In the case of N.C. Goel & Maya Goel v. Piyush Infrastructure India Pvt. Ltd., the NCLT bench of Rajasekhar V.K., Judicial Member, and Virendra Kumar Gupta ruled that the issuance of post-dated cheques by corporate debtors cannot be taken as unqualified admission of debt for the purpose of repayment of principal amount because the presumptions are drawn under Sections 118 and 139 of the Negotiable Instruments Act, 1881 (NI Act), are rebuttable presumptions.
Financial creditors Maya Goel and N. C. Goel filed an application to initiate the Corporate Insolvency Resolution Process (CIRP) by invoking Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against corporate debtor Piyush Infrastructure India Pvt. Ltd. for default of Rs 12,00,000/-. (excluding interest).
The financial creditor claimed that between 2011 and 2016, they had issued the respondent a loan of Rs 12, 00,000/- (in total) with an interest rate of 18 percent per annum. The respondents paid Rs 18000/- in interest until 04.06.2016, and post-dated checks for settlement of the principal amount were also given commencing on 15.01.2018.
The financial debtor, on the other hand, claimed that no interest was being paid and that the transactions from 2012 to 2014 were default. As a result, it was alleged that the current application was time-barred. Furthermore, it was argued that because no interest was payable, the transaction could not be regarded a financial debt within the sense of section 5(8) of the IBC.
The financial creditor replied that they preferred an application under Section 138 of the NI Act, which is currently being adjudicated by the competent legal authority. The application was maintainable in terms of limitation because it was claimed that the cheques were given from January to December 2018 and were dishonoured.
To begin, the Bench stated that the issue of limitation cannot be addressed since the lack of paperwork makes it impossible to determine the date of default. Only after the loan’s duration is established, or when a demand for repayment is made, can the date of default be estimated. As a result, it is impossible to determine the same. According to the Bench,
“The time value of money is an important factor to be considered in order to establish whether this is a financial debt.”
The Court Held
Furthermore, it was noted that it was impossible to determine the loan’s term and whether or not a notice requesting payment of the loan in question existed. Except for two letters from a corporate debtor, no additional proof of interest receipt was brought to the court’s attention. As a result, the allegations of receiving interest were found to be unfounded.
The bench explained that post-dated cheques issued by the corporate debtor for repayment of principal amount cannot be regarded as an unequivocal admission of debt.
“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.”
The Court stated
As a result, the bench came to the conclusion that the issue at hand appeared to be a petition for money recovery rather than a 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 Court stated
Advocates Atul Kumar Singh and Sahil Garg are representing the financial creditors.
Advocate Sanchit Garga represents financial debtors.
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