Akzo Nobel India Limited vs Stan Cars Private Limited

(Arising against the impugned order dated 04.07.2023 passed by the Hon'ble National Company Law Tribunal, New Delhi, Bench-II in CP (IB) No. 812/ND/2022)

IN THE MATTER OF:

Akzo Nobel India Ltd.

Registered office: Geetanjali Apartment, 1st floor, 8B Middleton Street, Kolkata, West Bengal. ...Appellant Email id: investor.india@akzonobel.com

Versus

Stan Cars Pvt. Ltd.

Registered office: 58 Pocket E, Sector 1 Bawana DSIDC, New Delhi-110039. ...Respondent Email id: stancarsnexa@gmail.com

Present: For Appellant: Mr. A.S Likhari, Advocate. For Respondents: Mr. Ashraf Belal, Advocate.

J U D G M EN T (3rd July, 2025)

INDEVAR PANDEY, MEMBER (T)

This Appeal has been filed under section 61 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "Code") against the Order

dated 04.07.2023 passed by the National Company Law Tribunal

(Adjudicating Authority), New Delhi Bench-II in C.P (IB)/812 (ND)/2022 in

Akzo Nobel India Ltd. (Financial creditor) versus Stan Cars Private Ltd.

Cont'd..../ -2-

(Corporate Debtor), by which the Adjudicating Authority has rejected the

Section 7 petition filed by the Akzo Nobel India Ltd. /Appellant solely on the

ground of limitation.

2. The Appellant states that the Impugned order has been passed in a

mechanical manner without truly appreciating the peculiar facts of the case.

That the submissions made by the Counsel for the Appellant at the time of

final arguments have also not been properly recorded by the Ld. Adjudicating

Authority while passing the impugned order. Adjudicating Authority

completely ignored the Email dated 27.12.2019 sent by the Director of the

Respondent company acknowledging the debt of the Appellant which is

directly covered by the proviso of Section 18 of Limitation Act and even if the

date of default is taken from this date of email dated 27.12.2019 then also the

petition is filed on 22.10.2022, which is well within the limitation period of 3

years. Hence this appeal.

Brief facts of the case:

3. The brief facts of the case are given below:

(i) That the Appellant company is engaged in the business of selling and

distributing automotive paints and other automotive refinished

products.

(ii) The Respondent is also a registered company engaged in the business

of automotive body shop and paint booth.

(iii) An agreement was entered into between the Appellant and Respondent,

on 21.11.2017, whereby the Appellant extended a trade advance of Rs.

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2,40,50,000/- to the Corporate Debtor Respondent in the month of

December 2017 and January 2018. This agreement was for a duration

of five years i.e up till the year 2022 and further as per clause 10 of the

said agreement the lock-in period' was agreed to be three years from

the date of execution of the agreement.

(iv) That as per the agreement dated 21-11-2017, the Appellant had

disbursed Trade Advance of Rs. 2,40,50,000/- in the bank account of

the Respondent, which specifically was agreed to be adjusted over 5

years in lieu of sales of Rs. 6,50,00,000/- (Rupees Six Crores Fifty

Lakhs Only). It was further specifically agreed that the

unutilized/deficit amount in the predetermined yearly sales (as per the

agreement) would attract interest @ 12% per annum. In terms of the

agreement dated 21-11-2017, the Respondent Corporate Debtor had

done business to the tune of Rs. 40 lakhs (approximately) in the year

2021.

(v) In pursuance of the agreement dated 21-11-2017, the Respondent also

executed a Promissory Note dated 21.11.2017 in favour of the

Financial Creditor, wherein the CD promised to pay a sum of Rs

2,53,50,000/- with interest @12% p.a in consideration of full value

received.

(vi) Thereafter, several communications took place between the parties as

the Respondent was not able to meet the yearly targets as per the

Agreement dated 21-11-2017, which as per the said agreement

resulted in a levy of interest @ 12% per annum on the unutilized

amount. Till the third quarter of year 2021, the Respondent had

Company Appeal (AT) (Ins.) No. 1294 of 2023 -4-

admittedly placed sale orders to the tune of only Rs. 2,48,30,686/-

instead of Rs. 6,50,00,000/- as specifically agreed to in the agreement

dated 21-11-2017.

