D S Kulkarni & Associates Vs Manoj Kumar Aggarwal (NCLAT Delhi)
The National Company Law Appellate Tribunal (NCLAT) in Delhi recently ruled on a case involving D S Kulkarni & Associates and Manoj Kumar Aggarwal. The crux of the matter revolved around the admissibility of claims as financial debts based on Memorandum of Understanding (MoU) and Ledger Extracts.
Analysis: The Appeals were filed challenging the rejection of claims by the National Company Law Tribunal (NCLT), Mumbai Bench-I. The Appellants, D S Kulkarni & Associates and D S Kulkarni & Company, sought to substantiate their claims with MoU and Ledger Extracts. However, the Resolution Professional (RP) rejected the claims, stating insufficient documentation.
The MoU presented by the Appellants outlined transactions related to property purchases and joint ventures with the Corporate Debtor. However, the NCLAT scrutinized the MoU and found that it did not qualify as a financial debt under the Insolvency and Bankruptcy Code. The terms of the MoU indicated investments rather than debts.
The NCLAT also highlighted the RP’s efforts to solicit additional documents to support the claims, which were not provided by the Appellants despite reminders. Without adequate documentation, the RP rightfully rejected the claims.
Conclusion: Ultimately, the NCLAT upheld the NCLT’s decision to dismiss the appeals. The ruling reaffirmed the principle that mere MoUs and Ledger Extracts are insufficient to establish financial debts under the Insolvency and Bankruptcy Code. The case underscores the importance of comprehensive documentation in insolvency proceedings to substantiate claims effectively.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
These two Appeals have been filed challenging order dated 3 1.03.2023 passed by National Company Law Tribunal, Mumbai Bench-I, by which IA Nos.72 1 of 2023 and IA No.722 of 2023 filed by the Appellant(s) seeking a direction to admit their claim have been rejected.
2. Brief facts giving rise to these two Appeal(s) are:
(i) By an order dated 26.09.20 19 passed on an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) by Bank of Maharashtra, Corporate Insolvency Resolution Process (“CIRP”) commenced against the Corporate Debtor – D S Kulkarni Developers Ltd. The Respondent invited claims from the creditors on or before 09.10.2019.
(ii) A Claim in Form CA (Submission of claim by Financial Creditors in a Class) for an amount of Rs.166,74,48,579/- and another Claim in Form-F for an amount of Rs.59,000/- was filed by D.S. Kulkarni & Associates.
(iii) The Resolution Professional (“RP”) vide his email dated 10.20 19 asked the Appellant D.S. Kulkarni & Associates to provide for documents to substantiate their claim. The RP sent reminder dated 13.11.2019. On 03.05.2021, the authorised representative of the Appellant again resubmitted the same Claim Forms on behalf of D.S. Kulkarni & Associates. On 28.05.2021, the RP again asked the D.S. Kulkarni & Associates to provide relevant supporting documents to substantiate their Claim. No documents having been provided the Claim was rejected.
(iv) The Claim on behalf of D.S. Kulkarni & Company (Appellant in Company Appeal (AT) (Ins.) No.924 of 2023) was filed on 07.10.2019 in Form-CA for an amount of Rs.464,19,99,032/- and other Claim in Form-F was filed for an amount of Rs .27,78,80,000/-.
(v) The RP vide email dated 14.10.20 19 asked the D.S. Kulkarni & Company to submit documents to substantiate their claim. On 03.03.2021 D.S. Kulkarni & Company again submitted claim, to which the RP vide email dated 28.05.2021 again asked to provide all relevant and supporting documents in respect of the claim.
(vi) The Resolution Plan submitted by the Resolution Applicant was approved by the Committee of Creditors (“CoC”) on 08.2021 and on 24.08.2021, the RP filed IA No.1950 of 2021 for approval of the Resolution Plan. On 22.02.2023, Plan approval Application was heard and orders were reserved.
(vii) In February 2023, IA No.721 of 2023 was filed by D.S. Kulkarni & Associates seeking a direction to admit their Claim. Similarly, IA No.722 of 2023 was filed by D.S. Kulkarni & Company seeking a direction to admit their claim. In IA Nos. 721 and 722 of 2023, the RP filed its reply. The RP in its reply affidavit stated that no documents having been submitted by the Applicant(s) to substantiate their claim, the claims were rejected. It is submitted that the Resolution Plan was approved on 13.08.202 1 and the Applications being IA Nos.721 and 722 of 2023 have been filed in February 2023, which is nothing but an attempt to cause hinderance in CIRP of the Corporate Debtor. The RP pleaded that Applicant(s), i.e., D.S. Kulkarni & Associates and D.S. Kulkarni & Company are ‘related party’ to the Corporate Debtor and there have been various fraudulent, undervalued, preferential and exorbitant transactions undertaken by the Corporate Debtor for which an Application-IA No.2022 of 2021 has been filed for avoiding the transaction. It is stated that various proceedings were initiated against the Corporate Debtor and its ‘related party’ by different Authorities. Due to the actions of the Corporate Debtor, the Directors were also lodged in Jail.
