Kingston Paptech Pvt. Ltd vs Krishna Paper Trading Co

Krishna Paper Trading Co. .... Respondent No. 1 4 & 5, Nathalal Estate, Opposite Shakti Estate, B/h. Gita Process, Narol - Isanpur Highway, Ahmedabad - 282 443.

Mr. Vinod Tarachand Agarwal .... Respondent No. 2 (Resolution Professional) 204, Wall Street 1, Near Gujarat College, Ellis Bridge, Ahmedabad - 380 006.

Present

For Appellant: Ms. Manisha T. Karia, Ms. Sukhda Kalra, Mr. Adarsh Kumar and Ms. Nidhi Nagpal, Advocates.

For Respondents:Mr. Atul Sharma, Advocate (R-1)

Mr. Monaal Davawala, Advocate (for RP-R-2)

Company Appeal (at) (Ins) No. 410 of 2021

Page 1 of 12 JUDGMENT

(DATE: 06.01.2022) (Virtual Mode)

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

1. This appeal has been filed under section 61 of the

Insolvency & Bankruptcy Code, 2016 (hereinafter called "IBC") by

the Appellant, who is aggrieved by the order dated 15.3.2021

passed under section 31 of IBC in CP(IB) No.

543/7/NCLT/AHM/2018 by the Adjudicating Authority (National

Company Law Tribunal, Ahmedabad Bench).

2. The Appellant, ex-Director of the Corporate Debtor Kingston

Paptech Pvt. Ltd., was arrayed as the Appellant vide order dated

22.7.2021 of this Tribunal in place of the Corporate Debtor

company along with the Resolution Professional, who represents

the Corporate Debtor, as Respondent No. 2 in the appeal.

3. The Appellant has claimed that section 7 application was

filed by Respondent No. 1 claiming to be Financial Creditor on

alleged financial loan totaling Rs. 52.50 lakhs. This misconceived

Company Appeal (at) (Ins) No. 410 of 2021

Page 2 of 12 application, the Appellant has claimed, was filed by the Financial

Creditor to recover the said amount and no loan of this amount

was taken by the Corporate Debtor. The Appellant Kamlesh

Dineshbhai Patel, an ex-Director of the Corporate Debtor has

claimed that the Impugned Order passed by the Adjudicating

Authority is under the misconceived impression that the money

owed by the Corporate Debtor to the purported Financial Creditor

is due to a loan disbursed in two transactions in the year 2015

viz. Rs. 50 lakhs on 14.7.2015 and Rs. 2.50 lakhs on 20.6. 2015,

both transferred to the Corporate Debtor through RTGS.

4. The Appellant has stated in the appeal and argued that the

Corporate Debtor is a private limited company incorporated in the

year 2008, which is engaged in the business of manufacturing of

paper and paper products, and that the Respondent No. 1 is a

dealer of the Corporate Debtor Company. The amount totaling

Rs. 52.50 lakhs transferred by the Respondent No. 1 to the

Corporate Debtor is in the course of business dealings.

5. The Appellant has further stated that Respondent No. 1

filed section 7 application before NCLT, Ahmedabad alleging that Company Appeal (at) (Ins) No. 410 of 2021

Page 3 of 12 the Corporate Debtor had defaulted in payment of loan and a

total debt of Rs.37,10,972.00(Rupees Thirty Seven Lakh Ten

Thousand Nine Hundred and Seventy Two only) is due and

payable to Respondent No. 1 without giving any proof of the

alleged debt or without establishing default or date of default of

the alleged financial debt as envisaged under the IBC, but solely

on the basis of unaudited ledger account. He has further stated

that the Adjudicating Authority was unable to ascertain the

existence of default from the information submitted in section 7

application, and hence the Adjudicating Authority passed order

on 12.2.2020 seeking certain clarifications under section 7(5) of

the IBC from to the Respondent No. 1 (the clarification is attached

at pp.103-111 of the Appeal paperbook). Thus the Impugned

Order has been passed by the Adjudicating Authority on the basis

of a vague clarificatory reply provided by Respondent No. 1,

without even ascertaining whether the said amount was financial

debt in default as per the definition of „financial debt‟ under IBC.

6. Oral arguments of the Learned Counsels for the Appellant

and Respondent No. 1 were heard by us and the pleadings filed in

the appeal were duly perused.

