# M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR

- **Citation:** [2020] 8 S.C.R. 272
- **Court:** Supreme Court of India
- **Decided:** 2020-08-28
- **Case number:** Civil Appeal No. 7474 of 2019
- **Bench:** Arun Mishra, Indira Banerjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-radha-exports-india-pvt-limited-v-k-p-jayaram-anr-34850
- **Pages:** 19

## Headnote

Insolvency and Bankruptcy Code, 2016 - s.7 - Companies
Act, 1956 - Limitation Act, 1963 - Clauses (19) to (21) of Part II of
the Schedule - The respondents filed a petition on 25.04.2018
u/s.7 of the IBC, as 'Financial creditor', claiming principal amount
of Rs.2.10 crores together with interest - According to the appellant
company, Rs.80,40,000/- was repaid to the respondents between
2003 to 2004 - Further, respondents requested to convert
Rs.90,00,000/- from the outstanding loan as share application money
for issuance of shares in the appellant company in name of
respondent no. 2, which was later requested to be treated as the
said share application of 'MK' and to treat the same as loan from
respondent no. 2 - Also, during the period from 2004 to 2006, the
appellant company paid Rs.43,25,000/- to the respondents and with
that payment the loan liability was completely liquidated - The NCLT
vide its judgment and order dated 19.12.2018 held that the
respondents were not Financial creditors of the appellant company
and the claim of the respondents was barred by limitation - Further,
it was held that the respondents had failed to prove that there was
any debt due from the appellant company to the respondents,
observing that the appellant company had produced proof of
payments - By the impugned judgment and order dated 02.09.2019
the Appellate Tribunal set aside the order dated 19.12.2018 of the
NCLT - On appeal, held: Under clauses (19) to (21) of Part II of
the Schedule of the Limitation Act 1963, the period of limitation for
initiation of a suit for recovery of money lent, is three years from
the date on which the loan is paid - In the instant case, the last loan
was advanced in 2004-2005 - Apparently, the debt was barred by
limitation even in the year 2012, when winding up proceedings of
the appellant company were initiated in the Madras High Court by
the respondents - The NCLT rightly refused to admit the application
u/s. 7 of the IBC, holding the same barred by limitation - The
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Appellate Tribunal erred in law in reversing the judgment and order
of the earlier Adjudicating Authority - Disputes as to whether the
signatures of the respondents are forged or whether records were
fabricated can be adjudicated upon evidence including forensic
evidence in a regular suit and not in proceedings u/s. 7 of IBC -
Even otherwise, the application u/s. 7 of the IBC was not
maintainable - As the payment received for shares, duly issued to a
third party at the request of the payee as evident from official records,
cannot be a debt, not to speak of financial debt - The NCLT rightly
held that there was not financial debt in existence - Thus, impugned
judgment and order of the Appellate Tribunal is set aside and the
order of the Adjudicating Authority dismissing application is
restored.
Allowing the appeal, the Court
HELD: 1. It was for the applicant invoking the Corporate
Insolvency Resolution Process, to prima facie show the existence
in his favour, of a legally recoverable debt. In other words, the
respondent had to show that the debt is not barred by limitation,
which they failed to do. [Para 36][286-E]
2. Under clauses (19) to (21) of Part II of the Schedule of
the Limitation Act 1963, the period of limitation for initiation of a
suit for recovery of money lent, is three years from the date on
which the loan is paid. The last loan amount is said to have been
advanced in 2004-2005. In the winding up petition, there is not a
whisper of any agreed date by which the alleged loan was to be
repaid to the Respondents. In the instant case, apparently the
debt was barred by limitation even in the year 2012, when winding
up proceedings were initiated in the Madras High Court.
[Para 37][286-E-G]
3. The NCLT rightly refused to admit the application under
Section 7 of the Insolvency Bankruptcy Code, 2016, holding the
same to be barred by limitation. The Appellate Tribunal has erred
in law in reversing the j

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[2020] 8 S.C.R.
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED
v.
K.P. JAYARAM & ANR.
(Civil Appeal No. 7474 of 2019)
AUGUST 28, 2020
[ARUN MISHRA AND INDIRA BANERJEE, JJ.]
