M/S. Radha Exports (india) Pvt. Limited v. K.P. Jayaram & Anr.

INDIRA BANERJEE, J. 1. This appeal, under Section 62 of the Insolvency and Bankruptcy Code, 2016, is against a judgment and order dated 2 nd September, 2019 of the National Company Law Appellate Tribunal (NCLAT), New Delhi, hereinafter referred to as “the Appellate Tribunal”, allowing Company Appeal (AT) (INS) No.224 of 2019 against an order dated 19 th December, 2018 passed by a Division Bench of the National Company Law Tribunal (NCLT) at Chennai, rejecting the application filed by the Respondents under Section 7 of the Insolvency and Bankruptcy Code, 2016, inter alia, on the ground that the alleged claim of the Respondents was barred by limitation, on the date on which the said application had been filed. 2. It is the case of the Appellant Company, that the Respondents were closely acquainted with one Mr. M. Krishnan, and Mrs. Rad ha Gouri, who were the promoters of the Appellant Company. 3. Between 1 st November, 2002 and 12 th September 2003, the Respondents had advanced an aggregate sum of Rs.2.10 cr ores, in tranches, to M/s Radha Exports, a proprietorship concern of Mrs. Radha Gouri, for its business purposes. M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. 4. In 2004-2005, the Respondents advanced a further sum of Rs.10 lakhs to the said proprietorship concern, M/s Radha Exports. The said M/s Radha Exports thus obtained total loan of Rs.2.20 crores from the Respondents, during the period between 2002 and 2004. The loan was unsecured and free of interest. 5. According to the Appellant Company, M/s Radha Exports repaid Rs.80,40,000/- to the Respondents between 1 st October, 2003 to 18 th March 2004. As recorded in the judgment and order dated 19 th December, 2018 of the NCLT, the Respondent Nos. 1 and 2 jointly wrote a lette r dated 11 th January, 2011 to the Deputy Commissioner of Income Tax, Company Circle V (3), Chennai, where they stated that, as on 31 st March, 2004, the said proprietorship concern M/s Radha Exports had a l oan liability of Rs.1,39,60,000/- (Rs.2,20,00,000/- less Rs.80,40,000/-) to the Respondents. The Respondents have, in the aforesaid letter, stated that they had given a further loan of Rs.10 lakhs to M/s Radha Exports , between 2004 and 2005. The said letter is reproduced in full, in the judgment and order dated 19 th December, 2018, of the NCLT. 6. The Appellant Company was incorporated under the Companies Act, 1956 on or about 19 th July, 2004, to take over the business of the proprietorship concern, M/s Radha Exports, along with its ass ets and liabilities. The Appellant Company states that as on 19 th July, 2004, the proprietorship concern, M/s Radha Exports had a loa n liability of Rs.1,11,85,350/-, which was taken over by the Appellant Company. 7. On 19 th July, 2004, when the Appellant Company was incorporated as a Private Limited Company, to take over and continue the business of the proprietorship concern, M/s Radha Expo rts, the Respondents requested the Appellant Company to convert a sum of Rs.90,00,000/- from out of the said outstanding loan as share application money for issuance of shares in the Appellant Company, in the name of the Respondent No.2, and the same was confirmed by the Respondents, by their aforesaid letter dated 11 th January, 2011 addressed to the Deputy Commissioner of Income Tax, Company Circle V(3), Chennai. The said letter, a copy of which is enclosed to the Paper Book, reads: “.. I have requested to transfer a sum of Rs. 90,00,000/- (Rupees Ninety Lakhs) to my wife A/c. Mrs. Shoba Jayaram fo r allotment of shares in Radha Exports (I) Pvt. Ltd... ” 8. Accordingly, a sum of Rs.90,00,000/- was adjusted by the Appellant Company, as share application money, for issuance of shares 277 in a Appellant Company in the name of the Respondent No.2. Thereafter, the balance loan liability of the company was Rs.21,85,350/-. 9. According to the Appellant Company, during the period from 27 th July, 2004 to 23 rd March, 2006, the Appellant Company paid Rs.43,25,000/- to the Respondents, which included the balance loan of Rs.21,85,350/- payable by M/s Radha Exports. The loan liability, which the Appellant Company had taken over from the proprietorship concern was, according to the Appellant Company, completely li quidated by March, 2006. Particulars of the payments have been given in detail in paragraph (12) of the judgment and order of the NCLT da ted 19 th December, 2018 and are supported by Bank Statements being Annexure A1 filed before the NCLT. The last payment appears to have been made on 23.03.2006. 10. On or about 6 th October, 2007, the Respondent No.2 resigned from the Board of the Appellant Company. 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 and to issue shares of the value of Rs.90,00,000/- in the name of Mr. M. Krishnan. The amount of share application mone y of Rs.90,00,000/- transfered to Mr. M. Krishnan, was to be treated as a personal loan from the Respondent No.2 to the said Mr. M. Krishnan. 