Jkm Infrastructure Pvt. Ltd vs Cadillac Infotech Pvt. Ltd

[Arising out of Order dated 09.06.2022 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench V in C.P. (IB) No. 211 of 2022]

IN THE MATTER OF:

JKM Infrastructure Pvt. Ltd. Having Registered Office at: 310, Lal Kuan, M.B. Road, New Delhi - 110044 E-mail: rajeshsachdeva.jkm@gmail.com ...Appellant

Versus

Cadillac Infotech Pvt. Ltd. Having Registered Office at: E-4 Defence Colony, New Delhi - 110024. E-mail: anilmahindra66@gmail.co.in ...Respondent

Present:

For Appellant: Mr. Gourav Mitra, Mr. Abhinav Mukhi, Mr. Shantanu Tomar, Advocates. For Respondents: Mr. Rohit Aggarwal, Ms. Amrita Singh, Mr. Soham Kumar, Ms. Prasthana Singhania, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed against the order dated 09.06.2022

passed by the Adjudicating Authority (National Company Law Tribunal),

Cont'd.../ -2-

New Delhi, Bench V by which order the Section 7 application filed by the

Appellant has been dismissed as barred by time. Brief facts of the case

giving rise to this Appeal are:

(i) The Respondent - Corporate Debtor through its Director Mr.

D. K. Gupta entered into a Memorandum of Understanding

(MOU) dated 07.08.2013 with M/s Airwil JKM Infrastructure

Pvt. Ltd. for carrying development on the land owned by the

Corporate Debtor situated at Sector 135, Noida, Distt. Gautam

Budh Nagar.

(ii) The Infrastructure Company i.e. M/s Airwil JKM

Infrastructure Pvt. Ltd. alongwith the Financial Creditor and

the affiliate companies paid a sum of Rs.15 Crores in terms of

the MOU and an additional amount of Rs.1.75 Crores was also

paid.

(iii) Out of the above amount of Rs.16.75 Crores, the Financial

Creditor namely JKM Infrastructure Pvt. Ltd. (Appellant

herein) paid Rs.2.75 Crores. The Corporate Debtor could not

acquire/amalgamate the Plot No. 10 as required in terms of

the MOU dated 07.08.2013. The Corporate Debtor having not

acquire, the MOU was not implemented.

(iv) The Corporate Debtor again approached the Infrastructure

Company and it was decided that a new agreement shall be

executed i.e. the Property Development Agreement between the

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Corporate Debtor and the affiliate company of the

Infrastructure Company i.e. Airwil JKM Infracon Pvt. Ltd.

(v) The MOU dated 07.08.2013 was cancelled and Property

Development Agreement dated 06.09.2014 was executed

between the Corporate Debtor and Airwil JKM Infracon Pvt.

Ltd. (hereinafter referred to as 'Infracon Company'). The

amount received under the MOU was not adjusted in the

Property Development Agreement except the amount of Rs.1

Crore.

(vi) The Property Development Agreement was also subsequently

cancelled by the Corporate Debtor alleging that the Infracon

Company did not pay the balance amount of Rs.14 Crores

within 45 days.

(vii) The Corporate Debtor initiated an Arbitration Proceeding

against the Infracon Company in the Delhi High Court where

an arbitration award was delivered dated 16.10.2018 which

award was modified in proceedings under Section 34 of the

Arbitration and Conciliation Act, 1996 by the Delhi High

Court. In the pleadings filed in the Arbitration Proceeding the

receipt of the amount in pursuance of MOU dated 07.08.2013

was not denied by the Corporate Debtor.

(viii) The Financial Creditor (Appellant herein) filed an application

under Section 7 against the Corporate Debtor claiming an

amount of Rs.2,70,00,000/- plus Rs.3,03,75,000/- towards

Company Appeal (AT) (Insolvency) No. 990 of 2022 -4-

interest totaling to Rs.5,73,75,000/-. The application was filed

by the Financial Creditor in April, 2022. The Adjudicating

Authority heard the Appellant and by order dated 09.06.2022

dismissed the application as barred by time. Appellant

aggrieved by the order of the Adjudicating Authority filed this

Appeal.