Insolvency and Bankruptcy Code, 2016 - s.7 - Companies
Act, 1956 - Limitation Act, 1963 - Clauses (19) to (21) of Part II of
the Schedule - The respondents filed a petition on 25.04.2018
u/s.7 of the IBC, as 'Financial creditor', claiming principal amount
of Rs.2.10 crores together with interest - According to the appellant
company, Rs.80,40,000/- was repaid to the respondents between
2003 to 2004 - Further, respondents requested to convert
Rs.90,00,000/- from the outstanding loan as share application money
for issuance of shares in the appellant company in name of
respondent no. 2, which was later requested to be treated as the
said share application of 'MK' and to treat the same as loan from
respondent no. 2 - Also, during the period from 2004 to 2006, the
appellant company paid Rs.43,25,000/- to the respondents and with
that payment the loan liability was completely liquidated - The NCLT
vide its judgment and order dated 19.12.2018 held that the
respondents were not Financial creditors of the appellant company
and the claim of the respondents was barred by limitation - Further,
it was held that the respondents had failed to prove that there was
any debt due from the appellant company to the respondents,
observing that the appellant company had produced proof of
payments - By the impugned judgment and order dated 02.09.2019
the Appellate Tribunal set aside the order dated 19.12.2018 of the
NCLT - On appeal, held: Under clauses (19) to (21) of Part II of
the Schedule of the Limitation Act 1963, the period of limitation for
initiation of a suit for recovery of money lent, is three years from
the date on which the loan is paid - In the instant case, the last loan
was advanced in 2004-2005 - Apparently, the debt was barred by
limitation even in the year 2012, when winding up proceedings of
the appellant company were initiated in the Madras High Court by
the respondents - The NCLT rightly refused to admit the application
u/s. 7 of the IBC, holding the same barred by limitation - The
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Appellate Tribunal erred in law in reversing the judgment and order
of the earlier Adjudicating Authority - Disputes as to whether the
signatures of the respondents are forged or whether records were
fabricated can be adjudicated upon evidence including forensic
evidence in a regular suit and not in proceedings u/s. 7 of IBC -
Even otherwise, the application u/s. 7 of the IBC was not
maintainable - As the payment received for shares, duly issued to a
third party at the request of the payee as evident from official records,
cannot be a debt, not to speak of financial debt - The NCLT rightly
held that there was not financial debt in existence - Thus, impugned
judgment and order of the Appellate Tribunal is set aside and the
order of the Adjudicating Authority dismissing application is
restored.
Allowing the appeal, the Court
HELD: 1. It was for the applicant invoking the Corporate
Insolvency Resolution Process, to prima facie show the existence
in his favour, of a legally recoverable debt. In other words, the
respondent had to show that the debt is not barred by limitation,
which they failed to do. [Para 36][286-E]
2. Under clauses (19) to (21) of Part II of the Schedule of
the Limitation Act 1963, the period of limitation for initiation of a
suit for recovery of money lent, is three years from the date on
which the loan is paid. The last loan amount is said to have been
advanced in 2004-2005. In the winding up petition, there is not a
whisper of any agreed date by which the alleged loan was to be
repaid to the Respondents. In the instant case, apparently the
debt was barred by limitation even in the year 2012, when winding
up proceedings were initiated in the Madras High Court.
[Para 37][286-E-G]
3. The NCLT rightly refused to admit the application under
Section 7 of the Insolvency Bankruptcy Code, 2016, holding the
same to be barred by limitation. The Appellate Tribunal has erred
in law in reversing the judgment and order of the earlier
Adjudicating Authority. The Adjudicating Authority rightly
rejected the application as barred by limitation. The Appellate
Authority patently erred in law in reversing the decision of the
adjudicating authority and admitting the application. [Para 38][286G]
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR.
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4. As recorded in the said order dated 19th December, 2018
passed by the NCLT Chennai, the Respondent Nos. 1 and 2 jointly
addressed the letter dated 11th January, 2011 to the Income Tax
Department confirming that the Respondent No.1 had requested
the Appellant Company to transfer a sum of Rs.90 lakhs to his
wife, the Respondent No.2 for allotment of shares in the Appellant
Company and further acknowledged that the amount outstanding
from the erstwhile firm to the Respondent was Rs.1,39,60,000/-
as on 31st March, 2004. The said letter has been extracted in full
in Paragraph (9) of the judgment and order dated 19th December,
2018 of NCLT. [Para 39][287-A-C]
5. There are, as observed above cogent records including
etters signed by the Respondent Nos. 1 and 2 which evince that
on 6th October, 2007, Respondent No.2 resigned from the Board
of the Appellant Company and at that time the Respondent No.2
requested the Appellant Company to treat the share application
money of Rs.90,00,000/- as share application money of 'MK'
and to issue shares for aforesaid value to 'MK'. The amount was
to be treated as a personal loan from the Respondent No.2 to
'MK'. A personal Loan to a Promoter or a Director of a company
cannot trigger the Corporate Resolution Process under the IBC.