Company Appeal (at) (Ins) No. 410 of 2021

Page 4 of 12

7. The Learned Counsel for the Appellant has argued that

Respondent No.1 does not fall in the category of Financial

Creditor on the allegation that the Corporate Debtor took a loan

from Respondent No. 1 of an amount of Rs. 52.50 lakhs. She has

argued that there is no written or oral agreement regarding the

loan between the Corporate Debtor and Respondent No. 1 without

any acknowledgment or communication given by the Corporate

Debtor regarding the alleged loan. Furthermore, no notice or

demand letter was sent by Respondent No. 1 for repayment of the

loan to the Corporate Debtor before initiation of IBC proceedings.

She has pointed out that in Part IV of the section 7 application

filed by Respondent No. 1 there is no mention of the date on

which the default is purported to have occurred, and later in the

clarificatory reply given by the Respondent No.1 in response to

order dated 12.2.2021 of the Adjudicating Authority, no evidence

regarding the debt and the date on which the debt became due

and payable has been provided. She has argued that the ledger

amount and bank statement records do not show accrual of any

interest which was supposed to be paid by the Corporate Debtor,

which could show that a loan on certain rate of interest was

advanced by Respondent No. 1. She has thus clarified that the Company Appeal (at) (Ins) No. 410 of 2021

Page 5 of 12 amount of Rs. 52.50 lakhs which Respondent No. 1 claims as

loan amount was actually paid by Respondent No. 1 to the

Corporate Debtor as part of normal business dealing and

repayment of Rs. 22.50 lakhs was made vide cheque no. 693350

dated 31.8.2017 drawn on State Bank of India, which was

returned unpaid by the bank. The Learned Counsel of Appellant

has claimed that since the original amount was paid to the

Corporate Debtor as part of business dealing and not as a loan,

the Respondent No. 1 should have taken recourse to proceedings

under any other law than IBC.

8. The Learned Counsel for Appellant has pointed out that in

his reply affidavit filed on 16.11.2021 Respondent No. 1 has filed

letter dated 20.7.2015 (attached at page 32 of reply affidavit filed

by Respondent No. 1 vide Dy. No. 31470 dated 23.11.2021) as

proof of loan wherein the date of the letter is mentioned as

20.7.2015, whereas the date given below the signature of signee

is 10.10.2015. Such a discrepancy shows that the letter is

fabricated and produced just to show the existence of a debt and

the liability to pay interest @ 18% p.a.

Company Appeal (at) (Ins) No. 410 of 2021

Page 6 of 12

9. The Learned Counsel for Respondent No. 1 has argued that

a loan was taken by the Corporate Debtor from the Respondent

No. 1 for which a letter dated 20.7.2015 was given by the

Corporate Debtor stating that it has borrowed Rs. 52.50 lakhs

from Respondent No. 1 Company and is liable to pay the

borrowed money before 31.7.2017. He has further argued that it

is stated in this letter that if the Corporate Debtor is unable to

repay the debt, it will be liable to pay 18% interest per annum.

10. The Learned Counsel for Respondent No. 1 has further

argued that the statement of HDFC bank showing that an

amount of Rs. 50 lakhs was transferred through RTGS to the

Corporate Debtor on 14.7.2015 and Rs. 2.50 lakhs was

transferred by Respondent No. 1 to the Corporate Debtor by

RTGS on 20.6.2015 (both bank statements attached at pp.66-70

of Appeal paperbook). In addition, he has also produced ledger

account maintained by the Corporate Debtor wherein, a receipt of

total Rs.52.50 lakhs has been shown in two entries on 20.6.2015

and 14.7.2015 (attached at pp. 71-72 of Appeal paperbook). The

Learned Counsel has claimed that based on this evidence of

transfer of Rs. 52.50 lakhs to the Corporate Debtor by

Company Appeal (at) (Ins) No. 410 of 2021

Page 7 of 12 Respondent No. 1, the existence of loan has been established,

which is liable to be paid by the Corporate Debtor to Respondent

No. 1.

11. Sub-sections 10, 11 and 12 of Section 3 of IBC contain

definitions of „creditor‟ (including Financial Creditor), „debt‟ and

„default‟ as follows:-

"3 (10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.

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

3 (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be.

