Narendra Promoters & Fincon Pvt. Ltd. Vs. Caltron Info Trade Pvt. Ltd. - Non-production of documents in respect of loans given by NBFC alone cannot preclude the Adjudicating Authority from admitting an Application under section 7 of the Code.

 NCLT Kolkata (31.01.2022) in Narendra Promoters & Fincon Pvt. Ltd. Vs. Caltron Info Trade Pvt. Ltd.(Company Petition (IB) No. 751/KB/2020) held that;

• That while a written contract cannot be treated as a pre- requisite to proving the existence of financial debt 

• Non-production of documents in respect of loans given by NBFC alone cannot preclude the Adjudicating Authority from admitting an Application under section 7 of the Code, 

• The Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process with mala fide for any purpose other than the resolution of the Insolvency. 

• Further, the requirement for leading evidence suggests that the instant matter is out of scope of summary proceedings under the Insolvency and Bankruptcy Code, 2016, and will be better dealt with in a civil Court. 

Excerpts of the order;

# 3. Submission of the learned Counsel for the Operational Creditor 

3.1 The case of the Financial Creditor is that the Financial Creditor being a Non Banking Financial Company, sanctioned a short term loan of ₹ 25,00,000/- (rupees Twenty- Five Lakh only) to the Corporate Debtor for a period of 90 days with interest @ 15%.per annum. The Corporate Debtor received the entire loan on 16th May, 2017 and has admitted to receiving the loan via a confirmation letter dated 17th May, 2017. the Corporate Debtor sent a post dated cheque along the said confirmation. 

3.2 Thereafter on request of the Corporate Debtor, the Financial Creditor kept renewing the said loan. The Corporate Debtor has paid interest @ 15% aggregating to a sum of Rs. 7,96,237/- accruing from 16th May, 2017 to 30th June, 2019. The last payment for interest was made on 2nd August, 2019 towards interest accrued till 30th June, 2019. Therefore, the debt has become due and payable on 1st July, 2019 which is the date of default. 

3.3 The Financial Creditor issued a demand notice dated 1st January, 2020 upon the Corporate Debtor demanding return of the aforesaid loan amount. Despite receipt of the demand notice, the Corporate Debtor has failed to repay the loaned amount till date. As such, the Corporate Debtor has committed a default under the Insolvency and Bankruptcy Code, 2016. 

3.4 In support of his claims, the Operational Creditor has relied on the following citations: 

• i. Monotrone Leasing Private Limited v P.M Cold Storage Private Limited- NCLAT, Company Apepal (AT) (Insolvency) No. 99 of 2020; dt. 16.07.2020- (Para 4, 5, 9, 11, 14, 16, 17, 18, 19, 20 and 30) 

• ii. Narendra Kumar Agarwal and ors v Monotrone Leasing Private Limited and Ors. (Company Appeal (AT) (Insolvency) No. 549 of 2020 (NCLAT; Order dated 19.01.2021) (paras 2, 7, 8, 9, 10, 11, 17, 18, 19, 20) 

 

# 4 Submission of the learned Counsel for the Corporate Debtor 

4.1 The counsel of the Corporate Debtor has submitted that there is no proper board resolution to authorize the applicant to initiate any proceeding on behalf of the applicant Company. 

4.2 The Operational Creditor has failed to bring on record any certificate for being a Non Banking Financial Corporation and hence, the loan purported to be provided by the applicant to the Corporate Debtor is contrary to the provisions of Companies Act 2013, making the instant application nonmaintainable in the eyes of law. 

4.3 There was no agreement between the Applicant and the Corporate Debtor, for providing any loan or for providing any purported interest thereon. Further, the period of 90 days was extended and the said short-term period of 90 days was converted into a long term and hence the purported loan amount is not yet due or payable by the Corporate Debtor. As such the purported loan cannot be classified as a financial debt under the Code. 

4.4 The Corporate Debtor has never acknowledged or admitted the loan amount in any manner and any payment of interest or deduction of TDS thereon by the Corporate Debtor cannot be construed as admission of entire amount of loan and interest thereon and such the claim of the applicant, if any, is barred by the laws of limitation 

4.5 The Corporate Debtor has denied receiving the purported demand notice and has submitted that any balance confirmation of accounts purported to be signed by the Corporate Debtor has been signed beyond the period of limitation and hence cannot be construed to be any admission by and/or on part of the Corporate Debtor within the period of limitation, or at all. Findings and Analysis 

 

# 5. Heard the learned Counsel for the Operational Creditor and perused the record. 

 

# 6. The Corporate Debtor has submitted that the Operational Creditor has failed to bring on record any certificate for being a Non Banking Financial Corporation and hence, the loan purported to be provided by the applicant to the Corporate Debtor is contrary to the provisions of Companies Act 2013. In reply, the Operational Creditor has relied on Monotrone Leasing Private Limited v P.M Cold Storage Private Limited- NCLAT, Company Appeal (AT) (Insolvency) No. 99 of 2020; dt. 16.07.2020 (Para 18), wherein adverse inference against the Financial Creditor was drawn by the Adjudicating Authority on account of non-submission of requisite documents for obtaining a loan from an NBFC. In this case, the NCLAT held that the Adjudicating Authority is expected to admit or reject an application for initiation of CIRP solely on the basis of parameters laid down under Sections 7, 9 or Sec 10 of IBC. 

