NCLAT upheld insolvency proceedings despite forgery claims and misleading affidavits and imposed a Cost of Rs. 1,00,000.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal and held that the continuous acknowledgement of debt in balance sheets satisfies the requirements of the Limitation Act, rendering the insolvency application timely and valid despite claims of forgery and misrepresentation.
An appeal was filed by a suspended director of the Corporate Debtor challenging the National Company Law Tribunal (NCLT) Mumbai Bench's order dated April 20, 2022, which had admitted a Section 7 application for initiating insolvency proceedings against the Corporate Debtor. The application was filed by Manjulaben Mahdulal Karelia, a Financial Creditor.
The Appellant-Corporate Debtor incorporated on February 7, 2007, received a loan of Rs.2 crores from the Respondent-Financial Creditor on June 23, 2010. According to a Loan Agreement dated December 31, 2010, the loan was to be repaid by June 23, 2020, with a 12% annual interest rate. Despite some repayments to other family members in 2015, the Rs.2 crores loan remained unpaid, leading to a demand notice on December 18, 2019, for a total of Rs.5,94,03,811. The Section 7 application was filed on April 22, 2020, citing a default as of December 18, 2019.
The Corporate Debtor contested the claim, arguing that the Loan Agreement was forged and denied the appointment of new directors, including the Appellant, who joined in 2018. The Financial Creditor countered with balance sheets and a Certificate from the Information Utility to prove the debt’s acknowledgement within the limitation period.
The NCLT found clear evidence of the debt and default, confirming that the Loan Agreement was valid and properly executed. It noted that the debt was continuously acknowledged in the balance sheets from 2011-12 through 2017-18. The application was admitted, prompting the suspended director's appeal.
On November 1, 2022, the Appellant sought additional time to file an affidavit regarding an amount of Rs.10,01,16,474 reflected in the 2017-18 balance sheet. The affidavit, filed on January 17, 2023, was deemed misleading, with the Respondent countering on February 25, 2023.
The Appellant argued that the application was premature, the loan agreement was inadequately stamped, and that the balance sheet amount related to a loan from Romell Real Estates Pvt. Ltd. rather than the Financial Creditor. The Respondent contended that the loan was disbursed and acknowledged in the balance sheets, and refuted the claim of a loan from Romell Real Estates Pvt. Ltd.
The Appellate Tribunal verified the documents, including balance sheets and bank statements, and found consistent reflection of the debt over multiple years. It rejected the Appellant’s arguments regarding the premature nature of the application and the alleged time-bar, affirming that continuous acknowledgement in the balance sheets met the requirements under the Limitation Act.
The NCLAT concluded that the Financial Creditor had adequately proven the debt and default, dismissing the Appellant's claims as unfounded. The appeal was rejected, and the Appellate Tribunal imposed a cost of Rs.1,00,000/- on the Appellant for submitting false and misleading affidavits, to be paid within four weeks. The decision underscored the integrity of the debt acknowledgement and the validity of the insolvency application.
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