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IBC - Case Laws
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2023 (5) TMI 344
Rejection of Resolution Plan - while rejecting matter remanded to the committee of creditors with directions to the resolution professional to proceed from the stage of publication of Form ‘G’, and invite the expression of interest afresh as per the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - ineligibility in terms of Section 88 of the Indian Trusts Act, 1882.
Valuation: Regulations 27 and 35 - HELD THAT:- It is at once clear that the members of CoC were fully satisfied with and endorsed the process of valuation and even re-evaluation as undertaken by the resolution professional. Particularly, the minutes of second, fourth, sixth and seventh CoC meetings stand testimony to the fact that the requirements of Regulation were scrupulously followed and complied with and there had not been any doubt in CoC as regards the process of valuation as also supplying of fair and liquidation value to the members of CoC. The detailed findings of the Adjudicating Authority in this regard (reproduced in paragraph 15.1.1. hereinabove) make it clear that the Adjudicating Authority independently applied its mind to the process of valuation and presentation of the matter to CoC. Rejection of all the objections in that regard by the NCLT, called for no interference.
The Appellate Tribunal appears to have unnecessarily and rather unjustifiably presumed that there had been blatant statutory violations and irregularities. Even if certain issues were raised in some of the meetings of CoC as regards the process of valuation, the clarifications from the resolution professional and the steps taken by him for valuation and re-valuation had been to the satisfaction of CoC. It has rightly been contended on behalf of the appellants with reference to the decision in Maharashtra Seamless [2020 (1) TMI 903 - SUPREME COURT] that resolution plan is not required to match the liquidation value as such - The findings of the Appellate Tribunal in regard to the question of valuation and thereby taking the resolution plan to be in contravention of Sections 30(2) and 61(3) of the Code cannot be approved and are required to be set aside.
Publication of Form G: Regulation 36-A - HELD THAT:- It has rightly been contended on behalf of the resolution professional that Form G was published in all leading newspapers on 09.08.2020 and then, IBBI was also informed about technical issues in uploading the Form on the website. The Adjudicating Authority has also rightly observed that a statutory provision regulating a matter of practice or procedure would generally be read as directory and in the present case, no prejudice has been shown by anyone as regards technical non-compliance of all the requirements of publication.
Even if principles of res judicata are as such not applied, fact of the matter remains that at the given stage, the process as undertaken by the resolution professional had been consistently approved by CoC, Adjudicating Authority and the Appellate Tribunal. Even otherwise, as observed hereinabove, there had not been any such illegality or material irregularity for which the entire process would have been considered vitiated. The findings of the Appellate Tribunal in this regard too, cannot be approved and are required to be set aside.
Effect of Section 164(2)(b) Companies Act - HELD THAT:- Even if there had been any possibility of the resolution applicant incurring such a disqualification in terms of Section 164(2)(b) of the Companies Act, because of alleged default of another company, in which he is a director, to refund the share application money, the same would essentially be a matter of consideration of the registrar of companies. Unless a categorical finding was recorded in the competent forum as regards any such default and unless specific order disqualifying the resolution applicant as director because of such default came into existence, it could not have been taken by way of any process of assumption that the appellant-resolution applicant was disqualified to act as a director and thereby, was ineligible to submit a resolution plan. It has rightly been pointed out that when DIN status of the appellant was “active compliant”, he could not have been treated as ineligible.
Again, it has been too far-stretched on the part of the Appellate Tribunal to refer to the Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 and then to make a declaration as if the resolution applicant was disqualified in terms of Section 164(2)(b) of the Companies Act. Although, we do not agree with the submissions on behalf of appellant that such an issue of eligibility could not have been raised before NCLAT for the first time because the question of eligibility of the resolution applicant goes to the root of the matter but, we do agree with the other part of the submission in this regard that there is no concept of deemed disqualification under Section 164(2)(b) of the Companies Act - the Appellate Tribunal had not been right in holding the resolution applicant ineligible by virtue of Section 164(2)(b) of the Companies Act. Point C1 is answered accordingly.
Effect of Section 88 Trusts Act - HELD THAT:- In view of the claim made by the resolution applicant himself, coupled with the fact that in CIRP in question, two resolution plans were submitted by this appellant, one in individual capacity and another as managing director of the said trust, it is difficult to detach him from the said resolution applicant-Sri Balaji Vidyapeeth. Hence, it cannot be said that the Appellate Tribunal committed any error in observing that the appellant was attempting to act as alter ego of the said ineligible applicant (the trust); and the benefit from his own (individual’s) resolution plan cannot escape the operation of Section 88 of the Trusts Act. Even if the appellant would assert that his financial capability was independent of trust money, the fact of the matter remains that he projected the overall picture of his own profile while also relying on his status as Managing Trustee of the said trust, Sri Balaji Vidyapeeth. Thus, any pecuniary advantage gained by him under the resolution plan in question would be directly subsumed by operation of Section 88 of the Trusts Act. This would, in all practical purposes, bring about a position that what could not be done directly for the said trust was sought to be done by the appellant by way of this indirect methodology.
The Appellate Tribunal has rightly held the resolution plan being in contravention of the provisions of law for the time being in force. Observations and findings of the Appellate Tribunal in paragraphs 106 to 112 of the impugned order dated 17.02.2022 (reproduced hereinabove in paragraph 19.4.2.) deserve to be and are approved.
Effect of Section 166(4) Companies Act - HELD THAT:- Section 166(4) of the Companies Act prohibits a director of a company from involving himself in a situation in which he may have a direct or even indirect interest that conflicts, or may possibly conflict, with the interest of the company. Given the status of the resolution applicant as Managing Director of MGM Healthcare Private Limited, his dealing with property of the corporate debtor and converting the same into a hospital cannot be said to be having no impact on the activities of the said MGM Healthcare Private Limited. A direct conflict of interest being writ large on the face of the record, it cannot be said that the prohibition in terms of Section 166(4) does not operate and the resolution plan does not stand in contravention of any of the provisions of law for the time being in force. For this reason too, in our view, the appellant-resolution applicant could not have been accepted as eligible applicant.
Revision of resolution plan after approval by CoC - HELD THAT:- Commercial wisdom of CoC is given such a status of primacy that the same is considered rather a matter non-justiciable in any adjudicatory process, be it by the Adjudicating Authority or even by this Court. However, the commercial wisdom of CoC means a considered decision taken by CoC with reference to the commercial interests and the interest of revival of the corporate debtor and maximization of value of its assets. This wisdom is not a matter of rhetoric but is denoting a well-considered decision by the protagonist of CIRP i.e., CoC.
These observations read with the observations in Essar Steel [2019 (11) TMI 731 - SUPREME COURT] with reference to the reasons stated in the report of Bankruptcy Law Reforms Committee of November 2015, make it clear that commercial wisdom of CoC is assigned primacy in CIRP for it represents collective business decision, which is arrived at after thorough examination of the proposed resolution plan and assessment made with involvement of experts by the body of persons who are most vitally interested in rapid and efficient decision making. It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP.
The requirement of CIRP Regulations, particularly of placing the resolution plan in its final form before the CoC, has to be scrupulously complied with. No alteration or modification in the process could be countenanced. We say so for the specific reason concerning law that if the process as adopted in the present matter is approved, the very scheme of the Code and CIRP regulations would be left open-ended and would be capable of inviting arbitrariness at any level. The minor procedural aspects which we have held to be not of material bearing hereinbefore and this aspect pertaining to approval of financial resolution plan by CoC stand at entirely different footing. The irregularity in the process of approval by CoC and filing before Adjudicating Authority are not the matters of such formal nature that deviation in that regard could be ignored or condoned. As stated above, when commercial wisdom of CoC is assigned primacy, it presupposes a considered decision on the resolution plan in its final form.
