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TMI Blog2025 (5) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... y the National Company Law Tribunal, New Delhi Bench (Court-II) (Adjudicating Authority), in C.P.(IB) No. 590/ND/2023. 2. M/s Lion Buildcon Pvt. Ltd. (the Corporate Debtor) through its Resolution Professional, Mr. Gaurav Kapoor is the Respondent No. 1 herein. M/s Kaliber Associates Private Limited through its liquidator, Mr. Mohan Lal Jain is the Respondent No.2 herein. 3. The Appellant has challenged the Impugned Order dated 03.07.2024 on grounds of jurisdictional overreach and legal inconsistency, contending that the Adjudicating Authority erroneously admitted Corporate Insolvency Resolution Process (CIRP) against the corporate debtor solely as a recovery tool for Kaliber Associates Pvt. Ltd. (KAPL) in liquidation, contrary to the objective of the Code for resolution/revival of the Corporate Debtor. The Appellant argues that the Liquidator of KAPL exceeded their statutory mandate under IBBI Liquidation Process Regulations, 2016 (Regulations 37A, 38, 39, 44), which restrict liquidators to realization and distribution for the company under liquidation and not initiating CIRP against third parties like the Corporate Debtor. The Appellant also pleaded that the Impugned Order disre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquidator, sought and obtained leave from the Adjudicating Authority vide I.A. No. 5846/2021 in C.P. (IB) No. 228/2019 to institute recovery proceedings under Section 35(1) of the Code, which was erroneously granted by the Adjudicating Authority vide order dated 21.02.2022, thereby sanctioning the Liquidator's overreach beyond the statutory mandate of asset realization for KAPL and improperly enabling collateral actions against unrelated entities like Respondent No. 1 in contravention of the Code's liquidation framework. 8. The Appellant submitted that the Respondent No.2, through its Liquidator, filed a Section 7 Application on 19.09.2023 to initiate CIRP against the Respondent No.1 alleging a default of Rs.2.5 crores. However, the authorization for filing this application was issued by the Liquidator, Mr. Mohan Lal Jain, himself without any approval. The Appellant further contended that the Section 7 Application is frivolous and procedurally defective, as it fails to establish the locus standi of the Liquidator to initiate CIRP proceedings in this manner including the lack of approval and the improper use of CIRP as a recovery mechanism, which undermines the fundamental ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery tool, under the guise of seeking resolution for Respondent No. 1, especially considering that Respondent No. 2 is admittedly the sole financial creditor of Respondent No. 1. 12. The appellant submitted that Sections 33(5) and 35(1)(k) of the Code permits the Liquidator to institute or defend suits, prosecutions, or other legal proceedings in the name of or against the company under liquidation, including actions for the recovery of its dues. However, this does not extend to initiate CIRP proceedings for the resolution or revival of debtor companies who have defaulted on their debts. 13. The appellant submitted that Respondent No. 2 is undergoing liquidation, and the Liquidator of Respondent No. 2 has arbitrarily alleged that Rs. 2.5 Crores was disbursed as loans and advances to the Corporate Debtor in two tranches in 2013. However, the Liquidator has failed to produce any written contract or document demonstrating that the alleged loan and advance had a commercial effect of borrowing and was disbursed against consideration for the time value of money, which is a prerequisite for qualifying a debt as a Financial Debt under Section 5(8) of the Code. The appellant submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the letter dated 31.01.2019 from the IRP was merely a request for confirmation of the alleged loan amount and did not establish a timeline for repayment and therefore, in absence of a specific repayment timeline, the date of default cannot be construed as 31.01.2019. The appellant asserts that a loan recall notice without a specific payment date is simply a formal communication requesting repayment, not a determination of a default date. 17. The appellant submitted that the demand/legal notice dated 20.07.2020, issued by Respondent No. 2 after his appointment, should be the basis for ascertaining the date of default, as it is the only notice specifying a repayment date. The appellant argues that failure to repay within the stipulated time period in that notice would give rise to the default, making 27.07.2020 the relevant date. As this date falls within the restricted/prohibited period under Section 10A of the Code, the appellant argued that the impugned judgment is liable to be set aside on this ground. 18. The appellant submitted that, under the statutory scheme, while the record of an information utility is relevant, it does not constitute conclusive proof of default. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No. 2 submitted that the Financial Creditor disbursed Rs. 2.5 Crores to the Corporate Debtor in two tranches, with Rs. 2,00,00,000 paid on 18.10.2013 and a further Rs. 50,00,000 paid on 09.11.2013, as indicated in the Financial Creditor's Bank Statements. The Respondent No. 2 further submitted that in the Audited Financial Statement of the Corporate Debtor as on 31.03.2020, an amount of Rs. 2.5 Crores is reflected against the name of the Financial Creditor as "Unsecured Loans" under the head "Other Long-Term Liabilities". 