(vii) The Respondent had also sent a mail dated 27.12.2019 acknowledging

the debt of the Appellant Financial Creditor.

(viii) As per the books and accounts of the Appellant, a total sum of Rs

3,88,18,142/- including an interest @12% pa till 25.04.2022 was due

and unpaid by the Respondent to the Appellant, which the Respondent

failed to pay as a material breach of contract, pursuant to which the

Appellant issued legal notice dated 04.05.2022 through courier as well

as email to the Respondent for demand of money.

(ix) Appellant filed a petition under Section 7 of the code against the

Respondent Corporate Debtor on 28.10.2022.

(x) Adjudicating Authority in the Impugned Order decided that the

Appellants qualify as financial creditors of the Respondent in the given

set of facts and circumstances on record, but rejected the insolvency

petition of the Appellant on the sole ground of limitation erroneously.

The present appeal has been filed against the said dismissal of Section

7 petition.

Submissions of the Appellant

4. Ld. Counsel submitted that the Appellant being the Financial

Creditor of the Corporate Debtor i.e., Stan Cars Pvt Ltd, is aggrieved by

the impugned order dated 04-07-2023 passed by the Ld. Adjudicating

Authority in the CP (IB) 812 (ND) of 2022 under Section 7 of the Code filed

Company Appeal (AT) (Ins.) No. 1294 of 2023 -5-

by the Appellant.

5. Ld. Counsel for the Appellant submitted that his Company is in the

business of selling and distributing of automotive paints and other

automotive refinish products under the brand name "Sikkens". The

Respondents are carrying out the business of automotive paint shop and

paint booth under the name and style of M/s Stan Cars Pvt Ltd.

6. Ld. Counsel stated that on 21.11.2017, the parties entered into a

contract, whereby the Respondent was to purchase substantial of the

products from Appellant over an agreed period of time, against which the

Appellant was extending a trade advance to the Respondent. Accordingly,

the Respondent received a trade advance for purchasing and installing

paint booth, baking oven and other equipments at its work shop.

7. The Appellant submitted that it was mutually decided that out of

the trade advance, an average monthly order of Rs.10,83,333/- was to be

placed by the Respondent with the Appellant. It was further agreed that

the Respondent shall make the payment to the appellant within 30 days of

the purchase of the products and penal interest shall be payable upon the

default thereon.

8. Ld. Counsel stated that the Appellant company transferred

Rs.1,62,50,000/- to the Respondent on 21/12/2017 and Rs. 78,00,000/-

on 31/1/2018. This amount was to be utilised by the respondent for

purchasing and installing paint booth, baking oven, and other equipment

required at its workshop to carry the business with new and improved

means. The term of agreement was 5 years or till the material produced

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by the petitioner for a value of Rs. 6,50,00,000/- could be purchased

except otherwise dominated. In terms of clause 7 of the Agreement, the

amount of trade advances, which could remain unadjusted, was to be

treated as loan extended by the petitioner to the respondent, for which the

respondent could be liable to pay interest @ 1 percent per month (12% per

annum). In the event of non-payment of the trade advance by the

respondent to the petitioner, the unpaid amount was to be treated as a

charge on the asset of the respondent. The respondent had executed a

promissory note dated 21st November 2017 in favour of the petitioner, in

terms of which he promised to pay the petitioner a sum of Rs. 2,53,50,000

with interest @ 12 percent per annum.

9. It is the submission of the Ld. Counsel that by virtue of the

impugned order, the Insolvency Petition filed by the Appellant company

was erroneously dismissed by the Adjudicating Authority on the sole

ground of limitation, without taking into consideration the terms &

conditions of the agreement dated 21-11- 2017 and the Communication

inter se the parties.