The disapproval of the resolution plan by the Appellate Tribunal for want of presentation of final resolution plan before CoC remains unexceptionable and calls for no interference.
Increase of fees of resolution professional - HELD THAT:- The CoC had precisely deliberated over the question of increase of fees of resolution professional and its decision in that regard could not have been correlated with any shortcoming in the process undertaken, which might have occurred for want of an erroneous assumption on the part of the resolution professional in view of the contents of minutes of ninth CoC meeting dated 22.01.2021 - when the resolution plan was to be revised so as to make provision for dissenting financial creditors, the financial outlay was going to be altered and it ought to have been placed before CoC again but, it is too far-stretched to connect this irregularity with the increase of fees of the resolution professional. The findings and observations of the Appellate Tribunal against resolution professional in this regard deserve to be set aside.
The matter concerning related party - HELD THAT:- There are no reason to discuss this matter any further when it is noticed that the promoter and erstwhile director, the contesting respondent before us, has been holding the position of Chairman of the said related party. Suffice it would be to observe for the present purpose that the Appellate Tribunal has erred in applying the principles of non-discrimination and thereby holding against the resolution plan in question for want of provision for related party.
NCLAT’s findings regarding settlement offer of promoter - HELD THAT:- The proposal in question was forwarded for consideration only at the eleventh hour, i.e., a day before CoC was to vote on the resolution plan in its ninth meeting. The CoC, in the said meeting, indeed, took into consideration the proposition of settlement and application for withdrawal request letter, which was circulated two hours before the meeting. The creditors with significant voting shares such as SBI and Bank of India were clear in their stand that they would stick to the agenda and would not deviate therefrom. The resolution professional had to request the representatives of the corporate debtor to allow the agenda items to go through as per the wishes of the majority of CoC and no further discussions were to be made on the letter sent to CoC. When the substantial majority of CoC was not in favour of such discussion which was proposed to be thrusted on them only a few hours before the meeting, their approach cannot be faulted at - When the creditors with substantial voting share were against any such proposal, any consideration was clearly ruled out and there could not have been any valid application for withdrawal.
Thus, the Appellate Tribunal has erred in holding that the settlement offer of the promoter in terms of Section 12-A was not placed for consideration of CoC. Approval of resolution plan in question could not have been reversed on this count. However, as noticed hereinbefore, approval of the resolution plan in question could not have been endorsed by the Appellate Tribunal because of other substantial reasons.
Impact and effect of subsequent events - HELD THAT:- When the resolutions plans had been received at the earlier stage, only at the eleventh hour, the settlement proposal came up. This time too, the settlement proposal came up from the promoter only after resolution plans had been received. Prior to it, his proposal had already been rejected. It gets perforce commented that the representative of the corporate debtor being a part of CoC, such proposer is obviously in a position to know about the propositions in the resolution plans when received in response to invitation - when it is found that the settlement proposal of the promoter, after approval of CoC, for invoking the provisions of Section 12-A of the Code, is pending before the Adjudicating Authority, in our view, it shall be in the fitness of things that all the relevant aspects of the matter are left open for consideration of the Adjudicating Authority, including those relating to the justification for invoking Section 12-A after issuance of fresh invitation for EOI and after receiving resolution plans. In other words, we would leave all the relevant aspects open for consideration of the Adjudicating Authority in accordance with law while keeping in view the observations of this Court.
Summation
Thus, the disapproval of the resolution plan in question by the Appellate Tribunal (NCLAT) in the impugned order dated 17.02.2022 is not to be interfered with but, not for all the reasons which weighed with the Appellate Tribunal. The reasons and findings of the Appellate Tribunal in relation to the valuation process and alleged non-compliance of some of the procedural provisions as also the observations against increase of fees of resolution professional (points A, B and D2) are not to be approved.
Similarly, the Appellate Tribunal has not been right in holding the resolution applicant ineligible to submit a resolution plan with reference to Section 164(2)(b) of the Companies Act, 2013 (as held in point C1). The disapproval by the Appellate Tribunal, with reference to the settlement offer of promoter in terms of Section 12-A of the Code, and its purported non-consideration is also not approved by us and such findings of the Appellate Tribunal are required to be set aside (as held in point F). Similarly, the Appellate Tribunal has erred in applying the principles of non-discrimination in relation to the related party (as held in point E). However, the other findings in relation to points C2, C3 and D1 and the consequential order passed by the Appellate Tribunal deserve to be approved.
Putting it in different words, we are clearly of the view that even while respecting the commercial wisdom of CoC, in the present case, the resolution plan in question could not have been approved by the Adjudicating Authority for two major reasons: one, for the ineligibility of the resolution applicant; and second, for not placing of the revised resolution plan in the CoC before seeking approval from the Adjudicating Authority.
Of course, on the questions relating to the valuation reports, and want of publication of Form G on the website, we are at one with the Adjudicating Authority that these aspects were not of material bearing in the process in question and the resolution professional had taken reasonable steps as permissible in law and feasible in the circumstances. Similarly, we are not inclined to endorse the views of the Appellate Tribunal regarding the treatment of related party in the resolution plan as also regarding the settlement offer of the promotor; and the process in that relation cannot be said to be suffering from any illegality.
Appeal disposed off.
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2023 (5) TMI 343
Initiation of CIRP - period of limitation - date of default - application dismissed solely on the ground that the claim was barred by limitation - HELD THAT:- At the outset, it is required to be noted that, in fact, the appellant herein, who claimed to be `Operational Creditor’ raised 187 different invoices for the Digital Classroom Solution Services provided for the period between 12.03.2011 and 30.06.2017. The amount under different invoices were unpaid, which gave rise to the appellant to initiate the proceedings under Section 9 of the IBC before the NCLT. The NCLT considering the starting point of limitation as 12.03.2011 held that the claim is barred by limitation. However, the NCLT did not take into consideration the subsequent invoices at least preceding three years from the date of filing of Section 9 application, which ought to have been considered.
Under the circumstances, the NCLT ought to have considered the invoices at least for the period preceding three years from the date of the application under Section 9, rather than considering the starting point of limitation as 12.03.2011. Under the circumstances, the order(s) passed by the NCLT and affirmed by the NCLAT are unsustainable - the view taken by the NCLT that the claim is barred by limitation is unsustainable.
The impugned judgment and order(s) passed by the NCLT and that of the NCLAT dismissing/rejecting application under Section 9 of the IBC on the ground that the claim is barred by limitation are hereby quashed and set aside and now the matter is remitted to the NCLT to consider Section 9 application afresh in accordance with law and on its own merits - Petition allowed.
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2023 (5) TMI 342
Extension of time period provided for CIRP proceedings - whether the period of 180 days should have been further extended for the purpose of accepting/awaiting the proposal made by the Appellant for the purpose of keeping the Corporate Debtor as a going concern? - HELD THAT:- It is found that sufficient time was given to the Appellant for this purpose on their own asking because it has been recorded in the 5th meeting of the CoC “The Chairman found that in the previous COC meeting the erstwhile directors of the corporate debtor have informed to the CoC that they will submit revise OTS (One time Settlement) proposal to the financial creditor namely Punjab National Bank till 13.03.2020, and as per information available with Resolution Professional as the said revised one time settlement proposal has not been submitted to the bank till date and the CIRP period will be expiry on 18.03.2020”.
