NCLAT held that the Section 7 application was barred by limitation as the cause of action arose upon the expiry of the agreement and acknowledged the repayment of debt by the Corporate Debtor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra reviewed an appeal and held that the Section 7 application was barred by limitation as the cause of action arose upon the expiry of the stipulated seven-month period from 16.05.2010, and the Financial Creditor could not extend the limitation by delaying termination of the agreement. It further observed that the Corporate Debtor had sufficiently demonstrated repayment of the claimed debt, negating the Financial Creditor’s claims.
The present Appeal was filed by the Suspended Director of Atul Projects India Private Limited, challenging the order dated 25.07.2023, passed by the Adjudicating Authority (NCLT, Mumbai Bench – IV), which admitted a Section 7 application filed by Respondents No. 1 to 3. The dispute originated from a Memorandum of Understanding (MoU) dated 16.05.2010 between the Owners and Atul Projects India Pvt. Ltd. for the redevelopment of a project in Mumbai. On the same date, an Articles of Understanding (AoU) was executed between the Developers and Deepak Vinod Thakkar and Prashant Vinod Thakkar, who sought funding from the Respondents. The Respondents entered into an Articles of Agreement (AoA) with the Thakkars, making the Developers a Confirming Party, wherein the Respondents agreed to invest ₹6 Crores in return for rights over the 18th floor. The agreement also provided that failure to execute a Development Agreement within seven months would entitle the Investors to terminate the contract and claim ₹3 Crores with 18% interest per annum.
Disputes arose as redevelopment did not commence. The Corporate Debtor refunded ₹1.3 Crores to Respondents No. 1 to 3 and additional amounts to the Thakkars. The Appellant contended that the entire debt had been repaid, including ₹1.95 Crores to the Thakkars. A police complaint was filed on 04.07.2019, detailing the financial transactions, following which Respondents No. 1 to 3 issued a Legal Notice on 30.07.2019, asserting that only ₹1.3 Crores had been received, and the total outstanding amounted to ₹5,96,36,330/-. The Agreement was terminated with immediate effect. On 05.04.2022, the Respondents issued a Demand Notice seeking ₹7,16,19,262/- and subsequently filed a Section 7 application, which was admitted by the Adjudicating Authority, holding that a financial debt exceeding ₹1 Crore existed.
On appeal, the Tribunal stayed the impugned order and issued a Notice. The Appellant contended that the application was barred by limitation and was filed with the intent to harass the Developers. The Tribunal noted that the Adjudicating Authority had misapplied the Supreme Court's rulings on limitation, observing that the Financial Creditor’s cause of action had arisen much earlier and could not be revived by subsequent events. Three key issues were considered: whether the Section 7 application was barred by limitation, whether the Corporate Debtor had discharged its liability, and whether a case for Section 65 of the IBC was made out.
The Tribunal examined the MoU, AoU, and AoA and found that the cause of action arose upon the expiry of the seven-month period from 16.05.2010, making the claim time-barred under Article 137 of the Limitation Act, 1963. The Financial Creditor's delay in terminating the Agreement could not extend the limitation period. Additionally, bank statements showed payments of ₹1.7 Crores to the Thakkars, confirming the partial discharge of liability. The Tribunal observed that the Financial Creditor had remained silent for eight years before raising claims, suggesting that the refund had been settled. The Section 7 application was filed only after the Corporate Debtor lodged a police complaint against the Thakkars, further indicating its mala fide intent.
With respect to Section 65 of the IBC, the Tribunal noted that while collusion between the Financial Creditor and the Thakkars was alleged, the specific plea of fraudulent or malicious initiation of insolvency proceedings was not established. Consequently, the notice under Section 65 was discharged. The Tribunal also considered the role of the IRP and held that the optional certification in Form-2 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, was not mandatory. The Tribunal concluded that the Corporate Debtor had refunded ₹1.7 Crores to the Thakkars towards repayment of the ₹3 Crores received from the Financial Creditor, thereby negating the claims made in the Section 7 application. The appeal was accordingly allowed.
Mr. Krishnendu Dutta & Mr. Abhijeet Sinha, Sr. Advocates, with Mr. Varun Kalra, Mr. Samir Malik, Ms. Niharika Sharma and Mr. Shahan Ulla, Advocates, represented the Appellant.
Mr. Gautam Singhal, Mr. Rajat Chaudhary and Ms. Kanika Balhara, Advocates, appeared for Respondent No. 4.
Mr. Gaurav Behl, Mr. Ajit N. Makhijani and Mr. Raghav Kakkar, Advocates, appeared for Respondent No. 1 to Respondent No. 3.
Mr. Tejas Misha and Ms. Shivali Nilotpal Shyam, Advocate, appeared for Respondent No. 5.
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