Ludhiana Scrips Private Limited Petitioner/ v. K.C Land & Finance Ltd. ., National Company Law Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

Company Appeal (AT) (Ins) No. 30 of 2019

Attorney(S)

Dr. Rajansh Thukral, Dr. Surekha Thukral and Shri Rinshikha Thukral, Advocates ;
Shri Vinod Kumar Mahajan and Shri Ravinder Joshi, Advocates

Judges

Sudhansu Jyoti Mukhopadhaya
Chairperson
A.I.S Cheema, Member (Judicial)
Kanthi Narahari, Member (Technical)

Acts

SECTION 138 NEGOTIABLE INSTRUMENTS ACT
Section 7 of I&B Code
Section 7 - I&B Code

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Smart Summary

Factual and Procedural Background

The appeal arises from an order dated 11.12.2018 of the National Company Law Tribunal (NCLT), Chandigarh Bench, rejecting a Section 7 petition filed by M/s. Ludhiana Scrips Private Limited (Appellant / Financial Creditor) against M/s. K.C. Land & Finance Ltd. (Respondent / Corporate Debtor). The Appellant alleged that it had granted inter-corporate loans to the Respondent (disbursed from 2013 onwards) and that post-dated cheques issued by the Respondent bounced, giving rise to complaints under Section 138 of the Negotiable Instruments Act.

The Appellant previously filed CP(IB)122/Chd/Pb/2018, which was dismissed by the Adjudicating Authority on the ground that the Appellant failed to prove it was a Financial Creditor; a recall application CA 250/2018 was also rejected on 23.05.2018. Subsequently, a written settlement dated 20.05.2017 recorded an agreed payment of Rs.6,00,00,000/-, of which only Rs.1.50 crore was realized and Rs.4.50 crore remained outstanding.

After the earlier dismissal, the parties executed another agreement dated 15.06.2018, with post-dated cheques promising payment (cheques totalling Rs.4.50 crore with specified dates). Those cheques were dishonoured, the Appellant issued notice claiming Rs.4.50 crore with interest, and filed CP(IB)332/Chd/PB/2018 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Adjudicating Authority rejected that Section 7 application, imposed exemplary costs of Rs.2 lakhs, and held that the Appellant could not revive the old claim without disclosing the earlier dismissal and that the Appellant had not shown entries in its books recording debit of interest.

Legal Issues Presented

Whether the Appellant qualified as a "Financial Creditor" under the I&B Code for the debts claimed against the Respondent.
Whether a subsequent agreement dated 15.06.2018 (executed after an earlier dismissal) could revive or constitute a fresh basis for a Section 7 petition despite prior proceedings concerning the same 2013 transaction and the 20.05.2017 agreement.
Whether the Adjudicating Authority was justified in rejecting the Section 7 application on the grounds that the Appellant failed to disclose the earlier dismissal and had not shown entries of interest in its books of account.

Arguments of the Parties

Appellant's Arguments

The Appellant maintained that it had granted inter-corporate loans to the Respondent and that there was a debt and default, entitling it to file under Section 7 of the I&B Code.
The Appellant relied on the subsequent agreement dated 15.06.2018 which, it contended, documented the Respondent's fresh undertaking to pay principal and interest (with specified post-dated cheques), thereby creating a fresh basis for the Section 7 petition.

Respondent's Arguments

The Respondent accepted that it had taken inter-corporate deposits and accepted that it entered into the 15.06.2018 agreement, but described the second agreement as an arrangement "to buy peace." (This characterization was recorded by the Tribunal.)

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The NCLAT examined the basis on which the Adjudicating Authority (NCLT) had rejected the Section 7 application. The NCLT's primary reasons were that (a) the Appellant had not demonstrated entries in its books of account debiting interest for the Respondent (loan disbursed in 2013 but entries for interest were recorded only when dispute arose), and (b) the Appellant had failed to disclose the earlier dismissal of CP(IB)122/Chd/Pb/2018, and therefore could not be permitted to file another petition on the "same cause of action" without disclosure.

The NCLAT analysed the subsequent agreement dated 15.06.2018 (executed after the earlier dismissal) and the clauses it contained: a clear acknowledgment of outstanding dues (stating the outstanding as Rs.4,50,00,000/-), an express undertaking to pay by identified post-dated cheques (with cheque numbers, dates and amounts recorded), and an express term permitting enforcement and interest @ 18% in the event of default. The Bench observed that these clauses clarified the transaction and confirmed that the Appellant was a Financial Creditor to whom the Respondent owed a financial debt which was in default and exceeded Rs.1 lakh.

The NCLAT concluded that, where a petition is filed based on a subsequent agreement which constitutes a fresh or clarified obligation, the Adjudicating Authority could not reject the application solely because the earlier dismissed petition had not been expressly referred to in the new application. The Tribunal found the NCLT's approach — to "shut its eyes" to the 15.06.2018 agreement and to throw out the Appellant's claims on that basis — to be inappropriate and unsustainable.

