M/s. Sree Vaibhavi Infrastructures Private Limited & Ors. vs M/s. LEPL Peopletech Private Limited

This Application is filed by the Financial Creditors seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to the default committed by the Corporate Debtor in discharging the debt due to the Financial Creditor which amounts to Rs.68,95,63,409/-.

The facts as stated in the Application are as follows:

The Corporate Debtor filed counter denying the contents of the Application and further contending that the Application is not maintainable as the Financial Creditor No.1 is a Private Limited Company and could not lend money and cannot be called as a creditor for the purpose of IBC. The Memorandum & Articles of Association of the Creditor Company did not authorise the Board of the Company to lend money for profit. The Financial Creditors claiming to have invested the money to purchase the property from the individuals, who happened to be Directors of the Corporate Debtor and that on failure of those individuals to allot or acquire property the amount became repayable and that non-repayment of invested money becomes debt is absolutely false. Even on the own showing of the applicant Creditor, such non-repaid money will not become a debt much less a Corporate Debt for the purpose of initiating CIRP. Without admitting the liability of the Corporate Debtor it is submitted that the creditor made a self-conflicting statement in the Petition. It is stated that there was a Memorandum of Understanding (MOU) dated 25.10.2015 between BSR Group and Lingamaneni Group for a total debt extended by the BSR Group to the other group and in terms of that MoU, the BSR Group advanced an amount of Rs.219 Crores to Lingamaneni Group for acquisition of various companies and Lingamaneni Group agreed to repay Rs.219 Crores with compensation of Rs.32 Crores on or before 31.01.2016. The Corporate Debtor does not know whether there are two such groups having corporate entity known as BSR Group and Lingamaneni Group. So far as the Corporate Debtor is concerned, it is a Company having individual corporate identity and it did not enter into any MoU either on 25.10.2015 or any time later and never undertook to repay any amount as stated. The binding nature, enforceability and truth of MOU dated 25.10.2015 is denied. A reading of the MOU dated 25.10.2015 reveals that nobody has signed the same on behalf of the Corporate Debtor. It does not indicate that the Corporate Debtor is a party to the said MOU. The said MOU is between two individuals namely Sri Boppana Satyanarayana Rao referred as investor and Sri Ramesh Lingamaneni referred as Company. It does not disclose any involvement of two groups. The description of Sri Boppana Satyanarayana Rao is shown as investor and not as lender and Sri Ramesh Lingamaneni is described as a mere company without prefixing which company. These circumstances would establish the fact that there was no consensus-ad-idem between the parties to MOU, as to which entities they are representing, in order to constitute a valid contract. In the worst case, it can be said that the said document is a non-concluded contract and it cannot be enforced unless clauses 5 to 7 thereof are fulfilled. Neither the Memorandum nor Articles of Association of the Corporate Debtor permit the Director to accept investments from 3^rd parties. There is no such power conferred on Mr.Ramesh Lingamaneni nor there is any resolution of the Board to that effect. The signatory to the MOU dated 25.10.2015 and 24.06.2016 has no authority to sign MOU, to accept investments from the others and execute any contracts. He acted beyond his powers and in conflict with the interest of the Corporate Debtor. The Books of account of the Corporate Debtor do now show any amount paid by the Creditor as loan to the Corporate Debtor. The MOU dated 24.06.2016 stipulates and demonstrates that the intention of signatories thereto was to form a joint venture company by identifying a strategic partner. On incorporation, a company becomes a separate legal entity as compared to its members. Its assets and liabilities are separate and distinct from those of its members. The averment that the Corporate Debtor is one of the members of Lingamaneni Group and that it has issued a cheque for Rs.5 Crores is denied. The creditor cannot take advantage showing the date of default as 24.11.2020, whereas the petition shows that the amounts were paid in terms of investment on various dates and not Rs.5 Crores independently. The MOU only shows that there are contractual disputes between the parties which requires evidence which is beyond the powers of this Tribunal. Hence, the petition is liable to be dismissed.

The Financial Creditors filed rejoinder by stating that;

Heard both the Counsel and perused the written submissions made on behalf of both the parties. From the pleadings and the arguments the points that arise for consideration are as follows;

The second MoU dated 23.06.2016 can be taken as basis for the payment schedule since, it has structured the transaction by ignoring the earlier MoU. As per the MoU dated 23.06.2016 Party-B has to pay an amount of Rs.300 Crores after six months or while arriving at the value for distribution of property after the expiry of six months. Hence, the date of default would be either after six months from 23.06.2016 or while arriving at the value for distribution of property. Hence, unless the obligations under the MoU are fulfilled it cannot be said that there is any default committed by Party-B.

