Jai International Pvt. Ltd vs Jaroli Agro Pvt. Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) (Ins) No. 277 of 2021 IN THE MATTER OF: M/s. Jai International Pvt. Ltd 75, Mittal Chambers, Nariman Point, Mumbai - 400 021 ...Appellant

Versus M/s. Jaroli Agro Pvt.Ltd. 1008, 10th Floor, Hubtown Viva, Shankarwadi, Western Express Highway, Jogeshwari (E), Mumbai - 400 060 ...Respondent

Present: For Appellant : Ms. Sumedha Dang and Mr. Tejas Deshpande, Advocates. For Respondents : Mr. R.Sudhinder and Ms.Ekta Bhasin, Advocates.

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by the 'Appellant' - 'Jai International Pvt

Ltd.', under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in

short 'Code') against the impugned order dated 15.07.2021 passed by the

'Adjudicating Authority' (National Company Law Tribunal), Mumbai Bench in

Company Petition (IB) No. 4605 of 2019.

2. The Appellant is engaged in the business of supplying, trading and exporting

agricultural commodity and extraction products. The Respondent too is also

1 Company Appeal (AT)(Ins) No.277 of 2021 engaged in similar business apart from providing consultancy services to the

Appellant. The Appellant has asked for refund of outstanding amount of Rs.

30,75,408/-. The Respondent neglected to refund the said amount inspite of

demand notice served on them and hence filed 'Insolvency Petition' under

Section 9 of the Code before the Adjudicating Authority. On its petition being

dismissed by the Adjudicating Authority, it has appealed to set aside the

impugned order dated 15.07.2021 and initiate 'Corporate Insolvency

Resolution Process' (CIRP).

3. The Adjudicating Authority has dismissed the petition on the ground of

limitation, dispute between the parties, the amount being loan, the Petition

filed under Section 9 is not maintainable and has accordingly dismissed the

petition.

4. Mr. Prajendra Jaroli, one of the 'Director' of the Respondent Company -

Corporate Debtor was working as an employee with the Appellant since 2000.

He was responsible for the management of trading and exports of the

Appellant. Thereafter, on the request of Mr. Prajendra Jaroli, the Appellant

agreed to continue his services as 'Consultant'. Mr. Prajendra Jaroli

incorporated the Corporate Debtor in which he and his son were 'Directors'.

The Appellant advanced Rs.40 lakhs on 31.12.2014 for rendering the services

equivalent to the advance by the Respondent. The Appellant ledger at page

90 of the Appeal paper book reflects that two cheques were issued -one of

value of Rs.10 lakhs and another value of Rs.30 lakhs in favour of Jaroli Agro

Pvt. Ltd i.e the Respondent. The Ledger account also reflects transaction for

adjustment on commission on exports till 2nd November, 2015 and thereafter,

2 Company Appeal (AT)(Ins) No.277 of 2021 towards other expenditure of posted and courier charges till 24th November,

2017 with a balance outstanding of Rs.30,75,408.72/- at page 96 of the

Appeal Paper book. The same amount is appearing in the demand notice

dated 14.11.2019 at page 54 of the appeal paper book under section 8 of the

Code. The Consultancy services which Mr. Prajender Jaroli was operating

through the Corporate Debtor to whom the money was advanced. The

Respondent Company has also acknowledged Rs, 30,00,000/- from

01.04.2014 to 31.03.2019 as per the ledger of Corporate Debtor appearing at

page 163 of the Appeal Paper book. The Operational Creditor's book is also

reflecting as on March, 2017 Rs.30,71,903/- as advanced to be recovered in

cash or kind duly audited by 'Chartered Accountant' for the Financial Year

2016-17 (appearing at page No.176 of the Appeal Paper Book). The Appellant

has also submitted that the amount Rs. 30 Lakhs carrying the word of RTGS

/IDBI loan has been misunderstood by the Adjudicating Authority as the

'terms of loan' and 'advance' are intangible and has supplement with the

following judgments:

