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TMI Blog2024 (11) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... as appointed as the Interim Resolution Professional (IRP). 2. In brief, Intense Fitness & Spa Pvt. Ltd. (Corporate Debtor)/Respondent No. 1 has alleged to have availed loan from Navayuga Engineering Company Ltd. (Navayuga) which was assigned by it to CVR Holdings Pvt. Ltd. (Financial Creditor)/Respondent No. 2 by way of an assignment agreement dated 10.02.2020 (in short 'Agreement') executed between Navayuga, Respondent No. 1 and Respondent No. 2 in respect of an outstanding loan of Rs. 11,08,94,834/-. 3. The Assignee / Respondent No. 2 filed the application under Section 7 of the Code before the Tribunal bearing CP (IB) No. 228/ND/2022 against the Corporate Debtor / Respondent No. 1 alleging that as per agreement dated 10.02.2020, the CD was to repay the loan amount by 31.12.2020 without interest with the condition that it shall pay interest @ 10% w.e.f. 01.01.2021 but latest by 30.06.2021. In part IV of the application (form 1) amount of Rs. 11,08,94,834/- was claimed as on 01.03.2022 as due and payable. 4. The Tribunal has noticed that the Corporate Debtor/Respondent No. 1, in its reply, admitted the debt and default, therefore, the IRP named by Respondent No. 2 (Financial Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined from removing the equipment's/belongings currently lying in the said property. 13. It is alleged that Respondent No. 2, immediately after passing of the decree dated 19.04.2022, in order to delay the execution of the decree, filed another application bearing I.A. No. 2148 of 2022 seeking early hearing of the said CP filed under Section 7 of the Code. 14. It is alleged that the Appellant received the possession of the property on 21.07.2022 which was also recorded in the order dated 25.07.2022 passed by the High Court of Delhi in execution petition bearing EX.P. 23/2022. 15. The present appeal has been filed by the Appellant, while challenging the impugned order by which the application filed under Section 7 has been admitted, on the ground that both Respondent No. 1 and Respondent No. 2 are related parties, who in collusion and connivance with the ex- management/promotor/director/shareholder of Respondent No. 1 i.e. Respondent No. 3 to 5, for the initiation of CIRP of Respondent No. 1, filed a collusive petition under Section 7, with malicious intent, for a purpose other than the resolution of the insolvency, which is hit by Section 65 of the Code. 16. It is also alleged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon shareholder in all three companies and has shareholding of 21.77% equity in Navayuga, shareholding of 33.34% in Respondent No. 1 since 2014 and shareholding of 66.66% in Respondent No. 2. It is further stated that Respondent No. 3 is currently serving as the director of Navayuga and Respondent No. 2. 20. The shareholding of Respondent No. 3 in all the three companies has been depicted by a chart in the grounds of appeal which is reproduced as under : - Company Shareholding of Mr. Chinta Sridhar Relation Intense Fitness & Spa Pvt. /Ltd. Corporate Debtor 33.34% CVR Holdings Private Limited /Financial Creditor 66.66% Director Navayuga Engineering Company Limited 21.77% Director 21. It is alleged that Respondent No. 2 has not demonstrated that the debt assigned by Navayuga vide agreement dated 10.02.2020 was ever disbursed by Navayuga to Respondent No. 1. It is further alleged that the agreement dated 10.02.2020 is not registered and is under stamped. It is alleged that if the debt is outstanding for more than three months then the stamp duty of 0.5% of the amount is to be affixed whereas the agreement has been executed on a stamp paper of Rs. 100. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Respondent No. 1 as provided under Section 5(24) of the Code and merely, there is a common shareholder of Respondent No. 1 and Respondent No. 2 will not make it a case of related party. It is also submitted that merely because the CD chose to include the debt owed by Respondent No. 2 under the heading 'Note 3, Loan and advances from related party' in its audited books will not attract Section 5(24) of the Code automatically. It is also alleged that Navayuga had disbursed the loan on different dates between financial year 2009-10 and 2016-17 which has been mentioned in its books of accounts 24. Respondent No. 1 has also filed the reply in which he has alleged that after his appointment as IRP, in terms of Section 15 of the Code, issued public announcement on Form A on 03.08.2022 to invite claims from creditors Form A was published on 04.08.2022 in Financial Express (English Edition) and Jansatta (Hindi edition), having circulation in Delhi & NCR. The public announcement was also uploaded on the website of IBBI and submitted with IPA of ICAI. It is alleged that pursuant to the public announcement dated 03.08.2022, he received two claims which were subsequently collated, verified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that in the case of Hindalco Industries Ltd. Vs. Hirakund Industrial Works Ltd., CA (AT) (Ins) No. 42 of 2022 it has been held that the common shareholding is required to be looked into to ascertain the true purpose of the CD and the Hon'ble Supreme Court in the case of Phoenix ARC (P) Ltd. Vs. Spade Financial Services Ltd, (2021) 3 SCC 475 has held that amount disbursed to third parties that too by the related party will not qualify as a financial debt under the Code. He has further argued that spirit of the Code is to balance the acts of all the stakeholders in the insolvency resolution of the CD and any action which goes against the spirit of the Code raises serious doubt about the CIRP which should be looked into deeply to examine element of fraud or gaming. 