A. Maheshwaran vs Stressed Assets Stabilization Fund & ...

Company Appeal (AT) (Insolvency) No. 954 of 2019

IN THE MATTER OF:

Mr. A. Maheshwaran ...Appellant

Versus

Stressed Assets Stabilization Fund & Anr. ...Respondents

Present: For Appellant : Mr. Ashish Dholakia, Mr. Apurve M. Gokhale, Mr. Gautam Bajaj and Mr. Shakir, Advocates

ORDER

16.09.2019 This appeal has been preferred by the Appellant -

Shareholder' of 'M/s. Shree Vaishnodevi Mills Pvt. Ltd.' against order dated 22nd

July, 2019 passed by the Adjudicating Authority (National Company Law

Tribunal), Single Bench, Chennai, whereby and whereunder, an application

under Section 7 of the 'I&B Code' preferred by 'M/s. Stressed Assets Stabilization

Fund' has been admitted.

2. Learned counsel appearing on behalf of the Appellant submitted that the

claim is barred by limitation.

3. From the record, we find that the aggrieved person moved before the 'Debt

Recovery Tribunal'. Admittedly, it is accepted by the Appellant that there is

mortgage of property made by the 'Corporate Debtor'. Therefore, it is clear that

for such mortgage, 12 years limitation has been prescribed under Article 62 of

Part V of First Division of the Schedule of the Limitation Act, 1963. 2

4. Learned counsel for the Appellant next submitted that there is a dispute

about the amount claimed by the Respondent (Financial Creditor). However, on

such ground the impugned order cannot be set aside.

5. In 'Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407], the

Hon'ble Supreme Court while dealing with the matter relating to the application

under Section 7 observed and held as follows:

"27. The scheme of the Code is to ensure that when a

default takes place, in the sense that a debt

becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as meaning non-

payment of a debt once it becomes due and

payable, which includes non-payment of even part

thereof or an instalment amount. For the meaning

of "debt", we have to go to Section 3(11), which in

turn tells us that a debt means a liability of

obligation in respect of a "claim" and for the

meaning of "claim", we have to go back to Section

3(6) which defines "claim" to mean a right to

payment even if it is disputed. The Code gets

triggered the moment default is of rupees one lakh

or more (Section 4). The corporate insolvency

resolution process may be triggered by the

corporate debtor itself or a financial creditor or

operational creditor. A distinction is made by the

Company Appeal (AT) (Insolvency) No. 954 of 2019 3

Code between debts owed to financial creditors

and operational creditors. A financial creditor has

been defined under Section 5(7) as a person to

whom a financial debt is owed and a financial

debt is defined in Section 5(8) to mean a debt

which is disbursed against consideration for the

time value of money. As opposed to this, an

operational creditor means a person to whom an

operational debt is owed and an operational debt

under Section 5(21) means a claim in respect of

provision of goods or services.

28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the

explanation to Section 7(1), a default is in respect

of a financial debt owed to any financial creditor

of the corporate debtor - it need not be a debt

owed to the applicant financial creditor. Under

Section 7(2), an application is to be made under

sub-section (1) in such form and manner as is

prescribed, which takes us to the Insolvency and

Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the

application is made by a financial creditor in Form

1 accompanied by documents and records

required therein. Form 1 is a detailed form in 5

Company Appeal (AT) (Insolvency) No. 954 of 2019 4

parts, which requires particulars of the applicant

in Part I, particulars of the corporate debtor in Part

II, particulars of the proposed interim resolution

professional in part III, particulars of the financial

debt in part IV and documents, records and

evidence of default in part V. Under Rule 4(3), the

applicant is to dispatch a copy of the application

filed with the adjudicating authority by registered

post or speed post to the registered office of the

corporate debtor. 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 it must do within 14 days of the receipt of the

application. It is at the stage of Section 7(5), 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

Company Appeal (AT) (Insolvency) No. 954 of 2019 5

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."

6. From the aforesaid background, it is evident that even if a debt is disputed,

if the amount is more than Rupees One Lakh, the application under Section 7 is

maintainable. What is the exact amount of claim, that is only considered at the

stage of the 'Corporate Insolvency Resolution Process', when the 'Interim

Resolution Professional' after collating the claims, including the claim of the

Respondent, may ascertain what amount is payable to the Respondent.

In view of the aforesaid observations, while we condone the delay of 12

days in preferring the appeal, the appeal is hereby disposed of with aforesaid

observations. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice A.I.S. Cheema ] Member (Judicial)

[ Kanthi Narahari ] Member (Technical) /ns/gc

Company Appeal (AT) (Insolvency) No. 954 of 2019