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2025 (4) TMI 1194
Non-service of the demand notice - delivery of Recall Notice, Invocation Notice and Demand Notice - various discrepancies in the report filed by the RP u/s 99 of the Code - acknowlegdement of liability to pay the debt - statutory requirements under Sections 95 and 99 of the Insolvency and Bankruptcy Code (IBC) - HELD THAT:- The Respondents had sent the Loan Recall Notice, Invocation Notice, and Demand Notice to the Given Address recorded in the Guarantee Deed. Appellant contends that the notices were either not served or not adequately proven to be served. Clause 22 of the Guarantee Deed explicitly states that all communications, including a Notice of Demand, sent to the address provided in the Guarantee Deed or the last known address shall be considered sufficient service.
In another case the Hon'ble High Court of Delhi in Ajay Ahuja v. Subhiksha Trading Services Ltd. [2010 (12) TMI 1369 - DELHI HIGH COURT] provides us guidance. Even though this was a case of Transfer of Property Act, 1882 - being similar to Rule 3(g) of the PG Application Rules. Herein, while examining Section 106(4) of the Transfer of Property Act, 1882, viz. the requirement of affixing the notice in case the same was not served, held that by sending the notice on the correct address, which was returned back with remarks "shifted", and "left without instructions" the requirement of Section 106 of the Transfer of Property Act, 1882 was met.
The claim of the Appellant that the Since the invocation notice and the demand notice were issued in accordance with the provisions of the Guarantee Deed and which constitutes a separate contract between the parties; therefore, the claim of the Appellant-PG is not maintainable - the grounds raised by the Appellant- PG on validity of service are without merits and are not acceptable and doesn’t provide any support to the Appeal. Accordingly, the arguments of the Appellant that service of various notices have not been done cannot be accepted.
Despite multiple attempts to engage with the Appellant, they remained unresponsive and only raised objections later which appear more to cause delays rather participating in resolution process. Respondent No. 2- RP ensured the Appellant- PG was given an opportunity to present their case, but no response was received. The Appellant has not disputed the debt, the guarantee, or the last known address but only alleged non-delivery of the demand notice, which is unfounded. Only claim of lack of acknowledgment of notices etc is legally untenable and unacceptable. As noted earlier it was the duty of the Appellant to notify any change in their address, if any. Regarding the Appellant’s claim that Section 95 requirements were not met, Respondent No. 2 reviewed all documents, including those submitted via email on January 3, 2024 - the issuance of the Recall Notice, Invocation Notice, and Demand Notice to the Given Address constitutes valid service in accordance with the Guarantee Deed. Consequently, the Respondent’s objections regarding non- service of the notices are found to be contradict the terms of the Guarantee Deed, and cannot be accepted.
The Resolution Professional’s report, prepared under Section 99 of the IBC, substantiates that the procedural requirements under Section 95—specifically the issuance and service of the Demand Notice in the prescribed manner—have been met. The evidence of service, including speed post receipts and email transmissions, supports the contention that the statutory process was duly followed. The Appellant’s argument that the non-receipt of the notices undermines the proceedings is not borne out by the documentary record - the contentions of the Appellant-PG for non- compliance of statutory requirements are devoid of merits and are rejected.
Invocation of the Guarantee and Liability of the Appellant - HELD THAT:- The Guarantee Deed provides that liability arises upon the occurrence of default by the borrower, and the subsequent actions taken by the financial institution were in line with the contractual obligations. It is claimed that the guarantee becomes a debt once the said guarantee is invoked, wherein after the guarantor becomes liable. The Appellant has placed reliance upon Edelweiss Asset Reconstruction Company v Orissa Manganese and Minerals Limited and others [2019 (6) TMI 639 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein it has been held that 'A contract of guarantee matures in to a binding obligation only upon its invocation. Contract of Guarantee is an autonomous contract and the admission of the principal debtor to CIRP does not mean that the debt stands proved as against the Guarantor in a Section 7 proceeding against the Corporate Guarantor automatically. The guarantee has to be invoked and the debt and default proved separately in the proceeding against the Guarantor.'
The Appellant does not get any support from Edelweiss Asset Reconstruction Co. v. Orissa Manganese and Minerals Ltd. [2019 (6) TMI 639 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], as the existence of a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor does not preclude the initiation or continuation of proceedings against the Personal Guarantor. This principle has been upheld in decisions such as Lalit Kumar Jain v. Union of India [2021 (5) TMI 743 - SUPREME COURT] by the Hon’ble Apex Court, wherein it was held that even if the resolution plan is approved, the same does not discharge the personal guarantor.
Further, this Tribunal in the matter of Mohan Kumar Garg vs. Omkara Assets Reconstruction Pvt. Ltd. & Anr [2023 (8) TMI 1636 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI], had held that the simultaneous proceedings in respect of the guarantor as well as the borrower can be proceeded with.
It is a settled position of law that simultaneous proceedings can be initiated against the borrower as well as the guarantor. As the Respondent No1- Omkara has not received the outstanding amount, either in part or in full, hence, the contention of that since borrower is already undergoing CIRP, wherein resolution plan is being considered by the members of the COC, the Petition ought not be proceeded with, is bereft of any justification and needs to be rejected.
Facts and materials on record reveal that, the Appellant-PG has not denied executing the Guarantee Deed, which binds him with joint and severe responsibility of repayment, in case of non-payment by the Borrower and Co- Borrower. Clause 1 of the Guarantee Deed clearly states that in the event of default by the Borrower or Co-Borrower, the Appellant-PG shall be liable to pay the defaulted amount - It had sufficient opportunity to submit the repayment plan, but it did not file any Repayment plan. Respondent No.2-RP was, therefore, constrained to file I.A No. 283 of 2025 under Section 114(1) read with Sections 115(2) and 106 of the Code, before the Adjudicating Authority, seeking the closure of the Insolvency Resolution Process of the Appellant, liberty for creditors to file a bankruptcy application under Chapter IV of the Code, and discharge from duties as there was absence of a viable repayment plan under Section 105 of the Code from the Appellant tantamount to rejection of repayment plan under Section 114(1) of the Code.
