Deepak Vegpro Pvt.Ltd vs Shree Hari Agro Industries Ltd

Deepak Vegpro Pvt. Ltd. Having registered office at Old Industrial Area, Itarana Road, Alwar-301001. Rajasthan. ... Appellant

Versus

Shree Hari Agro Industries Ltd. Having registered office at 28/1, Shakespeare Sarani, Ganga Jamuna Apartment, Flat No. 17 & 18, Kolkata-700017. ... Respondent

Present

For Applicant : Mr. Narendra M Sharma, Ms. Anindita Saha, Mr. Ankur Sood, Ms. Bheeni Goyal, Mr. Utkarsh Sharma, Advocates

For Respondent: Mr. Ratnanko Banerji, Sr. Adv. with Mr. Pradeep Jwerajka, Ms. Swarlipi Deb Roy, Mr. R.K. Gupta and Ms. Pooja Jwerajka, Advocates

JUDGMENT

(Date: 11.10.2022)

[Per.: Dr. Alok Srivastava, Member (Technical)]

This appeal has been filed under Section 61 of the

Insolvency and Bankruptcy Code, 2016 (in short 'IBC') by Deepak

Vegpro Pvt. Ltd. who is aggrieved by the order dated 5.9.2019

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 1 of 32 passed by the Adjudicating Authority (NCLT, Kolkata) while

dismissing CP(IB) No. 265/KB/2018 (hereinafter called 'Impugned

Order').

2. Deepak Vegpro Pvt. Ltd., as financial creditor, filed an

application under section 7 of the IBC against the corporate debtor

Shree Hari Agro Industries Ltd., claiming that a debt and interest

thereon amounting to total of Rs.412.52 crores is due and payable

to it by the corporate debtor. The facts of the case are that the

Appellant obtained a term loan of Rs.4,50,00,000.00 from the

Industrial Development Bank of India (in short 'IDBI') on

11.7.1996, which was to be repaid in 20 quarterly instalments

with interest @ 21% p.a. and the said loan agreement and deed of

hypothecation of immovable property and mortgage of movable

assets were signed on 11.7.1996. As per terms of the said loan

agreement, the first instalment fell due and payable on 1.4.1998,

and when the Respondent defaulted in repayment of the debt, IDBI

issued a formal notice to recall the entire loan amount on

26.4.2000 and initiated proceedings against the Respondent on

22.9.2000 for recovery of the outstanding debt before the Debt

Recovery Tribunal, Jaipur. The Appellant has further stated that

the Respondent made a reference to the Board for Industrial and

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 2 of 32 Financial Reconstruction (in short 'BIFR') and it was declared a

Sick Industrial Unit on 13.6.2001.

3. During the pendency of proceedings before BIFR, the IDBI

assigned the said loan to Stressed Asset Stabilisation Fund (in

short 'SASF'), which in turn assigned the entire loan with interest

and security interests in favour of Appellant vide the Assignment

Agreement dated 17.1.2007, whereby the Appellant stepped into

the shoes of SASF and became a secured financial creditor of the

Respondent. It is further stated by the Appellant that the said

Assignment Deed was signed after the Respondent gave no

objection dated 9.1.2007 for assignment of the said loan in favour

of the Appellant, which was done for consideration of Rs.

2,50,00,000/- and consequently the security charge relating to the

loan was modified and registered in favour of the Appellant with

the Registrar of Companies, who issued the Certificate of

Registration of Charge on 26.3.2007, and thus the Appellant

became the first charge holder of the related movable and

immovable assets of the Respondent. The Appellant has also stated

that a fresh unsecured loan amount to Rs.2,85,00,000/- was

disbursed by the Appellant to the Respondent during 25.05.2007

to 29.08.2007.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 3 of 32

4. The Appellant has further stated that the Respondent

unilaterally and without the consent of the Appellant, falsely

claimed that the Applicant agreed to waive the entire interest and

70% of the principal amount of the secured loan and 80% of the

principal amount of the unsecured loan while submitting the Draft

Rehabilitation Scheme, which was not approved by the BIFR, and

BIFR's decision was upheld in appeal by the Appellate Authority

for Industrial and Financial Reconstruction (AAIFR) and the

Hon'ble Delhi High Court. He has further claimed that the

Respondent Corporate Debtor has admitted the liability of the loan

in its balance/sheets since the year 1998 till the date of filing

section 7 application of 2.2.2018. He has stated that the section 7

application was dismissed vide the Impugned Order, and he has

filed this appeal aggrieved by the impugned order.

