further investigation or an assertion of facts supported by evidence.

A dispute does not truly exist in fact between the Parties and, therefore, this Tribunal held that the communication on record specifically the letter dated 19-09-2018, addressed by the Appellant themselves prior to the issuance of the Demand Notice clearly established that there is a ‘Debt due and payable’ and there is no ‘Pre-Existing Dispute’.

Tribunal also relied on the Supreme Court decision in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353.

In view of the above, the present appeal failed. [Anup Sushil Dubey v. National Agriculture Co-operative Marketing Federation of India Ltd., 2020 SCC OnLine NCLAT 674, decided on 07-10-2020]

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]

Case BriefsTribunals/Commissions/Regulatory Bodies

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]

Case BriefsTribunals/Commissions/Regulatory Bodies

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]