Disputes as to whether the signatures of the 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 the IBC. [Para 40][287-CE]
6.1 Even otherwise, the application under Section 7 of the
IBC was not maintainable. As rightly held by the NCLT there
was no financial debt in existence. [Para 42][287-G-H]
6.2 The payment received for shares, duly issued to a third
party at the request of the payee as evident from official records,
cannot be a debt, not to speak of financial debt. Shares of a
company are transferable subject to restrictions, if any, in its
Articles of Association and attract dividend when the company
makes profits. [Para 43][290-F]
Innoventive Industries Ltd. v. ICICI Bank and Anr.
(2018) 1 SCC 407 : [2017] 8 SCR 33; B.K. Educational
Services Pvt. Ltd. v. Parag Gupta and Associates (2019)
11 SCC 633 : [2018] 12 SCR 794 - relied on.
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Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank
Ltd. (2019) 9 SCC 158 : [2019] 12 SCR 75 - referred
to.
Case Law Reference
[2017] 8 SCR 33
relied on
Para 32
[2018] 12 SCR 794
relied on
Para 34
[2019] 12 SCR 75
referred to
Para 35
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7474
of 2019.
From the Judgment and Order dated 02.09.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal
(AT)(INS) No. 224 of 2019.
C. A. Sundaram, Sr. Adv., P. I. Jose, Prashant K. Sharma, Jenis
Francis, Ramakrishnan N., Abhishek Gupta, Ms. Rohini Musa, Zafar
Inayat, Anupam Mishra, Advs. for the Appellant.
M. K. S. Menon, Sashank Menon, Ms. Malini Poduval, Advs. for
the Respondents.
The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
1. This 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,
hereinafter referred to as "the Appellate Tribunal", 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 the application filed by the Respondents
under Section 7 of the Insolvency and Bankruptcy Code, 2016, inter
alia, on the ground that the alleged claim of the Respondents was barred
by limitation, on the date on which the said application had been filed.
2. It is the case of the Appellant Company, that the Respondents
were closely acquainted with one Mr. M. Krishnan, and Mrs. Radha
Gouri, who were the promoters of the Appellant Company.
3. Between 1st November, 2002 and 12th September 2003, the
Respondents had advanced an aggregate sum of Rs.2.10 crores, in
tranches, to M/s Radha Exports, a proprietorship concern of Mrs. Radha
Gouri, for its business purposes.
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR.
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4. In 2004-2005, the Respondents advanced a further sum of Rs.10
lakhs to the said proprietorship concern, M/s Radha Exports. The said
M/s Radha Exports thus obtained total loan of Rs.2.20 crores from the
Respondents, during the period between 2002 and 2004. The loan was
unsecured and free of interest.
5. According to the Appellant Company, M/s Radha Exports repaid
Rs.80,40,000/- to the Respondents between 1st October, 2003 to 18th
March 2004. As recorded in the judgment and order dated 19th December,
2018 of the NCLT, the Respondent Nos. 1 and 2 jointly wrote a letter
dated 11th January, 2011 to the Deputy Commissioner of Income Tax,
Company Circle V (3), Chennai, where they stated that, as on 31st March,
2004, the said proprietorship concern M/s Radha Exports had a loan
liability of Rs.1,39,60,000/- (Rs.2,20,00,000/- less Rs.80,40,000/-) to the
Respondents. The Respondents have, in the aforesaid letter, stated that
they had given a further loan of Rs.10 lakhs to M/s Radha Exports,
between 2004 and 2005. The said letter is reproduced in full, in the
judgment and order dated 19th December, 2018, of the NCLT.
6. The Appellant Company was incorporated under the Companies
Act, 1956 on or about 19th July, 2004, to take over the business of the
proprietorship concern, M/s Radha Exports, along with its assets and
liabilities. The Appellant Company states that as on 19th July, 2004, the
proprietorship concern, M/s Radha Exports had a loan liability of
Rs.1,11,85,350/-, which was taken over by the Appellant Company.
7. On 19th July, 2004, when the Appellant Company was
incorporated as a Private Limited Company, to take over and continue
the business of the proprietorship concern, M/s Radha Exports, the
Respondents requested the Appellant Company to convert a sum of
Rs.90,00,000/- from out of the said outstanding loan as share application
money for issuance of shares in the Appellant Company, in the name of
the Respondent No.2, and the same was confirmed by the Respondents,
by their aforesaid letter dated 11th January, 2011 addressed to the Deputy
Commissioner of Income Tax, Company Circle V(3), Chennai. The said
letter, a copy of which is enclosed to the Paper Book, reads:
"..I have requested to transfer a sum of Rs. 90,00,000/- (Rupees
Ninety Lakhs) to my wife A/c. Mrs. Shoba Jayaram for
allotment of shares in Radha Exports (I) Pvt. Ltd..."
