TMI Blog2022 (12) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... of November, 2016 as an extension of earlier share pledge agreement dated 10.06.2014 wherein the substantial portion of shares have been pledged as contemplated by the Appellants. It is also a matter of fact to be recorded that since 2017, Respondent No.1 was having the full knowledge of share pledge agreement of 2016 but he chooses to file Section 43 application after a delay of one year. This reflects, no doubt, that filing of petition under Section 43 of the Code alleging that Share Pledge Agreement dated November 2016 is at belated stage by the R1 to deny the Appellant of their status or rights as financial creditor. Incidentally, impugned pledged largely satisfied all ingredients of Section 43 of the Code. The impugned order dated 29.10.2020 although passed by two separate orders but in concurring orders both the Ld. Members arrived at the conclusion that the impugned pledge is a preferential transaction covered under Section 43 of the Code. The approach of the Appellant to give the colour of pledge as in the ordinary course of business is no longer res integra as per the law laid down under the Code - reliance can be placed in the case of PROFESSIONAL FOR JAYPEE INFRATE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in activities auxiliary to financial intermediation, except insurance and pension fund. The Corporate Debtor, represented by the Liquidator is a company which is involved in the multiple sectors such as composite tubes, precision tubes and other innovations in tube manufacture. 4. It is submitted by the Ld. Counsel for the Appellant that the CD availed certain working capital facilities from SBI under which the Bank provided an additional cash credit facility of Rs. 20 Crores vide sanction letter dated 06.03.2013. Additionally, CD availed certain working capital facilities from RBL under which the Bank provided a cash credit facility of Rs. 50 Crore vide sanction letter dated 25.03.2013. Creditor facility Agreement dated 28.05.2013 was entered into between the CD and RBL. In order to secure the aforesaid agreement, the Appellant had pledged its own shares held in two companies, namely, Aim Filtertech Pvt. Ltd. GeneOmbio Technologies Pvt. Ltd. in favour of SBI by way of agreement dated 11.11.2013. Vide another Pledge Agreement dated 20.11.2013, the Appellant created a pledge on its share held in Opal Luxury Time products Ltd. with RBL in order to secure CD s borrowings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 25(2) (j) and Regulation 39(2) of IBBI (Corporate Insolvency Resolution Process) Regulation 2016, RP have a duty to report such transactions to the CoC and to file applications to set them aside during CIRP period and suddenly now it becomes preferential transaction, this is an afterthought. The shares of Innoventive America s INC (Respondent No.2 herein) was the only asset/security which was unencumbered and free from tall charges that s why to secured Appellants debt, and to raise funds, CD created pledge as there was no other unencumbered security available with CD and business operation had shut down in 2014 only. The Appellant had been providing support the CD since June 2014 to keep the operations of CD running and also to ensure that interest of around 1200 workers employed by the CD is safeguarded and the continuation of the debtor as a going concern for the benefit of creditors and non-creditor third parties. 8. It is also submitted by Ld. Counsel for the Appellant that if this transactions or pledge agreement will be considered as preferential transaction then all the loan/pledge agreement where appellant has granted its guarantee or provided security for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority That subsequently, the company appeal (AT) (Ins.) No. 1132-1133 filed by the Appellant before this Appellate Tribunal against the impugned order dated 29.10.2020 was listed and heard on 04.01.2021 vide which this Appellate Tribunal dismissed the said company appeal as withdrawn with liberty to assail the impugned order along with the order passed in Recall Application, if adverse to Appellant. Further, the said recall application was listed before the Ld. Adjudicating Authority on 06.01.2021 which was heard and dismissed in limine. Hence, being aggrieved, the Appellant is filing the present Appeal to challenge the impugned orders dated 29.10.2020 and 06.01.2021. 10. The ld. Counsel for the Respondent No.1 has submitted that Mr. Dhinal Shah, the erstwhile Liquidator of the CD, was originally arrayed as R1 in the appeal. By an order dated 24.12.2021 passed by the Adjudicating Authority, Mr. Trupal J Patel was appointed as Liquidator of the CD in place of Mr. Dhinal Shah. In the light of this by an order date 13.05.2022 in IA Nos. 804, 805 806 of 2022, this Tribunal allowed Mr. Trupal J Patel to be substituted in place of Mr. Dhinal Shah as the R1 in the appeal. 11. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed on 29.10.2020 by two separate but concurring orders in which contentions of Appellant have been duly noted and considered. This being so, it is incorrect and unfair for Appellant to contend in its appeal that it was not heard or that the gap between hearing and pronouncement of the which has resulted in some inaccuracies creeping in the impugned order. The Appellant has accepted that the pledge was created to secure its antecedent liability. However, it has taken two arguments. Firstly, that the pledge was created in the ordinary course of business; and secondly, that 2016 pledge is a continuation of 2014 pledge and hence beyond the look back period. 14. The Ld. Counsel for the Respondent has also cited the judgment of Hon ble Supreme Court in Anuj Jain, IRP for Jaypee Infratech Limited Vs. Axis Bank Limited Ors. (2020) 8 SCC 401 para 28.6: 28.6.The result of discussion in the foregoing paragraphs is that the transfers in question could be considered outside the purview of sub-section (2) of Section 43 of the Code only if it could be shown that same were made in the ordinary course of business or financial affairs of the corporate debtor JIL and the transferees. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the ordinary course of business or financial affairs of the corporate debtor JIL cannot be taken to be that of providing mortgages to secure the loans and facilities obtained by its holding company; and that too at the cost of its own financial health. As noticed, JIL was already reeling under debts with its accounts with some of the lenders having been declared NPA; and it was also under heavy pressure to honour its commitment to the home buyers. In the given circumstances, we have no hesitation in concluding that the transfers in questions were not made in ordinary course of business or financial affairs of the corporate debtor JIL. 25.7. The submissions that security was disclosed in the Annual Reports or that none of the creditors expressed dissent are of no effect because such disclosure or want of objection by creditors, by themselves, do not operate as estoppel against anybody nor would take the transaction out of the purview of the legal fiction predicated in Section 43, if it is otherwise of a preference at a relevant time. Similarly, the distinction between NPA and wilful default ; the submission that NPA could be regularised; and further the submission th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pledged the remaining 15% shares. It has also been contended by Appellant that the Alleged 2015 Pledge Agreement could not be produced by it initially due to genuine difficulty and inadvertence . It is further contended that the said 2014 agreement was not challenged or disputed by the Liquidator and hence it has bene accepted. In this regard, following may be noted: a. The Alleged 2014 Pledge Agreement could not have been challenged in the first instance by the Liquidator in its Preference Application since a copy of the Alleged 2014 Pledge Agreement surfaced for the first time, in the reply to the Preference Application. b. The Impugned 2016 Pledge Agreement was challenged by the Liquidator in its Preference Application since Innoventive Ventures Ltd (IVL)/Appellant had invoked 2016 Pledge Agreement by its notice dated 4 January 2018. In the notice sent by IVL Appellant (notice signed by Ms. Pournima Gadiya), only 2016 Pledge Agreement is invoked and there is no mention of Alleged 2014 Pledge Agreement. In fact, till date, there is no invocation of the Alleged 2014 Pledge Agreement. c. In the Claim Form dated 5th January 2018 submitted by IVL/Appellant, there is no men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such agreement was indeed executed by the CD. No record of this agreement is available. h. When questioned by the Liquidator on RBI approval for the Impugned Pledge, Respondent No. 3 sent an email dated 18 March 2018 stating that the pledge is permitted without RBI approval on basis of an amendment to Regulation 18 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2014 (FEMA Regulations). Interestingly, the said amendment to FEMA Regulations is dated 14 October 2014 (i.e., after 10 June 2014, the date of Alleged 2014 Pledge Agreement). It can, thus, be logically inferred that in its email dated 18 March 2018, Respondent No. 3 was referring to the Impugned 2016 Pledge Agreement and could not be referring to the Alleged 2014 Pledge Agreement. i. In light of the above, the contention of IVL/Appellant in the Appeal that the Liquidator has not challenged or disputed the Alleged 2014 Pledge Agreement has no merit. When the copy of the said agreement surfaced for the first time in the reply filed by IVL/Appellant, the Liquidator took a specific plea in the rejoinders clearly stating that the Alleged 2014 Pledge Agreement appears to be