Advance Paid For Kerala Trade Centre Space Not A Deposit With Kerala Chamber Of Commerce: NCLAT

The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) on 2 June held that an advance of Rs. 30,00,000 paid towards the Kerala Trade Centre project did not constitute a deposit with the Kerala Chamber of Commerce & Industry, but represented only an advance for booking space in a separate entity.

Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain dismissed an appeal filed by KM Abdullah, affirming the National Company Law Tribunal (NCLT), Kochi Bench's order rejecting the company petition under Section 73(4) of the Companies Act, 2013. The Bench observed:

“….the issuance of Form TM-1, under the Trade Marks Act, 1999, shows the Kerala Trade Centre as to be an independent entity, though it is owned by Kerala Chamber of Commerce and Industry, the claim that advance amount of Rs.25 lakhs has placed with Kerala Chamber of Commerce and Industry, has not been conclusively proved by the Appellant. In that view, the petition was rightly dismissed, with recourse left open for the Appellant to resort to an appropriate remedy as against the Kerala Trade Centre for recovery of the amount.”

The appeal arose from the NCLT Kochi Bench's order dated 6 October 2021, which dismissed a petition filed by KM Abdullah. He, a long-time member and former chairman of the Kerala Chamber of Commerce & Industry, claimed he had paid Rs. 30 lakh to the Chamber during a financial crisis, with an assurance of 18% interest.

The Chamber, along with another entity, had floated a special purpose vehicle for constructing a building known as the Kerala Trade Centre. It contended that the amount was collected in connection with this project and not as a deposit.

When Abdullah sought repayment, the Chamber denied liability, stating that the sum was an advance towards allotment of space in the Kerala Trade Centre, a joint venture project with Cherupushpam Films Pvt. Ltd.

The NCLT found that the funds were credited to the Kerala Trade Centre's account and not to the Chamber's account, and therefore Section 73(4) of the Companies Act did not apply. It also left open the appellant's remedy against the Kerala Trade Centre. Abdullah relied on an auditor's report to argue that the Kerala Trade Centre was merely a project of the Chamber and not a separate entity.

The Chamber, however, maintained that he himself had overseen the conversion of the Chamber into a Section 8 company and the launch of the Kerala Trade Centre project. It submitted that the entry of Rs. 25 lakh was reflected as “advance for space” in the Kerala Trade Centre accounts and not as a deposit with the Chamber. It also alleged collusion and falsification of records to mischaracterise the transaction.

Upholding these findings, the NCLAT held that the burden lay on the appellant to prove that the funds were deposited with the Chamber. It noted that no material had been produced to show credit of the amount into the Chamber's accounts. On the contrary, audited accounts and receipts showed that the transaction related to the Kerala Trade Centre, which functioned as an independent entity despite being owned by the Chamber. The issuance of Form TM-1 under the Trade Marks Act further supported its separate identity.

The Bench also noted that subsequent developments had rendered the appeal infructuous, as the Kerala Chamber of Commerce & Industry had entered the Corporate Insolvency Resolution Process (CIRP) on 21 February 2022, triggering the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.

It further observed that the appellant's remedy now lay in filing claims under Section 30(2) read with Section 53(1) of the Code.

Accordingly, the NCLAT dismissed the appeal.

For Appellants: Advocate Aravind Sreekumar

For Respondents: Advocate Akhil Suresh