Conclusion - i) The notices in question were sent to the last known address as stipulated in the Guarantee Deed, and such service is deemed valid under established legal principles. ii) The Resolution Professional has satisfactorily demonstrated compliance with the requirements of Sections 95 and 99 of the IBC. iii) The Appellant’s contentions regarding non-service and the alleged deficiencies in the report are without merit, as the burden of updating one’s address lies with the Appellant. iv) The simultaneous CIRP against the Corporate Debtor does not interfere with the obligations of the Personal Guarantor under the Guarantee Deed.
There are no infirmity in the orders of the Adjudicating Authority - the appeal is dismissed.
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2025 (4) TMI 1119
Doctrine of priority - priority of chrages - first/primary charge over the movable assets of the Corporate Debtor - whether the Respondent's registration of a charge under Section 77 of the Companies Act, 2013, or UCO Bank Consortium's non-registration of the charge with the ROC can become the basis for disregarding UCO Bank Consortium first charge based on 8th Supplemental Deed of Working Capital Consortium Agreement? - HELD THAT:- Section 48 of TP Act stipulate Doctrine of Priority which is based on the Principles of Natural Justice, asserting that when rights are granted to two individuals at different times, the one who possesses the earlier right will also have the legal advantage. This principle is applicable only in situations where the competing interests of the parties are otherwise equal. This doctrine is derived from the legal maxim qui prior est tempore potior est jure, which translates to "he who is first in time is stronger in law." Section 48 of the TP Act establishes a fundamental principle that no individual can transfer a title greater than what he possess. This means that if a transferor conveys the same property to multiple transferees, each transferee will hold rights equivalent to those of the previous transferee. The doctrine dictates that once a transfer is initiated, the transferor cannot disregard prior grants or engage with the property without acknowledging existing rights.
Section 48 of the TP Act, clearly protect the right of first charge holder. Although, Section 48 strictly speaking is w.r.t. immovable properties, in the present case there is common 8th Supplemental Deed of Working Capital Consortium Agreement, where charges were created both on movable and immovable assets of the Corporate Debtor in favour of the UCO Bank Consortium, therefore, interpretation of Section 48 of the TP Act will help the cause of the Appellant for ensuring the charges in favour of UCO Bank Consortium as first charge holder.
This Appellate Tribunal in the matter of J.M. Financial Asset Reconstruction Company Ltd v Finquest Financial Solutions Pvt. Ltd. [2020 (1) TMI 275 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] held that after enforcement of right under Section 52 of the Code by one of the secured creditors, no other secured creditor can enforce his right subsequently. Thus, only one secured creditor can enforce his right to realise its debt out of secured assets under Section 52 of the Code. The Hon’ble Supreme Court of India has in various judgments including in the matter of DBS Bank v. Ruchi Soya [2024 (1) TMI 186 - SUPREME COURT] that Sections 52 and 53 of the Code must be read together, and also Section 53(2) expressly states that contractual arrangement inter-se creditors must be disregarded. Only if the asset is charged exclusively to a particular creditor then Section 52 can be given effect.
The arguments of the Respondent w.r.t. his holding first charge on movable assets of Corporate Debtor due to charge registered with RoC are not attractive.
Conclusion - i) The UCO Bank Consortium holds the first pari-passu charge over the movable assets of the Corporate Debtor as per the Consortium Agreement and its 8th Supplemental Deed. ii) The Respondent failed to identify the charged assets sufficiently to enforce realization under Section 52 of the Code.
There are merits in the arguments of the Appellant. The appeal is allowed.
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2025 (4) TMI 1071
Payment of interest for delayed payment - no agreement between the parties for levy of any interest on delayed payment - relevant date for calculation of interest - whether Section 9 Application can be accepted on the basis of invoices having total amount claimed as operational debt with interest component which is arrived based on a condition contained in the invoices for delayed payment? - HELD THAT:- The Code defines the term operational debt under Section 5 (21), wherein ‘interest’ has not been specifically mentioned as a part of the debt, unlike in the definition of financial debt provided under Section 5 (8) of Code, wherein the legislation has expressly included the term 'interest' to be a part of the debt, that can form a part of the claim against the Corporate Debtor. This deliberate difference in the language used for both terms by the legislation, clearly provides that interest could not have been accepted by the Adjudicating Authority as a part of the default amount as claimed by the Respondent No 1. It is noted that there is an explicit mention of interest in financial debt but such a provision does not exist for operational debt - Accordingly, the interest can be claimed only if there is an explicit agreement or contract between the parties.
The Adjudicating Authority has relied on payment of interest paid in February 2021 and June 2021. However, no document has been produced by the Respondent No.1 substantiating the days in which payment was to be made. The Adjudicating Authority has not delved into the issue of the payment of interest with respect to the operational debt as defined in the code and has relied on the invoices which contains an interest clause of 18% on account of delayed payment - the argument of the Appellant that the Code does not provide the AA with the power to interpret a document as in the facts and circumstances of the case is agreed upon. In the absence of any agreement between the parties, the calculation of interest cannot be agreed by us and the claim with respect to interest on pending invoices is not sustainable.
In the absence of any agreement between parties, regarding payment of interest on delayed payment, the claim with respect to interest on pending invoices is not sustainable, and on this ground the captioned Application is liable to be dismissed.
Conclusion - The claim of the Operational Creditor with respect to the interest is not maintainable and, in that situation, the claim does not meet the threshold for admitting Section 9 Application. Also it is found that the objective of the Code, that is, maximising the value Debtor's assets, is unlikely to be served by initiating CIRP against the Appellant.
The amount deposited with the NCLAT, is released to Respondent No.1 to discharge the liability with respect to the Principal amount - Appeal allowed.
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2025 (4) TMI 1070
Maintainability of Section 7 application filed by the Appellant - seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor - existence of debt which was due and payable by the Corporate Debtor qua the Appellant with incidence of default - Section 7 application was filed with the intent of insolvency resolution or otherwise.