The Appellant has miserably failed to make the proposal of the amount of Rs. 7.30 Crore along with upfront of Rs. 80 lakh before 13.03.2020 which was the committed date. Be that as it may, the Corporate Debtor had rather sent an email through Ravi Vaishnav of Mayur Xerox Centre (third party) dated 16.03.2020 with the proposal along with copy of two DD dated 16.03.2020 of Rs. 40 lakh which was not the upfront amount of Rs. 80 lakh, therefore, it was rightly not found to be authentic and sufficient to establish that the Erstwhile Directors were really interested in the resolution of the dispute rather it has been, thereafter, recorded in the 5th CoC meeting that there has been a continuous effort on the part of the Erstwhile Director of the Corporate Debtor to delay and frustrate the proceedings in one manner or the other.
There are no bonafide intention on the part of the Appellant - appeal dismissed.
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2023 (5) TMI 341
Rejection of Section 7 application filed by the Financial Creditor - rejection on the ground that application is barred by Section 10A - date of invocation of bank guarantee against the Corporate Debtor - Whether the default on the part of the Corporate Debtor i.e. Corporate Guarantor can be on any date prior to when the guarantee was invoked is the question to be considered?
HELD THAT:- The question as to when the default on part of the Guarantor is to considered has been decided by this Tribunal in a recent judgment in POOJA RAMESH SINGH VERSUS STATE BANK OF INDIA, ESSEL INFRAPROJECTS LTD. THROUGH THE RESOLUTION PROFESSIONAL MR. KAIRAV ANIL TRIVEDI [2023 (5) TMI 17 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], where it has been held that default on the part of the Corporate Guarantor shall be held to have been committed only when guarantee was invoked, when Deed of Guarantee itself mentions issue of demand notice by the Bank. The issues which have been raised in the present appeal are fully covered by the judgment in “Pooja Ramesh Singh vs. State Bank of India”.
The Guarantee Deed contemplates demand by the bank, hence, unless demand is made by the bank to the Corporate Debtor, no default can be said to have been committed by the Corporate Guarantor and in the present case, demands for payment were invoked in the period covered under Section 10A.
The date of default by the Guarantor shall arise only when demand is issued by the Bank to the Corporate Guarantor. The fact that the Corporate Guarantor has given indemnity to the Bank also shall operate only after default is committed by the Guarantor. Indemnity can be enforced against the Corporate Guarantor but it cannot itself change the date of default on part of the Guarantor. When the invocation of the bank guarantee is admittedly within the period of 10A, the Application which is based on invocation of guarantee is clearly barred by 10A.
One of the submission pressed by learned counsel for the Appellant is that even after 10A period was over, no payments were made and default still continues, hence, the application could not have been rejected - HELD THAT:- When application filed under Section 7 was based only on the default which was committed during the 10A period, the Adjudicating Authority did not commit any error in not entertaining the application. The application was not based on any default which is committed subsequent to 10A period, hence, such question does not arise.
There is no good ground to entertain this Appeal - Appeal dismissed.
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2023 (5) TMI 303
Claim of secured creditor - right on the basis of the pledged shares - financial debt under the IBC defined as Security Interest under Section 3(31) of the IBC - the NCLT observed that the appellants not having advanced any money to the Corporate Debtor as a financial debt would not be coming within the purview of financial creditor of the Corporate Debtor. Making above observations, the NCLAT has dismissed the appeal.
HELD THAT:- The difficulty which arises in the present case is that, in terms of the decision of this Court in Anuj Jain [[2020 (2) TMI 1259 - SUPREME COURT]] and Phoenix ARC [[2021 (2) TMI 121 - SUPREME COURT]], Appellant No. 1 Vistra is to be treated as a secured creditor, but would not fall under the category of financial creditors or operational creditors. Therefore, they would be denied the benefit of the amendments to Section 30(2) of the Code made vide Act No. 26 of 2019, or for that matter Act No. 26 of 2018. Consequently, a very odd and a peculiar situation is created where a secured creditor is denied the benefit of the secured interest i.e., the right to exercise the sale of the secured interest, yet not be treated as either a financial creditor or an operational creditor. In terms of Section 52 of the Code, a secured creditor in liquidation proceedings has the right to relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified under Section 53 of the Code. The second option given to the secured creditor is to realise the security interest in the manner specified in aforesaid Section. Rule 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
Liquidation Process Regulations deals with the presumption of security interest, which we need not elaborate for the present decision. If the secured creditor relinquishes the security interest, it is then entitled to priority in payment under clause (b) to subsection (1) to Section 53 of the Code. The debts owed to the secured creditor in such event, rank pari passu with the workmen’s dues for the period 24 months preceding the liquidation commencement date. As per Section 52(9) of the Code, where the proceeds on realisation of secured assets are not adequate to repay the debts due to the secured creditors who have exercised the option to realise the security interest, the unpaid dues of such secured creditors are to be paid by the liquidator in terms of clause (e) of subsection (1) of Section 53 of the Code.
Appellant No.1 – Vistra, a secured creditor, is being denied the rights under Section 52 as well as Section 53 of the Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is too contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC - the answer to this tricky problem is twofold.
First is to treat the secured creditor as a financial creditor of the Corporate Debtor to the extent of the estimated value of the pledged share on the date of commencement of the CIRP. This would make it a member of the CoC and give it voting rights, equivalent to the estimated value of the pledged shares. However, this may require reconsideration of the dictum and ratio of Anuj Jain and Phoenix ARC, which would entail reference to a larger bench. In the context of the present case, the said solution may not be viable as the resolution plan has already been approved by the CoC without Appellant No. 1 - Vistra being a member of the CoC. Therefore, we would opt for the second option. The second option is to treat the Appellant No. 1 – Vistra as a secured creditor in terms of Section 52 read with Section 53 of the Code. In other words, we give the option to the successful resolution applicant – DVI (Deccan Value Investors) to treat the Appellant No.1 – Vistra as a secured creditor, who will be entitled to retain the security interest in the pledged shares, and in terms thereof, would be entitled to retain the security proceeds on the sale of the said pledged shares under Section 52 of the Code read with Rule 21A of the Liquidation Process Regulations.
The second recourse available, would be almost equivalent in monetary terms for the Appellant No. 1 Vistra, who is treated it as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Section 52 and 53 of the Code. This to our mind would be a fair and just solution to the legal conundrum and issue highlighted.
The submission is that the Appellant No. 1 Vistra had not objected to the resolution plan submitted by the erstwhile resolution applicant LHG and, as a sequitur, its non-classification as a financial creditor in the CoC of the Corporate Debtor Amtek. Though this argument had appealed and had weighed with the NCLAT, in our opinion is untenable since the resolution plan submitted by erstwhile resolution applicant LHG did not in any way affect the rights or interests of the Appellant No. 1 – Vistra as a secured creditor in respect of the pledged shares. Appellant No. 1 – Vistra has elaborately explained that LHG etc. were in negotiations with them so as to redeem the pledge and acquire the shares.
The impugned judgment of the NCLAT affirming the view taken by the NCLT is partly modified in terms of our directions holding that appellant no.1 – M/s. Vistra ITCL (India) Limited would be treated as a secured creditor, who would be entitled to all rights and obligations as applicable to a secured creditor in terms of Sections 52 and 53 of the Code, and in accordance with the pledge agreement dated 05.07.2016.
Appeal disposed off.
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2023 (5) TMI 249
Initiation of CIRP - NCLT admitted the application - Operational Creditors - dispute with respect to supply of materials and failure of completion of work order on time by the Operational Creditor - pre-existing disputes or not - service of notice of dispute beyond 10 days - HELD THAT:- With regard to an Operational Creditor, the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. In the present case, it is an undisputed fact that the demand notice was issued by the Operational Creditor on 16.09.2019 and notice of dispute was raised by the Corporate Debtor on 07.11.2019 but beyond the prescribed period of ten days.