2. This Tribunal issued notice to the Respondent by its order dated

23.08.2022 noticing the following:

"O R D E R

23.08.2022: Learned Counsel for the Appellant submits that the Adjudicating Authority has committed error in rejecting the Application on the ground that it is barred by time. It is submitted that debt is not barred by time and there were ample materials on record to indicate that it was not barred by time. Submissions need scrutiny.

2. Issue notice to the Respondent through Speed Post as well as Email. Requisites along with process fee, if not filed, be filed within two days. Reply Affidavit may be filed within three weeks. Rejoinder, if any, may be filed within two weeks, thereafter.

List this Appeal on 12th October, 2022."

Company Appeal (AT) (Insolvency) No. 990 of 2022 -5-

3. In pursuance of the notice issued by this Tribunal the Corporate

Debtor filed a reply on 10.11.2022 to which rejoinder affidavit has also been

filed on behalf of the Appellant.

4. We have heard learned counsel for the parties.

5. Learned counsel for the Appellant challenging the judgment of the

Adjudicating Authority submits that the application filed by the Appellant

was not barred by time. The amount paid by the Financial Creditor was

duly reflected in the Balance Sheets of the Corporate Debtor from Financial

Year 2013-14 till Financial Year 2020-21. After acknowledgement of debt

by the Corporate Debtor in his Balance Sheets, the Section 7 application

could not have been rejected as barred by time. It is submitted that all

relevant facts regarding limitation of Section 7 application was pleaded in

the Section 7 application which has not been adverted to by the

Adjudicating Authority. The Adjudicating Authority did not apply its mind

to the materials brought on record alongwith the Section 7 application and

has casually rejected the application. It is submitted that the in Arbitration

Proceeding initiated by the Corporate Debtor against the Infracon

Company, with whom it entered into the Property Development Agreement,

there was admission by the Corporate Debtor of receipt of the amount in

pursuance of MOU dated 07.08.2013. In the reply filed in this Tribunal by

the Corporate Debtor it is admitted that amount claimed by the Appellant

is very well reflected in the Balance Sheets, however, the Corporate Debtor

pleads that the amount claimed by the Appellant has been reflected only

Company Appeal (AT) (Insolvency) No. 990 of 2022 -6-

for complying with accounting standards and requirements. The Corporate

Debtor has also admitted the debt in the pleadings filed during course of

the Arbitration Proceedings taken before the Delhi High Court which

admission is also another incidence of acknowledgement of debt extending

the limitation for filing Section 7 application. Detailed pleadings have been

made in the Section 7 application and it was incumbent upon the

Adjudicating Authority to advert to the relevant pleadings. Learned counsel

for the Appellant further submits that constituent of the financial debt were

fully proved as per Clause 16 of the MOU in the event the Corporate Debtor

is unable to acquire or amalgamate the fifth plot, the MOU was to cease to

exist and the payment received was required to be refunded.

6. Learned counsel for the Respondent refuting the submissions of

learned counsel for the Appellant submits that the Section 7 application

was filed beyond three years from the date of default. As per the Appellant

itself the amount fell due in or about August, 2014, whereas the application

was filed on 10.04.2022. The books of accounts of the Corporate Debtor

do not contain any unequivocal/ unqualified acknowledgement of debt

which can be relied upon for extending limitation under Section 18. It is

submitted that benefit of Section 14 of the Limitation Act is not available

as claimed in the application on the basis of Arbitration Proceedings. The

Claim of the Appellant does not constitute financial debt.

7. We have considered the submissions of learned counsel for the

parties and perused the record.

