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2018 (9) TMI 1611 - Tri - Insolvency and BankruptcyCorporate insolvency process - outstanding financial debt - Held that - There are Promissory Notes given by the Corporate Debtor through their directors/authorised signatories to the Applicants. These documentary evidences have not been controverted by the Resolution Professional or Respondent Nos. 3 to 5 or the Respondent No.6. The Resolution Professional has raised an issue under Para 7 of his reply filed on behalf of the Corporate Debtor that the provisions of section 58A of the Companies Act, 1956 r/w the Companies (Acceptance of Deposit) Rules, 1975, have not been complied with by the Applicants, whereas the said provisions along with the relevant Rule, were to be complied with by the Corporate Debtor and not by the Applicants. Even if it is assumed that the relevant provisions along with the Rule have not been complied with, the same shall not render the transactions as null and void. Because, the non-compliance of the provisions of the Companies Act and the relevant Rules entail punishment for the Officers of the Corporate Debtor, who are in default but section 58A of the Companies Act, 1956 or even the provisions of sections 73 to 76 of the Companies Act, 2013, do not prohibit the return of the loans/advances taken from the Applicants by the Corporate Debtor. The members of the CoCs cannot dispute the claim of the Applicants in any manner as there is no provisions in the I&B Code, 2016, empowering the CoCs to decide the claim of the co-creditors. The Corporate Debtor or Resolution Professional cannot take the advantage of its/his own wrongs. Miscellaneous Application is allowed and the claim of the Applicants stands admitted to the tune of ₹ 1,50,94,000/-; the representative of the Applicants is permitted to attend the CoCs and exercise rights attached thereto. Therefore, the Resolution Professional is directed to enter the names of the Applicants in the list of the Financial Creditors, allow their representative to participate in the CoC and exercise the right attached thereto without making any delay, and file the status report before the Registry through an Affidavit within 3 days from the date of pronouncement of this Order.
Issues Involved:
1. Admissibility of the Applicants' claims as Financial Creditors. 2. Participation of the Applicants' representative in the Committee of Creditors (CoC) meetings. 3. Compliance with the Companies Act, 1956, and relevant regulations. 4. Allegations of suppression of facts and the need for forensic auditing. 5. The role of the Resolution Professional and the CoC in verifying and admitting claims. Detailed Analysis: 1. Admissibility of the Applicants' claims as Financial Creditors: The Applicants, claiming to be Financial Creditors of the 1st Respondent, M/s. Ashok Magnetics Limited, sought the admission of their claims totaling ?1,50,94,000/-. They asserted that the Corporate Debtor had executed Promissory Notes dated 31.10.2014, agreeing to repay the dues with interest. Despite initial payments, the Corporate Debtor defaulted on subsequent payments. The Resolution Professional (RP) initially admitted the claims but later rejected them, citing reasons such as the absence of outstanding balances in the Corporate Debtor's balance sheet, expired Promissory Notes, and lack of Board Resolutions. The Tribunal noted that the Applicants had provided bank certificates as proof of advancing loans, and the Corporate Debtor's books of account for 2014-2015 reflected the debt. The Tribunal held that the non-compliance with section 58A of the Companies Act, 1956, by the Corporate Debtor did not render the transactions null and void. The Tribunal allowed the Applicants' claims, emphasizing that no party should benefit from its own wrongs. 2. Participation of the Applicants' representative in the Committee of Creditors (CoC) meetings: The Applicants requested to be part of the CoC and to allow their authorized representatives to attend CoC meetings. Despite an earlier order on 16.04.2018 permitting their participation, the Applicants' representative was forced to leave a CoC meeting due to objections from other CoC members. The Tribunal reiterated that once a claim is admitted by the RP, other Financial Creditors cannot challenge its validity. The Tribunal directed the RP to allow the Applicants' representative to participate in CoC meetings and exercise their rights. 3. Compliance with the Companies Act, 1956, and relevant regulations: The RP and Respondents argued that the Applicants' claims were invalid due to non-compliance with section 58A of the Companies Act, 1956, and the Companies (Acceptance of Deposit) Rules, 1975. The Tribunal clarified that the responsibility for compliance lay with the Corporate Debtor, not the Applicants. The Tribunal held that non-compliance did not invalidate the transactions and emphasized that the Applicants should not be prejudiced due to the Corporate Debtor's mistakes. 4. Allegations of suppression of facts and the need for forensic auditing: The 6th Respondent, the Corporate Debtor's auditor, denied allegations of violating the Companies Act, 2013, and argued that the Applicants had suppressed facts by not disclosing pending suits in the City Civil Court, Chennai. The Tribunal found that the Applicants had provided sufficient documentary evidence, including bank certificates and Promissory Notes, to support their claims. The Tribunal dismissed the need for forensic auditing, stating that the Applicants had not established a prima facie case for such relief. 5. The role of the Resolution Professional and the CoC in verifying and admitting claims: The Tribunal emphasized that the RP must maintain independence and conduct the insolvency resolution process without external influences. The CoC members do not have the authority to dispute claims once admitted by the RP. The Tribunal directed the RP to include the Applicants in the list of Financial Creditors and allow their representative to participate in CoC meetings. Conclusion: The Tribunal allowed the Miscellaneous Application No. 115/IB/2018, admitting the Applicants' claims of ?1,50,94,000/-. The Tribunal directed the RP to permit the Applicants' representative to attend CoC meetings and exercise their rights. The RP was instructed to enter the Applicants' names in the list of Financial Creditors and file a status report within three days.
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