Arun Kumar Kedia vs J.P.Financial Services Pvt Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 961 of 2025 (Arising out of Order dated 29.04.2025 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench-II Kolkata in C.P. (IB) No.182/KB/2024)

IN THE MATTER OF: Arun Kumar Kedia, a suspended Board of Director of Avadh Merchants Pvt. Ltd. ...Appellant Versus J.P. Financial Services Pvt. Ltd. ...Respondent

Present:

For Appellant : Mr. Abhijeet Sinha Sr. Advocate with Mr. Kunal Chatteji, Mr. Saikat Sarkar, Mr. Rohit Bansal and Mr. Varij Nayan Mishra, Advocates. For Respondent : Mr. Utsav Mukherjee, Mr. Saksham Ahuja and Mr. Mayukh Roy, Advocates for Respondent No.1.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by Suspended Director of the Corporate

Debtor ("CD") - Avadh Merchants Private Limited, challenging the order

dated 29.04.2025 passed by National Company Law Tribunal, Kolkata

Bench-II Kolkata. By the impugned order, the Adjudicating Authority has

admitted Section 7 application filed by J.P. Financial Services Private

Limited - Respondent No.1 herein.

2. Brief facts of the case necessary to be noticed for deciding the

Appeal are:

(i) The Corporate Debtor made a request to the Financial

Creditor for a short-term loan. A Loan Agreement dated

Company Appeal (AT) (Ins.) No.961 of 2025 1 07.05.2015 was entered between the parties for an amount of

Rs.2.5 crores along with interest @ 21% per annum and penal

interest of 6% on outstanding dues. The loan was to be

repaid within 90 days.

(ii) The CD sent a letter dated 02.08.2018, acknowledging the

debt and offering to make payment by cheque. The CD in its

financial statements 2017-18 to 2022-23 acknowledged the

debt of Financial Creditor.

(iii) Emails were sent by Respondent No.1 to CD on 11.01.2024

and 31.01.2024 regarding further security. An email dated

05.03.2024 was sent by Respondent No.1 giving final

opportunity to the CD to repay the amount of Rs.2.5 crores

along with accrued interest within seven days.

(iv) The Financial Creditor filed Section 7 application on

30.03.2024 being C.P. (IB) No.182/KB/2024 praying for

initiation of Corporate Insolvency Resolution Process ("CIRP")

against the CD. Total amount in default was claimed as

Rs.19,91,04,049/-.

(v) The Adjudicating Authority issued notice to the CD. The CD

appeared and filed reply to Section 7 application. The

Financial Creditor filed a rejoinder affidavit. The Adjudicating

Authority heard the parties and by the impugned order dated

29.04.2025 admitted Section 7 application, appointing

Interim Resolution Professional ("IRP") and declaring

Company Appeal (AT) (Ins.) No.961 of 2025 2 moratorium. This Appeal has been filed by the Suspended

Director of the CD, challenging the impugned order.

3. We have heard learned Counsel for the Appellant as well as learned

Counsel for the Respondent.

4. Learned Counsel for the Appellant challenging the impugned order

submits that loan extended by Financial Creditor was in contravention of

Section 186, sub-section (2) of the Companies Act, 2013. It is submitted

that paid-up share capital of Financial Creditor was only Rs.66,42,500/-,

whereas loan was extended of Rs.2.50 crores, which was violative of

provisions of Section 186, sub-section (2) of the Companies Act. Neither

there was any Special Resolution passed in the general meeting, nor any

document was annexed evidencing of passing of such Resolution. No

Board Resolution has been brought on record. It is submitted that no

new facts were pleaded in the reply filed by the CD, hence, the Appellant

was not entitled to file rejoinder affidavit bringing additional facts on the

records. The short-term loan was payable within 90 days from the date of

disbursement. The loan became repayable on 05.08.2015. The Financial

Creditor sent emails in January 2024 and March 2024 raising a demand

of alleged claims, which was clearly barred by time. The application filed

by Financial Creditor on 30.03.2024 being barred by limitation was

required to be rejected on this ground alone.