Whether there existed a debt due and payable by the Corporate Debtor to the Appellant-Debenture Trustee with an incidence of default justifying initiation of CIRP under Section 7 of the IBC? - HELD THAT:- The Appellant was aware of the restructuring proposal is amply borne out from the contents of the above communication of 28.03.2022 wherein there is also a clear advertence to the fact that the Corporate Debtor was seeking a NOC from them and that they had agreed and confirmed that upon receipt of the Rs.152 Cr from the Corporate Debtor in their Escrow Account, they would issue the requisite NOC. Interestingly, the letter is also marked to all debenture holders which reaffirms the fact that the Debenture Holders and the Appellant-Debenture Trustee were keeping each other informed of their intent on the modalities of how to proceed with the restructuring and moratorium proposal - it was always in the notice and knowledge of the Appellant that the Corporate Debtor and the Edelweiss Group were negotiating a restructuring proposal. It is also found that these correspondences and reference to various discussions between the parties mentioned in the letters were part of the record before the Adjudicating Authority.
The Appellant and the Debenture Holders by their express conduct had agreed to implement the restructuring and moratorium proposal. No material has been placed on record to show that the Appellant had ever questioned the ECLF on the instructions being issued by them in furtherance of the moratorium. Neither did the Appellant ever question the ECLF that they cannot speak on behalf of the other entities of the other Edelweiss group.
With the conclusion of the Sapphire transaction, the moratorium had come into force. Hence, there was no debt due or payable until September 2023. That being so there was no question of any default having been committed by the Corporate Debtor. In the present case, the Adjudicating Authority therefore did not commit any mistake in going through the fact situation of the present case and come to the finding that with the conclusion of the Sapphire transaction, the restructuring and moratorium proposal had commenced. Thus, to answer the first issue, the Adjudicating Authority had correctly held that on account of moratorium being in place, there was no occasion for default and hence the Section 7 application was not fit for admission.
Whether the purpose of the Section 7 application in the present case was with the intent of insolvency resolution of the Corporate Debtor or otherwise? - HELD THAT:- It is clear that the Corporate Debtor was suddenly besieged by a fast-paced flurry of coercive steps taken by the Appellant which were geared towards recovery of debt inspite of the Corporate Debtor having already paid Rs 152 Cr. under the Sapphire transaction to the Appellant on the underlying previous understanding that grant of moratorium for 18 months was subject to compliance in concluding the Sapphire transaction. The Corporate Debtor had held their end of the bargain by carrying out the Sapphire transaction within the time-line which was fixed for 25.03.2022. The conclusion of the Sapphire transaction was also communicated to ECLF. The Appellant on the instructions of ECLF also acted upon the terms of the restructuring proposal by releasing the charge on property and Rs 9.33 Cr. This was clearly a sign to the Corporate Debtor that the restructuring and moratorium proposal stood confirmed by the Appellant.
The Appellant was aware of the intent of the majority debenture holders of agreeing to the restructuring and moratorium proposal and accordingly also acted on their directions like release of charge on Bandra property, release of Rs 9.33 Cr. etc. towards extending moratorium until September 2023. The pattern of conduct prior to the Section 7 petition shows that both Appellant and the majority debenture holders were working on a common understanding that the restructuring proposal was a done deal.
There seems to be substance in the contention of the Corporate Debtor that the Appellant along with the Debenture holders had engineered the default thereby acting in a malafide manner causing grave prejudice to the interests of the Corporate Debtor. The Appellant as Debenture Trustee instead of acting with fairness in protecting the interests of the Corporate Debtor by their conduct seem to have acted in unison with the majority Debenture Holders in catalysing their dubious designs to drag the Corporate Debtor towards insolvency. The intent of the Appellant behind orchestrating the default was to push the Corporate Debtor into insolvency despite having substantial and valuable assets. There was sufficient proof to substantiate that the Appellant was trying to take undue advantage of the situation to bring the Corporate Debtor under the rigours of CIRP which manifest their ulterior and pernicious motive - the Adjudicating Authority having gone through the documents placed before it and after hearing rival contentions of both the parties, has duly applied its mind based on the totality of circumstances demonstrated before it, in returning the findings that the intent behind initiating the CIRP proceedings in the present facts of the case was something other than insolvency resolution.
Conclusion - i) The moratorium is validly in place until September 2023, precluding any default and debt becoming due and payable, thus justifying dismissal of the Section 7 application. ii) Section 7 application was not filed with the intent of insolvency resolution but rather with an ulterior motive to coerce the Corporate Debtor.
There are no cogent reasons warranting interference in the impugned order - appeal dismissed.
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2025 (4) TMI 970
Violation of principles of natural justice - Ownership of property - Earlier the Proprietorship firm was taken over by the Corporate Debtor - It is argued the Learned Adjudicating Authority without appreciating the mandate of Explanation to Section 18 of the Code, had wrongly passed the impugned order - HELD THAT:- Admittedly the subject property is the Corporate Office of the Corporate Debtor and is shown as property of CD in its financial statements. In view of this it cannot be said the Resolution Professional had no power to take possession of the subject property.
Further, admittedly a Take Over Agreement dated 16.12.2016 was executed between KPG International Pvt Ltd, viz the Corporate Debtor as well as KPG International, a sole proprietorship firm of the appellant herein. Property bearing No.B354, Block 3 Mangolpuri, Industrial Area, Phase I, New Delhi admittedly was in the name of M/s KPG Industries, a sole proprietorship firm, per its Sale Deed. However, admittedly Take Over Agreement dated 16.12.2016 was executed between the two and a bare perusal of its provisions would reveal the intention of appellant was to pass on the ownership of property unto the Corporate Debtor - Admittedly vide the Take Over Agreement dated 16.12.2016 the subject Property came into the possession of Corporate Debtor. Now by virtue of the Takeover Agreement, if the corporate veil is pierced, then it can be seen the Appellant's sole proprietorship firm is transferring its sole asset viz. the subject Property to the Corporate Debtor Company.
On approval of the Plan the Successful Resolution Applicant would step into the shoes of Resolution Professional and may prosecute the matter for a successful title - The Resolution Professional admittedly is in possession of the subject property and just because a formal sale deed has not been executed/registered, does not mean the appellant be handed over the possession of such property which he himself willingly had agreed to transfer, upon receipt of consideration, to company owned and managed by him, viz. the Corporate Debtor.