27. Counsel for the Appellant has further argued that the ledger statement of the CD maintained by Navayuga reflects that the said amount was not directly disbursed to CD but was paid towards miscellaneous expenses of the CD to various third parties over a period 8 years from 03.07.2009 to 12.01.2017. It is submitted that Respondent No. 5, suspended director of CD, also filed ledger of Navayuga maintained by CD which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Clause (a) to (m) which prescribes the requirements for considering a person to be a related party of the CD whereas Respondent No. 1 and 2 do not fall within that clause. It is also submitted that total sum of Rs. 11,08,94,834/- were advanced by Navayuga to Respondent No. 1 and /or to third party on behalf of CD between July, 2009 and January, 2017. These sums did not carry any interest and were treated as Inter Corporate Deposit in Navayuga's books of accounts. The entries in the said books of accounts show that the sums advanced by Navayuga were treated as loan. It is argued that in the books of Navayuga there is no mention whatsoever of Share Application Money nor there is any agreement or contract between the parties for treating the sums advanced as Share Application Money as submitted by the Appellant. It is further submitted that the obligation to pay by way of agreement and letter dated 04.05.2020 that the debt has the commercial effect of borrowing within the meaning of Section 5(8) of the Code and submitted that sum advanced by the financial creditor to third party towards working capital requirements, business expenses, etc. do constitute financial debt. In this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h their able assistance. 34. Admitted facts of the case are that the Appellant had let out its premise to Respondent No. 1 on a rent of Rs. 17,00,000/- p.m for a period of three years from 01.03.2016 to 28.02.2019 which was increased from 01.03.2019 to the tune of Rs. 19,55,000. 35. When Respondent No. 1 defaulted in payment of the rent and other charges it filed a petition under Section 9 of the Code for the resolution of an amount of Rs. 1,13,57,341/- outstanding as on 19.03.2019. The said application was dismissed on 18.03.2020, inter alia, on the ground that outstanding rent does not fall within the definition of operational debt and that there was a pre-existing dispute between the parties. 36. There is no denial to the fact that the Appellant has recovered the possession of the premise let out to Respondent No. 1 through a suit filed before the Hon'ble High Court of Delhi. 37. The allegation of the Appellant is that in order to circumvent the proceedings initiated by the Appellant in the suit, a collusive application bearing CP (IB) No. 228/ND/2022 under Section 7 of the Code has been filed in which the impugned order has been passed to which the Appellant was not a party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the voting share of these companies and also the assignor. It has been held by the Hon'ble Supreme Court in the case of Phoenix ARC (P) Ltd. that amount disbursed to third party that too by the related party will not qualify as a financial debt under the Code. It has also been held in the case of Hytone Merchants Pvt. Ltd. (Supra) that even if Section 7 of the Code ingredients are fulfilled then also if collusion is proved CIRP can be set aside. The Appellant has specifically averred in para 33 of the appeal paper book about the presence of Respondent No. 3 in all three companies as shareholder and director which has not been denied by Respondent No. 2 and 3 in their reply, firstly, there is no parawise reply filed and secondly in the reply the emphasis is more on the issue as to how the provision of Section 5(24) is attracted about which an inference can be drawn that the allegation of the Appellant about Respondent No. 3 is correct and once he was the director/promotor 33.34% shareholder in Respondent No. 1 and Director in both Navayuga and Respondent No. 2 with 21.77% and 66.66% shareholder, it cannot be said that he was not a related party especially when it is incorporated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be considered by the IRP, whether the proceedings have been initiated in collusion or not while submitting a report to the Adjudicating Authority. The provisions contained in Section 65 of the IBC are extracted hereunder:- "65. Fraudulent or malicious initiation of proceedings. - (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. 3 (2) 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." 7. Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the Corporate Debtor and M/s. Udhyaman Investments Pvt. Ltd., represented by the said Mr. Poobalan, whereby the Corporate Debtor agreed to pay Rs. 11.5 crores; (viii) that the said agreement was purportedly executed at Florida, but witnessed at Chennai; (ix) that Mr. Poobalan even communicated to the Director. Department of Mines & Geology as well as the Monitoring Committee, taking up the cause of the Corporate Debtor as its authorized signatory: (x) that the CIRP was initiated by M/s. Udhyaman Investments Pvt. Ltd, represented by its authorized signatory. Mr. Poobalan: (xi) that the Resolution Applicant namely, M/. Embassy Property Development Pvt. Ltd. as well as the Financial Creditor who initiated CIRP namely, M/s. Udhyaman Investments Pvt. Ltd. are all related parties and (xii) that Mr. Poobalan had not only acted on behalf of the Corporate Debtor before the statutory authorities, but also happened to be the authorized signatory of the Financial Creditor who initiated the CIRP, eventually for the benefit of the Resolution Applicant which is a related party of the Financial Creditor. 48. In the light of the above averments, the Government of Karnataka thought fit to in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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