10. Ld. Counsel further submitted that the Tribunal has not considered

the communication dated 27th December 2019 received from the

respondent assuring the appellant that sales, which were brought down

due to the slowdown in the auto industry, were bound to recover and the

respondent shall carry out the sales as per the terms of agreement, which

categorically states that the respondent is referring to the aforementioned

agreement, wherein the default had occurred in the very first year of its

existence that is 21.11.2018. It is the submission of the Appellant that in

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view of acknowledgement vide email dated 27.12.2019, as per section 18

of the Limitation Act, the time period was bound to be computed from

27.12.2019.

11. Ld. Counsel further submitted that the above mentioned

correspondence received from the respondent clearly attract section 18 of

the limitation act. which is reproduced here in under for the kind perusal

of this Hon'ble Tribunal:

"18. Effect of acknowledgment in writing. -- (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. .

.

--For the purposes of this section, --

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right,

(b) the word "signed" means signed either personally or by an agent duly authorised in this behalf, ..."

Company Appeal (AT) (Ins.) No. 1294 of 2023 -8-

12. Ld. Counsel submitted the limitation calculated on the basis of the

communication sent by the respondent to the Appellant in Tabulated

form:

Date of Agreement 21.11.2017 Date of Default 21.11.2018 Email Communication in reference 27.12.2019 at Page 89 of Paper Book Date of end of Limitation 27.12.2022 Date of filing Application U/s 7 IBC 22.10.2022 (within Limitation)

13. Ld. Counsel further submitted that the Ld. Tribunal erred in not

taking into consideration the time excluded by the Hon'ble Apex Court

due to the exclusion of time on account of COVID-19. Taking the

exemption period on account the Limitation calculation would be as

follows:

Event Limitation Date of default calculated Three years from date of default as 21.11.2018 as per is 21.11.2021 agreement dated 21.11.2017 Supreme court suo moto After exclusion of the in WP/3/2020 excluded mentioned time, the date of end from 15.03.2020 to of limitation is 05.11.2023 28.02.2022 Date of Filing Application 28.10.2022 (within Limitation) U/s 7 IBC

14. Ld. Counsel placed reliance upon the Judgement of Hon'ble SC in 'Khan

Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria, 1962 SC',

Company Appeal (AT) (Ins.) No. 1294 of 2023 -9-

wherein the Hon'ble Supreme Court held that:

"Para 6. It is thus clear that acknowledgment as prescribed

by Section 19 merely renews debt; it does not create a new

right of action. It is a mere acknowledgment of the liability

in respect of the right in question; it need not be

accompanied by a promise to pay either expressly or even

by implication. The statement on which a plea of

acknowledgment is based must relate to a present

subsisting liability though the exact nature or the specific

character of the said liability may not be indicated in

words. Words used in the acknowledgment must,

however, indicate the existence of jural relationship

between the parties such as that of debtor and creditor,

and it must appear that the statement is made with the

intention to admit such jural relationship. Such intention

can be inferred by implication from the nature of the

admission, and need not be expressed in words. If the

statement is fairly clear then the intention to admit jural

relationship may be implied from it. The admission in

question need not be express but must be made in

circumstances and in words from which the Court can

reasonably infer that the person making the admission

intended to refer to a subsisting liability as at the date of

the statement. In construing words used in the statements

made in writing on which a plea of acknowledgment rests

oral evidence has been expressly excluded but

surrounding circumstances can always be considered.

Company Appeal (AT) (Ins.) No. 1294 of 2023 -10-

Stated generally courts lean in favour of a liberal

construction of such statements though it does not mean

that where no admission is made one should be inferred,

or where a statement was made clearly without intending

to admit the existence of jural relationship such intention

could be fastened on the maker of the statement by an

involved or far-fetched process of reasoning Broadly stated

that is the effect of the relevant provisions contained in

Section 19, and there is really no substantial difference

between the parties as to the true legal position in this

matter."

15. Ld. Counsel further cited the judgment of this Appellate Tribunal in

'Vidyasagar Prasad vs. UCO Bank & Anr. Company Appeal (AT) (Ins.) No.

238 of 2020 (2021) ibclaw.in 472 NCLAT' wherein it was held that:

"11.10......... However, it may not necessarily specify the exact nature of the liability. But it indicates the jural relation between the parties, and in any event, the same can also be derived by implication. Further, the said Letter is not "without prejudice" basis and, therefore, amounts to an unequivocal acknowledgement of liability of the Corporate Debtor. A reading of the documents above reveals that the Corporate Debtor has acknowledged/subsisting liability to attract the provisions of Section 18 of the Limitation Act, 1963."

16. Ld. Counsel stated that the aforesaid judgement of this Appellate

Tribunal was affirmed by the Hon'ble Supreme Court in Civil Appeal No. 1031

of 2022. Hon'ble SC.

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17. Summing up his arguments Ld. Counsel argued that the Petition

filed by the Appellant under section 7 is not barred by the limitation period

and prayed for allowing the appeal and admit the Respondent in

insolvency proceedings.

Submission of the Respondent

18. Ld. Counsel for the Respondent refuted all the contentions of the

Appellant. He stated that the claim of appellant is barred by limitation and

the same has been correctly held by the Adjudicating Authority. The claim of

the Appellant emanates from the Agreement dated 21.11.2017. The present

Application has been filed before the Hon'ble Adjudicating Authority on

October 3, 2022, i.e., approximately after 5 years of the date of Agreement,

way beyond statutory period of 3 years. The alleged Promissory note dated

November 21, 2017, is also unenforceable as per the law of limitation. The

alleged transfers of Rs. 2,40,50,000 (Rs. 1,62,50,000 transferred on December

21, 2017, and Rs. 78,00,000 transferred on January 31, 2018), are also

barred by limitation as they were made in the years 2017 and 2018.

19. Ld. Counsel further submits that the email dated December 27, 2019,

will not amount to the admission of debt as there is no admission of any

outstanding amount as debt by the Respondents herein, and it is

misrepresented by the Appellant as admission by the Respondent.

20. Ld. Counsel submits that the alleged claim of the Appellant emanates

entirely from the agreement dated November 21, 2017. He stated that the

agreement dated November 11, 2017 being relied upon by the appellant is not

Company Appeal (AT) (Ins.) No. 1294 of 2023 -12-

validly executed; as there are the Appellant, the Respondent and the Third

Party' as mentioned in the Recital, namely M/s P.R. Hardware & Paint Store.

The Agreement was however not signed by the Third Party', namely M/s P.R.

Hardware & Paint Store and no "witnesses' have signed the Agreement,

rendering the Agreement invalid.

21. Ld. Counsel stated that the authenticity of the agreement already

challenged by way of a Civil Suit by the Respondent. The veracity and

authenticity of the Agreement has been challenged by instituting a civil suit

before the Ld. Civil Judge (Senior Division). Ludhiana way back on November

10, 2021, namely Stan Cars Pvt. Ltd. v. Akzo Nobel India Ltd. bearing

CS/8944/2021 ("Civil Suit"). The Civil Suit had been filed seeking grant of

'Declaration to the effect that the Agreement allegedly entered into by the

Appellant and the Respondent as illegal, null and void' and 'Grant of

Permanent Injunction against the Appellant from initiating any action on the

basis of the Agreement.

22. The Appellant is duly aware of the Civil Suit and has been duly

appearing before the Ld. Civil Judge. (Senior Division), Ludhiana. Copy of the

case status along with the orders till date including the memo of appearance

entered into by the Appellant dated April 27, 2022 has been produced before

the Tribunal. However, appellant has failed to apprise this Hon'ble Appellate

Authority of the Civil Suit and the present Appeal is only a method to arm

twist the Respondent to paying alleged claim amount.

23. It is the submission of Ld. Counsel that the debt under question is not

a Financial Debt under Section 5(8) of the Code. As per the purported

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Agreement, the Appellant was to extend a trade advance of up to Rs.

