K.P. Jayaram And Anr vs Radha Exports (India) Pvt. Ltd

Mr. K.P. Jayaram and Anr. ...Appellants

Vs.

M/s. Radha Exports (India) Pvt. Ltd. ...Respondent

Present: For Appellants: - Mr. M.K.S. Menon, Advocate.

For Respondent: - Mr. Arijit Mazumdar and Mr. Shambo Nandy, Advocates.

O R D E R

02.09.2019─ Mr. K.P. Jayaram and Mrs. Shoba Jayaram filed

application under Section 7 of the Insolvency and Bankruptcy Code, 2016

("I&B Code" for short) against 'M/s. Radha Exports (India) Private

Limited'- ('Corporate Debtor'). The Adjudicating Authority (National

Company Law Tribunal), Division Bench, Chennai, by impugned order

dated 19th December, 2018 rejected the application on the ground that it

is barred by limitation and no financial debt is in existence.

2. Learned counsel appearing on behalf of the Appellants while

referring to the records has taken plea that the Appellants are the

'Financial Creditors' and debt is not barred by limitation.

3. Reliance has been placed on 'Correlation Statement' made by the

Respondent- ('Corporate Debtor'), which are as follows: 2

"CORRELATION STATEMENT

I. Statement of payments made by Radha Exports (Proprietary Concern) to the Appellants - (Sl. Nos. 1 to 5 of Annexure R/4 at Page-11 of the Additional Counter Statement dated 13.06.2019.

Sl. No. Date Issuer Bank Ch. No./D Name Amount(Rs.) Entry in Bank Correlati D No. Account on Page No. in Addition al Reply Stateme nt dated 14.08.20 19 1. 01.10.2003 Canara Bank A/c. 586096 Chennai 5,305,000/- YS PO on 11 No. 1801 on Customs-DD Chennai behalf of 1st Appellants Customs Under Invoice Case 2. 12.12.2003 American 696401 K.P. Jayaram 1,660,000/- Normal Inward 12 Express Bank Clearing A/C. No. 510260271 3. 15.03.2004 Canara Bank 795921 DD favour 1,75,000/- DD 15 A/c. No. 1801 [DD. No. Kulasekara Kulasekaran 165394] n request of 1st Appellant 4. 14.02.2004 American 696420 K.P. 2,00,000/- Normal 13 Express Bank Jayaram Inward A/c. No. Clearing 510260271 5. 18.03.2004 American 696468 K.P. Jayaram 7,00,000/- Normal Inward 16 Express Bank Clearing A/c. No. 510260271 Total-A 80,40,000

4. However, we are not inclined to accept such submission as made

on behalf of the 'Corporate Debtor' that the total amount has been paid

because of the two reasons:

(i) The Correlation Statement shows certain amounts paid in favour

of the Customs, Chennai amounting to Rs.53,05,000/- and in

favour of one Mr. Kulasekaran amounting to Rs. 1,75,000/-. The

Company Appeal (AT) (Insolvency) No. 224 of 2019 3

payments were for 'Financial Creditors' is disputed by counsel for

them. It has not been co-related as to why amount has been paid

to Mr. Kulasekaran.

(ii) If the argument is accepted that total amount has been paid

then there was no occasion for the Respondent to take plea before

the Adjudicating Authority that the amount was not payable in law,

it being barred by limitation.

5. In the case of "Innoventive Industries Ltd. v. ICICI Bank and

Anr.─ (2018) 1 SCC 407", the Hon'ble Supreme Court while dealing with

the provisions of Section 7 observed and held as follows:

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a

debt becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as meaning non-

payment of a debt once it becomes due and

payable, which includes non-payment of even

part thereof or an instalment amount. For the

meaning of "debt", we have to go to Section 3(11),

which in turn tells us that a debt means a liability

of obligation in respect of a "claim" and for the

meaning of "claim", we have to go back to Section

Company Appeal (AT) (Insolvency) No. 224 of 2019 4

3(6) which defines "claim" to mean a right to

payment even if it is disputed. The Code gets

triggered the moment default is of rupees one lakh

or more (Section 4). The corporate insolvency

resolution process may be triggered by the

corporate debtor itself or a financial creditor or

operational creditor. A distinction is made by the

Code between debts owed to financial creditors

and operational creditors. A financial creditor has

been defined under Section 5(7) as a person to

whom a financial debt is owed and a financial

debt is defined in Section 5(8) to mean a debt

which is disbursed against consideration for the

time value of money. As opposed to this, an

operational creditor means a person to whom an

operational debt is owed and an operational debt

under Section 5(21) means a claim in respect of

provision of goods or services.

28. When it comes to a financial creditor

triggering the process, Section 7 becomes

relevant. Under the explanation to Section 7(1), a

default is in respect of a financial debt owed to

any financial creditor of the corporate debtor- it

Company Appeal (AT) (Insolvency) No. 224 of 2019 5

need not be a debt owed to the applicant financial

creditor. Under Section 7(2), an application is to be

made under sub-section (1) in such form and

manner as is prescribed, which takes us to the

Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Under Rule

4, the application is made by a financial creditor

in Form 1 accompanied by documents and

records required therein. Form 1 is a detailed form

in 5 parts, which requires particulars of the

applicant in Part I, particulars of the corporate

debtor in Part II, particulars of the proposed

interim resolution professional in part III,

particulars of the financial debt in part IV and

documents, records and evidence of default in

part V. Under Rule 4(3), the applicant is to

dispatch a copy of the application filed with the

adjudicating authority by registered post or speed

post to the registered office of the corporate

debtor. The speed, within which the adjudicating

authority is to ascertain the existence of a default

from the records of the information utility or on the

basis of evidence furnished by the financial

creditor, is important. This it must do within 14

Company Appeal (AT) (Insolvency) No. 224 of 2019 6

days of the receipt of the application. It is at the

stage of Section 7(5), where the adjudicating

authority is to be satisfied that a default has

occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the

sense that the "debt", which may also include a

disputed claim, is not due. A debt may not be due

if it is not payable in law or in fact. The moment

the adjudicating authority is satisfied that a

default has occurred, the application must be

admitted unless it is incomplete, in which case it

may give notice to the applicant to rectify the

defect within 7 days of receipt of a notice from the

adjudicating authority. Under sub-section (7), the

adjudicating authority shall then communicate

the order passed to the financial creditor and

corporate debtor within 7 days of admission or

rejection of such application, as the case may be."

