Jkm Infrastructure Pvt. Ltd vs Cadillac Infotech Pvt. Ltd on 5 January, 2023

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National Company Law Appellate Tribunal

Jkm Infrastructure Pvt. Ltd vs Cadillac Infotech Pvt. Ltd on 5 January, 2023

This Appeal has been filed against the order dated 09.06.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Cont'd.../ -2- New Delhi, Bench V by which order the Section 7 application filed by the Appellant has been dismissed as barred by time. Brief facts of the case giving rise to this Appeal are:

(i) The Respondent - Corporate Debtor through its Director Mr. D. K. Gupta entered into a Memorandum of Understanding (MOU) dated 07.08.2013 with M/s Airwil JKM Infrastructure Pvt. Ltd. for carrying development on the land owned by the Corporate Debtor situated at Sector 135, Noida, Distt. Gautam Budh Nagar.

(ii) The Infrastructure Company i.e. M/s Airwil JKM Infrastructure Pvt. Ltd. alongwith the Financial Creditor and the affiliate companies paid a sum of Rs.15 Crores in terms of the MOU and an additional amount of Rs.1.75 Crores was also paid.

(iii) Out of the above amount of Rs.16.75 Crores, the Financial Creditor namely JKM Infrastructure Pvt. Ltd. (Appellant herein) paid Rs.2.75 Crores. The Corporate Debtor could not acquire/amalgamate the Plot No. 10 as required in terms of the MOU dated 07.08.2013. The Corporate Debtor having not acquire, the MOU was not implemented.

(iv) The Corporate Debtor again approached the Infrastructure Company and it was decided that a new agreement shall be executed i.e. the Property Development Agreement between the Company Appeal (AT) (Insolvency) No. 990 of 2022 -3- Corporate Debtor and the affiliate company of the Infrastructure Company i.e. Airwil JKM Infracon Pvt. Ltd.

(v) The MOU dated 07.08.2013 was cancelled and Property Development Agreement dated 06.09.2014 was executed between the Corporate Debtor and Airwil JKM Infracon Pvt.

Ltd. (hereinafter referred to as 'Infracon Company'). The amount received under the MOU was not adjusted in the Property Development Agreement except the amount of Rs.1 Crore.

(vi) The Property Development Agreement was also subsequently cancelled by the Corporate Debtor alleging that the Infracon Company did not pay the balance amount of Rs.14 Crores within 45 days.

(vii) The Corporate Debtor initiated an Arbitration Proceeding against the Infracon Company in the Delhi High Court where an arbitration award was delivered dated 16.10.2018 which award was modified in proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 by the Delhi High Court. In the pleadings filed in the Arbitration Proceeding the receipt of the amount in pursuance of MOU dated 07.08.2013 was not denied by the Corporate Debtor.

(viii) The Financial Creditor (Appellant herein) filed an application under Section 7 against the Corporate Debtor claiming an amount of Rs.2,70,00,000/- plus Rs.3,03,75,000/- towards Company Appeal (AT) (Insolvency) No. 990 of 2022 -4- interest totaling to Rs.5,73,75,000/-. The application was filed by the Financial Creditor in April, 2022. The Adjudicating Authority heard the Appellant and by order dated 09.06.2022 dismissed the application as barred by time. Appellant aggrieved by the order of the Adjudicating Authority filed this Appeal.

2. This Tribunal issued notice to the Respondent by its order dated 23.08.2022 noticing the following:

"O R D E R 23.08.2022: Learned Counsel for the Appellant submits that the Adjudicating Authority has committed error in rejecting the Application on the ground that it is barred by time. It is submitted that debt is not barred by time and there were ample materials on record to indicate that it was not barred by time. Submissions need scrutiny.

2. Issue notice to the Respondent through Speed Post as well as Email. Requisites along with process fee, if not filed, be filed within two days. Reply Affidavit may be filed within three weeks. Rejoinder, if any, may be filed within two weeks, thereafter.

