2020 Supreme(SC) 510

SUPREME COURT OF INDIA
ARUN MISHRA, INDIRA BANERJEE, JJ.
M/S RADHA EXPORTS (INDIA) PVT. LIMITED. – Appellant(s)
VERSUS
K.P. JAYARAM & ANR. – Respondent(s)
CIVIL APPEAL NO.7474 OF 2019
Decided on : 28-08-2020

IMPORTANT POINTS
(1) Personal Loan to a Promoter or a Director of a company cannot trigger Corporate Resolution Process under IBC.
(2) Allegations of forgery and fraud are not decided in proceedings under Sections 433 and 434 of Companies Act, 1956 for winding up of a company. Such disputes necessarily have to be adjudicated in a regular suit.
(3) Disputes as to whether signatures of Respondents are forged or whether records have been fabricated can be adjudicated upon evidence including forensic evidence in a regular suit and not in proceedings under Section 7 of Insolvency and Bankruptcy Code, 2016.

Headnote:

(A) Insolvency and Bankruptcy Code, 2016 – Section 7 – Limitation Act 1963 – Clauses (19) to (21) of Part II of Schedule – Time-barred claim – Alternative defences are permissible to contest a claim – It was open to Appellant Company, to refute claim of Respondents by taking plea of limitation and also to contend that no amount was in fact due and payable by Appellant Company to Respondents – It was for applicant invoking Corporate Insolvency Resolution Process, to prima facie show existence in his favour, of a legally recoverable debt – Respondent had to show that debt is not barred by limitation which they failed to do – Under clauses (19) to (21) of Part II of Schedule of Limitation Act 1963, period of limitation for initiation of a suit for recovery of money lent, is three years from date on which loan is paid – Last loan amount is said to have been advanced in 2004-2005 – In winding up petition, there is not a whisper of any agreed date by which alleged loan was to be repaid to Respondents – In instant case, debt was barred by limitation even in year 2012, when winding up proceedings were initiated in Madras High Court – NCLT rightly refused to admit application under Section 7 of IBC, holding same to be barred by limitation – Appellate Tribunal has erred in law in reversing judgment and order of earlier Adjudicating Authority – Adjudicating Authority rightly rejected application as barred by limitation – Appellate Authority patently erred in law in reversing decision of adjudicating authority and admitting application – Personal Loan to a Promoter or a Director of a company cannot trigger Corporate Resolution Process under IBC – Disputes as to whether signatures of Respondents are forged or whether records have been fabricated can be adjudicated upon evidence including forensic evidence in a regular suit and not in proceedings under Section 7 of IBC – Impugned judgment and order of Appellate Tribunal set aside and order of Adjudicating Authority dismissing application, restored. (Paras 31, 36, 37, 38, 40 and 44)

(B) Companies Act, 1956 – Sections 433 and 434 – Winding-up proceedings – Scope and ambit – Allegations of forgery and fraud are not decided in proceedings under Sections 433 and 434 of Companies Act, 1956 for winding up of a company – Such disputes necessarily have to be adjudicated in a regular suit, on the basis of evidence including forensic examination reports. (Para 16)

Facts of the case:

Instant appeal, under Section 62 of the Insolvency and Bankruptcy Code, 2016, is against a judgment and order dated 2nd September, 2019 of the National Company Law Appellate Tribunal

(NCLAT), New Delhi, allowing Company Appeal (AT) (INS) No.224 of 2019 against an order dated 19th December, 2018 passed by a Division Bench of the National Company Law Tribunal (NCLT) at Chennai, rejecting application filed by the Respondents under Section 7 of Insolvency and Bankruptcy Code, 2016, inter alia, on the ground that alleged claim of the Respondents was barred by limitation, on the date on which the said application had been filed.

Findings of Court:

The definition of ‘financial debt’ in Section 5(8) makes it clear that ‘financial debt’ means a debt along with interest, if any, disbursed against the consideration for time value of money and would include money raised or borrowed against the payment of interest; amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent. Amount raised

pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument.

Result : Appeal allowed.