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TMI Blog2018 (12) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... t corporate applicant has filed this application to defraud all its creditors and to frustrate the orders passed by the Hon’ble Supreme Court of India and the Hon’ble High Court at Calcutta. Whether the application filed, is to defraud its creditors or not will be dealt with while answering point No. 2. The default in repayment of operational debt being proved, I can come to a conclusion that the occurrence of default as far as operational debt is concerned, stands proved in this case. Application with mala fide intention - Whether the Corporate Applicant has filed the application with malicious intent and to defraud the creditors? - Corporate Applicant has changed the name of the company and its registered office - Held that:- Applicant has changed its name about three days prior to the institution of this Application; that the Corporate Applicant changed the registered address of the applicant before one day of the date of institution of this Application; that the applicant has suppressed the name change in the Form 6 and in the affidavit filed along with the application; that the Applicant failed in proving occurrence of default as defined under Section 10(1) of the code; that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Pr. CS., Ms. Neha Somani, Pr. CS, Dhirendranath Sharma, Nirmalya Dasgupta, Shwetank Nigam, Ms. A. Rao, P. Gandhi, Ms. Nikita Jhunjhunwala, S.N. Bera, Avirup Chatterjee, Nilsnjan Pal Choudhury, Mrs. Manju Bhuteria, Shailendra Jain, Mrs. Swati Agarwal, Arita Basu and Joydeep Guha, Advs ORDER 1. All the five (5) CAs are taken together along with the C.P. for convenience, and for avoidance of repetition of facts and because the moot question for determination is common. 2. The C.P. (IB) No. 615/KB/2018 was filed by the Corporate Applicant/Corporate Debtor u/s. 10 of the Insolvency and Bankruptcy Code, 2016 (In short, I & B Code). All the CAs were filed challenging the maintainability of S.10 application filed by the Corporate Debtor. 3. C.P. (IB) No. 615/KB/2018 4. This is an application filed by Sri. Munisuvrata Agri International Ltd. the Corporate Applicant thereof, under Section 10 of the Insolvency & Bankruptcy Code, 2016 read with Rule 7 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process on the allegation that it could not conduct the business due to certain RBI Circular dated March 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated a lot of debts/liabilities during his tenure, which have passed on to the present directors (under the said award) making it difficult for them to run the company. The said award is being executed before the Calcutta High Court (Annexure A-8). 10. With regard to the financial creditors, the total debt raised is ₹ 544,00,00,000/- and the amount in default is ₹ 536,92,00,000/- as per the list of financial creditors provided as Annexure A-5. The list of Operational Creditors along with their respective amounts outstanding as shown in Annexure A-16 (though disputed) is given as follows:- Sl. No. Name of the Operational Creditor Date Amount outstanding (Rs.) Submission by the Corporate Debtor 1. Sleepwell Industries Co. Ltd. 30/08/2013 (a) 3,94,78,064/- SLP has been filed by the Corporate Debtor challenging the rejection of the application u/s. 48 of the Arbitration & Conciliation Act, 1996 before the Calcutta High Court. (b) 80,64,083/- Application u/s. 48 of the Arbitration & Conciliation Act, 1996, disputing the amount claimed, has been filed before the Calcutta High Court by the Corporate Debtor. 2. Swiss Singapore Overseas Enterprises Pte. Ltd. 20/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured operational creditor of the Corporate Debtor/Applicant (Sri. Munisuvrata Agri International Ltd., or formerly LMJ International Ltd.) contending that the Section 10 application filed by the Corporate Applicant under I & B Code, 2016 is to defraud its creditors especially the applicant and, inter-alia to frustrate the orders passed by the Hon'ble Supreme Court of India in LMJ International Ltd. v. Sleepwell Industries Co. Ltd. [SLP(c) No. 540 of 2018 dated 20-4-2018]. 14. The applicant, being an operational creditor of the Corporate Applicant, had supplied goods, in respect of which, dispute arose for non-payment of value of goods and an Arbitral Award was passed, for which two Execution Applications were filed against LMJ International Ltd. in September 2013 before the Hon'ble High Court at Calcutta. A composite order dated December 4, 2014 held that the awards were enforceable and LMJ International Ltd. then preferred two appeals before the Division Bench of Calcutta High Court which were disposed of by a common order dated December 1, 2015. 15. The applicant then submits that LMJ International Ltd. thereafter filed formal applications under Section 48 of the Arbitration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and has therefore filed for execution of the two awards before the Hon'ble Calcutta High Court being E.C. No. 322 of 2013 and E.C. No. 353 of 2017 (copies of orders passed wherein, are marked as Annexure B). 20. The applicant further submits that the corporate debtor had changed its name from LMJ International Pvt. Ltd. to Sri. Munisuvrata Agri International Ltd. and changed its registered address surreptitiously, without informing the applicant till date, to ensure that CIRP is initiated against the corporate debtor without informing the applicant herein. The applicant therefore prays for leave to intervene in the said proceedings and to file an Affidavit in Opposition in C.P. (IB) No. 615 of 2018. 