List this Appeal on 12th October, 2022."

Company Appeal (AT) (Insolvency) No. 990 of 2022 -5-

3. In pursuance of the notice issued by this Tribunal the Corporate Debtor filed a reply on 10.11.2022 to which rejoinder affidavit has also been filed on behalf of the Appellant.

4. We have heard learned counsel for the parties.

5. Learned counsel for the Appellant challenging the judgment of the Adjudicating Authority submits that the application filed by the Appellant was not barred by time. The amount paid by the Financial Creditor was duly reflected in the Balance Sheets of the Corporate Debtor from Financial Year 2013-14 till Financial Year 2020-21. After acknowledgement of debt by the Corporate Debtor in his Balance Sheets, the Section 7 application could not have been rejected as barred by time. It is submitted that all relevant facts regarding limitation of Section 7 application was pleaded in the Section 7 application which has not been adverted to by the Adjudicating Authority. The Adjudicating Authority did not apply its mind to the materials brought on record alongwith the Section 7 application and has casually rejected the application. It is submitted that the in Arbitration Proceeding initiated by the Corporate Debtor against the Infracon Company, with whom it entered into the Property Development Agreement, there was admission by the Corporate Debtor of receipt of the amount in pursuance of MOU dated 07.08.2013. In the reply filed in this Tribunal by the Corporate Debtor it is admitted that amount claimed by the Appellant is very well reflected in the Balance Sheets, however, the Corporate Debtor pleads that the amount claimed by the Appellant has been reflected only Company Appeal (AT) (Insolvency) No. 990 of 2022 -6- for complying with accounting standards and requirements. The Corporate Debtor has also admitted the debt in the pleadings filed during course of the Arbitration Proceedings taken before the Delhi High Court which admission is also another incidence of acknowledgement of debt extending the limitation for filing Section 7 application. Detailed pleadings have been made in the Section 7 application and it was incumbent upon the Adjudicating Authority to advert to the relevant pleadings. Learned counsel for the Appellant further submits that constituent of the financial debt were fully proved as per Clause 16 of the MOU in the event the Corporate Debtor is unable to acquire or amalgamate the fifth plot, the MOU was to cease to exist and the payment received was required to be refunded.

6. Learned counsel for the Respondent refuting the submissions of learned counsel for the Appellant submits that the Section 7 application was filed beyond three years from the date of default. As per the Appellant itself the amount fell due in or about August, 2014, whereas the application was filed on 10.04.2022. The books of accounts of the Corporate Debtor do not contain any unequivocal/ unqualified acknowledgement of debt which can be relied upon for extending limitation under Section 18. It is submitted that benefit of Section 14 of the Limitation Act is not available as claimed in the application on the basis of Arbitration Proceedings. The Claim of the Appellant does not constitute financial debt.

7. We have considered the submissions of learned counsel for the parties and perused the record.

Company Appeal (AT) (Insolvency) No. 990 of 2022 -7-

8. The Order impugned was passed by the Adjudicating Authority after reserving the order on the point of issuance of notice. No notice was issued by the Adjudicating Authority and on the point of issuance of notice itself the application came to be rejected. In entire order of the Adjudicating Authority there are only two paragraphs in which the question of limitation has been considered, they are paras 5 and 6, which are to the following effect:

"5. Now we consider, whether the application is within time or not? On perusal of the Annexure A- 5, we observe, as per the averments made in Annexure A-5 debt fell due in or about August, 2014, when the MoU dated 7th August, 2013 in question had been cancelled, whereas the present application is filed on 10th April, 2022 much after the 3 years from the date of default as referred to in Annexure A-5.

6. At this juncture, we would also like to refer to part-IV of the application and it is seen that in part-IV column-1, the last date for disbursal of the amount is 27th February, 2014 and the last date for refund of the amount is 28th October, 2013 and it is also mentioned that the amount in default is as per annexure A-5, which we have already referred to above."

