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2021 (1) TMI 1220 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - respondent has taken a defence that the Director who has entered into an agreement with the applicant had obtained the amount without the approval of the Board of Director and without having special resolution passed by the board of Director - HELD THAT - Mere plain reading of the provision shows that under this provision any person may inspect the documents which are kept in the office of Registrar regarding the incorporation of the company which includes the Article of Association and Memorandum of Association. The documents which a person is entitled to get from the office of Registrar u/s 399 of the Companies Act and if he fails to see and verify it prior to entering with a contract with the company then the company is not liable for that act if it is done by the Director because it comes under the doctrine of constructive notice. But the question is does the doctrine of constructive notice allow the outsiders to have notice of internal affairs of the company the answer is no because doctrine of constructive notice is subject to exception i.e Indoor Management and that is the reason petitioner has taken this plea. In view of Section 179(3) (d) the Board of Director of Company shall exercise its powers subject to the provision contained in the Act or in the memorandum or articles and one of the power which is referred in Section 179 (3)(d) of the Companies Act 2013 is also to borrow the money of course in view of Section 180(1)(c) that is subject to special resolution passed by the Board of Directors and in view of Section 180(5) of the Companies Act 2013 no debt incurred by the company in excess of the limit imposed by Clause C of Sub Section 1 shall be valid or effectual unless the lender proves that he advanced the loan in good faith without knowledge that the limit imposed by that clause had been exceeded but herein the case in hand we notice that it is not the case of respondent that the debt incurred by the company is in excess of the limit imposed by Section 180(1) (c) of the Companies Act 2013 rather the claim of the respondent is that the Director who signed the loan agreement had not been authorized by the special resolution passed by the Board of Directors as required under Section 180 of the Companies Act 2013 therefore Section 180(5) of the Companies Act is not applicable. The receiving of the amount has been not denied by the respondent and it is also admitted by the respondent that amount has not been paid because the director who entered into an agreement was not authorized by the special resolution as required under Section 180(1) of the Companies Act to borrow the loan and in view of Section 7(5) of the IBC the moment the Adjudicating Authority came to the conclusion that default has occurred and the application under sub-section (2) is complete and there is no disciplinary proceedings pending against the proposed resolution professional then the Adjudicating Authority has no option but to admit the application filed under Section 7 of the IBC. The applicant has succeeded to establish that there is a financial debt and Corporate Debtor is in default in making the payment of that financial debt the application is complete - Application admitted - moratorium declared.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Validity of the loan agreement executed by an unauthorized director. 3. Application of the Doctrine of Indoor Management and Constructive Notice. 4. Examination of the Forensic Audit Report. 5. Compliance with Sections 179 and 180 of the Companies Act, 2013. 6. Admissibility and effect of financial debt and default under Section 7 of the IBC. Issue-wise Detailed Analysis: 1. Initiation of CIRP under Section 7 of IBC: The petition was filed under Section 7 of the IBC, 2016, for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to its inability to repay the financial debt. The applicant claimed that the Corporate Debtor had defaulted on an unsecured loan of INR 5,50,00,000/- extended in 2013, with the loan period expiring on 03.08.2019. Despite several reminders and a demand notice issued on 25.10.2019, the Corporate Debtor failed to clear the outstanding payments. 2. Validity of the Loan Agreement Executed by an Unauthorized Director: The Corporate Debtor contended that the loan agreement dated 02.08.2013 was executed by Mr. Nimish Arora, a director who was not authorized by the Board of Directors. They argued that the loan agreement was void ab initio as it lacked the necessary board resolution as per Sections 179(3)(d) and 180(1)(c) of the Companies Act, 2013. The Tribunal examined whether the agreement was binding on the company despite the alleged lack of authorization. 3. Application of Doctrine of Indoor Management and Constructive Notice: The applicant argued that the Doctrine of Indoor Management applied, which protects third parties dealing with a company in good faith. The Tribunal noted that the Corporate Debtor had not provided its Articles of Association or Memorandum of Association to prove that the director was unauthorized. The Tribunal held that the absence of such documents meant the applicant could rely on the Doctrine of Indoor Management, making the loan agreement valid. 4. Examination of the Forensic Audit Report: The Corporate Debtor presented a Forensic Audit Report alleging fraudulent and unauthorized transactions by Mr. Nimish Arora. The report indicated that INR 375 lakhs were received from the applicant, with INR 225 lakhs diverted to other companies. The Tribunal noted that the receipt of funds was admitted, and part of the amount was utilized for the company's project, reinforcing the validity of the debt. 5. Compliance with Sections 179 and 180 of the Companies Act, 2013: The Tribunal examined Sections 179 and 180 of the Companies Act, 2013, which outline the powers of the Board of Directors to borrow money and the requirement for a special resolution. The Tribunal found that the absence of a special resolution did not invalidate the debt, as the applicant had acted in good faith without knowledge of any internal limitations. The Tribunal emphasized that the Corporate Debtor had not proven that the director lacked authorization under the Articles of Association or Memorandum of Association. 6. Admissibility and Effect of Financial Debt and Default under Section 7 of IBC: The Tribunal reiterated that under Section 7 of the IBC, the applicant needed to establish the occurrence of a default. The Tribunal found that the Corporate Debtor had admitted receiving the amount and had not repaid it. The Tribunal concluded that the applicant had successfully demonstrated the existence of financial debt and default, fulfilling the requirements of Section 7 of the IBC. Conclusion: The Tribunal admitted the application for initiating CIRP against the Corporate Debtor, appointed an Interim Resolution Professional (IRP), and imposed a moratorium as per Section 14 of the IBC. The Tribunal directed the Financial Creditor to deposit the fee for the IRP and disposed of the IA 5412/2020. The Tribunal's decision was based on the established financial debt, the Doctrine of Indoor Management, and the failure of the Corporate Debtor to prove the director's lack of authorization.
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