The NCLAT further noted that the Respondent had admitted in its reply (Diary No.10319) that it had entered into the fresh agreement dated 15.06.2018. The NCLAT also observed that the Form submitted under Section 7 was complete and, accordingly, should have been admitted by the Adjudicating Authority.

Holding and Implications

Holding: The NCLAT set aside the Impugned Order of the Adjudicating Authority and directed that the matter be remitted to the NCLT, Chandigarh, with directions to admit the Section 7 proceeding. The appeal was allowed with the stated observations and directions.

Direct Consequences for the Parties:

The Adjudicating Authority is directed, on receipt of this NCLAT order, to admit the Section 7 I&B Code proceeding and pass further orders as required under the I&B Code.
The Respondent remains free to attempt settlement in the meantime (the NCLAT expressly noted it will be open to the Respondent to settle the matter while the proceedings are remitted).
The earlier order of rejection and the exemplary costs imposed by the Adjudicating Authority were set aside to the extent necessary to permit admission of the Section 7 petition pursuant to the subsequent agreement.

Broader implications: The opinion does not purport to lay down a new legal precedent beyond the resolution of the present dispute; it addresses the application of Section 7 to a petition based on a subsequent agreement executed after prior proceedings had been dismissed and reverses the NCLT's rejection in that factual context.

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Ludhiana Scrips Private Limited Petitioner/ v. K.C Land & Finance Ltd. .

NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI Company Appeal (AT) (Ins) No.30 of 2019 [Arising out of Order dated 11.12.2018 passed by National Company Law Tribunal, Chandigarh Bench, Chandigarh in CP(IB) No.332/Chd/Pb/2018] IN THE MATTER OF: Before NCLT Before NCLAT M/s. Ludhiana Scrips Petitioner Appellant Private Limited, B-23, 2581/3B/1, Industrial Area A, Near Zoom Hotel Building Ludhiana 141004 (PB) Through its Director and Authorized Person Sh. Neeraj Bakshi Versus M/s. K.C. Land & Respondent Respondent Finance Ltd. Having its registered office at Chandigarh Road, K.C. Tower, Nawanshahr, SBS Nagar, Nawanshahr - 144514 For Appellant: Dr. Rajansh Thukral, Dr. Surekha Thukral and Shri Rinshikha Thukral, Advocates For Respondent: Shri Vinod Kumar Mahajan and Shri Ravinder Joshi, Advocates J U D G E M E N T A.I.S. Cheema, J. :

1. This Appeal has been filed by M/s. Ludhiana Scrips Private Limited Financial Creditor as the Section 7 proceedings under Insolvency and Bankruptcy Code, 2016 (I&B Code) filed against the Company Appeal (AT) (Ins) No.30/2019 Respondent K.C. Land and Finance Limited Corporate Debtor has been rejected by the Adjudicating Authority (NCLT) Chandigarh Bench, Chandigarh.

2. The Appellant filed the proceedings under Section 7 claiming that there was debt due from the Respondent and there was default.

3. It appears that the Appellant had granted inter corporate loan to the Respondent. The amounts were disbursed to the Respondent on various dates and post-dated cheques had been issued by the Respondent which bounced and criminal complaints were filed under Section - 138 of the Negotiable Instruments Act. The Appellant had also filed Petition for winding up before the Honble High Court of Punjab and Haryana. It appears that thereafter between the parties, there was a settlement arrived at in writing on 20.05.2017 whereby the Respondent agreed to pay Rs.6,00,00,000/- which included interest for which again post-dated cheques were issued. Out of these cheques, only cheques to the tune of Rs.1.50 Crores got encashed and there was again unpaid balance of Rs.4.50 Crores.

4. It seems that the Appellant had earlier initiated CP(IB)122/Chd/Pb/2018 before the Adjudicating Authority at Chandigarh and the Adjudicating Authority held that the Appellant had failed to prove to be a Financial Creditor. It appears that CA 250/2018 seeking recall was also rejected on 23.05.2018.

5. After this, the Appellant entered into yet another agreement on 15th June, 2018 with the Respondent and the Respondent again issued Company Appeal (AT) (Ins) No.30/2019 post-dated cheques, which were again dishonoured, and the Appellant issued Notice to the Respondent Corporate Debtor calling upon the Respondent to pay Rs.4.50 Crores with interest.