Perusal of the impugned order makes it clear that the Adjudicating Authority simply relied on the email dated 09.01.2019 to come to the conclusion that there was debt and default and admitted the Section 9 petition. The satisfaction of the Adjudicating Authority is sans consideration of the reply to the demand notice and the voluminous exchange of correspondences which has taken place between the two parties relating to supplies, delay in completion of project, pendency of risk and cost account of BHEL and LD related issues. The tone and tenor of these protracted correspondences clearly manifest existence of dispute prior to the date of Section 8 demand notice on 16.09.2019 - these disputes were raised much before the issue of the issue of Demand Notice. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor.
Though there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt, but the contents of these emails/ letters/minutes of meetings ought to have been factorized to arrive at a finding whether the defence taken by the Corporate Debtor is moonshine defence unsupported by evidence. Surprisingly none of these emails and letters establishing the existence of pre-existing disputes between the parties have been taken into cognisance by the Adjudicating Authority. These being pertinent factors for consideration, to our mind the Adjudicating Authority has committed an error in side-stepping these aspects and admitting Section 9 application - Where operational creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two parties which is, however, not so borne out given the facts of the present case.
The Adjudicating Authority committed serious error in admitting Section 9 application in the facts of the present case. We thus allow this appeal and set aside the impugned order initiating CIRP of the Corporate Debtor and all other orders issued pursuant to the impugned order. The Corporate Debtor is released from the rigours of CIRP and is allowed to function independently through its board of directors with immediate effect. The Resolution Professional shall however be paid his fees/expenses by the Operational Creditor - Appeal disposed off.
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2023 (5) TMI 248
Initiation of CIRP - NCLT admitted the application - Operational Creditors - serious pre-existing disputes between the Corporate Debtor and the Operational Creditor on account of discrepancies in invoices, and levy of bogus charges and overcharging - operational debt exceeds the threshold limit and is an undisputed debt or not - HELD THAT:- Issue decided in the case of Hon’ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT] for the Adjudicating Authority while examining an application under Section 9, it was held that the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.
More importantly, the Corporate Debtor cannot absolve himself from the fact that liability has been admitted but payments not made. It is noticed that emails were exchanged between the two parties between 11.11.2019 to 11.01.2020 at pages 182-191 of APB wherein the Corporate Debtor had been given more than one opportunity to clear the outstanding liabilities of more than USD 2,00,000. However, no payment of arrears was forthcoming - the Adjudicating Authority has committed no error in taking cognizance of the Corporate Debtor’s admission of failure to pay the operational dues on account of bad financial position and conditions beyond their control. This admission by the Corporate Debtor to our mind validates the contention of the Operational Creditor that the Corporate Debtor has admitted on several occasions that there was a debt due and payable and that there was also a default in making the payment.
Whether there was any pre-existing dispute which was raised prior to the issue of demand notice by the Operational Creditor on 16.12.2020? - HELD THAT:- It is relevant to note at this stage that the demand notice under Section 8 was issued 16.12.2020. As no reply to the demand notice was received within 10 days nor any payment was made by the Corporate Debtor, the Respondent No.1 had filed the Section 9 application before the Adjudicating Authority. It is pertinent to note that the reply to the demand notice was filed by the Corporate Debtor on 06.04.2021 by which time the hearing on Section 9 application had already commenced, the first hearing having taken place on 04.03.2021 - the Operational Creditor conveniently avoided reconciliation of accounts as they knew fully well that there were no dues beyond the threshold limit which could trigger CIRP. It has therefore been stated that the Operational Creditor has been trying to use the IBC for the purpose of recovery of money and the Adjudicating Authority has acted like a debt recovery forum having ignored the presence of long-standing dispute between the parties.
It is noticed that no material has been placed on record by the Corporate Debtor to show that they had categorically rejected the outstanding dues claimed by the Operational Creditor prior to issue of demand notice. Present is a case where the accounts were frozen in terms of SoA prepared by the Corporate Debtor and sent to the Operational Creditor by email on 16.07.2018. In such circumstances, when the Corporate Debtor has frozen their liability, subsequent raising the issue of rate differences and attendant reconciliation, to our mind becomes redundant and therefore does not appeal to us to be genuine. When the Corporate Debtor had admittedly prepared the SoA showing an outstanding liability of over USD 2,00,000 and it was frozen after mutual agreement, raising the issue of reconciliation of accounts as a ground of dispute clearly lacks substance and credibility.
Illegal stopping of containers/shipments by the Operational Creditor which resulted in their loss of clients and business - HELD THAT:- It was pointed out that these shipments cannot be viewed to be a ground for pre-existing dispute as the Operational Creditor had agreed to move the shipments only after receipt of payment to meet the existing debt of over USD 3,00,000. From the facts available on record, it is convincing that the operational debt had crystallized well ahead of the stoppage of the containers. That being the case, by no logical process, can the stoppage of shipments be held to be a pre-existing dispute, rather it was the outcome of a debt remaining unpaid.
There are no illegality in the impugned order of the Adjudicating Authority admitting the Section 9 application. There is no merit in the appeal - appeal dismissed.
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2023 (5) TMI 200
Condonation of delay in filing appeal - Appeal was filed presumably on 10.09.2022 i.e. after the period of 45th days from the date of receipt of the Impugned Order on 27.07.2022 - Because of the sudden rise of corona cases in Delhi and Kolkata, the Appellants were restrained from travelling and thus, could not complete the required process in time and that is the reason for delay in filing of the present appeal.
HELD THAT:- The impugned order was passed on 18.07.2022 and the instant Appeal was filed on 13.09.2022 with delay of about 54 days. The Appellant applied for certified copy of the order on 26.07.2022 and received on 27.07.2022 even if the time consumed obtaining certified copy of the order is excluded, the Appeal has been filed beyond the limitation period. This Tribunal has power to condone the delay is only of 15 days. The Counsel for the Appellant sought to contend that the Limitation will start running when the Order is communicated to the Appellant. The said submission cannot be accepted. The Order was passed on the Application filed by the Resolution Professional and from the date when the order was pronounced, limitation shall start running. There is no ground to condone the delay.
In view of the judgment of V. Nagarajan Vs. SKS Ispat and Power Limited & Another [[2021 (10) TMI 941 - SUPREME COURT]], the instant appeal is time barred in as much as it has been filed beyond the period of limitation.
Application dismsissed.
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2023 (5) TMI 199
Approval of Resolution Plan - Resolution Plan can be challenged on the ground that it discriminates between the operational creditors who are similarly placed, and also discriminates between the operational creditors and the financial creditors in respect of payments under the approved resolution plan - Appellant can raise the issue of admission of reduced amount of his claim, at a much belated stage, after the approval of resolution plan, or not? - HELD THAT:- After the RP had finally informed the Appellant vide email dated 02.09.2020 that only an amount of Rs.1,13,63,918/- was admitted, the Appellant did not take any further action about either preferring an appeal before the Adjudicating Authority on the matter of admission of reduced claim, nor took up the matter with the RP, and it is therefore logical and safe to presume that he accepted the admission of his claim at Rs.1,13,63,918/- - Once the resolution plan has been approved vide the Impugned Order the issue of any claim could not be agitated or brought up at this late stage.
The Judgement of the Hon’ble Supreme Court in the matter of Jaypee Kingston Boulevard Apartments Welfare Association & Ors. [[2021 (3) TMI 1143 - SUPREME COURT]] is followed, where it was held that once the Appellant did not challenge the admission of a reduced amount against the submitted claim, the same cannot be challenged after approval of the resolution plan.
Allocation of payments to various classes of creditors - HELD THAT:- It is seen that the resolution plan proposed payments to the operational creditors including Appellant as ‘NIL’, which was in accordance with the liquidation value of the corporate debtor. Thus the payments to operational creditors in the approved resolution plan is in consonance with Section 30(2)(b) of the IBC, and hence, it has been correctly approved by the CoC by the Adjudicating Authority and does not require any interference.
Discrimination in payments inter se between the financial creditors and operational creditors - HELD THAT:- Reliance placed in the judgment of Hon’ble Supreme Court in the matter of Pratap Technocrats (P) Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel Limited & Anr. [[2021 (8) TMI 553 - SUPREME COURT]], wherein it is held that the Section 30(2)(b) is to be looked into with regard to the payments to operational creditors - the judgement make it quite clear that the CoC has to adequately balance the interest of all the stakeholders including the operational creditors and the NCLT/NCLAT have to only see whether the resolution plan meets with the requirements of Section 30(2) and Section 31 of the Code and there is no residual jurisdiction to examine the business decision of the CoC - This has clearly been done in the present case by the CoC and the Adjudicating Authority while approving the resolution plan. It is also noted that in the grounds stated by the Appellant in the appeal there is no pleading as to how the resolution plan goes against the requirement of Section 30(2) and Section 31 of the Code and hence there is no reason for the Adjudicating Authority to have interfered with the decision of the CoC in approving the resolution plan.
There are no reason why the resolution plan approved by the Impugned Order should be interfered with - appeal dismissed.
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2023 (5) TMI 143
Constitutional Validity of Section 327(7) of the Companies Act, 2013 - statutory claims of the “workmen’s dues” out of the purview of waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016 or not - purposive interpretation to Section 53 of the IBC.
Constitutional Validity of Clause 19(a) of the Eleventh Schedule of the IBC pursuant Section 255 of the IBC - violative of Article 14 of the Constitution of India,or not, as Clause 19(a) of the Eleventh Schedule of the IBC inserts sub-section (7) in Section 327 of the Companies Act, 2013, which puts statutory bar on the application of Sections 326 and 327 of the Companies Act, 2013, to the liquidation proceedings under the IBC - HELD THAT:- As per Section 327(7), Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC. Sections 326 and 327 of the Act, 2013 provide for preferential payments in a winding up under the provisions of the Act, 2013. However, in view of the introduction of new regime under the IBC, in case of liquidation under IBC, distribution is to be made as per Section 53 of IBC. At this stage, it is required to be noted that IBC has been enacted w.e.f. 28.05.2016 and as per Section 53 of the IBC, the distribution of assets in case of liquidation under the IBC is required to be made - In view of the enactment of IBC and Section 53 of the IBC, it necessitated to amend the Act, 2013. As per Sub-Section (7) of Section 327, Sections 326 and 327 shall not be applicable in the event of liquidation under the IBC. The object and purpose of amending the Act, 2013 and to exclude Sections 326 and 327 in the event of liquidation under the IBC seems to be that there may not be two different provisions with respect to winding up/liquidation of a company. Therefore, in view of the enactment of IBC, it necessitated to exclude the applicability of Sections 326 and 327 of the Act, 2013 which cannot be said to be arbitrary as contended on behalf of the petitioner.
Merely because under the earlier regime and in case of winding up of a company under the Act, 1956/2013, the dues of the workmen may have pari passu with that of the secured creditor, the petitioner cannot claim the same benefit in case of winding up/liquidation of the company under IBC. The parties shall be governed by the provisions of the IBC in case of liquidation of a company under the provisions of the IBC - the Companies Act, 2013 does not deal with insolvency and bankruptcy when the companies are unable to pay their debts or the aspects relating to the revival and rehabilitation of the companies and their winding up if revival and rehabilitation is not possible. In principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act 2013. The two situations are not identical. Under Section 271 of the Companies Act, 2013, even a running and financially sound company can also be wound up for the reasons in clauses (a) to (e). The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envisaged under the Code.
In case of insolvent companies, for the sake of survival and regeneration, everyone, including the secured creditors and the Central and State Government, are required to make sacrifices. The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation, solely on the ground that some or marginal sacrifice is to be made by the workers.
Difference in the waterfall mechanism provided in the Companies Act, 2013 and the Code - HELD THAT:- As per Section 324 of the Companies Act, 2013, all debts payable on a contingency, or all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, are admissible to proof against the company. A just estimate can be made so far as possible in respect of value of such debts or claims as may be subject to any contingency, damages, etc. and do not bear a certain value. Section 3267 of the Companies Act, 2013 deals with overriding preferential payments which have to be paid in priority to all other debts. These include the workmen debts, and dues of the secured creditor where the secured creditor has realised the secured asset but could not realise the entire amount, or the amount of workmen’s portion in his security payable under the law, whichever is less, pari passu with the workmen’s dues - the aggregate amount due towards workmen’s dues and the amount of debts due to the secured creditors is Rs. 4 lakhs. In this background, when the value of the security of the secured creditors is Rs. 1 lakh, one-fourth of the value of the security, i.e. Rs.25,000/- would be the workmen’s portion. To this extent, there is no difficulty or dispute. As noticed below there is hardly any difference in the said hierarchy and the waterfall mechanism under the Code.
What is clear from the provision is that the proviso applies in case of winding up of a company to the sums referred to in sub-clauses (i) and (ii) of clause (b) of the Explanation to Section 326 of the Companies Act, 2013 which are payable for a period of two years preceding the winding up order or such other period as may be prescribed - this period of two years is with reference to the date of the winding up order, and not with reference to the date earlier in point of time, that is, when a winding up petition is filed. This restricts the period for which payment under sub-clauses (i) and (ii) to clause (b) of the Explanation to Section 326 of the Companies Act, 2013 would apply. Entire unpaid dues are not covered by the proviso to subsection (1) to Section 326 of the Companies Act, 2013.
To protect the interest of the workmen where the secured creditor does not relinquish its security interest to fall under Section 53 of the Code, Regulation 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 has been enacted, and it requires that the secured creditor, who opts to realise its security interest as per section 52 of the Code, has to pay as much towards the amount payable under the clause (a) and sub-clause (i) to clause (b) of sub-section (1) to Section 53 of the Code to the liquidator within the time and the manner stipulated therein. The workmen’s dues, even when the secured creditor opts to proceed under Section 52 of the Code, are therefore protected in terms of sub-clause (b) of sub-section (1) to Section 53 of the Code.
The Code is based on the organic evolution of law and is a product of an extensive consultative process to meet the requirements of the Code governing liquidation. It introduced a comprehensive and time-bound framework to maximise the value of assets of all persons and balance the interest of the stakeholders. The guiding principle for the Code in setting the priority of payments in liquidation was to bring the practices in India in line with global practices. In the waterfall mechanism, after the costs of the insolvency resolution process and liquidation, secured creditors share the highest priority along with a defined period of dues of the workmen - The Code balances the rights of the secured creditors, who are financial institutions in which the general public has invested money, and also ensures that the economic activity and revival of a viable company is not hindered because it has suffered or fallen into a financial crisis. The Code focuses on bringing additional gains to both the economy and the exchequer through efficiency enhancement and consequent greater value capture. In economic matters, a wider latitude is given to the lawmaker and the Court allows for experimentation in such legislations based on practical experiences and other problems seen by the law-makers. In a challenge to such legislation, the Court does not adopt a doctrinaire approach. Some sacrifices have to be always made for the greater good, and unless such sacrifices are prima facie apparent and ex facie harsh and unequitable as to classify as manifestly arbitrary, these would be interfered with by the court.