5. The Appellant has claimed in the appeal that his section 7

application was rejected on the grounds that:

(i) The debt is time barred;

(ii) There is discrepancy in the debt amount which is

payable and claimed in section 7 application and the

debt amount that is mentioned in the balance sheets

cited by the appellant;

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 4 of 32

(iii) There is pending litigation due to family dispute

between two groups of the Data Family and after

division in the family assets, the issue of this loan is

being used to settle scores; and

(iv) No demand notice was issued by the Appellant after

assignment of the loan in 2007 till 2018.

6. We heard the arguments of the Learned Counsels for both

the parties and perused the record.

7. The Learned Counsel for Appellant has submitted that the

term loan taken by the Respondent of Rs. 4.50 crores from IDBI

with compound interest @ 21% p.a. with repayment in quarterly

instalments secured by hypothecation of moveable property and

mortgage of immovable property of the corporate debtor. Since

the loan was not repaid in time, IDBI recalled the loan in 1998. He

has further submitted that IDBI initiated proceedings before the

DRT, and IDBI assigned the loan along with associated securities

to SASF on 30.9.2014, which was further assigned by SASF to the

Appellant on 17.1.2007 through an Assignment Agreement after

obtaining consent of the corporate debtor for a consideration of Rs.

2.50 crores. He has claimed that thus the appellant has stepped

into the shoes of IDBI along with all the rights and responsibilities

that were available to IDBI.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 5 of 32

8. Regarding discrepancy in the debt amount appearing in the

balance sheets of the corporate debtor and that appearing in

section 7 application, the Learned Counsel for Appellant has

submitted that from the Financial Year (FY) 2006-07 till FY 2007-

08, the balance sheets of the corporate debtor show a secured debt

amount of Rs. 4.50 crores, and thereafter in the balance sheets

from FY 2008-09 continuing up to FY 2015-16, the liability owed

to the Appellant by the corporate debtor is shown as Rs. 1.35

crores. These debt appearing in the successive balance sheets

from FY 2006-07 till 2015-16 provide acknowledgement of the

secured loan by the corporate debtor. He has argued that the

balance sheets only show the principal amount due and payable

but there is additional accrued interest in terms of the original

loan agreement entered into between IDBI and the corporate

debtor, which is also due and payable to the Appellant, and this

amount is shown in Part IV of section 7 application.

9. The Learned Counsel of Appellant has submitted that in the

light of judgment of Hon'ble Supreme Court in the matter of Asset

Reconstruction Co. (India) Ltd. v. Bishal Jaiswal (2021 SCC

Online SC 321), the acknowledgement given by the corporate

debtor in balance sheets provides acknowledgement of the debt as

required in section 18 of the Limitation Act, and successive Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 6 of 32 acknowledgements in the balance sheets of the corporate debtor

starting from FY 2006-07 until FY 2015-16, the section 7

application is within limitation, as it was filed on 10.4.2018, which

is within 3 years from 31.3.2016 from the last acknowledgment in

the balance sheet for FY 2015-16. He has added that the

Respondent has through its various balance sheets admitted a

liability of Rs. 1.35 crore, and this amount, being greater than the

threshold limit of Rs. 1 lakh, is sufficient for the purpose of

admission of section 7 application. He has clarified that the claim

of total amount of Rs. 412.52 crores which appears in section 7

application, is the actual amount due and payable by the

Respondent. He has claimed that the finding in the Impugned

Order, that since there is discrepancy in the amount claimed by

the Appellant in his section 7 application and the amount of debt

acknowledged as liability in the corporate debtor's balance sheets

is erroneous as the Adjudicating Authority has to merely see

whether the acknowledgement is of an amount greater than the

threshold value of Rs.1 lakh and not go into the precise amount of

the alleged debt.

10. The Learned Counsel for Appellant has also cited the

judgment of Hon'ble Supreme Court in the matter of Innoventive

Industries Ltd. vs. ICICI Bank (2018 1 SCC 407) in support of

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 7 of 32 his contention that once the Appellant's status as a financial

creditor is established and the admitted debt liability is more than

Rs. 1 lakh, which is the threshold monetary limit for consideration

of section 7 application, the application is liable to be admitted.

11. On the point that the Appellant's section 7 application was

dismissed due to alleged family settlement and related dispute

between two groups of the same family, the Learned Counsel for

Appellant has submitted that the family settlement documents do

not include any reference to the corporate debtor, and therefore, it

is separate from the businesses included in the family settlement,

and in no way affected by the family settlement and any litigation

that may be going on between the family members.

