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IBC - Case Laws
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2025 (4) TMI 1546
Classification of appellant as an Unsecured Financial Creditor instead of a Secured Financial Creditor by the Liquidator and the Adjudicating Authority - absence of non-registration of charge in the register of the Registrar of Companies (ROC) - breach of statutory obligation under Section 77 of the Companies Act, 2013 besides violating contractual commitments - HELD THAT:- An investment was made by BEST-Appellant in the Corporate Debtor by way of an interest free deposit amounting to Rs.30 crores. The compensation for delay on account of non-commissioning of the project was provided for in the IA in terms of the charging of the units and the discounted rate thereof. When the IA did not provide for interest component in clear and precise terms, the Liquidator could not on his own have expanded the scope of the IA by way of his own interpretation of the clauses. The Liquidator after examining the IA and not having found any enabling clause which provided for interest on the deposit invested by the Appellant in the Corporate Debtor has rightly treated the security deposit to be interest-free - The Liquidator therefore did not commit any error in concluding that the deposits were interest free and that the Appellant could not have claimed interest on security deposits which was interest free. There are no error on the part of the Liquidator to have admitted only a claim of Rs 30 Cr. in respect of the principal amount and rejecting the claim made in respect of the interest amount of Rs 126.23 Cr.
The Adjudicating Authority in the exercise of its summary jurisdiction is not capacitated to determine the terms and conditions of the contractual agreement. The Adjudicating Authority is not expected to go into the commercial intent of the parties in trying to interpret the contractual provisions in the IA beyond a plain reading of the same - When the clauses of the IA did not specifically provide for interest on security deposit, the Adjudicating Authority had correctly taken the view that the Liquidator could not have interpreted the IA to the contrary.
The Liquidator did not receive any proof with regard to recording of the security having been created either with the information utility or proof of Certificate of Registration of Charge issued by the ROC or registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. Even if the requirement of the registration of charge is side-stepped for the time being in deciding the status of the Appellant as a secured financial creditor, the need to possess documents of charge creating the interest cannot be waived as this requirement was clearly envisaged in the IA - In the absence of charge document, the Creditor could not have been treated as a Secured Financial Creditor of the Corporate Debtor. It is not for the Liquidator to look into whose fault it was for not creating the security charge. All that the Liquidator was expected to perform was whether the charge has been created. The Appellant on a pointed query made by this Bench also admitted that there was no charge document created in their favour by the Corporate Debtor. In such circumstances, when the Appellant has not controverted the fact that no charge was created on the deposit invested by them, there are no infirmity in the decision of the Liquidator in not treating the Appellant as a Secured Financial Creditor.
Conclusion - The Appellant was rightly classified as an Unsecured Financial Creditor due to absence of registered charge or proof of security interest.
There are no good reason to interfere with the impugned order. The Appeal not having any merits stands dismissed.
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2025 (4) TMI 1545
Initiation of SARFAESI proceedings was sufficient basis to hold that the Section 94 application has been resorted to by the Appellant for putting a spanner in the recovery proceedings initiated by the Respondent No.1 or not - violation of principles of natural justice - HELD THAT:- It is an admitted fact that the Corporate Debtor had failed to discharge their repayment obligations and their account was classified as a NPA way back in 30.06.2011. The Appellant as personal guarantor had also duly acknowledged the outstanding debt as early as on 13.08.2012 and had made part payment towards the loan in 2018. The debt liability is also acknowledged in the financial statements of the Corporate Debtor for the FY-2017-18. It is also an undisputed fact that a demand notice had been issued under the SARFAESI Act by the original Lender-Bank of India on 06.08.2012.
The applicant’s conduct aims to wilfully misuse and abuse easy access to the justice administration system. Complying with the court’s order and undertaking is fundamental to litigation to achieve fairness between the parties. The borrowers have failed the test of judicial scrutiny for repetitive breaches of the court’s order or multiple non-compliance with the undertakings.” The DRT also directed the Appellant to comply with the Court’s order and undertaking given by them from time to time.
Section 94 application was filed by the Appellant within weeks after the issue of a possession notice upon them on 11.11.2022 by the Respondent No.1. When after the 4th SA was disposed of, the Appellant realised that it had failed to secure any further relief from the DRT and that dispossession from the subject residential premises was imminent that the present Section 94 petition was filed on 03.12.2022 and a communication sent on 06.12.2022 to the Respondent No.1 to hold its hand from taking over possession of the residential premises on account of moratorium - Filing of the Section 94 application at this juncture leaves no room for doubt in our mind that these proceedings were not initiated with the intent of genuine insolvency resolution but as a tool to obstruct lawful recovery of enforcement with the manifest intent of the Appellant being to seek refuge under the moratorium provision under Section 96 of the IBC in an effort to prevent enforcement of possession of the secured residential premises.
This is a case clearly where the Appellant on one excuse the other has all along tried to delay the handing over of the security to the Respondent No.1. The steps under SARFAESI Act have been pending since 2012. The Appellant has consistently misused the benevolent indulgence afforded by various adjudicatory forums to the Appellant in the past to resolve the matter. Each time the Appellant got relief from the court it slept over its commitment to either handover the subject residential premises to the Respondent No.1 or to make payment by selling the said property to clear the outstanding debt - The present Section 94 application is clearly yet another salvo on the part of the Appellant to stall the recovery by taking advantage of moratorium. This clearly shows that the Appellant has been ceaselessly orchestrating litigative proceedings and embroiled the Respondent No.1 in these proceedings clearly to subvert the recovery proceedings initiated against them and not for the purpose of the insolvency resolution. In the given fact situation, it is inclined to agree with the findings returned by the Adjudicating Authority that the Appellant had approached the Adjudicating Authority by filing the Section 94 application with an intent other than insolvency resolution.
The questioning of the jurisdiction of the Adjudicating Authority by the Appellant to examine the maintainability and bonafide of an application under Section 94 at the stage of Section 100 lacks substance. Since the report under Section 99 of the IBC had already been filed by the RP, nothing prevented the Adjudicating Authority to hear the matter and pass orders under Section 100 of the IBC while also entertaining the Intervention Application of Respondent No.1 - the Adjudicating Authority by its order dated 27.03.2024 had allowed four weeks’ time to the Appellant to file their response. The matter was fixed for hearing on four dates viz. 08.05.2024, 25.06.2024, 03.09.2024 and 25.10.2024. However, no reply was filed by the Appellant.
Conclusion - i) The statutory right under Section 94 of the IBC to file a PIRP petition cannot be denied solely on the basis of prior SARFAESI proceedings, but the bona fides of the petition must be scrutinized. ii) Repeated and persistent abuse of judicial process to delay secured creditor's recovery rights can justify dismissal of Section 94 petitions as an abuse of process. iii) The Adjudicating Authority is empowered to dismiss Section 94 petitions at the pre-admission stage upon finding fraudulent intent or abuse of process.
There are no merit in the Appeal. The Appeal stands dismissed.
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2025 (4) TMI 1412
Admission of section 7 application - initiation of CIRP against Corporate Debtor - existence of debt and default by the Corporate Debtor or not - HELD THAT:- The Adjudicating Authority in the impugned order has recorded a categorical finding of existence of ‘debt’ and ‘default’. The Adjudicating Authority also noted in its order that settlement proposal submitted by the CD was rejected by the Financial Creditors - The proceedings in this Appeal also indicate that there has been acknowledgment and acceptance of debt and default and the amount deposited before this Tribunal by the Appellant is also towards the acknowledgment and acceptance of debt and default. There being admitted debt and default, there are no error in the order of Adjudicating Authority initiating the CIRP.