(viii) The Adjudicating Authority after hearing the parties, by the impugned order dated 3 1.03.2023 rejected IA No.72 1 of 2023. The Adjudicating Authority held that CIRP order was passed on 26.09.2019, the Resolution Plan was duly approved by the CoC on 13.08.202 1 and the Application has been filed with The Adjudicating Authority held that the RP did not commit any illegality or irregularity in rejecting the Claim of the Appellant. IA No.722 of 2023 was also rejected by the Adjudicating Authority, by making similar observations.
(ix) These two Appeal(s) have been filed challenging the order dated 03.2023 passed respectively in IA Nos.72 1 and 722 of 2023.
3. We have heard Shri Sandeep Bajaj, learned Counsel appearing for the Appellant(s); Shri Abhijeet Sinha, learned Counsel appearing for the RP; and Shri Arvind Nayar, learned Senior Advocate and Shri Puneet Singh Bindra, learned Counsel appearing for Successful Resolution Applicant (“SRA”).
4. The learned Counsel for the Appellant challenging the order submits that Claims were filed by the Appellant on 09.10.2019, i.e., within the time as published by the RP. It is submitted that along with the Claim Form, the Appellant has also filed respective Memorandum of Understanding (“MoU”) as well as Ledger extracts, which prove that amounts were advanced by the Appellant to Corporate Debtor. Ms. Hemanti Kulkarani, Authorised representative with other Directors of D.S. Kulkarni Group were in Jail till they got the bail on 18.11.2022, hence, the relevant documents could not be filed. It is submitted that additional affidavit was filed by the Appellant(s) before the Adjudicating Authority, where Ledger statements and Bank statements were filed, proving the advance made by the Appellant to the Corporate Debtor. It is submitted that on the basis of MoU and Ledger extract, which were annexed with the Claim Form, the RP ought to have admitted the claims. It is submitted that the Adjudicating Authority committed error in rejecting Application filed by the Appellant(s) being IA Nos.72 1 and 722 of 2023, although sufficient materials were filed to indicate that amounts were advanced to the Corporate Debtor by Appellant(s), which were reflected in the Ledger extracts as well as in the Bank statements. In the Appeal, the learned Counsel has also referred to IA No.5941of 2023 filed in Company Appeal (AT) (Ins.) No.923 of 2023 where the balance sheet of the Corporate Debtor for the years 20 13-14, 2014-15, 2015-16 and 2016-17 have been brought on record, which also reflect the advance made by Appellant to the Corporate Debtor. Similarly in Company Appeal (AT) (Ins.) No.924 of 2023, balance sheet for the same period have been filed reflecting the amount advanced by the Appellant. The learned Counsel submits that in view of the above materials, the claim of the Appellant(s) deserved to be admitted.
5. The learned Counsel for the RP, refuting the submissions of learned Counsel for the Appellant(s) submits that claims were filed before the RP on 09.10.2019. It was incumbent upon the Appellant(s) to submit relevant documents as requested by the RP vide his email dated 14.10.2019 and reminder on 13.11.2019. Inspite of the RP demanding the supporting documents from the Appellant(s) to substantiate their claim, no documents were submitted, hence, the RP has no option except to reject the claim. It is submitted that MoU and Ledger extract, which were filed along with the claim Form in no manner prove the financial debt as was claimed by the Appellant(s). It is submitted that Resolution Plan was approved by the CoC on 13.08.202 1 and the fact that Application(s) – IA Nos.721 and 722 of 2023 were filed in February 2023 indicate that the Adjudicating Authority has been approached by the Appellant(s) with inordinate delay, i.e., after more than one and a half year from the approval of the Plan by the CoC. It is submitted that Plan having already been approved by the CoC, the Application(s) submitted by the Appellant(s) were rightly been rejected by the Adjudicating Authority. It is submitted that both the Appellant(s) are ‘related party’ to the Corporate Debtor and various fraudulent, undervalued and frivolous transactions were done by them with regard to which RP has also filed avoidance application in the year 2021, which are pending consideration. The Corporate Debtor and its related group entities, indulged in various fraudulent transactions with regard to which Promoters are facing several proceedings. It is submitted that documents which were submitted along with claim Form were insufficient to accept the claim and RP has rightly rejected the claim of the Appellant(s).
6. The learned Counsel for SRA also adopted the submission of learned Counsel for RP and submits that Plan having been approved by the CoC and subsequently by the Adjudicating Authority in June 2023, and the order approving the Resolution Plan dated 23.06.2023 has not been challenged by the Appellant, both the Appeal(s) deserve to be dismissed. No relief can be granted to the Appellant(s) and Appeal(s) can be dismissed on this ground alone.
7. We have considered the submissions of learned Counsel for the parties and have perused the record.
8. We need to notice the Form-CA dated 07.10.2019, which was filed by the Appellant – D.S. Kulkarni & Associates as well as D.S. Kulkarni & Company before the RP. The Item Nos.4 and 5 in the Claim Form are as follows:
