Shyam Sunder Bhatiya vs Khozim Yusuf Nagarwala

[Arising out of order dated 3rd May, 2019 passed by the Adjudicating Authority, National Company Law Tribunal, Jaipur Bench, Jaipur in CP No. (IB) 83/7/JPR/2018]

IN THE MATTER OF:

Shyam Sunder Bhatiya R/o 120, Sukhadiya Nagar, Nathdwara District- Rajasmand- 313 301 ...Appellant

Vs

1. Mr. Khozim Yusuf Nagarwala R/o Plot No. 3, Solapur Road, Chowdhary Nagar, Kombdiwala Malla, Ahmednagar- 414 001 Maharashtra

2. M/s Raj Buildhome Private Limited Near Garden Sukhadiya Nagar Nathwara, Rajsamand- 313 301 Rajasthan ....Respondents

Present: For Appellant: Dr. Amit George, Mr. Swaroop George, Mr. Piyo Harold, Mr. Rishabh Dheer, Mr. Amol Acharya and Mr. Bharat Rayadurgam , Advocates For Respondents: Mr. Ashish Makhija, Mr. Gautam Singh, Mr. Anurag Bhatt, Advocates for Respondent No. 1.

Mr. Amol Vyas, Advocate for Respondent No. 2 -IRP

JUDGMENT

(11th December, 2019)

KANTHI NARAHARI, MEMBER(T)

Aggrieved by the order dated 3rd May, 2019 passed by the

Adjudicating Authority (National Company Law Tribunal), Jaipur

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 1 of 10 Bench, Jaipur admitting the application under Section 7 of

Insolvency and Bankruptcy Code, 2016 (In short 'IBC'), the

Shareholder of the Corporate Debtor filed the present appeal.

2. The First Respondent herein filed the application under

Section 7 of IBC before the Adjudicating Authority, Jaipur Bench,

Jaipur for initiation of Corporate Insolvency Resolution Process (in

short 'CIRP') against the Corporate Debtor- M/s Raj Buildhome

Private Limited on the ground that the Corporate Debtor defaulted

the loan granted to the Corporate Debtor to the extent of Rs.

41,90,000/-.

BRIEF FACTS AND SUBMISSIONS OF THE LEARNED COUNSEL FOR THE RESPECTIVE PARTIES:

3. The 1st Respondent herein i.e., the Financial Creditor, during

the Financial Year 2013-14 granted loan to the Corporate Debtor

and the funds were transferred to it by Bank Account of the

Financial Creditor through RTGS. It is stated that in the balance

sheet of the Corporate Debtor for the Financial Years ended on

31.03.2014 and 31.03.2015, the amount has been reflected as Long

Term Borrowing. The Financial Creditor - 1st Respondent herein

became a Director of the Corporate Debtor w.e.f. 30.03.2015 (page

272, Vol.-II of the Paper Book) and subsequently, he resigned and

the same was accepted by the Corporate Debtor vide its Board

meeting dated 20.12.2015 (Page 276 Vol. II).

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 2 of 10

4. The Adjudicating Authority admitted the application on the

ground that the loan which was granted by the Financial Creditor,

was reflected in the balance sheet as Long Term Borrowing and

relied upon written undertaking given by Corporate Debtor dated

09.02.2016 (Page 133 Vol. I) wherein it was categorically admitted

that a sum of Rs. 41,90,000/- has been received from the Financial

Creditor, his wife and mother. Further, the said written undertaking

at clause - 7 reads as follows; (Page 134 Vol-I)

...

"Accordingly the "First Party" accepts to pay

"Second Party" Rs. 79,94,665/- (Principal

27,17,000/- and 14,73,000/- plus interest

38,04,655/-) and initial payment of 78,32,979/-

(outstanding unpaid Monthly Fees 65,20,275/-

plus interest 10,12,705/- from 1-Feb-86). As

such, the "First Party" unconditionally agrees to

pay Rs. 1,58,27,634/- One Crore Fifty Eight

Lakhs Twenty Seven Thousand Six Hundred

Thirty Four only and issued ICICI, Udaipur

Cheque No. 012792 dated 01-Oct-16 to honour

this obligation on 01-Oct-16 to "Second Party"

...

[Emphasis supplied]

As per the above undertaking, the 1st Party accepts to pay to

2nd Party. In the preamble of the undertaking dated 09.02.2016, the

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 3 of 10 first party is the Corporate Debtor i.e., M/s Raj Buildhome Private

Limited and the 2nd party is Financial Creditor i.e., Mr. Khozim

Yusuf Nagarwala, Smt. Shirin Y Nagarwala and Smt. Maleka K

Nagarwala. Relying upon the above undertaking dated 09.02.2016,

the Adjudicating Authority was of the view that there is an

acceptance of the Financial Debt and that the Applicant (Financial

Creditor) is a Financial Creditor taking into consideration the

provisions of IBC and held that the Corporate Debtor Company has

committed default.

5. We have perused the application filed before the Adjudicating

Authority wherein in paragraph-4, the amount of debt mentioned as

Rs. 41,90,000/- and at serial No. 11, it is mentioned that along with

undertaking dated 09.02.2016, the Corporate Debtor issued a post-

dated cheques bearing No. 012792 dated 01.10.2016 drawn on

ICICI Bank, Udaipur for Rs. 1,58,27,634/- in the name of the

Financial Creditor with an assurance that the cheque will be

honoured on due date and accordingly the Financial Creditor had

accepted the same.

6. One of the contentions raised by the Financial Creditor is that

as per the undertaking dated 09.02.2016, the Corporate Debtor

issued a cheque for Rs. 1,58,27,634/- in the name of Financial

Creditor. However, the cheque was dishonored and a notice under

Section 138 of Negotiable Instruments Act, 1881 dated 13.12.2016

was issued.

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 4 of 10

7. The stand of the Appellant for Corporate Debtor is that the

Financial Creditor/Respondent (herein) had stolen the cheque book

and forged signature on the said cheque and deposited the same.

The Corporate Debtor lodged an FIR in that context. Further, the

case of the Appellant is that the Respondent/Financial Creditor

invested in the Corporate Debtor Company in return of shares, and

an assurance for appointment as Director. It is stated that in

pursuance thereof, 1st Respondent/Applicant was appointed as

Director of the Corporate Debtor Company. The Appellant further

contended that prior to admission of the Application i.e. on

03.05.2019, the Corporate Debtor had paid the entire debt as on

19.01.2019.

8. It is submitted that the Applicant has made a joint claim of

Financial Debt and Operational Debt in the Application filed under

Section 7 of IBC whereas clubbing of alleged Financial and

Operational Debt is not permissible under IBC. It appears that

Applicant mixed claim towards loan in the nature of Financial Debt

with fees in the nature of Operational Debt. From the Balance Sheet

for the Financial Year 2014-15, it is seen that the amount of Rs.

41,90,000/- was reflected as Long Term Borrowing (at page 104 and

at page 119 of the Paper Book). There is no denial by the Corporate

Debtor regarding receipt of Rs. 41,90,000/- as reflected in the

Balance Sheet. However, it is stated that the amount was paid back

on 17.01.2019 and 19.01.2019. It is submitted that total amount of

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 5 of 10 Rs. 1,50,17,700/- was paid to the Respondent/Applicant before

admission of Section-7 Application. It is also contended by the

Appellant that Application for initiation of CIRP was listed before the

Adjudicating Authority on 18.01.2019. Representing Corporate

Debtor- Appellant Company, one Mr. Sumit Dhadda, a Chartered

Accountant, had appeared before the Adjudicating Authority and

made a statement that Rs. 50 lakhs had been deposited and Rs.

1,00,17,700/- would further be paid shortly. However, the

Adjudicating Authority refused to listen to the submission of the

said Representative stating that he has not filed Vakalatnama. It is

the stand of the Appellant that if the learned Adjudicating Authority

had given an opportunity to the Representative of the Corporate

Debtor, the full facts regarding payments made would have been

submitted with proof.

9. The main issue is whether the Appellant i.e., Corporate Debtor

has paid the debt prior to admission of Application under Section 7

of IBC?

10. We have perused the documents. The 1st

Respondent/Financial Creditor relied upon a cheque issued by the

Corporate Debtor and on its presentation, the same was

dishonoured and a notice under Section 138 of Negotiable

Instruments Act, 1881 dated 13.12.2016 was issued and a criminal

case has been lodged against the Directors of the Corporate Debtor

and they were arrested.

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 6 of 10

11. In its order dated 17.01.2019, Judicial Magistrate, FC, Court

No. 2, Ahmednagar, recorded that a sum of Rs. 50 lakhs by way of

Demand Draft has been deposited in the Court to pay the same to

the Complainant i.e. Financial Creditor. The Appellant has produced

a Chart (page 288-Vol. II of Paper Book) regarding details of all

payments made. From the chart, the total amount paid is extracted

hereunder.

