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TMI Blog2020 (7) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2017 (9) TMI 1270 - SUPREME COURT] , has inter alia, held that Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. The Appointment Letter is placed on record. Since the appointment was made even prior to the incorporation of the Corporate Debtor, it is evident that there could not have been any Board Resolution to discuss, propose or confirm such an appointment. Nothing has been brought on record to indicate that any such confirmation was done subsequently by the Board. In this situation, it cannot be said that any right to payment or claim arose in the hands of the Operational Creditor against the Corporate Debtor, in the absence of any decision from the Board - the payments due to the Operational Creditor depended upon his performance and merit, and at the discretion of the Management. Clauses 17 and 18 of the Appointment Letter also mention a Code of Conduct and binding rules regarding the discipline and conduct of the Petitioner during the course of his employment with the Corporate Debtor. The Operational Creditor had served a Notice dated 10.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Infantry Road Bangalore-560001. (2) It is stated in the petition that along with Mr. B K Purushothama, Financial Creditor 1, M.G Mohan Kumar were named as Directors of the Company and Subscriber to the Memorandum of Association. (3) It is further stated that shortly after incorporation, Mrs. Bhanu Prabha Krishna Hebbar, a Non-Resident Indian, the promoter of the Company was inducted as an additional director and later her appointment was regularized in the next Annual General Meeting as per the procedure prescribed in the Companies Act, 1956. The Operational Creditor, Mr. G.V. Sudhindra was appointed as Vice President (operations) to manage the day to day affairs of the Corporate Debtor. The Operational Creditor, V P (Operations) with the support of Mr. M.G. Mohan Kumar, Director of the Corporate Debtor approached the Public Works Department of Karnataka State Government and Bruhat Bangalore Mahanagara Palike (BBMP) for introducing the new technology for read maintenance particularly pothole repairs on the road. Several meetings were held with PWD, BBMP, Task Force for Quality Assurance in Public Works, etc., to promote the new technology. (4) It is also stated that the Ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.V. Balasubramanya on 18 November 2015 in Co.P. 215/2015 on the ground of alleged default of an alleged debt owed to him by the Company. The petition is at the stage of preliminary hearing and has not yet been admitted. Without prejudice to the Company's stand in the aforesaid petition (which is inter alia, that A.V. Balasubramanya has been set up by the Petitioner to make false claims), it is humbly submitted that when a superior court of the State has been seized of the issue of the solvency of the Company, these proceedings, which are also later in time, cannot be maintained. (4) It is contended that as per Section 9(5)(2)(d) of the Code, this Tribunal must reject an application filed under Section 9 if the Operational Creditor has received notice of the 'existence of a dispute' between the parties as to the operational debt. As held by the Hon'ble Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited 2017 SCC OnLine SC 1154, this Tribunal, in determining whether there is an adequate 'existence of dispute', is only required to determine the following: Whether there is a plausible contention which requires further inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99/BB/2017 and CP(IB) 116/BB/2017 through the same counsel) and Ms. Hebbar decided to jointly start the Company which would mainly be in the business of constructing, developing, maintaining, repairing, excavating, renovating and operating all types of Roads, Expressways, Highways, Bridge, Fly-overs, Terminals, Subways, Ports, Airports, Waterways, Public Works and such other infrastructural projects and activities and to provide solutions and to render related consultancy. On the basis of her trust in Mr. MG Mohan Kumar, agreed to promote the Company and induct herself into the shareholding of the Company, initially being offered Additional Directorship and later on full-fledged Directorship along with majority shareholding of about 98% shares of the Company. (8) The Company was incorporated on 7 May 2012 with Mr. M G Mohan Kumar and one Mr. Purushothama B Kalachari as the First Directors and Subscribers to the MOA and Articles of Association 'AoA' of the Company. Mr. MG Mohan Kumar, at this point, held 999 shares in the Company while Mr. Kalachari held 1 share in the Company. The two were appointed as promoters and Directors with a view to running the operations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had a free rein in running the Company as he saw fit. All key employees hired by him in this period reported directly to him. The Petitioner was one such employee. He claims to have been appointed as