8. Accordingly, a sum of Rs.90,00,000/- was adjusted by the
Appellant Company, as share application money, for issuance of shares
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in a Appellant Company in the name of the Respondent No.2. Thereafter,
the balance loan liability of the company was Rs.21,85,350/-.
9. According to the Appellant Company, during the period from
27th July, 2004 to 23rd March, 2006, the Appellant Company paid
Rs.43,25,000/- to the Respondents, which included the balance loan of
Rs.21,85,350/- payable by M/s Radha Exports. The loan liability, which
the Appellant Company had taken over from the proprietorship concern
was, according to the Appellant Company, completely liquidated by
March, 2006. Particulars of the payments have been given in detail in
paragraph (12) of the judgment and order of the NCLT dated 19th
December, 2018 and are supported by Bank Statements being Annexure
A1 filed before the NCLT. The last payment appears to have been
made on 23.03.2006.
10. On or about 6th October, 2007, the Respondent No.2 resigned
from the Board of the Appellant Company. At the time of resignation,
the Respondent No.2 requested the Appellant Company to treat the share
application money of Rs.90,00,000/- as share application money of
Mr. M Krishnan and to issue shares of the value of Rs.90,00,000/- in the
name of Mr. M. Krishnan. The amount of share application money of
Rs.90,00,000/- transfered to Mr. M. Krishnan, was to be treated as a
personal loan from the Respondent No.2 to the said Mr. M. Krishnan.
11. By another letter dated 11th January, 2011 addressed to the
Deputy Commissioner of Income Tax, Company Circle V(3), Chennai,
being Annexure A-4 to the reply filed by the Appellant Company, the
Respondent No.2 confirmed that she had requested the Appellant
Company to allot shares in the name of the said Mr. M. Krishnan against
her share application money, which the said M. Krishnan had agreed to
treat, as his personal loan from the Respondent No.2 and pay her the
amount at a later date.
12. The Appellant Company claims to have issued shares of the
value of Rs.90,00,000/- in the name of Mr. M. Krishnan in 2008. According
to the Appellant Company, there is thus, no further liability to be discharged
by the Appellant Company to the Respondents. After 23rd March, 2006,
there had been no financial transaction between the Appellant Company
and the Respondents.
13. However, by a legal notice dated 19th November, 2012, the
Respondents called upon the Appellant Company to repay to the
Respondents a sum of Rs.1,49,60,000/- alleged to be the outstanding
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
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debt of the Appellant Company, repayable to the Respondents as on 19th
July, 2004.
14. By a letter dated 5th December, 2012, the Appellant Company
refuted the claim of the Respondents, whereupon the Respondents filed
petition being CP No.335 of 2013 in the High Court of Madras under
Sections 433 (e) & (f) and 434 of the Companies Act 1956, for winding
up of the Appellant Company. The said petition was transferred to the
Chennai Bench of NCLT and re-numbered TCP/301/(IB)/2017.
15. The averments made in the winding up petition ex facie show
that the claim of the Respondents was hotly disputed. In that the
Respondents claimed that letters attributed to them, even letters
addressed by them to the Income Tax Authorities were forged. Some of
the averments are extracted hereinbelow:
"6. .......The petitioners state that the respondent's directors
who pretended to be the well-wishers of the petitioners, knew
all the facts and stopped paying the interest intermittently till
2007. Adding insult to the injury, the respondent's company
created a fraudulent sale deed and the sale consideration is
a circuitous fraudulent transaction which will clearly prove
the fraud, cheating, forgery and various other criminal
offences of the respondent. The respondent have illegally
grabbed the residential house of the petitioners. The
petitioners had already filed a Civil Suit in C.S. No.66 of
2013 in the Original Side of the Hon'ble High Court of
Judicature at Madaras.
7. The Petitioners issued a statutory notice of demand on
19.11.2012 for claiming the amount from the respondent
company and its directors and they gave a reply on
05.12.2012 making unwanted, unnecessary and defamatory
allegations against the 1st petitioner, who had helped the
directors of the respondent company for purchasing a flat in
which they presently reside and for the entire capital for
running the respondent company. In para 3 of the said reply,
the respondent asked for details of the payments made by the
petitioners to the respondent. But in para 12, the respondent
company had stated that the transactions have been placed
before the Income Tax Department, for which the petitioners
had signed the affidavits. The allegations are contradictory
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to each other and it reveals rank forgery committed by the
respondents to 1 to 3.
