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Judgment
[Per: Ms. Shreesha Merla, Member (T)]
Aggrieved by the Impugned Order dated 04.08.2021, passed by National Company Law Tribunal, Mumbai Bench in C.P. No. 4359/IBC/MB/2019, the Suspended Director of the ‘Corporate Debtor’ Company preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (herein after referred to as the ‘Code’). By the Impugned Order, the Adjudicating Authority has admitted the Section 7 Application, observing as follows:
“1.The ‘Corporate Debtor’ did not choose to file any reply contesting above Company Petition despite taking so many adjournments and also not complied the conditional order dated 16.03.2021 before which date he was directed to file reply. Therefore, the ‘Corporate Debtor’’s right to file reply was forfeited.
2.Heard the Counsel appearing for the ‘Financial Creditor’. The Counsel appearing for the ‘Financial Creditor’ invited the attention of this Tribunal to the relevant documents filed in proof of debt and default in support of above company petition. The Counsel appearing for the ‘Financial Creditor’ also invited the attention of this tribunal to the letter dated 01.04.2016 addressed by the ‘Corporate Debtor’ to the ‘Financial Creditor’ for the financial year ending from 01.04.2015 to 31.03.2016 in their books of accounts.
3.Even though, Mr. Pradip Patil, Advocate appeared through virtual hearing on behalf of ‘Corporate Debtor’ on 26.07.2021 on which date the matter is listed for final hearing, he did not choose to make any submissions perhaps due to non-filing of reply by ‘Corporate Debtor’.
4.Since the Respondent/’Corporate Debtor’ did not file any reply the claim of the ‘Financial Creditor’ remains unchallenged.
5.In the light of the above, there are no valid grounds warranting the rejection of the above Company Petition as the debt and default are clearly established and the debt is also within limitation. The ‘Financial Creditor’ has also suggested the name of proposed Interim Resolution Professional in part-3 of the Petition along with his consent letter in Form-2. Thus, the present Company Petition satisfies all the necessary requirement for admission”.
2. Submissions of the Ld. Counsel appearing on behalf of the Appellant.
Ld. Counsel for the Appellant submitted that the first Respondent had foreseen the true potential of the operations of the ‘Corporate Debtor’ and initiated negotiations with the late father of the Appellant to invest an amount of Rs. 1 Crore in the form of equity partnership in the ‘Corporate Debtor’ Company.
Ld. Counsel argued that the said amount was provided in the form of financial assistance and there is no whisper about the amount being a term loan or any kind of loan. It is contended that it was only in the form of an ‘investment’ and therefore the amount cannot be termed as a ‘‘Financial Debt’’. It is denied that the ‘Corporate Debtor’ had expressed its desire to continue the alleged loan along with the interest payable every six months.
It is argued that the Promisory Notes dated 16.10.2014 and 01.02.2017 are not stamped and as per Entry 49 of the first schedule to the Indian Stamp Act, 1899, Promisory Notes have to be duly stamped by affixing the stamp of the required value. As the said stamps are absent, the Promisory Notes are inadmissible.
Ld. Counsel also placed reliance on Section 33 of the Maharashtra Stamp Act, 1958 wherein the fate of an unstamped instrument is impounding, irrespective of the validity of that instrument.
It is argued that the first Respondent has not been able to produce any document to show that the amount of Rs. 1 Crore was disbursed in favour of the ‘Corporate Debtor’ in pursuance of a Financial Contract.
Ld. Counsel for the Appellant submitted that as the Appellant has lost his father on 01.01.2020 and was involved in performing the last rites, he found it difficult to engage the services of a Counsel, at that point of time and therefore, the Counsel had managed to make an appearance only on 19.01.2020. The Adjudicating Authority had directed the first Respondent to issue notice on the ‘Corporate Debtor’ on 05.03.2020, for the next date of hearing which was returnable on 01.04.2020. Thereafter, there was a nationwide lockdown, effective from 24.03.2020 and the matter was listed by the Adjudicating Authority directly on 08.02.2021. The Appellant had engaged a new Counsel who filed his vakalatnama on 16.03.2021 and had sought time to file a Reply. The effective hearing happened only on 26.07.2021, on which date the Adjudicating Authority had forfeited the right of the ‘Corporate Debtor’ to file a Reply without giving any final opportunity.
It is further contended that no document can be taken into consideration by the courts if the said electronic documents are not duly supported by Section 65 (B) of the Indian Evidence Act, 1872 and therefore, the reliance on the electronic documents is completely misplaced and concluded his arguments that the Adjudicating Authority had erroneously admitted the Section 7 Application without giving a proper opportunity to the ‘Corporate Debtor’ to file their reply and contest the case.