6. The Appellant filed CP(IB)332/Chd/PB/2018.

7. The Adjudicating Authority reasoned that the Appellant had not shown the books of accounts with entry of debiting interest in the account of Respondent and that the loan had been disbursed in 2013 and admittedly, there was no entry of debiting interest in any of the financial years except when dispute between parties arose. The Impugned Order shows that the Adjudicating Authority was irritated that in the Application filed under Section 7, the Appellant had not disclosed the earlier dismissal of the Petition and observed that the Petitioner could not file another Petition on same cause of action. When the Appellant pointed out the subsequent agreement dated 15.06.2018 and its contents, which showed agreement with regard to payment of the principal amount and interest, it was discarded by the Adjudicating Authority observing that the Appellant could not raise this contention without having disclosed the filing of Petition earlier in which the same transaction of 2013 and agreement dated 20.05.2017 was relied on and had been rejected by the Tribunal. The Adjudicating Authority found that the attempt to revive old claim based on subsequent agreement could not be acceded to. The Adjudicating Authority went on to reject the Application with exemplary costs of Rs.2 Lakhs. Company Appeal (AT) (Ins) No.30/2019

8. We have heard the Counsel for both sides. The learned Counsel for the Respondent accepted that the Respondent had taken inter corporate deposit. The Counsel accepted that the Respondent had entered into yet another agreement dated 15th June, 2018 with the Appellant after dismissal of the earlier proceedings under Section 7. The Counsel stated that the second agreement entered into by the Respondent was to buy peace.

9. Some of the Clauses of the agreement dated 15th June, 2018 read as under:- A Company winding petition was filed before the Honble Punjab & Haryana High Court by Part No.1 against Part No.2 which is pending adjudication. There after it was agreed between the parties that Part no.2 i.e. K.C. Land & Finance Ltd will pay Rs.4.40 crores as principal amount and Rs.1.60 crores as interest. An agreement was executed between the parties on 20th May 2017 and various post dated cheques were issued. The Part No.2 i.e. K.C. Land & Finance Ltd. defaulted in making payments and some of the cheques were dishonoured so now Total outstanding as on date is Rs.4,50,00,000/-. There has been meeting between the parties and has been agreed that Part No.2 i.e. M/s K.C. Land and Finance Ltd. has given following post dated cheques 1. Cheque no.024757 dated 20- 06-2018 of Oriental Bank of Commerce Branch Ambedkar Chowk, Nawanshr for Rs.25,00,000/- 2. Cheque no. 024758 dated 25-7-2018 of Oriental Bank of Commerce, Branch Ambedkar Chowk Nawanshr for Rs.25,00,000/- 3. Cheque no. 024759 dated 20.12.2018 of Oriental Bank of Commerce, Branch Ambedkar Chowk, Nawanshr for Rs.1,00,00,000/- 4. Cheque No 024760 dated 31.12.2018 of Oriental bank of Commerce, Branch Ambedkar Chowk, Nawanshr for Rs. 3,00,00,000/-. Part No.2 i.e. M/s. K.C. Land and Finance Ltd. undertakes and assures that all these cheques will be Company Appeal (AT) (Ins) No.30/2019 honoured in the event of default Part No 1 will be at liberty to enforce this agreement by way of initiating legal proceedings against the Part No 1 and the amount recoverable will be with interest @ 18% from the date of default till the realization of the full amount.

10. The earlier Order of the Adjudicating Authority dated 23rd May, 2018 was passed referring to relying on the compromise agreement dated 20th May, 2017 to conclude that the debt could not be said to be financial debt.

11. We have seen that earlier compromise agreement dated 20.05.2017 and this subsequent agreement dated 15th June, 2018 clarified the transaction and nature of the agreement between the parties with regard to the dues and the above clauses in the agreement dated 15th June, 2018, show that the Appellant is Financial Creditor to whom the Respondent owes financial debt, and which is in default and the amount is more than Rs.1 Lakh. In such contingency, we find it to be totally inappropriate on the part of the Adjudicating Authority to shut its eyes to the Agreement dated 15.06.2018 and to have thrown out all the claims of the Appellant on the basis that reference to the earlier rejection of the Company Petition 122/2018 had not been made. When the Petition was filed based on the subsequent agreement, such stand on the part of the Adjudicating Authority cannot be maintained. The Respondent has even in the Reply (Diary No.10319) accepted entering into this fresh agreement dated 15th June, 2018. Company Appeal (AT) (Ins) No.30/2019

12. We are thus, unable to uphold the Impugned Order. The Application under Section 7 of I&B Code could not have been rejected on such grounds as mentioned by the Adjudicating Authority. Nothing else is pointed out to question the Form submitted. Form submitted under Section 7 of I&B Code being complete, the same should have been admitted.

13. We set aside the Impugned Order. The matter is remitted back to the Adjudicating Authority NCLT, Chandigarh. On receipt of this Order, the Adjudicating Authority is directed to admit the Section 7 - I&B Code proceeding and pass further necessary orders as required under the I&B Code. However, it will be open to the Respondent to settle the matter in the meantime. The Appeal is allowed with aforesaid observation and direction. [Justice S.J. Mukhopadhaya] Chairperson [Justice A.I.S. Cheema] Member (Judicial) [Kanthi Narahari] Member (Technical) New Delhi 2nd May, 2019 /rs/sk

Ludhiana Scrips Private Limited Petitioner/ v. K.C Land & Finance Ltd. .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ludhiana Scrips Private Limited Petitioner/ v. K.C Land & Finance Ltd. .

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