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NLCAT:Pre-existing dispute include pending suits do not apply to applications under Section 7 of I & B Code

In Company Appeal (AT) (Insolvency) No. 1021 of 2019, IN THE MATTER OF Karan Goel Vs M/s Pashupati Jewellers, appeal was filed against order  of the Adjudicating Authority admiting the application under Section 7 of the I&B Code preferred by M/s Pashupati Jewellers as a Financial Creditor.

The Appellant objected to the admission of the application on the ground that the ‘Corporate Guarantee and Undertaking’ Agreement provided by the Respondent while taking loan was a fraudulent document and a suit is pending on the said allegation.

The NCLAT observed that ‘Corporate Guarantee and Undertaking’ Agreement was executed on 7th April, 2017 is on record, which shows that the said Agreement is on e-Stamp, Indian Non Judicial issued by Government of National Capital Territory of Delhi. In the said e-Stamp, it has been clearly mentioned that the e-Stamp was purchased by Marigold Overseas Ltd. for the purpose of Loan Agreement. Merely, because the Appellant - Mr. Karan Goel has entered into as Director in May 2017, now cannot take a plea that the ‘Corporate Guarantee and Undertaking’ Agreement dated 7th April, 2017 was a fraud played by one Mr. Bal Karan Singh Bhullar on the ground that is has not been reflected in the record of the Registrar of Companies. The ‘Corporate Guarantee’ was entered into by the Management of the ‘Corporate Debtor’, i.e., Marigold Overseas Limited. If for one or the other reason, they have not referred the ‘Corporate Guarantee and Undertaking’ Agreement to Registrar of Companies and suppressed the fact, the Appellant or the subsequent Director, cannot take a plea that the ‘Corporate Guarantee and Undertaking’ Agreement was obtained by fraud on 7th April, 2017 and is not reflected in the records of the Registrar of Companies.

Further referring to the decision of the Supreme Court in Innoventive Industries Ltd. Vs. ICICI Bank and Anr. – (2018) 1 SCC 407, the NLCAT held that it is clear that once the Adjudicating Authority is satisfied on the basis of records that the debt is payable and there is default, the Adjudicating Authority is required to admit the application. The Respondent – M/s Pashupati Jewellers having enclosed the copy of the ‘Corporate Guarantee and Undertaking’ Agreement dated 7th April, 2017 instituted on e-Stamp, issued by Government of National Capital Territory of Delhi, it was not open to the Adjudicating Authority to deliberate on the issue whether e-Stamp is a forged document or not. Merely because a suit has been filed by the Appellant and pending, cannot be a ground to reject the application under Section 7 of the I&B Code. Pre-existing dispute cannot be a subject matter of Section 7, though it may be relevant under Section 9 of the I&B Code.

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