TMI Blog2018 (12) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... defraud its creditors or not will be dealt with while answering point No. 2. The default in repayment of operational debt being proved, I can come to a conclusion that the occurrence of default as far as operational debt is concerned, stands proved in this case. Application with mala fide intention - Whether the Corporate Applicant has filed the application with malicious intent and to defraud the creditors? - Corporate Applicant has changed the name of the company and its registered office - Held that:- Applicant has changed its name about three days prior to the institution of this Application; that the Corporate Applicant changed the registered address of the applicant before one day of the date of institution of this Application; that the applicant has suppressed the name change in the Form 6 and in the affidavit filed along with the application; that the Applicant failed in proving occurrence of default as defined under Section 10(1) of the code; that no materials brought out to prove existence of default as provided under section 3(12) of the code; that Annexure A-11, a letter of information obtained by the applicant three days prior to the institution of this Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A. Rao, P. Gandhi, Ms. Nikita Jhunjhunwala, S.N. Bera, Avirup Chatterjee, Nilsnjan Pal Choudhury, Mrs. Manju Bhuteria, Shailendra Jain, Mrs. Swati Agarwal, Arita Basu and Joydeep Guha, Advs ORDER 1. All the five (5) CAs are taken together along with the C.P. for convenience, and for avoidance of repetition of facts and because the moot question for determination is common. 2. The C.P. (IB) No. 615/KB/2018 was filed by the Corporate Applicant/Corporate Debtor u/s. 10 of the Insolvency and Bankruptcy Code, 2016 (In short, I B Code). All the CAs were filed challenging the maintainability of S.10 application filed by the Corporate Debtor. 3. C.P. (IB) No. 615/KB/2018 4. This is an application filed by Sri. Munisuvrata Agri International Ltd. the Corporate Applicant thereof, under Section 10 of the Insolvency Bankruptcy Code, 2016 read with Rule 7 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process on the allegation that it could not conduct the business due to certain RBI Circular dated March 13, 2018. 5. Briefly stating the facts as follows:- 6. The Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on to the present directors (under the said award) making it difficult for them to run the company. The said award is being executed before the Calcutta High Court (Annexure A-8). 10. With regard to the financial creditors, the total debt raised is ₹ 544,00,00,000/- and the amount in default is ₹ 536,92,00,000/- as per the list of financial creditors provided as Annexure A-5. The list of Operational Creditors along with their respective amounts outstanding as shown in Annexure A-16 (though disputed) is given as follows:- Sl. No. Name of the Operational Creditor Date Amount outstanding (Rs.) Submission by the Corporate Debtor 1. Sleepwell Industries Co. Ltd. 30/08/2013 ( a ) 3,94,78,064/- SLP has been filed by the Corporate Debtor challenging the rejection of the application u/s. 48 of the Arbitration Conciliation Act, 1996 before the Calcutta High Court. ( b ) 80,64,083/- Application u/s. 48 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31/03/2014 2,06,852,360/- ( b ) 2008-09 22/03/2014 41,188,240/- ( c ) 2009-10 19/12/2011 1,59,695,650/- ( d ) 2009-10 08/09/2016 38,771,310/- ( e ) 2010-11 28/03/2013 49,618,590/- ( f ) 2011-12 31/03/2014 34,920,250/- ( g ) 2012-13 31/03/2015 448,960/- ( h ) 2010-11 31/12/2017 13,92,378,970/- ( i ) 2011-12 31/12/2017 48,421,840/- ( j ) 2012-13 31/12/2017 95,421,840/- ( k ) 2013-14 31/12/2017 16,908,580/- ( l ) 2014-15 31/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting encashment of 50% of the bank guarantee amount which had been furnished by Allahabad Bank. 16. The applicant apprehends that the recent and sudden change of name and change of registered office of the corporate applicant, after the order of the Supreme Court dated April 20, 2018 is with an ulterior motive and to defraud its creditors. The Corporate Applicant then around April 27, 2018, filed a proceeding before the NCLT for declaring itself to be insolvent under Section 10 of the I B Code, 2016. The applicant submits that the name and registered office of LMJ International Ltd. has been changed to its present name and address so that the creditors of the company do not come to know that the application under Section 10 has been filed and the corporate debtor can take shelter of the moratorium to avoid making payment including to the applicant, in whose favour the orders had been passed by the Hon ble Supreme Court and Calcutta High Court. Thus, the applicant prays that the above mentioned petition filed under Section 10, I B Code, 2016 be dismissed or stayed till the disposal of the matters pending before the Hon ble Supreme Court of India. 17. C.A. (I.B.) No. 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group but is still in possession of the said MLJ group. They further state that the said Company has a huge property, belonging to the applicants as per the award which has been illegally and unlawfully leased out, behind the applicant s back, by one Smt. Ekta Jain of the MLJ Group, to the petitioner in the instant proceeding namely Sri. Munisuvrata Agri International Ltd. 23. The applicants further state that under the said award dated January 3, 2013, the MLJ group, having failed to comply with their obligations, are as such under an obligation to pay a sum of ₹ 10,82,50,000/- for the default committed as per clause 14 of the said award. The applicants state that the liability in respect of such lease of which, the said Corporate Debtor is in illegal possession, is a financial debt and the applicants are hence financial creditors and have the right to intervene in the instant proceedings. 