Issuance Of Post Dated Cheques Is Not An Unqualified Admission Of Debt, NCLT Allahabad Dismisses Section 7 Application

Background Facts

The Applicants, Sh. N.C. Goyal and Ms. Maya Goyal ("Applicants"), had filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 ("IBC") before the NCLT Allahabad ("Adjudicating Authority"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Piyush Infrastructure India Pvt. Ltd. ("Respondent"), for defaulting on repayment of an amount of Rs. 12,00,000/- (excluding interest).

Contentions Of The Applicants

The Applicants contended that they had given loans to the Respondent between 2011-2016 for a total amount of Rs. 12,00,000/-, with interest payable at @18% per annum. The Respondent had paid a total interest of Rs.18,000/- to the Applicants till 04.06.2016 and had issued Post-dated cheques for repayment of principal amount, starting from 15.01.2018 to December, 2018. The first cheque got dishonoured on 23.01.2018 and no payments were received after that.

Contentions Of The Respondent

The Respondent submitted that it had never paid any interest to the Applicants and the transactions in default pertain to 2012 to 2014. Hence, the application is barred by limitation. It was further argued that since no interest was payable, the said transaction could not be considered as a financial debt within the meaning of Section 5(8) of the IBC. The Respondent submitted that the post-dated cheques were never presented for payment and the Applicants had approached the Tribunal with unclean hands.

Rejoinder Of The Applicants

The Applicants submitted that they had preferred a complaint under Section 138 of Negotiable Instruments Act, 1881, in respect of the dishonoured cheques, which was pending adjudication. It was further claimed that the cheques which were dishonoured were given from January 2018 till December 2018, therefore, the application was maintainable in view of limitation.

Decision Of The Adjudicating Authority

The Bench observed that the loan were given between 2011 to 2016 by the Applicants. However, in absence of any documentation, no date of default could be established. The date of default can only be calculated when the tenure of the loan is established, or when there is a demand for repayment. It was observed that receipt of interest was only evidenced through two letters of the Respondent, thus the claim regarding receipt of interest remain unsubstantiated.

Further, copies of the post-dated cheques issued by the Respondent cannot be taken to be unqualified admission of debt because the presumptions drawn under Section 118 and Section 139 of the Negotiable Instruments Act, 1881, are rebuttable presumptions.

"In summary jurisdiction, without adequate documentation, it is difficult to establish the purpose for which the money was lent and accepted. It is also not possible to establish whether there was any interest required to be paid. The time value of money is an important factor to be considered in order to establish whether this is a financial debt. Ex facie, this appears to be a petition which has been filed for recovery of money and not for resolution of the corporate debtor. The Insolvency & Bankruptcy Code, 2016, should not be allowed to be used as an easy way of recovery of money."

The Adjudicating Authority dismissed the application with liberty to the Applicants to pursue their remedies under any other law.

Case Title: N.C. Goel & Maya Goel v Piyush Infrastructure India Private Limited, CP (IB) No.453/ALD/2019

Counsel For Applicants: Sh. Atul Kumar Singh, Advocate Sh. Sahil Garg, Advocate

Counsel For Respondent: Sh. Sanchit Garga, Advocate

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