Vidya Educare Pvt. Ltd. vs Agroha Colourtec Pvt. Ltd.

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 18.09.2019 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench – III) by which an application filed by the Appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) against the Respondent /Corporate Debtor for allegedly not repaying the loan amount of Rs. 86,36,250/- including the interest has been dismissed.

In brief, the case set up by the Appellant is that it had advanced a loan of Rs. 75.00 lacs with 12% simple interest per annum to Respondent vide cheque number 22333 which was encashed on 15.10.2015. As per the Appellant, it was a simple loan transaction repayable on demand and the financial assistance was given while mutually deciding that it would carry interest @ 12 % per annum which shall be payable quarterly. According to the Appellant the monthly interest payable by Respondent to the Appellant was of Rs. 2,25,000/- and after deducting TDS @ 10 % the net payable amount was Rs. 2,02,500/-. It is alleged that Respondent initially paid interest on the aforesaid amount. However, a sum of Rs. 86,36,250/- was due as on 01.01.2019 towards the principal amount with interest occurred on it. It is also case of the Appellant that balance sheet of Respondent for the financial year ending on 31.03.2017 has shown unsecured loans of Rs. 1193.01 Lacs under the heading ‘From Others’ in long term borrowings and the amount of Rs. 75.00 Lacs borrowed by Respondent from the Appellant is reflected under the said head. It is alleged that when Respondent failed to make the payment, the director of the Appellant demanded the entire loan from Respondent who had issued a cheque bearing no. 647323 dated 02.08.2018 of a sum of Rs. 75 Lacs towards principal outstanding but the said cheque was dishonoured for the reason ‘Stop Payment’. Pursuant thereto, the Appellant issued notice dated 06.10.2018 under Section 138 of Negotiable Instruments Act, 1881 which was duly received by the Respondent on 10.10.2018 but despite the said notice, Respondent failed to make the payment within the statutory period of 15 days and therefore, the Appellant was constrained to file criminal complaint under Section 138 of Negotiable Instruments Act, 1881 before the Meerut Court.

On the other hand, the case of the Respondent is that there were no terms of the repayment of amount of loan as alleged. The Appellant had never raised any demand, therefore, there is no default on their part which would attract the provisions of Section 7 of the Code. It is also alleged that the Appellant has failed to establish that the amount claimed was in the nature of financial debt. It is further alleged that even if it is assumed for the sake of arguments that the amount in question is repayable by the Respondent but there was no demand, therefore, it does not fall within the ambit of default. On the aforesaid pleadings, the Adjudicating Authority has recorded a finding that there was a transfer of Rs. 75.00 Lacs to Respondent but the amount disbursed does not qualify as financial debt and the action/conduct of the Respondent does not fall within the definition of default and hence the application filed under Section 7 of the Code by the Appellant was dismissed.

Counsel for the Appellant has vehemently argued that once the amount of Rs. 75.00 Lacs has been admitted, advanced by the Appellant to Respondent and the interest was paid, it would fall within the parameters of definition of financial debt and the said amount has not been repaid because of cheque issued by the Respondent was dishonoured, there was a default on the part of the Respondent and notice issued by the Appellant in terms of section 138 of the Negotiable Instruments Act, 1881 is a demand. Therefore, it is argued that the Appellant has fulfilled all the ingredients, requirement for pursuing the application filed under Section 7 of the Code which has illegally been dismissed by the Adjudicating Authority.

On the other hand, Counsel for Respondent has argued that there is no document on record to prove that the amount of Rs. 75.00 Lacs was advanced as a loan and thus it does not fall within the definition of financial debt and since no time is mentioned for the purpose of repayment, therefore, it would not come within the purview of Section 3(12) of the Code which deals with the definition of default. He has also drawn our attention towards application filed by the Appellant under Section 7 of the Code which is a printed performa (Form-1) to contend that the Appellant has not mentioned even the date of default in column 2 of Part-IV which is required to initiate the proceedings under Section 7 of the Code.

We have heard Counsel for the parties and perused the record with their able assistance.

The Appellant has filed the application under Section 7 of the Code to initiate the CIRP against the Respondent by admission of the application. However, Section 7(1) provides that the application under Section 7 can be filed before the Adjudicating Authority to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor when a default has occurred. Similarly, Section 7(2) provides that the application provide under Section 7(1) has to be filed in the form and manner as prescribed. Thus, in order to initiate the proceedings under section 7 of the Code the date when the default has occurred is essential. The application is provided to be filed on a printed performa which is provided in Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Form -1 is a printed performa of the application which has five parts. Part-1- deals with the particulars of the Applicant. Part-2- deals with the particulars of the Corporate Debtor. Part-3- deals with the particulars of proposed IRP. Part-4- deals with the particulars of financial debt. Part-5-deals with the particulars of financial debt (documents, records and evidence of default).

Part-4 has further two parts, namely, the first part deals with the total amount of debt granted dates(s) of disbursement and second part deals with the amount claimed to be in default and the date on which the default occurred (attach the workings for computation of amount and days of default in tabular form).

The printed performa, in Rules, lays down the necessary ingredients to be provided in the application by the Applicant. The Respondent has raised the issue that there was no date of repayment of the amount claimed by the Appellant, therefore, there was no default on their part and as such the case of the Appellant does not fall within the definition of default which is provided in Section 3(12) which means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. Thus, it is necessary for the Applicant/Appellant to have mentioned the date of default in the application but no such date has been mentioned and in this regard reference could be had to the averments made in column 2 of part – IV of Form-1 filed by the Appellant/Applicant which read thus:

If the application under Section 7 of the Code could be filed only when the default occurs and the date of default is conspicuous by its absence in the pleadings of the Appellant, dishonour of the cheque, as alleged by the Appellant, could not be taken as the date of default. There was no effort on the part of the Appellant to get the pleadings amended before the Adjudicating Authority. Therefore, in the absence of necessary ingredients, pleaded in the application filed under Section 7 of the Code, on the basis of which the application could have been maintained, we do not find any reason to interfere in the impugned order.

In view of the aforesaid discussion, the present appeal is thus found to be devoid any merit and the same is hereby dismissed.