Summary
The Court restored rejection of a corporate insolvency application because the asserted claim was time-barred on the pleadings and no financial debt of the company was established. Funds converted into share application money and used to issue shares to a third party at the claimant’s request were not a continuing company debt. A personal loan to a promoter could not trigger insolvency of the company. The Court preserved independent adjudication of any civil suit on its merits.
Issues
- Whether limitation could defeat the financial-creditor application despite an asserted default.
- Whether share-related payments and a promoter’s personal obligation constituted financial debt of the company.
- Whether repayment and limitation could be pleaded as alternative defences.
Provisions considered
- Sections 3(8), 3(11), 3(12) and 5(7), Insolvency and Bankruptcy Code, 2016Required a debt owed by the corporate debtor and a creditor entitled to invoke the financial-creditor process. (¶¶ 32, 33, 36, 40, 42, 43)
Held
- A company may deny that any amount remains payable and plead limitation in the alternative. Taking those alternative defences was no reason to reject its repayment case. (¶¶ 30, 31)
- The financial-creditor process requires a legally enforceable debt and default; Innoventive Industries did not require admission of an application based on an ex facie time-barred claim. Article 137 governs insolvency applications, and the applicants failed prima facie to show that this old claim remained within limitation. (¶¶ 32, 33, 34, 35, 36, 37, 38)
- The record supported conversion of part of the advance into share application money and a request to issue shares to a third party, coupled with a personal-loan arrangement with that person. A personal loan to a promoter or director cannot trigger corporate insolvency against the company. Payment applied to shares duly issued at the claimant’s request was not a continuing financial debt of the company. (¶¶ 39, 40, 42, 43)
- The alleged forged signatures and fabricated records required evidentiary adjudication, including forensic evidence where appropriate, in a regular suit. The limitation observations rested on the particular insolvency and winding-up pleadings; any suit against the company or Krishnan was to be decided independently on its own merits. (¶¶ 15, 16, 40, 41)
Result
Appeal allowed; NCLAT judgment set aside and NCLT’s dismissal of the Section 7 application restored. Any civil suit against the company or Krishnan remains for independent decision on its merits.