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2022 (7) TMI 927 - Tri - Insolvency and BankruptcyCIRP - Seeking to direct investigation into fraudulent and malicious initiation of the present proceedings by the Financial Creditor - seeking direction to dismiss the present Petition purportedly filed under Section 7 of the Code by the Financial Creditor - penalty on the Financial creditor and FRL in accordance with Section 65(1) of I B Code - HELD THAT - The FA has been signed within the ambit of the RBI Circular by all the 26 Lenders and the question of FA being in violation of any injunctions does not arise as no sale of any assets has happened and seeking consent of Amazon under Clause 5.1.2 was not breached. Moreover, FA does not violate the EA Order or the orders of the Hon'ble High Court of Delhi, as the two orders of the Single Judge of the Hon'ble High Court of Delhi - (i) dated 02.02.2021 (directing FRL to maintain status quo with respect to its assets); and (ii) dated 18.03.2021 (holding that EA Order is enforceable in India and directing FRL to not act in contravention thereof) were not operative as on 26.04.2021 i.e. the date the FA was entered. The passing of the board resolution dated 29.08.2020 in relation to scheme of arrangement to MDA group being alleged to be in violation of the EA Order has no connection with the Financial Creditor and the allegation of collusion of the Lenders with Corporate Debtor and MDA group seems to be baseless, since, at the time of voting by the secured creditors, the Financial Creditor and the other Lenders had opposed the scheme of arrangement, same has been admitted by the intervenor himself. The onus to prove the existence of fraud is on the party alleging the same and in the present case, the applicant had miserably failed to establish the same - there is no injunction against the Lenders from exercising their contractual rights or statutory rights. Further, the banks are exercising their statutory rights in accordance with law as they are not party to the arbitration proceedings. Moreover, the Applicant is not even a stakeholder in respect of the Corporate Debtor and, a complete third-party to the proceedings before this Tribunal and has no locus standi to question initiation of proceedings under Section 7 of the Insolvency and Bankruptcy Code against the Corporate Debtor. The present intervention petition is dismissed.
Issues Involved:
1. Fraudulent and malicious initiation of insolvency proceedings. 2. Violation of contractual agreements and injunction orders. 3. Collusion between the Financial Creditor, Corporate Debtor, and MDA Group. 4. Validity and enforceability of the Framework Agreement (FA). 5. Locus standi of the Applicant to intervene in insolvency proceedings. Detailed Analysis: 1. Fraudulent and Malicious Initiation of Insolvency Proceedings: The Applicant argued that the Section 7 Petition filed by the Financial Creditor was fraudulent and malicious, intended to defeat the Applicant's contractual rights and ongoing arbitration proceedings. The Applicant sought dismissal of the Section 7 Petition and imposition of penalties under Section 65(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Financial Creditor contended that the allegations were baseless and speculative, aimed at delaying the insolvency proceedings. The Tribunal held that the Applicant failed to establish fraud or malice in the initiation of the Section 7 Petition, noting that the Financial Creditor was exercising its statutory rights in accordance with law. 2. Violation of Contractual Agreements and Injunction Orders: The Applicant claimed that the Framework Agreement (FA) executed by FRL and its lenders violated the Emergency Arbitrator (EA) Order and subsequent court orders, which restrained FRL from transferring or encumbering its Retail Assets. The Financial Creditor argued that the FA did not breach any injunctions, as no sale of assets occurred, and the FA required obtaining necessary consents before any asset monetization. The Tribunal found that the FA was signed within the ambit of the RBI Circular and did not violate the EA Order or the Delhi High Court orders, which were not operative at the time of FA execution. 3. Collusion Between the Financial Creditor, Corporate Debtor, and MDA Group: The Applicant alleged collusion between the Financial Creditor, FRL, and the MDA Group to fraudulently transfer Retail Assets to the MDA Group, bypassing the EA Order. The Financial Creditor denied any collusion, stating that the scheme of arrangement between FRL and the MDA Group was proposed independently and was ultimately rejected by the secured creditors. The Tribunal observed that the Applicant failed to prove collusion and noted that the Financial Creditor and other lenders had opposed the scheme of arrangement, as admitted by the Applicant. 4. Validity and Enforceability of the Framework Agreement (FA): The Applicant argued that the FA was void ab initio, executed in violation of the EA Order, and aimed at defeating the Applicant's rights. The Financial Creditor maintained that the FA was a bona fide restructuring effort under the RBI Circular to provide FRL an opportunity to repay its debts. The Tribunal held that the FA did not violate any injunctions or court orders and was executed within the legal framework, emphasizing that no asset transfer occurred under the FA, and necessary consents were required before any monetization. 5. Locus Standi of the Applicant to Intervene in Insolvency Proceedings: The Financial Creditor contended that the Applicant, being a third party with no direct stake in the Corporate Debtor, lacked locus standi to challenge the Section 7 Petition. The Tribunal agreed, stating that the Applicant was not a stakeholder in respect of the Corporate Debtor and had no standing to question the initiation of insolvency proceedings. The Tribunal dismissed the intervention petition, emphasizing that the banks were exercising their contractual and statutory rights, and the Applicant's allegations of fraud and collusion were unsubstantiated. Conclusion: The Tribunal dismissed the intervention petition filed by the Applicant, concluding that the allegations of fraudulent and malicious initiation of insolvency proceedings, violation of injunction orders, and collusion were unproven. The Tribunal upheld the validity of the Framework Agreement and affirmed the Financial Creditor's right to initiate insolvency proceedings under Section 7 of the IBC. The Applicant was deemed to have no locus standi to intervene in the insolvency proceedings against the Corporate Debtor.
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