Admittedly as of now an application for plan approval is still pending and in case the plan is approved it shall be the prerogative of the Successful Resolution Applicant to pursue civil remedies to perfect the title of the said Property. The Successful Resolution Applicant admittedly is made aware of the situation of the subject Property before submitting its Resolution~ Plan. Admittedly the Resolution Plan is approved with 80.43% voting share in 6th COC Meeting dated 13.01.2021 in the presence of the appellant herein and without his objecting to its approval.
Conclusion - The appeal is dismissed and it is refused to restore possession of the subject property to the appellant, holding that the property vested in the Corporate Debtor under the Take Over Agreement and was lawfully in possession of the RP during CIRP.
Appeal dismissed.
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2025 (4) TMI 969
Time limitation for admission of Section 7 application filed by the Unity Small Finance Bank Ltd.- Respondent No.1 - whether the date of default arising out of the arbitral award could have been taken cognisance of by the Adjudicating Authority in extending the period of limitation without a formal amendment application seeking alteration of the date of default? - HELD THAT:- The date of default by the Corporate Debtor as claimed by the Respondent No.1 is 12.11.2018. It is also noticed that the Part-IV makes a mention of the arbitral award of 28.04.2022 at paras (g) and (h). However, it is also pertinent to note that the Part-IV does not claim the date of arbitral award to be the new date of default. It is also noticed that mention has been made that execution proceeding in respect of the arbitral award is currently pending adjudication before the Hon’ble Bombay High Court.
Perusal of the impugned order shows that the date of default in terms of the above order was 12.11.2018 and the date of NPA was 12.02.2019. The impugned order has also taken note that arbitration proceedings had been initiated against the Corporate Debtor in which arbitral award was passed in favour of the Respondent No.1-Financial Creditor on 28.04.2022. While holding the date of default to be 12.11.2018, the Adjudicating Authority has, however, worked out the period of limitation by taking into account the decision of the Hon’ble Supreme Court in the Suo Moto matter and the arbitral award to find the Section 7 application to be within limitation. It is therefore, clear that the Adjudicating Authority has on its own held that the arbitral award gave rise to a fresh cause of action and a fresh period of limitation even while the date of default remained unchanged from what was declared as 12.11.2018 in Part-IV of the Section 7 application by the Respondent No.1.
The Appellant, Respondent No.1 and the Adjudicating Authority have all acknowledged the settled law laid down in the judgment of the Hon’ble Supreme Court in Dena Bank vs. C. Shivakumar Reddy & Anr. [2021 (8) TMI 315 - SUPREME COURT] wherein it held that a final judgment or decree of any Court or Tribunal or any Arbitral Award for payment of money, if not satisfied would fall within the ambit of a financial debt enabling the creditor to initiate proceedings under Section 7 of the IBC.
The date of default has been held to be the date of arbitral award by the Adjudicating Authority without the Respondent No.1 having made a formal pleading to that effect. The Respondent No.1 not having amended their petition or made pleadings to the effect that the date of default had changed, the Adjudicating Authority could not have held that the arbitral award of 28.04.2022 had reset the limitation period. In the given facts and circumstances, it is inclined to agree with the Appellant that the Adjudicating Authority has erred in extending the period of limitation basis the arbitral award.
Conclusion - i) The Respondent No.1 failed to bring about change in the date of default through a formal amendment in the Section 7 petition. ii) The Adjudicating Authority could not have held that the arbitral award of 28.04.2022 had reset the limitation period without the Respondent No.1 having made a formal pleading to that effect.
The matter is remanded back to the Adjudicating Authority to decide the matter afresh in accordance with law and on merits basis the amended pleadings, if any, filed by the Respondent No.1 - Appeal disposed of by way of remand.
The matter is remanded back to the Adjudicating Authority to decide the matter afresh in accordance with law and on merits basis the amended pleadings, if any, filed by the Respondent No.1.
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2025 (4) TMI 890
Suit for recovery - Period of limitation - Exclusion of period spent before NCLT under IBC - Seeking to exclude the period from 13th March 2018 to 26th November 2019, basis Section 14 of the Limitation Act, 1963, in computing the period of limitation applicable to filing of the suit - HELD THAT:- A dismissal on the ground of presence of a "pre-existing dispute" need not be assessed by this Court, as to, whether it was on merits or under jurisdiction, but the fact that it is abortive, suffices for the purpose of this assessment. What is more important is that whether the proceeding was made in good faith and prosecuted with diligence.
There is no assertion by the defendant that such a proceeding could not have been maintained. It would be quite specious for the defendant to state that, only in order to stay the limitation, the plaintiff had proceeded under the IBC.
Proceedings under the IBC are routinely filed by operational creditors, fearing the inability of the corporate debtor to satisfy their debts. Section 8 of the IBC, itself allows an operational creditor to send a demand notice, on the occurrence of default [defined under Section 3(12) of IBC], in respect of a debt which has become due and payable, unless the corporate debtor brings to attention, existence of a prior dispute which would prevent further proceedings under the IBC - A perusal of the petition under Section 8 of IBC, filed before the NCLT by the plaintiff, shows that there were amounts outstanding and demand notices were sent, pursuant to the default. Therefore, there is no reason to arrive at a conclusion that the proceedings before the IBC were not bona fide.
Conclusion - The time period from 13th March 2018 to 26th November 2019, be excluded in computation of limitation period applicable for filing of the present suit.
Application allowed.
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2025 (4) TMI 775
Seeking stay of proceedings initiated against the Appellants/Petitioners Under Section 138 read with Section 141 of the N.I. Act, 1881, in view of the interim moratorium Under Section 96 IBC having come into effect upon the Appellants/Petitioners' filing applications Under Section 94 IBC - HELD THAT:- Vide order in Rakesh Bhanot v. M/s. Gurdas Agro Pvt. Ltd., this Court granted an order of stay of further proceedings in COMA No. 1059 of 2019. Following the same, an order of interim stay of further proceedings pending before the trial Court was subsequently granted in all other connected matters as well.