2.53,50,000 to the Respondent, in return of which, the Respondent was to

place yearly purchase orders of such description and value as mentioned in

Schedule I of the Agreement. If the Respondent continued to make the

purchases as stipulated in the Agreement, the Respondent shall be entitled

to adjustment of the trade advance as trade discount, in terms of clause 7 of

the Agreement. The said trade advance was not transferred with any time

value of money and was to be adjusted by meeting target purchase of goods

in terms of the purported Agreement. In the purported Agreement and the

letters exchanged by the parties, nowhere has the trade advance been termed

as a loan.

24. Ld. Counsel relies on the Judgment of Hon'ble Supreme Court in

'M/s Consolidated Construction Consortium Limited vs. Mis Hitro Energy

Solutions Private Limited [Civil Appeal No. 2839 of 2020]' had held that trade

advance is an operational debt. An Operational debt will include a debt arising

from a contract in relation to the supply of goods or services from the

Respondent.

25. Appellant's petition to initiate CIRP before Hon'ble Adjudicating

Authority was incomplete as the Appellant has failed to comply with Rule 4 of

the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 which requires the Financial Creditor to comply with Form-1. The

Appellant has failed to provide particulars of financial debt (Documents,

records and evidence of default) as required by part-V of Form-1 and has

stated that the requirements of Part-V are "Not Applicable on the Petition

Company Appeal (AT) (Ins.) No. 1294 of 2023 -14-

before Hon'ble Adjudicating Authority, without providing any reasoning for

such non-applicability.

26. The Ld. Counsel further submits that incomplete financial details have

been given in the petition filed under Section 7. The amount stipulated in the

purported Agreement does not coincide with the payment allegedly made, as

seen from the following:-

(i) Clause I of the purported Agreement requires the Appellant to extend

a trade advance of up to Rs. 2,53,50,000/-.

(ii) Clause 3 of the purported Agreement requires the Respondent to

execute a promissory note payable on demand amounting to

Rs.2,53,50,000/-.

(iii) However, the amount allegedly paid by the Appellant sums up to only

Rs. 2,40,50,000 (Rs. 1,62,50,000 paid on December 21, 2017 and

Rs. 78,00,000 paid on January 31, 2018).

(iv) The account statements furnished at in the appeal reflecting transfer

of Rs. 2,40,50,000 are extracts of larger documents. The said larger

documents have not been annexed, which makes the authenticity of

the annexed account statements questionable.

27. Ld. Counsel states that relevant clauses of the agreement, have not

been complied with by the appellant. Without prejudice, even if the Agreement

was valid, there has been a gross non-compliance of the Agreement by the

Appellant itself and is therefore unenforceable, as summarized hereinbelow:

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S.No. Clause Summary of the Clause FC-Financial Response No. Creditor CD-Corporate Debtor

1. Clause 1  FC to extend a trade advance of Rs.  No written request (@Pg. 65) 2,53,00,000 within 7 days of receipt made by CD of written request by CD.  Amount of Rs.

 Agreement valid for business value 2,53,00,000 not of Rs. 6,50,00,000. duly extended by the FC and only a sum of Rs.

2,40,50,000 extended by the FC

2. Clause 2  Trade advance to be extended for the  The understanding (@Pg. 65) purpose of purchasing and installing for extending trade Paint booth, baking oven and other advance was for equipment at workshops purchasing equipment and therefore falls under the ambit of OC

3. Clause 3  CD to extend a Promissory Note of  It is an admitted (@Pg. 65) Rs. 2,53,00,000 upon receiving the position of the FC entire amount of the trade advance. that the entire amount of trade advance was not disbursed  The Promissory Note was executed in good faith, however FC failed to extend the entire amount  Since the entire amount against which the Promissory Note was executed was not disbursed, Promissory Note becomes invalid

4. Clause 4  CD to place an average monthly  No purchase orders (@Pg. 65) purchase order of Rs. 10,83,333 and made by the CD and the annual purchase from the FC placed on record by shall be in terms of Schedule-I the FC

5. Clause 5  CD to make payment of purchase  No invoices raised (@Pg. 65) orders within 30 days of receiving of and placed on invoice record by the FC.