3. Submissions of the Ld. Counsel appearing on behalf of the Resolution Professional, the Respondent No. 2
Ld. Counsel appearing for the Resolution Professional filed his ‘Status Report’. Ld. Counsel submitted that this said Company Petition was listed before the Adjudicating Authority on several occasions, but was mostly adjourned on the request of the Counsel appearing for the ‘Corporate Debtor’. On merits, it is submitted that the ‘Corporate Debtor’ had admitted to the ‘Debt’ but defaulted on the payments in various stages and therefore, cannot now take a stand that the amount is not a ‘‘Financial Debt’’.
It is submitted that a part of the total debt was sought to be repaid vide a cheque dated 15.07.2019 which was subsequently dishonored. Interest was paid and TDS deducted under the provisions of Section 194 of the Income Tax Act by the Appellant towards the financial assistance provided by the ‘Financial Creditor’. The Promisory Notes executed further fortify the stand of the Respondent.
The ‘Financial Creditor’ has never pressed for enforcing the Promisory Note as the Adjudicating Authority is not a forum for enforcing contracts. The Promisory Note so executed merely indicates a financial transaction and acceptance of loan/debt by the Appellant.
Assessment:
At the outset we address to the submissions of the Ld. Counsel for the Appellant that no proper opportunity was given by the Adjudicating Authority in filing a Reply. It is seen from the material on record that first notice was directed to be issued by the Adjudicating Authority on 09.12.2019 and Ms. Shivangi Agarwal had appeared before the Adjudicating Authority and offered to file her vakalatnama on 20.01.2020. On 06.02.2020 time was sought to file Reply and the matter was adjourned. On 05.03.2020, the Respondent Counsel was absent. On 08.02.2021, since the matter was taken up after the covid situation, the Counsel for the Petitioner was directed again to issue a notice informing the Respondent regarding the next date of hearing. It is a matter of record that on 16.03.2021, Respondent Counsel Mr. Sanjay Ruia, was present and filed his vakalatnama and sought for two weeks time to file his Reply. On 07.04.2021, the matter was adjourned due to lack of time. On 01.06.2021 the matter was adjourned. It is the case of the Respondent that the Appellant was very well aware of this date and in fact had sent a WhatsApp message a day prior to this date.
On 26.07.2021, once again the Respondent was present but the right to file their Reply was forfeited but the arguments were heard and the matter was reserved for orders.
The dates evidence that the Respondent Counsel was present from the initial stage till the date on which his right to file his reply was forfeited, and several opportunities were given by the Adjudicating Authority. The Adjudicating Authority in the Impugned Order had recorded the conduct of the ‘Corporate Debtor’ as follows:
“1.The ‘Corporate Debtor’ did not choose to file any reply contesting above Company Petition despite taking so many adjournments and also not complied the conditional order dated 16.03.2021 before which date he was directed to file reply. Therefore, the ‘Corporate Debtor’’s right to file reply was forfeited”.
Therefore, we do not see any illegality in the Order of the Adjudicating Authority in forfeiting the right of the Appellant in filing a Reply.
Now, we address to the issue raised by the Counsel for the Appellant that the amount is not a ‘Financial Debt’. It is not denied that the amount of Rs. 1 Crore has been disbursed to the ‘Corporate Debtor’ on 16.10.2014 and a cheque bearing no. 011363 dated 15.07.2019 was issued by the ‘Corporate Debtor’ to the first Respondent for Rs. 1 Crore but was subsequently dishonored.
The ‘Corporate Debtor’ had acknowledged that amounts were due on 01.04.2015, on 01.04.2016 and on 01.04.2018 and the cheque was dishonored on 17.07.2019. The amount disbursed has consideration for time value of money as it also involves payment of interest @ 18% p.a.
The Promisory Note only indicates that there was an acknowledgement of a debt to be repaid with interest. It is significant to mention that the ‘Financial Creditor’ had not sought for enforcement of this promisory note and therefore, the question of it being stamped and the provisions of Indian Stamp Act, 1899 being applicable, does not arise in this case. The material on record evidences that the amount of Rs. 1 Crore disbursed to the ‘Corporate Debtor’ has the essential ingredients of a ‘Financial Debt’ as defined under Section 5(8) of the Code.
It is submitted by the Resolution Professional that publication of Expression of Interest (‘EOI’) in Form G was done on 20.05.2022, but no EOI was received. Fresh EOI was published on 21.07.2022 and the last date for submission of Resolution Plans, extended by seven days was 18.09.2022.
It is submitted by the Resolution Professional that the Resolution Plan is under consideration and the time has expired on 09.10.2022. For the aforenoted reasons, we do not see any substantial grounds to set the clock back and hence this Appeal is dismissed accordingly. No order as to costs.