Loramitra Rath vs Jm Financial Asset Reconstruction ...

Company Appeal (AT)(Insolvency) No. 1359 & 1360 of 2023

[Arising out of order dated 25.09.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Cuttack Bench) in I.A. (IB) No. 253/CB/2023 arising out of CP (IB) No.30/CB/2022]

IN THE MATTER OF:

Loramitra Rath Suspended Director of Maa Durga Commotrade Pvt. Ltd., Kairapari, Kotasahi, Bainchua, Tangi, Dist. Cuttack, Odisha - 754 022 ...Appellant

Versus

JM Financial Asset Reconstruction Company Ltd. (formerly JM Financial Asset Reconstruction Company Pvt. Ltd.) Acting in its capacity as Trustee of Karnataka 2014 Trust 7th Floor, Cnergy, Appasaheo Marathe Marg, Prabhadevi, Mumbai - 400025

Also having office at 8th Floor, Kankaria Estate, 6, Little Russel Street, Kolkata - 700071 ...Respondent No.1

Bishwanath Choudhary Resolution Professional of Maa Durga Commotrade Pvt. Ltd. Flat No. 8F, Block 7, Prasad Exotica, 71/3, Canal Circular Road, Kolkata, West Bengal 700 054 ...Respondent No.2

Present:

For Appellant: Mr. Saswat K. Acharya, Mr. Dhananjay Bhaskar Ray, Advocates.

For Respondents: Mr. Utsav Mukherjee, Mr. Vikalp Wange, Advocates

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 1 JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of two orders dated

25.09.2023 passed by the Adjudicating Authority (National Company Law

Tribunal, Cuttack) in CP (IB) No.30/CB/2022 and in IA (IB) No. 253/CB/2023.

By the impugned order passed in IA (IB) No. 253/CB/2023 (hereinafter referred

to as "First Impugned Order"), the Adjudicating Authority rejected the I.A. filed

by the present Appellant on the ground that the main company petition was

reserved for orders. By the impugned order passed in the main company petition

(hereinafter referred to as "Second Impugned Order"), the Adjudicating Authority

admitted the application under Section 7 of the IBC filed by JM Financial Asset

Reconstruction Company Limited - the present Respondent No.1 and initiated

Corporate Insolvency Resolution Process ("CIRP" in short) of the Corporate

Debtor - Maa Durga Commotrade Private Limited. Aggrieved by these impugned

orders, the present appeal has been filed by the suspended director of the

Corporate Debtor assailing both these orders.

2. The brief facts of the case are as follows: -

 The Corporate Debtor-Maa Durga Commotrade Pvt. Ltd. had obtained

credit facility from the Karnataka Bank Limited ("KBL" in short) in 2010

for an amount of Rs.1 crore.

 The loan account of the Corporate Debtor was classified as NPA by the

KBL on 05.07.2013 since the Corporate Debtor failed to repay the loan.

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 2  A demand notice under the SARFAESI Act was sent by KBL to the

Corporate Debtor on 29.08.2013 to which the Corporate Debtor had sent

a reply on 06.09.2013.

 The KBL subsequently assigned the debt to JM Financial Asset

Reconstruction Company Ltd.-present Respondent No.1 on 15.12.2014

by way of an Assignment Deed.

 The Corporate Debtor submitted an OTS proposal to the Respondent

No.1-Financial Creditor on 21.10.2016 for an amount of Rs.7.50 crore

which was approved by the Financial Creditor.

 The Corporate Debtor failed to pay back in terms of the OTS leading to

revocation of the same.

 The Respondent No.1-Financial Creditor filed a Section 7 petition under

the IBC for initiation of CIRP of the Corporate Debtor. The matter was

heard by the Adjudicating Authority and reserved for orders on

07.08.2023. The orders were pronounced on 25.09.2023.

 In the interregnum between the conclusion of hearing and the

pronouncement of the order on 25.09.2023, the Corporate Debtor filed

IA No. 253/CB/2023 seeking recall of the order which had been reserved

on 07.08.2023 and to rehear the matter on the basis of additional

objections contained in the IA No. 253/2023 filed by them.

 The IA No.253/2023 was dismissed by the Adjudicating Authority on

25.09.2023 on the ground that it had been filed after the final arguments

in the main company petition had been heard and matter reserved for

orders. On the same date, the Adjudicating Authority also passed the

orders in the main company petition directing initiation of CIRP of the

Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 3  Aggrieved by the said impugned orders, the appeal has been preferred

by the suspended director of the Corporate Debtor.