 In case of event of default" by CD.

Penal interest to be paid by CD @1% per month till actual payment.

6. Clause 6  Event of default  No event of default &9 has occurred in terms of the (Clause 6 Agreement @ Pg 20  CD has always duly and paid the FC in terms

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Clause 9 of the business @Pg. 66) understanding between the parties  FC seeking specific performance of a contract (Agreement) while alleging breach of the same.

 Furthermore FC cannot seek specific performance of a contract under the guise of the Code. 7. Clause 7  Trade advance to be adjusted as trade  Trade advance (@ Pg. 66) discount as follows- extended, to be Year Target (Rs.) Discount Amount adjusted as a Trade as per (%) adjusted from Discount. It is only Schedule I trade advance an adjustment and of Rs.2,53,00,000 does not have the 1 70,00,000 11 27,83,000 commercial effect of 2 1,08,00,000 18 40,48,000 a borrowing 3 1,30,00,000 20 50,60,000 4 1,55,00,000 24 60,72,000 5 1,87,00,000 29 73,37,000 Total 6,50,00,000 100 2,53,00,000

28. Ld. Counsel submitted that Appellant cannot seek specific performance

of the contract under the guise of the code. The Appellant has sought specific

performance of the purported Agreement, for having claimed a sum of amount

arising out of the purported Agreement. The Appellant has time and again

sent emails to the Respondent dated August 9, 2018, September 19, 2018.

November 21, 2018, February 8, 2019 and July 22, 2019 alleging 'Target

versus Achievement status of the purchase orders to be placed by the

Respondent. The Appellant with an intention to arm-twist the Respondent,

has sought Specific Performance of the contract, when there may be breach

of contract at best. The Code is not a platform for specific performance of a

contract, much less a forum for recovery of any damages arising out of breach

of contract, if any.

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29. Ld. Counsel submitted that Hon'ble Adjudicating Authority is not a

Debt Recovery Forum. The dispute between the parties in the present matter

is in the nature of a contractual dispute and is beyond the purview of the

provisions of the Code. The averments made by the Appellant with respect to

failure of the Respondent to meet purchase targets is a restricted question

pertaining to agreement between the parties and should be resolved under

the relevant contract laws.

30. Appellant is attempting to use this Hon'ble Appellate Authority as a debt

recovery forum. The Apex Court in Swiss Ribbons Private Limited & Anr. Vs.

Union of India & Ors. (2019) 4 SCC 17 observed that the aim of the Code to

ensure revival and continuation of companies and to put them back on their

feet. The Petitioner has illegally invoked the jurisdiction of this Hon'ble

Adjudicating Authority with the sole purpose of recovery. In this regard, Ld.

Counsel cites the Judgment of this Tribunal in the case of 'M/s Agurysal

Veneers, v. Fundtortic Service Pvt. Lid. [CA (AT) (Ins.) 968 of 2020]' where it has

held that the Code is not a recovery forum.

31. Summing up Ld. Counsel states that appeal is barred by limitation; the

debt is not a financial debt and the matter relating to agreement between the

parties is already pending in Civil Court. In view of these, the appeal has no

merits and needs to be dismissed.

Analysis and findings

32. We have heard the Ld. Counsels in detail, gone through the records

including the written submissions made by both the parties.

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33. There are two issues in this case which needed to be decided by the

Adjudicating Authority. The first issue related to status of the Appellant i.e.

whether he is a Financial Creditor as claimed by the Appellant or Operational

Creditor as claimed by the Respondent. This issue has been adjudicated by

the Adjudicating Authority holding that the Appellant is a Financial Creditor.

The impugned order is a well-reasoned order taking into the consideration

submission of both the parties and their respective legal citations and based

on the same it has held that the appellant is a Financial Creditor.