11. By another letter dated 11 th January, 2011 addressed to the Deputy Commissioner of Income Tax, Company Circle V(3), Chennai, being Annexure A-4 to the reply filed by the Appellant Company, the Respondent No.2 confirmed that she had requested the Appellant Company to allot shares in the name of the said Mr. M. Krishnan against her share application money, which the said M. Krishnan had agreed to treat, as his personal loan from the Respondent No.2 and pay her the amount at a later date. 12. The Appellant Company claims to have issued shares of the value of Rs.90,00,000/- in the name of Mr. M. Krishnan in 2008. According to the Appellant Company, there is thus, no further liability to be discharged by the Appellant Company to the Respondents. After 23 rd March, 2006, there had been no financial transaction between the Appellant Company and the Respondents. 13. However, by a legal notice dated 19 th November, 2012, the Respondents called upon the Appellant Company to re pay to the Respondents a sum of Rs.1,49,60,000/- alleged to be the outstanding M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. debt of the Appellant Company, repayable to the Respondents as on 19 th July, 2004. 14. By a letter dated 5 th December, 2012, the Appellant Company refuted the claim of the Respondents, whereupon the Respondents filed petition being CP No.335 of 2013 in the High Court of Madras unde r Sections 433 (e) & (f) and 434 of the Companies Act 1956, for winding up of the Appellant Company. The said petition was transferred to the Chennai Bench of NCLT and re-numbered TCP/301/(IB)/2017. 15. The averments made in the winding up petition ex facie show that the claim of the Respondents was hotly disputed . In that the Respondents claimed that letters attributed to them , even letters addressed by them to the Income Tax Authorities were forged. Some of the averments are extracted hereinbelow: “6. ……. The petitioners state that the respondent’s directors who pretended to be the well-wishers of the petitioners, k new all the facts and stopped paying the interest intermittentl y till 2007. Adding insult to the injury, the respondent’s company created a fraudulent sale deed and the sale considerat ion is a circuitous fraudulent transaction which will clearl y prove the fraud, cheating, forgery and various other crim inal offences of the respondent. The respondent have il legally grabbed the residential house of the petitioners. The petitioners had already filed a Civil Suit in C.S. No.66 of 2013 in the Original Side of the Hon’ble High Court of Judicature at Madaras. 7. The Petitioners issued a statutory notice of dem and on 19.11.2012 for claiming the amount from the respond ent company and its directors and they gave a reply on 05.12.2012 making unwanted, unnecessary and defamat ory allegations against the 1 st petitioner, who had helped the directors of the respondent company for purchasing a f lat in which they presently reside and for the entire capi tal for running the respondent company. In para 3 of the said reply, the respondent asked for details of the payments made by the petitioners to the respondent. But in para 12, the respondent company had stated that the transactions have been p laced before the Income Tax Department, for which the petiti oners had signed the affidavits. The allegations are contr adictory 279 to each other and it reveals rank forgery committed by the respondents to 1 to 3. 8. The Petitioners had not signed any documents or blank papers or any affidavits to the respondent or its d irectors. The directors of the respondent company are capable of forging the signatures of the petitioners, which ha s been proved on various occasions...” xxx xxx xxx 10. The petitioners state that from the reply notice g iven by the advocate, it is clearly understood that the respondent and its directors had forged the signatures of the peti tioners to the Income Tax Department…. 11. The petitioners states that the petitioners had verifi ed the records of the Registrar of Companies, Chennai and found that the 2 nd petitioner’s signature had been forged in the resignation letter, which has been forged immediatel y after the fraudulent sale deed. The respondent company a nd directors had even forged the signatures in the app lication for Director’s Identification Number and the forger y is the peak of fraud and cheating committed by the respond ent company and its directors not only against the peti tioners, but also against the Government Departments. 15. The petitioner states that the directors of the responde nt company had forged the signatures of the 2 nd petitioner. In all the documents submitted to the Registrar of Com panies from the inception of the respondent company includi ng the resignation and the DIN Application form and obtained DIN number to remove the 2 nd petitioner from the directorship, which the directors of the respondent company made the 2 nd petitioner as a director to their convenience.” 16. Allegations of forgery and fraud are not decided in proceedings under Sections 433 and 434 of the Companies Act 1956 for winding up of a company. Such disputes necessarily have to be adjudicated i n a regular suit, on the basis of evidence, including forensic examin ation reports. 