2024 (11) TMI 1050 - AT - IBC

Maintainability of the appeal by a shareholder under Section 61 of the Insolvency and Bankruptcy Code, 2016 - pre- existing dispute between the appellant and Corporate Debtor/Respondent No.1 or not - interpretation of dispute under Section 5(6) of the code - HELD THAT - The disputes related to shareholder oppression or mismanagement under the Companies Act, 2013 are distinct issues governed by separate statutory provisions and fall outside the purview of the Code. As a special statute, the IBC prevails over the Companies Act pursuant to Section 238, which has been affirmed by the Hon ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT , which held that the resolution process under the IBC takes precedence over any conflicting laws. Hence, the contention of appellant regarding resolution of Company Petition under Section 241 242 of Companies Act, 2013 before the CIRP petition does not hold water. The NCLT has passed the order after hearing both the parties and it s an order complying with relevant provisions of the code. The debt and default are on record and there was no pleading of pre-existing dispute in this case. As owners the equity shareholders are biggest beneficiaries when the company does well. Their capital is multiplied due to increase in share prices and by receipt of dividends. On the other hand, if the company performs badly and goes in liquidation, the equity shareholders loose their entire share capital. The owners of the company have a major role to play in the proper functioning of the company, as equity shareholders are represented through the Board of Directors (BoD) and the BoD holds the management accountable for its proper functioning - As soon as the CIRP petition is admitted and IRP is appointed, the functions of the BoD are taken over by IRP. As a representative of Shareholders erstwhile Directors of CD are allowed to intervene and file appeals under Section 61, but the individual or even majority shareholders are not allowed to pursue derivative action. The appellant s argument is that the definition of 'aggrieved person' under Section 61 should include any party whose legal interests are impacted by the outcome of insolvency proceedings, even if not directly named as a party in the original application. The restrictive interpretation conflicts with the broader intent of the IBC to allow for effective appeals by any stakeholder with a demonstrable interest, especially in complex insolvency scenarios where indirect impacts on third-party rights are substantial. Thus, the scope of 'aggrieved person' must not be so narrowly construed as to exclude genuine stakeholders who have a legitimate legal or financial interest in the outcome of the case. The appellant being a shareholder of the company is not the aggrieved party as per the provisions of the Code. The appellant has no locus to file this appeal and the same is not maintainable. Accordingly, the appeal is dismissed.

Summary

Issues Involved:
1. Maintainability of the appeal by a shareholder under Section 61 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of a pre-existing dispute under Section 5(6) of the Code.
3. Allegations of fraud or collusion between the Corporate Debtor and the Operational Creditor.

Issue-wise Detailed Analysis:

1. Maintainability of the Appeal by a Shareholder:
The primary issue was whether the appellant, a majority shareholder, could file an appeal under Section 61 of the Insolvency and Bankruptcy Code (IBC), 2016. The appellant argued that as a majority shareholder, its financial interests would be adversely affected by the Corporate Insolvency Resolution Process (CIRP), thus qualifying it as an "aggrieved person" under Section 61. The appellant cited several judgments to support its position, including Ashish Gupta v. Delagua Health India Pvt. Ltd., where the majority shareholders were allowed to intervene due to peculiar circumstances. However, the tribunal referred to previous judgments, notably Nirej Vadakkedathu Paul v. Sunstar Hotels and Estates Pvt. Ltd., which clarified that shareholders are not considered "aggrieved persons" merely because the Corporate Debtor is admitted into CIRP. The tribunal emphasized that the IBC does not allow shareholders to initiate CIRP processes, and once admitted, the functions of the Board of Directors are taken over by the Interim Resolution Professional (IRP). Consequently, the appeal was deemed not maintainable as the appellant lacked locus standi.

2. Existence of a Pre-existing Dispute:
The appellant contended that a pre-existing dispute existed between itself and the Corporate Debtor, which should have been considered by the Adjudicating Authority (AA) before admitting the CIRP application. The tribunal noted that disputes related to shareholder oppression or mismanagement under the Companies Act, 2013, are distinct from those under the IBC. The tribunal cited the judgment in Chetan Sharma v. Jai Laxmi Solvents (P) Ltd., which held that disputes under Section 5(6) of the Code must be between the Corporate Debtor and the Operational Creditor, not among shareholders. The tribunal found no evidence of a pre-existing dispute between the Corporate Debtor and the Operational Creditor, as the debt and default were undisputed.

3. Allegations of Fraud or Collusion:
The appellant alleged fraud and collusion between the Corporate Debtor and the Operational Creditor, arguing that this should invalidate the CIRP proceedings. However, the tribunal observed that these allegations were not part of the original pleadings and lacked supporting evidence. The tribunal reiterated that arguments outside the pleadings cannot be considered under settled law. The tribunal found no merit in the appellant's contentions of fraud or collusion, as the CIRP was initiated following due process, and the debt and default were established.

Conclusion:
The tribunal dismissed the appeal, concluding that the appellant, as a shareholder, lacked the locus to challenge the CIRP order under Section 61 of the IBC. The tribunal emphasized that the appellant's arguments regarding pre-existing disputes and allegations of fraud were unfounded and unsupported by evidence. The appeal was deemed not maintainable, and any pending interlocutory applications were closed without costs.