12. The Learned Counsel for Appellant has also argued that the

contention of the Respondent that he (Appellant) did not raise any

demand since the year 1998 for repayment of the loan is also not

correct, since he has been continuously raising the claim for

recovery before DRT, BIFR, AAIFR and Hon'ble High Court of

Delhi. Expanding on this argument, he has referred to the BIFR

order dated 28.6.2010, wherein the name of the Corporate Debtor

Shree Hari Agro Industries Ltd. is very clearly mentioned in

paragraph 3 of the said order and further, the findings in the BIFR

order were upheld by AAIFR vide its order dated 29.5.2012 and Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 8 of 32 also by the Hon'ble High Court of Delhi, which dismissed the

appeal of Respondent with costs vide order dated 1.10.2012,

whereafter a review petition filed by the respondent challenging

Delhi High Court's orders dated 1.10.2012 was also dismissed by

order dated 23.1.2012. He has, thus, claimed that the Appellant

has been continuously making efforts for recovering the amount

due and payable to him on account of loan including the principal

amount, interest and liquidated damages from the corporate

debtor. The Learned Counsel for the Appellant has, thus, strongly

argued that in view of the alleged debt being a financial debt that

is in default of repayment, and since the application under section

7 of IBC is within limitation and all the ingredients laid down in section 7 are fulfilled, it ought to have been admitted by the

Adjudicating Authority.

13. In reply, the Learned Senior Counsel for Respondent has

argued that after the default committed by the corporate debtor in

repayment of IDBI loan, the IDBI obtained right to recover from the

BIFR. He has further argued that in the year 2004 and later, the

Appellant started action for taking over the corporate debtor, and

contributed Rs.2.50 crores to the corporate debtor. Later, through

the Assignment Agreement dated 17.01.2007, the Appellant

Deepak Vegpro Pvt. Ltd. was assigned the loan originally taken

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 9 of 32 from IDBI as the corporate debtor came in the hands of Babu Lal

Data Group of the family as a result of family settlement. He has

submitted that in the background of family settlement with an

amount of Rs. 2.50 crores paid by the corporate debtor in

purchasing the loan from SASF, the balance sheets of the

corporate debtor show a reduced secured debt amount of Rs.1.35

crores. He has further argued that the amount of secured debt

shown in the balance sheets should be read with the notes in the

balance sheets, and in particular the note in the balance sheet for

the FY 2008-09 shows that no repayment schedule is attached to

the said loan. He has also stated that there is no interest amount

shown as liability in the balance sheet which also goes to show

that the amount of Rs. 1.35 crores is not a loan but a financial

contribution of Deepak Vegpro Pvt. Ltd. to the corpus of the

corporate debtor and not a loan and it has been placed in the

section of secured credit in the balance sheets for ease of

accounting. In such a situation, he has argued, the amount

appearing in the balance sheets is not a loan and hence is not

covered in the definition of 'financial debt'.

14. The Learned Senior Counsel of Respondent has insisted that

even if the debt is taken to be a financial debt, the balance sheet

documents placed on record by the appellant do not show that it is

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 10 of 32 the same debt amount which is in default, and therefore the

entries in the balance sheets cannot to be taken to provide

acknowledgement of the original debt of IDBI and so the

application under section 7 is not within limitation. Thus, he has

surmised that none of the ingredients of section 7 of IBC are

fulfilled and, therefore, in view of the fact that the Adjudicating

Authority has discretion in admission of the section 7 application,

it has been correctly rejected.

15. The Learned Senior Counsel for Respondent has argued that

the original loan of Rs.4.5 crores given by IDBI was reduced to Rs.

1.35 crores from FY 2008-09 onwards, which is the figure shown

in the balance sheet of the corporate debtor and it has not been

explained by the Appellant as to how the original amount got

reduced to Rs. 1.35 crores. He has claimed that the default

amount of Rs.412.52 crores was neither owed to the Appellant nor

demanded by him at any time after the loan was assigned to the

Appellant and therefore, in the absence of any repayment schedule

after assignment for the alleged loan as mentioned in the notes

included in the balance sheet of FY 2008-09, there is no default

regarding the same. Moreover, in the absence of any repayment

schedule provided for the loan of Rs.1.35 crores, default in

repayment of loan is not established.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 11 of 32

16. The Learned Senior Counsel for Respondent has cited the

judgment of J.C. Budhiraja vs. Chairman, Orissa Mining

Corporation Ltd. & Anr. [(2008) 2 SCC 444] wherein it is held

that "it is now well settled that a writing to be an acknowledgment

of liability must involve an admission of a subsisting jural

relationship between the parties and conscious affirmation of an

intention of continuing such relationship in regard to an existing

liability" and further that "any admission of jural relationship in

regard to the ascertained sum due or a pending claim, cannot be an

acknowledgment for a new additional claim for damages."

