Abhiruchi Vision Pvt.Ltd vs Jayaswal Neco Industries Limited

[Arising out of Order dated 09.02.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court II, in I.A./2973//2022 in CP(IB)/1027/(MB)/2022]

IN THE MATTER OF:

ABHIRUCHI VISION PRIVATE LIMITED, 10, Princep Street, 3rd Floor, Kolkata WB 700071 IN ...Appellant

Versus JAYASWAL NECO INDUSTRIES LIMITED, F-8, MIDC Industrial Area, Hingna Road, Nagpur MH-440016 Email: contact@necoindia.com ...Respondent

Present:

For Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Ms. Varsha Himatsingka, Mr. Rajat Sinha, Advocates For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Rahul Pandey, Mr. Shivam Shukla, Mr. Devansh Srivastava, Mr. Mahesh Agrawal, Ms. Shurti Pandey, Ms. Namrata Saragoi, Mr. Shreya Edupuganti, Mr. Diwakar, Advocates

JUDGMENT

ASHOK BHUSHAN, J.

1. This Appeal has been filed by the Appellant challenging Order dated

09.02.2023 passed by National Company Law Tribunal, Mumbai Bench,

Cont'd.../ -2-

Court-II (hereinafter referred to as "The Adjudicating Authority") by

which order, the Adjudicating Authority allowed I.A. No. 2973 of 2022

filed by the Corporate Debtor-Jaiswal Neco Industries Limited,

Respondent (hereinafter referred to as "JNIL") praying for dismissal of

Section 7 Application of Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "The Code") filed by the Appellant.

2. The Adjudicating Authority heard the parties on I.A. No. 2973 of

2022 and by Impugned Order allowed the Application dismissing Section

7 Application of the Code as not maintainable.

3. Background facts and sequence of events necessary to be noted for

deciding this Appeal are:-

a. An Indenture of Family Settlement (hereinafter referred to as "IFS")

was executed between Basant Lal Shaw (BLS) and his sons. Under

the IFS, Jayaswal Family was divided into two Groups; one Group

consisted BLS and two sons along with their family members

known as "BLS Group"and other group consisted of one son of BLS

namely Manoj Kumar Jayaswal and his sons knows as "MKJ

Group".

b. Under the IFS, BLS Group was allotted "Jayaswal Neco Industries

Limited" (JNIL in short) and MKJ Group was allotted "Corporate

Ispat Alloys Limited" (CIAL in short).

c. The IFS further provided that JNIL would be entitled to the Strip

Mill Division of CIAL for the purpose CIAL was to demerge the Strip

Mill Division from it which would thereafter be amalgamated with

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JNIL. Demerger and subsequent amalgamation was to be completed

in 90 days i.e. by 29th October, 2008.

d. IFS in paragraph 7 (l) provided that said merger of the units Strip

Mill Division with JNIL, the system of running the Units on Lease

Rental Basis shall continue and out of lease rental accrual,

installments and liabilities continued to be provided for payment to

the Lenders of the Units by JNIL. CIAL Strip Mill Division had taken

various loans which were required to be repaid to the lenders. JNIL

made payment to CIAL towards lease rental for the Strip Mill

Division till 31st August, 2010. JNIL stopped making any payment

thereafter. Between August, 2010 to December, 2012, CIAL had

made payment to its lenders of the Strip Mill Division amounting to

Rs. 104,43,67,347.94/-.

e. MKJ Group filed a Civil Suit No. 584/2011 before the Civil Judge,

Nagpur seeking declaration that non-payment of monthly

installments owed by CIAL to the Lenders of Strip Mill Division by

the BLS Group from August, 2010 to March, 2011 was illegal and

contrary to IFS. MKJ Group prayed for various directions including

direction to reimburse the amount paid to Lenders by CIAL. In the

aforesaid suit, BLS Group filed an Application under Section 8 of

the Arbitration and Conciliation Act, 1996 which although initially

was rejected by the Civil Judge but the Order was reversed by

Hon'ble Bombay High Court vide Judgment and Order dated 28th

July, 2011. The Hon'ble High Court held that suit was not

maintainable in view of the arbitration clause.