• In the case of Commissioner of Income Tax Assam, Tripura and

Manipur V. Panbari Tea Co. Ltd., reported at AIR 1965 SC 1891, the

Hon'ble Supreme Court of India stipulated that:-

5. "......There may be circumstances where the parties may camouflage

the real nature of the transaction by using clever phraseology. In some

cases, the so-called premium is in fact for advance rent and in others rent

is deferred price. It is not the form but the substance of the transaction

that matters. The nomenclature used may not be decisive or conclusive

3 Company Appeal (AT)(Ins) No.277 of 2021 but it helps the court, having regard to the other circumstances, to

ascertain the intention of parties..."

• In the case of Commissioner of Income Tax West Bengal -III, Vs.

Provincial Farms Pvt. Ltd., reported at 1976 SCC Online Cal 342, the

Hon'ble High Court of Calcutta had observed that:-

"14. It is also elementary that the entries in the books of account cannot

alter or affect the nature, quantity and character of any transaction and

that for the purposes of taxation the substance of the transaction in

question has to be looked at. The substance of the matter, in the instant

case before us, must be viewed in the light of the said litigation including

the decree and the said order passed therein. Further, the conveyance in

that case should also be read and understand in the context of the said

decree and the order including the facts and the circumstances of the

case as found by the Tribunal.

The Adjudicating Authority has, therefore, wrongly proceeded on the

basis that claimed amount is a 'loan' where in fact it was given as

'advance'. Advance given is an operational debt within the meaning of

the term encompassed in Section 5(21) of the Code.

5. The Appellant has contended that advance was given, no doubt, in the year

2014 but there was a continuous transaction till November, 2017. All such

debit notes passed between 29.02.2016 to 24.11.2017 are duly signed by the

'Director of the Corporate Debtor' -Mr. Prajender Jaroli. Hence, limitation is

not applicable to its case as it has filed its application before the Adjudicating

Authority on 06.12.2019 is within limitation considering the provisions of

Section 18 of the Limitation Act, 1963.

4 Company Appeal (AT)(Ins) No.277 of 2021 For clarity & brevity, Section 18 of the Limitation Act, 1963, is reproduced

below for convenience:

"Section - 18. Effect of acknowledgment in writing.-- (1) Where, before the expiration of the prescribed period for a suit of 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.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.--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; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."

6. It has also supplemented its claim by citing the case of Asset Reconstruction

company Ltd. Vs. Bishal Jaiswal, reported at 2021 SCC Online SC 321, the

Hon'ble Apex Court was of the view that:

"32. 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 5 Company Appeal (AT)(Ins) No.277 of 2021 financial statements are expressly recognised by Section 134(7).

Equally, the auditor's report may also enter caveats with regard to

acknowledgements made in the books of accounts including the

balance sheet. A perusal of the aforesaid would show that the

statement of law contained in Bengal Silk Mills (supra), that there

is a compulsion in law to prepare a balance sheet but no

compulsion to make any particular admission, is correct in law as

it would depend on the facts of each case as to whether an entry

made in a balance sheet qua any particular creditor is unequivocal

or has been entered into with caveats, which then has to be

examined on a case by case basis to establish whether an

acknowledgement of liability has, in fact, been made, thereby

extending limitation under Section 18 of the Limitation Act."

7. It has also been submitted by the Appellant that the present Corporate Debtor

is not a party to the company Petition (IB) No. 1706 /2019 filed by Mr.

Prajendra Jaroli which is his individual capacity against the Operational

creditor to recover his alleged dues which was dismissed by Adjudicating

Authority vide order dated 28.11.2019. The Corporate Debtor is also not a

party to the said MOU based on which the alleged claim has been filed by Mr.

Prajender Jaroli. Hence, there is no pre-existing dispute between the

Operational Creditor and the Corporate Debtor.