24. The applicants further state that they jointly hold 27.9% shareholding of the Corporate Debtor and as per Section 10 (3) of the I B Code, 2016, no special resolution has been passed by the shareholders approving the filing of this instant application under Section 10. 25. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that he was not informed of the change in name of the company as well as its registered office. He further states that the decision to initiate CIRP was adopted behind the applicant s back. He submits that the CIRP application has been initiated to defraud the shareholders of the company and prays for dismissing the insolvency application being CP (IB) No. 615 of 2018 or that in the alternative, be allowed to intervene in the said insolvency proceeding. 32. The financial creditors to whom notices were served appeared and Bank of Baroda, being the lead bank of the Consortium of Banks (comprising of Bank of Baroda, State Bank of India, Allahabad Bank, Indian Overseas Bank, Corporation Bank, UCO Bank, Standard Chartered Bank, Canara Bank and Punjab National Bank), who have lent and advanced diverse credit facilities to the Corporate Applicant, filed an affidavit submitting that they being the financial creditors/member Banks of the Consortium, have no objection in admitting the Application. 33. The Financial creditor/Punjab Sind Bank filed reply affidavit separately objecting the application contending in brief, the following:- 34. The Punjab Sind Bank submits that it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to be dismissed. 37. The Sleepwell Industries Co. Ltd./Operational Creditor has filed reply contending in brief, the following:- 38. The Sleepwell Industries Co. Ltd./Operational Creditor has already filed an intervening application being CA No. 635/KB/2018 wherein it has stated its objections to the present insolvency petition, and therefore, for avoiding repetition of facts, the same has not been repeated. The operational creditor herein states that its total claim is ₹ 5,87,01,868/- as on June 2018 in relation to both the Execution Cases of 2013. And even after compliance of the orders and the payments made, the balance amount payable by corporate applicant would be around ₹ 2,44,93,016/-. The operational creditor further states that the said insolvency application has been filed in contravention of Section 10 of IBC as it appears that no default had occurred at the time of filing the application, and hence the application is premature and liable to be dismissed. It further states that no shareholders permission seems to have been taken prior to filing of the instant application which is a requirement under Section 10. The operational creditor also st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinuing Letter of Understanding (In short, LOU) and Letter of Comforts (In short, LOC) for trade credit, the export and import business of the Corporate Applicant suffered immense loss and difficulties and the Corporate Applicant was unable to ensure payments for the export shipment and to honour the Letter of Credit, which was to be routed by the consortium of Bankers of the Corporate Applicant and thereby was unable to continue its business for no default on its part. 42. So, this case was instituted by the Corporate Applicant, not because of inability to pay debt but because of the impossibility to continue its business due to certain circular issued by the RBI. The Corporate Applicant has also alleged that in view of the settlement of award dated 03/01/2013, the control and management of the Corporate Applicant had vested upon the present Board of Directors mentioned in the application. Prior to the vesting of the control of the Company to the present Board of Directors, the overall control, management, administration and day to day running of the Corporate Applicant was with the eldest brother of the present director, Mr. Suresh Kumar Jain, who holds 51% of Equity Shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bank was issued by any member of the Consortium of Banks. Significantly, none of the accounts with them was declared as NPA. In this background, the moot question is whether the corporate applicant has succeeded in proving existence of default? 45. The Operational Creditor, namely, Sleepwell Industries Co. Ltd. [CA (IB) No. 635/KB 2018], Operational Creditor namely, Swiss Singapore Overseas Enterprises Pte. Ltd. [CA (IB) No. 652/KB/2018], shareholders, namely, Suresh Kumar Jain and one another, [CA (IB) No. 722/KB/2018], Financial Creditor, namely, Centrum Financial Services Limited [CA(IB) No. 778/KB/2018] and an Independent Director, namely, Shri Basudev Chandra Mallik [Inv. A. No. 800/KB/2018], filed the above referred five applications, mainly challenging that the application was filed with malicious intention to defraud its creditors and shareholders and also challenging the maintainability in filing the application without special resolution as provided under section 10(3)(c) of the Code. These applicants also contend that the corporate applicant has not established existence of default in repayment of the outstanding amount, which according to them, is not claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be; S. 3(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; 48. No doubt a corporate applicant can trigger a proceeding u/s. 10 of the I B Code, 2016 on the occurrence of default. From a reading of the above referred definitions, what is I understood is that if a corporate person commits default, it means it fails to make repayment of the loan when repayment is due. So, essential ingredients to be proved by a corporate applicant is debt necessary to constitute a default as defined under sub-section (12) of Section 3 of the Code. Section 3(12) defines default as non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. 