24. The Respondent No. 2 submitted that the Audited Financial Statement of the Corporate Debtor as of 31.03.2022 also reflects that the Corporate Debtor has borrowed money from M/s Kaliber Associates Pvt. Ltd., i.e., the Financial Creditor, amounting to Rs. 2.5 Crores which is due and payable. Further, the Audited Financial Statement of the Corporate Debtor as of 31.03.2022 reflects an amount of Rs. 2.5 Crores against the name of the Applicant/Financial Creditor as "Unsecured Loan from Body Corporate" under the heading "Short term borrowings." Thus, the Corporate Debtor has clearly acknowledged its liability to repay Rs. 2.5 Crores to the Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CD is endeavoring to enter into settlement qua the defaulted amount with the Applicant/ Petitioner and has already given a proposal to Petitioner to the effect ... ". 28. The Respondent No. 2 submitted that the Appellant's sole contention in the present matter is that the application being C.P. (I.B.) No. 590/ND/2023, filed under Section 7 of the Code, was based on the Order dated 21.02.2022 passed under Section 33(5) read with Section 35(1)(k) of the Code through application I.A. No. 5846/2021, solely for the purpose of recovering dues and not for the resolution/revival of Respondent No. 1. The Respondent No. 2 submitted that, being a company in liquidation pursuant to the order dated 02.01.2020 passed under Section 33 of the Code by the Adjudicating Authority in C.A. No. 1524/C-II/ND/2019 in C.P. (IB) No. 228/2018, it approached the Adjudicating Authority under Section 33(5) read with Section 35(1)(k) of the Code by way of application I.A. No. 5846/2021, wherein the following prayers were sought: "i. Grant prior approval to the Applicant to institute suits or other legal proceedings on behalf of the Corporate Debtor including filing application under section 7 of the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal to dismiss the appeal with cost. Findings 33. We have already noted the facts and shall not repeat the same. Following issues have been raised by the Appellant which need to be adjudicated upon. 34. Issue No. (I) The Appellant has raised the issue regarding amount claimed by the Respondent is not financial debt. The Appellant conceded that Rs. 2.5 Crores might has been disbursed but not as loans and advances, since there is no contract or written document/ agreement for the same. Issue No. (II) The Appellant has also raised the issue regarding alleged default falls within restricted period under Section 10A of the Code. Issue No. (III) Another issue raised by the Appellant is regarding record of default of in the records of the information utility and is not a conclusive proof of the debt and default. Issue No. (IV) The Appellant has taken the ground that the liquidator of the alleged financial creditor has filed a petition for recovery of the amount and not for resolution of the Corporate Debtor against the regulations of the Code. 35. We shall deal all the aforesaid issues raised by the Appellant in the following discussions. 36. Issue No. (I) The Appellant has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code, since one of the legal notice was issued by the Counsel of the Respondent No. 2 to the Corporate Debtor on 20.07.2020 and as such, as per the Appellant the same falls within the exempted period of 25.03.2020 to 25.03.2021 in terms of Section 10A of the Code. In this regard, we note that in Part IV of Form I, filed along with application under Section 7 of the Code, under which default of Rs. 2.5 Crores was reflected as on 31.01.2019. It is a fact that other demand letter/ legal notice was issued on 20.07.2020, however, the original debt of default as reflected in Part IV is 31.01.2019 which is not covered under the exempted period in terms of Section 10A of the Code. We take into consideration Part IV filed under Section 7 application before the Adjudicating Authority which reads as under :- Thus, the contention of the Appellant on this account is not legally sanctionable. 38. Issue No. (II) Another issue raised by the Appellant is regarding record of default of non-utility is not a conclusive proof of the debt and default. One more issue raised by the Appellant is regarding non conclusive evidence of establishment of financial debt based on the transaction recorded by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. In this connection, we note that the Respondent No. 2 / Liquidator had specifically taken approval of the Adjudicating Authority for instituting legal proceedings on behalf of the Respondent No. 2 including filing an application under Section 7 of the Code. (i) The relevant excerpts of the order dated 21.02.2022 are produced hereinbelow - "IA-5846/2021- By filing this IA, the applicant has prayed for granting prior approval to the Applicant to institute suits/legal proceedings on behalf of CD including filing of Section 7 Application of the Code for recovery of dues/default committed by such companies/borrowers in payment of their debt. ....The Liquidator is directed to take all steps in accordance with the provision of law." (Emphasis Supplied) 40. We also take into consideration the relevant regulation of IBBI (Liquidation Process) Regulations, 2016, which reads as under :- "Regulation 37A: Assignment of not readily realisable assets. 37A. (1) A liquidator may assign or transfer a not readily realisable asset through a transparent process, in consultation with the stakeholders' consultation committee in accordance with regulation 31A, for a consideration to any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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