The Hon’ble Supreme Court in GLAS Trust Company LLC vs. BYJU Raveendran & Ors. [2024 (10) TMI 1185 - SUPREME COURT (LB)] has laid down the law that for withdrawal of CIRP, the appropriate course open for the parties to initiate proceedings under Section 12A with Regulation 30A. Thus, for withdrawal of the proceedings, appropriate measures have to be taken under Section 12A and Regulation 30A of the CIRP Regulations before the Adjudicating Authority. By interim order passed by this Tribunal on 18.10.2024, the Committee of Creditors (CoC) could not be constituted by the IRP. In the facts of the present case, the CoC needs to be constituted to find out the claim of the Financial Creditors and to permit the Financial Creditors and other claimants to file their claims and the IRP to collate the claims.
Any proposal submitted by the Appellant, may also include the payment of amount of Rs.369.11 crores deposited in this Tribunal for payment to the Lenders, can be placed by the IRP/ RP before the CoC to obtain the decision. The Members of the CoC at that stage needs to take a decision with requisite vote share, as to whether withdrawal of the proceedings is to be done or not. In the facts of the present case, we are of the view that the amount deposited in this Tribunal of Rs.369.11 crores may await the decision of Adjudicating Authority.
In event the CoC does not accept the settlement proposal of the Appellant, liberty granted to the Appellant to file an Application for withdrawal of the amount deposited in this Tribunal.
Conclusion - i) The Adjudicating Authority's order admitting the Section 7 Application and initiating CIRP is upheld. ii) The CIRP shall proceed with constitution of the CoC and consideration of claims. iii) The Appellant may submit a settlement proposal to the CoC, including the deposited amount, for consideration under Section 12A and Regulation 30A.
The order passed by Adjudicating Authority dated 15.10.2024 admitting Section 7 Application filed by the Financial Creditors is upheld - appeal dispose doff.
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2025 (4) TMI 1411
Onerous contract under Regulation 10 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Liquidation Regulations) - Leave and License Agreement - divergence of the opinion between the parties holding the transaction as onerous under Regulation 10 of the Liquidation Regulations, 2016 - Regulation 10 of the Liquidation Regulations, 2016 is beyond the provisions of the IBC and ultra vires to IBC or not.
Divergence of opinion between the two judgements delivered by the Hon’ble Technical Member and Judicial Member - HELD THAT:- udicial Member after considering the submissions of the parties and noticing all relevant facts have come to the conclusion that Leave and License Agreement 07.06.2019 is unprofitable and burdensome and affects the provision of Regulation 10 of the Liquidation Regulation 2016. The facts as noticed above clearly indicates that Leave and License Agreement was entered for rent of ₹5,000 p.m. On a letter sent by liquidator asking the appellant to vacate, appellant himself came with the proposal that he is ready to enter into Leave and License Agreement for amount of ₹2.25 lakhs p.m - The submission which has been pressed by the appellant is that although Technical Member has declared the transaction to be covered by Regulation 10 of the Liquidation Regulations, 2016, however, the Ld. Judicial Member has not found the transaction as onerous.
Regulation 10(1)(b), includes unprofitable contracts thus, Judicial Member has also come to the conclusion that transaction is covered by one of the illustrations given under onerous property in Regulation 10. In paragraph 10 Ld. Judicial Member has obviously referred to Regulation 10(1)(d), which mentioned unprofitable contracts which can be basis for disclaimer of onerous property - the submission of the appellant that there is divergence of opinion between Technical Member and Judicial Member. Ld. Judicial Member has given detailed reason, including the conduct of the corporate debtor and come to the conclusion that the transaction 07.06.2019 was not bona fide and good faith transaction, not accepted.
Thus, both the Ld. Members have expressed the opinion that transaction of Leave and License Agreement dated 07.06.2019 was an onerous transaction covered under Regulation 10, hence there is no error in partly allowing the I.A.2012/2022 by the adjudicating authority.
Regulation 10 is beyond the provisions of the IBC and is ultra vires to the IBC or not - HELD THAT:- Regulation 10 of the Liquidation Regulation, 2016, is thus regulation specified and is fully covered by Section 35(1)(o). Liquidation Regulation has been framed in exercise of powers conferred under various sections of the IBC including Section 34 and Section 35, thus regulations have been clearly framed under Section 35 and as per Section 35(1)(o) liquidator can perform such other function as maybe specified by the board. The power vested in the liquidator by Regulation 10 i.e., disclaimer of the onerous property is thus fully covered by provisions of the IBC and cannot be held to be beyond IBC or ultra vires to the IBC as contented by counsel for the appellant.
Regulation 10 has been framed in accordance with the provisions of the IBC and the Regulation 10 empowering the liquidator to disclaim a contract is well within the statutory powers and the Regulation 10 is fully inconsonance with and is in accordance with the provisions of the IBC and has been enacted to give effect to the provisions of the IBC - thus there are no substance in the submission of the appellant that Regulation 10 is beyond the provisions of IBC.
Conclusion - i) Both the Ld. Members have expressed the opinion that transaction of Leave and License Agreement dated 07.06.2019 was an onerous transaction covered under Regulation 10, hence there is no error in partly allowing the application by the adjudicating authority. ii) There are no substance in the submission of the appellant that Regulation 10 is beyond the provisions of IBC.
There are no error in the order passed by the adjudicating authority - appeal dismissed.
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2025 (4) TMI 1410
Admission of Section 7 application filed by the IDBI Trusteeship Services Limited - existence of financial debt and default are sufficient to initiate the CIRP or not - requirement of Adjudicating authority to apply his mind - HELD THAT:- The facts indicate that for last more than five years, no payment towards interest or principal has been made. It was principal borrower who has issued debentures and the liability to pay the principal and interest cannot be washed of on the ground that project accounts were to be operated by IDBI Trusteeship Services Ltd.
Reliance placed on the judgement of this Tribunal in Sandeep Jain Vs. IDBI Trusteeship Services Ltd. & Anr. [2025 (2) TMI 522 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB], which was also an appeal filed by suspended director of M/s. Shree Vardhaman Infra Heights Pvt. Ltd., challenging an order admitting Section 7 application filed by the same financial creditor. The submission was raised on behalf of the appellant in the said case that there was project managing committee constituted to monitor the project and project monitoring committee consists of financial creditor who were in majority, hence the corporate debtor could not have been held liable to discharge of the debt. It was held by this Tribunal that the constitution of project managing committee to assist and improve the operation and construction in no manner diminish the obligation of the corporate debtor to fulfil its payment obligation.
Conclusion - There are no substance in the submission that the project account was to be operated under the instruction of IDBI Trusteeship, hence the corporate debtor is not liable for its payment obligation. The present is a case where after receiving the amount by virtue of issuance of debentures in the year 2016 and again in 2021 no payment towards principal and interest have been made. The adjudicating authority has not committed any error in admitting Section 7 application against the principal borrower and the corporate guarantor by the impugned orders dated 29.04.2024 and 07.05.2024.
There are no merit in any of the appeals. Both the appeals are dismissed.
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2025 (4) TMI 1409
Withdrawal of amount from the Corporate Debtor's bank account during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) - continuing non-cooperation of the Appellants as well as the brazen disobedience of the Appellants - only plea that has been taken by the Appellants to rebut the allegation of abject non-cooperation is illness of the Appellants - HELD THAT:- The Appellant is hit very hard by res judicata with respect to raising the appeal to deposit of ₹32,00,000. The matter has been well settled by the Adjudicating Authority and there are no infirmity in the order.