34. The second issue relates to the limitation period and Ld. Tribunal

decided that the Section 7 petition filed by the Appellant under the Code was

filed beyond the limitation period prescribed from the date of default and

hence the said petition was not maintainable.

35. It is the submission of the Appellant that the limitation period has not

been correctly computed by the Adjudicating Authority and it is their

submission that their petition under Section 7 was filed well within time and

the same should have been admitted.

36. We first take the issue of status of the Appellant i.e. whether the

Appellant is Financial or Operational Creditor. The Adjudicating Authority has

held that Appellant is a Financial Creditor as claimed by the Appellant. The

Respondent on the other hand has again argued that the amount extended

by the Appellant was in the nature of trade advance and as such it cannot be

treated as Financial Debt.

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37. In this regard, we have a look at the Agreement dated 21.11.2017

between the parties which decides the underlying nature of arrangement

between the parties. The relevant paras 2,4 & 7 are extracted below:

"2. STAN CARS shall use the amount of trade advance for purchasing and installing Paint Booth, Baking Oven and other equipment's at its workshop/place of business to enable it to carry on business with new and improved means.

4. STAN CARS shall place average monthly purchase order worth Rs. 10,83,333/- (Rupees Ten Lakhs Eighty Three Thousand Three Hundred and Thirty Three only) (excluding Sales Tax/VAT/GST) and after discount with AKZO for the "Sikkens" brand of Product manufactured and/or traded by AKZO during the tenure of this Agreement, provided however, that the yearly purchase of the Products by STAN CARS from AKZO shall be of such description and value as mentioned under Schedule 1, annexed hereto, forming integral part of this Agreement, provided further that the price at which the Products are sold by AKZO shall always conform to the AKZO's price list in force at the time of delivery of the said Products to STAN CARS.

7. "The Parties agree that STAN CARS continuing to fulfil its obligations under this Agreement, would be entitled to the adjustment of the trade advance as "trade discount", per the following:

Purchase targets as mentioned in Schedule I % Adjustment of hereof trade as discount advance trade

Upon accomplishing purchase targets for the 11% first year and having released the payment in respect thereof as per clause 5 of this Agreement.

Upon accomplishing purchase targets for the 27% second year and having released the payment in respect thereof as per clause 5 of this Agreement.

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Upon accomplishing purchase targets for the 47% third year and having released the payment in respect thereof as per clause 5 of this Agreement.

Upon accomplishing purchase targets for the 71% fourth year and having released the payment in respect thereof as per clause 5 of this Agreement Upon accomplishing purchase targets for the 100% fifth year and having released the payment in respect thereof as per clause 5 of this Agreement.

Provided however, that STAN CARS would be entitled to carry forward the value of the excess Products purchase orders placed with AKZO (in respect of which payment has been received by AKZO in terms of clause 5 hereof) during a particular year, over and above the Product purchase order requirements as stipulated for that year under Schedule 1, to meet up with the deficit in the Product purchase order for any subsequent year(s) Provided further that the amount of trade advance remaining unadjusted shall be deemed to be a loan extended by AKZO to STAN CARS, in respect of which, an interest @ 1% per month (12% per annum) shall be paid by STAN CARS to AKZO calculated from the date of release of the trade advance in terms of clause 1 hereof till the date of actual repayment thereof."

(Emphasis supplied)

38. The Clause 2 states the objective of the trade advance which is basically

for installation of capital equipment at Respondent site so as to enable it to

carry on its business with new and improved means.

39. Para 4 basically provides the monthly quantum of purchase order to be

placed with the appellant or its dealer.

40. Clause 7 of the agreement is most crucial which lays out the adjustment

of trade advance through a trade discount mechanism and lays down year

wise target for purchase from the appellant. The most important clause here

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is the second proviso to Clause 7 which provides that the amount of trade

advance remaining shall be deemed to be a loan extended by appellant to

respondent in respect of which an interest @ 1% per month (12% per annum)

shall be paid by STAN CARS (Respondent) to AKZO (Appellant) calculated from

the date of release of the trade advance in terms of clause 1 hereof till the date

of actual re-payment thereof.

