9911796707
TMI Blog2018 (12) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor u/s. 10 of the Insolvency and Bankruptcy Code, 2016 (In short, I & B Code). All the CAs were filed challenging the maintainability of S.10 application filed by the Corporate Debtor. 3. C.P. (IB) No. 615/KB/2018 4. This is an application filed by Sri. Munisuvrata Agri International Ltd. the Corporate Applicant thereof, under Section 10 of the Insolvency & Bankruptcy Code, 2016 read with Rule 7 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process on the allegation that it could not conduct the business due to certain RBI Circular dated March 13, 2018. 5. Briefly stating the facts as follows:- 6. The Corporate Debtor is a company originally incorporated under the Companies Act, 1956 on November 11, 1992 with the name LMJ International Ltd., which later changed its name to Sri. Munisuvrata Agri International Ltd. on April 23, 2018, and also changed its registered office. The corporate debtor has filed the present application under Section 10, Insolvency and Bankruptcy Code, 2016 for initiating corporate insolvency resolution process. 7. The Corporate Debtor submits that in view of a Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough disputed) is given as follows:- Sl. No. Name of the Operational Creditor Date Amount outstanding (Rs.) Submission by the Corporate Debtor 1. Sleepwell Industries Co. Ltd. 30/08/2013 (a) 3,94,78,064/- SLP has been filed by the Corporate Debtor challenging the rejection of the application u/s. 48 of the Arbitration & Conciliation Act, 1996 before the Calcutta High Court. (b) 80,64,083/- Application u/s. 48 of the Arbitration & Conciliation Act, 1996, disputing the amount claimed, has been filed before the Calcutta High Court by the Corporate Debtor. 2. Swiss Singapore Overseas Enterprises Pte. Ltd. 20/02/2013 (a) 2,81,36,186/- An appeal to a civil suit, filed by the Corporate Debtor, challenging the amount claimed as foreign award, is pending before the Calcutta High Court. 10/04/2013 (b) 59,26,060/- An appeal to a civil suit, filed by the Corporate Debtor, challenging the amount claimed as foreign award, is pending before the Calcutta High Court. 3. Sovarex S.A. 05/03/2014 20,98,00,966/- A Civil Suit, filed by the Corporate Debtor, challenging the amount claimed as foreign award, is pending before the Calcutta Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Sleepwell Industries Co. Ltd. [SLP(c) No. 540 of 2018 dated 20-4-2018]. 14. The applicant, being an operational creditor of the Corporate Applicant, had supplied goods, in respect of which, dispute arose for non-payment of value of goods and an Arbitral Award was passed, for which two Execution Applications were filed against LMJ International Ltd. in September 2013 before the Hon'ble High Court at Calcutta. A composite order dated December 4, 2014 held that the awards were enforceable and LMJ International Ltd. then preferred two appeals before the Division Bench of Calcutta High Court which were disposed of by a common order dated December 1, 2015. 15. The applicant then submits that LMJ International Ltd. thereafter filed formal applications under Section 48 of the Arbitration and Conciliation Act before the Calcutta High Court in the Execution Cases of 2013 praying that the awards be held unenforceable, which were also ultimately dismissed, by orders dated August 22, 2017 and July 9, 2018. Thereafter, LMJ preferred Special Leave Petition being SLP(c) No. 540 of 2018 against the judgment and order dated August 22, 2017. In the SLP, approx. Rs. 1.78 crores were remitted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rreptitiously, without informing the applicant till date, to ensure that CIRP is initiated against the corporate debtor without informing the applicant herein. The applicant therefore prays for leave to intervene in the said proceedings and to file an Affidavit in Opposition in C.P. (IB) No. 615 of 2018. 21. C.A. (IB) No. 722/KB/2018 22. This is an application filed by two of the shareholders of the Corporate Applicant in CP (IB) No. 615/KB of 2018. The applicants/shareholders submit that initially, the shareholders in the Company, being members of the Jain family were carrying on their businesses jointly. However, due to subsequent differences, the dispute was referred to Arbitral Tribunal, which passed an award upon consent of the parties on January 3, 2013. The applicants submit that they, being the 'Party of the First Part' have complied with their obligation under the said award but the 'Other Part' being the MLJ Group have defaulted in complying with their part of obligations. Therefore, an Execution Application being EC No. 873 of 2015 was filed before the Calcutta High Court for seeking enforcement of the said award, wherein, inter alia, an interim award dated March 4, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant states that the corporate applicant has filed the present insolvency petition to seek shelter under the mandate of the moratorium under Section 14 of the I & B Code, 2016, and as such all their bank accounts have been attached and coercive steps have been taken against them by the income tax department. 