CA 1253/2020 was preferred during the CIRP stage. Through the filing of IA 2021/2022 by the liquidator the fact of continuing non-cooperation of the Appellants as well as the brazen disobedience of the Appellants vis-à-vis Orders passed by the AA and this Appellate Authority qua wrongful utilisation of ₹ 32 lakhs during the CIRP moratorium are once again reinforced. The IA 2021/2022 was heard and was decided by the Impugned Order dated 16.01.2025 - the Appellants had shown continued non-cooperation during the CIRP and during the liquidation process, and the same is continuing as on date.
The order dated 9th November 2021 has not been challenged before the Appellate Authority and has thus attained finality - there are no infirmity in the orders of the Adjudicating Authority in allowing IA No 2021 of 2022 which prays to direct the suspended Directors to deposit to the account of the Corporate Debtor an amount of ₹ 32 lakhs along with interest at the rate of 12% per annum from the date of withdrawal, in compliance of orders dated 9th November 2020.
Conclusion - The withdrawal of Rs. 32 lakhs during the moratorium declared under Section 14 of the IBC was in violation of the provisions of the Code and the amount along with interest @12% per annum from the date of withdrawal is liable to be deposited into the liquidation estate.
The appeal of the suspended directors dismissed as it is devoid of any merits.
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2025 (4) TMI 1408
Validity of allotments of residential units made by the Corporate Debtor on the date of commencement of the Corporate Insolvency Resolution Process - authority of Interim Resolution Professional (IRP) to cancel such allotments made on the date of CIRP commencement without issuing any show-cause notice or adjudicatory proceedings - HELD THAT:- The present is a case where IRP who was running the CD as a going concern under orders of this Tribunal, while going through the records of the CD, came to know about the units allotted to the Appellant(s). The RP found that allotments were claimed on 19.09.2019, on which date CIRP had already commenced and there was no authority in the CD, to make any allotment on 19.09.2019. When the CIRP has commenced on 19.09.2019, the jurisdiction of the Suspended Director clearly came to an end and no allotment letter could have been issued on 19.09.2019. The allotment, which is claimed on 19.09.2019 appeared to be unusual, since it was made without receiving any payment in the account of the CD and the payments were received in the account of the CD on 07.12.2019 to 15.01.2020 with regard to the Appellant(s) herein.
The IRP is duty bound to protect the assets of the CD and if it is found that allotment claimed by the Appellant(s) is void, the allotment was impermissible in view of the moratorium imposed on 19.09.2019 and it required no adjudication for treating the allotment as void and impermissible.
The submission of the Appellant is that allotments and payments made by the Appellant are reflected in records of the CD, hence, the allotment was actually made and could not have been declared invalid by the IRP. The materials on the record, including the letter of allotment dated 19.09.2019 in favour of the Appellant without any payment to the designated account, which payment according to the materials on record is claimed to be made only in December 2019 and January 2020, clearly prove that allotment made in favour of the Appellant(s) is non-est and without any authority.
Conclusion - i) The allotment letters dated 19.09.2019, the same day CIRP commenced, were issued by the Suspended Management without any approval or consent of the IRP. The Suspended Management had no authority to allot units on or after the date of CIRP commencement. ii) The IRP did not exercise adjudicatory powers but acted within his duty to protect the assets of the Corporate Debtor under the moratorium. The cancellation communicated to the Appellants was a protective administrative act and not an adjudicatory decision. iii) The Applications filed by the Appellants challenging the cancellation of allotments were rightly rejected by the Adjudicating Authority as the allotments were void ab initio and payments made were not in accordance with the terms and moratorium provisions.
There are no error in the order of the Adjudicating Authority rejecting Applications filed by the Appellant(s). There is no merit in the Appeal. The Appeals are dismissed.
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2025 (4) TMI 1407
Rejection of Section 7 application - prohibition on deduction of liquidated damages from the final invoices of the Corporate Debtor, in view of approved resolution plan - HELD THAT:- The reliance on the approved Resolution Plan regarding extinguishment of the claim has no effect on the liquidated damages which were already deducted by Hindustan Petroleum Corporation Limited from the invoices as per the terms and conditions of the Purchase Order. When the Resolution Professional was allowed to carry on the contract work after initiation of the CIRP, the said contract has to be carried out as per the terms and conditions and deduction of the liquidated damages from the invoices being part of the terms and conditions for carrying out the contract that cannot be faulted nor any direction after approval of the Resolution Plan can be issued for refund of such liquidated damages. Extension of 12 months is extension for completion of the work and liquidated damages deducted after 16.11.2021 has already been refunded - the Adjudicating Authority did not commit any error in rejecting the application filed by the Appellant.
The present is a case where it is not the case of the Hindustan Petroleum Corporation Limited that any claim towards liquidated damages is due on the corporate debtor nor any claim prior to CIRP or during the CIRP was filed. The present is a case where Successful Resolution Applicant after approval of the plan was asking for refund of deducted liquidated damages which deduction was made from invoices during the currency of the contract as per the terms and conditions of the contract - extinguishment of the claims, liquidated damages on account of approval of the plan has no effect on the liquidated damages already deducted as per terms and conditions of the contract. It is true that any claim which was not filed or not part of the Resolution Plan shall stand extinguished on the approval of the Resolution Plan but that does not mean that any liquidated damages deducted during currency of the contract should be allowed to be refunded to the Successful Resolution Applicant.
Conclusion - The Adjudicating Authority rightly rejected the application seeking refund of liquidated damages deducted during the CIRP period.
Appeal dismissed.
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2025 (4) TMI 1406
Transfer of flats - transfer declared as void and subject to charge - fraudulent transaction under Section 66 of the Insolvency and Bankruptcy Code (IBC), 2016 or not - HELD THAT:- The judgment, which has been relied by learned Counsel for the Respondent in Royal India Corporation Ltd. [2024 (5) TMI 999 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ] of this Tribunal supports the submission of Respondent that action under Section 66, sub-section (1) can be taken against any person.
The judgment of this Tribunal in Tridhaatu Kirti Developers LLPi [2023 (1) TMI 455 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI ] also supports the submission of learned Counsel for the Respondent. There are no error in the judgment of Adjudicating Authority insofar as it has held that transaction of payment of consultancy charges to Appellant Nos.1 and 2 were not bona-fide transaction.
The present is a case where Adjudicating Authority has also held that payments of consultancy charges to the Appellants is fraudulent and in exercise of power under Section 66(1) has directed the said contribution void. We, however, relying on the judgment of Tripura High Court in Smt. Sudipa Nath agree with the submission of the Appellant that Adjudicating Authority could not have declared the Sale Deed in favour of the Appellants dated 21.08.2017, as void - the Sale Deed was obtained by the Appellants of two Flats by payment of consideration of Rs.69,00,000/- each, out of which Rs.55,20,000/- was obtained by loans, and the Lenders, transferred the said amount in the account of the CD and loans having been taken by the Appellants, the Appellants are still discharging the liabilities of the loans - sale transaction in favour of the Appellants could not have been declared void.
Conclusion - The sale transaction in favour of the Appellants could not have been declared void. The sale was made and consideration amount was received in the account of the CD and after receiving the amount, it was transferred. Mere transfer of amount to a related company does not lead to a conclusion of fraudulent sale.
Appeal allowed in part.
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2025 (4) TMI 1405
Admission of Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) - application was barred by limitation or not - default date and the date of filing - Petition lacked threshold support or not - fraudulent claims and material suppression.