5. Learned Counsel appearing for the Respondent refuting the

submissions of learned Counsel for the Appellant submits that the

application filed under Section 7 was not barred by time. The

Company Appeal (AT) (Ins.) No.961 of 2025 3 disbursement was made in pursuance of the Loan Agreement. Although

loan was payable within 90 days, but CD made repeated promises to

make the payment and sent a letter dated 02.08.2018 acknowledging the

debt. The CD in the Financial Statements from 2017-18 to 2022-23 has

continuously acknowledged the debt of the Financial Creditor. The

limitation for filing Section 7 application shall be treated to have been

extended by giving the benefit as per Section 18 of the Limitation Act,

1963 and the application was not barred by time. It is further submitted

that there was no violation of Section 186, sub-section (2) of the

Companies Act. It is submitted that there was sufficient fund available to

the CD at the time when loan was extended. The loan granted was within

the limit. It is submitted that CD has time and again acknowledged the

debt and even before pendency of the application has offered to enter into

settlement with the Financial Creditor, which clearly indicate acceptance

and acknowledgement of the debt. The CD having committed default of

financial debt, the Adjudicating Authority has rightly admitted Section 7

application.

6. We have considered the submissions of learned Counsel for the

parties and have perused the record.

7. From the facts brought on record, the disbursement and execution

of Loan Agreement between the parties is an admitted fact. The CD's case

was that loan was repayable within 90 days and the application filed on

30.03.2024 was beyond limitation. Further the loan was in violation of

Section 186 of the Companies Act, 2013 and the Financial Creditor was

Company Appeal (AT) (Ins.) No.961 of 2025 4 not entitled to file rejoinder affidavit to the reply. The Adjudicating

Authority after noticing the submission of the parties has framed four

questions for consideration in paragraph-22 of the Order. Four

questions, which were framed by the Adjudicating Authority in

paragraph-22 of the order are as follows:

"(i) Whether the transaction of Rs. 2,50,00,000 qualifies to be a financial debt under Section 5(8) of the Code?

(ii) Whether the claim of the applicant/Financial Creditor is barred by law of limitation?

(iii) Whether the loan transection has been granted provision of Section 186 of the Companies Act 2013?

(iv) Relief?"

8. Question No.1 is that whether amount of Rs.2.5 crores qualified to

be a financial debt, has been answered in favour of the Financial Creditor

holding that disbursal of amount of Rs.2.5 crores along with 21% interest

per annum qualifies the same as financial debt. It has also been noticed

that the amount has been acknowledged by the CD in its audited balance

sheets as on 31.03.2018, 31.03.2019, 31.03.2021, 31.03.2022 and

31.03.2023. We do not find any infirmity in the said finding returned by

the Adjudicating Authority.

9. The second question, which was examined by the Adjudicating

Authority is as to whether the application under Section 7 was barred by

limitation. The Loan Agreement was executed on 07.03.2015 and the

amount was disbursed on 07.05.2015 and was payable within 90 days,

i.e. by 07.08.2015. The Adjudicating Authority has referred to and relied

on letter dated 02.08.2018 written by the CD to the Financial Creditor,

Company Appeal (AT) (Ins.) No.961 of 2025 5 acknowledging the loan. In paragraph-34 of the impugned order, the said

letter dated 02.08.2018 has been extracted. Paragraph-34 of the

impugned order is as follows:

"34. It is evident from loan agreement dated 07.5.2015 and account statement of the applicant/Financial Creditor that loan amount was disbursed on 07.5.2015 and it was a short term loan repayable in 90 days i.e on 07.8.2015 from the date of disbursement. The Corporate Debtor acknowledged its liability vide letter dated 02.8.2018 which extended period of limitation for a further period of three years till 01.8.2021. The Copy of letter is Annexure-A filed with rejoinder. It is relevant to reproduce the content of letter verbatim which is as under:

"Date: 02.8.2018

To J.P Financial Services Private Limited 2, Abhoy Guha Road, Howrah-711204 Dear Sirs, Sub: Loan of Rs. 2,50,00,000/-

Refer to our discussion had with you, we are sending herewith Cheque No. 001031 dt. 02.08.2018 for Rs. 2,50,00,000/- towards repayment of Loan and Ch. No. 001032 dt. 02.08.2018 for Rs. 31,45,684/- towards outstanding interest. We are trying to close account by 30.09.2018.

Thanking you once again for your co-operation from time to time.