9. One of the ground taken in the appeal by the Appellant is that at the time of reserving order on issuance of notice only submissions heard by the Adjudicating Authority was as to nature of debt, whether the debt is a Company Appeal (AT) (Insolvency) No. 990 of 2022 -8- financial debt or not and no arguments were advanced on the question of limitation nor any query was raised.

10. Be that as it may, the Adjudicating Authority while considering the application under Section 7 is fully entitled to consider the question of limitation of the application even if no plea is raised in the said regard. We, thus, need to consider the submissions of the Appellant on merits regarding challenge to the order of Adjudicating Authority dismissing application as barred by time.

11. The principal submission of learned counsel for the Appellant is that Section 7 application in details have given all facts pertaining to the limitation and had the Adjudicating Authority adverted to those facts it would have been satisfied that application is not barred by limitation. To consider the above submission, we need to look into the pleadings made in Section 7 application made by the Appellant pertaining to the limitation. In Part IV of the application there is separate headings of limitation in Para 47 of the application. We need to extract the entire para 47, which is to the following effect:

"47. LIMITATION I. The FC submit that the period of limitation with respect to the said debt is governed by Article 113 of the Schedule under the Limitation Act, 1963.

Company Appeal (AT) (Insolvency) No. 990 of 2022 -9- II. That the limitation in terms of Article 113 began to run in August, 2014 when the MOU was cancelled. Thereafter, during the subsistence of the said period of limitation which began in August, 2014, the CD executed an acknowledgment letter dated 09.10.2014, in terms of Section 18 of the Limitation Act, 1963 on its letter head not only specifically acknowledging the factum of deposition of Rs.15 Crs. in terms of the MOU but also acknowledged and agreed to the fact that the said amount of Rs.15 Crs. shall be refunded and/ or adjusted/ considered on account of Infracon Co. as per/ under the PDA. Thereafter, the reply - cum - counter claim (filed by the Infracon Co. in the arbitral proceedings) specifically admitted of having received the said amount from the FC and its affiliates companies under the MOU and thereafter during the said arbitral proceedings only, more particularly in or about 21.11.2017 placed on record balance sheets and / or statement of accounts for the relevant period reflecting the receipt of the amount under the MOU. Thereafter, even during the course of final arguments the CD vide its written submissions dated 01.10.2018 again categorically admitted of having received the said amount under the MOU on account of Infrastructure Co. Thus, since the beginning of August, 2014 when the MOU in Company Appeal (AT) (Insolvency) No. 990 of 2022 -10- question had been cancelled and on various dates, as detailed aforesaid, when the amount received under the MOU had been acknowledged and /or admitted, a fresh period of limitation began thereby giving arise to a fresh cause of action in favour of the FC for maintaining the present application. This application, is therefore, within the prescribed period of limitation.

III. Alternatively, it is also submitted that the present application is also within the period of limitation in as much as CD in the present case has shown the amount paid by the FC under the MOU dated 07.08.2013 from year 2013-2014 onwards till date in its book of accounts, profit and loss account, balance sheets and director's reports, which are being annexed alongwith the list of documents of the present application. The FC submit that the liabilities of the CD shown therein substantially includes the amount paid by the FC and its associate/ affiliate companies. The FC submits that the entries in the said books of account, profit and loss account, balance sheet and directors report regarding the payment by the FC under the MOU dated 07.08.2013 to the CD constitute an acknowledgement of liability from year to year under Section 18 of the Limitation Act, 1963. Hence, the Company Appeal (AT) (Insolvency) No. 990 of 2022 -11- present application is therefore also within the period of limitation.