It is clear from the definition of "debt" that it is a liability in

respect of a claim due from any person (in this case the Corporate

Debtor) and includes financial debt. "Default" is defined as non-

payment of debt when whole or part or instalment of the debt that

has become due and payable by the Corporate Debtor. Therefore,

Company Appeal (at) (Ins) No. 410 of 2021

Page 8 of 12 the existence of debt has to be clearly stated in section 7

application for which a detailed format is provided in the IBC.

The application has to be submitted in the stipulated format and

the Financial Creditor has to furnish record of the default with

the information utility or such other record or evidence of default

as may be specified. Further under section 7 application, the

satisfaction of the Adjudicating Authority is necessary to establish

that default has occurred and financial debt is due and payable.

12. It is seen that Adjudicating Authority provided an

opportunity to Respondent No. 1, who claims to be Financial

Creditor, vide order dated 12.2.2020 to provide certain

clarifications with regard to debt claimed by him. The

clarifications provided by Respondent No. 1 are in the form of

bank statements and ledger account (supra). The Part IV in the

application filed under section 7 does not include any date of

default. Moreover, no evidence by way of any written or oral

contract or communication regarding the loan or record of

information utility has been produced by Respondent No. 1 in

support of his claim of advancing a loan to the Corporate Debtor.

Company Appeal (at) (Ins) No. 410 of 2021

Page 9 of 12

13. The letter dated 20.7.2015 (attached at page 32 of the reply

affidavit filed by Respondent No. 1) states the Corporate Debtor‟s

commitment to repay borrowed money to Respondent No.1 before

31.7.2015, and in case it fails to repay the loan on time, its

liability to pay 18% interest per annum. The bank statement

attached by the Appellant shows that Rs. 2.50 lakhs was

transferred through RTGS to the Corporate Debtor on 20.6.2015

and Rs. 50 lakhs was transferred to the Corporate Debtor‟s

account on 14.7.2015. The letter which purports to record the

fact of loan is dated 20.7.2015 even though the date below the

signature of Director of Corporate Debtor Kingston Paptech Pvt.

Ltd. is 10.10.2015. We find that the dates of transfer of money

through RTGS in the Corporate Debtor‟s account and the two

different dates recorded in the letter dated 20.7.2015, which

purports to record the evidence of loan, appear to be

incongruous. Moreover, the date on which loan amount becomes

due and payable is taken as 31.7.2015, as mentioned in the letter

dated 20.7.2015. There is no other acknowledgment from the

Corporate Debtor regarding the loan and therefore, we take the

date of default as is 31.7.2015, as no date of default has been

mentioned in Part IV of section 7 application.

Company Appeal (at) (Ins) No. 410 of 2021

Page 10 of 12

14. We also find that before the filing of section 7 application,

there is no demand letter or notice was sent by Respondent No. 1

to the Corporate Debtor regarding delay in repayment of loan. All

these facts do not inspire confidence about the authenticity of the

letter dated 20.7.2015, and consequently, existence of financial

debt as claimed by Respondent No. 1 and default in its

repayment.

15. On the basis of the above discussion, we come to the

conclusion that the Respondent No. 1 has not been able to prove

the existence of the purported loan. Consequently Respondent

No. 1 has not been able to establish that he is a Financial

Creditor, who is entitled to file application under 7 of IBC.

Furthermore, the date of default, which is taken as 31.7.2015

means that section 7 application should have been filed within

three years i.e. by 30.7.2018. The section 7 application in this

case was filed on 14.9.2018. Hence, even if we assume the

transaction between the Corporate Debtor and Respondent No. 1

resulting in financial debt, the section 7 application was not filed

within the period of limitation.

Company Appeal (at) (Ins) No. 410 of 2021

Page 11 of 12

16. In the above mentioned situation, we do not find that

Respondent No. 1 was able to prove that the loan provided by him

to the Corporate Debtor is a financial debt which is due and

payable. We, therefore allow the appeal and set aside the

Impugned Order dated 15.3.2021. All conditions enforced in

compliance of Impugned Order are removed and the Corporate

Debtor is released from the rigors of CIRP. No order as to costs.

(Justice Ashok Bhushan) Chairperson

(Dr. Alok Srivastava) Member (Technical) New Delhi 6th January, 2022

/aks/

Company Appeal (at) (Ins) No. 410 of 2021

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