Yours faithfully

For Avadh Merchants Pvt. Ltd Sd/-

Director""

10. The Adjudicating Authority has also noticed and returned a finding

that loan has been acknowledged by the CD in the balance sheets of

Company Appeal (AT) (Ins.) No.961 of 2025 6 2017-18, 2018-19, 2021-22 and 2022-23, which balance sheets were

brought on the record along with the rejoinder affidavit filed by the

Financial Creditor as Annexure A-3. Financial Creditor in the rejoinder

affidavit has brought on record the Financial Statements of the CD. It is

useful to refer to Financial Statements of CD, which is brought on record

at page 353 of the paper book. The Financial Statements as on

31.03.2018 under Note-3 mentions long term liabilities. Note -3 of the

Financial Statements ending on 31.03.2018 is as follows:

"Note : 3 Long Term Liability Sl. Particular Current Year Previous Year N0.

Loan Aarkey Investment Private Limited 16,646,631 16,646,631 JP Financial Services Private Limited 28,145,684 28,145,684 Parton Commercial Pvt. Ltd. 121,585 3,401,175 Advances AB Capital -- 900,000 Amit Ghosh 55,000 55,000 Basbhumi Realtors Pvt. Ltd. 7,605,005 13,000,000 East West International Exim Pvt. Ltd. 644,063 644,063 Madhav Knitwear Pvt. Ltd. 4,500,000 4,500,000 Rajshree Granite Limited 1,000,000 1,000,000 Saket Commodity Pvt. Ltd. 100,000 100,000 Skywood Developers Pvt. Ltd. 2,000,000 2,000,000

Total 68,651,008 70,352,558

11. The Financial Statement categorically mentions the name of

Financial Creditor and amount shown was Rs.2,81,145,684/-. The other

Financial Statements, which are on the record, continuously show the

amount due to Financial Creditor under the heading 'Loan'. In the

Financial Statement as on 31.03.2021 at page 387 of the paper book, the

name of Financial Creditor has again been shown, which is to the

following effect:

Company Appeal (AT) (Ins.) No.961 of 2025 7 Note : 3 Long Term Liability Sl. Particular Current Year Previous Year N0.

Loan Aarkey Investment Private Limited 1,66,46,631 16,646,631 Ashiana Vinimay Private Limited -- 10,000 Basbhumi Realtors Pvt. Ltd. 88,53,005 76,03,005 Bhattar Infrastructure Private Limited 10,86,135 38,00,000 Bluesnow Suppliers Pvt. Ltd. 18,00,000 18,00,000 JP Financial Services Private Limited 2,81,45,684 2,81,45,684 Madhav Knitwear Pvt. Ltd. 40,20,000 45,00,000 Pale **co Tie Up Private Limited 12,200 12,200 Rajshree Granite Limited 10,00,000 10,00,000 Saket Commodity Pvt. Ltd. -- 1,00,000 Trim**e Distributors & Management Ltd. -- 4,69,000 Tri**** Management Pvt. Ltd. -- 2,00,000 Advances Advance Against Property 34,99,386 34,99,386

Total ************ ***********

12. There being clear and categorical acknowledgement of the debt in

the Financial Statements of the CD, we are of the view that by virtue of

Section 18 of the Limitation Act, limitation shall be treated to have been

extended as noticed by the Adjudicating Authority. The said

acknowledgment is continuing from the year 2017-18, 2018,19, 2021-22

and 2022-23. Thus, the application under Section 7 filed on 30.03.2024

was well within time and within the period of limitation. We, thus, are of

the view that Adjudicating Authority has rightly rejected the objection of

the CD that application was barred by time.

13. Coming to the next submission advanced by the CD that loan

extended was not in accordance with Section 186 of the Companies Act,

2013, the said issue has been considered by the Adjudicating Authority

from paragraphs 39 to 45. It is useful to notice paragraph 41 of the

impugned order, which is as follows:

Company Appeal (AT) (Ins.) No.961 of 2025 8

"41. Thus, provision of Section 186 explicitly provides that a Company cannot advance loan to any person or body corporate exceeding 60% of its paid-up share capital, free reserves and securities premium account or one hundred per cent of its free reserves and securities premium account, whichever is more. In the instant case, the loan amount of Rs. 2,50,00,000/-(Rupees Two Crore Fifty Lakh Only) is provided in the year 2015; however, from the balance sheet of the Financial Creditor, it evident that in the year 2015, the paid up capital of the Financial Creditor was Rs.66,42,500/- (Rupees Sixty Six Lakh Forty Two Thousands Five Hundred Only) with Reserve and Surplus amounting to Rs. 1,246,422,050/- (Rupees One Hundred Twenty Four Crores Sixty Four Lakhs Twenty Two Thousands and Fifty Only). Thus, in the year 2015, the total shareholders fund were amounting to Rs. 1,253,064,550/-( Rupees One Hundred Twenty Five Crores Thirty Lakhs Sixty Four Thousands and Five Hundred Fifty Only).

