Dispute In The Quantum Of Debt Cannot Be A Ground For Rejection Of Insolvency Petition: NCLT Delhi Reiterates

Background Facts

On 27.03.2010, Intec Capital Limited (“Financial Creditor”) granted two loans worth 1,57,00,000 each (3.14 crores in toto) @ 8.5% p.a. for 24 months to M/s SRD Management company Private Limited (“Corporate Debtor”) for buying assets.

The Financial creditor alleged that the Corporate Debtor defaulted in payment of the installments which led to restructuring of the loans. The Corporate Debtor defaulted even after restructuring which led to invocation of the arbitration clause in the loan agreement on 21.07.2021. However during the pendency of the arbitration proceedings, the parties entered into a settlement agreement on 19.12.2012.

The arbitral award was passed on 14.01.2013 stating that the parties had reached a settlement and if the Corporate Debtor made further defaults in payments, the Financial Creditor would be entitled to a further interest on the outstanding amount from the date of default till the date of realization @ 15% p.a. and @ 20.08% p.a. respectively on the two loans. It was further submitted that the Corporate Debtor defaulted in the payments again which led to another settlement on 24.09.2018 stating that the previous settlements shall be considered null and void ab inito and the outstanding amount shall be adjusted against the two loan accounts. Thus the Financial Creditor filed the present petition under section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) on 9.11.2020.

On the contrary, the Corporate Debtor submitted that the Financial Creditor is making a false claim as the amount alleged to be in default does not match the account statement and credit entries in the account of the Corporate Debtor. They further alleged that the present petition is not maintainable on the ground of forum shopping as the two petitions filed by the Financial Creditor seeking the enforcement of the arbitral award are already pending before the Hon’ble Delhi High Court. Further, it was alleged that the petition was time barred as the date of default was 30.05.2015 and the acknowledgement of debt was made by the Corporate Debtor on 24.09.2018 i.e. after the expiry of the limitation period on 29.05.2018. Hence the limitation period cannot be extended.

Observations of the Tribunal

The NCLT reiterated that the quantum of debt cannot be a ground for rejection of insolvency petition. The Tribunal relied on the National Company Law Appellate Tribunal (“NCLAT”) judgement of Mr. Vineet Khosla Vs. M/s Edelweiss Asset Reconstruction Company Ltd. & Ors., Company Appeal (AT) (Ins) No.441 of 2019 which has clearly stated that determination of quantum of financial debt is not in the domain of Adjudicating Authority and the Corporate Debtor would be free to raise objection regarding mismatch of dues and excess before the Resolution Professional/Committee of Creditors.

Further the tribunal relied on the NCLAT judgement of Harkirat S. Bedi Versus Oriental Bank of Commerce. Company Appeal (AT)(Ins) No. 499 of 2019, to observe that the pendency of petition for enforcement of Arbitral Awards is not a valid ground for dismissing the application under section 7 of the IBC.

The Tribunal also found that the Corporate Debtor acknowledged the debt in its balance sheet on 05.09.2017. It relied on the judgment of Shailesh Sangani v. Joel Cardoso & Ors., 2019 by the NCLAT wherein it was held that an acknowledgement of a debt by way of balance sheet is a valid acknowledgement and such will start a fresh period of limitation from the date of acknowledgement. Thus the court found the express acknowledgement of debt on 29.09.2018 was within the period of limitation and hence the limitation stood extended from 29.09.2018 and the petition was not barred by limitation.

With the aforementioned observations, the Court admitted the petition and initiated the CIRP against the Corporate Debtor.

Case:M/S Intec Capital Limited Vs M/S SRD Management Company Private Limited

Case No. CP (IB) No.1058/PB/2020

Counsels for the ApplicantMs. Nidhi Saini, Mr. Dhruv Parwal, Mr. Aabhas Singh

Counsel for the Respondent Mr. Sunil Choudhary

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