8. The Respondent has submitted that Mr. Prajender Jaroli was working as an

employee of the Appellant Company from the year 2000 to 2008 and

thereafter, worked as external consultant of the Appellant. Mr. Prajender

6 Company Appeal (AT)(Ins) No.277 of 2021 Jaroli has entered into MOU with the Appellant on 21.08.2013 and in partial

satisfaction of amounts agreed in the MOU till 24.08.2018. It has also been

stated by the Respondent that the said amount of Rs. 30 Lakhs is not towards

advance payment but towards the amount payable under the MoU. It has also

been stated by Respondent that it is a mere counter blast to the Petition No.

(IB) 1706 of 2019 filed by Mr. Prajender Jaroli. The alleged claim made by the

Operational Creditor/ Appellant ex-facie barred by limitation and the amount

advanced on 31.12.2014 to the Appellant towards commission/brokerage is

time barred as Petition has been filed in December 2019 which is more than

4 (four) years and has placed the reliance on B.K.Educational Services Pvt. Ltd

Versus Parag Gupta and Associates, (2019) 11 SCC 633 relevant paras 5, 11,

12, 19, 21, 26, 42 and 43. The Appellant has also failed to prove that its claim

falls under the definition of 'Operational debt' as Adjudicating Authority has

held that Rs. 30 lakhs were given as loan. Hence, the present appeal is

frivolous, baseless and deserves to be rejected.

9. We have carefully gone through the submissions made by the parties and

their written submissions and have following observations:

a. Schedule - III part -1 of the Companies Act, 2013 provides the format

of the Balance Sheet both for equity & liabilities and its assets. The

assets include short terms loans and advances as well as long term

loans and advances. As far as receipt of Rs.30 Lakhs by the Respondent

is concerned is not disputed by the Respondent only the dispute is there

"that the payment is a loan". Hence, application filed by the Appellant

under operational creditor category under section 9 of the Code is not

7 Company Appeal (AT)(Ins) No.277 of 2021 maintainable. Ongoing through page 163 of the Appeal paper book, the

Corporate Debtor ledger reflects for the period 1st April 2014 to 31st

March, 2019 closing balance of Rs. 30 lakhs in the books of corporate

debtor. While audited Balance Sheet of the operational creditor for the

Financial Year 2016-17 reflects and outstanding amount of

Rs.30,71,903/- under the heading "advances to be recovered in cash

or kind from the Corporate Debtor". Hence, it is very much clear that

an amount of Rs. 30 lakhs are recoverable from the Corporate Debtor

and it is also very much clear that that amount is advanced towards

commission/brokerage payable to the other party at a future date as

and when such commission becomes due. Hence, it is an amount

towards utilization of provisions of services provided by the other

parties and is covered under Section 5(21) the Code.

For clarity & brevity, Section 5(21) of the Code, is reproduced below for

convenience:

"Section 5(21)- "Operational Debt" means a claim in

respect of the provision of goods or services including

employment or a debt in respect of the payment of dues

arising under any law for the time being in force and

payable to the Central Government, any State

Government or any local authority."

This is as per the prevalent accounting practice supported by

Schedule- III Part -1 of the Companies Act, 2013 as stated above and

hence petition filed by the Appellant under Section 9 after issuing

demand notice as per section 8 of the Code is in order. 8 Company Appeal (AT)(Ins) No.277 of 2021 b. As far as pre-existing dispute is concerned, the Respondent has

objected to it only in the reply dated November, 23rd 2019 to the

demand notice dated November, 14, 2019 (appearing at page no.105 of

the Appeal Paper Book) under the Code where it has stated that it is a

counter blast to the petition filed by Mr. Prajender Jaroli, Company

Petition (IB) No. 1706 of 2019 which has been dismissed by the

Adjudicating Authority as stated above and also stated that the

acknowledged amount of Rs. 30 Lakhs is towards part satisfaction of

the amounts payable under MoU. The Corporate Debtor is not a party

in Company Petition (IB No. 1706 of 2019 and so also not a party to the

MoU. Hence, it is an unrelated issue as far as Corporate Debtor with

the Operational Creditor is concerned and in this context we refer to

'Mobilox Innovations Private Limited' V/s. 'Kirusa Software Private

Limited'