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f. On 20th June, 2011, BLS Group initiated arbitration proceeding

against MKJ Group alleging delay in adjudication on the part of the

MKJ Group in implementing the IFS. In the arbitration, various

claims were raised by the BLS Group including monetary claims

with interest. Hon'ble Bombay High Court appointed on 12th

August, 2011 sole arbitrator. In the arbitration proceeding, MKJ

Group filed an Application under Section 31(6) of the Arbitration

and Conciliation Act, 1996 seeking Interim Award for an amount of

Rs. 102,26,78,728/- being the amount allegedly admitted by BLS

Group owed to CIAL which was payment towards lenders of Strip

Mill Division. The Counter Claim was filed by MKJ Group in the

Arbitration.

g. On 16th April, 2013, Hon'ble Bombay High Court approved the

scheme of merger, the Strip Mill Division was eventually demerged

and absorbed by GNIL. GNIL thereafter serviced the Bank Loans of

Strip Mill Division from April, 2013. The sole arbitrator dismissed

the Application filed by MKJ Group under Section 31(6) vide

Judgment dated 26.11.2014.

h. CIAL issued winding up notice to JNIL with respect to debt of Rs.

104,43,67,347.94/- . On 06th April, 2015, Company Petition No.

11/2015 was filed by CIAL under Section 439 of the Companies

Act, 1956 before the Hon'ble Bombay High Court. Hon'ble Bombay

High Court passed an order on 15.10.2015 observing that it would

be prudent to await the outcome of the arbitration proceeding

pending before the Sole Arbitrator. The Order of Hon'ble Bombay

Company Appeal (AT) (Insolvency) No. 350 of 2023 -5-

High Court was challenged by CIAL. Division Bench vide order

dated 29.01.2016 allowed the Appeal filed by CIAL and quashed the

Order dated 15.10.2015. The JNIL filed an Appeal before Hon'ble

Supreme Court against the Division Bench Judgment of the High

Court. Hon'ble Supreme Court on 29.03.2016 disposed of the

Appeal directing the Learned Single Judge of the Bombay High

Court to consider the objection of JNIL at the preliminary stage. On

24th March, 2017, CIAL assigned debt Rs. 102,26,78,728/- to the

Appellant allegedly due from Borrower JNIL.

i. An application under Section 7 was filed by the Appellant the

assignee before NCLT, Mumbai Bench being CP (IB) No.

717/MAH/2017 which was withdrawn on 01st May, 2017 by the

Appellant. The Appellant thereafter filed an Application in Company

Petition seeking its impleadment in Company Petition filed under

Section 439 by CIAL which was withdrawn on 25.02.2021. On

23.07.2021, joint pursis were filed by the parties before the Sole

Arbitrator for withdrawal of the arbitration proceedings and their

respective claims. On 07th August, 2021, BLS Group and MKJ

Group filed joint pursis before sole arbitrator withdrawing the

respective claims and counter claims. The Sole Arbitrator vide its

order dated 07th August, 2021 disposed of and terminated the

arbitration proceeding at the instance of the parties.

j. The Appellant on 2nd May, 2022 filed Section 7 Petition before the

NCLT, Mumbai Bench being CP No. 1027/MB/2022 claiming a

Financial Debt of INR 104,43,67,347.94/- In Company Petition, the

Company Appeal (AT) (Insolvency) No. 350 of 2023 -6-

Respondent-JNIL filed an I.A. No. 2973 of 2022 praying for

dismissal of Section 7 Petition challenging the very maintainability

of the Petition.

k. The Adjudicating Authority heard both the parties on I.A. No. 2973

of 2022 and by Impugned Order dated 09.02.2023 allowed the I.A.

and dismissed Section 7 Application.