29. The applicant further submits that change of name and registered office was a ploy resorted to by the Corporate Applicant in order to defraud its creditors and as such to deceit its creditors only for the purpose of initiating the insolvency proceedings. The applicant apprehends that the corporate applicant has not obtained shareholders' consent to institute the present application under Section 10 of the I & B Code, 2016. The applicant therefore, prays for leave to intervene in the present proceedings and for dismissing the insolvency application being CP (IB) No. 615/KB of 2018. 30. I.A. (IB) No. 800/KB/2018 31. The applicant is an independent director of LMJ International Ltd. (or Sri Munisuvrata Agri International Ltd.) being the corporate applicant in the CP (IB) No. 615/KB of 2018. The applicant submits that from 2016, due to family disputes between the directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with exemplary costs. 35. Two of the Operational Creditors who filed intervening application have chosen to file reply affidavit in the C.P. The reply filed by Swiss Singapore Overseas Enterprises Pvt. Ltd. in brief is the following:- 36. The Swiss Singapore Overseas Enterprises Pvt Ltd/Operational Creditor submits that the present proceeding being CP No. 615/KB/2018 is malicious and mala fide. The said petition is not maintainable as there is no special resolution which has been disclosed of the shareholders of the company, as required under Section 10(3) of I & B Code, 2016 approving filing of the application. The operational creditor further states that at present SGD 575,379.74/- and interest thereon is due by the corporate debtor to the operational creditor. It also states that the petition does not disclose any reason for such insolvency proceeding being admitted and that Centrum Financial Services Ltd. and Punjab & Sind Bank as financial creditors have also opposed the said application. According to the operational creditor, the name of the corporate debtor being surreptitiously changed just a week before filing the instant application without informing the operational cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e records as well as citations referred to on both sides. Upon hearing the arguments and considering the objections raised by the various objectors to the application, the points that arise for determination, are the following:- (i) Whether the Corporate Applicant succeeds in proving default in payment of debt due to its creditors? (ii) Whether the Corporate Applicant has filed the application with malicious intent and to defraud the creditors as alleged by the intervening applicants? (iii) Whether the Corporate Applicant has changed the name of the company and its registered office with malicious intention to deceit the creditors? (iv) Whether the application is maintainable for want of production of special resolution as per Section 10(3)(c) of the Code? (v) Reliefs and costs? 40. Point No. (i) 41. The Corporate Applicant herein, Sri. Munisuvrata Agri International Limited was originally incorporated on 11th Day of November, 1992 in the name and style of LMJ International Limited. Since incorporation, the Company is doing business dealing with exports and imports, export of various food products. It is alleged that in the course of its business, due to change in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A-5, is due and the Corporate Applicant has defaulted in repayment. Punjab & Sind Bank has submitted that the corporate applicant is indebted to it to the extent of Rs. 9,07,78,093.53/- and defaulted in repayment. However, it opposed the application, denying the contentions taken by the corporate applicant in its application. 44. Though financial creditors have submitted that the corporate applicant defaulted in repayment of the dues, there is no data furnished on either side as to when the repayment fell due. The loan agreement was not produced to prove the repayment schedule. The Working Capital Consortium Agreement marked as Annexure A-10 referred to me by the Ld. Sr. Counsel for the corporate applicant, on the other hand, is an agreement executed by the corporate applicant confirming the terms and conditions as set out in the letters of sanction of the Consortium/Arrangement letter dated 09.02.2017. That document was not produced in this case for the perusal of this Bench. Annexure A-10 is an agreement for availing credit facilities executed on 15.02.2018. That means this application was filed within two and half months from the date of the execution of the said agreement. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o also the debtor was informed to confirm the balance outstanding in reply to the said letter. No proof produced to prove that the corporate applicant had issued reply confirming the amount allegedly due but in the application, the debtor disputed the amount. So the financial creditor's claim, if any, is disputed by the corporate applicant. 