41. The above proviso clearly shows that the trade advance gets converted

into a debt with time value of money in case of default by the respondent, so

the underlying contract shows the time value of money ingrained in the debt

in case of default by the Respondent. We also note the Adjudicating Authority

has discussed all the relevant provisions of the Code and related Judgments

cited by either side and held that the aforesaid trade advance is a financial

debt with time value of money. We find no reason to disagree with the findings

of Adjudicating Authority.

42. We now have a look at the second issue relating to limitation. The

Adjudicating Authority has held that the application under Section 7 of the

Code was not filed within the prescribed period of limitation i.e. the same was

not filed within three years from 01.12.2018 i.e. expiry of 1 year from the date

on which the agreement dated 21.11.2017 came into effect.

43. It is the submission of the appellant that the Ld. Tribunal had erred in

not taking into consideration the time excluded by the Hon'ble Supreme Court

due to covid-19 epidemic. Accordingly, as per his calculations the application

under Section 7 was filed well within the period of 3 years from the date of

default after taking into account the period exempted by Hon'ble Supreme

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Court. The computation of the same as per Appellant is given below:

Event Limitation Date of default calculated Three years from date of default as 21.11.2018 as per is 21.11.2021 agreement dated 21.11.2017 Supreme court suo moto After exclusion of the in WP/3/2020 excluded mentioned time, the date of end from 15.03.2020 to of limitation is 05.11.2023 28.02.2022 Date of Filing Application 28.10.2022 (within Limitation) U/s 7 IBC

44. We have gone through the email dated 27.12.2019, a plain reading of

the document does not show clear cut acknowledgement of debt by the

Respondent, it only mentions about poor business conditions and other

difficulties. We are not inclined to accept this email as acknowledgement of

debt.

45. The second contention of the Appellant relates to the exemption of

Covid-19 period by Hon'ble Supreme Court. We have noted that the limitation

period from 15.03.2020 to 31.05.2022 has been excluded by the Hon'ble

Supreme Court for all purposes vide their suo motu Writ Petition (C) No.-3 of

2020 vide their Order dated 10.01,2022. The directions of Hon'ble SC in the

Suo-Motu case (supra) are extracted below:

"I. The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings.

Company Appeal (AT) (Ins.) No. 1294 of 2023 -23-

II. Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022.

III. In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply.

IV. It is further clarified that the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings."

46. Based on the directions in the Suo-Motu Judgement (supra) the balance

period of limitation from 15.03.2020 has to be added to 01.03.2022 to get the

revised date of limitation. In the instant case the period is one year 8 months

and 6 days. The revised end date of limitation would then be 06.11.2023. The

section 7 application in this case was filed on 28.10.2022 which was well

within limitation period.

47. The Respondent has raised the issue of validity of agreement and

argued that questions about the same are under adjudication in Civil Court.

He has also raised the issue of specific performance under the contract and

also use of CIRP process by the Appellant for recovery of debt. We do not find

merit in these contentions, as the very fact that the Respondent company

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cannot meet its debt obligations makes it fit case for initiation of CIRP

proceedings. The debt recovery through civil proceedings can go on

independent of CIRP proceedings.

48. In view of the findings above, we hold that the Adjudicating Authority

has rightly classified the Appellant as Financial Creditor. However, the issue

of limitation has been decided by the Adjudicating Authority without taking

into account the directions of Hon'ble SC in suo motu proceeding (supra) due

to which the Section 7 application was not found maintainable. Whereas the

same is well within the limitation period after applying a grace period as per

Hon'ble SC's order.

49. In view of the above findings, the appeal is allowed and CP (IB) No.

812/ND/2022 is restored. Parties to appear before the NCLT, New Delhi,

Bench-II on 17.07.2025. Pending I.As, if any, are closed. No order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

SA

Company Appeal (AT) (Ins.) No. 1294 of 2023