Whether the appeal is time barred or not? - HELD THAT:- The limitation period under the Limitation Act, 1963, is governed by Section 22, which provides that in the case of a continuing breach, limitation runs afresh with each successive instance of default. The Corporate Debtor’s failure to hand over possession of the flats and its continuing default in refunding amounts to the allottees constitute a continuous cause of action. The directions issued by UP RERA from time to time, including the refund order dated 13.10.2020, its amendment on 18.06.2022, and the project registration cancellation on 24.12.2022, reaffirm the subsistence of debt and the ongoing breach by the Corporate Debtor. Furthermore, the acknowledgement of debt in the Corporate Debtor’s balance sheet on 30.06.2022 extends the limitation period under Section 18 of the Limitation Act, 1963. It is to be noted that an acknowledgement of liability within the limitation period gives rise to a fresh period of limitation. Therefore, the present petition, filed on 09.01.2024, is well within time - the Appellant’s contention that the Company Petition is barred by limitation is misconceived.
The present Application which was filed on 19.01.2024 is found to have been filed within the limitation period as per Section 18 of the Limitation Act, 1961 and there are no infirmity in the orders of the AA on this count.
Threshold required under Section 7(1) of IBC - HELD THAT:- It is noted that whether they have obtained recovery certificates or not, the Respondents - Allottees remain Financial Creditors under Section 5(8)(f) of the Code, as they have not received possession of the allotted flats, and their deposited amounts have not been refunded in full. The Corporate Debtor’s claim that certain Applicants have settled their dues is also unsupported, as their outstanding amounts continue to reflect in the Corporate Debtor’s financial statements. Therefore, for the purpose of determining the threshold under the second proviso to Section 7(1) of the Code, Answering Respondent, including those holding recovery certificates, will be considered Financial Creditors.
Whether the Company Petition under Section 7 of the Code has been initiated fraudulently and with malicious intent? - HELD THAT:- The Adjudicating Authority has held that the Corporate Debtor failed to produce any documentary evidence to substantiate its claim that the present proceedings were initiated with fraudulent or malicious intent. The mere fact that some applicants may have obtained recovery certificates does not preclude them from initiating proceedings under the Code, as long as the fundamental criteria of ‘debt’ and ‘default’ are satisfied, which has been established in this case.
This Appellate Tribunal in Monotrone Leasing Pvt. Ltd. v. PM Cold Storage Private Ltd., [2020 (8) TMI 386 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], had held that penal action under Section 65 of the Code can only be taken where there is substantial evidence proving that the insolvency resolution process has been initiated fraudulently or for an ulterior motive.
The proceedings under the Code are summary in nature, and the burden of proving fraudulent intent lies upon the party alleging it. In the present case, the Appellant has failed to produce any cogent evidence to support its allegations. The mere assertion that the applicants are engaging in forum shopping or that some allotments are disputed does not meet the rigorous standard required to invoke Section 65 of the Code. Moreover, even if certain allottees are excluded, the number of remaining applicants still satisfies the statutory threshold, rendering the present application maintainable. In view of the above, the allegation of fraudulent and malicious intent is completely baseless and has been rightly rejected by the Adjudicating Authority. We don’t find any infirmity in the Impugned Order on this count.
The burden of proving fraudulent intent lies with the Appellant and mere assertions by the Appellant cannot be used to invoke penal action under Section 65 of the IBC. There are no material evidence on record to suggest any malicious and fraudulent intent on the part of the Applicants – Homebuyers - In the present case, the total number of units in the project is 247, and the Answering Respondent collectively hold 34 allotted units, thereby meeting the statutory threshold. The Appellant’s objection regarding the eligibility of certain allottees is without merit as the Answering Respondent satisfy the threshold requirement under Section 7(1) of the Code.
Conclusion - i) The petition is not barred by limitation due to continuing default and acknowledgment of debt. ii) The Respondents satisfies the statutory threshold to initiate CIRP. iii) No fraud or malicious intent is established to invoke Section 65 penalties. iv) The Corporate Debtor is liable for pre-existing debts despite conversion. v) The Adjudicating Authority did not err in admitting the petition and initiating CIRP.
Appeal dismissed.
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2025 (4) TMI 1404
Dismissal of Section 9 Application filed before the Adjudicating Authority - initiation of CIRP - Existence of debt and default or not - quality of goods or services - breach of a representation or warranty - HELD THAT:- Upon perusal of the Purchase Orders, which form basis of the current Company Petition, annexed as "ANNEXURE V-1 to V-8", we find that all the said Purchase Orders have been signed by Mrs. Ashwini Ghodi or Mr. Gaurang Ghodi, and not a single Purchase Order bears the signature of the Intervener, Mrs. Sheetal Dahanukar. Further it is claimed by the Intervener that all the said purchase orders are post April 2021, which is after the date on which dispute between Mr. Nilesh Dahanaukar and the Intervener grew strenuous and the intervener left her matrimonial house. This disputed nature of the aforementioned facts raises serious doubts about the genuineness of the claim filed by the Petition Firm. Thus, the Intervener's contention with respect to the same holds merit and cannot be ignored.
There exists a nexus between the partner of Pan Products, Mr. Gaurang Ghodi, and the Respondent Company and Mr Nilesh who is the Director of Appellant-OC-Om Sai. In view of the aforementioned email dated 03.01.2023 and the Purchase Orders dated 27.10.2021 and 13.06.2022, which are signed by Mr Ghodi, we find that Mr. Gaurang Ghodi is also involved in the day-to-day internal affairs and workings of the Respondent-CD-Plastomax Engineering, to such an extent that Mr. Gaurang Ghodi was in a position to send official emails and even sign Purchase Orders on behalf of the Respondent Company.
The allegations of fabrication of documents as alleged by the Intervenor, Mrs. Sheetal Dahanukar who is wife of the Petitioner also noted. The Intervenor has raised serious allegations about the authenticity of the invoices and purchase orders presented by the Petitioner - keeping this offence of forgery committed by Mr. Nilesh Dahanukar in mind and in view of the contentions raised by the Intervener, we have sufficient grounds to believe that it is plausible for Mr. Nilesh Dahanukar to forge signature of his wife, the Intervener and the contention raised by the Intervener with respect to the same holds merit and cannot be brushed aside.
The Appellant claims to qualify as an operational creditor under Section 5(20) of the IBC, and accordingly claims that the debt is clearly an operational debt arising from the supply of goods to the Respondent. It claims that the personal and matrimonial disputes raised by the director of the Respondent do not constitute a "dispute" as per Section 5(6) of the IBC. And the IBC defines a "dispute" as one related to the existence of the debt, quality of goods/services, or breach of warranty or representation, none of which are applicable to the alleged personal disputes between the parties. The disputes raised by Mrs. Sheetal Dahanukar were personal in nature (e.g., matrimonial issues and shareholder oppression) and not related to the operational debt or quality of goods supplied - It is also claimed that the Respondent did not raise any valid dispute about the debt, and the alleged disputes are related to personal matters such as matrimonial discord and shareholder disputes, which do not qualify as valid disputes under Section 5(6) of the IBC.
Conclusion - The company petition has not been filed for insolvency proceedings but is for ulterior motives. There are no infirmity in the findings of the adjudicating authority that the Section 9 application has been filed to settle personal disputes and such an act is reprehensible. In this background, the finding of the adjudicating authority for imposition of a cost of ₹ 10 lakhs on the petitioner for filing frivolous and motivated petition also agreed.
Appeal dismissed.
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2025 (4) TMI 1403
Invocation of the personal guarantee by issuance of the demand notice - notice was sent to an address different from that specified in the guarantee deed - application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (the Code) for initiating insolvency resolution process against the personal guarantor was barred by limitation or not.