"DETAILS OF PAYMENT MADE

Total amount paid is Rs. 1,50,17,700/-

Date Amount DD No. Issuer Pay by to Pay to a. 22.12.2018 4190000/- 347033 Kotak 19.01.2019 Rajbuildhome to Khozim b. 28.12.2018 810000/- 347035 Kotak 19.01.2019 Rajbuildhome to Khozim c. 16.01.2019 810000/- 016983 HDFC Manohar 19.01.2019 Bhatia to Ahmednagar Court d. 16.01.2019 4190000/- 016982 HDFC Asha 19.01.2019 Tobbaco to Ahmednagar Court e. 18.01.2019 5017700/- 007918 ICICI Fatima Sajid 19.01.2019 Hussain to Khozim

(The Applicants are given no objection for withdrawal of Rs. 50

lac deposited before the concerned J.M.F.C. Court

Ahmednagar)"

[Emphasis supplied]

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 7 of 10

12. From the chart of details of payment made, the total amount

of Rs. 1,50,17,700/- has been paid to the Respondent/Applicant.

13. The Appellant, in their Written Submission, have stated that

the alleged Financial Debt with the compounding of interest @ 24%,

as claimed by Respondent No. 1/Financial Creditor herein would

come to Rs. 1,36,67,197/- as on 19.01.2019. It is stated that on

19.01.2019, payment of Rs. 1,50,17,770/- by way of Demand Draft

amounting to Rs. 1,00,17,700/- and an amount of Rs. 50,00,000/-

which was deposited before the Court on hearing, the complaint

under the Negotiable Instruments Act was paid to the Financial

Creditor in criminal proceeding initiated. In support of the chart at

page-288, the Appellant at pages 288,290,291 & 292 of the Paper

Book enclosed photocopies of cheques issued in the name of

Respondent/Applicant. The details of the amount mentioned in the

cheque for Rs. 41,90,000/- dated 21.12.2018 in favour of 1st

Respondent/Financial Creditor, Rs. 8,10,000/- dated 21.12.2018,

and Rs. 50,17,770/- dated 18.01.2019 issued in the name of 1st

Respondent /Financial Creditor and Rs. 8,10,000/- in the name of

2nd Joint Division Court, Ahmednagar, Rs. 41,90,000/- issued in

the name of 2nd Joint Junior Division Court, Ahmednagar. Further,

the Appellant also enclosed the photocopy of the Bank Statement at

pages 292-297 showing the payments made to the

Respondent/Applicant.

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 8 of 10

14. Record shows that the Payments have been made by the

Appellant/Corporate Debtor prior to the admission of the

Application i.e., on 03.05.2019.

15. Having made the payment prior to initiation of CIRP, we are

of the view that the case of the Respondent/Applicant cannot be

treated as a Financial debt and default, in view of no debt payable

to the Financial Creditor. Even the Respondent/Applicant did not

deny the receipt of the aforesaid amount of Rs. 1,50,17,770/-.

Whilst it is stated that the said amount has not been paid towards

their debt but it has paid because of criminal cases filed against

Directors of Corporate Debtor Company. However, we are not

inclined to accept the said contention of the 1st

Respondent/Applicant. We take a view that continuing Proceedings

despite receipt of debt, cannot be termed as Application for

Resolution.

RELEVANT PROVISIONS OF LAW:

16. Section 3(11) of IBC defines 'debt' means a liability or

obligation in respect of claim which is due from any person and

concludes a Financial debt and Operational debt.

17. Section 3(12) of IBC defines 'default' means non-payment of

debt when whole or any part or investment 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.

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 9 of 10

18. We conclude that there is no default. For the aforesaid

reasons, we allow the appeal, quash and set aside the impugned

order dated 03.05.2019 and the Corporate Debtor is released from

rigour of 'Corporate Insolvency Resolution Process. The Interim

Resolution Professional/Resolution Professional will hand over the

management, assets and records to the Corporate

Debtor/Promoter/Board of Directors. Henceforth the Corporate

Debtor will function independently through its Board of Directors.

19. Financial Creditor is liable to pay the CIRP cost and fees of the

Interim Resolution Professional/Resolution Professional. The

Interim Resolution Professional/Resolution Professional will file

report before the Adjudicating Authority with regard to his fee, CIRP

cost and the Adjudicating Authority is requested to pass orders to

recover the same from the Financial Creditor. No costs.

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

(Kanthi Narahari) Member(Technical)

Akc

Company Appeal(AT)(Insolvency) No. 558 of 2019 Page 10 of 10