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Loan and Advance to be Differentiated: National Company Law Appellate Tribunal, Principal Bench, New Delhi

Whether the amount in question was a ‘loan’ or an ‘advance’, was a question considered by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI, before a bench consisting of Justice Ashok Bhushan, Chairperson; Justice Jarat Kumar Jain, Member (Judicial); and Dr. Ashok Kumar Mishra, Member (Technical), in the matter of M/s. Jai International Pvt. Ltd. vs. M/s. Jaroli Agro Pvt. Ltd. [Company Appeal (AT) (Ins) No. 277 of 2021], on 10.12.21.

The facts of the case were that the appellant is engaged in the business of supplying, trading and exporting agricultural commodity and extraction products; while the respondent was engaged in similar business, apart from providing consultancy services to the appellant. The appellant has asked for refund of outstanding amount of Rs. 30,75,408/-. The respondent neglected to refund the said amount in spite of demand notice served on them and hence an Insolvency Petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, before the Adjudicating Authority. On its petition being dismissed by the Adjudicating Authority, it has appealed to set aside the impugned order dated 15.07.2021 and initiate ‘Corporate Insolvency Resolution Process’ (CIRP). The Adjudicating Authority had dismissed the petition on the ground of limitation, dispute between the parties, the amount being loan, and thus held the petition filed under Section 9 was not maintainable and had accordingly dismissed the petition. The present appeal has been filed by the appellant, under Section 61 of the Insolvency and Bankruptcy Code, 2016, against the impugned order dated 15.07.2021 passed by the Adjudicating Authority, that is, the National Company Law Tribunal, Mumbai Bench.

The Learned Counsel for the Appellants, put forth the contention that the amount Rs. 30 Lakhs carrying the word of RTGS/IDBI loan has been misunderstood by the Adjudicating Authority as the ‘terms of loan’ and ‘advance’ are intangible, an argument which was supplemented with several judgments. It was thus argued that the Adjudicating Authority had wrongly proceeded on the basis that claimed amount is a ‘loan’ where in fact it was given as ‘advance’. It was asserted that advance given is an operational debt within the meaning of the term encompassed in Section 5(21) of the Code. Additionally, it was argued that advance was given, no doubt, in the year 2014 but there was a continuous transaction till November, 2017. All such debit notes passed between 29.02.2016 to 24.11.2017 were argued to have beem duly signed by the ‘Director of the Corporate Debtor’ –Mr. Prajender Jaroli. Hence it was contended that, limitation was not applicable to the case as the appellant had filed its application before the Adjudicating Authority on 06.12.2019, which was well within limitation considering the provisions of Section 18 of the Limitation Act, 1963. It was further submitted that the present Corporate Debtor is not a party to the company petition filed by Mr. Prajendra Jaroli which was in his individual capacity against the Operational Creditor to recover his alleged dues which was dismissed by Adjudicating Authority vide order dated 28.11.2019. It was also argued that the Corporate Debtor was not a party to the said MOU based on which the alleged claim has been filed by Mr. Prajender Jaroli. Hence, it was argued that there is no pre-existing dispute between the petitioner and the Corporate Debtor.

The Learned Counsel for the Respondents, submitted that Mr. Prajender Jaroli was working as an employee of the appellant Company from the year 2000 to 2008 and thereafter, worked as external consultant of the appellant. He had entered into MOU with the Appellant on 21.08.2013 and in partial satisfaction of amounts agreed in the MOU till 24.08.2018. It has also been stated that the said amount of Rs. 30 Lakhs is not towards advance payment but towards the amount payable under the MoU. The respondent argued that the alleged claim made by the appellant is ex-facie barred by limitation and the amount advanced on 31.12.2014 to the appellant towards commission or brokerage is time barred as the petition has been filed in December 2019 which is more than four years. It was further asserted that the appellant has also failed to prove that its claim falls under the definition of ‘Operational debt’ as Adjudicating Authority has held that Rs. 30 lakhs were given as loan. Hence, the present appeal is frivolous, baseless and deserves to be rejected.

The National Company Law Appellate Tribunal, Principal Bench, New Delhi, upon a careful perusal of records and submissions, concluded that the amount in question was an amount towards utilization of provisions of services provided by the other parties and is covered under Section 5(21) the Code. This was held to be as per the prevalent accounting practice supported by Schedule- III Part -1 of the Companies Act, 2013 as stated above and hence the petition filed by the appellant under Section 9 after issuing demand notice as per section 8 of the Code was considered to be in order. In light of precedents, it was hled that with respect to the issue of a pre-existing dispute, the Corporate Debtor is not a party in the Company Petition and so also not a party to the MoU. Hence, it is an unrelated issue as far as Corporate Debtor with the Operational Creditor is concerned. On the issue of limitation, it was held that the transactions are continuing between the parties till 2017 in one form or the other and debit or credit notes was continuing between the operational creditor or corporate debtor till 24th November, 2017 and the same has been accepted by the Director of the corporate debtor – Mr. Prajender Jaroli. Hence, by virtue of Section 18 of the Limitation Act, 1963, limitation gets extended and the petition filed in the year 2019 is in order. Thus, the tribunal held that there were material substances in the appeal and the appeal deserves to be allowed.

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Judgement reviewed by Bhargavi

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