17. The Learned Senior Counsel for Respondent has also cited

the judgment of the Hon'ble Supreme Court in the matter of Tilak

Ram and Others vs. Nathu and Others (AIR 1967 SC 935),

wherein it is held that "the right of redemption no doubt is of the

essence of and inherent in a transaction of mortgage. But the

statement in question must relate to the subsisting liability or the

right claimed. Where the statement is relied on as expressing jural

relationship it must show that it was made with the intention of

admitting such jural relationship subsisting at the time when it was

made. It follows that where a statement setting out jural

relationship is made clearly without intending to admit its existence

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 12 of 32 an intention to admit cannot be imposed on its maker by an involved

or a farfetched process of reasoning."

18. The Learned Counsel for Respondent has also cited the

judgment of the Hon'ble Supreme Court in the matter of Reliance

Assets Reconstruction Company Limited vs. Hotel Poonja

International Private Limited [(2021) 7 SCC 352], wherein it is

held that,

"19. It is well settled by a catena of decisions of this Court, that Article 137 of the Limitation Act gets attracted to applications filed under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if that default has occurred over three years prior to the date of filing of an application under Section 7 of the IBC, the application would be barred under Article 137 of the Limitation Act. At the highest, the limitation started ticking on 27th March 2003, when a Recovery Certificate was issued by the DRT. The appellant has not disclosed any material in its application under Section 7 of the IBC to demonstrate that the application is not barred by limitation."

19. In connection with the amounts shown in section 7

application and that in the balance sheets, the Learned Senior

Counsel for Respondent has argued that the acknowledgment

should be of the liability and the liability shown in section 7

application is Rs.412.52 crores, whereas no such liability is

acknowledged through the balance sheets placed on record.

Moreover, no demand notice has been given regarding the amount

of Rs. 412.52 crores. He has pointed out to the letter dated Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 13 of 32 27.2.2008 to claim that the reason for the amount Rs.1.35 crores

is shown in the balance sheet is because of the exchange of shares

in the corporate debtor. He has further argued that section 65 of

the IBC is relevant in the present case because the insolvency

process of the corporate debtor/respondent is claimed due to

malicious intent and not for any insolvency resolution of the

corporate debtor (attached at pg. 857 of the appeal paper book,

Vol. V) to show that the appellant has never made any attempt to

recover the alleged amount and it is only because of a certain

family dispute that it has filed section 7 application for initiating

Corporate Insolvency Resolution Process (CIRP) of the corporate

debtor.

20. The main issue involved in this appeal is whether the section

7 application is within limitation. Therefore, we will deal with this

issue first. The Impugned Order in paragraph 41 held as follows: -

"41. The financial statements referred to for proving acknowledgment also would not be helpful to the applicant to provide that the filing of this application was within 3 years before the commencement of I&B, code. The amount of interest claimed and as shown in annexure A-21 of the application, is never at all acknowledged by the Corporate Debtor either by way of confirmation or in its books of account. The Applicant company did not issue any loan recall notice of the amount claimed on the respective due date when it fell due for payment as contained in the application. The amount under claim by the applicant has been a subject matter of dispute before BIFR and before the hon'ble Delhi High Court and at present at NCLT. The amount allegedly due to the applicant as per the Financial Statement of the Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 14 of 32 Applicant for the Financial Year ending 2009 was rs.1,35,00,000/-. The financial year ending 31.03.2016 referred to on the side of the applicant discloses an amount of Rs. 1,35,00,000/- as the amount payable to Deepak Vegpro (P) Ltd., and as per the terms and condition given in the note read as "There is no pre-defined/specified repayment schedule for this loan". On the other hand the present application has been filed claiming Rs.40044.15 lacs. The amount evidently acknowledged as per the financial statement for the year ending 31.3.2016 cannot be taken as an acknowledgment of debt as claimed by the applicant.

Accordingly, we are of the considered view that the claim, if any, is barred by law of limitation."