l. The Adjudicating Authority by the Impugned Order held that claim

made by Financial Creditor emanates from an IFS dated 31st July,

2008 between the members of the Jayaswal Family, alleged debt

was the subject matter of arbitration proceedings which having

been amicably settled and compromised between the parties,

nothing can be said to be due and payable from the Corporate

Debtor.

m. The Adjudicating Authority further held that CIAL has paid certain

banks and institutions money against loans availed by the Strip

Mill Division which according to the CIAL was liable to be paid by

the JNIL. The Adjudicating Authority held that there has been no

disbursement to the Corporate Debtor-JNIL and no money has

been received by JNIL for time value of money. The Adjudicating

Authority held that there is no financial debt.

n. Aggrieved by the order of the Adjudicating Authority, this Appeal

has been filed.

4. We have heard Mr. Krishnendu Datta, Learned Sr. Counsel for the

Appellant and Mr. Ramji Srinivasan, Learned Sr. Counsel for the

Respondent.

Company Appeal (AT) (Insolvency) No. 350 of 2023 -7-

5. Mr. Krishnendu Datta, Learned Sr. Counsel appearing for the

Appellant submits that impugned order is a non-speaking order which

does not deal with contentions raised by the Appellant. It is submitted

that financial debt and default was fully established. It is submitted that

closure of the arbitration proceedings which have been relied by Ld.

Adjudicating Authority has no bearing on the claim of the Appellant since

neither the Appellant nor its assignor and nor Corporate Debtor were

parties to the arbitration proceedings. It is submitted that liability of the

corporate debtor to make payment qua the Strip Mill Division was clearly

set out in the scheme of arrangement between CIAL and JNIL. It is

submitted that debt in question was assigned to the Appellant in the year

2017 by which time Arbitration Proceeding has not even come to an end.

It is submitted that Company Petition filed by the CIAL was withdrawn

without any information or knowledge of the Appellant which shall have

no bearing on the rights of the Appellant. It is submitted that inter se

claim between CIAL and JNIL were not subject matter of the arbitration

proceedings between BLS Group and MKJ Group. The Corporate Debtor

in balance sheet from the year 2013-14 has shown the liability of Rs.

104,43,67,347.94/- Crores towards CIAL. Learned Sr. Counsel for the

Appellant has also referred to email dated 27th March, 2014 where credit

balance of Rs. 104,43,67,347.94/- has been acknowledged by the

Corporate Debtor. Learned Sr. Counsel for the Appellant further

submitted that Adjudicating Authority erred in not adverting to the

entries in the balance sheet which contains clear acknowledgement of the

debt.

Company Appeal (AT) (Insolvency) No. 350 of 2023 -8-

6. Mr. Ramji Srinivasan, Learned Sr. Counsel appearing for the

Respondent refuting the submissions of Learned Sr. Counsel for the

Appellant submits that the Adjudicating Authority has rightly returned a

finding that there is no financial debt. It is submitted that sine qua non of

the financial debt is disbursal of money for time value of money. The Strip

Mill Division of CIAL was being run by Corporate Debtor on lease rental

basis and payment of lease rental by Corporate Debtor was not akin to

any disbursement by the Lenders in favour of the Corporate Debtor.

Corporate Debtor after the Strip Mill Division was demerged from CIAL

and merged with Corporate Debtor from April, 2019 have been

discharging all its loans liabilities. The claim of the CIAL against the

Corporate Debtor for an amount of Rs. 104,43,67,347.94/- was stemmed

from IFS and the same debt was under consideration in the arbitration

proceeding by virtue of counter claim filed by MKJ Group. MKJ Group

filed counter claim of same amount of Rs. 104,43,67,347.94/- and also

filed an Application under Section 31(6) of the Arbitration and

Conciliation Act for interim award which came to be rejected. Arbitration

Proceedings having been amicably settled between the parties there can

be no debt subsisting. It is submitted that in the arbitration proceedings

monetary claim which was claimed by the JNIL for losses and damages

suffered for running the Strip Mill Division was much more than the

amount of Rs. 104,43,67,347.94/-. It is submitted that payments claimed

based on the balance sheet entry is hopelessly misplaced since JNIL had

categorically disputed the debt in its different balance sheet notes.