The term "Corporate Person" includes a company as defined Under Section 2(20) of the Companies Act, 2013, and a Limited Liability Partnership. However, there is a subtle difference in the protection available to the Directors and the Partners. In case of a partnership firm, the interim moratorium protects not only the firm, but also the partners. But in case of a company, such protection is available only to the company and not to its directors. That apart, the object of interim moratorium can be no different from that of the moratorium specified Under Section 14. It is also clear from Section 14 that the protection from legal action during the period of moratorium is not available to the surety or in other words, to a personal guarantor. The use of the words "all the debts" and "in respect of any debt" in Sub-section (1) of Section 96 is not without a purpose, as the moratorium is intended to offer protection only against civil claim to recover the debt. Hence, such period of moratorium prescribed Under Section 14 or 96 is restricted in its applicability only to protection against civil claims which are directed towards recovery and not from criminal action.
Admittedly, the Appellants/Petitioners are facing trial for the offence Under Section 138/141 of the N.I. Act, 1881, at the instance of the Respondents/complainants. While so, they initiated the personal insolvency proceedings under the IBC and sought exemption from the Section 138 proceedings before the trial Court, referring to interim moratorium provided Under Section 96 IBC. It is to be noted that upon the application being admitted, the moratorium provisions under the IBC offer protection only to the corporate debtor, i.e., the company, and do not extend protection against civil liability to personal guarantors by specific exclusion or to any individual who is prosecuted for committing a criminal act.
The purpose of interim moratorium contemplated Under Section 96 is to be derived from the object of the act, which is not to stall the proceedings unrelated to the recovery of the debt. The protection is not available against penal actions, the object of which is to not recover any debt. This moratorium serves as a critical mechanism, allowing the debtor to reorganize their financial affairs without the immediate threat of creditor actions. The clear and unequivocal language of this provision reflects the legislative intent to provide a protective shield for debtors during the insolvency process - The cause of action for prosecution Under Section 138 of NI Act commences on the dishonor of the cheque and the failure to pay the amount unpaid because of dishonour, within 15 days from the date of receipt of notice demanding payment. It is pertinent to mention here that the prosecution can be only with respect to the amount unpaid by dishonour of the cheque irrespective of the actual debt. The distinction between the right to sue based on a dishonoured cheque by initiating a civil suit and launching a prosecution Under Section 138 of the Negotiable Instruments Act is significant. In case of former, the interim moratorium can operate, but not in case of later.
Conclusion - The object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal Under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt. The deterrent effect of Section 138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings. Criminal liability for dishonoring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions, however subject to satisfaction of other conditions in the N.I. Act, 1881. Therefore, allowing the respective Appellants/Petitioners to evade prosecution Under Section 138 by invoking the moratorium would undermine the very purpose of the N.I. Act, 1881, which is to preserve the integrity and credibility of commercial transactions and the personal responsibility persists, regardless of the insolvency proceedings and its outcome.
The prayer of the Appellants/Petitioners to stay the prosecution Under Section 138 of the N.I. Act, 1881, relying on the interim moratorium Under Section 96 IBC, cannot be entertained - Petition dismissed.
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2025 (4) TMI 699
Seeking permission to withdraw the additional affidavit sworn - HELD THAT:- The power to suspend is bestowed by Regulation 23A of the Insolvency and Bankruptcy Board of India ( Model Bye-Laws And Governing Board of Insolvency Professional Agencies ) Regulations, 2016, read with Section 140 of the Insolvency and Bankruptcy Code, 2016.
SLP disposed off.
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2025 (4) TMI 698
Effect of approval of Resolution Plan upon the decree in favour of Respondent No.1 in a case where admittedly the Respondent No.1’s claim is not part of Resolution Plan due to failure of Respondent No.1 to lodge its claim with the Resolution Professional - HELD THAT:- Under Section 13 of IBC, upon admission of the application, the Adjudicating Authority is required to cause a public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under Section 15 of IBC. The public announcement to specify the last date for submission of claims. Section 30 of IBC governs the contents of Resolution Plan and specifies that the Resolution Plan shall provide for payment of debts and Section 31 of IBC provides for approval of the Resolution Plan by the Adjudicating Authority.
The issue is no longer res integra and all claims which are not part of the Resolution Plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of any such claim. As admittedly the Respondent’s claim was not part of Resolution Plan, the claim stood extinguished upon approval of the Resolution Plan on 1st January, 2021 and an embargo is placed on initiation or continuation of any proceedings for executing the decree.
As the Respondent No.1’s claim did not form part of the Resolution Plan due to failure of the Respondent No.1 to lodge its claim with the Resolution Professional, upon approval of the Resolution Plan by NCLT vide order dated 1st January, 2021, the debt stood extinguished. Upon extinguishment of debt, no right vests in the Respondent No.1 in respect of the bank guarantees or to oppose the release of bank guarantees.
Conclusion - Respondent No.1's claim was extinguished upon the approval of the Resolution Plan, and the bank guarantees should be released to the Appellant.
The Interim Application stands allowed.
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2025 (4) TMI 697
Time limitation for filing application under Section 9 of the IBC, 2016 - application under Section 9 of the IBC, 2016 was filed by the Operational Creditor on 22.02.2024 which is beyond the limitation period of 3 years, which is to be counted from the date of default - HELD THAT:- The issue of limitation was not taken as defence before the Ld. NCLT and has been taken as a defence in this appeal proceedings for the first time. Since the objection regarding limitation goes to the root of the matter and touches upon the jurisdiction of the Adjudicating Authority, we have considered it during the present proceedings. Since this issue was raised for the first time, the Operational Creditor is fully justified in placing on record the letters dated 16.04.2018, 03.01.2019 and 22.12.2021 issued by the Corporate Debtor to the Operational Creditor acknowledging the debt and requesting for more time to make the payment. The issuance of these letters are not disputed before us rather the argument is only such letters were not placed before Ld. NCLT.
The last of the written acknowledgment in the form of letter is dated 22.12.2021. The application under Section 9 has been filed by the Operational Creditor on 22.02.2024, which is within three years of the last acknowledgment of debt. It is trite law that acknowledgment of debt in writing extends the limitation period per Section 18 of the Limitation Act. We hold that the application under Section 9 was filed by the Operational Creditor before the Ld. NCLT within the limitation period - there are no reason to interfere in the reasoned order of the Ld. NCLT in admitting the Corporate Debtor into CIRP, consequently, the Company Appeal (AT) (Ins.) 1285 of 2024 is dismissed.
