Koshy Varghese vs India Resurgence ARC Private Limited & Anr.

[Per: Shreesha Merla, Member (Technical)]

Aggrieved by the Order dated 13/04/2023 in C.P.(IB) No. 135/BB/2021, by the National Company Law Tribunal, Bengaluru Bench, the suspended Director of M/s Value Designbuild Private Limited (hereinafter referred to as the ‘Corporate Debtor’), preferred this ‘Appeal’ under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’). The ‘Adjudicating Authority’ had admitted the Application filed by the Financial Creditor, M/s India Resurgence ARC Private Limited, under Section 7 of the Code, observing as follows:

It is the case of the Appellant that the ‘Adjudicating Authority’/ ‘Tribunal’ had passed a non-speaking Order without recording sufficient reasons and that the Application is barred by limitation. It is submitted that the date of Default as per Para 5 of the Application (filed under the ‘Code’) is 31/07/2016 and that the period of Limitation had lapsed on 31/07/2019 itself, whereas, the Petition was filed on 24/09/2021.

It is argued that there was never Any Acknowledgement of Liability in writing by the Corporate Debtor and therefore, Section 18 of the Limitation Act, 1963, cannot be relied upon, as the ‘Claim’ became time barred on 31/07/2019 itself, the benefit given by the Hon’ble Supreme Court in suo moto Writ Petition Civil No. 3/2020 cannot be extended to the Respondent herein.

It is also submitted that there is no existence of Financial Debt as the Corporate Debtor had paid a sum of Rs. 26,96,83,213/- (Rupees Twenty Six Crores Ninety Six Lakhs Eighty Three Thousand Two Hundred and Thirteen Only) to the Financial Creditor between January 2015 and July 2019, which amounts are duly reflected in the Bank statement of the Corporate Debtor. Two Legal Notices were issued by the Corporate Debtor on 15/12/2021 and on 16/02/2022 to the Original Lender, strongly refuting the existence of any Financial Debt, but there was no response. It is also submitted that there is an existence of an Arbitration Clause in the Agreement and that the Corporate Debtor had filed a Petition under Section 8 of the ‘Arbitration and Conciliation Act, 1996’, seeking to refer the Parties to Arbitration, in terms of Clause 20 of the Facility Agreement in IA No. 151/2022, however the same was closed as infructuous in the Impugned Order.

It is not in dispute that a Facility Agreement was entered into between the Original Lender and three borrowers including the Corporate Debtor, by virtue of which, a loan amount of Rs. 25,20,00,000/- (Rupees Twenty Five Crores Twenty Lakhs Only) was sanctioned in favour of the borrowing entities. The Repayment of the Credit Facility and the performance of the covenants of the Facility Agreement was secured by way of an Agreement of charge which was executed on 28/02/2015 itself. Through this Agreement, VDB Whitefield Development Private Limited had created a charge in respect of 19 unsold Units admeasuring 87,501 square feet, in Project VDB Willow Farm. On 24/06/2016, the original Creditor Company had issued an Arbitration Notice as some disputes had arisen between the parties and a Sole Arbitrator Mr. Siddharth Tomar was appointed. On 31/07/2016, the Loan Account of the borrower was declared as a ‘Non- Performing Asset’ (NPA). It is seen from record that this date is mentioned as the date of default in Para 4 of the Section 7 Application. On 19/08/2016, a Demand Notice under Section 13(2) of the SARFAESI Act, 2002 was issued and on 12/10/2016, the Co-Borrower of the Corporate Debtor had issued a Reply to the Section 13(2) Notice, wherein they had denied that they had committed any default in the repayment of the dues. On 23/06/2021, the Financial Creditor had issued a Demand Notice on the ground that a sum of Rs. 19,29,97,717/- (Rupees Nineteen Crores Twenty Nine Lakhs Ninety Seven Thousand Seven Hundred and Seventeen Only) was due and payable.