8. The Petitioners had not signed any documents or blank
papers or any affidavits to the respondent or its directors.
The directors of the respondent company are capable of
forging the signatures of the petitioners, which has been
proved on various occasions..."
xxx
xxx
xxx
10. The petitioners state that from the reply notice given by
the advocate, it is clearly understood that the respondent and
its directors had forged the signatures of the petitioners to
the Income Tax Department....
11. The petitioners states that the petitioners had verified the
records of the Registrar of Companies, Chennai and found
that the 2nd petitioner's signature had been forged in the
resignation letter, which has been forged immediately after
the fraudulent sale deed. The respondent company and
directors had even forged the signatures in the application
for Director's Identification Number and the forgery is the
peak of fraud and cheating committed by the respondent
company and its directors not only against the petitioners,
but also against the Government Departments.
15. The petitioner states that the directors of the respondent
company had forged the signatures of the 2nd petitioner. In
all the documents submitted to the Registrar of Companies
from the inception of the respondent company including the
resignation and the DIN Application form and obtained DIN
number to remove the 2nd petitioner from the directorship,
which the directors of the respondent company made the 2nd
petitioner as a director to their convenience."
16. Allegations of forgery and fraud are not decided in proceedings
under Sections 433 and 434 of the 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.
17. By an order dated 4th August 2017 the NCLT dismissed the
said winding up petition, on the ground that the Respondents had failed
to comply with the provisions of Section 7(3)(b) of the Insolvency and
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.]
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Bankruptcy code, 2016, hereinafter "IBC", with the liberty to file a fresh
petition, if so advised.
18. On 7th December 2017, the Respondents issued a fresh demand
notice to the Appellant Company. By a letter dated 14th December 2017,
the Appellant Company refuted the claims in the demand notice dated
7th December 2017, inter alia claiming that all amounts due and payable
by the Appellant Company or its predecessor-in-interest to the
Respondents, had duly been paid within 2007 and 2008.
19. The Respondents, thereafter, filed a petition being CP/77/(IB)/
CB/2018 under Section 9 of the IBC, in the NCLT (Chennai Bench)
claiming to be an operational creditor of the Appellant Company, within
the meaning of Section 9 of the IBC and claiming from the Appellant
Company Rs.2.10 Crores as principal and Rs.2,31,60,000/- towards
interest at the rate of 24% per annum , from the year 2007.
20. For the purpose of this appeal, it is not necessary for this
Court to examine the discrepancies between the claim in the winding up
petition and the claim in the petition under Section 9 of the IBC.
21. By an order dated 12th April 2018, a Single Bench of NCLT
dismissed CP/77/(IB)/CB/2018 filed by the Respondent No.1, claiming
himself to be an 'Operational Creditor' under Section 9 of the IBC, as
withdrawn, with liberty to file a fresh petition in accordance with law.
22. Thereafter, on 25th April 2018, the Respondents filed a fresh
petition being WC.P. No.770/IB/CB/C-II/2018 before the NCLT (Chennai
Bench) under Section 7 of the IBC, as "Financial Creditor", claiming
principal amount of Rs.2.10 Crores together with interest @ 24% per
annum from 2007, amounting to Rs. 4,41,60,000/-. The Appellant
Company filed its counter statement in CP No.770/IB/2018 before the
NCLT.
23. By a judgment and order dated 19th December 2018, the NCLT
meticulously recorded details of the payments made by the Appellant
Company and/or its predecessor in interest to the Respondents,
considered the letters written by the Respondents to the Income Tax
Authorities and dismissed CP No. 770/IB/CB/2018, being the petition
filed by the Respondents under Section 7 of the IBC, inter alia, holding
that the Respondents were not Financial Creditors of the Appellant
Company, and in any case the claim of the Respondents was hopelessly
barred by limitation. The NCLT held that the Respondents had failed to
prove that there was any debt due from the Appellant Company, to the
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Respondents, observing that the Appellant Company had produced proof
of payments.
24. The relevant parts of the said judgment and order of the
Chennai Bench of NCLT are extracted herein below for convenience.
"9. To prove that Rs.90,00,000 was treated as share
application money, the Corporate Debtor filed a letter
(Annexure-A2) these Applicants together addressed to the
Income Tax Department on 11.01.2011 confirming the first
applicant requesting the corporate debtor to transfer a sum
of Rs.90,00,000 to his wife (Second Applicant) for allotment
of shares in the Corporate Debtor. Not only about this request,
the corporate debtor counsel says, the Applicants themselves
stated that they advanced monies to M/s. Radha Exports
during the Financial Years 2001-2002, 2002-2003 and 20032004 and amount outstanding from the said the partnership
firm on 31.03.2004 is Rs.1,39,60,000. The letter dated
11.01.2011 addressed by the Applicants to the Deputy
Commissioner of Income Tax is as follows:..."