The present Application which is filed after three years from the date of the MoU or from the date on which the six months falls, which is also beyond three years, is based on a cheque dated 19.11.2020 which is issued by the authorized signatories of LEPL Ventures Private Limited. The date of MoU being 23.06.2016, six months from then would be ending by 23.12.2016. If three years is construed from 23.12.2016, the three years period would be completed by 23.12.2019. Hence, clearly the limitation for filing a suit, based on the MoUs, stands expired by the date of this application. The contention is that by virtue of the cheque dated 19.11.2020, the debt stands acknowledged and hence, a fresh limitation starts from 19.11.2020. In support of the said contention, the Counsel for the Financial Creditor relies on certain judgments. A judgment of the Hon’ble Supreme Court reported in 2000 SCC Online Guj 137 between Hindustan Apparel Industries Vs. Fair Deal Corporation, New Delhi, in which the Supreme Court considered the judgment of Patna High Court in Rajpatiprasad’s Case Vs. Kaushlya Kuer reported in AIR 1981 Pat 187, wherein the view expressed was that all the post-dated cheques in satisfaction of dues would amount to acknowledgment of liability irrespective of the fact whether the cheques were subsequently dishonoured was relied upon. Before proceeding with examining the relevance of the above judgment it would be beneficial to refer to the Judgment of the Supreme Court reported in (2019) 11 SCC 633 between B.K. Educational Services Private Limited Vs. Parag Gupta and Associates, wherein it is held that the limitation act is applicable to applications filed under Section 7 and 9 of the IBC from the inception of the Code. Article 137 of the Limitation Act gets attracted. It was held that the right to sue therefore accrues when a default occurs and if the default has occurred over three years prior to the filing of the date of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases wherein Section 5 of Limitation Act may be applied to condone the delay in filing such application.

Subject to the finding on the contentions of the Counsel for the Financial Creditor, by virtue of the above judgment, this application stands to have been filed after three years, when reckoned from the dates mentioned in the MoUs, as observed in the above paragraphs. Coming to the Judgment of the Supreme Court in Hindustan Apparel Industries, the Patna High Court has already held that a post-dated cheque would amount to acknowledgement of liability irrespective of it being dishonoured subsequently. It is also observed that a statement written in the form of a cheque will obviously amount to an acknowledgment in writing and that the said proposition is accepted in Chintaman’s case (AIR 1956 Bombay 553). It was observed that the division bench has observed that unless the cheque is honoured it could not be regarded as an acknowledgement in writing as contemplated in the provision regarding part payment in writing as appearing in Section 20 of the previous Limitation Act (now Section 19). According to the Bench if the cheque is dishonoured, the original debt which was conditionally satisfied, would be deemed to revive. It is observed that when the drawer issues a cheque it is very much in his mind that it does show as part of his jural relationship with the person to whom he issues the cheque and there may be different state of his mind at the stage when the cheque is presented for payment. What is important to be noticed from the judgments discussed by the Supreme Court as observed by the Supreme Court is, in the first place a cheque is undoubtedly an acknowledgement of right or debt or liability and when the same is not issued as a post-dated cheque, date of issuance of the cheque would assume importance, whether subsequently it is honoured or dishonoured. It is thus at the stage of issuance of the cheque that there surfaces an intention on the part of the debtor to acknowledge the liability/right/debt owing to the person in whose favour the cheque is issued. If the cheque is honoured it would amount to part payment in writing and the same would fall under Section 19 of the Act (Section 20 of the Previous Act).

It was held that a cheque would prima facie amount to an admission of debt unless a contrary intention has been expressed by the person issuing the cheque. Such an admission of payment of debt is to be determined with reference to the point of time at which the purported admission was made i.e., when the cheque was issued. What flows from the above judgment is that, by simple dishonour of cheque the acknowledgement of the debt cannot be done away. If the cheque is dishonoured, the date of acknowledgment of debt would be the date of the cheque. The judgment does not discuss about whether such acknowledgement should be before the expiry of the period of limitation construed from the date of the debt i.e., when the jural relationship between the parties is in existence or not. Section 18 of the Limitation Act was discussed by the Supreme Court in the above said judgment and Section 18 discussed therein is Section 19 of the Previous Limitation Act. Section 18 is extracted hereunder for ready reference.

