Unilateral Entries In Financial Records By Corporate Debtor To Make Counter Claim Cannot Be Considered: NCLAT New Delhi

Brief Facts

Mr. Kailash Motilal Kakrania and Mrs. Manju Kailash Kakrania (appellants) were shareholders of of Apurva Oil and Industries Pvt. Ltd (corporate debtor). A petition under section 7 of the IBC was filed by them claiming amount to the tune of Rs. 1,22,42,927 on September 4, 2021. The principal amount of Rs. 1,01,50,009 along with interest of Rs. 20,92,918 calculated at interest rate of 9% per annum was claimed in the petition based on the balance sheet of the corporate debtor. This petition was dismissed by the NCLT on the ground that it did not meet the threshold limit provided under section 4 of the IBC. The amount of Rs. 10,85,850 was also counter claimed by the corporate debtor which reduced further the claimed amount below threshold limit.

Contentions

The appellants submitted that counter claim of the corporate debtor was incorporated in the form of unilateral entries made just to reduce the admitted debt below the threshold limit and avoid insolvency proceedings. It was further contended that the counter claim was not initially mentioned in the response filed on December 19, 2021 by the corporate debtor. It was introduced later in an affidavit filed on April 11, 2022. Additionally, it was contended that this demand was not made earlier. It was further submitted that this amount could not be set off against the long term borrowing.

Per contra, the respondent submitted that the amount was not entitled for an interest after financial years 1998-99 and 1999-2000. It was further contended that the appellant had ceased to be a director of the company from August 16, 2014. It was further argued that the appellant misrepresented himself as an authorised representative of the corporate debtor and collected rent which led to the counter claim. A police complaint had already been filed against him by the corporate debtor against him in June, 2021.

NCLAT's Analysis

The NCLAT noted that the claims of the appellants were acknowledged in the balance sheet of the corporate debtor including for the financial year 2021-2022 therefore they were within limitation. The tribunal further observed that counter claim of the corporate debtor was not genuine as it had been recorded as eight entries with consecutive voucher numbers on the same date that is July 10, 2021. The tribunal further observed that no prior demand was made by the corporate debtor for the amount claimed in the counter claim. It was further noted that the amount claimed in the counter claim did not reflect in the financial statement of the corporate debtor before the filing of section 7 petition.

The tribunal held that the Corporate Debtor in his written submissions has nowhere stated that any demand of the said amount was ever made on Mr. Kailash Motilal Kakrania.There is no entry in the balance sheet, prior to the date of filing of petition under Section 7, regarding the said amount. Even in the books of account of the Corporate Debtor, the amounts are not adjusted against the financial debt, and are shown separately in the balance sheet as on 31.03.2022

The NCLAT further referred to the decision of the NCLAT Khushbu Dey Chem Pvt. Ltd. V. Chemical Suppliers India Pvt. Ltd. (2024) in which it was held that there is no provision under the Code for set of/adjustment/counter claim.

The tribunal observed that the debt claimed by the appellants was undisputed and acknowledged in the financial statements for which a petition under section 7 of the IBC could be maintained.

Conclusion

The NCLAT concluded that the debt of the appellants was duly acknowledged in the financial statements and the debt was not barred by limitation. It was further held that counter claim of the corporate debtor was introduced just to avoid insolvency proceedings under section 7. Accordingly, the present appeal was allowed and decision of the NCLT was set aside.

Case Title: Mr. Kailash Motilal Kakrania and Anr. v. Apurva Oil and Industries Pvt. Ltd. Court: NCLAT, New Delhi

Case Reference: Company Appeal (AT) (Insolvency) No. 1257 of 2023 & I.A. No. 4433 of 2023

Judgment Date: 15/10/2024