Company Appeal (AT) (Insolvency) No. 990 of 2022 -7-

8. The Order impugned was passed by the Adjudicating Authority after

reserving the order on the point of issuance of notice. No notice was issued

by the Adjudicating Authority and on the point of issuance of notice itself

the application came to be rejected. In entire order of the Adjudicating

Authority there are only two paragraphs in which the question of limitation

has been considered, they are paras 5 and 6, which are to the following

effect:

"5. Now we consider, whether the application is within time or not? On perusal of the Annexure A- 5, we observe, as per the averments made in Annexure A-5 debt fell due in or about August, 2014, when the MoU dated 7th August, 2013 in question had been cancelled, whereas the present application is filed on 10th April, 2022 much after the 3 years from the date of default as referred to in Annexure A-5.

6. At this juncture, we would also like to refer to part-IV of the application and it is seen that in part-IV column-1, the last date for disbursal of the amount is 27th February, 2014 and the last date for refund of the amount is 28th October, 2013 and it is also mentioned that the amount in default is as per annexure A-5, which we have already referred to above."

9. One of the ground taken in the appeal by the Appellant is that at the

time of reserving order on issuance of notice only submissions heard by

the Adjudicating Authority was as to nature of debt, whether the debt is a

Company Appeal (AT) (Insolvency) No. 990 of 2022 -8-

financial debt or not and no arguments were advanced on the question of

limitation nor any query was raised.

10. Be that as it may, the Adjudicating Authority while considering the

application under Section 7 is fully entitled to consider the question of

limitation of the application even if no plea is raised in the said regard. We,

thus, need to consider the submissions of the Appellant on merits

regarding challenge to the order of Adjudicating Authority dismissing

application as barred by time.

11. The principal submission of learned counsel for the Appellant is that

Section 7 application in details have given all facts pertaining to the

limitation and had the Adjudicating Authority adverted to those facts it

would have been satisfied that application is not barred by limitation. To

consider the above submission, we need to look into the pleadings made in

Section 7 application made by the Appellant pertaining to the limitation.

In Part IV of the application there is separate headings of limitation in Para

47 of the application. We need to extract the entire para 47, which is to

the following effect:

"47. LIMITATION

I. The FC submit that the period of limitation with respect to the said debt is governed by Article 113 of the Schedule under the Limitation Act, 1963.

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II. That the limitation in terms of Article 113 began to run in August, 2014 when the MOU was cancelled. Thereafter, during the subsistence of the said period of limitation which began in August, 2014, the CD executed an acknowledgment letter dated 09.10.2014, in terms of Section 18 of the Limitation Act, 1963 on its letter head not only specifically acknowledging the factum of deposition of Rs.15 Crs. in terms of the MOU but also acknowledged and agreed to the fact that the said amount of Rs.15 Crs. shall be refunded and/ or adjusted/ considered on account of Infracon Co. as per/ under the PDA. Thereafter, the reply - cum - counter claim (filed by the Infracon Co. in the arbitral proceedings) specifically admitted of having received the said amount from the FC and its affiliates companies under the MOU and thereafter during the said arbitral proceedings only, more particularly in or about 21.11.2017 placed on record balance sheets and / or statement of accounts for the relevant period reflecting the receipt of the amount under the MOU. Thereafter, even during the course of final arguments the CD vide its written submissions dated 01.10.2018 again categorically admitted of having received the said amount under the MOU on account of Infrastructure Co. Thus, since the beginning of August, 2014 when the MOU in

Company Appeal (AT) (Insolvency) No. 990 of 2022 -10-

question had been cancelled and on various dates, as detailed aforesaid, when the amount received under the MOU had been acknowledged and /or admitted, a fresh period of limitation began thereby giving arise to a fresh cause of action in favour of the FC for maintaining the present application. This application, is therefore, within the prescribed period of limitation.

III. Alternatively, it is also submitted that the present application is also within the period of limitation in as much as CD in the present case has shown the amount paid by the FC under the MOU dated 07.08.2013 from year 2013-2014 onwards till date in its book of accounts, profit and loss account, balance sheets and director's reports, which are being annexed alongwith the list of documents of the present application. The FC submit that the liabilities of the CD shown therein substantially includes the amount paid by the FC and its associate/ affiliate companies. The FC submits that the entries in the said books of account, profit and loss account, balance sheet and directors report regarding the payment by the FC under the MOU dated 07.08.2013 to the CD constitute an acknowledgement of liability from year to year under Section 18 of the Limitation Act, 1963. Hence, the

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present application is therefore also within the period of limitation.