fabric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 43 of the Code is in stark contrast to Section 531 of the Companies Act 1956 which contained provisions regarding 'fraudulent preference'. Section 53(1) entailed element of fraud and hence, the question of intention was material thereunder. On the contrary, Section 43 of the Code creates a deeming provision wherein, once the ingredients of Section 43 are satisfied, it is deemed that a preference is given, irrespective of whether the transaction was in fact intended or even anticipated to be so. In view of the above, any reference to the erstwhile regime under the Companies Act, 1956, provisions of the Indian Contract Act, 1872 and principles governing Chapter XI proceedings in USA is wholly misplaced and irrelevant and do not support the case of IVL/Appellant. Notably, no other surrounding circumstances and/ or documents have been shown or produced, which may support the valid execution of either the Impugned 2016 Pledge Agreement or the Alleged 2014 Pledge Agreement. Neither of the pledge agreements are supported by any board resolutions or registrations, despite the fact that the CD was a listed company and would need to make adequate disclosures and take appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Application was filed by the Liquidator. However, in view of the stay order dated 17 February 2021 passed in the Appeal, the Contempt Application has simply been adjourned from time to time. It may be noted that the IAI Shares constitute one major asset block which remains to be liquidated. While a highest bidder has been identified (who has paid the earnest money), the payment of the balance amount and conclusion of sale of the shares is dependent on the release of the Impugned Pledge and hand over of the share certificates. There is also complete lack of visibility regarding IAI/ Respondent No. 2 and its downstream operating entity, Salem Steels, and there are genuine apprehensions that the value of the IAI Shares may be deteriorating due to actions of the erstwhile promoter/director (Respondent No. 3). The Erstwhile Directors of CD, among others, have failed to assist the Liquidator with respect to providing proper and complete information and one of the reasons cited for not providing the required information is the pending litigation around the Impugned Pledge. By way of the Recall Application, IVL/ Appellant did not seek rectification/ modification of any clerical errors or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 which is a wholly owned subsidiary of the CD. The Appellant invoked the Pledge Agreement and notified to the same to the Liquidator vide email dated 04.10.2018. vi. The RP who has filed the Petition under Section 43 44 of the Code against the Appellant, is the RP since inception of the CIRP of the Appellant Company in terms of the order of Adjudicating Authority dated 17.01.2017 appearing at page no. 174 of the Appeal paper book. B. No body has disputed that the amount has not been paid by the Appellant to the Respondent No.1 as payment is through banking channels as per submission made by the Appellant and not countered by the Respondents. Nor there is any dispute on having a share pledge agreement made on 25.11.2016 between the Appellant Company and the R1/Innoventive Ventures Limited and confirming party Innoventive America Inc./ R2. This Pledge Agreement appearing at page 159 vide para 2 of the Appeal paper book also provides details of other pledges. To bring a clarity on this, a scanned copy of page 158-164 is reproduced herein below : C. This pledge agreement has been in the record of the CD which as RP, it may have been exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that all the companies (Innoventive Ventures Limited, Innoventive Industries Limited and Innoventive America Inc.) involved in this case are related party as also Promoter of the CD and Chairman MD of Innoventive Ventures Limited Mr. Chandu Chavan. I. Incidentally, impugned pledged largely satisfied all ingredients of Section 43 of the Code. The impugned order dated 29.10.2020 although passed by two separate orders but in concurring orders both the Ld. Members arrived at the conclusion that the impugned pledge is a preferential transaction covered under Section 43 of the Code. The approach of the Appellant to give the colour of pledge as in the ordinary course of business is no longer res integra as per the law laid down under the Code. (2020) 8 SCC 401 Anuj Jain, IRP for Jaypee Infratech Limited Vs. Axis Bank and Anr. Para 28.6 as stated supra. J. This Pledge Agreement even of 2016 only reflects that the IVL/Appellant does not hold merit for the impugned pledge created during the ordinary course of business. Circumstantial evidence also suggests that there is no another pledge agreement dated 10.06.2014. Even the 2016 pledge agreement does not have backing a board re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
