TMI Blog2020 (7) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. The Appointment Letter is placed on record. Since the appointment was made even prior to the incorporation of the Corporate Debtor, it is evident that there could not have been any Board Resolution to discuss, propose or confirm such an appointment. Nothing has been brought on record to indicate that any such confirmation was done subsequently by the Board. In this situation, it cannot be said that any right to payment or claim arose in the hands of the Operational Creditor against the Corporate Debtor, in the absence of any decision from the Board - the payments due to the Operational Creditor depended upon his performance and merit, and at the discretion of the Management. Clauses 17 and 18 of the Appointment Letter also mention a Code of Conduct and binding rules regarding the discipline and conduct of the Petitioner during the course of his employment with the Corporate Debtor. The Operational Creditor had served a Notice dated 10.04.2017 also demanding an amount of ₹ 18,25,000/- towards arrears of salary. Notably, this amount is different from the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001. (2) It is stated in the petition that along with Mr. B K Purushothama, Financial Creditor 1, M.G Mohan Kumar were named as Directors of the Company and Subscriber to the Memorandum of Association. (3) It is further stated that shortly after incorporation, Mrs. Bhanu Prabha Krishna Hebbar, a Non-Resident Indian, the promoter of the Company was inducted as an additional director and later her appointment was regularized in the next Annual General Meeting as per the procedure prescribed in the Companies Act, 1956. The Operational Creditor, Mr. G.V. Sudhindra was appointed as Vice President (operations) to manage the day to day affairs of the Corporate Debtor. The Operational Creditor, V P (Operations) with the support of Mr. M.G. Mohan Kumar, Director of the Corporate Debtor approached the Public Works Department of Karnataka State Government and Bruhat Bangalore Mahanagara Palike (BBMP) for introducing the new technology for read maintenance particularly pothole repairs on the road. Several meetings were held with PWD, BBMP, Task Force for Quality Assurance in Public Works, etc., to promote the new technology. (4) It is also stated that the Operational Creditor, C.V. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perational debt, and is not substantiated by adequate documentation as required under law. (3) It is contended that currently a petition for winding up (under Sections 434(1)(a) and 439 of the Companies Act, 1956) against the Company is pending adjudication before the High Court of Karnataka. The petition has been filed by A.V. Balasubramanya on 18 November 2015 in Co.P. 215/2015 on the ground of alleged default of an alleged debt owed to him by the Company. The petition is at the stage of preliminary hearing and has not yet been admitted. Without prejudice to the Company's stand in the aforesaid petition (which is inter alia, that A.V. Balasubramanya has been set up by the Petitioner to make false claims), it is humbly submitted that when a superior court of the State has been seized of the issue of the solvency of the Company, these proceedings, which are also later in time, cannot be maintained. (4) It is contended that as per Section 9(5)(2)(d) of the Code, this Tribunal must reject an application filed under Section 9 if the Operational Creditor has received notice of the 'existence of a dispute' between the parties as to the operational debt. As held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial facts have been deliberately suppressed by the Petitioner with a view to fraudulently evading the bar on filing of the instant application placed by Section 9 of the Code. (7) It is submitted that in 2012, one Mr. MG Mohan Kumar (who, incidentally has filed two frivolous insolvency applications against the Company in CP(IB) 99/BB/2017 and CP(IB) 116/BB/2017 through the same counsel) and Ms. Hebbar decided to jointly start the Company which would mainly be in the business of constructing, developing, maintaining, repairing, excavating, renovating and operating all types of Roads, Expressways, Highways, Bridge, Fly-overs, Terminals, Subways, Ports, Airports, Waterways, Public Works and such other infrastructural projects and activities and to provide solutions and to render related consultancy. On the basis of her trust in Mr. MG Mohan Kumar, agreed to promote the Company and induct herself into the shareholding of the Company, initially being offered Additional Directorship and later on full-fledged Directorship along with majority shareholding of about 98% shares of the Company. (8) The Company was incorporated on 7 May 2012 with Mr. M G Mohan Kumar and one Mr. Purusho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Tribunal. Bringing these facts on record would reveal that no operational debt has been created against the Company. (12) It is stated that Mr. MG Mohan Kumar was in charge of the overall control and management of operations, administration and finances of the Company from incorporation until 17 April 2015, and in this period he had a free rein in running the Company as he saw fit. All key employees hired by him in this period reported directly to him. The Petitioner was one such employee. He claims to have been appointed as the Vice President (Operations) of the Company by the Company on 02 May 2012 with effect from 01 April 2012 i.e. even prior to the incorporation of the Company! The plan to run the Company to the ground is evident from this very fact that without even the company being incorporated the Petitioner and Mohan Kumar were already conspiring. (13) Upon returning as the primary Director in the Company, and noticing un-explicable liquidity crunch, Ms. Hebbar ordered the conduct of a forensic investigation of the Company by an independent entity. As a first step, the Company conveyed to its Bankers to stop accepting cheques signed by Mr. MG Mohan