IV. Alternatively, the period of limitation for filing the present application also arose when the Ld. Arbitrator passed the impugned award dated 16.10.2018 and declined to adjust the amount of Rs.15.75 Cr. Paid on account of the Infrastructure Co. under the MOU with understanding since they have not refunded the amount of Rs.15.75 Cr., the same shall be adjusted under PDA and thereby declined to grant relief and thereafter again on 29.11.2021 when the Ld. Single Judge while partially modifying the award, failed to interfere in the award dated 16.10.2018. Thus, while resorting to the express provision of Section 14 Limitation Act, 1963 which expressly excludes the period of limitation spent while pursuing bonafide before the court lacking competent jurisdiction to adjudicate upon the same. In view of it, it is submitted that the when the defence of Infracon Co. pertaining to commonality of the interrelated transaction between the Infrastructure Co., CD, Infracon Co., though having been claimed and /or agitated through Infracon Co., was rejected by the Ld. Sole Arbitrator and the Ld. Single Judge it gave rise to the cause of action in favour of the FC to maintain the present application. Thus, in

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view thereof and by resort to express provision of Section 14 of the Limitation Act, 1963 the period of spent from the date of invocation of arbitration till the passing and/ or partial modification of the adjusted under PDA and thereby declined to grant relief and thereafter again on 29.11.2021 when the Ld. Single Judge while partially modifying the award, failed to interfere in the award dated 16.10.2018. Thus, while resorting to the express provision of Section 14 of Limitation Act, 1963 which expressly excludes the period of limitation spent while pursuing bonfide before the court lacking competent jurisdiction to adjudicate upon the same. In view of it, it is submitted that the when the defence of Infracon Co. pertaining to commonality of the interrelated transaction between the Infrastructure Co., CD, Infracon Co., though having been claimed and / or agitated through Infracon Co., was rejected by the Ld. Sole Arbitrator and the Ld. Single Judge it gave rise to the cause of action in favour of the FC to maintain the present application. Thus, in view thereof and by resort to express provision of Section 14 of the Limitation Act, 1963 the period of spent from the date of invocation of arbitration till the passing and/ or partial modification of the award by the Ld. Single Judge vide his judgment dated 29.11.2021, is liable to be excluded

Company Appeal (AT) (Insolvency) No. 990 of 2022 -13-

from the computation of the period of limitation for the present. Thus, in view thereof also the present application is well within the period of limitation for all the above reasons, the present application is well within the period of limitation as having been prescribed."

12. We may further notice that even in the synopsis which was given by

the Appellant under Section 7 application following has been specifically

stated:

"In fact, the perusal of the Balance Sheets from the year 2012 onwards to this date will reveal that the amount in the account of the CD majorly/ substantially consist of the money paid/ deposited by the Infrastructure Co. along with FC and its associate/ affiliate companies, and the same is being reflected in the Balance Sheets regularly since the year 2013 till date."

13. From the above, it is clear that there was specific pleading with

regard to application being within limitation and the Adjudicating Authority

has proceed to reject the application without even adverting to the

pleadings made by the Appellant in the Section 7 application regarding the

limitation. It is well settled law that the provision of Section 18 of the

Limitation Act are fully applicable in proceedings under I&B Code. We may

refer to the judgment of Hon'ble Supreme Court in "(2022) SCC OnLine

SC 632, State Bank of India vs. Krishidhan Seeds Pvt. Ltd."

Company Appeal (AT) (Insolvency) No. 990 of 2022 -14-

"13. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that:

(i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and

(ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default."

14. The date of default as given in the Part IV of the application is August,

2014 when MOU dated 07.08.2013 was claimed to have been cancelled.

