National Company Law Appellate Tribunal
Jai International Pvt. Ltd vs Jaroli Agro Pvt. Ltd on 10 December, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI
Company Appeal(AT) (Ins) No. 277 of 2021
IN THE MATTER OF:
M/s. Jai International Pvt. Ltd
75, Mittal Chambers, Nariman Point,
Mumbai - 400 021 ...Appellant
Versus
M/s. Jaroli Agro Pvt.Ltd.
1008, 10th Floor,
Hubtown Viva, Shankarwadi,
Western Express Highway,
Jogeshwari (E),
Mumbai - 400 060 ...Respondent
Present:
For Appellant : Ms. Sumedha Dang and Mr. Tejas Deshpande, Advocates.
For Respondents : Mr. R.Sudhinder and Ms.Ekta Bhasin, Advocates.
JUDGMENT
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
1. The present appeal has been filed by the 'Appellant' - 'Jai International Pvt Ltd.', under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short 'Code') against the impugned order dated 15.07.2021 passed by the 'Adjudicating Authority' (National Company Law Tribunal), Mumbai Bench in Company Petition (IB) No. 4605 of 2019.
2. The Appellant is engaged in the business of supplying, trading and exporting agricultural commodity and extraction products. The Respondent too is also 1 Company Appeal (AT)(Ins) No.277 of 2021 engaged in similar business apart from providing consultancy services to the Appellant. The Appellant has asked for refund of outstanding amount of Rs. 30,75,408/-. The Respondent neglected to refund the said amount inspite of demand notice served on them and hence filed 'Insolvency Petition' under Section 9 of the Code before the Adjudicating Authority. On its petition being dismissed by the Adjudicating Authority, it has appealed to set aside the impugned order dated 15.07.2021 and initiate 'Corporate Insolvency Resolution Process' (CIRP).
3. The Adjudicating Authority has dismissed the petition on the ground of limitation, dispute between the parties, the amount being loan, the Petition filed under Section 9 is not maintainable and has accordingly dismissed the petition.
4. Mr. Prajendra Jaroli, one of the 'Director' of the Respondent Company - Corporate Debtor was working as an employee with the Appellant since 2000. He was responsible for the management of trading and exports of the Appellant. Thereafter, on the request of Mr. Prajendra Jaroli, the Appellant agreed to continue his services as 'Consultant'. Mr. Prajendra Jaroli incorporated the Corporate Debtor in which he and his son were 'Directors'. The Appellant advanced Rs.40 lakhs on 31.12.2014 for rendering the services equivalent to the advance by the Respondent. The Appellant ledger at page 90 of the Appeal paper book reflects that two cheques were issued -one of value of Rs.10 lakhs and another value of Rs.30 lakhs in favour of Jaroli Agro Pvt. Ltd i.e the Respondent. The Ledger account also reflects transaction for adjustment on commission on exports till 2nd November, 2015 and thereafter, 2 Company Appeal (AT)(Ins) No.277 of 2021 towards other expenditure of posted and courier charges till 24th November, 2017 with a balance outstanding of Rs.30,75,408.72/- at page 96 of the Appeal Paper book. The same amount is appearing in the demand notice dated 14.11.2019 at page 54 of the appeal paper book under section 8 of the Code. The Consultancy services which Mr. Prajender Jaroli was operating through the Corporate Debtor to whom the money was advanced. The Respondent Company has also acknowledged Rs, 30,00,000/- from 01.04.2014 to 31.03.2019 as per the ledger of Corporate Debtor appearing at page 163 of the Appeal Paper book. The Operational Creditor's book is also reflecting as on March, 2017 Rs.30,71,903/- as advanced to be recovered in cash or kind duly audited by 'Chartered Accountant' for the Financial Year 2016-17 (appearing at page No.176 of the Appeal Paper Book). The Appellant has also submitted that the amount Rs. 30 Lakhs carrying the word of RTGS /IDBI loan has been misunderstood by the Adjudicating Authority as the 'terms of loan' and 'advance' are intangible and has supplement with the following judgments:
• In the case of Commissioner of Income Tax Assam, Tripura and Manipur V. Panbari Tea Co. Ltd., reported at AIR 1965 SC 1891, the Hon'ble Supreme Court of India stipulated that:-
5. "......There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact for advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive 3 Company Appeal (AT)(Ins) No.277 of 2021 but it helps the court, having regard to the other circumstances, to ascertain the intention of parties..."