21. In the light of the contention of both the Learned Counsels

and reliance placed on the balance sheets placed on record

regarding acknowledgement or otherwise of the alleged financial

debt, we look at the financial statements referred to by the

Appellant, which include balance sheets FY 2006-07 going

continuously up to FY 2015-16 to claim that the debt owned by

the corporate debtor was acknowledged therein, year after year. A

perusal of the balance sheet for FY 2006-07 (attached at pp.421-

436 of the appeal paperbook, vol. III) shows the existence of a

secured loan amounting to Rs. 4.50 crores from the Deepak

Vegpro Pvt. Ltd. As per record placed in the appeal, this is the

first time the alleged loan appears in a balance sheet in the name

of Deepak Vegpro Pvt. Ltd. Again, in the balance sheet for FY

2007-08 (attached at pp. 437-464 in the appeal paperbook, vol.III),

a secured loan of Rs.4.50 crores appears in 'Schedule II-Secured

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 15 of 32 Loans' in the name of Deepak Vegpro Pvt. Ltd. Then we find that

the loan amounting to Rs. 4.50 crores till then, becomes Rs. 1.35

crores in the balance sheet for the FY 2008-09 (attached at pp.

465-481 of the appeal paperbook, vol.III), in the section 'Secured

Loan' in Schedule III in the name of Deepak Vegpro Pvt. Ltd. and

there is a mention of any interest accrued and due relating to the

default from previous years is entered as Rs.7,09,96,285/-.

Thereafter, in the balance sheets for the FY 2009-10 running up to

FY 2015-16 (attached at pp 482- 620 of the appeal paperbook,

vol.III) a loan in the name of Deepak Vegpro Pvt. Ltd. appears for

an amount of Rs. 1.35 crores. Significantly in these balance

sheets relating to FY 2009-10 upto FY 2015-16, there is no

mention of any interest amount liable to be paid. Another point

worth noting is that in the balance sheet for the FY 2008-09, the

following is mentioned in the 'Notes to the Accounts' (attached at

pp. 478-479 of the appeal paperbook, vol.III): -

"

xxx xxx xxx

2. The Company entered into settlement with its secured creditors namely Industrial Investment Bank of India (IIBI) and M/s. Deepak Vegpro Pvt. Ltd. (Assignee of loan of IIBI) as evident from the relevant documents produced before us for verification. Consequent to the said settlements, the aggregate amount of waiver made by the secured creditors aggregating to Rs. 480 lacs has been credited to the Capital Reserve Account.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 16 of 32

3. The company entered into one time settlements with its unsecured creditors namely, M/s. Kedar Nath Ravindra Kumar HUF, Smt. Anita Agarwal, M/s. Shree Hari Industries, M/s. Versa Trading Company and M/s. Deepak Vegpro Private Limited, accordingly an outstanding principal amount aggregating to Rs. 335.82 lacs settled at 20% whereas balance 80% of principal i.e. Rs.268.65 lacs and all other moneys towards simple interest, compound interest, penal interest, liquidated damages or any other claims agreed for waiver in full. The waived amount aggregating to rs.268.65 lacs was accordingly written back and cr4edited to Capital Reserve Account out of which an amount aggregating to Rs.40.65 lacs outstanding to M/s. Kedar Nath Ravindra Kumar HUF, Smt. Anita Agarwal, M/s. Shree Hari Industries, M/s. versa Trading company are subject to verification with proper relevant document or pending consent of these parties in this regard.

4. Interest accrued and due to financial Institutions amount to Rs. 709.96 lacs as at 31.3.2008 towards interest including simple interest, compound interest, penal interest, liquidated damages etc. has also been written back in the books of accounts of the Company in terms of one time settlement agreed and settled with them accordingly written back and credited to Capital Reserve Account to that extent.

xx xx xx xx"

22. From a close perusal of balance sheets and the alleged loan

amount that appears in the name of Deepak Vegpro Pvt. Ltd. and

the 'Notes to the Accounts', it is quite clear that the original loan

amount of Rs. 4.50 crores became Rs. 1.35 crores in the balance

sheet for the FY 2008-09 and thereafter continued as such in the

balance sheets of the following years. Notably in the balance sheet

for the FY 2008-09, when the loan amount of Rs. 4.50 crores

became Rs. 1.35 crores, the 'Notes to Accounts' (supra) clearly

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 17 of 32 indicate that the company entered into settlements with its

secured creditors, namely, Industrial Investment Bank of India (in

short 'IIBI') and Deepak Vegpro Pvt. Ltd., and after the said

settlements, the aggregate amount of waiver made by the secured

creditors aggregating to Rs. 480 lacs have been credited to the

Capital Reserve Account. Moreover, with regard to unsecured

creditors and one-time settlement entered into by the corporate

debtor with the unsecured creditors, the Notes to the Accounts

show that the outstanding principal amount due to all unsecured

creditors were settled at 20%, whereas 80% of the principal

amount i.e. Rs. 268.65 lakhs and other monies towards simple

interest, compound interest, penal interest, liquidated damages or

any other claims agreed for waiver in full and the waived amount

aggregating to Rs.268.65 lacs was accordingly returned back and

credited to Capital Reserve Account. Similarly, there is a waiver of

Rs. 709.96 lacs of the interest amount accrued and due to

Financial Institutions. These notes show that there was a

settlement entered into by the corporate debtor with its secured

and unsecured creditor/s.