Kumar vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates. (15) A true copy of the investigation report prepared by V Raghavan and Co, Chartered Accountants along with accompanying summary letter, write-up summarizing the misappropriation of funds and e-mail from auditor which had enclosed the aforesaid report are produced herewith as Annexure R5 series. The full extent of fraud and misappropriation is yet to be determined and will only come to light after a thorough police investigation and trial. (16) It is evident that the Petitioner had, therefore, grossly abused his statutory and fiduciary responsibilities as a key employee of the Company for the pecuniary benefit of himself and his acquaintances, by misusing funds of the Company. This abuse has caused huge losses to the business operations of the Company. As such, the Petitioner has failed to even remotely discharge his fiduciary obligations as a key employee to the Company and cannot be said to be entitled to any payments from the Company in view of the blatant embezzlement of funds (which, it is relevant to note, far exceeds the total amounts being claimed by the Petitioner in the instant petition). (17) It is submitted that Ms. Hebbar has filed a criminal compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an order dated 19 October 2017 rejecting the petition for anticipatory bail filed by the Petitioner and his co-accused. It is pertinent to note that, in the judgement rejecting the petition, the Hon'ble Sessions Judge has found that there exist incontrovertible circumstances that make out prima facie that the Petitioner and his co-accused were guilty of offences alleged in the criminal complaint in Crime No. 87/2017. (21)When considering the nature of criminality and fraud evident from the actions of the Petitioner as described above, it is evident that the instant application has been filed at his behest, on the basis of documents created by him and his accomplices with a view to providing a counter blast to the criminal investigation pending against him. Such actions amount to an abuse of the process and law and this Tribunal must take strong exception to the same. It is submitted that the above-mentioned investigation, based on the report of an independent auditor, constitute sufficient evidence of facts which constitute a dispute in terms of Section 9 of the Code. While police continue to investigate the complaint, the Sessions' Court's prima facie finding as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akes it clear that these have been filed as a counterblast to the criminal actions raised by the Company. (26) Regarding the merits of the case it is submitted that as per the provisions of Section 9 of the Code, the following conditions must necessarily be met for admission of an application for initiation of insolvency resolution process: a. There must be an existence of an operational debt owed by the corporate debtor to the operational creditor; b. There must be a default of the operational debt; c. The operational creditor must have served on the corporate debtor a demand notice or invoice demanding payment under Section 8 of the Code at least 10 days prior to making the application under Section 9; d. The operational creditor making an application must, along with the application, furnish: i. A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; ii. An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; iii A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the Petitioner's subsequent conduct - in colluding with MG Mohan Kumar and others - to illegally embezzle company funds for personal pecuniary gain amounts to a gross violation of the Code of Conduct of the Company and is an act of sever indiscipline. As such, the Petitioner has committed a wholesale breach of the terms of the said 'Appointment Letter' and is not, under any circumstances, entitled to any payments that may have become due as per the said 'Appointment Letter'. (31) It is submitted that the manner in which the debts have been claimed by the Petitioner show that they have been baselessly concocted. A combined reading of the collusive petitions filed in CP (IB) No.99/BB/2017 and CP (IB) No. 116/BB/2017 and the present petition seem to portray that the financial health of the Company was perilous and M G. Mohan Kumar had to personally lend money to the Company, along with raising funds from friends in order to tide over the financial crisis. The petitions also claim that the Company had not even commenced operations till end of 2013 when the first machine was imported successfully. Nevertheless, the alleged monthly salary of the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idity of the salary claims of the Petitioner but rather a procedural formality performed to avoid the Company being sunk into regulatory or penal proceedings. In fact, the Company is in the process of taking steps towards filing fresh returns for the relevant years with a view to claiming back arrears for false transactions entered into by the Petitioner and his accomplices including the bogus salary claims made by the Petitioner herein. There are criminal investigations under way to determine the extent of embezzlement of fraud perpetrated by the Petitioner and his associates. If the embezzlement were to be proven then the amounts deducted as TDS would be recoverable from the Petitioner. (35) Further, the Petitioner has claimed that in his petition that he has been paid some of these dues in part, though no such document has been produced to prove this. Even otherwise, the Form 26AS produced for the year 2014-15 on which the Petitioner seeks to rely suggest that an amount of INR was paid to him whereas in the petition he claims that only a sum of INR 9,69,000/- has been paid to him. Such inconsistencies strike at the root of the matter and make it very clear that the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the Company and creating the very situations he is now seeking redressal from. The Company is a viable going concern