3. Making his submissions, the Learned Counsel for the Appellant stated that

when the Section 7 main company petition was by itself incomplete, the IA

No.253/2023 which had been filed by the Appellant for re-hearing the main

company petition on questions of law should have been heard by the Adjudicating

Authority rather than be rejected on the ground that the main petition stood

reserved for orders. Further as the Appellant had taken a loan from KBL and not

from Respondent No.1, in such circumstances, the Respondent No.1 did not have

the locus to file the Section 7 application against the Appellant. It was further

submitted that the purported assignment of the debt to Respondent No.1 by the

KBL, the original Financial Creditor was incomplete as the Assignment Deed

assigning the loan was insufficiently stamped and therefore not admissible in

evidence. Moreover, the said deed not having been placed on record violated Rule

4(2) of the Insolvency and Bankruptcy Code (Application to Adjudicating

Authority) Rules, 2016 (hereinafter referred to as "AA Rules"). Moreover, the

Corporate Debtor had not been a party to the Assignment Deed. In the absence of

the Trust Deed, the application under Section 7 should have been treated to be

incomplete. Further, the Adjudicating Authority had erroneously admitted the

Section 7 application since the date of default being 06.09.2013, the application

was barred by limitation. The OTS proposal on which the Adjudicating Authority

has premised the impugned order had been made by the Corporate Debtor after

a lapse of more than three years and therefore clearly time barred.

4. The Learned Counsel for the Respondent No.1 rebutting the arguments of

the Appellant submitted that in Section 7 application, the key issue that is

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 4 required to be seen by the Adjudicating Authority is whether there is a debt owed

by the Corporate Debtor which is due and payable and if so whether any default

has been committed in repayment of the debt. It was added that in this case both

debt and default stood established and Adjudicating Authority has rightly held

that this is a fit case for admission of Section 7 application.

5. Elaborating further, the Learned Counsel for the Respondent No. 1 asserted

that the ground raised by the Appellant that Section 7 application was barred by

limitation was utterly misconceived. The debt had been acknowledged by the

Appellant on 06.09.2013 in their reply to the SARFAESI notice and subsequently

an OTS proposal had been sent by them to the Respondent No.1 on 21.10.2016.

That apart, the balance sheets of the Corporate Debtor for the years 2014-15 and

subsequently in 2017-18 and 2018-19 clearly depicts acknowledgment of

financial debt.

6. It was further contended that the Corporate Debtor was fully aware of the

fact that Section 7 application was filed by the Respondent No.1 in its capacity as

a trustee. Further, the Corporate Debtor was also aware of the assignment of the

debt by the Original Financial Creditor. By sending their OTS proposal to the

assignee, the Appellant had accepted and acknowledged the assignment of debt

by the original Financial Creditor to Respondent No.1. Moreover, the issue of

assignment deed not being validly stamped and duly registered was never raised

by the Corporate Debtor during the hearing of the main petition or at any stage

prior to reserving the matter for orders. Similarly, the issue of non-attachment of

the Trust Deed was also raised by the Appellant in the I.A. after the main company

petition was reserved for order.

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 5

7. We have duly considered the arguments and submissions advanced by the

Learned Counsel for the parties and perused the records carefully.

8. The short question to be answered is whether the dismissal of the IA

253/2023 by the Adjudicating Authority on the ground that it was filed after the

main company petition was reserved for orders caused any serious miscarriage of

justice to the Appellant which warrants the setting aside of both the impugned

orders as prayed.

9. It is the case of the Appellant that the Section 7 application was filed by the

Respondent No.1 in its capacity as Trustee of the KBL as is borne out from the

Memo of Parties. Therefore, the Respondent No.1 ought to have placed the Trust

Deed on record as mandated by Rule 4(2) of the AA Rules. In the absence of any

Trust Deed placed on record, the claim of the Respondent No.1 to have locus as

the Financial Creditor was questionable and therefore the application under

Section 7 should have been treated to be incomplete and could not have been

admitted. It was also pointed out that the Assignment Deed was inadequately

stamped and the Corporate Debtor not being a party to the Assignment Deed, it

was not admissible in evidence.