As sub-section (7) of Section 327 of the Act, 2013 provides that Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC, which has been necessitated in view of the enactment of IBC and it applies with respect to the liquidation of a company under the IBC, Section 327(7) of the Act, 2013 cannot be said to be arbitrary and/or violative of Article 21 of the Constitution of India. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36(4) of the IBC, in case of liquidation of company under IBC.
The writ petition(s) lack merits and the same deserve to be dismissed and are accordingly dismissed.
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2023 (5) TMI 142
Maintainability of Section 9 application - Petition under Section 9 of the IBC would have lied against the entity not in existence, or not? - application dismissed on the ground that the name of the Corporate Debtor from the Register of the Registrar of Companies had already been struck off - HELD THAT:- The Application under Section 9 was not maintainable and was dismissed on 29.01.2019, because it had been filed against the Corporate Debtor whose name was struck off by the RoC in terms of Section 248 of the Act on 09.08.2018 i.e., much before the Application under Section 9 was filed on 10.12.2018. Since, there was no Order passed on merits, therefore, the Appeal was not filed rather an Application under Section 252(3) was filed by the Operational Creditor for the Restoration of the name of the Corporate Debtor Company to the Register maintained by the RoC and the said Application was allowed on 02.03.2021.
Thereafter, the Application has rightly been filed for the purpose of revival of the main Petition filed under Section 9 because the eclipse caused because of the fact that the name of the Corporate Debtor Company was struck off from the Register of RoC on 09.08.2018 was removed by Order dated 02.03.2021 and thus there was no hinderance in the way of the Operational Creditor to maintain and proceed with the Application filed under Section 9 to get a decision on it on merits.
There are no error in the well-considered Order of the Tribunal - appeal dismissed.
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2023 (5) TMI 141
Initiation of CIRP - NCLT admitted the application - NPA - charging exorbitant interest rate @13% against the stipulated rates of RBI - instead of charging interest on annual basis, the Respondent No. 1 charge interest on monthly basis - huge margin money - The ‘Appellant’ denied that there was any default on 31.12.2013, however for argument’s sake, even it is presumed that default occurred on 31.12.2013 as claimed by the ‘Respondent No. 1’, loan account was renewed on 25.02.2014, hence there could not be any default. The ‘Appellant’ further submitted that the Respondent No. 1 relied upon Balance-Sheets for the Financial Year 2012-13, 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18, whereas the Appellant has not accepted the outstanding dues but merely stipulated the credit facilities obtained.
HELD THAT:- From reading Section 7 of the Code, it is therefore clear that it lays down the procedure for initiation of the CIRP by a Financial Creditor who can file an application before the Adjudicating Authority along with proof of default and name of Resolution Professional proposed to act as Interim Resolution Professional. The Adjudicating Authority is required to ascertain the existence of default within 14 days from the date of receipt of the application. It is further noted that once the Adjudicating Authority is satisfied regarding existence of default and that the application is complete and no disciplinary proceeding is pending against the proposed Interim Resolution Professional, the Adjudicating Authority is required to admit the application and is not required to look into any other criteria for the admission of the application. It is nobody’s case to cause delay in admission of CIRP on miscellaneous grounds.
This Appellate Tribunal also notes that the Hon’ble Supreme Court of India as well as this Appellate Tribunal itself has, held in catena of judgments that there is no scope for judicial interventions and over reach by the Adjudicating Authority or the Appellate Tribunal to interpret any further, if the existence of due and subsequent default is established.
In view of these provisions, the plea of the Appellant regarding violation of the RBI Guidelines on Priority Sector Landing cannot be allowed to affect the fate of the application filed under Section 7 of the Code. It is for the Appellant to seek necessary remedies, if any and if required against the Respondent No. 1 for violation of Master Circular of RBI regarding Priority Sector Landing at appropriate forum in accordance with the law. Hence, on this account we do not find any error in the impugned order.
As regards, the debiting the amount by the Respondent No. 1 from the cash credit and adjusted towards term loan without consent of the Appellant, this Appellate Tribunal notes that this is matter of execution and monitoring of various credit facilities between the Financial Creditor and the Corporate Debtor and the same is supposed to be done as per extent banking practices. Hence, this plea in no way effects the outcome of the application filed under Section 7 of the Code.
This Appellate Tribunal do not find any error in the impugned order. This Appellate Tribunal is also conscious of the fact that the Insolvency & Bankruptcy Code, 2016 is a self-contained Code and its proceeding are summary in nature - Appeal dismissed.
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2023 (5) TMI 140
Initiation of CIRP - NCLT admitted the application - Non-performing assets - Financial Creditors - despite valid service of notice on corporate debtor, the corporate debtor preferred not to appear before the NCLT - HELD THAT:- The fact remains that the appellant despite service of notice preferred not to participate before the NCLT and as such the order impugned was passed ex-parte. It is also reflected from the material on record that on the date of filing of the application under Section 7 there was total debt of an aggregate amount of Rs. 15,81,63,867/-.
The loan was sanctioned to the appellant since the month of August, 2015 and said facility continued up to 31.03.2018. However, since the account of the appellant was irregular in the month of May 2019, the account was declared NPA and within the prescribed period of limitation the application under Section 7 of the Code was filed - The financial creditor in view of none clearance of the debt amount was constrained to file application under Section 7 of the Code in which notice was issued to the Corporate Debtor. However, despite valid service of notice, the appellant preferred not to participate in the proceeding before the NCLT. In such view of the matter the NCLT was left with no option but to pass order on the basis of materials available on record.
Before the NCLT, the debt was not disputed and the application was filed within the period of limitation and as such the Ld. NCLT has rightly passed the order for initiation of the CIRP - There are no apparent error in the impugned order warranting interference, however since the appellant is making submission that they are still ready to settle the dispute, liberty can be granted to the appellant to approach the financial creditor for settling the dispute.
The appeal stands disposed of.
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2023 (5) TMI 139
Seeking Revival of petition which was earlier withdrawn by the appellant on the plea that outside settlement had already been taken place - Operational Creditors - Dishonour of Cheque - HELD THAT:- Fact remains that initially the appellant herein had filed application under Section 9 of Code before the NCLT. It is also a fact that the application filed under Section 9 was not even admitted and before its admission the applicant withdrew petition. Before the NCLT it was submitted that applicant and corporate debtor had arrived at a settlement and thereafter a prayer was made for withdrawal of the application. The prayer for withdrawal of application was allowed. However, while recording disposal the Ld. Tribunal also granted liberty to revive in case of violation of settlement condition.
The said order was passed long back on 21.01.2019. It is also not in dispute that after about expiry of three and half years, the appellant herein approached the NCLT for revival of the application filed under Section 9 of the Code. Section 9 application was filed claiming Operational debt of Rs. 1,34,18,197/-. Without application being admitted on the plea that applicant and corporate debtor had settled the dispute the applicant withdrew the application. Since the Applicant before the NCLT voluntarily withdrew the application, there was no reason for revival of the case. However, the NCLT had granted liberty to revive the same.
It is admitted position that last alleged dishonour of cheque had occurred on 24.12.2020. If the appellant was serious to pursue the matter then in that event immediately he would had approached the NCLT but he preferred to slumber over his right for several years and suddenly in the month of June, 2022 he approached the NCLT with a prayer to revive his application which was already withdrawn 21.01.2019. In such situation, it would be a futile exercise to entertain the present application.
Appeal dismissed.
