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M/s. Unigreen Global Private Limited Versus Punjab National Bank, Corporation Bank, Vijaya Bank And Oriental Bank of Commerce

2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Dismiss an application for initiation of Corporate Insolvency Resolution Process - non-disclosure of facts beyond the statutory requirement under the I & B Code read with relevant form - Whether the penalty imposed by the Adjudicating Authority under Section 65 of the I & B Code is legal or not? - Held that:- There is nothing on record to suggest that the Corporate Applicant has suppressed any fact or has not come with the clean hands. The Adjudicating Authority has also not held that the applic .....

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Corporate Applicant recording its prima facie view and intent to punish the Corporate Applicant, the impugned order dated 8th May, 2017 cannot be upheld having been passed in violation of rules of natural justice. - For the reasons aforesaid, the impugned order dated 8th May, 2017 passed in C.P.is set aside. The case is remitted back to the Adjudicating Authority for admission of the application under Section 10, if the application is otherwise complete. In case it is incomplete, the Adjudic .....

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clause of Section 11 is attracted or not. - Non-disclosure of such relevant facts in the relevant Form 6, may be a ground to reject the application but a person can plead that the Form does not stipulate to disclose any ineligibility under Section 11. Therefore, we are of the view that the Central Government should make necessary amendment in the relevant Form 6 appended to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which will enable the Adjudicating A .....

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tiated or liquidation order has been passed by any High Court or Tribunal or Adjudicating Authority or not. The appeal is allowed with the aforesaid observations - Company Appeal (AT) (Insolvency) No. 81 of 2017 - Dated:- 1-12-2017 - Mr. S. J. Mukhopadhaya, Mr. A. I. S. Cheema And Balvinder Singh For The Appellant : Shri Dhruv Gupta and Shri P. Nagesh, Advocates For The Respondent : Shri Sartaj Singh, Advocate And Shri Kailash Sharma, Advocate JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. This appeal .....

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Rules, 2016 (hereinafter referred to as the Adjudicating Authority Rules ) has been rejected. The Adjudicating Authority has also imposed penalty of Rs. Ten Lakhs on the appellant - Corporate Debtor under Section 65 of the I & B Code. 2. The questions involved in this appeal are : (i) Whether non-disclosure of facts beyond the statutory requirement under the I & B Code read with relevant form, prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, .....

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nancial creditors and other creditors. On notice, Punjab National Bank (Financial Creditor) appeared and alleging the suppression of facts on the ground that the appellant has not disclosed the full facts and has not furnished full particulars in relation to the assets mortgaged or the securities furnished to the financial creditors. It was also alleged that the legal proceeding in respect of certain properties includes Khari Baoli property has been entangled by the owners themselves. In view of .....

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Mayank Maheshwari v. Anurag Garg - csdj/0094/2017 before the learned Additional District and Sessions Judge, Tis Hazari District Courts, Delhi. The said suit has been filed seeking a declaration and mandatory and permanent injunction against one of the Directors of the Company namely Mr. Anurag Garg. It was further alleged that subsequent to the above suit, in collusion with the plaintiff a S.A. has been filed before DRT III alleging that two sale deeds dated 21.10.2016 with respect to basement .....

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ss an order dated 21st January, 2017 in favour of Punjab National Bank in Punjab National Bank v. Unigreen Global (P.) Ltd. s appointing a Court receiver to take possession of the property. Pursuance of the said order, the Financial Creditor - Punjab National Bank has already taken over the possession of the said property. In the circumstances, it was submitted that prayer for initiation of the Corporate Insolvency Resolution Process amounts to abuse of process of law. 6. The aforesaid submissio .....

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ely created by the directors of the petitioner in relation to the said property, as a civil suit again for permanent and mandatory injunction being No.9398/2016, titled as Sh. Jagat Nath Mahto v. Vedika Overseas Tradex (P.) Ltd. & Ors. is pending consideration before the Learned ASCJ, Karkardooma Court, Delhi and that the next date of hearing is fixed for 12.05.2017 and incidentally, it is pointed by the Financial Creditor that the plaintiff in the above said suit allegedly also happens to b .....

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sturbed except under due process of law. Learned Counsel for the Bank also points out that the above said suit came to be filed in collusion with the Directors of the applicant company on 10.05.2016 after the issue of notice under Section 13(2) of the SARFAESI Act, 2002 by the bank to the corporate debtor and its Directors and guarantors. 13. A similar strategy in relation to the above Defence Enclave property too as was done as described in the earlier portion of the property at Khari Baoli in .....

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nt, namely, House No.D-3A, Dayanand Block, Delhi-110092 wherein it is alleged that the corporate debtor managed by its Director have not come with clean hands in the legal proceedings in which the property is entangled deliberately by the actions or at the instigation of the said Directors of the corporate debtor in order to have the properties removed from the clutches of law. The further submission of Punjab National bank, being the Lead Banker, in relation to the consortium of Banks and all o .....