21. C.A. (IB) No. 722/KB/2018 22. This is an application filed by two of the shareholders of the Corporate Applicant in CP (IB) No. 615/KB of 2018. The applicants/shareholders submit that initially, the shareholders in the Company, being members of the Jain family were carrying on their businesses jointly. However, due to subsequent differences, the dispute was referred to Arbitral Tribunal, which passed an award upon consent of the parties on January 3, 2013. The applicants submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtite Off-Take Agreement dated 17th October, 2017 and as such the account of Aranath being declared as Non-Performing Assets w.e.f. 30th June, 2018, in terms of RBI's guidelines, the corporate applicant/Sri Munisuvrata became obliged to make payment of sum of ₹ 26,20,20,058/- to the applicant. The applicant also states that despite recall notice and demand notice, the payment has not been made. 28. The applicant states that the corporate applicant has filed the present insolvency petition to seek shelter under the mandate of the moratorium under Section 14 of the I & B Code, 2016, and as such all their bank accounts have been attached and coercive steps have been taken against them by the income tax department. 29. The applicant further submits that change of name and registered office was a ploy resorted to by the Corporate Applicant in order to defraud its creditors and as such to deceit its creditors only for the purpose of initiating the insolvency proceedings. The applicant apprehends that the corporate applicant has not obtained shareholders' consent to institute the present application under Section 10 of the I & B Code, 2016. The applicant therefore, prays for leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Punjab & Sind Bank to the extent of ₹ 9,07,78,094/- as appears from the Statement of Account annexed and marked as R-3. It also submits that the demand of IT Department was never disclosed to the bank and according to the financial creditor, the said insolvency application is a fraud practised on this Hon'ble Tribunal and has been filed to evade the due liabilities of the Company, and hence should be dismissed in limine with exemplary costs. 35. Two of the Operational Creditors who filed intervening application have chosen to file reply affidavit in the C.P. The reply filed by Swiss Singapore Overseas Enterprises Pvt. Ltd. in brief is the following:- 36. The Swiss Singapore Overseas Enterprises Pvt Ltd/Operational Creditor submits that the present proceeding being CP No. 615/KB/2018 is malicious and mala fide. The said petition is not maintainable as there is no special resolution which has been disclosed of the shareholders of the company, as required under Section 10(3) of I & B Code, 2016 approving filing of the application. The operational creditor further states that at present SGD 575,379.74/- and interest thereon is due by the corporate debtor to the operational cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anko Banerji appearing for the Corporate Applicant and the Ld. Counsels Ms. Manju Bhuteria, Ms. Nikita Jhunjhunwala, Mr. Nirmalya Dasgupta, Mr. Aritra Basu and Mr. Avirup Chatterjee appearing in CA (IB) Nos. 635, 652, 722, 778/KB/2018 and Inv. A. No. 800/KB/2018, respectively as well as Ms. A. Rao, Advocate appearing for the Punjab & Sind Bank and Mr. S. N. Bera, Advocate appearing on behalf of one of the financial creditor. Perused the records as well as citations referred to on both sides. Upon hearing the arguments and considering the objections raised by the various objectors to the application, the points that arise for determination, are the following:- (i) Whether the Corporate Applicant succeeds in proving default in payment of debt due to its creditors? (ii) Whether the Corporate Applicant has filed the application with malicious intent and to defraud the creditors as alleged by the intervening applicants? (iii) Whether the Corporate Applicant has changed the name of the company and its registered office with malicious intention to deceit the creditors? (iv) Whether the application is maintainable for want of production of special resolution as per Section 10(3)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode for initiation of Corporate Insolvency Resolution Process (In short, CIRP). Upon filing the application, notices were issued to the Financial Creditors, whose names were disclosed in the application. The Financial Creditors turned up and filed written objections not opposing the application except the Financial Creditor Punjab & Sind Bank. The lead bank submitted that the outstanding amount respectively as in the tabular form, Annexure A-5, is due and the Corporate Applicant has defaulted in repayment. Punjab & Sind Bank has submitted that the corporate applicant is indebted to it to the extent of ₹ 9,07,78,093.53/- and defaulted in repayment. However, it opposed the application, denying the contentions taken by the corporate applicant in its application. 