Appellant has referred to balance sheet of 2015-16, 2016-17, 2017-18,

Company Appeal (AT) (Insolvency) No. 350 of 2023 -9-

2018-19, 2019-20 and 2020-21 and referred to the notes where the claim

was disputed. Balance sheet has to be read with the notes on to account

hence the case of the Appellant that there is acknowledgement of debt is

wholly incorrect. The claim of the Appellant was hopelessly barred by

time. Assignment deed was executed on 24th March, 2017 where Section

7 Application has been filed in the year 2022 after more than five years.

7. We have considered the submissions of Learned Counsel for the

parties and have perused the record.

8. IFS was entered into between Members of Jayaswal Family. The

assets and properties including CIAL and JNIL were distributed among

the two groups i.e. BLS Group and MKJ Group. CIAL was allocated to

MKJ Group whereas JNIL was given to BLS Group. Strip Mill Division of

CIAL was to be demerged from CIAL and was to be merged with JNIL. IFS

provided for payment of lease rental by JNIL and payment towards loan

and interest was from out of lease rental. IFS further clearly contemplated

that after units are merged with JNIL, the liability for payment of the

balance loans and interest shall be on JNIL. Clause 7(l) contains following

stipulation:

"...........All these units referred above are being run by Jayaswal Neco Industries Limited under lease on payment of monthly rentals and as per the understanding monthly / quarterly installments alongwith interest thereon payable to respective Banks/Institutions are being provided by JNIL out of accrual of monthly lease rentals, bearing only for the Strip Mill acquired by CIAL as the Strip Mills' improvisation is still not complete due to lack of funds

Company Appeal (AT) (Insolvency) No. 350 of 2023 -10-

and once the additional sanctioned Term Loan is released by Bankers for completion of improvisation, the same shall be operated under lease from CIAL and the accrued lease rent provided by JNIL shall be paid to be Bankers/ Institutions funding the CIAL-Strip Mill towards part payment of principal and interest till the date of merger of the Units with JNIL. Once all the units are merged with JNIL the liability for payment of the balance loans and its interest shall be on JNIL. Till merger of the units with JNIL the system of running the units on lease rental basis shall continue and out of the lease rental accruals, installments and interests shall continue to be provided for payment to the Lenders of the Units by JNIL through a designated account to be operated by the nominees of both the Groups. It is hereby clarified and accepted by the Parties that the system of Lease of Units has been adopted by BLS Family for commercial convenience and the lease rentals are no way connected to the actual repayment of interest and principle of the Units. BLS Group agrees to pay total interest and principle payments in priority in accordance with the Sixth Schedule, including all other incidental amounts due to the Bankers of the Units on due dates."

9. Clause 18 of the IFS contemplated that

demerge/merger/settlement of all inter company shall be completed

within three months. There is no doubt between the parties that initially

till August, 2010 payments of interest and loans were serviced and

thereafter from August, 2010 till March, 2013, CIAL made payment of

interest of the loan to the Lenders and according to the CIAL the payment

made during the said period by CIAL was Rs. 104,43,67,347.94/-. We

Company Appeal (AT) (Insolvency) No. 350 of 2023 -11-

have noticed above that after August, 2010 when CIAL had to make

payment of interest to the Loan, a suit No. 584/2011 was filed by MKJ

Group seeking declaration that non-payment of the debt of lenders by

BLS Group was contrary to the IFS and direction was sought to BLS

Group to reimburse the amount of more than Rs. 30 Crores which was

paid by CIAL till March, 2021. Suit was ultimately dismissed on account

of arbitration clause i.e. Clause 27 in the IFS. Arbitration Proceedings

were initiated by the BLS Group where counter claim was also filed by

MKJ Group. One of the claims, claim "c" by the MKJ Group was "a claim

towards non-payment of installments in the matter of Strip Mill Division

of Corporate Ispat Alloys Limited (CIAL) in terms of Clause 7 (l)".