47. Without proving the date on which the loan amount fell due, can I hold that there is default? When the credit facility availed by the corporate applicant has not fallen due and the bank has not issued demand notice for failure of repayment but informed about the outstanding dues, can it be held that the corporate applicant has committed default as per the provisions of the Code? These are the questions I have posed to the bar. The answer from the side of the applicant is that Section 10 does not mandate the applicant to produce such proof. The said answer in my view is incorrect. In order to appreciate the contention of the corporate applicant that Annexure A-11 amounts to proof of existence of outstanding dues, it would be first necessary to determine what is default? Section 3(12) of the Code defines "default". "S. 3(12): "default" mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined, apart from the submissions of the creditors, also from the records of an information utility. The aforesaid provision does not provide an opportunity to the corporate debtor to put for his case for default. 51. The Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank Ltd. and another, 2018 (1) SCC 407 while dealing with repugnancy in the IBC, 2016 and Maharashtra Relief Undertaking (Special Provisions) Act, 1958 regarding moratorium held as under:- "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 respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not due. A debt may not be due 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 adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be." "The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in subsection (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is preexisting - i.e. before such notice or invoice w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igures in Rs. (Lakhs)] Financial Results For the year ended 31.03.2017. For the year ended 31.03.2016. Revenue 155755.53 149943.84 Less : Expenses. 153136.70 147598.02 Profit before Depreciation & Expenses. 2618.83 2345.81 Less : Depreciation. 377.34 338.48 Less: Adjustments for earlier years. - - Profit before Tax. 2241.49 2007.34 Less: Provision for Taxation. 97.42 92.58 LeSS: Deferred Tax. 426.47 -89.60 Profit after Taxation. 1717.60 2004.36 Less: Transfer to Loan Redemption Reserve. 1150.00 10000.00 Add: Profit brought forward from previous year. 4110.75 3107.05 Profit available for appropriation. 4678.35 4111.41 54. Hon'ble National Company Law Appellate Tribunal in Unigreen Global (P.) Ltd. v. Punjab National Bank and others-Company Appeal (AT) (insolvency) 81/2017 in Para No 20 ha held as follows. "20. Under both Section 7 and Section 10, the two factors are common i.e. the debt is due and there is a default. Sub-section (4) of Section 7 is similar to that of sub-section (4) of Section 10. Therefore we, hold that the law laid down by the Hon'ble Supreme Court in "Innoventive Industries Ltd. (Supra) is applicable for Section 10 also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It cannot be ruled out that the failure to repay is made for enabling to institute an application like the application filed in the case in hand. 57. It is also significant to note here that the credit facilities were sanctioned in favour of the corporate applicant on 12.10.2017. Even before recalling the credit facility, the corporate applicant initiated proceedings under Section 10 of the Code. This application was filed on 27.04.2018, whereas the credit facilities were not recalled on or before 27.04.2018. So, it is evident that before demanding the outstanding dues from the Corporate Applicant, the petition was already filed to initiate Corporate Insolvency Resolution Process (CIRP) and hence, I am of the view that there has been no default on the part of the Corporate Applicant as on the date of filing the application in respect of the financial debt. 58. It is also significant to note that none of the financial creditors have said that the debtor cannot meet their obligations provided by the creditors. They have said that they have no formal objection for the reason not highlighted at the time of argument. It is significant to note that except Punjab & Sind Bank, no argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 447 of the Companies Act, 2013 by filing the application u/s. 10 of the Code without publishing its change of name and that the Corporate Applicant has filed the application with ulterior motive and mala fide intention to keep all of its creditors and shareholders in dark. According to her, out of the Group Companies under the management of the Corporate Applicant's Directors, two of its Companies' names have been changed and those two companies whose names have been changed, have alone filed two separate applications u/s. 10, which is a deliberate attempt to deprive the creditors and to gain advantage from an order of moratorium to be passed in an application filed by the Corporate Applicant. 62. According to the Ld. Sr. Counsel for the applicant, none of the actions of the Corporate Applicant amount to fraud because the Corporate Applicant has got a right to move an application u/s. 10 and the corporate applicant, in exercise of such rights, admitting default of the amount due to the financial creditors and due to the Operational Creditors, has filed the application. He also submits that the change of name was in accordance with the provisions of Companies Act, 2013 and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insolvency, or liquidation , as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, 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. " 65. Referring to Section 447 of the Companies Act, 2013 read with section 65 of the Code, the Ld. counsels for the objectors submit that concealment of fact regarding change of name in Form 6 is with an intention to defraud its creditors. Though the allegations levelled by the objectors do not fall within the ingredients under the purview of Section 447 of the Companies Act, 2013, it appears to me that the allegation levelled falls within Section 65 of the Code. Let me see whether the filing of this application u/s. 10 of the Code is for initiating CIRP with malicious intention for any purpose other than for the resolution of insolvency, or liquidation? 