14. The Adjudicating Authority has, thus, returned a finding that loan

extended by the Financial Creditor to the CD was not in violation of

Section 186 of the Companies Act, 2013.

15. Learned Counsel for the Appellant in support of his submissions

has placed reliance on the judgment of this Tribunal Pancham Studios

Pvt. Ltd. vs. Konark Aquatics & Exports Pvt. Ltd. - Company Appeal

(AT) (Ins.) No.406 of 2024. In the above case, application under Section

7 filed by the Financial Creditor was rejected by the Adjudicating

Authority. One of the submissions raised before the Adjudicating

Authority was that loan was in violation of Section 186 of the Companies

Act, 2013. The submission regarding violation of Section 186 has been

Company Appeal (AT) (Ins.) No.961 of 2025 9 noticed and this Tribunal has allowed the Appeal and set aside the order

of Adjudicating Authority dismissing Section 7 application. In paragraph

21 of the order, this Tribunal has made following observation:

"21. Much emphasis has been laid by the Respondent as well as the Tribunal about non-adherence to the provision of Section 186 of the Act. Section 186(2)(a) of the Act says that "no company can directly or indirectly give any loan exceeding 60% of its paid up share capital free reserves and securities premium account of its free reserves and securities premium account whichever is more". However, Section 186(13) provides for punishment for violation of the provisions of the section. It provides that "the Company shall be punishable with fine which shall not be less than Rs. 25000 but which may extend to Rs. 5 lakh and officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than Rs. 25000 but which may extend to Rs. 1 lakh."

16. This Tribunal held that CD cannot take the shelter of Section 186

to deny its liability to return the amount taken by it being a corporate

body which is due and payable. In paragraph-22 of the judgment,

following has been observed:

"22. But in no case the debt advanced by the Company to a corporate body can be held to be unrecoverable only because of the reason that there was a irregularity in advancement of the loan which became a debt to a third party or in other words the CD cannot take the shelter of Section 186 of the Act to deny its liability to return the amount taken by it being a corporate body which is due and payable."

Company Appeal (AT) (Ins.) No.961 of 2025 10 17. The above judgment of this Tribunal in no manner supports the

submission of the Appellant, rather, this Tribunal has rejected the said

challenge raised by the CD in the said case.

18. Another judgment relied by learned Counsel for the Appellant is the

judgment of this Tribunal in Company Appeal (AT) (Ins.) No.1480 of

2024 - Acute Daily Media Pvt. Ltd. & Ors. vs. Rockman Advertising

and Marketing (India) Ltd. & Ors. In the above Appeal, order passed by

the Adjudicating Authority under Section 65 of the IBC, terminating the

CIRP was challenged. Observations made by this Tribunal in the said

case were in context of the order passed by Adjudicating Authority under

Section 65, terminating the CIRP, holding that initiation of CIRP was

fraudulent and malicious. Any observation made in the above context,

does not come to any aid to the Appellant in the present case. The said

judgment is, thus, clearly distinguishable and does not support the

submission of the Appellant.

19. Insofar as, the submission of the Appellant that Financial Creditor

was permitted to file rejoinder, which was not necessary, since no new

documents were filed by the Appellant, it has been noticed by

Adjudicating Authority in paragraph 26 that liberty was granted by the

Tribunal to file the rejoinder affidavit. When rejoinder is filed with the

liberty of the Tribunal, the said rejoinder was fully entitled to be looked

into.

20. The Adjudicating Authority in the impugned order has considered

all relevant issues and after considering all materials on record has rightly

Company Appeal (AT) (Ins.) No.961 of 2025 11 come to the conclusion that Financial Creditor has been able to prove

debt and default on the part of the CD. We, thus, do not find any error in

the impugned order admitting Section 7 application. There is no merit in

the Appeal. The Appeal is dismissed. Parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

29th August, 2025

Ashwani

Company Appeal (AT) (Ins.) No.961 of 2025 12