M/S. RADHA EXPORTS (INDIA) PVT. LIMITED versus K.P. JAYARAM & ANR.

Citation: [2020] 8 S.C.R. 272 · Decided: 28-08-2020 · Supreme Court of India · Bench: ARUN MISHRA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2020] 8 S.C.R.
M/S. RADHA EXPORTS (INDIA) PVT. LIMITED
v.
K.P. JAYARAM & ANR.
(Civil Appeal No. 7474 of 2019)
AUGUST 28, 2020
[ARUN MISHRA AND INDIRA BANERJEE, JJ.]
Insolvency and Bankruptcy Code, 2016 – s.7 – Companies
Act, 1956 – Limitation Act, 1963 – Clauses (19) to (21) of Part II of
the Schedule – The respondents filed a petition on 25.04.2018
u/s.7 of the IBC, as ‘Financial creditor’, claiming principal amount
of Rs.2.10 crores together with interest – According to the appellant
company, Rs.80,40,000/- was repaid to the respondents between
2003 to 2004 – Further, respondents requested to convert
Rs.90,00,000/- from the outstanding loan as share application money
for issuance of shares in the appellant company in name of
respondent no. 2, which was later requested to be treated as the
said share application of ‘MK’ and to treat the same as loan from
respondent no. 2 – Also, during the period from 2004 to 2006, the
appellant company paid Rs.43,25,000/- to the respondents and with
that payment the loan liability was completely liquidated – The NCLT
vide its judgment and order dated 19.12.2018 held that the
respondents were not Financial creditors of the appellant company
and the claim of the respondents was barred by limitation – Further,
it was held that the respondents had failed to prove that there was
any debt due from the appellant company to the respondents,
observing that the appellant company had produced proof of
payments – By the impugned judgment and order dated 02.09.2019
the Appellate Tribunal set aside the order dated 19.12.2018 of the
NCLT – On appeal, held: Under clauses (19) to (21) of Part II of
the Schedule of the Limitation Act 1963, the period of limitation for
initiation of a suit for recovery of money lent, is three years from
the date on which the loan is paid – In the instant case, the last loan
was advanced in 2004-2005 – Apparently, the debt was barred by
limitation even in the year 2012, when winding up proceedings of
the appellant company were initiated in the Madras High Court by
the respondents – The NCLT rightly refused to admit the application
u/s. 7 of the IBC, holding the same barred by limitation – The
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[2020] 8 S.C.R. 272
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Appellate Tribunal erred in law in reversing the judgment and order
of the earlier Adjudicating Authority – Disputes as to whether the
signatures of the respondents are forged or whether records were
fabricated can be adjudicated upon evidence including forensic
evidence in a regular suit and not in proceedings u/s. 7 of IBC –
Even otherwise, the application u/s. 7 of the IBC was not
maintainable – As the payment received for shares, duly issued to a
third party at the request of the payee as evident from official records,
cannot be a debt, not to speak of financial debt – The NCLT rightly
held that there was not financial debt in existence – Thus, impugned
judgment and order of the Appellate Tribunal is set aside and the
order of the Adjudicating Authority dismissing application is
restored.
Allowing the appeal, the Court
HELD: 1. It was for the applicant invoking the Corporate
Insolvency Resolution Process, to prima facie show the existence
in his favour, of a legally recoverable debt. In other words, the
respondent had to show that the debt is not barred by limitation,
which they failed to do. [Para 36][286-E]
2.  Under clauses (19) to (21) of Part II of the Schedule of
the Limitation Act 1963, the period of limitation for initiation of a
suit for recovery of money lent, is three years from the date on
which  the loan is paid. The last loan amount is said to have been
advanced in 2004-2005. In the winding up petition, there is not a
whisper of any agreed date by which the alleged loan was to be
repaid to the Respondents. In the instant case, apparently the
debt was barred by limitation even in the year 2012, when winding
up proceedings were initiated in the Madras High Court.
[Para 37][286-E-G]
3. The NCLT rightly refused to admit the application under
Section 7 of the Insolvency Bankruptcy Code, 2016, holding the
same to be barred by limitation. The Appellate Tribunal has erred
in law in reversing the judgment and order of the earlier
Adjudicating Authority. The Adjudicating Authority rightly
rejected the application as barred by limitation. The Appellate
Authority patently erred in law in reversing the decision of the
adjudicating authority and admitting the application. [Para 38][286-
G]

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