"24. The scheme under Sections 8 and 9 of the Code,

appears to be that an operational creditor, as defined, may,

on the occurrence of a default (i.e., on non-payment of a

debt, any part whereof has become due and payable and

has not been repaid), deliver a demand notice of such

unpaid operational debt or deliver the copy of an invoice

demanding payment of such amount to the corporate debtor

in the form set out in Rule 5 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules,

2016 read with Form 3 or 4, as the case may be (Section

8(1)). Within a period of 10 days of the receipt of such

demand notice or copy of invoice, the corporate debtor must 9 Company Appeal (AT)(Ins) No.277 of 2021 bring to the notice of the operational creditor the existence

of a dispute and/or the record of the pendency of a suit or

arbitration proceeding filed before the receipt of such notice

or invoice in relation to such dispute (Section 8(2)(a)). What

is important is that the existence of the dispute and/or the

suit or arbitration proceeding must be pre-existing - i.e. it

must exist before the receipt of the demand notice or invoice,

as the case may be. ........"

25. Therefore, the adjudicating authority, when

examining an application under Section 9 of the Act will

have to determine:

(i) Whether there is an "operational debt" as defined exceeding

Rs.1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the

application shows that the aforesaid debt is due and

payable and has not yet been paid? And

(iii) Whether there is existence of a dispute between the parties

or the record of the pendency of a suit or arbitration

Proceeding filed before the receipt of the demand notice of

the unpaid operational debt in relation to such dispute? If

any one of the aforesaid conditions is lacking, the

application would have to be rejected. Apart from the above,

the adjudicating authority must follow the mandate of

Section 9, as outlined above, and in particular the mandate

of Section 9(5) of the Act, and admit or reject the application,

as the case may be, depending upon the factors mentioned

in Section 9(5) of the Act."

10

Company Appeal (AT)(Ins) No.277 of 2021 In this case, it is very much clear that the dispute between the

corporate debtor has first time pointed out in the reply to the notice

without any supporting paper to reflects that there is a pre-existing

dispute. It is also clear that the amount is due and payable under

the Law as the parties have parted their ways from 2018 and has

not refunded the outstanding amount to the Appellant.

c. On the issue of that the advance was given in the year 2014 and the

case has been filed in the year 2019 normally the claim is barred by

limitation but it is not the case here as the transactions are continuing

between the parties till 2017 in one form or the other and debit or credit

notes was continuing between the operational creditor or corporate

debtor till 24th November, 2017 and the same has been accepted by the

'Director' of the corporate debtor - Mr. Prajender Jaroli. Hence, by

virtue of Section 18 of the Limitation Act, 1963, limitation gets extended

and the petition filed in the year 2019 is in order.

10. Hence, in view of above facts and circumstances of the case as stated at

para 09, we are unable to uphold the view of the Adjudicating Authority. We

feel that there are material substances in the appeal and the appeal deserves

to be allowed. Accordingly, we are setting aside the impugned order dated

15.07.2021 of the 'Adjudicating Authority' (National Company Law Tribunal),

Mumbai Bench in Company Petition (IB) No. 4605 of 2019. We are remanding

back the matter to the Adjudicating Authority to initiate CIRP against the

Corporate Debtor after allowing a period of 30 days to the parties to settle the

matter failing which to initiate CIRP against the corporate debtor. The

11 Company Appeal (AT)(Ins) No.277 of 2021 Registry is directed to forward a copy of this judgment to the Registrar NCLT,

New Delhi to place a copy of this judgment before the appropriate

Adjudicating Authority to implement the direction.

Interim order, if any, passed by this Tribunal stands vacated.

Pending Application, if any, stands disposed of. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Justice Jarat Kumar Jain] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

10th December, 2021

New Delhi

Raushan.K

12 Company Appeal (AT)(Ins) No.277 of 2021