2021 (1) TMI 572 - HC - Insolvency and Bankruptcy

Criminal breach of trust and cheating - dishonest misappropriation and conversion of the assets and properties of M/S Meghalaya Infratech Pvt. Ltd. for its own purpose in violation of the provision of law - Illegal finalization of the resolution plan/bid forwarded by other bidders at a lower price - allegation against the petitioner was that the revised offer of resolution applicant, viz., the PPIPL was not considered or placed before the committee of the creditors and the committee of creditors approved the plan/bid of another resolution applicant, who was found to be the highest bidder - HELD THAT - Admittedly the request of the respondent No. 2 for extension of time and the revised offer was rejected by the committee of creditors and the petition filed by the PPIPL to direct the petitioner to consider the revised offer of the respondent was also turned down by the learned NCLT, Guwahati Bench. In the instant case from the admitted facts as revealed from the order of NCLT, it is apparent that the NCLT directed the petitioner to resume the CIRP for taking a fresh decision by the committee of creditors regarding the resolution plan, and as such, there was no delivery of property. It is also evident from the record that on 14-02-2020 the e-mail was addressed by the PPIPL to all the members of the committee of the creditors regarding his revised offers and as such, there was also no question of deception by the petitioner. From the materials, it is apparent that though the revised offer of the PPIPL was not placed before the committee of the creditors, members of the committee of creditors were aware about the said offer, and as such, there was no question of deception or fraud practiced by the petitioner. The Hon'ble NCLT observed that the revised offer ought to have been placed before the committee. Such observation, per-se, can by no stretch of imagination be construed as motive or practicing fraud or deception on the part of the petitioner. Therefore, the ingredients to constitute an offence u/s 420 IPC is also absent in the FIR. Evidently the petitioner was discharging his official duty as per the direction of the NCLT under the provision of the Insolvency Code and the respondent No. 2 after exhausting all other forums to ventilate his grievance lodged the FIR only when a favorable order was passed by the NCLT. Therefore, the lodging of the FIR after exploring all the avenues and the facts and circumstances of the present case, as discussed hereinbefore, the FIR or the criminal proceeding appears to be attended mainly with the ulterior motive of wrecking vengeance on the accused petitioner - Petition disposed off.

Summary

Issues Involved:
1. Quashing of the FIR and criminal proceeding under Sections 406/420 IPC.
2. Applicability of Sections 217, 233, 236, and 238 of the Insolvency and Bankruptcy Code, 2016.
3. Interpretation of "good faith" and its impact on immunity under Section 233 of the Insolvency Code.
4. Principles for quashing criminal proceedings at the initial stage.

Issue-wise Detailed Analysis:

1. Quashing of the FIR and Criminal Proceeding under Sections 406/420 IPC:
The petitioner sought to quash the FIR dated 27-10-2020 and the criminal proceeding in Paltan Bazar P.S. Case No. 825/2020 registered under Sections 406/420 IPC. The FIR alleged that the petitioner, acting as a resolution professional, colluded with other bidders to finalize a resolution plan at a lower price, despite the highest bid from PPIPL. It was claimed that the petitioner’s actions amounted to dishonest misappropriation and conversion of assets, constituting criminal breach of trust and cheating.

2. Applicability of Sections 217, 233, 236, and 238 of the Insolvency and Bankruptcy Code, 2016:
- Section 217: Allows any aggrieved person to file an application against an insolvency professional.
- Section 233: Provides immunity from prosecution for actions done in good faith under the Insolvency Code.
- Section 236: Offences under the Insolvency Code are to be tried by a Special Court.
- Section 238: The Insolvency Code overrides any inconsistent provisions in other laws.

The petitioner argued that the prosecution was not maintainable under these sections, while the respondent countered that these provisions were not applicable as the offences fell under the Indian Penal Code (IPC).

3. Interpretation of "Good Faith" and Its Impact on Immunity under Section 233 of the Insolvency Code:
The court noted that the immunity under Section 233 applies to acts done in good faith under the Insolvency Code. However, "good faith" is a question of fact, which must be determined based on the circumstances of each case. The court emphasized that allegations in the FIR should provide material facts to attribute an absence of good faith to the petitioner. The court referred to the Apex Court’s decision in General Officer Commanding Rashtriya Rifles and Ors. Vs. CBI, which highlighted the necessity of material facts to impute an unreasonable motive to take away immunity.

4. Principles for Quashing Criminal Proceedings at the Initial Stage:
The court referred to the principles established in State of Haryana Vs. Bhajanlal, which outline categories where criminal proceedings can be quashed to prevent abuse of process or to secure justice. The court found that the allegations in the FIR did not prima facie constitute offences under Sections 406/420 IPC. The petitioner was acting under the directions of the NCLT and the decision to finalize the resolution plan was taken by the Committee of Creditors and approved by the NCLT, Guwahati Bench.

The court concluded that the essential ingredients of entrustment and misappropriation or conversion of property were absent. Additionally, there was no evidence of deception or fraud by the petitioner. The court observed that the FIR appeared to be lodged with an ulterior motive after exhausting other forums, aligning with clauses (i), (ii), (iii), and (vii) of Bhajan Lal’s case.

Conclusion:
The court quashed the FIR dated 27-10-2020 and the consequential proceeding in Paltan Bazar P.S. Case No. 825/2020 registered under Sections 406/420 IPC, stating that the allegations did not disclose the necessary ingredients to constitute the offences and appeared to be motivated by vengeance.