Parties having elaborately made submission with regard to the balance

sheets and as to whether the balance sheets contains an acknowledgment

which can be treated to be acknowledgment under Section 18 of the

Limitation Act, we need to look into the balance sheets. It is also relevant

to notice that relevant balance sheets were filed by the Appellant before the

Adjudicating Authority which are brought on record in Vol. IV of the Appeal.

We need to thus notice the balance sheets and entries therein. The first

balance sheet which needs to be noticed is the balance sheet of FY 2013-

14. Under 'Note No.5 Trade payables', the amount received from different

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entities including the Appellant has been duly reflected. We may extract

'Note No. 5 Trade payables', which is to the following effect:

"Note No. 5 Trade payables

(in rupees) Particulars As at 31st March As at 31st 2014 March 2013 Hotel ParkInd cc 30/31 2,00,000.00 Airwill Business Park Pvt. Ltd. 55,00,000.00 Airwill JKM Infrastructure Pvt. Ltd. 12,50,00,000.00 D. K. Gupta and Madhu Gupta 2,00,000.00 JBK Developers Pvt. Ltd. 1,00,00,000.00 JKM Infrastructure Pvt. Ltd. Realty 30,00,000.00 JKM Infrastructure Pvt. Ltd. 90,00,000.00 MAINA SUNDARI JAIN 50,00,000.00 50,00,000.00 Pradeep K. Kapoor and Co. 16,500.00 16,500.00 Southend Infrastructure Pvt. Ltd. 19,00,000.00 Sunani Gupta 25,00,00,000.00 Total 41,46,16,500.00 52,16,500.00

15. Appellant's case is that amounts were paid by RTGS to the Corporate

Debtor as has been pleaded in the Section 7 application. There is clear

entry of the Appellant's name in the balance sheet of FY 2013-14. Now, we

come to the next balance sheet of FY 2014-15. Under the heading 'Other

current liabilities' under the caption 'Advance for which value to be given'

as on 31.03.2014 an amount of Rs.16,46,00,000/- was mentioned, which

amount was shown as on 31.03.2015 as Rs.20,60,58,631/-. When we look

into the balance sheet of 2013-14 if we exclude amount of Rs.25 crore

referred as payable to one Sunani Gupta the figure come to

Rs.16,46,00,000/- clearly indicate that said figure is the same figure which

included the trade payable in the balance sheet of 2013-14 which included

the amounts received from the Financial Creditor. In the Balance Sheet of

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the year 2015-16 under the heading 'Other current liabilities' under the

caption 'Advance for which value to be given' reflected the figures

Rs.20,64,20,631/- as on 31.03.2015. As on 31.03.2016, the amount is

Rs.24,49,56,560/-. It is useful to extract the Item 6 of balance sheet FY-

2015-16, as follows:

6. OTHER CURRENT LIABILITIES Advance for which value to be given 2449,56,560 2060,58,631 Statutory dues payables 72,000 72,000 Expenses payables 1,42,500 2,90,000 2451,71,060 2064,20,631

16. We may also notice Note 19 as in balance sheet of 2014-15 which is

to the following effect:

"19. The balances grouped under Other current liabilities, i.e., Advance for which value to be given and Short term loans and advances in the Balance Sheet, except time barred and forfeited, are subject to confirmation and reconciliation from the respective parties. The Company is taking legal advise for initiating legal action against certain parties for refund of advance extended by the Company."

17. Similar note has been again appended in the balance sheet of FY

2015-16 as Note 19. When we look into the balance sheet of 2016-17 under

the heading 'Other current liabilities' a figure of Rs.2451,71,060/- is shown

which was reflected in the balance sheet of 2015-16 as 'Other current

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liabilities' - 'advance for which value to be given' has been continued.