enjoying the backing of a reputable financial institution and the prospect of tremendous future business. Therefore, the instant Petition is liable to be rejected for lack of disclosure of a default of an operational debt by the Company, lack of disclosure of existence of dispute and also for the immense damage it would cause to a booming going concern. (40) This is therefore a fit case for invocation of Section 65 (Fraudulent or malicious initiation of proceedings) of the Insolvency and Bankruptcy Code, 2016 which empowers this Hon'ble Tribunal penalize any person who initiates insolvency resolution process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency. The cases decided by the Principal Bench of this Hon'ble Tribunal in Company Petition No.IB-39(PB)/2017 in the matter of Unigreen Global Private Limited has, by an order dated 8 May 2017, and by the Hyderabad Bench of this Hon'ble Tribunal in CP IB No. 96/7/HDB/2017 in the matter of Asset Advisory Services India Private Limited v. VSS Projects Priv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability or obligation in respect of a claim which is due from any person, and includes a financial debt or an operational debt. Such a debt would arise from a claim, as also defined in section 3(6), i.e. from a right to payment in the hands of the Creditor. Such a right could arise from some prior terms and conditions agreed to by the concerned opposite parties, in the shape of a Contract or an Agreement or Resolution, prior to the transaction, if any, so that the same could be enforced. 7. It is seen that the Operational Creditor was appointed as VP (Operations) of the Company on 02.05.2012, w.e.f. 01.04.2012 i.e. even prior to this appointment and also prior to the incorporation of the Company itself. This Appointment Letter was issued by Mr. M.G. Mohan Kumar who was in charge of the overall control and management of operations, administration and finances of the Company since incorporation until 17 April 2015. In that period the Petitioner reported directly to Mr. M.G. Mohan Kumar, against whom also cases for misappropriation and siphoning off of funds etc. have been filed by the Corporate Debtor, along with the Operational Creditor, and which are mentioned in our order in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, not held Board meetings etc., thus saddling the Company with huge liabilities and losses. To facilitate all this he hired his own men, including the Petitioner in the instant Petition. She ordered a forensic audit by an Independent Auditor, V Raghavan Co., Chartered Accountants. The detailed report has been placed on record and are summarised in the Respondent's objections at Para 3(14), wherein in conclusion it is mentioned that the Company had lost a minimum of ₹ 3,76,18,983/- on account of various fraudulent actions undertaken by Mr. M.G. Mohan Kumar, the Petitioner and their associates. 11. Pursuant to these findings of the Independent Auditor the Corporate Debtor, filed Criminal cases against the Petitioner and Mr. M.G. Mohan Kumar and his associate. The Petitioner, as an accused, moved the Hon'ble City Civil and Sessions Court, Bengaluru under Section 438 of the Code of Criminal Procedure, 1972 seeking anticipatory bail in the event of their arrest in connection with Crl. No.87/2017. The anticipatory bail petition was filed on 07.10.2017 being Criminal Misc.8005/2017. The Hon'ble Sessions Court passed an Order dated 19.10.2017 rejecting the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notice sent later on 08.09.2017 under the provisions of the Code (mentioned in this Petition), being ₹ 28,37,481, indicating that there was no clarity on the debt even by the calculations of the Petitioner. This would also mean that either there was no valid Demand Notice or there is a defective Petition before us, which should be dismissed on this ground alone. In the reply to this notice of 10.04.2017, the Corporate Debtor while denying any payments due to the Operational Creditor, opposed his appointment, charged him with collusion with Mr. M.G. Mohan Kumar and fraudulent siphoning off of funds of the Company, apprised him of the findings of the Independent Auditors Report and made a reference to the criminal cases filed against him. This again shows that there was a pre-existing dispute about the debt in question, much prior to the Demand Notice issued by the Operational Creditor, not merely on the quantum but on the existence of the debt itself. 13. At this point we may mention that in C.P. No.43/BB/2018 we dealt with a petition filed under section 131 of the Companies Act 2013, wherein the Corporate Debtor had sought revision of its Financial Statements and Board Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than recovery of any genuine debt. 15. The Petitioner's claim that his salary arrears are proved by the TDS Certificates, Form 26AS, of the Income Tax Department also does not hold ground. It is seen from the Form 26AS brought on record that the TDS amounts were booked on 15.05.2015 and 29.07.2015, whereas the payments of salary relate to the period from April 2013 to October 2014. Even assuming that salaries were payable for this period, after the conduct of Independent Audit in 2015 instances of misappropriation and siphoning off of funds came to light and cases were filed against the Petitioner and his co-accused, these claims came into dispute. Mere TDS cannot revive his claim looking at the totality of circumstances. 16. Lastly, these proceedings are not recovery proceedings. However, we find that the Petitioner has approached this forum only for recovery. He has not made out any case that the Corporate Debtor is insolvent and unable to repay its debts because of which CIRP should be initiated against it. We find that the Company is seeing an upswing in its business. Earlier Canara Bank had issued a SARFAESI Notice to the Company in July 2016 but has now proceede ..... X X X X Extracts X X X X X X X X Extracts X X X X
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