AA Was Justified in Rejecting CIRP Plea, as Documents Placed by Shareholders of CD Were Unsigned and B/s Showed Nil Loan | NCLAT

Case Details: Vijay Jain v. Laxmi Foils (P.) Ltd. - [2024] 162 taxmann.com 79 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • Krishnendu Datta, Sr. Adv., Ashish Verma, Ms Salonee Keshwani & Rahul Gupta, Adv. for the Appellant.

Facts of the Case

In the instant case, the appellants, i.e. shareholders of the corporate debtor, had extended credit facilities to the respondent (i.e. the corporate debtor) for business purposes in the form of interest-free unsecured loans. After that, a Memorandum of Understanding (MoU) was entered into between the corporate debtor, ‘OFB’ and the appellants, in which ‘OFB’ was to purchase shareholding of the corporate debtor.

Meanwhile, the appellant’s entire shareholding was acquired by ‘OMAT’, a subsidiary company of ‘OFB’, in terms of the share purchase agreement, and new management took over the affairs of the corporate debtor.

The appellants claimed their outstanding financial debt and filed an application under section 7 of the IBC before the Adjudicating Authority (NCLT) based on an ‘MoU’ and a sale-purchase agreement (SPA) executed between the parties in which it was agreed that loans extended by the appellants to the corporate debtor would be repaid by the respondent on the closing date.

However, the NCLT rejected the said application on the ground that the appellant had failed to prove the existence of any debt.

It was noted that the provisional balance sheet of the corporate debtor showed that the unsecured loan owed to directors and shareholders of the corporate debtor was nil, and that said, the document was also signed by the appellants.

NCLAT Held

The NCLAT noted that the absence of proof of a crystallised debt was also validated by the balance sheet of the corporate debtor, which was also acknowledged by the appellants and which reflected that no amount as claimed by them was due and payable.

The NCLAT held that once the corporate debtor had achieved closing in terms of SPA and the appellants had acknowledged this upon signing the balance sheet with a nil statement, an issue with respect to any amount due and payable by the corporate debtor did not arise. Therefore, the NCLT had rightly dismissed the section 7 application filed by the appellants.

List of Cases Reviewed

• • Vijay Jain v. Laxmi Foils (P.) Ltd. [2024] 162 taxmann.com 78 (NCLT – New Delhi) (para 19) affirmed [See Annex].
  • Innoventive Industries Ltd. v. ICICI Bank [2017] 84 taxmann.com 320/143 SCL 625 (SC) (para 16) followed.

List of Cases Referred to

• • Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84 taxmann.com 320/143 SCL 625 (SC) (para 16)