2020 (8) TMI 575 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - case of appellant is that it could not conduct the business due to RBI Circular dated 13th March, 2018 - HELD THAT - As per Section 12(3) of the Companies Act, 2013, it is a necessary for a Company to write name of the Company along with its former name, so changed during the last two years. But in the present case, the Appellant purposely suppressed the former name in Form-6 as well as in the affidavit verifying the petition filed under Section 10 of the I B Code. Centrum Financial Services Limited Respondent No.15 brought on record a Tabular Chart and audited statement to show that the Corporate Applicant was solvent and self-sustained Company and immediately before the petition was filed, the Appellant serially siphoned off money. In support of it a Tabular Chart has been enclosed - However, we are not inclined to give any finding on the question of fact as to whether the Appellant is a solvent Company and any amount is siphoned or not. If that be so, it will be open to the parties to move on the aforesaid facts before the Registrar of Companies and Regional Director of the Companies, Eastern Region with such allegations. The stand as taken by the parties, suggest that the application under Section 10 of the I B Code was filed by the Corporate Applicant fraudulently with malicious intent and not for Resolution or Liquidation and may attract Section 65 of the I B Code for penal action. However, as no such order has been passed by the Adjudicating Authority (National Company Law Tribunal) under Section 65 imposing penalty, we are not passing any penal order under Section 65 - the application under Section 10 was not maintainable. Appeal dismissed.

Summary

Issues Involved:
1. Maintainability of the application under Section 10 of the Insolvency and Bankruptcy Code, 2016.
2. Allegations of fraudulent intent and malicious motives behind filing the application.
3. Compliance with procedural requirements and shareholder approval.
4. Financial status and solvency of the Corporate Applicant.
5. Impact of prior legal proceedings and arbitral awards.

Issue-wise Detailed Analysis:

1. Maintainability of the application under Section 10 of the Insolvency and Bankruptcy Code, 2016:
The Corporate Applicant filed an application under Section 10 of the I&B Code for initiating the Corporate Insolvency Resolution Process (CIRP) on the grounds of business difficulties due to an RBI Circular dated 13th March, 2018. The National Company Law Tribunal (NCLT), Kolkata Bench, dismissed the application on 15th November, 2018, citing the absence of a shareholders' decision and failure to prove the existence of default.

2. Allegations of fraudulent intent and malicious motives behind filing the application:
Several respondents, including Sleepwell Industries Company Limited and Swiss Singapore Overseas Enterprises Pvt. Ltd., alleged that the application under Section 10 was filed with the intent to defraud creditors and frustrate court orders. Sleepwell Industries highlighted that the Corporate Applicant changed its name and registered address to evade creditors and initiated the application under Section 10 with malicious motives.

3. Compliance with procedural requirements and shareholder approval:
The Appellate Tribunal questioned whether the shareholders of the Corporate Applicant had approved the application in an Extraordinary General Meeting. The Corporate Applicant presented a document dated 10th April, 2018, showing shareholder approval, which was challenged by the respondents as forged and not presented before the NCLT. The Tribunal noted procedural irregularities, including the suppression of the former company name in official filings.

4. Financial status and solvency of the Corporate Applicant:
Centrum Financial Services Limited provided evidence suggesting that the Corporate Applicant was solvent and had siphoned off funds before filing the application. The Tribunal refrained from making a factual determination on the company's solvency, leaving it open for parties to raise these issues with the Registrar of Companies and the Regional Director of Companies, Eastern Region.

5. Impact of prior legal proceedings and arbitral awards:
The Tribunal reviewed the history of legal proceedings involving the Corporate Applicant, including arbitral awards and execution applications filed by creditors. It was noted that the Corporate Applicant had a history of non-compliance with court orders and arbitral awards, further supporting the allegations of fraudulent intent.

Conclusion:
The Tribunal concluded that the application under Section 10 was filed fraudulently with malicious intent, not for resolution or liquidation, potentially attracting penal action under Section 65 of the I&B Code. However, as no penal order was passed by the NCLT, the Tribunal did not impose any penalty. The Tribunal dismissed the appeal, allowing the Bank of Baroda and other financial and operational creditors to proceed with their applications under Section 7 of the I&B Code, uninfluenced by the NCLT's order dated 15th November, 2018, and the Tribunal's observations.