6. If there is a debt and default, normally the Adjudicating Authority

is bound to admit the application provided the 'Corporate Debtor' with

evidence takes plea that it is not payable in law or in fact.

7. The next question arises for consideration is whether the amount

payable to the Appellant is barred by limitation and, if that be so, it is

Company Appeal (AT) (Insolvency) No. 224 of 2019 7

always open to the 'Corporate Debtor' to suggest that the amount is not

payable in law.

8. From the records, it appears that the matter relating to the Income

Tax pending with the Office of the Assistant Commissioner of the Income

Tax, Chennai, whereby letter dated 26th June, 2012, the Assistant

Commissioner of Income Tax referred to the Balance Sheet of 'M/s. Radha

Exports (India) Private Limited' showing therein the name of Smt. Shobha

Jayaram (2nd Appellant) and stated that on verification it found that a

sum of Rs. 90,00,000/- for loan advanced by Smt. Shobha Jayaram to

the proprietary concern 'M/s. Radha Exports' transferred as Share

Application Money after the incorporation of 'M/s. Radha Exports (India)

Private Limited.'.

9. After the Remand Report by the Assistant Commissioner of Income

Tax dated 26th June, 2012, on 10th October, 2012, the 'Radha Exports

(India) Private Limited' written to the Commissioner of Income Tax

seeking for rectification of mistake apparent from record.

10. The Appellants- Mr. K.P. Jayaram and Mrs. Shoba Jayaram issued

Legal Notice on 19th November, 2012 for proceedings against the

'Corporate Debtor' under Sections 433 and 434 of the Companies Act,

1956 and finally filed Company Petition No. 335 of 2013 against the

'Corporate Debtor' on 15th February, 2013 for winding up. The said

winding up petition was transferred by the Hon'ble High Court of Madras

to the National Company Law Tribunal, Chennai in terms of Section 434

Company Appeal (AT) (Insolvency) No. 224 of 2019 8

of the Companies Act, 2013 and the said petition for winding up was

dismissed as Section 433 of the Companies Act, 2013 was deleted on 4th

October, 2017 with liberty to the Appellants to file afresh, if so advised.

11. It was in this background, Demand Notice was issued by the

Appellants to the 'Corporate Debtor' on 7th December, 2017 under the

'I&B Code' to which the 'Corporate Debtor' replied on 14th December,

2017. The matter was again moved before the Adjudicating Authority

which by impugned order dated 12th April, 2018 passed in

CP/77/IB/CB/2018 allowed to withdraw the application with liberty to

the Appellants to file afresh application. It is only thereafter application

under Section 7 was filed in Form 1 on 25th April, 2018.

12. From the aforesaid facts, it is clear that the claim of the Appellants

is not barred by limitation as at appropriate stage, the Appellants moved

application under Section 433 (e) of the Companies Act, 2013 for winding

up of the Company. In view of the amendments made, 'I&B Code' was

given effect and Section 433 having been deleted from the Companies Act,

2013, the Appellants had no other option but to move an application

under the provisions of the 'I&B Code'.

13. The next question for consideration is whether the Appellants can

claim to be the 'Financial Creditors'. Admittedly, the amount as shown

by the Assistant Commissioner of Income Tax amounting to Rs.

90,00,000/- shows that the amount is disbursed by the 2nd Appellant-

Smt. Shoba Jayaram for consideration of time value of money and it is

Company Appeal (AT) (Insolvency) No. 224 of 2019 9

subsequently converted as Share Application Money of the 'Corporate

Debtor'. However, no share was issued by the 'Corporate Debtor' in spite

of the Demand Notice.

14. In that view of the matter, the Appellants not being the 'Operational

Creditors', there was no occasion for them to issue Demand Notice under

Section 8(1) and for the said reason, if the Adjudicating Authority allowed

them to withdraw the application under Section 9 of the 'I&B Code' to

enable the Appellants to file application under Section 7, we hold that

subsequent application was maintainable, as we find that financial debt

is payable to the Appellants, particularly the 2nd Appellant as there is a

default and the 'Corporate Debtor' has failed to make out a case that it is

barred by limitation and is not payable in law, we hold that this was a fit

case for Adjudicating Authority to admit the application under Section 7

and initiate 'Corporate Insolvency Resolution Process' against 'M/s.

Radha Exports (India) Private Limited'.

15. The Adjudicating Authority having failed to notice the aforesaid fact

while wrongly erred that the Appellants are not 'Financial Creditors', we

set aside the impugned order dated 19th December, 2018 and remit the

case to the Adjudicating Authority, Chennai with direction to admit the

application after notice to the 'Corporate Debtor' so as to enable the

'Corporate Debtor' to settle the claim prior to the admission of application

under Section 7 of the 'I&B Code'.

Company Appeal (AT) (Insolvency) No. 224 of 2019 10

The appeal is allowed with aforesaid observations and direction. No

costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical) Ar/g

Company Appeal (AT) (Insolvency) No. 224 of 2019