There are no evidence regarding any connivance between the Operational Creditor and Corporate Debtor has been furnished by the Appellants. In fact, the Ex-Director of Corporate Debtor has filed Company Appeal challenging the order of admission under Section 9 of the IBC, 2016 passed by the Ld. NCLT.
Conclusion - i) The application under Section 9 is filed within the limitation period. ii) The NCLT's decision to admit the Corporate Debtor into CIRP upheld, finding no pre-existing dispute regarding the quality of work.
Appeal dismissed.
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2025 (4) TMI 670
Rejection of Section 7 application filed by the Appellant - allotment of Cumulative Redeemable Preference Shares - Preference Shareholder is a Creditor of a Company or not - existence of ebt and default or not - HELD THAT:- The present is a case where Respondent’s consistent case is that after allotment of CRPS to the Appellant, Respondent Company never declared dividend or earned profit to redeem the preferential shares. If the preferential shares allotted to the Appellant could not have been redeemed, no debt became due. The finding of the Adjudicating Authority is that the preferential shares being not redeemable, the company having not earned profit nor there were any proceeds of fresh issue of shares made for the purpose of such redemption - there was no existence of default on the part of the Respondent so as to admit Section 7 application.
The present is a case where both the parties are relying on written correspondence including the letter dated 26.08.2015 by which 25 Crore CRPS were allotted to the Appellant - When the CRPS have been allotted in favour of the Appellant, submission of the Appellant has to flow from the said shares and it is precluded to lead any other evidence or material to show or reflect on the nature of transaction.
Conclusion - The Appellant who is holder CRPS is holder of shares which is in the nature of equity in capital, which is part of preferential share capital as defined in Section 43. Preferential shares being part of the preferential share capital of the Company shall not transfer any debt so as to initiate any Section 7 proceeding. Further, the Company having not earned any profit nor any dividend having been declared, no redemption was permissible by the statutory provision, hence, no debt was due on basis of which Section 7 application could be filed by the Appellant. There is also no material that any proceeds of a fresh issue of shares made for the purpose of such redemption was available.
Appeal dismissed.
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2025 (4) TMI 660
Circumstances for passing an order under Rule 16(d) of the NCLT Rules, 2016 - parties are entitled to know the said reason - HELD THAT:- The power vested under Rule 16(1)(d) is exercised by the President from time to time. The President is a master of roaster and he can assign the case from one Bench to another Bench when the circumstances so warrant. There is no dispute that power has been exercised which has been communicated. The submission of the Appellant that the Appellant is entitled to know the circumstances under which the order has been passed does not appeal to us. Exercise of administrative power insofar as transfer of cases is concerned by the President arises in different circumstances including the constitution of Benches, transfer of the Members, re-constitution of the Benches. When President has passed an order for transferring one matter to another Court, we are of the view that the said order does not warrant any interference in exercise of the Appellate Jurisdiction.
The present is not a case where it can be held that the transfer of the case from one Bench to another Bench prejudicially effects the right of the Appellant who is suspended director of the corporate debtor. The judgment relied by the Appellant in Kranti Associates Pvt. Ltd. [2010 (9) TMI 886 - SUPREME COURT] does not support the submission advanced by the Appellant.
Conclusion - There are no grounds to interfere with the President's order to transfer the case.
Appeal dismissed.
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2025 (4) TMI 637
Seeking a Writ of Declaration to annul the impugned circular, dated 21.12.2023, issued by the Insolvency and Bankruptcy Board of India (IBBI) - right of creditors to make a recommendation - it is argued that circular improperly allows creditors to recommend the appointment of a Resolution Professional, which is contrary to the statutory framework of the IBC - HELD THAT:- It is evident that the Resolution Professional assumes a facilitative role in collating facts and submitting a report to the adjudicating authority - The report is again recommendatory in nature. Throughout the entire examination of the application, the debtor is not deprived of an opportunity to participate in the process. It has been held that judicial determination occurs only when the adjudicating authority decides under Section 100. Thus, if the role of the Insolvency Professional is merely to evaluate the facts to facilitate resolution and submit a report that is primarily recommendatory, the allegation of any inherent bias cannot be accepted. Simply because the creditor chooses from the IBBI panel at the time of filing an application and recommends a name does not, by itself, prejudice the debtor in any way. The role is not that of a decision-making authority, but rather a facilitator. In that case, it is more appropriate for such a person to be someone who is chosen by the parties.
When the application is filed by the creditor himself, the adjudicating authority will direct the IBBI to nominate a Resolution Professional within seven days. Within ten days of this request, the board shall make a nomination. The adjudicating authority may then accept the nomination and appoint the individual nominated by the IBBI, who will subsequently be provided a copy of the application for the insolvency resolution process.
The IBBI scrutinises the Resolution Professionals and empanels them. Once the Resolution Professionals are empanelled, the IBBI will nominate one among them. As the creditor is given an option only to nominate from the panel, it can effectively be seen that the nomination is ultimately only by the IBBI. Therefore, the circular emerges as a practice direction and pragmatic tool for fulfilling the purposes of the IBC, thereby saving time and increasing efficiency. The debtor is always entitled to inform the adjudicating authority of any adverse circumstances, including potential conflicts of interest or any other valid grounds, which may disqualify a person from being a facilitator. The adjudicating authority holds the final power under Section 97(5) of the Act, and the order issued by the adjudicating authority is also subject to appeal. Hence, no prejudice is caused to the petitioners or personal guarantors.
Conclusion - The impugned circular, dated 21.12.2023, is neither ultra vires nor violative of the provisions of the IBC.
Petition dismissed.
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2025 (4) TMI 636
Dismissal of application seeking admission of additional claim in the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor - admission of belated additional claim filed by the Appellant-Employee Provident Fund Organization (EPFO) on 08.06.2023, after the approval of the resolution plan by the Committee of Creditors (CoC) on 01.09.2022 - HELD THAT:- It is an uncontested fact that till the stage of approval of the plan by the CoC, the Appellant had not filed their additional claim. The additional claim was filed on 08.06.2023. The Corporate Debtor had been admitted into CIRP on 06.12.2021 and the 90 days period for filing of claim from the insolvency commencement date stood expired on 06.03.2022. Viewed from this angle, the filing of additional claims entailed a delay of nearly one year and three months. Viewed from the perspective of last date for submission of claims as per public announcement which was 03.01.2022, there was a clear delay of 521 days from the last date of submission of the claim. When counted from the date of approval of the plan by the CoC, nearly 09 months had elapsed since then. That there was delay on the part of the Appellant in the submission of the additional claims is therefore well established.