23. We now look at the Part-IV of section 7 application filed by

the financial creditor Deepak Vegpro Pvt. Ltd., the amount of

financial debt claimed to be default is Rs.412.52 crores, which

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 18 of 32 according to the Appellant is the amount due to it by way of

principal amount, interest, penal interest and liquidated damages.

It is quite clear from a note in the balance sheets for the FY 2008-

09 onwards (supra) that even the principal amount of Rs. 4.50

crores which is the loan taken by the corporate debtor from IDBI is

settled by the assignee Deepak Vegpro Pvt. Ltd. and thereafter a

loan amount of Rs.1.35 crores is shown in the balance sheets for

the successive years but significantly no interest amount

pertaining to the debt is shown as being outstanding and liable to

the purported financial creditor. Quite obviously the principal

amount of loan gets changed due to the settlement entered into by

the corporate debtor with its secured creditors including Deepak

Vegpro Pvt. Ltd.

24. The Learned Senior Counsel for Respondent has cited the

judgment of Hon'ble Supreme Court in the matter of Asset

Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC

Online SC 321 wherein it is held as follows: -

"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 acknowledgments made in the books of accounts including Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 19 of 32 the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills, 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 acknowledgment of liability has, in fact, been made thereby extending limitation under Section 18 of the Limitation Act.

(Emphasis supplied)

25. The Hon'ble Supreme Court has ruled in the matter of

Reliance Assets Reconstruction Company Limited vs. Hotel

Poonja International Private Limited [(2021) 7 SCC 352]

regarding the necessity of existence of a jural relationship between

the creditor and debtor: -

"28. In Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria, this Court held:

(6)...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... 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.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 20 of 32

29. In the present case, reliance ought not to be placed on the balance sheet dated 16.8.2017 and letter dated 23.4.2019 primarily for two reasons. First, there is no evidence or material to show that the documents were signed before the expiry of the prescribed period of limitation. There is no pleading to the said effect in the application under Section 7 IBC filed by the appellant in the statutory form. In fact, the two documents were never relied upon.

30. Secondly, the two documents cannot be construed as admissions that amount to acknowledgment of the jural relationship and existence of liability. The balance sheet dated 16.8.2017 does not acknowledge or admit any debt."

(Empahsis Supplied)

26. The Learned Senior Counsel for Respondent has also

referred to Hon'ble Apex Court's judgment in J.C. Budhiraja vs.

Chairman, Orissa Mining Corporation Ltd. & Anr. [(2008) 2

SCC 444] wherein the Hon'ble Supreme Court holds as follows:

" 21. It is now well settled that a writing to be an acknowledgment of liability must involve an admission of a subsisting jural relationship between the parties and a conscious affirmation of an intention of continuing such relationship in regard to an existing liability. The admission need not be in regard to any precise amount nor by expressed words ......... ............................................ An acknowledgment made with referenced to a liability, cannot extend limitation for a time-barred liability or a claim that was not made at the time of acknowledgment or some other liability relating to other transactions. Any admission of jural relationship in regard to the ascertained sum due or a pending claim, cannot be an acknowledgment for a new additional claim for damages."

27. Another judgment cited by the Learned Senior Counsel for

Respondent relates to the matter of Tilak Ram and Others vs. Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 21 of 32 Nathu and Others (AIR 1967 SC 935) wherein Hon'ble Supreme

Court holds as follows: -

" 12. The right of redemption no doubt is of the essence of any inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or the right claimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on its maker by an involved or a far- fetched process of reasoning."

(Emphasis Supplied)

28. We are of the view that the judgments of Hon'ble Supreme

Court cited above by the Respondent's Learned Senior Counsel

supports his contention that existence of a jural relationship

between the corporate debtor and financial creditor has not been

established insofar as the alleged debt appearing in the cited

balance sheets and the section 7 application is concerned, and

moreover there is no unequivocal admission of the subsisting

liability as claimed in the section 7 application and the amount

appearing in the balance sheets. We are, therefore, of the view

that when there is discrepancy between the amount appearing in

the balance sheets itself from one year to another, and in addition,

there is a huge discrepancy between the amount claimed in default

in section 7 application and the amount appearing as purported Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 22 of 32 debt, the existence of debt as claimed and the jural relationship

are very much doubtful.