Hence, according to Section 18 the acknowledgement of liability should be made before the expiration of the prescribed period for a suit or application in respect of the debt. If the acknowledgement is beyond the said period it does not amount to acknowledgment in terms of Section 18 of the Limitation Act. The Supreme Court held that the statement on which the plea of acknowledgment is founded must relate to a present subsisting liability and indicate the existence of jural relationship between the parties. It is also observed that the debtor and creditor should have an intention to admit such jural relationship, which need not be in express terms but can be inferred by implication from the nature of the admission and surrounding circumstances. It was held that a statement written in the form a cheque will obviously amount to acknowledgement in writing. The said proposition is observed as being settled in Chintaman’s Case. Hence the contention of the Counsel for the Corporate Debtor that unless the acknowledgement is in writing as specified under Section 18 (1) it is not a valid acknowledgement as per Section 25 (3) of Indian Contract Act, gets nullified since, issuance of cheque is held to be an acknowledgement in writing. Section 25 (3) of Indian Contract Act, is as under:

But however, the said acknowledgement not being during the period when the jural relationship is in existence it cannot be said that the cheque was issued for an enforceable debt. That apart, the cheque issued by the authorized signatory of LEPL Ventures Private Limited does not have any basis of a debt. It is disjunctive from the MoUs which are executed by an individual named Ramesh Lingamaneni. Hence, unless a nexus can be established between the cheque and the liability under the MoUs, it cannot be said that the LEPL Ventures has issued the cheque in discharge of the liability under the MoUs. However, the issuance of a cheque would only be a prima facie evidence of the acknowledgement of debt and presumption arising there from is a rebuttable presumption and as held by the Supreme Court in (2019) 10 SCC 287 between Uttam Ram Vs. Devinder Singh Hudan and another, to rebut the statutory presumption, proof beyond reasonable doubt is not expected and if something which is probable is brought on record, the burden of proof would shift back to the drawee of the cheque. To disprove the presumption, the drawer of the cheque should bring on record such facts and circumstances, upon consideration of which the Court may either believe that the consideration and debt did not exist or its non-existence was so probable that a prudent man would under the circumstances of the case act upon the plea that they did not exist. Even circumstantial evidence was held as sufficing to rebut the presumption. If the circumstances so relied upon are compelling the burden may shift to the Applicant.

The judgment of NCLAT, New Delhi in Company Appeal (AT) (Insolvency) No.366/2020 between Mr.Rajendrakumar Kundanmal Jain vs. Mr.Vijal A.Jain and Others, also does not help the Financial Creditor, as it is not on the aspect of the time barred debt.

As regards, the argument of the Counsel for the Corporate Debtor that in respect of the questions such as whether MoUs executed by individuals in their personal capacity is binding on Corporate Debtor who is not a party, whether the investment made by the Financial Creditor is liable to be refunded, as to what was the purport of the terms of the investment as envisaged in MoUs etc., the NCLT has to conduct a rowing enquiry to pierce the corporate veil of the Corporate Debtor which is not permissible at this stage, the counsel for the Financial Creditor relies on a judgment of the Supreme Court in 1996 4 SCC 622 between Delhi Development Authority vs. Skipeer Construction Company (P) Limited and Another, wherein it is held that the concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.

There is no doubt that this Tribunal has jurisdiction to lift the corporate veil, to understand the genuineness of the transaction. But for the purpose of understanding the genuineness of the transaction, if evidence need to be taken, the Tribunal would not have jurisdiction. In this case, from the terms of the MoU itself, it can be concluded that there is no concluded contract between the parties and that the due date for the debt has not arrived and consequently no default has been committed.

The counsel for the Financial Creditor contends that in the quash petition filed by the Corporate Debtor it is admitted that an MoU was entered between M/s.LEPL Project Limited on 27.08.2012 and hence it amounts to an admission of the MoU, cannot be considered, since, MoU dated 27.08.2012 is not the basis of the claim herein and the said MoU is not filed along with the Petition. Moreover, they mentioned the said fact only to deny it and not to admit the same. The MoUs which are admitted to have been entered into, in the quash petition, are not filed before this Tribunal. However, even if it is accepted that the MoUs dated 25.10.2015 & 23.06.2016 are admitted by the Corporate Debtor, since the obligations under the MoUs stand unfulfilled, the right to file this Petition does not arise. Moreover, in the quash petition several disputed facts with regard to the issuance of the cheques are raised, which require a detailed enquiry which is not within the scope of this Tribunal.

Hence viewed from the angle of limitation and the angle of debt becoming due and the angle of the commission of default, the Petition is liable to be dismissed. If the Financial Creditor is bent upon realizing the amounts he has to get the performance of the MoUs done by approaching the appropriate Forum, but not by way of an application under Section 7 of IBC, 2016.

In view of the findings under point No. I & II, the CP(IB) No.45/7/AMR/2021 is dismissed.