Notice was sent to an address different from that specified in the guarantee deed - HELD THAT:- The argument of the Appellant that it has been clearly provided in the guarantee deed that it has to be sent on the address provided in the guarantee deed and can also be sent to a different address with prior intimation of the Appellant is of no consequence because in the entire pleadings, both before the Tribunal and before this Court, the Appellant has not said a word that the said Notice was never received. Rather the Appellant has taken a technical plea that Notice should have been sent on the address provided in the guarantee deed. In the absence of denial on the part of the Appellant that he did not receive the Notice dated 16th January 2017, having been sent on an address different from the one provided in the deed of guarantee, it has to be presumed that the notice was duly received by the Appellant.
Moreover, Respondent No.1 sent the Notice dated 9.9.2021, under Rule 7 of the Rules, addressed to Shri Vipin Shersingh Agarwal, Vaishnav Sadan, Bungalow No.2, Vikas Classique CHS, Behind Bansant Cinema, Chembur, Mumbai – 400074 which was delivered to the Appellant on the same address by hand. In these circumstances, the Appellant had duly received the Notice of invoking of guarantee deed dated 16th January, 2017 in relation to guarantee deed dated 17th December, 2014.
Time limitation - HELD THAT:- The default occurred on 31st January, 2017 for which the application under Section 95 could have been filed up to 31st January, 2020. However, in between while the period of limitation was continuing the Corporate Debtor acknowledged the debt in the balance sheets which further enlarged to period of limitation from every date of acknowledgement - any admission of liability by the borrower shall be deemed to be admission of debt by the guarantor as well, the balance sheets, being part of the record of the Tribunal has to be looked into for the purpose of extension of limitation from the date of acknowledgement. It is needless to mention that as per Section 18, the acknowledgement has to be in writing which of course in this case has been signed by the RP on behalf of the Corporate Debtor as well as the guarantor.
Conclusion - i) The invocation of the guarantee by the notice dated 16th January, 2017 is valid and maintainable despite being sent to an address different from that in the guarantee deed. ii) The application under Section 95 is not barred by limitation due to the acknowledgment of debt extending the limitation period.
Appeal dismissed.
There are no merit in the appeal - appeal dismissed.
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2025 (4) TMI 1402
Seeking direction for payment of operational debts - Power of Committee of Creditors (CoC) was empowered under the Process Memorandum to invoke the Performance Bank Guarantee (PBG) - clear violation of letter of intent and process memorandum by Formation.
Whether under the Process Memorandum (March 2018) issued by RP, the action of CoC to invoke PBG on 10.12.2018 was not covered by any of Clauses of Process Memorandum and invocation of PBG was unsustainable? - HELD THAT:- In the facts of the present case, when Resolution Plan was submitted by the SRA, which was considered and approved and the approved Resolution Plan is statutory binding on the SRA by virtue of Section 31, sub-section (1) and as per law laid down by the Hon’ble Supreme Court in Ebix Singapore [2021 (9) TMI 672 - SUPREME COURT]. Learned Counsel for the Formation has also referred to Clause 14.2 to 14.6 and 15.1 of the Process Memorandum to submit that invocation of PBG of Rs. 50 crores was made towards the money required for equity component. Thus, there is no question of Clause 14.6(c) being attracted, since the Resolution Plan itself was vitiated. It is submitted that Clause 15.1 was also not attracted, since Resolution Plan submitted by Formation was approved and the said clause applies only when there is withdrawal prior to approval by Adjudicating Authority. Clause 14.6 as noted above empowers the CoC to invoke the Performance Guarantee, if Resolution Plan has not been implemented by the SRA to the satisfaction of the CoC. Clause 14.6, thus, clearly contemplate the situation when Performance Guarantee can be invoked. The present is not a case where CoC has exercised Clause 15.1. Clause 15.1 is neither attracted nor has been invoked by the CoC. However, Clause 15.4 reserve the right to CoC to take any action against the Successful Resolution Applicant including invocation of PBG as well earnest money.
It is also noted the email dated 17.01.2020, by which decision of the CoC was communicated to the Formation, which clearly mentions that CoC has invoked the Performance Guarantee since SRA has failed to implement the Resolution Plan.
The CoC, thus, has invoked its power under Clause 14.2 to 14.6 and 15.4 for invocation of the PBG, which is fully in accord with the Process Memorandum and the submission of the Formation that CoC could not have invoked the PBG in the facts of the present case is without any substance.
Whether the finding of the Adjudicating Authority that CoC and RP had not treated that approved Resolution Plan had been contravened by the Formation are based on materials on record? - Whether sufficient materials were placed by CoC and RP before the Adjudicating Authority to establish that Formation has failed to implement the approved Resolution Plan? - HELD THAT:- The Adjudicating Authority itself has noticed the submission of the CoC that Resolution Applicant has defaulted in making the payment as per the Resolution Plan. The findings returned by the Adjudicating Authority in paragraph 50 that CoC and RP had not treated that the approved resolution plan had been contravened by the applicant-Formation, is unsustainable. There was sufficient material placed by the CoC and RP by means of various applications and affidavits filed before the Adjudicating Authority that the Formation has failed to implement the approved Resolution Plan.
The Adjudicating Authority has also observed that Appellant has failed to implement the Resolution Plan. There was sufficient material on record to hold that Applicant – Formation failed to implement the Plan which is clearly proved and beyond any pale of doubt.
Whether the amount of PBG and earnest money has to be adjusted in the equity infusion, which was required to be made by the SRA under the Resolution Plan, had the PBG lost its nature and character to enable the CoC to invoke the PBG after the RP’s treated it towards equity infusion? - HELD THAT:- The Minutes of the Financial Creditor, does not help the Appellant to contend that payment of PBG towards was for equity infusion. The equity infusion is clear consideration, which is to be paid by the SRA as per Resolution Plan and is clearly distinct from PBG. Hence, the submission of the Appellant that the PBG having been accepted towards equity infusion, the PBG lying with the CoC has lost its character and could not have been invoked, cannot be accepted. PBG given by the Appellant – SRA was as per the RFRP had to continue till 100% implementation of the Resolution Plan and the said PBG cannot be treated as equity infusion as per the Resolution Plan.
Whether the RP was obliged under Section 29 read with Regulation 36, sub-regulation (2) of the CIRP Regulations 2016 to include the Transaction Audit Report in the Information Memorandum and share the same to Formation, failure of which makes the implementation of the Resolution Plan voidable? - HELD THAT:- The present is not a case where Appellant’s case is that the financial statement and audited financial statement of the corporate debtor of the last two financial years have not been provided. It is also not the case that provisional financial statement for the current financial year made upto the date not earlier than 14 days from the date of the application has not been provided - The findings of the adjudicating authority that RP and CoC did not inform the applicant Formation of forensic audit report and the application under Section 60(6), having direct effect on the financial position of the corporate debtor, they come in the purview of relevant information under estimation to Section 29 cannot be supported.
The Formation cannot raise any issue regarding non-sharing of transaction audit report or not including the transaction audit report in the information memorandum for wriggling out from its obligation in the resolution plan, which had approved by the adjudicating authority on 30.11.2018. The finding of the adjudicating authority returned in paragraph 61 that non-disclosure of the above information, performance of terms of resolution plan becomes voidable is also an incorrect finding. Non-sharing of transaction audit report in no manner can affect implementation of the resolution plan and it is far fetched to hold that due to not sharing of the said transaction audit report, the performance of the resolution plan became voidable.
There is material on record to indicate that earnest money was invoked in October 2018 itself by the CoC, on Formation not extending the EMD as per provisions of the Process Memorandum. The PBG was invoked on 10.12.2019.
