Insolvency Proceedings Can't Be Initiated Against Corporate Debtor For Non-Payment Of Debt When Creditor Owes Larger Amount To Debtor: NCLT Delhi

The National Company Law Tribunal (NCLT), Mumbai bench of Justice V. G. Bisht (Judicial Member) and Shri Prabhat Kumar (Technical Member) dismissed a section 7 petition on the ground that Financial Creditor cannot seek insolvency of a debtor alleging default in payment of a financial debt when such creditor owes more than the amount claimed to be in default to such debtor. Background Facts: Future Consumer Limited (“Financial Creditor”) is engaged in the business of branding, manufacturing, processing, selling and distribution of fast-moving consumer goods. On the other hand, Aussee Oats India Limited (“Corporate Debtor) is an exporter, manufacturer, supplier and trader of cereals, oat meals and other products. In February 2019, the Financial Creditor extended a short-term loan of Rs. 2,00,00,000/- to the Corporate Debtor in the form of an Inter Corporate Deposit which was to be returned by February 2020. Pursuant to which the parties made a Term Sheet for recording the terms and conditions of the inter corporate deposit agreement. The Corporate Debtor repaid the loan in instalments, however an amount of Rs.65,00,000/- was left to be paid back. Thereafter, the Financial Creditor made several attempts to contact the corporate debtor seeking repayment of the amount left along with interest. However, due to no response and non-repayment by the corporate debtor the financial creditor sent a demand notice to the Corporate Debtor. Thereafter, as the Corporate Debtor did not pay back even after the demand notice, Section 7 petition was filed by the Financial Creditor for initiation of insolvency proceedings against the Corporate Debtor. The corporate debtor Contended that the Term Sheet was forged as while the signing of it, the person representing the Corporate Debtor was not in India. It further submitted that the amount has been repaid to the Financial Creditor and the amount claimed has been adjusted towards the pending outstanding amount which was due and payable by the Financial Creditor to the Corporate Debtor against the goods supplied by it. The Financial Creditor was aware of the fact that there was no outstanding amount as the audited balance sheet that showed no amount due to be paid by the corporate Debtor to the Financial Creditor was signed by the CFO of Financial Creditor. However, there is an outstanding amount due and payable from Financial Creditor to Corporate Debtor. In response, the Financial Creditor submitted that the balance amount cannot be set off against any alleged pending outstanding amount since the term sheet specifically provided that the Corporate Debtor's obligation to "repay" the amount of the ICD "absolute and unconditional and is not dependent or linked to any other transaction ". Findings and Analysis: The tribunal noted that the Financial Creditor had given a loan of Rs. 2 crores to the Corporate Debtor, out of which a sum of Rs. 1.35 Crore has already been returned by the Corporate Debtor. The financial creditor filed the application for the balance amount of Rs.65 Lakh along with interest payable as per the term sheet. However, the corporate debtor challenged the genuineness of term sheet stating that his signatures were forged. The Tribunal remarked that the fact whether the Term Sheet is genuine or not is relevant only for determination of right of Corporate Debtor to set off the amount of loan or any part thereof against the amount receivable from the Financial Creditor under any other transaction. The tribunal further noted that from the audited financial statements duly signed by the CFO of Financial Creditor it is evident that the Financial Creditor owed money to the Corporate Debtor, so the remaining amount has gotten adjusted against the owed amount. Further, with respect to the Financial Creditor contention regarding repayment of the loan without linking it to any other transaction is denied by the Tribunal. It held that the Debtor has the right to adjust the money it is owed by the Creditor against what it owes to the Creditor. Also, the Corporate Debtor had clearly shown this adjustment in its audited financial statements, which were signed by the CFO of Financial Creditor. Hence, the Tribunal remarked that Insolvency Proceedings can't be initiated against Corporate Debtor for not paying debt when the creditor actually owes more to the debtor. Case Title: Future Consumer Limited V/s Aussee Oats India Limited Case Number: CP (IB) No. 538 (MB)/ 2024 Judgement Date: 01.05.2025 For the Financial Creditor : Mr. Shyam Kapadia, Ld.Counsel For the Corporate Debtor : Mr. Kunal Kanungo, Ld.Counsel Click Here To Read/Download The Order

Insolvency Proceedings Can't Be Initiated Against Corporate Debtor For Non-Payment Of Debt When Creditor Owes Larger Amount To Debtor: NCLT Delhi

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