 

# 7. However, in Shree Ambica Rice Mill Vs. M/s Kaneri Agro Industries Limited – NCLAT, (Company Appeal (AT)(Ins.) No. 143 of 2021), it was held that it is the obligation of the Adjudicating Authority to investigate the nature of the transaction and the Application should be admitted very cautiously so as to prevent taking undue benefit of provisions of IBC to detriment of the rights of legitimate creditors as well as to protect the Corporate Debtor from being dragged into CIRP with malafide. (Para 19) 

 

# 8. Further, in Hytone Merchants Private Limited vs. Satabdi Investment Consultants Private Limited, Company Appeal (AT) (Insolvency) No. 258 of 2021, it was observed that the Adjudicating Authority should be very cautious in admitting the Application so as to prevent the Corporate Debtor from being dragged into Corporate Insolvency Resolution Process with mala fide for any purpose other than the resolution of the Insolvency. Thus, the Adjudicating Authority must take every precaution so that the insolvency process is not misused for any other purposes other than the resolution of Insolvency. (Para 39) Hence, while the Adjudicating Authority is expected to admit or reject an application for initiation of CIRP solely on the basis of parameters laid down under Sections 7, 9 or Sec 10 of IBC, at the same time, it must ensure that the Corporate Debtor is not dragged into Corporate Insolvency Resolution Process with mala fide for any purpose other than the resolution of the Insolvency. 

 

# 9. Further, in reply to the Corporate Debtor’s contention that there was no agreement between the applicant and the Corporate Debtor, the Operational Creditor has placed reliance on Narendra Kumar Agarwal and ors v Monotrone Leasing Private Limited and Ors. (Company Appeal (AT) (Insolvency) No. 549 of 2020 (NCLAT; Order dated 19.01.2021) wherein it was held that the written contract can not be treated as an essential element or pre-requisite to prove the existence of Financial Debt (Para 11) 

 

# 10. On the other hand, the Corporate Debtor has submitted that it has never acknowledged or admitted the loan amount in any manner and any payment of interest or deduction of TDS thereon by the Corporate Debtor cannot be construed as admission of entire amount of loan and interest thereon. In support of this submission, we can place reliance on the judgment of Actal vs. India Infoline Ltd., 2013 SCC Online Bom 915 wherein it was held that the TDS certificate is primarily to acknowledge the deduction of tax at source. The issuance of TDS certificate by the respondent in this case does not amount to any acknowledgment of liability by the respondent in favour of the petitioner. (Para 27) 

 

# 11. Further, in N.N. Valechha v. I.G. Petrochemicals Ltd., 2006 SCC OnLine Bom 1289, the Hon’ble Bombay High Court has held that the TDS certificate, can prima facie be proof only of the tax deducted at source and not of the amount due to the petitioner, more so when the petitioner fails to show that the amount mentioned therein is due to him. (Para 11) 

 

# 12. Further, the Operational Creditor has placed on record what is purported to be the Confirmation Letter from the Corporate Debtor towards the receipt of the aforementioned loan amount. On taking a close look at the document, it can be seen that the said letter is undated, is not addressed to any person and further, is not signed or stamped by the Corporate Debtor. The said discrepancies raise questions onto the genuineness of the document so placed. In this regard, we would like to rely on section 18 of the Limitation Act, which stipulates that before the expiration of the prescribed period for a suit or application in respect of any property or right, if an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. 

 

# 13. Further, where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. In the instant case, wherein the confirmation letter is undated, oral evidence needs to be taken in a Civil Court, as the same is not possible in the summary proceedings under the Code. 

 

# 14. In light of the abovementioned judgments, we would like to hold that while a written contract cannot be treated as a pre- requisite to proving the existence of financial debt and while non-production of documents in respect of loans given by NBFC alone cannot preclude the Adjudicating Authority from admitting an Application under section 7 of the Code, the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process with mala fide for any purpose other than the resolution of the Insolvency. Further, the requirement for leading evidence suggests that the instant matter is out of scope of summary proceedings under the Insolvency and Bankruptcy Code, 2016, and will be better dealt with in a civil Court. 

 

# 15. In view of the above facts and circumstances, we are of the view that this petition is not maintainable under the Code and hence reject the Company Petition on the grounds stated above. Consequently, C.P.(IB) No. 751/KB/2020 shall stand dismissed. Needless to say, the Financial Creditor is free to pursue its remedies under any other law, and the dismissal of the present petition shall not stand in the way of such pursuit of remedies. 

 

# 16. The registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps. 

 

# 17. Certified Copy of this order may be issues, if applied for, upon compliance of all requisite formalities. 

 

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