Whether the RP had not provided the correct financial position of the CD to RA, due to which performance of Resolution Plan became voidable? - HELD THAT:- The judgment of the Hon’ble Supreme Court in ‘Ebix Singapore’ [2021 (9) TMI 672 - SUPREME COURT], clearly binds SRA from its obligation and it cannot be allowed to wriggle out there its obligation as sought to be made in the present case. The submission which has been raised by learned counsel for the Formation distinguishing the judgment of the Hon’ble Supreme Court in Ebix Singapore, have no substance.
When the plan is approved by the adjudicating authority, obligations on the SRA to implement the plan becomes obligation which are to be statutorily enforced. Thus, on the said ground, the judgment of the Hon’ble Supreme Court in Ebix Singapore, cannot be distinguished nor SRA can be allowed to wriggle out from its obligation on the exclusion and pretext as was raised before the adjudicating authority. Adjudicating Authority committed an error in holding that due to not providing correct financial provisions of the corporate debtor to resolution applicant performance of the resolution plan became voidable. The said findings are incorrect findings and has been recorded without correct appreciation of facts and law.
Whether the Formation had made out a case for direction to refund the amount of Rs. 93.08 crores and the order of Adjudicating Authority directing such refund is sustainable? - HELD THAT:- The Bank has forfeited the PBG and EMD, which was earlier done in October 2018. Thus, only the aforesaid two amounts were forfeited by the CoC, which was rightly forfeited by the CoC, which could not have been directed to be refunded by the CoC. With regard to Rs.38.2 crores, which by adding interest was kept in fixed deposit of Rs.42.99 crores, orders were required for utilization of the said amount. We, thus, are of the view that order of Adjudicating Authority of 06.07.2023, insofar as it directed refund of the EMD and PBG, cannot be sustained and it deserve to be set aside. With regard to other part of the amount of Rs.38.2 crores, which was subsequently kept in fixed deposit of Rs.42.99 crores, orders were necessary to be passed for utilization of the said amount.
The direction of adjudicating Authority to refund 93.82 Crore to the Formation cannot be upheld, and the said direction need to be set aside subject to further orders in this batch of appeals, which need to be considered while considering the appeals filed by Interim Trade Creditors.
Whether the Application filed by the RP as well as Application filed by Interim Trade Creditors (who are Appellant before us) were maintainable before the Adjudicating Authority in view of the approval of Resolution Plan of DLH on 19.05.2021 and Adjudicating Authority has rightly taken the view that Application of Interim Trade Creditors has to be decided in appropriate proceedings and not by Adjudicating Authority? - Whether Interim Trade Creditors had made out a case for issuing a direction to make payment of their outstanding amount of Rs. 20.09 crores towards goods and services provided to CD, when it was under control of the Formation? - HELD THAT:- The application by Interim Trade Creditors were filed before the adjudicating authority in the same CIRP proceedings where the Interim Trade Creditors has supplied goods and services to the corporate debtor at the time when it was in the control and management of Formation - It is true that after the approval of the resolution plan by the Formation, Formation took control and management of the corporate on 30.01.2019 and the steps taken by the SRA, under which it could not implement the resolution plan was subject matter of various application filed before the adjudicating authority, which applications were entertained and decided by adjudicating authority by various orders as noted above. The application filed by Interim Trade Creditors were also one said of such application which was filed for payment of their outstanding dues arising out of goods and services supplied to the corporate debtor.
There was no occasion for Interim Trade Creditors to file its claim, the adjudicating authority being conscious of the liability which was incurred by the Formation during the period it had control and management has noted liabilities of Rs.22.53 Crore out of which only Rs.1.63 Crore was paid in the resolution plan. It was due to the above reasons that liberty was reserved to the Interim Trade Creditors and direction was issued to keep the amount of Rs.42.99 Crore in the fixed deposit. The application filed by Interim Trade Creditors was occasion for the Adjudicating Authority to consider the application. Adjudicating authority with regard to application filed by RP Charu Desai observes that after approval of the resolution plan, RP has become functus officio, hence the application is infructuous.
The application filed by Interim Trade Creditors deserves to be allowed and respondents are directed to pay the balance outstanding amount of Rs.20.9 Crore from the fixed sum of Rs.42.99 Crore which is lying in the fixed deposit with the CoC. The CoC shall take steps to discharge the said amount - after discharging the dues of Interim Trade Creditors of Rs.20.9 Crores along with the interest earned on it, the balance amount of Rs.42.99 Crore which was kept in the fixed deposit towards amount infused by the Formation, thus rest of the amount along with interest earned on it need to be refunded to the Formation, i.e., amount of Rs.22.09 Crore with interest earned on it.
Whether Formation was entitled to claim interest @ 12% as prayed in IA No.443 of 2021? - HELD THAT:- As per the provisions of Process Memorandum, no consideration as per the Resolution Plan can be set-off with the equity requirement. There being specific clause in the Process Memorandum, the case of Formation that the payment of earnest money towards PBG could be treated towards equity payment, cannot be accepted. Further, insofar as the emails, which were sent by the RP and the CoC, asking the Formation to pay balance amount of Rs.21 crores, towards the equity, suffice it to say that both RP and CoC have taken a stand that Formation has not paid the balance amount of equity. In this reference the letter written by Bank of Baroda to Formation dated 04.04.2019 is referred to, in which letter the Bank of Baroda clearly informed that Formation has paid only Rs.38.82 towards part payment of FTL’s equity component under the Resolution Plan as well as for purposes of buying out the Financial Creditor’s share of the equity held in MIL. Further, Bank of Baroda on 22.07.2019 has written to National Stock Exchange informing that SRA has not been able to make payment towards equity, hence, shares be not allotted.
The Formation has not paid entire amount, which was required to be paid in the equity. Hence, the claim of interest @ 12% cannot be accepted - The said Section 42 was with respect to provisions in the Companies Act pertaining to share on a private placement basis. The above provision cannot be pressed into service where equity is required to be provided under the Resolution Plan. The consequence of providing or not providing the equity has to be read from Resolution Plan itself. Hence, the provision of Section 42, sub-section (6), cannot be pressed by the Formation. The prayer of the Formation for claiming interest @ 12% could not have been granted.
Whether the Adjudicating Authority is right in observing that in view of the order passed in IA 443 of 2021, there is nothing to adjudicate in IA No.1847 of 2021 filed by the Bank of Baroda and if not, what relief to be granted to the Bank of Baroda in IA No.1847 of 2021? - HELD THAT:- The law is well settled that insofar as breach of any undertaking or Clauses, which provide for forfeiture of any amount, there is no question of referring to Section 74 of the Indian Contract Act, 1872 and the said amount can be awarded. However, when damages or loss is difficult to prove, Court is empowered to award liquidated amount - The Hon'ble Supreme Court in Kailash Nath Associates vs. Delhi Development Authority and Anr. [2015 (1) TMI 1377 - SUPREME COURT] has clarified the law. The Adjudicating Authority on breach of any terms and conditions by the SRA could very well have directed for payment of amount, which is contemplated in the Process Memorandum, under which the Resolution Plan is submitted - the Adjudicating Authority could not have proceeded to adjudicate about the compensation or damages, which are not liquidated damages in exercise of jurisdiction under Section 60, sub-section (5) (c) of the IBC.
Conclusion - i) Invocation of PBG by CoC was valid and sustainable. ii) The SRA failed to implement the approved Resolution Plan. iii) PBG and EMD cannot be adjusted against equity infusion. iv) Non-disclosure of Transaction Audit Report did not vitiate the Resolution Plan. v) Refund of Rs. 93.82 crores to SRA is not sustainable except for balance equity infusion amount in fixed deposit. vi) Interim Trade Creditors are entitled to payment of Rs. 20.9 crores from fixed deposit. vii) SRA not entitled to 12% interest on refund. viii) Bank of Baroda's claim for compensation is not maintainable under IBC.