IV. Alternatively, the period of limitation for filing the present application also arose when the Ld. Arbitrator passed the impugned award dated 16.10.2018 and declined to adjust the amount of Rs.15.75 Cr. Paid on account of the Infrastructure Co. under the MOU with understanding since they have not refunded the amount of Rs.15.75 Cr., the same shall be adjusted under PDA and thereby declined to grant relief and thereafter again on 29.11.2021 when the Ld. Single Judge while partially modifying the award, failed to interfere in the award dated 16.10.2018. Thus, while resorting to the express provision of Section 14 Limitation Act, 1963 which expressly excludes the period of limitation spent while pursuing bonafide before the court lacking competent jurisdiction to adjudicate upon the same. In view of it, it is submitted that the when the defence of Infracon Co. pertaining to commonality of the interrelated transaction between the Infrastructure Co., CD, Infracon Co., though having been claimed and /or agitated through Infracon Co., was rejected by the Ld. Sole Arbitrator and the Ld. Single Judge it gave rise to the cause of action in favour of the FC to maintain the present application. Thus, in Company Appeal (AT) (Insolvency) No. 990 of 2022 -12- view thereof and by resort to express provision of Section 14 of the Limitation Act, 1963 the period of spent from the date of invocation of arbitration till the passing and/ or partial modification of the adjusted under PDA and thereby declined to grant relief and thereafter again on 29.11.2021 when the Ld. Single Judge while partially modifying the award, failed to interfere in the award dated 16.10.2018. Thus, while resorting to the express provision of Section 14 of Limitation Act, 1963 which expressly excludes the period of limitation spent while pursuing bonfide before the court lacking competent jurisdiction to adjudicate upon the same. In view of it, it is submitted that the when the defence of Infracon Co. pertaining to commonality of the interrelated transaction between the Infrastructure Co., CD, Infracon Co., though having been claimed and / or agitated through Infracon Co., was rejected by the Ld. Sole Arbitrator and the Ld. Single Judge it gave rise to the cause of action in favour of the FC to maintain the present application. Thus, in view thereof and by resort to express provision of Section 14 of the Limitation Act, 1963 the period of spent from the date of invocation of arbitration till the passing and/ or partial modification of the award by the Ld. Single Judge vide his judgment dated 29.11.2021, is liable to be excluded Company Appeal (AT) (Insolvency) No. 990 of 2022 -13- from the computation of the period of limitation for the present. Thus, in view thereof also the present application is well within the period of limitation for all the above reasons, the present application is well within the period of limitation as having been prescribed."

12. We may further notice that even in the synopsis which was given by the Appellant under Section 7 application following has been specifically stated:

"In fact, the perusal of the Balance Sheets from the year 2012 onwards to this date will reveal that the amount in the account of the CD majorly/ substantially consist of the money paid/ deposited by the Infrastructure Co. along with FC and its associate/ affiliate companies, and the same is being reflected in the Balance Sheets regularly since the year 2013 till date."

13. From the above, it is clear that there was specific pleading with regard to application being within limitation and the Adjudicating Authority has proceed to reject the application without even adverting to the pleadings made by the Appellant in the Section 7 application regarding the limitation. It is well settled law that the provision of Section 18 of the Limitation Act are fully applicable in proceedings under I&B Code. We may refer to the judgment of Hon'ble Supreme Court in "(2022) SCC OnLine SC 632, State Bank of India vs. Krishidhan Seeds Pvt. Ltd." Company Appeal (AT) (Insolvency) No. 990 of 2022 -14- "13. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that:

(i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and

(ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default."

14. The date of default as given in the Part IV of the application is August, 2014 when MOU dated 07.08.2013 was claimed to have been cancelled. Parties having elaborately made submission with regard to the balance sheets and as to whether the balance sheets contains an acknowledgment which can be treated to be acknowledgment under Section 18 of the Limitation Act, we need to look into the balance sheets. It is also relevant to notice that relevant balance sheets were filed by the Appellant before the Adjudicating Authority which are brought on record in Vol. IV of the Appeal. We need to thus notice the balance sheets and entries therein. The first balance sheet which needs to be noticed is the balance sheet of FY 2013-