It is the stand of the Appellant that despite making payments to the Financial Creditor and stating so in their Reply Notice, the Financial Creditor did not withdraw their Notice dated 23/06/2021 and it was only after a delay of 5 years from the date of default, that is on 30/09/2021 that a Section 7 Petition was filed. A perusal of the Copy of the Statement of Account, dated 05/11/2020, read together with the Statement of Account as on 31/08/2021, clearly show the amounts due and payable by the Corporate Debtor to the Financial Creditor. It is seen from record that the Corporate Debtor has made Part Payments on 06/04/2016, 08/02/2017, 19/04/2017 and on 28/02/2018. It is pertinent to mention that the last Part Payment was sought to be made on 14/02/2019, vide Cheque No. 561 for an amount of Rs. 13,00,00,000/- (Rupees Thirteen Crores Only) which was returned on 08/03/2019 due to insufficient funds and the last successful part payment was made on 28/02/2018 and the Section 7 Petition was filed on 30/09/2021 within a period of 3 years from the date of issuance of the last cheque. It is the further case of the Appellant that there is no ‘Financial Debt’ due and payable by them and that a ‘Legal Notice’, was issued to the Financial Creditor on 15/12/2021 and on 16/02/2022, stating that an amount of Rs. 26,96,83,213/- (Rupees Twenty Six Crores Ninety Six Lakhs Eighty Three Thousand Two Hundred and Thirteen Only) has already been paid. However, the material on record establishes that the Section 7 Petition was filed on 24/09/2021 and both these Notices are subsequent to the filing of the Section 7 Petition. Be that as it may, it is also seen in Para 4 of very same Legal Notice dated 16/02/2022, relied upon by the Appellant themselves that due to reasons beyond the control of VDB Whitefield, such as Legal Proceedings issued against some of the borrowers, the Loan availed from Religare, suffered Default and was classified as an NPA and therefore the ‘Notices’ issued subsequently to the filing of Section 7 Application is construed to have no evidentiary value as far as the Provisions of IBC are concerned, wherein the issue of ‘Debt’ and ‘Default’ is to be examined to the satisfaction of the ‘Adjudicating Authority’. Having regard to the fact that the Hon’ble Supreme Court in the matter of ‘M/s Asset Reconstruction Company (India) Limited Vs. Bishal Jaiswal and Anr.’, reported in [(2021) 6 SCC 366] has clearly laid down that any entries in the Books of Accounts is to be construed as ‘Acknowledgement’ as defined under Section 18 of the Limitation Act, 1963, we are of the considered view that apart from the part payments made, the entries in the Books of Accounts clearly establish that there was an Acknowledgement of Debt as defined under Section 18 of the Limitation Act, 1963, well within the 3 years of Default. It is also significant to mention that though the date of Default has been mentioned as 31/07/2016 in Part 4 of the Application, the Corporate Debtor has admittedly made Part Payments between 2016 to 2018 and gave a cheque on 14/02/2019. Therefore, the ratio of the Hon’ble Supreme Court in the matter of ‘M/s Asset Reconstruction Company (India) Limited Vs. Bishal Jaiswal and Anr.’ (Supra) is squarely applicable to the facts of this case.

As regards the submission of the Learned Counsel for the Appellant that the Arbitration has been initiated and therefore, the Admission by the ‘Adjudicating Authority’, is unjustified, cannot be sustained as firstly, the Arbitration proceedings were sought to be kept in abeyance as settlement talks were ongoing between the Parties and further Section 238 of the Code provides that the Provisions of this Code shall have effect, notwithstanding anything inconsistent therewith, contained in any other Law for the time being in force. The Hon’ble Supreme Court in the matter of ‘Tata Consultancy Services Ltd. V. SK Wheels (P) Ltd.’ reported in [(2022) 2 SCC 583], held as follows:

The facts of the aforementioned judgment of the Hon’ble Supreme Court are squarely applicable to this case. Therefore, the existence of an Arbitration clause does not prevent the Parties from initiating Insolvency Proceedings under Section 7 of the Code.

The speed, within which the ‘Adjudicating Authority’ is to ascertain the existence of a ‘Default’ from the records of the information utility or on the basis of evidence furnished by the Financial Creditor, is important. This must be done within 14 days of the receipt of the Application. It is at the stage of Section 7(5) of the Code, where the ‘Adjudicating Authority’ is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the ‘Debt’, which may also include a disputed claim, is not due. A ‘Debt’ may not be due if it is not payable in ‘Law’ or in ‘Fact’. The moment the ‘Adjudicating Authority’ is satisfied that a ‘Default’ has occurred, the Application must be admitted unless it is incomplete, in which case it may give Notice to the Applicant to rectify the defect within 7 days of receipt of a Notice from the ‘Adjudicating Authority’. Under sub-section (7) the ‘Adjudicating Authority’ shall then communicate the ‘Order’ passed to the Financial Creditor and Corporate Debtor within 7 days of ‘Admission’ or ‘Rejection’ of such ‘Application’, as the case may be. In the instant case, as both ‘Debt’ and ‘Default’ have been established to the satisfaction of the ‘Adjudicating Authority’ and the Application is well within the period of ‘Limitation’, this ‘Tribunal’ finds no grounds to interfere with the well-reasoned Order of the ‘Adjudicating Authority’ in C.P.(IB) No. 135/BB/2021.

For all the aforegoing reasons, this Company Appeal (AT) (CH) (Ins) No. 167/2023 is ‘dismissed’ at the ‘Admission stage’. No Costs. Connected Pending Interlocutory Applications, if any, are ‘closed’.