10. While noticing the facts, we have noted that in the arbitration

proceedings MKJ Group filed an Application under Section 31(6) of the

Arbitration and Conciliation Act claiming for an Interim Award for an

amount of Rs. 102,26,78,728/- which amount according to the MKJ

Group was admitted in the balance sheet of Corporate Debtor JNIL. The

Application praying for Interim Award for aforesaid amount by MKJ

Group was dismissed by Sole Arbitrator on 26th November, 2014 which

order was not challenged. It is clear that in the arbitration proceedings

which was between two groups i.e. BLS and MKJ Groups. MKJ Group

claimed the amount paid by CIAL towards installments to the lenders and

claim of Rs. 102,26,78,728/- was made which claim was repelled in the

arbitration proceedings thus the claim of assignor of the Appellant was

very much raised as a counter claim. As noted above, the Arbitration

Proceedings were ultimately settled between the parties and by joint

Company Appeal (AT) (Insolvency) No. 350 of 2023 -12-

pursis claims and counter claims were withdrawn. The Adjudicating

Authority has returned a finding in paragraph 17 that alleged debt which

arose out of IFS dated 31st July, 2008 having been amicably settled and

compromised by the parties on 07th August, 2021 i.e. before filing Section

7 Application, no debt remained to be paid by Corporate Debtor. The said

findings are based on relevant materials on record and cannot be faulted.

11. The Adjudicating Authority has returned another finding that no

financial debt has been proved. In the Application under Section 7, there

being no financial debt, the Application under Section 7 of the Code is not

maintainable. The financial claim which is subject matter of Section 7

Application is based on assignment dated 24th March, 2017 which was

assignment executed by CIAL in favour of Appellant of debt of Rs.

104,43,67,347.94/-. The aforesaid amount of Rs. 104,43,67,347.94/-was

amount which was paid by CIAL towards lenders for loan of Strip Mill

Division. Admittedly the Loan was taken by CIAL for its Strip Mill Division

and amount was disbursed to CIAL which liability of repayment of the

loan along with interest was on the CIAL. IFS contemplated demerger of

Strip Mill Division of CIAL from CIAL to JNIL. All units were being run by

JNIL on lease rental basis. We have noticed clause 7(l) of the IFS which

clearly contemplates that all units are being run by JNIL on lease rental

basis and on basis of payment of monthly rentals, repayment of loan and

interest is being provided. IFS does not transfer the liability of payment of

loan on JNIL nor the said transaction can be treated to be any kind of

disbursement to the Corporate Debtor for time value of money. The clause

clearly contemplated that once all the units are merged with JNIL the

Company Appeal (AT) (Insolvency) No. 350 of 2023 -13-

liability for the payment of balance loans and interest shall be on the

JNIL. It is admitted fact that after approval of the scheme of arrangement

by the High Court on 13th April, 2013, payment of servicing of the loan

is being done by the JNIL for which there is no dispute. We do not find

any error in the finding of the Adjudicating Authority that there is no

financial debt owed by JNIL to the CIAL on basis of which an Application

under Section 7 to be filed either by CIAL or its assignee. From the

sequence of events as noted above it is clear that assignor had assigned

its debt of Rs. 104 Crores to the Appellant on 24th March, 2017 when it

failed to obtain an Interim Award from the sole arbitrator by filing an

application under Section 31(6) of the Arbitration and Conciliation Act

which was rejected on 23rd September, 2016. CIAL failed to obtain any

order in its favour although it raised its claim for the said amount as

noted above a suit was filed by MKJ Group No. 584 of 2011 with regard to

installments paid by CIAL from August, 2010 which suit was ultimately

dismissed by Hon'ble Bombay High Court and all claims and counter

claims were taken before the Sole Arbitrator including claim of Rs.