44. Though financial creditors have submitted that the corporate applicant defaulted in repayment of the dues, there is no data furnished on either side as to when the repayment fell due. The loan agreement was not produced to prove the repayment schedule. The Working Capital Consortium Agreement marked as Annexure A-10 referred to me by the Ld. Sr. Counsel for the corporate applicant, on the other hand, is an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation of the balance outstanding as shown in it. The Ld. Sr. Counsel would submit that it evidences the default in repayment. Admittedly, it is not a claim and not a demand from the side of the financial creditor. It is an information with a note which reads as: "that two Buyers credit of ₹ 5,78,78,284.00 and ₹ 3,56,31,079.00 are already due for payment on 20.04.2018. The company has informed to arrange funds for payment of the same" So also the debtor was informed to confirm the balance outstanding in reply to the said letter. No proof produced to prove that the corporate applicant had issued reply confirming the amount allegedly due but in the application, the debtor disputed the amount. So the financial creditor's claim, if any, is disputed by the corporate applicant. 47. Without proving the date on which the loan amount fell due, can I hold that there is default? When the credit facility availed by the corporate applicant has not fallen due and the bank has not issued demand notice for failure of repayment but informed about the outstanding dues, can it be held that the corporate applicant has committed default as per the provisions of the Code? These are the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of debt due is to be determined in the peculiar nature and circumstances of the case, as a default u/s. 3(12) of the Code? I may take the aid of sub-section (4) of Section 7 of the Code. Under Section 7(4), the Adjudicating Authority shall ascertain the existence of default from the record of information utility or on the basis of other evidence furnished by the financial creditor under sub-section(3). The provisions reveal that default will be determined, apart from the submissions of the creditors, also from the records of an information utility. The aforesaid provision does not provide an opportunity to the corporate debtor to put for his case for default. 51. The Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank Ltd. and another, 2018 (1) SCC 407 while dealing with repugnancy in the IBC, 2016 and Maharashtra Relief Undertaking (Special Provisions) Act, 1958 regarding moratorium held as under:- "The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records of the information utility or on the basis of evidence furnished by the Financial Creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the 'debt", which may also include a disputed claim, is not due. A debt may not be due it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be." "The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate applicant has committed default. When exactly it fell due? Can it be payable after some future date after the date of filing the application? No data available in the case in hand. 53. Here, in this case, the business of the corporate applicant never goes into bankruptcy. It was running in profit. A look at the financial statements for the financial year ending 2017 reveals the financial position. It is self-explanatory. It is given below: - [Figures in Rs. (Lakhs)] Financial Results For the year ended 31.03.2017. For the year ended 31.03.2016. Revenue 155755.53 149943.84 Less : Expenses. 153136.70 147598.02 Profit before Depreciation & Expenses. 2618.83 2345.81 Less : Depreciation. 377.34 338.48 Less: Adjustments for earlier years. - - Profit before Tax. 2241.49 2007.34 Less: Provision for Taxation. 97.42 92.58 LeSS: Deferred Tax. 426.47 -89.60 Profit after Taxation. 1717.60 2004.36 Less: Transfer to Loan Redemption Reserve. 1150.00 10000.00 Add: Profit brought forward from previous year. 4110.75 3107.05 Profit available for appropriation. 4678.35 4111.41 54. Hon'ble National Company Law Appellate Tribunal in Unigreen Global (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to meet these obligations over the course of the loan placed the borrower in default. A mere production of loan agreement would reveal consequences of default which may include penalty payments, loan determination, accompanied by a demand or immediate repayment of the outstanding principal of the loan amount. The financial statements available in the case, on the other hand, indicate that the corporate applicant has the means, but desires not to pay. It cannot be ruled out that the failure to repay is made for enabling to institute an application like the application filed in the case in hand. 57. It is also significant to note here that the credit facilities were sanctioned in favour of the corporate applicant on 12.10.2017. Even before recalling the credit facility, the corporate applicant initiated proceedings under Section 10 of the Code. This application was filed on 27.04.2018, whereas the credit facilities were not recalled on or before 27.04.2018. So, it is evident that before demanding the outstanding dues from the Corporate Applicant, the petition was already filed to initiate Corporate Insolvency Resolution Process (CIRP) and hence, I am of the view that there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayment of operational debt being proved, I can come to a conclusion that the occurrence of default as far as operational debt is concerned, stands proved in this case. This point is answered accordingly. 60. Point Nos. (ii) & (iii) 61. Both these points are taken together for avoiding repetition of facts and for convenience. Ld. Counsel appearing for the Operational Creditor submits that the Corporate Applicant has committed fraud as defined u/s. 447 of the Companies Act, 2013 by filing the application u/s. 10 of the Code without publishing its change of name and that the Corporate Applicant has filed the application with ulterior motive and mala fide intention to keep all of its creditors and shareholders in dark. According to her, out of the Group Companies under the management of the Corporate Applicant's Directors, two of its Companies' names have been changed and those two companies whose names have been changed, have alone filed two separate applications u/s. 10, which is a deliberate attempt to deprive the creditors and to gain advantage from an order of moratorium to be passed in an application filed by the Corporate Applicant. 