Appeal disposed off.
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2025 (4) TMI 1401
Direction for replacement of the Resolution Professional (RP) prior to completion of the land survey and without deciding the pending application for replacement - HELD THAT:- The adjudicating authority itself has directed for land survey in paragraph 40 as noted above. Affidavit was also filed by the suspended director which has been noticed in the order of the adjudicating authority.
In view of the facts of the case, adjudicating authority has rightly directed for land survey and in effect no grievance has been raised to the land survey by the RP or the CoC in the present case.
Conclusion - The ends of justice be served by directing the adjudicating authority to consider replacement of the RP after the land survey is completed
Appeal disposed off.
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2025 (4) TMI 1400
Admission of Section 9 application - threshold limit of operational debt claimed by the Operational Creditor qua the Corporate Debtor in the present facts of the case has been met or otherwise - HELD THAT:- The Appellant is agreed upon that the entire payments made by them to the Operational Creditor has been suppressed by the Operational Creditor. Prima-facie, it is persuaded to infer that the Ledger Account of the Corporate Debtor as maintained by the Operational Creditor is not an updated Ledger Account and did not depict the true and correct status of payments received by them from the Corporate Debtor. If the payment of Rs 11 lakhs claimed to have been made by the Corporate Debtor after 12.05.2023 is taken into account, the outstanding liability falls below Rs 1 Cr. and thus fails to meet the minimum threshold limit prescribed under Section 4 of the IBC. The Adjudicating Authority was therefore misled into admitting the Corporate Debtor into CIRP. It is also mindful of the fact that the impugned order of the Adjudicating Authority was passed exparte and the Appellant did not get an opportunity to defend themselves.
In the absence of provision of interest in the contract and no practice of interest payment having been demonstrated by the Operational Creditor, it is inclined to agree with the Appellant that the Operational Creditor has tried to cleverly add interest liability to cross the Section 4 threshold criteria. If the payments made by the Corporate Debtor after 12.05.2023 are factorised, the debt due to the Operational Creditor was clearly below the prescribed minimum threshold limit of Rs 1 Cr. and hence the Section 9 application of the Operational Creditor was not maintainable.
Conclusion - Triggering of CIRP in the present facts of the case where, prima-facie, the outstanding liability is below the threshold limit is unwarranted.
The Adjudicating Authority has erroneously admitted the application under Section 9 of the IBC. The Appeal is admitted.
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2025 (4) TMI 1399
Admission of claim filed by the Applicant - Claim of Worker (ex-employee) - Layoff having not challenged by the Appellant - collation of claim and calculation of the salary payment till date of layoff - HELD THAT:- In the present case, the Resolution Professional has calculated the salary till the layoff period and accordingly, admitted the claim to the tune of Rs.185,62,360/-, which has been reaffirmed by the Resolution Professional.
Non-computation of salary after lay off by the Resolution Professional cannot be faulted with since the Resolution Professional has no adjudicatory jurisdiction and the Adjudicating Authority has rightly observed that whether the Workers are entitled to claim their dues for the layoff period under provisions of Industrial Dispute Act is not in the domain of the Adjudicating Authority.
There are no error in the order passed by the Adjudicating Authority warranting any interference - appeal dismissed.
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2025 (4) TMI 1292
Challenge to order admitting Section 95 application filed by the State Bank of India against the Personal Guarantor - Submission is that since the Resolution Plan has changed the quantum of debt, the proceedings under Section 95 ought not to have proceeded with - HELD THAT:- There can be no dispute that Resolution Plan is binding on all including the Financial Creditor. Clause 1.8 F as has been relied by the Counsel for the Appellant only provide that the financial creditors shall have the right to recover any unrecovered financial debt owed by the company to them by recourse to the personal guarantees. Thus, in event under the Resolution Plan any amount is recovered by the financial creditor allowance of the said amount has to be given while preparing a repayment plan with regard to personal guarantors’ insolvency.
Conclusion - There is no error in the initiation of the CIRP against the personal guarantor i.e. Appellant herein and the submission which has been raised by the Appellant regarding the recovery of certain amount by the financial creditor under the Resolution Plan is a question that need to be addressed by the Resolution Plan at the time of finalizing the repayment plan against the personal guarantor.
Appeal dismissed.
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2025 (4) TMI 1246
Maintainability of objection to execution of the arbitral award referrable to Section 47 of the Civil Procedure Code, 1908 (CPC) - arbitral award was a nullity and hence non-executable? - Facilitation Council lost its jurisdiction to proceed and pronounce the arbitral award in view of the insolvency resolution plan of the petitioner which was duly approved under Section 31 of the IBC.
HELD THAT:- As an independent arbitration agreement existed between the parties, Facilitation Council should not proceed under Section 18(3) of the MSME Act. Already arbitration process was going on as per the arbitration agreement. Facilitation Council in its proceedings dated 31.07.2017 noted that it appeared from newspaper reports and order copy of the NCLT that moratorium was declared under Section 14 of IBC in the matter of State Bank of India Vs. Electrosteel Steels Ltd. It was decided that the matter should be kept in abeyance till the moratorium period was over.
The resolution plan was submitted by Vedanta Ltd. as resolution applicant and is dated 29.03.2018. Clause 3 contained the mandatory contents of the resolution plan. Clause 3.2(v) declared that while the liquidation value of the corporate debtor was Rs. 2,899.98 crores, the admitted debts of the financial creditors aggregated to approximately Rs.13,395.25 crores. The liquidation value was not sufficient to cover the debts of the financial creditors in full. Therefore, the liquidation value of the operational creditors or the other creditors or stakeholders of the corporate debtor including dues of the employees (other than workmen), government dues, taxes etc. and other creditors and stakeholders was nil. As such, they would not be entitled to any payment. The dissenting financial creditors would be entitled to receive 21.65 percent of the value of their admitted debt which would be paid in priority to any payment to the assenting financial creditors.
On 16.05.2018, Facilitation Council noted that the moratorium period of the corporate insolvency resolution process had expired. The buyer did not appear in the conciliation process as well as in the arbitration proceeding. Thereafter, the Facilitation Council passed the award dated 06.07.2018 holding that claim of the respondent was genuine. The buyer unit was liable to pay the outstanding amount of Rs. 1,59,09,214.33 with interest at the rate of 3 times of the prevailing bank rate.
Since the appellant did not file any application under Section 34 of the 1996 Act, the Executing Court dismissed the application of the appellant dated 14.05.2019 observing that the appellant was trying to deprive the decree holder of the fruits of the award by unnecessarily delaying the execution - High Court concluded that the plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass.
High Court rejected the contention of the appellant that since the award suffered from patent or inherent lack of jurisdiction, objection to the award can be taken at the stage of execution without challenging the award under Section 34 of the 1996 Act. While rejecting the said contention, High Court held that the arbitral proceedings culminating in the award cannot be said to be suffering from inherent lack of jurisdiction.
After observing that the respondent was not included in the top 30 operational creditors whose claims were settled at nil, High Court held that the Facilitation Council had the jurisdiction to proceed and pronounce the award even after approval of the resolution plan. The arbitral proceedings were initiated prior to the resolution insolvency date, suspended during the moratorium period and resumed upon expiry of the moratorium period. High Court further observed that the approved resolution plan did not determine the claim of the respondent as nil and that the proceedings before the Facilitation Council was taken note of in the resolution plan - High Court is correct in answering the first issue that a plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass.
Objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act. High Court was not justified in taking the view that since the appellant did not file a petition under Section 34 of the 1996 Act, therefore, it was precluded from filing an application before the Executing Court to declare the award as void and hence nonexecutable.
The view taken by the High Court that notwithstanding approval of the resolution plan by the NCLT, the Facilitation Council did not lose jurisdiction to proceed and pronounce the arbitral award, is erroneous and contrary to the law laid down by this Court.
Conclusion - There are no hesitation to hold that upon approval of the resolution plan by the NCLT, the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed.
Appeal allowed.
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2025 (4) TMI 1196
Admission of Section 7 application filed by the Central Bank of India against the Corporate Debtor - application barred by time limitation - whether between 28.01.2014 where corporate debtor has acknowledged and 22.11.2018 which is also another OTS submitted by corporate debtor, there are any material to indicate that there is any acknowledgment within three years from the first acknowledgment? - HELD THAT:- Acknowledgment has to be treated on 28.01.2014 as well as 07.05.2014 and we have to find out whether after 07.05.2014 within three years there are any other acknowledgment because the acknowledgment dated 22.11.2018 is beyond period of three years.
The written statement of the Defendant as noticed by the Court is clear acknowledgment of the dues of the bank. OTS amount of Rs.5.78 Crores was noted to be payable with overdue interest at PLR on reducing balance. Defendant further stated that interveners are duty bound to pay the balance amount with overdue interest. The order of the DRT, thus, clearly records the acknowledgment of the corporate debtor about the dues of the bank. The above is also clear acknowledgment of the corporate debtor recorded by the Court on 15.06.2016/ 20.01.2017. Thus, after 07.05.2014 there is acknowledgment within three years. Thus, from the above, it is clear that there are innumerable acknowledgments by the corporate debtor on the record capable of extending the period of limitation and the application which was filed on 13.11.2019 (24.01.2020 as noted by the Adjudicating Authority) is well within the time and cannot be thrown out on this ground.
The case of the appellant is that no payment has been made by the appellant after 30.06.2015. Payments made by the appellant are also reflected in the bank statement brought on the record. The entire OTS amount was not paid within time as allowed by the OTS letter dated 07.05.2014. OTS has come to an end. It is also relevant to notice that after receiving OTS letter dated 07.05.2014, as noted above, the corporate debtor has written letter to the bank on 16.05.2019 where the corporate debtor has requested the bank to restore possession to the corporate debtor so it can arrange to pay the OTS amount may be at a time.
Appellant is illegally continuing in the possession of the assets of the corporate debtor being not paid any payment after 30.06.2015 i.e. for the last 10 years. It is enjoying possession of cold storage and as noted above, Resolution Professional has filed application for taking possession before the Adjudicating Authority where Adjudicating Authority has directed the Resolution Professional to take possession which could not be taken in view of the interim order passed by this Tribunal. Resolution Professional has also filed an application seeking recovery for amount on account of illegal gains obtained by the appellant by utilising and running the valuable assets of the corporate debtor.
The order passed by the Adjudicating Authority admitting Section 7 application against the corporate debtor is upheld. The interim order passed in this appeal on 29.08.2022 is vacated. Resolution Professional to proceed with the CIRP in accordance with law - The period from 29.08.2022 till date is excluded from CIRP period.
Conclusion - i) The Adjudicating Authority's order admitting Section 7 application is not liable to be set aside merely on the ground of limitation if the debtor has acknowledged the debt within the limitation period. ii) The Resolution Professional is entitled to take possession of the corporate debtor's assets to carry out the CIRP, and the Court can direct forcible possession if the appellant refuses to hand over possession.
Appeal disposed off.
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2025 (4) TMI 1195
Admission of claims for the reimbursement of the property tax paid, based on an unregistered agreement for sale relating to immovable commercial property - HELD THAT:- The claim for the reimbursement of the property tax paid by the Appellant (claim No. 2) for the alleged temporary office accommodation said to have been provided by the Corporate Debtor for the office purpose of the Appellant, no right would accrue in favor of the Appellant, for the reason being that if the unregistered agreement for sale, which has been placed on record and relied by the Ld. Counsel for the Appellant, before this Appellate Tribunal, as well as before the Ld. Adjudicating Authority is taken into consideration and scrutinized, Ld. Adjudicating Authority did not find any reference to any specific observation which has been made in the said agreement towards parting over the rights over any of the area for the purpose of being utilized, as the office of the appellant society. In the absence of there being any specific observation made in the said agreement for providing space for the office of the appellant society, there arises no legal liability to reimburse the amount paid by the Appellant towards GHMC property tax for the temporary office accommodation.
Apart from it, nothing on record has been brought by the appellant to establish that a right was created in favor of the Appellant society by execution of a sale deed for the alleged office space for Appellant society. In fact, the Appellant had attempted to make a plea for the purposes of the remittance of the balance claims, by referring to the unregistered agreement for sale, as though it is a registered document. The agreement for sale, dated 05.08.2010, which is placed on record is not a document which has been registered in the eyes of the law, so as to make it to be read in evidence; for determining of a claim or any right arising from it.
The claim raised by the Appellant in the application thus preferred for a sum of Rs. 4,47,161/- payable towards the reimbursement of the property tax as alleged to have been paid by the Applicant based on the unregistered agreement for sale dated 05.10.2010 would not be sustainable, and that when creation of right and handing of possession is not proved, there cannot be any tax liability.
The contention raised by the Appellant in the instant appeal, that the said aspect was not taken into consideration while rejecting its claims by the impugned order, is not sustainable owing to the findings, which have been recorded by the Ld. Adjudicating Authority. In order to appreciate further, the arguments which had been extended by the Ld. Counsel for the Appellant, in fact, the Burden of proof to collate the claim by virtue of evidence is a responsibility, which is cast upon the claimant itself who submits Form-F before the Resolution Professional for the verification of the claim by receiving all the claims submitted by the creditors, which is supported by the documents, which are to be submitted in compliance with the provisions contained under Section 18 (b) of I & B Code, 2016 - What is relevant herein is to point out that, the entire basis of the claim did not satisfy the parameters as prescribed under Regulation 7(1) to be read with Regulation 7(2), as they were contrary to the records, which were made available before the Resolution Professional. Hence, the Appellants were not entitled to any amount for which they could claim as defined under Section 3 (6) of the Regulations, where accrual of the right of payment is only subject to when the amount is fixed, undisputed, and legally established to equitable secured debt.
As per claim No. 7 the Appellant themselves have prayed for that an appropriate direction may be issued for the purposes of execution of the sale deed, which is an admission of fact, that there is no sale deed so far, conferring any right over an immovable property. Thus, it becomes a tacit admission made by the Appellant society that, there was no validly executed sale deed in favor of the society and its members. If that be the situation, the other preceding claims except for the claim of corpus fund cannot be admitted, as grant of those claims would have arisen only when there was a valid sale deed executed, without which the debt due cannot be established.
Conclusion - i) The unregistered agreement for sale, which is mandatorily required to be registered under Section 17 of the Registration Act, 1908, being unregistered, cannot be received as evidence to create or confer any right, title or interest in immovable property under Section 49 of the Registration Act, 1908. ii) The claims raised by the Appellant based on such unregistered agreement for sale, including reimbursement of property tax, costs of integrated building management system, maintenance expenses, and other related claims, are not legally tenable and cannot be admitted as debt due under the Insolvency and Bankruptcy Code, 2016.
Appeal dismissed.
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