It does not appeal to reason that it could have taken two years from the date of passing of the order by the Industrial Court to compute the additional claims. The Adjudicating Authority in its impugned order has therefore rightly observed that there was sufficient time for Appellant-EPFO to pass an order under EPF Act when the Industrial Court order had passed its orders in 2019 while CIRP was initiated in 2021. The Appellant cannot take advantage of their own laxity in not filing their claims on time to derail the insolvency resolution process.
From a plain reading of the CIRP Regulations, RP can accept claims as per extended period as provided in Regulation 12(1) of CIRP Regulations. After the lapse of extended period of 90 days of the insolvency commencement date, the RP is neither obliged to accept any claim nor does he have the discretion to admit claim after the extended period. Further, when we look at the material placed on record, it is found that the RP while rejecting the additional claim of the Appellant on 05.07.2023 had maintained due transparency and kept the Appellant apprised of its decision. The rejection e-mail of 05.07.2023 is placed at page 437-438 of the Appeal Paper Book (APB). The RP while rejecting the additional claim gave detailed reasoning for doing so. It was clearly pointed out that the additional claim had been filed much beyond the time-period prescribed under the IBC and the Regulations framed thereunder.
In the facts of the present case, there is no dispute with the facts that the additional claims made by the Appellant were placed before the RP by the Appellant after approval of the resolution plan by the CoC. In terms of the Ghanashyam Mishra [2021 (4) TMI 613 - SUPREME COURT], the additional claim not being part of the resolution plan stood extinguished and therefore no proceedings could be continued in respect of such claims as allowing such belated additional claims would come in the way of the SRA in reviving the operations of the Corporate Debtor on a clean slate.
It has also been clearly held by the Hon’ble Supreme Court of India in M/s RP Infrastructure Ltd. vs Mukul Kumar & Anr. [2023 (9) TMI 516 - SUPREME COURT] that after the resolution plan is approved by the CoC but pending before the Adjudicating Authority, no new claims can be thrust upon the resolution applicant.
Once the CoC has approved a Resolution Plan, the same becomes binding on all stakeholders and no additional claims can be entertained. The approved plan, as sanctioned by the CoC is binding and must be implemented as per its terms. Any deviation at this stage would compromise the very purpose of insolvency resolution. If belated claims of creditors are casually and mechanically accepted by the RP even after approval of the plan by the CoC, it would imperil the successful resolution of the Corporate Debtor and frustrate the objectives of IBC.
Conclusion - On approval of the resolution plan by the CoC, there is a closure to all claims. Had the RP taken cognisance of the belated additional claim of the Appellant, it would have resulted in re-opening of the resolution plan which would militate against the statutory scheme of IBC and tantamount to infringement of the clean slate theory of the Hon’ble Apex Court. Further when the claims have been filed belatedly, the RP’s action to reject the claim by way of a reasoned reply to the Appellant cannot therefore be put to fault. The Adjudicating Authority did not commit any error, in the given facts and circumstances, in upholding the decision of the RP to reject the belated additional claims of the Appellant.
Appeal dismissed.
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2025 (4) TMI 635
Rejection of Section 7 application filed by the appellant as barred by Section 10A of the Insolvency and Bankruptcy Code, 2016 - invocation of the guarantee by IDBI Bank on 05.03.2021 falls within the Section 10A period or not - HELD THAT:- Clauses 7, 9 & 11, which clearly contemplate invocation of guarantee by the lenders and invocation of guarantee from time to time with respect to the maintenance of the DSRA with the lender. Clause 25 is a general clause where the obligations of the guarantor are not conditional on the receipt of any prior notice by the guarantors of the borrower. Demand notice by the lender to the borrower shall be sufficient notice to on the Demand of the guarantors.
The judgment of the Hon’ble Supreme Court in Bank of India & Anr. Vs. B.K. Mohan Das & Ors. [2009 (3) TMI 1004 - SUPREME COURT] noticed where Hon’ble Supreme Court has occasion to consider general principle of construction of a contract.
Guarantor has guaranteed that borrower shall maintain the necessary credit balance at all times as provided in recital 2 notice above and even borrower does not maintain the necessary credit balance. Lender can immediately ask the guarantor to credit deposit and repay such amount. The above is clearly provided in Clauses 7, 8, 9, 10 & 11 as noted above. Thus, default on the part of guarantor can only arise when guarantee is invoked as per the explicit clauses of the guarantee deed 7 to 11. Clause 25 cannot be read in manner to make Clauses 7 to 11 unworkable and redundant.
IDBI bank in his Section 7 application has clearly pleaded that “on 05.03.2021, financial creditor invoked the guarantee provided by the corporate debtor and called upon the corporate debtor to pay ₹61,97,33,612/-”. Further in Part IV Serial No. 2 again following was pleaded “financial creditor invoked the guarantee on 05.03.2021 and the corporate debtor is in continuous default in terms of the guarantee agreement dated 03.08.2012”. When the appellant financial creditor has come with the categorical case that guarantee was invoked only on 05.03.2021, there cannot be any occasion to treat any other date as date for invocation of guarantee.
Although order impugned of the adjudicating authority needs to be affirmed, but liberty need to be given to the appellant, if so, advised to file a Section 7 application for default of corporate debtor subsequent to 10A period i.e., a default subsequent to 24.03.2021.
Conclusion - The order impugned passed by the adjudicating Authority dated 19.05.2023, dismissing Section 7 application as barred by Section 10A is upheld - appeal disposed off.