102,26,78,728/- raised by CIAL in an Application for interim award. The

assignment in favour of Appellant made on 24th March, 2017 was

thereafter and sequence and events makes it clear that assignment was

nothing but transfer of litigation in favour of the Appellant.

12. Now we come to the submissions which have been pressed by the

Learned Sr. Counsel for the Appellant regarding entries in balance sheets

of the Corporate Debtor. Annual Report of 2013-14 contains an entry of

unsecured loan to CIAL of Rs. 10432.79/- Lakhs. Learned Counsel for the

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Respondent has explained the said entry by stating that the said was

balance shown in the books of account of CIAL. Learned Counsel for the

Respondent has relied on note in the Annual Financial Year 2015-16 and

subsequent financial year where the claim of amount of Rs. 104 Crores

was clearly disputed. Learned Counsel for the Respondent has referred to

an Annual Report of 2016-17 where with regard to amount of Rs.

10432.79/- lakhs in note 23 which dealt with current financial liabilities

-borrowings. Following statement was made in paragraph 23.05:

"23.05 Inter Corporate Deposits from others include a sum of Rs. 10432.79 lakhs outstanding towards Corporate Ispat Alloys Limited (CIAL) being the amount credited in the books at the time of merger of Strip Mill Division of CIAL with the Company. CIAL has filed a winding up petition under the provisions of Section 434 of the Companies Act, 1956 before the Hon'ble Bombay High Court, Nagpur Bench, Nagpur against the Company and the Company has disputed the same amount. The petition is still at pre admission stage and as per the Company the petition is not sustainable. Further the company has filed a civil suit claiming a sum of Rs. 70027.00 lakhs from CIAL towards the loss suffered by it due to delay/withholding the merger of Strip Mill Division of CIAL with a mala fide intention which is pending before the Hon'ble Civil Judge Senior Division, Nagpur."

13. From the sequence of events as noted above it is clear that the

JNIL has been disputing the claim of Rs. 10432.79/- lakhs as reflected in

the balance sheet of Corporate Debtor as credited in the books of account

at the time of merger of Strip Mill Division which liability was disputed by

JNIL which is apparent from proceedings in the arbitration as noted

Company Appeal (AT) (Insolvency) No. 350 of 2023 -15-

above. Appellant itself in his Appeal has brought on record Annexure A-

16 Letter dated 20th September, 2014 which was written by the

Respondent denying its liability. It is useful to extract letter dated 20th

September, 2014 written by the Respondent filed as Annexure A-16 by

the Corporate Debtor. The Letter dated 20th September, 2014 was written

in response to the Letter dated 15th September, 2014 written by CIAL

claiming an amount of Rs. 102,26,78,728/-. It is useful to extract the

entire Letter dated 20th September, 2014:

"To Millind Bodhankar Abhijit Group Behind Mount Carmel School, Prashant Nagar, Near Food Corporation Office, Ajanl, Nagpur Reference:- Your Letter dated 15.09.2014.

Dear Mr. Bodhankar We are in the receipt of your letter dated 15/09/2014 wherein you have raised a claim of Rs. 102,26,78,728 (Rs. One Hundred and Two Crores Twenty Six Lakh Seventy Eight Thousand Seven Hundred and Twenty Eight) being so called admitted liability of Jayaswal Neco Industries Ltd.

At the outset the contents of the letter dated 15.09.2014 are denied in toto. It is pertinent to mention here that the instant subject matter is subjudice before the Hon'ble Arbitrator Justice (Ret) V.C. Daga arising out of the Arbitration Proceedings between Arvind Kumar Jayaswal and Others Vs. Manoj Kumar Jayaswal and

Company Appeal (AT) (Insolvency) No. 350 of 2023 -16-

Others for adjudicating the dispute arising of the Indenture Family Settlement dated 31.07.2008.