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t facilities vide another letter dated 31.3.2015. All the actions of the financial creditors, namely, Punjab National Bank, according to its submission, has been made only in line with the RBI guidelines and the Corporate debtor has come to this sorry state of affairs only due to the deliberate actions of the Directors of the corporate debtor and the way in which the Directors have managed the company. This situation has not arisen out of the business cycle as contended by the Corporate Debtor. .....

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al legal proceedings in different courts and Forums with the sole motive of removing their personal properties from the clutches of law and that the instant action before this Tribunal is yet another attempt in the same direction. 8. Learned counsel appearing on behalf of the appellant submitted that the application under section 10 in Form 6 was filed with the following documents : (i) List of financial creditors and operational creditors as per the balance sheet for the year 2015-16. (ii) Deta .....

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very Tribunal between the banks and the corporate debtor and the status of the proceedings including the status of possession of the immoveable properties of the guarantors with the banks. 9. It was also submitted that the appellant dispatched the copy of the application under Section 10 by Registered Post to the Financial Creditors/banks whereinafter notice was issued in terms of Rule 7 of the Adjudicating Authority Rules, 2016. According to learned counsel for the appellant the objections of t .....

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; B Code or the Adjudicating Authority Rules, 2016, it is not open to the Financial Creditor/ Banks (Respondents) to raise such issue nor the Adjudicating Authority can dismiss the application on the ground of non-disclosure of facts unrelated to the Corporate Insolvency Resolution Process. 11. It was further submitted that Corporate Insolvency Resolution having not been initiated the question of imposition of penalty under Section 65 of the I & B Code does not arise. 12. Learned counsel for .....

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. under Sec.17 of SARFAESI Act, 2002 also filed by Mr. Mayank Maheshwari in collusion with Mr. Anurag is pending adjudication before Lf. DRT. The contention of the Appellant that the suit is with respect to the basement and mezzanine floor, which are not mortgaged with the Answering Respondent proves to be false in wake of the prayer made in the afore-mentioned Civil Suit, which includes the ground floor (@ pg.377 of the Appeal) Single storied house at 83, Defence Enclave, Vivek Marg, Delhi - 11 .....

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ication filed under Section 17 of the SARFAESI Act, 2002 by Sh. Anurag Gar titled as Anurag Garg v. Punjab National bank & Ors. Bearing S.A. No. 120/2016 pending adjudication 13. It was further submitted that the appellant is not precluded in law to initiate proceedings under the provisions of SARFAESI Act, 2002 as has been initiated and the appellant is duty bound to bring the aforesaid facts to the notice of the Adjudicating Authority. 14. We have heard the parties, noticed the rival conte .....

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Reforms Committee of November, 2015. The Statement of Objects and Reasons of the Code reads as under: STATEMENT OF OBJECTS AND REASONS There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of .....

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by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability .....

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th and development. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency pro .....

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. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income-Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the .....

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n framework: I. The Code will facilitate the assessment of viability of the enterprise at a very early stage. 1. The law must explicitly state that the viability of the enterprise is a matter of business, and that matters of business can only be negotiated between creditors and debtor. While viability is assessed as a negotiation between creditors and debtor, the final decision has to be an agreement among creditors who are the financiers willing to bear the loss in the insolvency. 2. The legisl .....

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action to erode the value of the enterprise. The professional will have the power and responsibility to monitor and manage the operations and assets of the enterprise. The professional will manage the resolution process of negotiation to ensure balance of power between the creditors and debtor, and protect the rights of all creditors. The professional will ensure the reduction of asymmetry of information between creditors and debtor in the resolution process. II. The Code will enable symmetry of .....

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ated professional. III. The Code will ensure a time-bound process to better preserve economic value. 8. The law must ensure that time value of money is preserved, and that delaying tactics in these negotiations will not extend the time set for negotiations at the start. IV. The Code will ensure a collective process. 9. The law must ensure that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness .....

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ptcy must be binding. 11. The law must order the liquidation of an enterprise which has been found unviable. This outcome of the negotiations should be protected against all appeals other than for very exceptional cases. VII. The Code must ensure clarity of priority, and that the rights of all stakeholders are upheld in resolving bankruptcy. 12. The law must clearly lay out the priority of distributions in bankruptcy to all stakeholders. The priority must be designed so as to incentivise all sta .....

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ows: 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of debt , we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in resp .....

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or has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes .....

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accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post .....

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ed to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the a .....

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a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with .....

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mation utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding .....

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(7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. 19. Similar is the provision of Section 10, which reads a follows: 10. (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for ini .....

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inted as an interim resolution professional. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order- (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authorit .....

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he Hon ble Supreme Court observed as The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority . 21. In an application under Section 10, the financial creditor or operational creditor , may dispute that there is no default or that debt is not due and is not payable in law or in .....