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2025 (4) TMI 634
Requirement of an elaborate hearing considered and recorded by the Ld. Adjudicating Authority, at the stage of considering the report submitted by the Resolution Professional under Section 99(7) of the I & B Code, 2016, before passing an order under Section 100 of the I & B Code, 2016, admitting an application preferred under Section 95 of the Code for initiation of the Insolvency Resolution Process (IRP) in respect of the personal guarantors - HELD THAT:- The Resolution Professional at the stage of submission of the report under Section 99 of the I & B Code, 2016, is only a facilitator to the proceedings, providing assistance to the Ld. Adjudicating Authority by way of imparting information in the shape of a report under section 99 of the I & B Code, 2016, after collating the relevant information from various sources including the personal guarantors to arrive at a conclusion as to whether, under the given set of circumstances the application under Section 95 of I & B Code, 2016, can be taken up for consideration. Thus, the said report to be presented under Section 99 of I & B Code, 2016, has to be considered only for the purposes of stepping into the stage of Section 100 of the I & B Code, 2016, and that the acceptance or rejection of the application is exclusively the prerogative of the Ld. Adjudicating Authority. The use of the expressions therein such as “examine the application”, “satisfies the requirements”, & “recommend” leave no doubt that the Resolution Professional’s report under Section 99 does not have any element of adjudicating a right of any of the parties, as against whom the process under Section 95 of the I & B Code, 2016, is contemplated to be initiated.
Thus, when the report under Section 99 of the I & B Code, 2016, is being considered for the purposes of passing an order under Section 100 of the Code, admitting a proceeding under Section 95 of the I & B Code, it requires that a reasoned order is to be passed on the recommendations contained in the report of the Resolution Professional as it is likely to affect the concerned individual.
Hence, in as much as the contention raised that, the principles of ratio propounded by Dilip B Jiwrajka [2024 (1) TMI 33 - SUPREME COURT] was violated, at the stage of the submission of the report under Section 99 of the I & B Code, 2016, which only facilitates the Ld. Adjudicating Authority to collate the necessary material in order to adjudicate on the need for initiation of the IRP proceeding under Section 95 of the I & B Code, 2016, no principle of natural justice has been violated, and that the Resolution Professional has given sufficient opportunities to present their cases. Further, as far as providing an opportunity to the Appellants to participate in the process of examination of the application/ report submitted by the Resolution Professional is concerned, the report has been given to them, and they have been given two months time to file their reply before right to file reply was forfeited. As I & B Code is a special statute, prescribing very strict timelines for the process thereunder, we hold that the opportunities given to the Appellants were sufficient.
Conclusion - The Ld. Adjudicating Authority in the impugned order has followed principles of natural justice by giving sufficient opportunity to the Appellants herein and has protected all the rights of the Appellants by, directing thereof for a strict adherence to the provisions contained under Sections 108, 109, 110, and 111 of I & B Code, 2016. Thus, the impugned orders, which is subject matter of challenge in the instant appeals, do not call for any interference at this stage.
The ‘appeals’, lack merit, and the same are ‘dismissed’.
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2025 (4) TMI 629
Seeking direction to the respondents to consider the representation regarding the pending petition under the Insolvency and Bankruptcy Code, 2016 - Whether the petitioner could apply for an interim moratorium under Section 94 of the IBC, 2016, considering the definition of 'debtor' within the context of sole proprietorship firms? - HELD THAT:- Section 94 of IBC, 2016 gives remedy to ‘debtor’ only to either apply personally or through a resolution professional (RP) to the Adjudicating Authority for initiating the insolvency resolution process. Section 3(8) of IBC, 2016 defines “corporate debtor” which means a corporate person who owes a debt to any person and “corporate person” is defined in sub-section (7) of Section 3, it means a company under the Companies Act, 2013, a limited liability partnership under the Limited Liability Partnership Act, 2008 or any other person incorporated with limited liability under any law. Therefore, in this definition the proprietorship firm is not included. The M/s Rainbow Sales and M/s Kothari Enterprises are sole partnership firms, thus, in respect of these two firms, no application under Section 94 is liable to be entertained even at the instance of the present petitioner.
Even otherwise, now stage of consideration of the representation is over. The Additional District Magistrate has already passed an order hence, become a functus officio. The Tehsildar who has issued a notice does not enjoy any adjudication power to consider the objection / representation of the petitioner.
Petition dismissed.
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2025 (4) TMI 521
Maintainability of section 9 application - initiation of CIRP - Existence of pre-existing dispute between the parties or not - HELD THAT:- From the exchange of correspondence between the Appellant and the Respondent, it is found that there is a dispute with respect to quantum of the amount payable by the Respondent. It is also found that this issue has been raised multiple times prior to the issuance of the demand notice dated 31.12.2021 by the Appellant. This has not been satisfactorily resolved.
The submissions of the Respondent is agreed upon, that UCIL is a Govt. body and all work done is to be certified by a third-party independent agency and the invoices have to be backed by the logbook maintained by the Appellant duly signed by the respondent and certified by an independent agency otherwise these are mere one-sided statements. Furthermore, the contention of the respondent also agreed that mere stamping of the tax/proforma invoices done at the site office by lower functionaries of the respondent is indicative of mere receipt of the same; it does not mean that the same has been accepted by the respondent company.
There is a dispute with respect to the quantum of amount which is much prior to the issuance of the demand notice dated 31.12.2021 by the Appellant. As per Section 8(2)(a) of the Code, the respondent has brought on record the existence of a dispute. The AA as per the provisions of Section 9(5) on finding a notice of a pre-existing dispute has not admitted the Section 9 Application.
Conclusion - The communications and evidence presented by the Respondent demonstrated a genuine dispute regarding the quantum of the debt and other issues. The Adjudicating Authority's decision to dismiss the Section 9 application upheld.
Appeal dismissed.
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2025 (4) TMI 520
Condonation of delay of 154 days in refiling the appeal - sufficient cause for delay or not - HELD THAT:- The law with regard to condonation of refiling delay is well settled, although the Courts have adopted a liberal approach while condoning the refiling delay, but there has to be sufficient cause shown by the applicant for condoning the refiling delay.
There are no incompetency of learned advocate on record in filing the additional affidavit in support of application for condonation of refiling delay. From the facts which has been noticed, it is clear that present is a case where steps were taken by applicant for curing the defect. The fact that 8 appellants who have filed the appeal are not from one place. Two of the appellants are from Thane West, State of Maharashtra and others are from Beawar, State of Rajasthan.
Conclusion - Sufficient cause has been shown in the application, additional affidavit and rejoinder affidavit filed by the applicant in support of the refiling delay application.
Refiling delay is condoned.
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