The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain, Judicial Member and Dr. Alok Srivastava, Technical Member was hearing an Appeal and held that the necessary ingredients must be provided by the Applicant to initiate proceedings under section 7 on a prescribed printed Performa which is provided in Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
The present appeal was filed against the order passed by the Adjudicating Authority by which an application was filed by the Appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Respondent /Corporate Debtor for allegedly not repaying the loan amount of Rs. 86,36,250/- including the interest has been dismissed.
Facts:
The Appellant had advanced a loan of Rs. 75.00 lacs with 12% simple interest per annum to Respondent vide cheque number 22333 which was encashed on 15.10.2015. As per the Appellant, it was a simple loan transaction repayable on demand and the financial assistance was given while mutually deciding that it would carry interest @ 12 % per annum which shall be payable quarterly.
It was alleged that Respondent initially paid interest on the aforesaid amount. However, a sum of Rs. 86,36,250/- was due as on 01.01.2019 towards the principal amount with interest occurring on it. It is also the case of the Appellant that the balance sheet of the Respondent for the financial year ending on 31.03.2017 has shown unsecured loans of Rs. 1193.01 Lacs under the heading ‘From Others’ in long-term borrowings and the amount of Rs. 75.00 Lacs borrowed by Respondent from the Appellant is reflected under the said head. It is alleged that when the Respondent failed to make the payment, the director of the Appellant demanded the entire loan from the Respondent who had issued a cheque bearing no. 647323 dated 02.08.2018 of a sum of Rs. 75 Lacs towards principal outstanding but the said cheque was dishonoured for the reason ‘Stop Payment’. Pursuant thereto, the Appellant issued a notice dated 06.10.2018 under Section 138 of the Negotiable Instruments Act, 1881 which was duly received by the Respondent on 10.10.2018 but despite the said notice, Respondent failed to make the payment within the statutory period of 15 days and therefore, the Appellant was constrained to file a criminal complaint under Section 138 of Negotiable Instruments Act, 1881.
On the other hand, the case of the Respondent is that there were no terms of the repayment of the amount of the loan as alleged. The Appellant had never raised any demand, therefore, there is no default on their part which would attract the provisions of Section 7 of the Code. It is also alleged that the Appellant has failed to establish that the amount claimed was in the nature of the financial debt. It is further alleged that even if it is assumed for the sake of arguments that the amount in question is repayable by the Respondent but there was no demand, therefore, it does not fall within the ambit of default. On the aforesaid pleadings, the Adjudicating Authority has recorded a finding that there was a transfer of Rs. 75.00 Lacs to the Respondent but the amount disbursed does not qualify as financial debt and the action/ conduct of the Respondent does not fall within the definition of default and hence the application filed under Section 7 of the Code by the Appellant was dismissed.
Appellant’s Submission:
Counsel for the Appellant argued that once the amount of Rs. 75.00 Lacs has been admitted, advanced by the Appellant to Respondent and the interest was paid, it would fall within the parameters of the definition of financial debt and the said amount had not been repaid because of cheque issued by the Respondent was dishonoured, there was a default on the part of the Respondent and notice issued by the Appellant in terms of section 138 of the Negotiable Instruments Act, 1881 was a demand. Therefore, it was argued that the Appellant had fulfilled all the ingredients, and requirements for pursuing the application filed under Section 7 of the Code which had illegally been dismissed by the Adjudicating Authority.
Respondent’s Submission:
Counsel for Respondent argued that there was no document on record to prove that the amount of Rs. 75.00 Lacs was advanced as a loan and thus it does not fall within the definition of financial debt and since no time is mentioned for the purpose of repayment, therefore, it would not come within the purview of Section 3(12) of the Code which deals with the definition of default. He also drew Appellate Tribunal’s attention towards the application filed by the Appellant under Section 7 of the Code which was a printed Performa (Form-1) to contend that the Appellant had not mentioned even the date of default in column 2 of Part-IV which was required to initiate the proceedings under Section 7 of the Code.
NCLAT’s Analysis:
The Appellate Authority noted that in order to initiate the proceedings under section 7 of the Code the date when the default has occurred is essential. The application is provided to be filed on a printed Performa which is provided in Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
The printed Performa, in Rules, lays down the necessary ingredients to be provided in the application by the Applicant. The Respondent has raised the issue that there was no date of repayment of the amount claimed by the Appellant, therefore, there was no default on their part and as such the case of the Appellant does not fall within the definition of default which is provided in Section 3(12) of the Code, which means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. Thus, it is necessary for the Applicant/ Appellant to have mentioned the date of default in the application but no such date has been mentioned and, in this regard, reference could be had to the averments made in column 2 of part – IV of Form-1 filed by the Appellant/Applicant.
The Appellate Tribunal noted that if the application under Section 7 of the Code could be filed only when the default occurs and the date of default is conspicuous by its absence in the pleadings of the Appellant, dishonour of the cheque, as alleged by the Appellant, could not be taken as the date of default.
The Appellate Authority noted that there was no effort on the part of the Appellant to get the pleadings amended before the Adjudicating Authority. Therefore, in the absence of necessary ingredients, pleaded in the application filed under Section 7 of the Code, on the basis of which the application could have been maintained, the Appellate Authority did not find any reason to interfere in the impugned order.
The present appeal was found to be devoid of any merit and the same was dismissed.
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