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2023 (5) TMI 44
Forfeiture of the EMD and part consideration - Jurisdiction/power of Liquidator to forfeit the EMD - case of appellant is that the forfeiture of the amount under the terms and conditions of Tender Document is in nature of penalty hence can be recovered only in accordance with Section 74 of Indian Contract Act by bringing action by the Liquidator - Defect in title of the Corporate Debtor or not - Suppression by Liquidator, crucial information from the Appellant and other bidders.
Jurisdiction/power of Liquidator to forfeit the EMD - compensation for breach of contract - HELD THAT:- For purpose of this case, law as laid down in Paragraph 43.7 is relevant where Hon’ble Supreme Court in KAILASH NATH ASSOCIATES VERSUS DELHI DEVELOPMENT AUTHORITY [2015 (1) TMI 1377 - SUPREME COURT] has clearly held that when forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application. The statement of law in paragraph 43.7 is fully applicable in the case of the present case. The present is a case where Appellant participated in the e- Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. Section 74 of the Indian Contract Act has no application in the case of Auction conducted by the Liquidator under the Liquidation Process Regulations, 2016. The terms and conditions of the sale as finalized by the Liquidator under which the e-Auction was held is binding on all including the bidders. Bidders give an unqualified undertaking for participation in the e-Auction after knowing fully well of clauses of the e-Auction Process Document and undertook to abide by the clauses.
The submission of the Appellant can not be accepted that Appellant’s EMD can not be forfeited even though he has committed default in making the payment of balance amount and the Liquidator should file a suit for forfeiting amount deposited by the Appellant. Such preposterous argument can not be accepted in view of the fact that Liquidation Process is conducted under the statutory Liquidation Process Regulations, 2016. The terms and conditions of the Process Document has been framed as per statutory empowerment given to the Liquidator by Schedule I of the Liquidation Process Regulations, 2016 - When the clauses of the Process Document, clearly empowers the Liquidator to forfeit the EMD and any payment made in event default is committed by the Highest Bidder, no exception can be taken to the action of the Liquidator in cancelling the sale and forfeiting the amount deposited by the Appellant - there are no substance in the submission of Learned Counsel for the Appellant that Liquidator was not empowered to forfeit the EMD.
Defect in title of the Corporate Debtor or not - Suppression by Liquidator, crucial information from the Appellant and other bidders - HELD THAT:- The process document under which e-Auction has been held and the e-Auction Notice has described the price of the land which was sought to be auctioned - the issue raised by the email dated 17th June, 2022 by the Appellant that name of the land is not in the name of the corporate debtor is only a ruse not to make payment within time allowed by law. Admittedly, the land was in the name of Anil Products Limited which was the earlier name of the Corporate Debtor changed in to Anil Limited. The title of the land shall be of the corporate debtor Anil Limited by change of the name the title to the land will continue with the corporate debtor and the earlier name of the corporate debtor in the revenue record has no bearing in the title.
Thus, there was neither defect in the title nor the fact that process of change of the name in the revenue record was underway was any reason for Appellant not to make the payment of balance consideration within time.
Property tax dues in respect of land was outstanding - HELD THAT:- Liquidator has submitted that all dues were paid and No Dues Certificate was issued. Liquidator further submitted that in any view of the matter, these issues were required to be done by the Liquidator before transferring the property in question in favour of the Appellant but that itself could not have been any ground available to the Appellant to refuse to deposit the balance consideration within time allowed by the law. Similarly, the argument that properties were attached towards nonpayment of property tax dues also can not raise any fetter in the title, right of the corporate debtor and further when No Dues Certificate were obtained by the Liquidator subsequently it can not be said that title of the corporate debtor was defective due to above reason - There was no title defect in the Corporate Debtor.
Permission of the Deputy Collector for sale - Intimidation regarding entry in the revenue record - HELD THAT:- It is satisfying that issues regarding entry in the revenue record, permission of the Deputy Collector for sale were issues which had no effect on the title of the corporate debtor and the issues were raised by the Appellant to avoid payment of balance amount and to buy time in which Appellant failed. There are no substance in the submissions that there was defect in title.
Appeal dismissed.
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2023 (5) TMI 18
Refund of the court fee which had been filed in connection with the instant suit - ambit of a settlement which is alluded to in Section 16 of Court-Fees Act, 1870 - solitary remedy of participating in proceedings to be instituted under the IBC - collective settlement of claims - HELD THAT:- The Court notes that once personal insolvency has commenced in terms of Section 95, the interim moratorium would come into play immediately upon the institution of those proceedings. In terms of the commencement of proceedings under the IBC, the plaintiff would now have the solitary remedy of filing a claim and participate in the collective statutory settlement process that would ensue against the defendants. Since the same would also relate to a settlement of claims, it would appear to fall within the scope of Section 16.
The prayer as made in the present application is allowed. The Registry to take appropriate steps for refund of the court fee which stands deposited accordingly.
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2023 (5) TMI 17
Initiation of CIRP - Corporate Guarantor - default in payment of guaranteed amount by the Corporate Debtor is the same default as is committed by the Principal Borrower - period of limitation for both the Principal Borrower and the Corporate Guarantor shall be same for the purposes of filing Section 7 application for the Bank or not - Deed of Guarantee dated 17.05.2019 is guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor or not - notice dated 01.10.2020 issued by the Bank to Guarantor can be treated to be notice on demand as contemplated in the guarantee and the default on the part of the Guarantor shall be only after notice dated 01.10.2020 i.e. during period of Section 10A? - application filed by the Bank under Section 7 was barred by Section 10A or not.
Whether default in payment of guaranteed amount by the Corporate Debtor is the same default as is committed by the Principal Borrower and the period of limitation for both the Principal Borrower and the Corporate Guarantor shall be same for the purposes of filing Section 7 application for the Bank? - HELD THAT:- As per Section 128, the liability of the Surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Law, thus, contemplates liability of the Surety i.e. Guarantor co-extensive with that of the Principal Debtor - The question of start of period of limitation against the Guarantor when the default committed by the Guarantor in non-fulfilment of its obligation as contained in the guarantee deed has come for consideration before the Hon’ble Supreme Court in several cases.
The Hon’ble Supreme Court in Margaret Lalita Samuel vs. Indo Commercial Bank Ltd [1978 (9) TMI 180 - SUPREME COURT] has observed that cause of action arises when the contract of continuing guarantee is broken i.e. breach is committed by the Guarantor to the guarantee given.
The scheme of I&B Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed. When default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor - There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor’s liability has to be read from the Deed of Guarantee.
Whether the Deed of Guarantee dated 17.05.2019 is guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor? - HELD THAT:- In view of the clear stipulation in the Deed of Guarantee, default on the part of the Guarantor cannot be treated to be on 05.09.2019, when it is alleged that the Principal Borrower committed default, nor the default on the part of the Guarantor can be on date of NPA i.e. 05.12.2019 for the purpose of present case. In the present case, admittedly, the Bank has issued notice dated 01.10.2020 to the Principal Borrower as well as to the Guarantor - Essel Infraprojects Ltd. Notice dated 01.10.2020 which has been brought on the record indicate that notice is addressed to the Principal Borrower and to Guarantors - When the Bank has given time to the Guarantor to make payment on 01.10.2020, there can be no default on part of the Guarantor on any earlier date. The default on part of the Guarantor thus has to be subsequent to the notice dated 01.10.2020 i.e. Non-payment within seven days as required - The Deed of Guarantee dated 17.05.2019 is guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor.