49. It is also good to understand what is debt as defined u/s. 3(11) of the Code. The phrase debt has become due and payable means that debt is payable at a crucial moment, whenever as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate insolvency resolution 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 creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor 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. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 52. So in a case of default of a financial debt, the financial creditor has got the burden to prove the existence of default by way of producing information utility or other evidence. Likewise in the case of a corporate debtor who files an application u/s. 10 of the Code, it appears to me that the debtor shall produce proof to prove the existence of default. In the Form No. 6 at Part III in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3107.05 Profit available for appropriation. 4678.35 4111.41 54. Hon ble National Company Law Appellate Tribunal in Unigreen Global (P.) Ltd. v. Punjab National Bank and others-Company Appeal (AT) (insolvency) 81/2017 in Para No 20 ha held as follows. 20. Under both Section 7 and Section 10, the two factors are common i.e. the debt is due and there is a default. Sub-section (4) of Section 7 is similar to that of sub-section (4) of Section 10. Therefore we, hold that the law laid down by the Hon ble Supreme Court in Innoventive Industries Ltd. (Supra) is applicable for Section 10 also, wherein the Hon ble Supreme Court observed as The moment the adjudicating authority is satisfied that a default has occurred, the application must 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 . 55. So it appears to me that the occurrence of default is to be established by supporting evidence like a financial creditor has to establish existence of a default in an application filed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So, it is evident that before demanding the outstanding dues from the Corporate Applicant, the petition was already filed to initiate Corporate Insolvency Resolution Process (CIRP) and hence, I am of the view that there has been no default on the part of the Corporate Applicant as on the date of filing the application in respect of the financial debt. 58. It is also significant to note that none of the financial creditors have said that the debtor cannot meet their obligations provided by the creditors. They have said that they have no formal objection for the reason not highlighted at the time of argument. It is significant to note that except Punjab Sind Bank, no argument also was advanced on the side of the financial creditors. Serious allegations have been levelled against the financial creditors by the objectors/Operational Creditors that there is collusion with the Consortium Banks and the corporate applicant. In view of raising such an allegation, keeping silence from the side of financial creditors throws some shadow of doubts for not advancing argument other than filing a formal objection which is not helpful to have a determination of occurrence of default as allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate applications u/s. 10, which is a deliberate attempt to deprive the creditors and to gain advantage from an order of moratorium to be passed in an application filed by the Corporate Applicant. 62. According to the Ld. Sr. Counsel for the applicant, none of the actions of the Corporate Applicant amount to fraud because the Corporate Applicant has got a right to move an application u/s. 10 and the corporate applicant, in exercise of such rights, admitting default of the amount due to the financial creditors and due to the Operational Creditors, has filed the application. He also submits that the change of name was in accordance with the provisions of Companies Act, 2013 and therefore, there is no suppression of material facts and filing the CP in the new name of the company does not amount to fraud as alleged. To appreciate what constitute fraud, as defined u/s. 447 of the Companies Act, 2013, it is good to read Section 447 of the Companies Act, 2013. Fraud has been defined under Explanation (i) to Section 447, which reads as follows:- (i) fraud in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Section 447 of the Companies Act, 2013 read with section 65 of the Code, the Ld. counsels for the objectors submit that concealment of fact regarding change of name in Form 6 is with an intention to defraud its creditors. Though the allegations levelled by the objectors do not fall within the ingredients under the purview of Section 447 of the Companies Act, 2013, it appears to me that the allegation levelled falls within Section 65 of the Code. Let me see whether the filing of this application u/s. 10 of the Code is for initiating CIRP with malicious intention for any purpose other than for the resolution of insolvency, or liquidation? 