17. By an order dated 4 th August 2017 the NCLT dismissed the said winding up petition, on the ground that the Respondents had failed to comply with the provisions of Section 7(3)(b) of the Insolvency and M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] Bankruptcy code, 2016, hereinafter “IBC”, with the liberty to file a fresh petition, if so advised. 18. On 7 th December 2017, the Respondents issued a fresh demand notice to the Appellant Company. By a letter dated 14 th December 2017, the Appellant Company refuted the claims in the demand notice dated 7th December 2017, inter alia claiming that all amounts due and payable by the Appellant Company or its predecessor-in-inte rest to the Respondents, had duly been paid within 2007 and 2008. 19. The Respondents, thereafter, filed a petition being CP/77/(IB)/ CB/2018 under Section 9 of the IBC, in the NCLT (Chennai Be nch) claiming to be an operational creditor of the Appellant Company, within the meaning of Section 9 of the IBC and claiming from the Appellant Company Rs.2.10 Crores as principal and Rs.2,31,60,000/- towards interest at the rate of 24% per annum , from the year 2007. 20. For the purpose of this appeal, it is not necessary f or this Court to examine the discrepancies between the claim in the winding up petition and the claim in the petition under Section 9 of the IBC. 21. By an order dated 12 th April 2018, a Single Bench of NCLT dismissed CP/77/(IB)/CB/2018 filed by the Respondent No.1, claiming himself to be an ‘Operational Creditor’ under Section 9 of the IBC, as withdrawn, with liberty to file a fresh petition in accordance with law. 22. Thereafter, on 25 th April 2018, the Respondents filed a fresh petition being WC.P. No.770/IB/CB/C-II/2018 before the NCLT (Chennai Bench) under Section 7 of the IBC, as “Financial Creditor”, clai ming principal amount of Rs.2.10 Crores together with interest @ 24% per annum from 2007, amounting to Rs. 4,41,60,000/-. The Ap pellant Company filed its counter statement in CP No.770/IB/2018 before the NCLT. 23. By a judgment and order dated 19 th December 2018, the NCLT meticulously recorded details of the payments made by the Appellant Company and/or its predecessor in interest to the R espondents, considered the letters written by the Respondents to the I ncome Tax Authorities and dismissed CP No. 770/IB/CB/2018, being the petition filed by the Respondents under Section 7 of the IBC, inter alia, holding that the Respondents were not Financial Creditors of the Appe llant Company, and in any case the claim of the Respondents was hopelessly barred by limitation. The NCLT held that the Respondents had failed to prove that there was any debt due from the Appellant Company, to the 281 Respondents, observing that the Appellant Company had produced proof of payments. 24. The relevant parts of the said judgment and order of the Chennai Bench of NCLT are extracted herein below for conveni ence. “9. To prove that Rs.90,00,000 was treated as share application money, the Corporate Debtor filed a let ter (Annexure-A2) these Applicants together addressed t o the Income Tax Department on 11.01.2011 confirming the first applicant requesting the corporate debtor to transfe r a sum of Rs.90,00,000 to his wife (Second Applicant) for al lotment of shares in the Corporate Debtor. Not only about this request, the corporate debtor counsel says, the Applicants themselv es stated that they advanced monies to M/s. Radha Expo rts during the Financial Years 2001-2002, 2002-2003 and 2003- 2004 and amount outstanding from the said the partners hip firm on 31.03.2004 is Rs.1,39,60,000. The letter d ated 11.01.2011 addressed by the Applicants to the Deput y Commissioner of Income Tax is as follows:...” 10. In addition to the above letter, the Corporate Debtor has also placed another letter dated 11.01.2011 Second Applicant addressed to the Deputy Commissioner of Income Tax confirming that she requested the Corporate Debtor to allot shares in the name of First Applicant against her s hare application money Rs.90,00,000 on the agreement tha t her husband would pay that money to her later. The corpo rate debtor has annexed this letter as Annexure-A4 to th e reply affidavit filed by the Corporate Debtor. …. 17. Now going through the observations we have noted, now the points for consideration are, as to whether any fin ancial debt is in existence in between the parties as on the da te of filing petition u/s 7 of the Code and as to whether, assumi ng the financial debt is in existence, the debt is barred by limitation or not. 18. It is evident from the facts that first Applicant advanced Rs.2,10,00,000/- Rs.2,20,00,000/- as the case may b e, to a partnership firm during the period in between 2002 and 2003. It is also evident on record by 4.07.2004, the same partnershi p M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] firm repaid Rs.1,08,14,650. To show that it has be en paid, the Corporate debtor has placed proof by submitting copies of the statement of the statement of accounts of various ban ks reflecting payments made to these Applicants, on the contr ary, these Applicants have not placed any material showing as to whether these