29. We do not find the argument of the Learned Senior Counsel

for Appellant that no demand for outstanding amount was raised

by the Appellant from FY 2008-2009 onwards till the year 2018

since he was pursuing case before BIFR and AAIFR convincing, as

any creditor, in normal circumstances, will not let go of a large

amount of debt, such as the Appellant's that it says was due to it.

This fact, coupled with another fact that there was no repayment

schedule agreed to between the Appellant and the Respondent

adds credence to the argument of Respondent that the amount

shown as secured debt in the balance sheets was considered as

contribution of the Appellant in the business of the corporate

debtor after the exchange of shares. In the absence of any

repayment schedule, the Appellant cannot claim any default in

repayment of the debt as we are of the view the default should be

explicit and direct and not to be inferred in an oblique and vague

manner from cases in BIFR/AAIFR. Therefore, even if we assume

that the due amount is a financial debt under the IBC, there is no

default in repayment of the alleged loan.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 23 of 32

30. In the present case, we find that the amount of loan given by

IDBI, which was in default in the year 1998. This loan was taken

over by SASF for a total consideration of Rs.2.50 crores by an

Assignment Deed executed on 17.1.2007, the alleged loan was

assigned by SASF to Deepak Vegpro Pvt. Ltd., after a no objection

by the corporate debtor. The claim of the appellant that the loan

was due and payable by the corporate debtor is contested by the

Respondent by stating that after the assignee of IDBI/SASF loan to

Deepak Vegpro Pvt. Ltd., the remaining amount of Rs. 1.35 crores

is considered as an investment and not any loan transaction. In

support of his contention, the Respondent has claimed that there

was no repayment plan for the remaining amount of Rs. 1.35

crores agreed to between the Appellant and the Respondent and

more importantly, between the years 2008 and 2018, and

consequently no demand was made for the pending amount. That

the said alleged loan appears in the cases before BIFR and AAIFR

cannot be taken as making any demand or acknowledgement of

the said loan. Moreover, the Appellant has claimed that his loan

was acknowledged through the balance sheets and therefore we

are considering the balance sheets to examine the

acknowledgement, if any, of the said loan and consequently if the

loan is within limitation for the purpose of admission of section 7

application.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 24 of 32

31. We find that he judgment of the Hon'ble Supreme Court in

the matter of Asset Reconstruction Co. (India) Ltd. v. Bishal

Jaiswal (supra) supports the case of the respondent in that the

acknowledgments through the balance sheets should be

unequivocal and without any caveat if they are to be considered as

providing acknowledgement to the debt for the purpose of

extending limitation.

32. It is noted as submitted by the Learned Senior Counsel for

the Respondent, that there was a family settlement between the

members of two groups of Data Family, which is alluded to in

earlier paragraphs of this judgment, whereby the corporate debtor

and the financial creditor went to two separate groups being

Niranjan Lal Data Group and Babu Lal Data Group. Since Babu

Lal Data was a director of the corporate debtor and also a director

of the alleged financial creditor until the two groups were

separated by family settlement, there were contentious issues

between the two-family groups, which resulted in the Niranjan Lal

Group which controls the Appellant company to make such

exorbitant and unrealistic claim as financial creditor from the

corporate debtor which now belongs to Babu Lal Data Group.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 25 of 32

33. The section 7 application can be made by a person claiming

to be a financial creditor under section 7 of the IBC. Section 5(7)

provides the definition of 'financial creditor' and section 5(8)

provides the definition of 'financial debt' and they are reproduced

below:-

"5. Definitions - In this Part, unless the context otherwise

requires, -

(7) "financial creditor' means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;

(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes-

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on non-recourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

[Explanation. -For the purposes of this sub-clause, -

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 26 of 32 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause;"

34. Further the 'debt' is defined in section 3 (11 of the IBC,

which is as follows:-

"3. Definitions - In this Part, unless the context otherwise requires, -

(11) 'debt' means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt."

35. Thus, for an applicant to be a financial creditor, a debt along

with interest should be disbursed against the consideration time

value of money, whereas in the present case the entries in the

balance sheets by which the acknowledgment of debt claimed to be

in limitation, do not show any interest accruing on the claimed

loan amount, even the Assignment Agreement dated 17.1.2007

executed between SASF and Deepak Vegpro Pvt. Ltd. makes 'the

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 27 of 32 procedure full and absolute legal owner and the only person legally

entitled to financial assets or any part thereof". It does appear that

as a result of family settlement and various disputes between the

rival groups of Data family, the remaining amount due to Deepak

Vegpro Pvt. Ltd. may not have been a loan, since there is no rate of

interest either claimed or exhibited by any document or even

stated in the balance sheets starting with the FY 2008-09. In such

a situation, we are not convinced that the said amount of Rs. 1.35

crores appearing in the balance sheets of the corporate debtor are

a financial debt owned by the corporate debtor to the purported

financial creditor/Appellant.

