Dichotomy of Inability to Pay-Off Debts and Committing Default
National Company Law Appellate Tribunal, New Delhi
Monotrone Leasing Private Limited Vs. PM Cold Storage Private Limited
CA (AT) (Ins) No. 99 of 2020 | 16.07.2020
An application under Section 7 of the Insolvency and the Bankruptcy Code, 2016 (“Code”) was filled by Monotrone Leasing Private Limited (“Appellant”) for initiating Corporate Insolvency Resolution Process (“CIRP”) against PM Cold Storage Private Limited (“Corporate Debtor”) on the ground that the Corporate Debtor had defaulted in paying the financial debt.
Appellant had extended a loan of Rs.25 Lakhs to the Corporate Debtor for 90 days which was payable with interest @ 15% per annum. To secure the loan, the Corporate Debtor handed over a post-dated cheque dated 12th September 2017 for a sum of Rs.25 lakhs in favour of the Appellant.
Another post-dated cheque of Rs.25,00,000/- dated 09th October 2018 was issued by the Corporate Debtor in favour of the Appellant, which was dishonoured by the Bank on account of insufficient funds in the account. Subsequently, notice under Section 138 of Negotiable Instrument Act was served by the Appellant.
The Corporate Debtor on the other hand claimed that :
- no debt was due and payable;
- the Corporate Debtor had not made any defaults as alleged by the Appellant;
- that the borrowed money has been balanced by a significant number of transactions between the parties;
- there was a civil suit between the parties with respect to the alleged transaction;
- the transaction is not an inter-corporate deposit;
- the Corporate Debtor was not liable to pay the interest amount; and
- the alleged cheque is not valid as it was furnished as a security to the transaction.
The Adjudicating Authority rejected the Application on the ground that it cannot act as Recovery Tribunal. Further, observing that there was no sufficient evidence to prove that Corporate Debtor owed ‘financial debt’ to the Appellant. It was noted by the Adjudicating Authority that the financial statement of the Corporate Debtor showed a balance which was more than Rs.25 Lakhs therefore, it is a solvent company and there is no question of any default.
Aggrieved by the impugned order passed by the Adjudicating Authority, the Appellant approached the Appellate Tribunal seeking permission to initiate CIRP against the Corporate Debtor.
ISSUES BEFORE THE APPELLATE TRIBUNAL
The following issues were considered by the Appellate Tribunal:
- Whether an application under Section 7 of the Code can be rejected on the ground of insufficient evidence of existence of financial debt?
- Whether a presumption can be drawn that a solvent company cannot commit default?
- Whether an application under Section 7 of the Code can be rejected on the ground of pendency of civil suit between the parties?
- Whether an application under Section 7 of the Code can be rejected ground that Adjudicating Authority is not a forum for recovery of amount?