payments were made or not. 25. In this case, if we go by the case of the Applicant, it is a claim made basing on the money disbursed by way of cheque payment in the year 2002 & 2003. This money was also no t disbursed to this Corporate Debtor, it was given to a partnership firm. 26. This Applicant, has not even placed any material disclosing how this debt is still alive after lapse of three years from the date of disbursement. Whenever any claim is made, when it is beyond three years period as envisaged under Article 136 of the Limitation Act, the person making claim is bound to disclose and explain as to how the debt claim is not barred by limitation. No such effort has been made by these Applicants to p rove that this is within limitation. Assuming that filin g of this Company Petition is continuation to the winding up proceedings filed before the Hon’ble High Court i.e . 15.02.2013, then also, since these Applicants have c laimed money was disbursed in the year 2002 to 2003, if the limitation period is computed from the date of disbursement, f iling of winding up proceedings would be beyond the period o f limitation from the date of disbursement. 27. Given the historical facts available on record, even if t he Corporate Debtor statement is taken as true, the li mitation would start running from the year 2007. Since the wi nding up petition was filed in the year 2013, even from t he year 2007, these Applicants could have filed winding proceed ings within three years from thereof, not in the year 20 13, Conceding everything as stated by the applicants, th en also the debt claim would remain barred by limitation. 25. On or about 13 th February 2019, the Respondents filed Company Appeal (AT) (INS) NO.224/19 before the Appellate Tribunal, challenging the order dated 19 th December 2018 passed by the NCLT, dismissing the petition of the Respondents under Section 7 of the IBC. 283 26. The Appellant Company filed a Counter Statement before the Appellate Tribunal, and the Respondents filed a Rejoinde r thereto. Pursuant to the directions of the Appellate Tribunal, additional pleadings were also filed. 27. On 13.08.2019 the Appellant Company caused ‘Notice to Produce Documents’ to be issued to the Respondents ca lling upon Respondents to produce certified true copies of the Statement of Accounts of the Respondents maintained with HSBC Bank, Pu njab National Bank and Indian Overseas Bank, from which the Respondents claimed to have advanced money to the Appellant Company and a lso certified true copies of the Statement of Accounts of the Banks, in which the cheques issued by M/s Radha Exports (proprietary conc ern) were deposited and encashed. It is alleged that the Respondents replied to the Notice to Produce Documents, but did not furnish the documents and/or the details called for by the Appellant Company. 28. On or about 20 th August 2019, the Appellant Company filed an Additional Reply Statement, enclosing true copies of the Statement of Accounts of M/s Radha Exports (Proprietary concern), the Appellant Company and Mr. M. Krishnan reflecting the payments made to the Respondents. Under the direction of the Appellate Tribunal, the Appellant Company also filed a Correlation Statement of payment entries, reflected in the Bank Statements and the statements given in the Additional Counter Statement. 29. By the impugned judgment and order dated 2 nd September 2019 the Appellate Tribunal allowed the appeal of the Respondents and set aside the order dated 19 th December 2018 of the NCLT, dismissing the application under Section 7 of the IBC. 30. It appears that the Appellate Authority was not incline d to accept the submission of the Appellant Company, that the entire amount had been paid, for two purported reasons. The first reason was that the Correlation Statement showed payments of certain amounts amounting to Rs.53,05,000/- in favour of Customs, Chennai and payments amounting to Rs.1,75,000/- in favour of one Mr. Kulasekaran. The Respondents, as Financial Creditors had disputed that these payments were towards the dues of the Financial Creditors. The second reason was that, if the total amount had been paid, there was no reason for the Appellant Company to take the plea that the amount was not payable, the same being barred by limitation. M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] 31. It is well settled in law that alternative defences are permissible to contest a claim. It was thus open to the Appellant Company, to refute the claim of the Respondents by taking the plea of limitation and also to contend that no amount was in fact due and payable by the Appe llant Company to the Respondents. 