10. In addition to the above letter, the Corporate Debtor has
also placed another letter dated 11.01.2011 Second Applicant
addressed to the Deputy Commissioner of Income Tax
confirming that she requested the Corporate Debtor to allot
shares in the name of First Applicant against her share
application money Rs.90,00,000 on the agreement that her
husband would pay that money to her later. The corporate
debtor has annexed this letter as Annexure-A4 to the reply
affidavit filed by the Corporate Debtor.
....
17. Now going through the observations we have noted, now
the points for consideration are, as to whether any financial
debt is in existence in between the parties as on the date of
filing petition u/s 7 of the Code and as to whether, assuming
the financial debt is in existence, the debt is barred by limitation
or not.
18. It is evident from the facts that first Applicant advanced
Rs.2,10,00,000/- Rs.2,20,00,000/- as the case may be, to a
partnership firm during the period in between 2002 and 2003.
It is also evident on record by 4.07.2004, the same partnership
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.]
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firm repaid Rs.1,08,14,650. To show that it has been paid,
the Corporate debtor has placed proof by submitting copies
of the statement of the statement of accounts of various banks
reflecting payments made to these Applicants, on the contrary,
these Applicants have not placed any material showing as to
whether these payments were made or not.
25. In this case, if we go by the case of the Applicant, it is a
claim made basing on the money disbursed by way of cheque
payment in the year 2002 & 2003. This money was also not
disbursed to this Corporate Debtor, it was given to a
partnership firm.
26. This Applicant, has not even placed any material disclosing
how this debt is still alive after lapse of three years from the
date of disbursement. Whenever any claim is made, when it is
beyond three years period as envisaged under Article 136 of
the Limitation Act, the person making claim is bound to disclose
and explain as to how the debt claim is not barred by limitation.
No such effort has been made by these Applicants to prove
that this is within limitation. Assuming that filing of this
Company Petition is continuation to the winding up
proceedings filed before the Hon'ble High Court i.e.
15.02.2013, then also, since these Applicants have claimed
money was disbursed in the year 2002 to 2003, if the limitation
period is computed from the date of disbursement, filing of
winding up proceedings would be beyond the period of
limitation from the date of disbursement.
27. Given the historical facts available on record, even if the
Corporate Debtor statement is taken as true, the limitation
would start running from the year 2007. Since the winding
up petition was filed in the year 2013, even from the year
2007, these Applicants could have filed winding proceedings
within three years from thereof, not in the year 2013,
Conceding everything as stated by the applicants, then also
the debt claim would remain barred by limitation.
25. On or about 13th February 2019, the Respondents filed
Company Appeal (AT) (INS) NO.224/19 before the Appellate Tribunal,
challenging the order dated 19th December 2018 passed by the NCLT,
dismissing the petition of the Respondents under Section 7 of the IBC.
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26. The Appellant Company filed a Counter Statement before the
Appellate Tribunal, and the Respondents filed a Rejoinder thereto.
Pursuant to the directions of the Appellate Tribunal, additional pleadings
were also filed.
27. On 13.08.2019 the Appellant Company caused 'Notice to
Produce Documents' to be issued to the Respondents calling upon
Respondents to produce certified true copies of the Statement of
Accounts of the Respondents maintained with HSBC Bank, Punjab
National Bank and Indian Overseas Bank, from which the Respondents
claimed to have advanced money to the Appellant Company and also
certified true copies of the Statement of Accounts of the Banks, in which
the cheques issued by M/s Radha Exports (proprietary concern) were
deposited and encashed. It is alleged that the Respondents replied to the
Notice to Produce Documents, but did not furnish the documents and/or
the details called for by the Appellant Company.
28. On or about 20th August 2019, the Appellant Company filed
an Additional Reply Statement, enclosing true copies of the Statement
of Accounts of M/s Radha Exports (Proprietary concern), the Appellant
Company and Mr. M. Krishnan reflecting the payments made to the
Respondents. Under the direction of the Appellate Tribunal, the Appellant
Company also filed a Correlation Statement of payment entries, reflected
in the Bank Statements and the statements given in the Additional Counter
Statement.
29. By the impugned judgment and order dated 2nd September
2019 the Appellate Tribunal allowed the appeal of the Respondents and
set aside the order dated 19th December 2018 of the NCLT, dismissing
the application under Section 7 of the IBC.
