The NCLAT has held that the pendency of a suit filed by the corporate debtor against a financial creditor, cannot bar it from initiating insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The Appellate Tribunal headed by Justice S J Mukhopadhyay also reiterated that pre-existing dispute cannot be a subject matter of Section 7, although it may be relevant under Section 9 of the IBC.
The NCLT Special Bench at New Delhi, initiated insolvency proceedings against Marigold Overseas Limited, (Corporate Debtor), on an application filed under section 7 by M/s. Pashupati Jewellers, the financial creditor. Karan Goel, the Promoter of Marigold, approached the NCLAT against this decision of the NCLT.
Pashupati Jewellers had extended a loan of Rs. 2,60,000 to Marigold Overseas, against a 'Corporate Guarantee and Undertaking' Agreement, executed between the two parties in 2017. Karan Goel contended that the loan was advanced by Sumedha Kanodia, sole proprietor of Pashupati Jewellers, in violation of section 185 of the Companies Act, 2013.
Section 185 of the Companies Act prohibits companies from advancing any loan, or giving any guarantee or security, in connection with a loan taken by the directors of such company.
Karan Goel further submitted that the erstwhile management of Marigold played fraud by suppressing the information about the Corporate guarantee, as the records of Marigold Overseas available with the Registrar of Companies did not reflect the amount of the loan agreement. He also informed the Bench that the documents of the Loan Agreement were fabricated, and he had filed a suit against the financial creditor, alleging the same.
His contention therefore was that, no lawful 'Corporate Guarantee' had been given by Marigold Overseas, and so the application under Section 7 of the IBC was not maintainable.
The NCLAT Bench observed that the Loan Agreement dated 7th April, 2017, instituted on an e-stamp paper issued by the Government of NCT, Delhi, clearly mentioned that the e-Stamp was purchased by Marigold Overseas, for the purpose of the Loan Agreement. The Bench was of the view that merely because Karan Goel was unaware of the Agreement, he could not take a plea that the Agreement was executed fraudulently, on the ground that is did not reflect in the record of the Registrar of Companies.
The Appellate Bench also observed that the NCLT had deliberated upon whether the documents were indeed forged or not. Based on the decision of the Supreme Court in Innoventive Industries Ltd. Vs. ICICI Bank and Anr., the NCLAT Bench asserted that, once the NCLT is satisfied on the basis of records that the debt is payable and there is default, the Tribunal is required to admit the application.
The Bench remarked that, since Pashupati Jewellers had enclosed a copy of the Agreement instituted on e-stamp paper issued by the Govt. of NCT, Delhi, it was not open to the NCLT to deliberate upon the claim of the documents to be forged.
On the basis of the aforesaid findings, the NCLAT concluded the mere pendency of a suit against the financial creditor, had no bearing on the insolvency proceedings initiated by it against Marigold, and accordingly dismissed Karan Goel's appeal