Judgments

RADHA EXPORTS (INDIA) PVT. LTD VS K P JAYARAM & ORS : CASE SUMMARY

The Supreme Court in Radha Exports (India) Pvt. Ltd. Vs K. P. Jayaram  & Ors  (2020) 10 SCC 538  held that the Application filed by the Respondents for initiation of CIRP was time barred. The Application was also not maintainable as there was no financial debt in existence.

FACTS OF THE CASE

The Respondents had advanced loan to Radha Exports, a Proprietorship Firm.  The loan was unsecured and free of interest.  The Appellant company was incorporated to take over the business of proprietorship firm on or about 19th July, 2004. At the time of incorporation, total liability towards Respondents was Rs. 1,11, 85, 350/-.

After incorporation of the Appellant company the Respondents requested the Appellant to convert Rs. 90,00,000/- of loan amount in share application money for allotment of shares in name of Respondent No. 2. Accordingly,  Rs. 90,00,000/- was converted in share application money and remaining loan amount was Rs. 21, 85, 350/-.    According to the appellant company loan amount was completely liquidated by March, 2006.

The Respondent No. 2 resigned from the Board of Directors and at the time of resignation, the Respondent No. 2 requested the Appellant company to treat the share application money of Rs. 90,00,000/- as share application money of Mr. M. Krishnan. Rs. 90,00,000/- was to be treated as loan amount From Respondent No. 2 to Mr. M. Krishnan. The Appellant Company claimed to have issued shares of Rs. 90,00,000/- in name Mr. M. Krishnan in 2008. The Appellant claims that there had been no financial transaction between the Appellant company and the Respondents.

The Respondents issued legal notice dated 19th November, 2012 for payment of sum of Rs. 1, 49,60,000/-. The said amount was not paid as such the Respondents filed  Petition before High Court of Madras for winding of  the Appellant Company.  The said petition was transferred to the NCLT, Chennai Bench.  On 4th August, 2017 winding up petition was dismissed by the NCLT.

The Respondents again filed fresh Petition under Section 9 IBC before NCLT  which was withdrawn. The Respondents again filed  fresh Petition under Section 7 IBC before the NCLT.   NCLT held that Respondents are not Financial Creditors. The NCLT also held that  Petition is barred by limitation and dismissed the Petition.

Respondents preferred appeal before the NCLAT wherein the NCLAT set aside the order of the NCLT.

FINDINGS OF THE SUPREME COURT

The Supreme Court observed that it was for the Applicant, who invokes corporate insolvency resolution process,  to prima facie show the existence in his favour a legally recoverable debt. Such Applicant has to show that the debt is not barred by limitation.  

The period of limitation for suit for recovery of money lent is three years from the date loan has been paid under the Limitation Act. The last loan amount is said to have been advanced in 2004-05. In the instant case debt was barred even in 2012 when winding up proceedings have been initiated.

The Supreme Court observed that the NCLT has rightly rejected the Application on the ground that it was barred by limitation.

The Supreme Court also held that the Petition was not maintainable under Section 7 of the IBC as there was no financial debt in existence. The definition of “financial debt” in Section 5 (8) makes it clear that “financial debt” means a debt along with interest, if any, disbursed against time value of money. The transaction in this matter is not covered under definition of financial debt.

____________________________________

Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Leave a Reply

Your email address will not be published. Required fields are marked *