30. It appears that the Appellate Authority was not inclined to
accept the submission of the Appellant Company, that the entire amount
had been paid, for two purported reasons. The first reason was that the
Correlation Statement showed payments of certain amounts amounting
to Rs.53,05,000/- in favour of Customs, Chennai and payments amounting
to Rs.1,75,000/- in favour of one Mr. Kulasekaran. The Respondents, as
Financial Creditors had disputed that these payments were towards the
dues of the Financial Creditors. The second reason was that, if the total
amount had been paid, there was no reason for the Appellant Company
to take the plea that the amount was not payable, the same being barred
by limitation.
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.]
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31. It is well settled in law that alternative defences are permissible
to contest a claim. It was thus open to the Appellant Company, to refute
the claim of the Respondents by taking the plea of limitation and also to
contend that no amount was in fact due and payable by the Appellant
Company to the Respondents.
32. In Innoventive Industries Ltd. v. ICICI Bank and Anr.1,
the Supreme Court observed and held:-
"27. The scheme of the Code is to ensure that when a default
takes place, in the sense that a debt becomes due and is not
paid, the insolvency resolution process begins. Default is
defined in Section 3(12) in very wide terms as meaning nonpayment of a debt once it becomes due and payable, which
includes non-payment of even part thereof or an instalment
amount. For the meaning of "debt", we have to go to Section
3(11), which in turn tells us that a debt means a liability of
obligation in respect of a "claim" and for the meaning of
"claim", we have to go back to Section 3(6) which defines
"claim" to mean a right to payment even if it is disputed. The
Code gets triggered the moment default is of rupees one lakh
or more (Section 4). The corporate insolvency resolution
process may be triggered by the corporate debtor itself or a
financial creditor or operational creditor. A distinction is made
by the Code between debts owed to financial creditors and
operational creditors. A financial creditor has been defined
under Section 5(7) as a person to whom a financial debt is
owed and a financial debt is defined in Section 5(8) to mean
a debt which is disbursed against consideration for the time
value of money. As opposed to this, an operational creditor
means a person to whom an operational debt is owed and an
operational debt under Section 5 (21) means a claim in respect
of provision of goods or services.
28. When it comes to a financial creditor triggering the
process, Section 7 becomes relevant. Under the explanation
to Section 7(1), a default is in respect of a financial debt
owed to any financial creditor of the corporate debtor - it
need not be a debt owed to the applicant financial creditor.
Under Section 7(2), an application is to be made under sub1 (2018) 1 SCC 407
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section (1) in such form and manner as is prescribed, which
takes us to the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016. Under Rule 4, the
application is made by a financial creditor in Form 1
accompanied by documents and records required therein. Form
1 is a detailed form in 5 parts, which requires particulars of
the applicant in Part I, particulars of the corporate debtor in
Part II, particulars of the proposed interim resolution
professional in part III, particulars of the financial debt in
part IV and documents, records and evidence of default in
part V. Under Rule 4(3), the applicant is to dispatch a copy
of the application filed with the adjudicating authority by
registered post or speed post to the registered office of the
corporate debtor. The speed, within which the adjudicating
authority is to ascertain the existence of a default from the
records of the information utility or on the basis of evidence
furnished by the financial creditor, is important. This it must
do within 14 days of the receipt of the application. It is at the
stage of Section 7(5), where the adjudicating authority is to
be satisfied that a default has occurred, that the corporate
debtor is entitled to point out that a default has not occurred
in the sense that the "debt", which may also include a disputed
claim, is not due. A debt may not be due if it is not payable in
law or in fact. The moment the adjudicating authority is
satisfied that a default has occurred, the application must be
admitted unless it is incomplete, in which case it may give
notice to the applicant to rectify the defect within 7 days of
receipt of a notice from the adjudicating authority. Under
sub-section (7), the adjudicating authority shall then
communicate the order passed to the financial creditor and
corporate debtor within 7 days of admission or rejection of
such application, as the case may be."
33. The proposition of law which emerges from Innoventive
Industries Ltd. (supra) is that the Insolvency Resolution Process begins
when a default takes place. In other words, once a debt or even part
thereof becomes due and payable, the resolution process begins. Section
3(11) defines 'debt' as a liability or obligation in respect of a claim and
the claim means a right to payment even if it is disputed. The Code gets
triggered the moment default is of Rs.1,00,000/- or more. Once the
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.]
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Adjudicating Authority is satisfied that a default has occurred, the
application must be admitted, unless it is otherwise incomplete and not in
accordance with the rules. The judgment is however, not an authority
for the proposition that a petition under Section 7 of the IBC has to be
admitted, even if the claim is ex facie barred by limitation.