32. In Innoventive Industries Ltd. v. ICICI Bank and Anr. 1, the Supreme Court observed and held:- “27 . The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Def ault is defined in Section 3(12) in very wide terms as meaning non- payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an insta lment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a lia bility of obligation in respect of a “claim” and for the mean ing of “claim”, we have to go back to Section 3(6) which de fines “claim” to mean a right to payment even if it is disputed. T he Code gets triggered the moment default is of rupees one la kh or more (Section 4). The corporate insolvency resol ution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditor s and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial deb t is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the ti me value of money. As opposed to this, an operational cred itor means a person to whom an operational debt is owed and an operational debt under Section 5 (21) means a claim in respect of provision of goods or services. 28 . When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanat ion to Section 7(1), a default is in respect of a finan cial debt owed to any financial creditor of the corporate deb tor – it need not be a debt owed to the applicant financial cre ditor. Under Section 7(2), an application is to be made under sub- 1 (2018) 1 SCC 407 285 section (1) in such form and manner as is prescribed, whic h takes us to the Insolvency and Bankruptcy (Applicat ion to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolu tion professional in part III, particulars of the financi al debt in part IV and documents, records and evidence of defa ult in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating auth ority by registered post or speed post to the registered off ice of the corporate debtor. The speed, within which the adjudi cating authority is to ascertain the existence of a default from the records of the information utility or on the basis of e vidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authorit y is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authori ty is satisfied that a default has occurred, the application mu st be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority . Under sub-section (7), the adjudicating authority shall t hen communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or reje ction of such application, as the case may be.” 33. The proposition of law which emerges from Innoventive Industries Ltd. (supra) is that the Insolvency Resolution Process begins when a default takes place. In other words, once a debt or eve n part thereof becomes due and payable, the resolution process begins. Section 3(11) defines ‘debt’ as a liability or obligation in respect of a claim and the claim means a right to payment even if it is disputed. The Code gets triggered the moment default is of Rs.1,00,000/- or more. Once the M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] Adjudicating Authority is satisfied that a default has occurred, the application must be admitted, unless it is otherwise incomplete and not in accordance with the rules. The judgment is however, not an authority for the proposition that a petition under Section 7 of the IBC has to be admitted, even if the claim is ex facie barred by limitation. 34. On the other hand, in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates 2, this Court held:- “42. It is thus clear that since the Limitation Act is appl icable to applications filed under Sections 7 and 9 of the Code fr om the inception of the Code, Article 137 of the Limita tion Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over thr ee years prior to the date of filing of the application, the ap plication would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of th e case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.” 35. The judgment in B.K. Educational Services Pvt. Ltd. (supra) was referred to and relied upon by the Court in Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd. 3. 36. It was for the applicant invoking the Corporate Insolvency Resolution Process, to prima facie show the existence in his favour, of a legally recoverable debt. In other words, the respondent had to show that the debt is not barred by limitation, which they failed to do. 37. Under clauses (19) to (21) of Part II of the Schedule of the Limitation Act 1963, the period of limitation for initiation of a suit for recovery of money lent, is three years from the date on which the loan is paid. The last loan amount is said to have been advanced in 200 4- 2005. In the winding up petition, there is not a whisper of any agreed date by which the alleged loan was to be repaid to the Respondents. In the instant case, apparently the debt was barred by limitation even in the year 2012, when winding up proceedings were initiated in the Madras High Court. 38. The NCLT rightly refused to admit the application under Section 7 of the IBC, holding the same to be barred by limitation. The Appellate Tribunal has erred in law in reversing the judgment and order 2 (2019) 11 SCC 633 3 (2019) 9 SCC 158 287 of the earlier Adjudicating Authority. The Adjudicating Authority rightly rejected the application as barred by limitation. The Appellate Authority patently erred in law in reversing the decision of the adjudicating authority and admitting the application. 