14. Under 'Note No.5 Trade payables', the amount received from different Company Appeal (AT) (Insolvency) No. 990 of 2022 -15- entities including the Appellant has been duly reflected. We may extract 'Note No. 5 Trade payables', which is to the following effect:

"Note No. 5 Trade payables (in rupees) Particulars As at 31st March As at 31st 2014 March 2013 Hotel ParkInd cc 30/31 2,00,000.00 Airwill Business Park Pvt. Ltd. 55,00,000.00 Airwill JKM Infrastructure Pvt. Ltd. 12,50,00,000.00 D. K. Gupta and Madhu Gupta 2,00,000.00 JBK Developers Pvt. Ltd. 1,00,00,000.00 JKM Infrastructure Pvt. Ltd. Realty 30,00,000.00 JKM Infrastructure Pvt. Ltd. 90,00,000.00 MAINA SUNDARI JAIN 50,00,000.00 50,00,000.00 Pradeep K. Kapoor and Co. 16,500.00 16,500.00 Southend Infrastructure Pvt. Ltd. 19,00,000.00 Sunani Gupta 25,00,00,000.00 Total 41,46,16,500.00 52,16,500.00

15. Appellant's case is that amounts were paid by RTGS to the Corporate Debtor as has been pleaded in the Section 7 application. There is clear entry of the Appellant's name in the balance sheet of FY 2013-14. Now, we come to the next balance sheet of FY 2014-15. Under the heading 'Other current liabilities' under the caption 'Advance for which value to be given' as on 31.03.2014 an amount of Rs.16,46,00,000/- was mentioned, which amount was shown as on 31.03.2015 as Rs.20,60,58,631/-. When we look into the balance sheet of 2013-14 if we exclude amount of Rs.25 crore referred as payable to one Sunani Gupta the figure come to Rs.16,46,00,000/- clearly indicate that said figure is the same figure which included the trade payable in the balance sheet of 2013-14 which included the amounts received from the Financial Creditor. In the Balance Sheet of Company Appeal (AT) (Insolvency) No. 990 of 2022 -16- the year 2015-16 under the heading 'Other current liabilities' under the caption 'Advance for which value to be given' reflected the figures Rs.20,64,20,631/- as on 31.03.2015. As on 31.03.2016, the amount is Rs.24,49,56,560/-. It is useful to extract the Item 6 of balance sheet FY- 2015-16, as follows:

6. OTHER CURRENT LIABILITIES Advance for which value to be given 2449,56,560 2060,58,631 Statutory dues payables 72,000 72,000 Expenses payables 1,42,500 2,90,000 2451,71,060 2064,20,631

16. We may also notice Note 19 as in balance sheet of 2014-15 which is to the following effect:

"19. The balances grouped under Other current liabilities, i.e., Advance for which value to be given and Short term loans and advances in the Balance Sheet, except time barred and forfeited, are subject to confirmation and reconciliation from the respective parties. The Company is taking legal advise for initiating legal action against certain parties for refund of advance extended by the Company."

17. Similar note has been again appended in the balance sheet of FY 2015-16 as Note 19. When we look into the balance sheet of 2016-17 under the heading 'Other current liabilities' a figure of Rs.2451,71,060/- is shown which was reflected in the balance sheet of 2015-16 as 'Other current Company Appeal (AT) (Insolvency) No. 990 of 2022 -17- liabilities' - 'advance for which value to be given' has been continued. Balance sheet of 2017-18 under the heading 'Other current liabilities' the figure is carried on which is again reflected in the balance sheet of 2018-

19. The same amount which was shown in the balance sheet of 2013-14 with breakup of different entities including the Appellant has been carried under one or other heading. In the above context, we may notice reply of the Respondent. In Para 5 of the Reply following has been stated:

"It is pertinent to mention herein that the amount claimed by the Appellant is only reflected in the books of accounts of the Respondent company to comply with the mandatory requirements of Accounting Standards as per which all the material transactions (including pending litigations) which might affect the decision of the stakeholders have to be disclosed in the financial statements in accordance with the fair presentation of Financial Reporting Framework ('FRF'), which does not amount to admission of liability."