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ate Applicant is to be granted time to rectify the defects. 22. Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the informations as required to be submitted in Form 6 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 subject to ineligibility prescribed under Section 11. If all informations are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is .....

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t has not come with clean hand except the application where the Corporate Applicant has not disclosed disqualification, if any, under Section 11. Non-disclosure of facts, such as that the Corporate Debtor is undergoing a corporate insolvency resolution process; or that the Corporate Debtor has completed corporate insolvency resolution process twelve months preceding the date of making of the application; or that the corporate debtor has violated any of the terms of resolution plan which was appr .....

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td. . Pendency of such suits cannot be a ground to deny admission of an application under Section 10, if all the information in terms of Section 10 of the I & B Code and Form 6 has been supplied by a Corporate Applicant/Corporate Debtor and the application is otherwise complete. Non-mentioning of suit(s) pending between the parties cannot termed to be suppression of facts nor can be a ground to reject the application. In fact, once the application under Section 10 is admitted, all such relat .....

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orate Debtor under Section 19 of DRT Act, 1993 before a Debt Recovery Tribunal or appeal pending before the Debt Recovery Appellate Tribunal cannot be a ground to reject an application under Section 10, if the application is complete. 26. Any proceeding under Section 13(4) of the SARFAESI Act, 2002 or suit under Section 19 of the DRT Act, 1993 pending before Debt Recovery Tribunal or appeal pending before Debt Recovery Appellate Tribunal cannot proceed in view of the order of moratorium as may b .....

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n any other law for the time being in force including DRT Act, 1993; SARFAESI Act, 2002; money suit etc. 28. In a case where a winding up proceedings has already been initiated against a Corporate Debtor by the Hon ble High Court or Tribunal or liquidation order has been passed in respect of Corporate Debtor, no application under Section 10 can be filed by the Corporate Applicant in view of ineligibility under Section 11(d) of I & B Code, as quoted below: 11. Persons not entitled to make app .....

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ved twelve months before the date of making of an application under this Chapter; or (d) a corporate debtor in respect of whom a liquidation order has been made. Explanation. - For the purposes of this section, a corporate debtor includes a corporate applicant in respect of such corporate debtor. 29. In view of the aforesaid provision where a winding up proceeding has already been initiated under the Companies Act, 1956 / 2013 by the Hon ble High Court such cases have not been transferred to Nat .....

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wing clause shall be substituted, namely:- xxx xxx xxx (23) Company Liquidator means a person appointed by the Tribunal as the Company Liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act ; (b) after clause (94) , the following clause shall be inserted, namely:- (94A) winding up means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable. 31. By aforesaid amendment, the legislatures have made i .....

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or order of liquidation has been passed, cannot be ground to reject the application under Section 10. 33. In this case, it is not the case of the Financial Creditor/Respondent that a winding up proceeding under the Companies Act or liquidation proceeding under the I & B Code has been initiated against the Corporate Debtor. Therefore, the Corporate Applicant is eligible to file application under Section 10, if there is a debt and default. 34. Further, as we find that the Adjudicating Authori .....

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dance with law or not it is desirable to notice the provision, as quoted below: 65. (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liqui .....

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ication to the Adjudicating Authority for initiating corporate insolvency resolution process; If sub-section (11) of Section 5 is read with Section 65 it is clear that if a Financial Creditor , or Corporate Applicant or Operational Creditor makes an application to the Adjudicating authority for initiating Corporate Resolution Process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, the Adjudicating Autho .....

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the aforesaid provision, it is clear that for imposition of penalty under Section 65, the Adjudicating Authority on the basis of record is required to form prima facie opinion that the person (Financial Creditor / Corporate Applicant / Operational Applicant) has filed the petition for initiation of proceeding fraudulently or with malicious intent for the purpose other than the resolution of the insolvency or liquidation or that voluntary liquidation proceedings has been filed with the intent to .....

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er I & B Code, as held by this Appellate Tribunal in Innoventive Industries Ltd. v. ICICI Bank. In view of the aforesaid provision if the Adjudicating Authority prima facie comes to a conclusion that a case is made out to impose penalty under sub-sections (1) and (2) of Section 65, after recording its prima facie reasons the Adjudicating Authority is required to give reasonable opportunity of hearing to the person concerned, so as to enable the person to explain his case. 40. There is nothin .....

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ity the impugned order cannot be upheld. 41. Further, as the Adjudicating Authority before imposing penalty under Section 65 has not given nor served any notice to the Corporate Applicant recording its prima facie view and intent to punish the Corporate Applicant, the impugned order dated 8th May, 2017 cannot be upheld having been passed in violation of rules of natural justice. 42. For the reasons aforesaid, the impugned order dated 8th May, 2017 passed in C.P. No. IB-39(PB)/2017 is set aside. .....

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