39. As recorded in the said order dated 19 th December, 2018 passed by the NCLT Chennai, the Respondent Nos. 1 and 2 jointly addresse d the letter dated 11 th January, 2011 to the Income Tax Department confirming that the Respondent No.1 had requested t he Appellant Company to transfer a sum of Rs.90 lakhs to his wife, the Respondent No.2 for allotment of shares in the Appellant Company and furth er acknowledged that the amount outstanding from the erstwh ile firm M/s. Radha Exports to the Respondent was Rs.1,39,60,000/- as on 31 st March, 2004. The said letter has been extracted in full in Paragraph (9) of the judgment and order dated 19 th December, 2018 of NCLT. 40. There are, as observed above cogent records including letters signed by the Respondent Nos. 1 and 2 which evince that on 6 th October, 2007, Respondent No.2 resigned from the Board of the Ap pellant Company and at that time 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 and to issue shares for aforesaid value to Mr. M. Krishnan. The amount was to be treated as a perso nal loan from the Respondent No.2 to Mr. M. Krishnan. A personal Loan to a Promoter or a Director of a company cannot trigger the Cor porate Resolution Process under the IBC. Disputes as to whether the signatures of the Respondents are forged or whether records have been fabricated can be adjudicated upon evidence including forensic evidence in a regular suit and not in proceedings under Section 7 of the IBC. 41. It is, however, made clear that the observations made above, with regard to limitation are based on the pleadings and annexures in the winding up proceedings under Sections 433/434 of the Companies Act, 1956 filed in Madras High Court, which were transferred to the NCLT and also the pleadings in CP/77/ (IB)/CB/2018 and WCP No. 770/ IB/ CB/C-II/2018 filed before the Chennai Bench of NCLT. Any suit filed by the Respondents against Mr. Krishnan or against the compa ny will be decided on its own merits without being swayed by the observations made in this judgment. 42. Even otherwise, the application under Section 7 of the IBC was not maintainable. As rightly held by the NCLT there was no financial debt in existence. In this context, it would be pertinent to refer to the following provisions of the IBC:- M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] “3. Definitions.- In this Code, unless the context otherwise requires,— ……. (8) “corporate debtor” means a corporate person who owes a debt to any person; ……. (10) “creditor” means any person to whom a debt is owed a nd includes a financial creditor, an operational creditor, a secure d creditor, an unsecured creditor and a decree-holder; (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; (12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due a nd payable and is not paid by the debtor or the corporate debtor, as the case may be. xxx xxx xxx 5. Definitions.- In this Part, unless the context otherwise requires,- ……... (7) “financial creditor” means any person to whom a financia l debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facilit y or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; 289 (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarante e, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; xxx xxx xxx 7. Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Govt. may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjud icating Authority when a default has occurred. xxx xxx xxx 8. Insolvency resolution by operational creditor.- (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor— (a) existence of a dispute, if any, on record of the pendency of the suit or arbitration proceedings filed before the recei pt of such notice or invoice in relation to such dispute; (b) the payment of unpaid operational debt— M/S. RADHA EXPORTS (INDIA) PVT. LIMITED v. K.P. JAYARAM & ANR. [INDIRA BANERJEE, J.] (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.—For the purposes of this section, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred.” 43. 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 the consideration for time value of money and would include money raised or borrowed against the payment of interest; amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; amount raised pursuant to any note purchase facility or the issue of bonds, notes, debent ures, loan stock or any similar instrument; the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards o r such other accounting standards as may be prescribed; receivab les sold or discounted other than any receivables sold on non-recourse basis or any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a bor rowing. Explanation to Section 5(8) which relates to real estate projects is of no relevance in the facts and circumstances of this case. The payment received for shares, duly issued to a third party at the reques t of the payee as evident from official records, cannot be a debt, not to speak of financial debt. Shares of a company are transferable subject to restrictions, if any, in its Articles of Association and attract dividend when the company makes profits. 44. The appeal is, for the reasons discussed above, allowed. The impugned judgment and order of the Appellate Tribunal is set aside and the order of the Adjudicating Authority dismissing the applica tion, is restored. Ankit Gyan Appeal allowed.