18. The submission which has been pressed before us is that the entry should be read alongwith the notes contained in the balance sheet. The submission made by the Respondent that the amount has been reflected to comply with the mandatory requirements of Accounting Standards, does not take away the evidentiary value of the entries in the balance sheets. The balance sheet reflect the said amount as other current liabilities - advance for which value to be returned. Note 19 of balance sheet of 2015- Company Appeal (AT) (Insolvency) No. 990 of 2022 -18- 16, as extracted above, which is carried out in subsequent year also, only mentions that they are subject to confirmation and reconciliation from the respective parties. The said caveat does not take away the acknowledgment. We, thus, are satisfied that acknowledgement of debt was very much there in the balance sheet which balance sheets were referred to and relied by the Appellant in Section 7 application but were not adverted to by the Adjudicating Authority while rejecting application under Section 7. We, thus, are satisfied that rejection of Section 7 application by the Adjudicating Authority is unsustainable.

19. Learned counsel for the Respondent has also relied on the judgment of Hon'ble Supreme Court in "Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal and Anr., (2021) 6 SCC 366", where the Hon'ble Supreme Court has laid down that entries in the balance sheet can be looked into for purposes of noticing acknowledgement within the meaning of Section 18. The Hon'ble Supreme Court has held:

"....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 to case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act."

20. There can be no quarrel to the preposition of law laid down by the Hon'ble Supreme Court in the aforesaid judgment. In the present case, Company Appeal (AT) (Insolvency) No. 990 of 2022 -19- when entries in the balance sheet starting from 2013-14 specifically mentions the details of amount received from different entities including the Appellant which amounts were carried on in the subsequent balance sheets clearly indicate acknowledgement.

21. Learned counsel for the Appellant has also referred to various admissions in the Arbitration Proceeding taken by the Corporate Debtor before the Delhi High Court which according to the Appellant also contains acknowledgement within the meaning of Section 18 of the Limitation Act. In view of what has been said above with respect to entries and balance sheets, it is not necessary to enter into the aspect of acknowledgment in the Arbitral Proceeding. We, thus, are satisfied that the Adjudicating Authority committed error in rejecting Section 7 application as barred by time whereas there was sufficient material to indicate that the application is not barred by time, as indicated above. The Adjudicating Authority did not refer to the pleadings in the Section 7 application pertaining to limitation, as noted above, which cannot be approved

22. Learned counsels for the parties have also raised submissions as to whether the debt claimed by the Financial Creditor is a financial debt or not, but the Adjudicating Authority having not entered into this issue, we are of the view that ends of justice be served in setting aside the order of the Adjudicating Authority and reviving the matter before the Adjudicating Authority for fresh consideration of Section 7 application. Company Appeal (AT) (Insolvency) No. 990 of 2022 -20-

23. We make it clear that we having found the application under Section 7 filed by the Appellant within time, the parties shall not be permitted to raise any issue pertaining to limitation when Section 7 application is heard. It shall be open for the parties to raise their submissions on other aspects of the case. We having revived the application under Section 7 before the Adjudicating Authority, we also grant three weeks' time to the Corporate Debtor to file reply to Section 7 application before the Adjudicating Authority to obviate any further delay in hearing of Section 7 application. The Adjudicating Authority may proceed to hear and decide the Section 7 application at an early date preferably within six months from the date when copy of this order is produced. The Appeal is allowed to the above extent.

[Justice Ashok Bhushan] Chairperson [Dr. Alok Srivastava] Member (Technical) [Barun Mitra] Member (Technical) NEW DELHI 5th January, 2023 Archana Company Appeal (AT) (Insolvency) No. 990 of 2022

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