66. The Hon'ble Supreme Court in SEBI v Kishore R. Ajmera [2016] 288/134 SCL 481, in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as alleged, it appears to me that as per Section 65 of the Code, if the Objectors succeed in establishing that the Applicant has moved the application with malicious intent for purpose other than for the resolution of the insolvency or liquidation as the case may be, I am empowered to dismiss the application and may impose upon such person, a penalty which shall not be less than Rs. 1 lac but may extend to Rs. 1 crore as per Section 65 of the Code. 69. The circumstances that there are pending litigation for recovery of a total amount of Rs. 256,01,92,031/- (Annexure A-16 - page 141) from the Corporate Applicant by the Objectors except the independent Director who has filed the Inv. A.(IB) No. 800/KB/2018; that the Applicant has changed its name about three days prior to the institution of this Application; that the Corporate Applicant changed the registered address of the applicant before one day of the date of institution of this Application; that the applicant has suppressed the name change in the Form 6 and in the affidavit filed along with the application; that the Applicant failed in proving occurrence of default as defined under Section 10(1) of the code; that no materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India 108 SCL 78 (SC) and B.K. Educational Services (P.) Ltd. v. Parag Gupta & Associates), submit that the right conferred on the Applicant to prefer an Application under Section 10 of the Code may be a substantive right. But the requirement to be meted out for initiating CIRP process upon filing an Application under Section 10 of the Code is procedural in nature and therefore, Section 10(3)(c) is a procedural requirement to be complied by the Applicant. According to them, non-production of Special Resolution as per Section 10(3)(c) amounts to non-compliance of Section 10(3) and therefore, the application is liable to be rejected, lb strengthen the said argument, he relied upon Paras 23 and 32 in the Thirumalai Chemicals Ltd.'s case (supra). The Hon'ble Supreme Court has held as under:- "Para 23. Substantive law refers to a body of rules that creates, defines and regulates rights and liabilities. Right conferred on a party to prefer an appeal against an order is a substantive right conferred by a statute which remains unaffected by subsequent changes in law, unless modified expressly or by necessary implication. Procedural law establishes a mechanism for determining those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application." "Para 49. In view of our finding that the Limitation Act has in fact been applied from the inception of the code, it is unnecessary for us to go into the arguments based on the doctrine of laches. The appeals are therefore remanded to the NCLAT to decide the appeals afresh in the light of this judgment." 76. Referring to Arcelormittal India Private Ltd. v. Satish Kumar Gupta & ors (318 SCC Online SC 1733) Ld Sr. Counsel also attempted to show that sub-clause (c) is to become operational only from the date of commencement of the Amendment Act and not before. According to him, sub-clause (c) was not there at the time of filing the C.P i.e. on 27.04.2018 but was inserted w.e.f. 06.06.2018 and therefore, it would operate from the date of commencement of the Amendment Act and not from the date of inception of the Code. If such an interpretation is given, it would adversely affect the right to file an application like this nature under Section 10 of the Code, as argued by the Ld. Sr. Counsel. 77. Borne in mind, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that was held in BK Educational Services (P.) Ltd. (supra), that procedural law should apply retrospectively, that sub-clause(c) of the Code inserted to Section 10(3) can be construed as a procedural law by applying the proposition laid down in Thirumalai Chemicals Ltd.'s case (supra), it appears to me that sub-clause(c) is procedural and should apply retrospectively. Upon applying it as retrospectively, I have no hesitation in holding that non-compliance of Sub-clause(c) to Section 10 (3) of the Code proves that one among the essential ingredients to be proved on the side of the corporate applicant has not been complied by the applicant. This point is answered accordingly. 81. Point No.(v). 82. Upon the above said findings, on points Nos. (i) I have come to a conclusion that the corporate applicant has failed in proving existence of default of financial debt but proved default of operational debt. But the operational debt is in dispute before the Hon'ble Supreme Court and before the Hon'ble High Court at Calcutta. By answering point Nos. (ii) & (iii) I found that the corporate applicant filed the application C.P.(IB) NO.615/KB/2018 with mala fide intention and with ulterior ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