62. According to the Ld. Sr. Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings are brought only for the purpose of resolution of insolvency or liquidation, as the case may be, and not for malicious and fraudulent purpose. So, it is also good to read Section 65 of the Code, which reads as follows:- "65. Fraudulent or malicious initiation or proceedings. If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation , as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. " 65. Referring to Section 447 of the Companies Act, 2013 read with section 65 of the Code, the Ld. counsels for the objectors submit that concealment of fact regarding change of name in Form 6 is with an intention to defraud its creditors. Though the allegations levelled by the objectors do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dation. 68. Section 65 of the Code seems to be equally important for appreciating the contentions raised on the side of the Objectors that this is an application preferred by the Applicant with the malicious intent not for the purpose for resolution of insolvency, or liquidation but to frustrate the money recovery proceedings initiated at the instances of the objectors. Though, I am not going into detail as to whether the Applicant has committed fraud as alleged, it appears to me that as per Section 65 of the Code, if the Objectors succeed in establishing that the Applicant has moved the application with malicious intent for purpose other than for the resolution of the insolvency or liquidation as the case may be, I am empowered to dismiss the application and may impose upon such person, a penalty which shall not be less than ₹ 1 lac but may extend to ₹ 1 crore as per Section 65 of the Code. 69. The circumstances that there are pending litigation for recovery of a total amount of ₹ 256,01,92,031/- (Annexure A-16 - page 141) from the Corporate Applicant by the Objectors except the independent Director who has filed the Inv. A.(IB) No. 800/KB/2018; that the Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to initiate this proceeding. They submit that Section 10(3)(c) is a procedural provision, which indicates the mechanism to initiate proceedings u/s. 10 of the Code and it would be applied retrospectively. 72. To consider the rival contention raised on the side of the Corporate Applicant and the Objectors, it is fair and good to refer to the judgments cited on both sides. The Ld. Counsels appearing for the Objectors referring to Thirumalai Chemicals Ltd. v. Union of India 108 SCL 78 (SC) and B.K. Educational Services (P.) Ltd. v. Parag Gupta & Associates), submit that the right conferred on the Applicant to prefer an Application under Section 10 of the Code may be a substantive right. But the requirement to be meted out for initiating CIRP process upon filing an Application under Section 10 of the Code is procedural in nature and therefore, Section 10(3)(c) is a procedural requirement to be complied by the Applicant. According to them, non-production of Special Resolution as per Section 10(3)(c) amounts to non-compliance of Section 10(3) and therefore, the application is liable to be rejected, lb strengthen the said argument, he relied upon Paras 23 and 32 in the Thirumalai Chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in paragraphs 48 & 49 as under:- "Para 48. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application." "Para 49. In view of our finding that the Limitation Act has in fact been applied from the inception of the code, it is unnecessary for us to go into the arguments based on the doctrine of laches. The appeals are therefore remanded to the NCLAT to decide the appeals afresh in the light of this judgment." 76. Referring to Arcelormittal India Private Ltd. v. Satish Kumar Gupta & ors (318 SCC Online SC 1733) Ld Sr. Counsel also attempted to show that sub-clause (c) is to become operational only from the date of commencement of the Amendment Act and not befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be passed without their consent and knowledge. The insertion of Section 10(3)(c) is no doubt to safe-guard the interest of the shareholders in the Company which may go for resolution or liquidation. That being so, the introduction of Sub-clause (c) to Section 10(3) shall be read as in force from the inception of the code itself and it is retrospective in effect and non-compliance of Section 10(3)(c) is therefore, bad under the code. 80. To sum up the proposition that was held in BK Educational Services (P.) Ltd. (supra), that procedural law should apply retrospectively, that sub-clause(c) of the Code inserted to Section 10(3) can be construed as a procedural law by applying the proposition laid down in Thirumalai Chemicals Ltd.'s case (supra), it appears to me that sub-clause(c) is procedural and should apply retrospectively. Upon applying it as retrospectively, I have no hesitation in holding that non-compliance of Sub-clause(c) to Section 10 (3) of the Code proves that one among the essential ingredients to be proved on the side of the corporate applicant has not been complied by the applicant. This point is answered accordingly. 81. Point No.(v). 82. Upon the above said f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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