36. We also note the provision in section 7 of the IBC that

relates to the admission of the application by a financial creditor.

The relevant sub-section 5 of section 7 is reproduced hereunder: -

"7. Initiation of corporate insolvency resolution process by financial creditor. -

(5) Where the Adjudicating Authority is satisfied that -

(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application: or

(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application.

Xxx xxx xxx xxx

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 28 of 32

37. A plain reading of the above-stated provision under section 7

and the use of the word 'may' in clause (a) of sub-section (2) of

section 7 makes it clear that the Adjudicating Authority has the

discretion to either admit it or reject the application, of course

depending on the facts of the case and whether such facts and

circumstances call for admission of the section 7 application. The

language of section 7 can be contrasted with the language of

section 9 where no word such as 'may' is used in sub-section (5) of

section 9 and an exhaustive list of conditions given in clause (i) of

sub-section (5) of section 9 are satisfied.

38. Recently, in the matter of Vidarbha Industries Power Ltd v.

Axis Bank Ltd.,2022 SCC OnLine SC 841, decided on

12.07.2022, Hon'ble Supreme held as follows: -

"The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was required to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the overall financial health and viability of the Corporate Debtor under its existing management."

39. Thus the Hon'ble Supreme Court rejected the view of NCLT and

NCLAT that once it is found that a debt existed, and a corporate

debtor is in default in payment of the debt there would be no Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 29 of 32 option to the Adjudicating Authority (NCLT) but to admit the

petition under Section 7 of the IBC. Going by the scheme of IBC

and the legislative intent, the Hon'ble Supreme Court has observed

that the Adjudicating Authority would have to exercise its

discretion to admit an application under Section 7 of the IBC of the

IBC and initiate CIRP, unless there are good reasons not to admit

the petition. The Hon'ble Apex Court has observed that if the facts

and circumstances warrant exercise of discretion in a particular

manner, such discretion would have to be exercised with the

condition that such discretionary power cannot be exercised

arbitrarily or without any proper reason.

40. We note that IDBI claimed its debt of Rs. 4.5 crores given in

1998 with interest @ 21% p.a., in a recovery suit for such loan

which was withdrawn on 16.10.2007. Earlier, a notice for the

recovery of IDBI loan was given on 26.4.2000, which was after

default in repayment. Thereafter this loan was assigned to SASF

and subsequently to Deepak Vegpro Pvt. Ltd. through Assignment

Agreement dated 17.1.2007. From the documents submitted in

the appeal by both the parties, it is quite clear that IDBI had lost

interest in the recovery of the said loan and the assignee SASF and

thereafter Deepak Vegpro Pvt. Ltd., also did not make any effort to

recover the amount nor made any demand for repayment/recovery

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 30 of 32 of the pending amount to the corporate debtor. The amount of Rs.

412.52 crores, which is claimed in default in the Part IV of section

7 application, is hugely different from either the original loan of Rs.

4.50 crores or the amount of Rs. 1.35 crores appearing in the

balance sheets from FY 2008-09 till FY 2017-18. We thus find

that the acknowledgements in the balance sheets which widely

differ from the claim made in section 7 application does not

provide any extension of limitation to the debt claimed in section 7

application. Therefore, these acknowledgments through the

balance sheets, as claimed by the Appellant, do not pertain to the

loan amount claimed by the Appellant.

41. We, therefore, come to the fair conclusion that the said loan

or its part thereof is not proven to be a financial debt, and the

section 7 application is also barred by limitation since the

acknowledgements do not provide for unequivocal and

unambiguous acknowledgement of the alleged debt as claimed in

the section 7 application. We are, therefore, of the view that the

Impugned Order does not suffer from any error in holding that

section 7 application does not deserve to be admitted. In the

result, we find that the appeal is devoid of merit and is accordingly

dismissed.

Company Appeal (AT) (Insolvency) No. 1085 of 2019

Page 31 of 32

42. The appeal is disposed of with no order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical)

[Dr. Alok Srivastava] Member (Technical)

New Delhi 11th October, 2022

/aks/

Company Appeal (AT) (Insolvency) No. 1085 of 2019

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