• In the case of Commissioner of Income Tax West Bengal -III, Vs. Provincial Farms Pvt. Ltd., reported at 1976 SCC Online Cal 342, the Hon'ble High Court of Calcutta had observed that:-
"14. It is also elementary that the entries in the books of account cannot alter or affect the nature, quantity and character of any transaction and that for the purposes of taxation the substance of the transaction in question has to be looked at. The substance of the matter, in the instant case before us, must be viewed in the light of the said litigation including the decree and the said order passed therein. Further, the conveyance in that case should also be read and understand in the context of the said decree and the order including the facts and the circumstances of the case as found by the Tribunal.
The Adjudicating Authority has, therefore, wrongly proceeded on the basis that claimed amount is a 'loan' where in fact it was given as 'advance'. Advance given is an operational debt within the meaning of the term encompassed in Section 5(21) of the Code.
5. The Appellant has contended that advance was given, no doubt, in the year 2014 but there was a continuous transaction till November, 2017. All such debit notes passed between 29.02.2016 to 24.11.2017 are duly signed by the 'Director of the Corporate Debtor' -Mr. Prajender Jaroli. Hence, limitation is not applicable to its case as it has filed its application before the Adjudicating Authority on 06.12.2019 is within limitation considering the provisions of Section 18 of the Limitation Act, 1963.4
Company Appeal (AT)(Ins) No.277 of 2021 For clarity & brevity, Section 18 of the Limitation Act, 1963, is reproduced below for convenience:
"Section - 18. Effect of acknowledgment in writing.-- (1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, 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.
(2) 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. Explanation.--For the purposes of this section,--
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;
(b) the word "signed" means signed either personally or by an agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."
6. It has also supplemented its claim by citing the case of Asset Reconstruction company Ltd. Vs. Bishal Jaiswal, reported at 2021 SCC Online SC 321, the Hon'ble Apex Court was of the view that:
"32. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such 5 Company Appeal (AT)(Ins) No.277 of 2021 financial statements are expressly recognised by Section 134(7). Equally, the auditor's report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."
7. It has also been submitted by the Appellant that the present Corporate Debtor is not a party to the company Petition (IB) No. 1706 /2019 filed by Mr. Prajendra Jaroli which is his individual capacity against the Operational creditor to recover his alleged dues which was dismissed by Adjudicating Authority vide order dated 28.11.2019. The Corporate Debtor is also not a party to the said MOU based on which the alleged claim has been filed by Mr. Prajender Jaroli. Hence, there is no pre-existing dispute between the Operational Creditor and the Corporate Debtor.
8. The Respondent has submitted that Mr. Prajender Jaroli was working as an employee of the Appellant Company from the year 2000 to 2008 and thereafter, worked as external consultant of the Appellant. Mr. Prajender 6 Company Appeal (AT)(Ins) No.277 of 2021 Jaroli has entered into MOU with the Appellant on 21.08.2013 and in partial satisfaction of amounts agreed in the MOU till 24.08.2018. It has also been stated by the Respondent that the said amount of Rs. 30 Lakhs is not towards advance payment but towards the amount payable under the MoU. It has also been stated by Respondent that it is a mere counter blast to the Petition No. (IB) 1706 of 2019 filed by Mr. Prajender Jaroli. The alleged claim made by the Operational Creditor/ Appellant ex-facie barred by limitation and the amount advanced on 31.12.2014 to the Appellant towards commission/brokerage is time barred as Petition has been filed in December 2019 which is more than 4 (four) years and has placed the reliance on B.K.Educational Services Pvt. Ltd Versus Parag Gupta and Associates, (2019) 11 SCC 633 relevant paras 5, 11, 12, 19, 21, 26, 42 and 43. The Appellant has also failed to prove that its claim falls under the definition of 'Operational debt' as Adjudicating Authority has held that Rs. 30 lakhs were given as loan. Hence, the present appeal is frivolous, baseless and deserves to be rejected.