34. On the other hand, in B.K. Educational Services Pvt. Ltd. v.
Parag Gupta and Associates2, this Court held:-
"42. It is thus clear that since the Limitation Act is applicable
to applications filed under Sections 7 and 9 of the Code from
the inception of the Code, Article 137 of the Limitation Act
gets attracted. "The right to sue", therefore, accrues when a
default occurs. If the default has occurred over three years
prior to the date of filing of the application, the application
would be barred under Article 137 of the Limitation Act, save
and except in those cases where, in the facts of the case,
Section 5 of the Limitation Act may be applied to condone the
delay in filing such application."
35. The judgment in B.K. Educational Services Pvt. Ltd. (supra)
was referred to and relied upon by the Court in Vashdeo R. Bhojwani v.
Abhyudaya Co-operative Bank Ltd.3.
36. It was for the applicant invoking the Corporate Insolvency
Resolution Process, to prima facie show the existence in his favour, of
a legally recoverable debt. In other words, the respondent had to show
that the debt is not barred by limitation, which they failed to do.
37. Under clauses (19) to (21) of Part II of the Schedule of the
Limitation Act 1963, the period of limitation for initiation of a suit for
recovery of money lent, is three years from the date on which the loan
is paid. The last loan amount is said to have been advanced in 20042005. In the winding up petition, there is not a whisper of any agreed
date by which the alleged loan was to be repaid to the Respondents. In
the instant case, apparently the debt was barred by limitation even in the
year 2012, when winding up proceedings were initiated in the Madras
High Court.
38. The NCLT rightly refused to admit the application under
Section 7 of the IBC, holding the same to be barred by limitation. The
Appellate Tribunal has erred in law in reversing the judgment and order
2 (2019) 11 SCC 633
3 (2019) 9 SCC 158
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of the earlier Adjudicating Authority. The Adjudicating Authority rightly
rejected the application as barred by limitation. The Appellate Authority
patently erred in law in reversing the decision of the adjudicating authority
and admitting the application.
39. As recorded in the said order dated 19th December, 2018 passed
by the NCLT Chennai, the Respondent Nos. 1 and 2 jointly addressed
the letter dated 11th January, 2011 to the Income Tax Department
confirming that the Respondent No.1 had requested the Appellant
Company to transfer a sum of Rs.90 lakhs to his wife, the Respondent
No.2 for allotment of shares in the Appellant Company and further
acknowledged that the amount outstanding from the erstwhile firm
M/s. Radha Exports to the Respondent was Rs.1,39,60,000/- as on 31st
March, 2004. The said letter has been extracted in full in Paragraph (9)
of the judgment and order dated 19th December, 2018 of NCLT.
40. There are, as observed above cogent records including letters
signed by the Respondent Nos. 1 and 2 which evince that on 6th October,
2007, Respondent No.2 resigned from the Board of the Appellant
Company and at that time the Respondent No.2 requested the Appellant
Company to treat the share application money of Rs.90,00,000/- as share
application money of Mr. M. Krishnan and to issue shares for aforesaid
value to Mr. M. Krishnan. The amount was to be treated as a personal
loan from the Respondent No.2 to Mr. M. Krishnan. A personal Loan to
a Promoter or a Director of a company cannot trigger the Corporate
Resolution Process under the IBC. Disputes as to whether the signatures
of the 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 the IBC.
41. It is, however, made clear that the observations made above,
with regard to limitation are based on the pleadings and annexures in the
winding up proceedings under Sections 433/434 of the Companies Act,
1956 filed in Madras High Court, which were transferred to the NCLT
and also the pleadings in CP/77/ (IB)/CB/2018 and WCP No. 770/IB/
CB/C-II/2018 filed before the Chennai Bench of NCLT. Any suit filed
by the Respondents against Mr. Krishnan or against the company will
be decided on its own merits without being swayed by the observations
made in this judgment.
42. Even otherwise, the application under Section 7 of the IBC
was not maintainable. As rightly held by the NCLT there was no financial
debt in existence. In this context, it would be pertinent to refer to the
following provisions of the IBC:-
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v.
K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.]
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"3. Definitions.- In this Code, unless the context otherwise
requires,-
 .......
(8) "corporate debtor" means a corporate person who owes a
debt to any person;
.......
(10) "creditor" means any person to whom a debt is owed and
includes a financial creditor, an operational creditor, a secured
creditor, an unsecured creditor and a decree-holder;
(11) "debt" means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt and
operational debt;
(12) "default" means non-payment of debt when whole or any
part or instalment 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.
xxx
xxx
xxx
5.