That MKJ Group (the Respondent in Arbitration Proceedings) is actively participating in the Arbitration Proceedings and is well aware about the same.

Without prejudice to the above we reserve our right to reply to the contents of this letter at the later stage as and when situation demands.

Thanking You S.A. Nigudkar Vice President (Accounts) JNIL, Nagpur"

14. When at the relevant time i.e. Annual Year 2014, it is immediately

after demerger, dispute arose with regard to payments made by CIAL to

Lenders of the Strip Mill Division which CIAL claimed from the Corporate

Debtor which liability were denied by the Corporate Debtor, we are of the

view that claim of the Appellant that JNIL has acknowledged its debt in

the balance sheet cannot be accepted as admission of any liability by

JNIL. The record indicates that from the year 2015-16 till 2020-21 in the

financial statements of the Corporate Debtor there was categorical note

denying the liability of 102,26,78,728/- as claimed, financial statement

thus cannot be read as acknowledgement of the debt by Corporate

Debtor.

15. Learned Counsel for the Appellant has placed reliance on judgment

of Hon'ble Supreme Court in 2021 6 SCC 366, Asset Reconstruction

Company India Limited Vs. Bishal Jaiswal. In the above case, the

Hon'ble Supreme Court was considering the question of acknowledgement

for the purposes of extension of limitation under Section 18 of the

Company Appeal (AT) (Insolvency) No. 350 of 2023 -17- Limitation Act, 1963. Hon'ble Supreme Court has emphasized that it has

to be looked into as to whether any entry is unqualified or has been

entered into with caveats which has to be examined on case to case basis.

In 35 of the Judgment, following has been laid down:

"35. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor's report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."

16. We however cannot be oblivious to the fact that ledger account of

CIAL Strip Mill Division which was demerged in JNIL by virtue of order

dated 13.02.2013 reflected the position of ledger as it was existed and

maintained by CIAL prior to merger. Reflection of the entry annual

Company Appeal (AT) (Insolvency) No. 350 of 2023 -18-

statement of 2013-14 as incorporated in the Annual Financial Statement

of GNIL was reflection of the ledger account. Subsequent financial

statement beginning from 2015-16 contained a caveat disputing the claim

of Rs. 104 and odd Crores. We have noticed above that CIAL had filed a

Company Petition before the High Court claiming non-payment of debt of

Rs. 104,43,67,347.94/- by the JNIL in which company petition the claim

was disputed and ultimately company petition stood withdrawn. We thus

are not persuaded to accept the submission of Appellant that there is

acknowledgement of debt by Corporate Debtor towards CIAL i.e. assignor

of Appellant. The claim of amount of Rs. 104,43,67,347.94/- was

throughout disputed by the BLS Group/Corporate Debtor which

sequence of the events we have noticed above. The sequence of events

and facts noticed above clearly indicate that MKJ Group who did not

succeed in any proceedings to establish the claim of Rs.

104,43,67,347.94/- against the Corporate Debtor assigned its debt to the

Appellant to further litigate and involve the corporate debtor in

proceedings. MKJ Group despite raising the claim in the arbitration

proceedings by means of counter claim and despite their application for

Interim Award for an amount of Rs. 102,26,78,728/- having been

dismissed in the year 2016 assigned the debt to Appellant, Appellant by

means of assignment only purchased the litigation.

17. We are satisfied that no error has been committed by the

Adjudicating Authority in allowing I.A. filed by the Corporate Debtor for

dismissing the Section 7 Application.

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18. The submission of Learned Counsel for the Appellant that order of

the Adjudicating Authority is non-speaking order also cannot be

accepted. The Adjudicating Authority has noticed the entire facts and

sequence of the events and has recorded reasons for allowing I.A. filed by

the Corporate Debtor and dismissing Section 7 Application.

19. We thus are of the view that there is no merit in the Appeal, the

Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

04th July, 2023

Basant

Company Appeal (AT) (Insolvency) No. 350 of 2023