10. Making counter arguments, it has been submitted by the Respondent No. 1

that in the Memo of Parties filed by them in the main company petition before the

Adjudicating Authority, they had done so in their capacity as a trustee. That being

so, the Corporate Debtor was fully aware of the trustee capacity of Respondent

No. 1. It therefore does not stand to any logical reasoning as to why this issue was

not raised in the main company petition but is being raised belatedly in the I.A.

The Respondent No. 1 also vehemently contended that the assignment agreement,

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 6 basis which, Section 7 application was filed was validly stamped and duly

registered. Moreover, the Appellant having already accepted and acknowledged

the existence of the assignment agreement while sending their OTS proposal, it

again does not stand to reason how the plea of technical deficiency in terms of

insufficiency of stamping of the said agreement could now be belatedly raised in

the I.A. 253/2023. It has been submitted that the Appellant has raised a meritless

contention that the Section 7 application should have been dismissed by the

Adjudicating Authority on the ground of non-attachment of the Trust Deed.

11. Having seen the material on record, we are convinced that the Appellant

was fully aware of the assignment of debt by the original Financial Creditor to the

Respondent No.1 which is amply evident from the fact that they had themselves

chosen to send the OTS proposal to Respondent No.1 on 21.10.2016 instead of

sending the same to the original Financial Creditor. The OTS proposal is placed

at page 287 of the Appeal Paper Book ("APB" in short). It is, therefore, clear that

the Appellant/Corporate Debtor was not only aware of the assignment of the debt

but had accepted and acknowledged this fact by sending the OTS proposal to the

assignee. Moreover, the issue of assignment deed was never raised by the

Appellant during the hearing of the main petition or at any stage prior to reserving

the matter for orders.

12. We quite agree that there is no dispute to the fact that Regulation 4(2) of AA

Rules provides that the application shall be accompanied with a copy of the

assignment deed to demonstrate the assignment or transfer. We however notice

that the Assignment Agreement was duly annexed to the Section 7 application by

the Appellant as Annex F as placed at page 122 of the APB. When this fact of

Assignment Agreement was already in existence when the matter came up for

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 7 hearing in the main company petition before the Adjudicating Authority, it was

open to the Appellant to agitate its sustainability at that stage and not after the

matter had been reserved for orders. We fail to comprehend why this issue has

now been raised by the Appellant in IA 253/2023 after the main company petition

have been reserved for order.

13. It is a well settled proposition of law that the two stages of reserving of

judgment and pronouncement of judgment are in a continuum with no hiatus or

gap as such in the two stages. That being the well accepted and time-tested

practice in court proceedings, subsequent pleadings filed by way of an I.A. after

the judgement is reserved is normally not entertained for reasons of procedural

propriety. The Adjudicating Authority while dismissing the I.A. has applied the

same settled position of law that when a matter is reserved for orders, there is no

scope for entertaining application from parties to re-hear the matter. The

Adjudicating Authority has relied on the judgment of the Hon'ble Supreme Court

in Arjun Singh v. Mohindra Kumar & Ors. 1964 5 SCR 946 and Hon'ble

Rajasthan High Court in Rajasthan Financial Corporation v. Pukhraj Jain &

Ors. in AIR 2001 Raj 71 to hold that no application could be moved after the

final arguments were heard and the case was closed for judgment. Hence, we find

that the Adjudicating Authority had committed no error in not entertaining the

I.A. particularly so when the I.A. contained facts which were already in existence

at the time of filing of reply and at the time of making pleadings in the main

company petition. Neither do we find any cogent grounds having been cited to

explain what had impeded the Appellant from flagging these issues during the

hearing of the main company petition. It also does not stand to any logical

reasoning as to why the issues raised in the I.A. could not have been raised in the

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 8 main company petition. Raising such technical issues and that too after detailed

hearing in the main petition was concluded clearly shows that the Appellant was

merely trying to raise feeble grounds in the I.A. to somehow delay and derail the

admission of CIRP. Hence in our considered opinion, the Adjudicating Authority

had rightly rejected the I.A. 253/2023.

14. This now brings us to the contention of the Appellant that the debt was

barred by limitation. It is their case that the date of default was 06.09.2013 and

the OTS proposal of 21.10.2016 was made after more than three years and hence

could not have been taken as acknowledgment for the purposes of limitation.