Whether notice dated 01.10.2020 issued by the Bank to Guarantor can be treated to be notice on demand as contemplated in the guarantee and the default on the part of the Guarantor shall be only after notice dated 01.10.2020 i.e. during period of Section 10A? - HELD THAT:- The Notice dated 01.10.2020 issued by the State Bank of India to Guarantor has to be treated to be notice on demand as contemplated in the guarantee and the default on the part of the Guarantor shall be only after notice dated 01.10.2020 i.e. during period of Section 10A.
Whether the application filed by the Bank under Section 7 was barred by Section 10A? - HELD THAT:- The application filed by the Bank under Section 7 was barred by Section 10A.
The application under Section 7 filed by the Bank being barred by Section 10A could not have been admitted - Appeal allowed.
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2023 (5) TMI 16
Seeking modification in the order - direction was issued to the Resolution Applicant to make distribution to the Appellant as per its admitted claim of Rs.956.21 crores which however, shall be without affecting distribution of amounts to other Financial Creditors both Assenting and Dissenting Financial Creditors and other stake holders - jurisdiction of Appellate Tribunal to give such directions - HELD THAT:- Rule 11 states the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal. The power has to be exercised to avoid ambiguity and confusion. However, Rule cannot be invoked to revisit the findings retuned as regards the assertion of facts and pleas raised in the appeal and it is not open to re-examine the findings on questions of fact. It is, however, open to correct the conclusion if the same is not compatible with the finding recorded.
Granting the relief, as prayed in the application, shall involve modification of direction as contained in Para 30(II). This Tribunal consciously directed that additional burden be taken by the Applicant, which is clear by direction (III). Payment in consequence shall be borne by the Resolution Applicant. Permitting the direction as prayed in Para 4(II) of the application, which is prayer to modify the judgment shall clearly go contrary to the Direction issued in Para 30(III). What in essence is asked is to modify the direction - the prayer which is sought by the Applicant are not within the jurisdiction of this Tribunal and cannot be granted in exercise of our jurisdiction under Rule 11. Of course any error in the judgment can be corrected in the Appellate Jurisdiction.
Application dismissed.
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2023 (5) TMI 15
Rejection of section 9 application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - time limitation - Respondent sent reply to the demand notice much beyond the statutory period of 10 days prescribed by the IBC - pre-existing debt and dispute or not - issue of credit notes in the context of outstanding dues.
Issue of credit notes in the context of outstanding dues - HELD THAT:- It has been held by the Adjudicating Authority that the credit notes sent via the email are genuine and the issuance of the said letters further confirms the Corporate Debtor’s contention that the instant petition has pre-existing disputes. That apart it is noticed that at pages 309 and 310 of APB, two letters dated 02.05.2019 and 04.06.2019 have been sent by the Corporate Debtor requesting the Operational Creditor to issue credit notes for a balance sum of Rs. 2,11,52,579/- on the ground that material worth of Rs. 2.25 crore had been rejected by them - the finding of the Adjudicating Authority is agreed upon that the balance amount claimed as operational debt has been unequivocally disputed by the Corporate Debtor and no liability admitted on this count. The present is therefore not a case where there is an undisputed debt for which Corporate Debtor can be brought under the rigours of CIRP.
Three communications purportedly issued by the Corporate Debtor - HELD THAT:- The Adjudicating Authority in the impugned order has duly considered this aspect and relied on the decision taken by this Tribunal in the matter of Shelendra Kumar Sharma v. DSC Limited [2019 (12) TMI 1643 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein it has been held that the question as to whether documents are forged or not cannot be decided by the Adjudicating Authority.
The authenticity of the postal stamps on the postage receipts are not the subject matter which can be decided by the Adjudicating Authority or this Tribunal in view of summary jurisdiction having been conferred on them by the IBC. Enquiry into such allegations and counter-allegations would entail detailed investigation and the legislative intent of the IBC does not clothe the Adjudicating Authority with such powers of investigation. Thus the Adjudicating Authority has not committed any error by restraining itself from entering into any sort of roving enquiry on this issue.
Whether these three letters had raised a semblance of dispute and if so whether the dispute is patently feeble? - HELD THAT:- Looking conjointly at the three communications issued by the Corporate Debtor regarding supply of defective goods and other related issues on 01.07.2017, 03.10.2017 and 25.04.2019 as also the credit notes issued on 31.01.2018, 02.05.2019 and 04.06.2019 questioning the existence of any operational debt, we have no hesitation in concurring in the findings recorded by the Adjudicating Authority in that there was sufficient foundation of genuine disputes between the two parties. The Adjudicating Authority has also not erred by not getting into the allegations and counter-allegations regarding forgery and fabrication of documents/postage receipts as such conduct of such enquiries/ investigations is beyond the remit of summary proceedings.
The Adjudicating Authority did not commit any error in rejecting the Section 9 application on the ground of pre-existing dispute - Appeal dismissed.
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2023 (5) TMI 14
Seeking condonation of delay of 6 days in filing appeal - commencement of period for computation of limitation - order was passed against different Corporate Debtor - HELD THAT:- From the facts, which have been brought on the record it is clear that on 13.01.2023 when the Adjudicating Authority passed order in Company Petition (IB) No. 79 (ND) 2021, order was passed against the company Mansfield Cables Company & Infrastructure Pvt. Ltd. [2023 (1) TMI 1245 - NATIONAL COMPANY LAW TRIBUNAL NEW DELHI], which is apparent from the copy of order Annexed with Appeal as Annexure A-I. When insolvency resolution process has not begun against the present Corporate Debtor of which the Appellant is director i.e. Mansfield Power & Infrastructure Pvt. Ltd., there is no question of limitation start running against the Corporate Debtor on 13.01.2023, when the order was passed. There can be no quarrel to the proposition of law laid down by the Hon’ble Supreme Court in V. Nagarajan vs. SKS Ispat and Power Limited & Ors. [2021 (10) TMI 941 - SUPREME COURT] that limitation for filing an appeal shall commence from the date when the order is pronounced.
The above judgment of the Hon’ble Supreme Court with regard to commencement of period of limitation from the date order is pronounced/ delivered is firmly settled. Limitation shall start for filing appeal from the date of pronouncement of order i.e. on 13.01.2023 but not against the Corporate Debtor of which Appellant is suspended Director rather limitation shall start against the Company Mansfield Cables Company & Infrastructure Pvt. Ltd., against whom the order was passed.
The law is well settled that limitation for filing Appeal shall commence from the date when order is delivered or pronounced but present is a case where order was passed against different Corporate Debtor namely Mansfield Cables Company & Infrastructure Pvt. Ltd., which came to be corrected on 17.01.2023 and order dated 17.01.2023 correcting the name of the company was not in the knowledge of the present Corporate Debtor.
In the peculiar facts of the present case, the Appellant is entitled to seek condonation of delay in filing the appeal which according to the Appellant has been filed with delay of only six days. The limitation can run against the Appellant when it is party to the proceeding and order is passed against it whether ex-parte or after hearing the appellant. Limitation shall commence in both from the passing of order either ex-parte or after hearing the appellant. When order under Section 9 was not passed against the company in question, it cannot be seen how limitation start running. Appellant in his application has categorically stated that he came to know of letter dated 18.01.2023 sent by the Resolution Professional which was received on 06.02.2023. Resolution Professional in the reply does not deny that he has not sent a letter. It is only stated that he has sent an email on 18.01.2023 to the Appellant.
In the peculiar circumstances of the present case where order was not against the Corporate Debtor for initiating section 9 proceeding but a different company which was corrected subsequently, are satisfied that sufficient cause has been shown for condonation of delay in filing the appeal.
Delay condonation application allowed.
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