Balance sheet of 2017-18 under the heading 'Other current liabilities' the

figure is carried on which is again reflected in the balance sheet of 2018-

19. The same amount which was shown in the balance sheet of 2013-14

with breakup of different entities including the Appellant has been carried

under one or other heading. In the above context, we may notice reply of

the Respondent. In Para 5 of the Reply following has been stated:

"It is pertinent to mention herein that the amount claimed by the Appellant is only reflected in the books of accounts of the Respondent company to comply with the mandatory requirements of Accounting Standards as per which all the material transactions (including pending litigations) which might affect the decision of the stakeholders have to be disclosed in the financial statements in accordance with the fair presentation of Financial Reporting Framework ('FRF'), which does not amount to admission of liability."

18. The submission which has been pressed before us is that the entry

should be read alongwith the notes contained in the balance sheet. The

submission made by the Respondent that the amount has been reflected

to comply with the mandatory requirements of Accounting Standards, does

not take away the evidentiary value of the entries in the balance sheets.

The balance sheet reflect the said amount as other current liabilities -

advance for which value to be returned. Note 19 of balance sheet of 2015-

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16, as extracted above, which is carried out in subsequent year also, only

mentions that they are subject to confirmation and reconciliation from the

respective parties. The said caveat does not take away the

acknowledgment. We, thus, are satisfied that acknowledgement of debt

was very much there in the balance sheet which balance sheets were

referred to and relied by the Appellant in Section 7 application but were

not adverted to by the Adjudicating Authority while rejecting application

under Section 7. We, thus, are satisfied that rejection of Section 7

application by the Adjudicating Authority is unsustainable.

19. Learned counsel for the Respondent has also relied on the judgment

of Hon'ble Supreme Court in "Asset Reconstruction Company (India)

Ltd. vs. Bishal Jaiswal and Anr., (2021) 6 SCC 366", where the Hon'ble

Supreme Court has laid down that entries in the balance sheet can be

looked into for purposes of noticing acknowledgement within the meaning

of Section 18. The Hon'ble Supreme Court has held:

"....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 to case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."

20. There can be no quarrel to the preposition of law laid down by the

Hon'ble Supreme Court in the aforesaid judgment. In the present case,

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when entries in the balance sheet starting from 2013-14 specifically

mentions the details of amount received from different entities including

the Appellant which amounts were carried on in the subsequent balance

sheets clearly indicate acknowledgement.

21. Learned counsel for the Appellant has also referred to various

admissions in the Arbitration Proceeding taken by the Corporate Debtor

before the Delhi High Court which according to the Appellant also contains

acknowledgement within the meaning of Section 18 of the Limitation Act.

In view of what has been said above with respect to entries and balance

sheets, it is not necessary to enter into the aspect of acknowledgment in

the Arbitral Proceeding. We, thus, are satisfied that the Adjudicating

Authority committed error in rejecting Section 7 application as barred by

time whereas there was sufficient material to indicate that the application

is not barred by time, as indicated above. The Adjudicating Authority did

not refer to the pleadings in the Section 7 application pertaining to

limitation, as noted above, which cannot be approved

22. Learned counsels for the parties have also raised submissions as to

whether the debt claimed by the Financial Creditor is a financial debt or

not, but the Adjudicating Authority having not entered into this issue, we

are of the view that ends of justice be served in setting aside the order of

the Adjudicating Authority and reviving the matter before the Adjudicating

Authority for fresh consideration of Section 7 application.

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23. We make it clear that we having found the application under Section

7 filed by the Appellant within time, the parties shall not be permitted to

raise any issue pertaining to limitation when Section 7 application is heard.

It shall be open for the parties to raise their submissions on other aspects

of the case. We having revived the application under Section 7 before the

Adjudicating Authority, we also grant three weeks' time to the Corporate

Debtor to file reply to Section 7 application before the Adjudicating

Authority to obviate any further delay in hearing of Section 7 application.

The Adjudicating Authority may proceed to hear and decide the Section 7

application at an early date preferably within six months from the date

when copy of this order is produced. The Appeal is allowed to the above

extent.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

[Barun Mitra] Member (Technical)

NEW DELHI

5th January, 2023

Archana

Company Appeal (AT) (Insolvency) No. 990 of 2022