During the period of three years from the date of default, no payments had been

made by the Corporate Debtor which can be treated to be an acknowledgement of

debt for the purposes of limitation. It is further their contention that the balance

sheets of the Corporate Debtor reflect the name of the KBL as the financial creditor

and do not reflect the name of Respondent No.1. Therefore, according to the

Learned Counsel for the Appellant, the entries in the balance sheet cannot be held

to be acknowledgment under Section 18 of the Limitation Act and this is where

the Adjudicating Authority committed an error in passing the second impugned

order.

15. At this stage it may be useful to extract the relevant portions of the second

impugned order to see how the Adjudicating Authority has dealt with this issue

while examining the main company petition. The relevant paragraphs of the

second impugned order are reproduced below:

"5. The assignment is transfer of one's right to recover debt to another person. Assignment is essentially a contractual concept and refers to an agreement by which the rights and obligations of one party can be transferred to another. By virtue of assignment, the assignee steps into

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 9 the shoes of her assigns and assignee is entitled to enforce it. An assignment of rights effectively makes the assignee stand in the shoes of the assignor. The assignee gains all the rights against the debtor that the assignor had the assignment is absolute hence any right already accrued and any right will acquire in future over the subject matter of assignment all vest upon the assignee.

6. In respect of acknowledgement of debt is concern section 18 of Limitation Act speaks about acknowledgement of property and rights accordingly here the respondent in the financial statement 2014-2015 acknowledge the debt covered under the assignment deed, of course in favour of the assignor it will not change the position. The debt is acknowledged by the debtor against whom the debt is claimed.

7. In these circumstances it is answerer that the acknowledgement of debt made by the corporate debtor in its balance sheet for the year 2014-2015 in favour of assignor, is valid, and subsequently the respondent submitted OTS proposal to petitioner recognizing it as an assignee. On the petitioner side proved that there is a debt, and default, the twin vital requirements to admit the petition."

16. Having heard both parties and perused the records, it is an undisputed

fact that the Corporate Debtor had availed the loan facility undisputedly from

KBL, the original Financial Creditor. This debt had also been clearly acknowledged

by the Appellant on 06.09.2013 in their reply to the SARFAESI notice. The balance

sheets of the Appellant/Corporate Debtor for the years 2014-15 and subsequently

in 2017-18 and 2018-19 as placed at pages 303-328 of the APB also clearly

depicts an acknowledgment of financial debt. It is, however, the case of the

Appellant that the financial debt in the balance sheet is reflected qua KBL, the

original Financial Creditor and not to the Respondent No.1. Be that as it may, it

is an undisputed fact that the OTS proposal had been sent by the Appellant not

to KBL but to the Respondent No.1 on 21.10.2016. This constitutes sufficient

evidence that they were very much aware that assignment of the debt in favour of

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 10 Respondent No.1 was already in place. From this OTS proposal, it can be safely

inferred that the Corporate Debtor had acknowledged their liability to pay to the

Respondent No. 1. The acknowledgment of debt in the present facts of the case is

therefore clear and unambiguous.

17. The balance sheets also reflect that debt is owed by the Corporate Debtor

to the original Financial Creditor. Since the Appellant was well aware of the

assignment of the debt, they cannot take advantage of the anomaly in the balance

sheet with respect to the continuation of the name of KBL as the debtor. There is

no material on record to show that this debt had been liquidated by the Corporate

Debtor. That being so, the debt was continuing and there was a default in

repayment and nothing on record controverts that position. The Corporate Debtor

having accepted the assignment agreement in their OTS proposal has no ground

to deny knowledge of the fact that the Respondent No.1 had stepped into the shoes

of the original Financial Creditor and therefore it has been correctly concluded by

the Adjudicating Authority that the loan facility acknowledged in the name of the

Financial Creditor in the balance sheet is to be construed as acknowledgement of

debt qua the Appellant. The Appellant is contesting the legal tenability of the

Assignment Agreement on hyper-technical grounds which cannot be accepted. We

are of the considered opinion that since in the facts of the present case, a debt

has arisen which is due and payable by the Corporate Debtor and a default has

occurred, admission of Section 7 application cannot be obfuscated by raising

technical pleas and that too after hearing in the main petition stood concluded

and matter was reserved for hearing.

18. In view of the above discussions, facts and circumstances, we therefore

affirm the findings of the Adjudicating Authority and are of the considered opinion

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 11 that there are no convincing reasons to interfere with either of two impugned

orders. In the result, both the appeals having no merit are dismissed. No Costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) Place: New Delhi Date: 01.11.2023

PKM

Company Appeal (AT) (Insolvency) No. 1359 & 1360 of 2023 12