9. We have carefully gone through the submissions made by the parties and their written submissions and have following observations:
a. Schedule - III part -1 of the Companies Act, 2013 provides the format of the Balance Sheet both for equity & liabilities and its assets. The assets include short terms loans and advances as well as long term loans and advances. As far as receipt of Rs.30 Lakhs by the Respondent is concerned is not disputed by the Respondent only the dispute is there "that the payment is a loan". Hence, application filed by the Appellant under operational creditor category under section 9 of the Code is not 7 Company Appeal (AT)(Ins) No.277 of 2021 maintainable. Ongoing through page 163 of the Appeal paper book, the Corporate Debtor ledger reflects for the period 1st April 2014 to 31st March, 2019 closing balance of Rs. 30 lakhs in the books of corporate debtor. While audited Balance Sheet of the operational creditor for the Financial Year 2016-17 reflects and outstanding amount of Rs.30,71,903/- under the heading "advances to be recovered in cash or kind from the Corporate Debtor". Hence, it is very much clear that an amount of Rs. 30 lakhs are recoverable from the Corporate Debtor and it is also very much clear that that amount is advanced towards commission/brokerage payable to the other party at a future date as and when such commission becomes due. Hence, it is an amount towards utilization of provisions of services provided by the other parties and is covered under Section 5(21) the Code. For clarity & brevity, Section 5(21) of the Code, is reproduced below for convenience:
"Section 5(21)- "Operational Debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority."
This is as per the prevalent accounting practice supported by Schedule- III Part -1 of the Companies Act, 2013 as stated above and hence petition filed by the Appellant under Section 9 after issuing demand notice as per section 8 of the Code is in order. 8 Company Appeal (AT)(Ins) No.277 of 2021 b. As far as pre-existing dispute is concerned, the Respondent has objected to it only in the reply dated November, 23rd 2019 to the demand notice dated November, 14, 2019 (appearing at page no.105 of the Appeal Paper Book) under the Code where it has stated that it is a counter blast to the petition filed by Mr. Prajender Jaroli, Company Petition (IB) No. 1706 of 2019 which has been dismissed by the Adjudicating Authority as stated above and also stated that the acknowledged amount of Rs. 30 Lakhs is towards part satisfaction of the amounts payable under MoU. The Corporate Debtor is not a party in Company Petition (IB No. 1706 of 2019 and so also not a party to the MoU. Hence, it is an unrelated issue as far as Corporate Debtor with the Operational Creditor is concerned and in this context we refer to 'Mobilox Innovations Private Limited' V/s. 'Kirusa Software Private Limited' "24. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must 9 Company Appeal (AT)(Ins) No.277 of 2021 bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing - i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. ........"
25. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:
(i) Whether there is an "operational debt" as defined exceeding Rs.1 lakh? (See Section 4 of the Act)
(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And
(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration Proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act."
10
Company Appeal (AT)(Ins) No.277 of 2021 In this case, it is very much clear that the dispute between the corporate debtor has first time pointed out in the reply to the notice without any supporting paper to reflects that there is a pre-existing dispute. It is also clear that the amount is due and payable under the Law as the parties have parted their ways from 2018 and has not refunded the outstanding amount to the Appellant. c. On the issue of that the advance was given in the year 2014 and the case has been filed in the year 2019 normally the claim is barred by limitation but it is not the case here as the transactions are continuing between the parties till 2017 in one form or the other and debit or credit notes was continuing between the operational creditor or corporate debtor till 24th November, 2017 and the same has been accepted by the 'Director' of the corporate debtor - Mr. Prajender Jaroli. Hence, by virtue of Section 18 of the Limitation Act, 1963, limitation gets extended and the petition filed in the year 2019 is in order.
10. Hence, in view of above facts and circumstances of the case as stated at para 09, we are unable to uphold the view of the Adjudicating Authority. We feel that there are material substances in the appeal and the appeal deserves to be allowed. Accordingly, we are setting aside the impugned order dated 15.07.2021 of the 'Adjudicating Authority' (National Company Law Tribunal), Mumbai Bench in Company Petition (IB) No. 4605 of 2019. We are remanding back the matter to the Adjudicating Authority to initiate CIRP against the Corporate Debtor after allowing a period of 30 days to the parties to settle the matter failing which to initiate CIRP against the corporate debtor. The 11 Company Appeal (AT)(Ins) No.277 of 2021 Registry is directed to forward a copy of this judgment to the Registrar NCLT, New Delhi to place a copy of this judgment before the appropriate Adjudicating Authority to implement the direction.
Interim order, if any, passed by this Tribunal stands vacated. Pending Application, if any, stands disposed of. No order as to costs.
[Justice Ashok Bhushan] Chairperson [Justice Jarat Kumar Jain] Member (Judicial) (Dr. Ashok Kumar Mishra) Member(Technical) 10th December, 2021 New Delhi Raushan.K 12 Company Appeal (AT)(Ins) No.277 of 2021