66. The Hon ble Supreme Court in SEBI v Kishore R. Ajmera [2016] 288/134 SCL 481, in determining what is the degree of proof required to hold brokers/sub-brokers liable for fraudulent/manipulative practices under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations and/or liable for violating the Code of Conduct specified in Schedule II read with Regulation 9 of the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code. 69. The circumstances that there are pending litigation for recovery of a total amount of ₹ 256,01,92,031/- (Annexure A-16 - page 141) from the Corporate Applicant by the Objectors except the independent Director who has filed the Inv. A.(IB) No. 800/KB/2018; that the Applicant has changed its name about three days prior to the institution of this Application; that the Corporate Applicant changed the registered address of the applicant before one day of the date of institution of this Application; that the applicant has suppressed the name change in the Form 6 and in the affidavit filed along with the application; that the Applicant failed in proving occurrence of default as defined under Section 10(1) of the code; that no materials brought out to prove existence of default as provided under section 3(12) of the code; that Annexure A-11, a letter of information obtained by the applicant three days prior to the institution of this Application for establishing that there was no repayment of the amount due; that none of the financial creditors of the Corporate Applicant has issued demand notice demanding repayment of the loan amount or any part of the amount allegedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to be complied by the Applicant. According to them, non-production of Special Resolution as per Section 10(3)(c) amounts to non-compliance of Section 10(3) and therefore, the application is liable to be rejected, lb strengthen the said argument, he relied upon Paras 23 and 32 in the Thirumalai Chemicals Ltd. s case (supra). The Hon ble Supreme Court has held as under:- Para 23. Substantive law refers to a body of rules that creates, defines and regulates rights and liabilities. Right conferred on a party to prefer an appeal against an order is a substantive right conferred by a statute which remains unaffected by subsequent changes in law, unless modified expressly or by necessary implication. Procedural law establishes a mechanism for determining those rights and liabilities and a machinery for enforcing them. Right of appeal being a substantive right always acts prospectively. It is trite law that every statute is prospective unless it is expressly or by necessary implication made to have retrospective operation. 73. Counter to the said argument, the Ld. Sr. Counsel for the corporate applicant referred to Para 26 in the above said decision. It reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLAT to decide the appeals afresh in the light of this judgment. 76. Referring to Arcelormittal India Private Ltd. v. Satish Kumar Gupta ors (318 SCC Online SC 1733) Ld Sr. Counsel also attempted to show that sub-clause (c) is to become operational only from the date of commencement of the Amendment Act and not before. According to him, sub-clause (c) was not there at the time of filing the C.P i.e. on 27.04.2018 but was inserted w.e.f. 06.06.2018 and therefore, it would operate from the date of commencement of the Amendment Act and not from the date of inception of the Code. If such an interpretation is given, it would adversely affect the right to file an application like this nature under Section 10 of the Code, as argued by the Ld. Sr. Counsel. 77. Borne in mind, the propositions laid down in the above referred decision, I am of the considered view that the insertion of sub-clause(c) to Section 10(3) of the Code is to be construed retrospectively. The said view is further strengthened by the view taken by the panel committee in recommending insertion of sub-clause (c) to S.10 (3) of the Code. 78. Sub-clause(c) to Section 10(3) of the code was introduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as retrospectively, I have no hesitation in holding that non-compliance of Sub-clause(c) to Section 10 (3) of the Code proves that one among the essential ingredients to be proved on the side of the corporate applicant has not been complied by the applicant. This point is answered accordingly. 81. Point No.(v). 82. Upon the above said findings, on points Nos. (i) I have come to a conclusion that the corporate applicant has failed in proving existence of default of financial debt but proved default of operational debt. But the operational debt is in dispute before the Hon ble Supreme Court and before the Hon ble High Court at Calcutta. By answering point Nos. (ii) (iii) I found that the corporate applicant filed the application C.P.(IB) NO.615/KB/2018 with mala fide intention and with ulterior motive for purpose other than for the resolution so as to frustrate the recovery proceedings pending before the Courts upon declaring moratorium. The point No. (iv) was also not answered in favour of the Corporate Applicant. The application filed is not complete as per Section 10(3)(c) of the Code. So even if an opportunity is given for curing the defect under Sub-Clause(c) of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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