the Vice President (Operations) of the Company by the Company on 02 May 2012 with effect from 01 April 2012 i.e. even prior to the incorporation of the Company! The plan to run the Company to the ground is evident from this very fact that without even the company being incorporated the Petitioner and Mohan Kumar were already conspiring. (13) Upon returning as the primary Director in the Company, and noticing un-explicable liquidity crunch, Ms. Hebbar ordered the conduct of a forensic investigation of the Company by an independent entity. As a first step, the Company conveyed to its Bankers to stop accepting cheques signed by Mr. MG Mohan Kumar vide letter dated 22 April 2015. Despite this Mr. MG Mohan Kumar issued cheques, purportedly on behalf of the Company, with respect to which separate proceedings are pending. Mr. MG Mohan Kumar refused to assist any investigation and resigned from the Directorship of the Company and also surrendered his shareholding taken at the time of incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriation is yet to be determined and will only come to light after a thorough police investigation and trial. (16) It is evident that the Petitioner had, therefore, grossly abused his statutory and fiduciary responsibilities as a key employee of the Company for the pecuniary benefit of himself and his acquaintances, by misusing funds of the Company. This abuse has caused huge losses to the business operations of the Company. As such, the Petitioner has failed to even remotely discharge his fiduciary obligations as a key employee to the Company and cannot be said to be entitled to any payments from the Company in view of the blatant embezzlement of funds (which, it is relevant to note, far exceeds the total amounts being claimed by the Petitioner in the instant petition). (17) It is submitted that Ms. Hebbar has filed a criminal complaint against him with respect to the various crimes committed by him against the Company (incidentally, Ms. Hebbar had filed an earlier criminal complaint against MG Mohan Kumar and one AV Balasubramanya before the Malleswaram Police Station - the details of which have been provided in the Statement of Objections filed by the Company in cp (IB) 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e guilty of offences alleged in the criminal complaint in Crime No. 87/2017. (21)When considering the nature of criminality and fraud evident from the actions of the Petitioner as described above, it is evident that the instant application has been filed at his behest, on the basis of documents created by him and his accomplices with a view to providing a counter blast to the criminal investigation pending against him. Such actions amount to an abuse of the process and law and this Tribunal must take strong exception to the same. It is submitted that the above-mentioned investigation, based on the report of an independent auditor, constitute sufficient evidence of facts which constitute a dispute in terms of Section 9 of the Code. While police continue to investigate the complaint, the Sessions' Court's prima facie finding as to the reliability of the allegations of the auditor's report and subsequent denial of anticipatory bail indicates that the dispute raised is not illusory in nature and is not a feeble legal ruse by the Company to evade repayment of alleged operational debts. This investigation clearly indicates that the independent auditors report has raised ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be an existence of an operational debt owed by the corporate debtor to the operational creditor; b. There must be a default of the operational debt; c. The operational creditor must have served on the corporate debtor a demand notice or invoice demanding payment under Section 8 of the Code at least 10 days prior to making the application under Section 9; d. The operational creditor making an application must, along with the application, furnish: i. A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; ii. An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; iii A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and iv. Any such other information as may be specified. (27) If any of the above conditions are not met, the present application must be rejected. It is humbly submitted that the Petitioner has failed to furnish adequate record or evidence to prove the existence of a valid operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intment Letter' and is not, under any circumstances, entitled to any payments that may have become due as per the said 'Appointment Letter'. (31) It is submitted that the manner in which the debts have been claimed by the Petitioner show that they have been baselessly concocted. A combined reading of the collusive petitions filed in CP (IB) No.99/BB/2017 and CP (IB) No. 116/BB/2017 and the present petition seem to portray that the financial health of the Company was perilous and M G. Mohan Kumar had to personally lend money to the Company, along with raising funds from friends in order to tide over the financial crisis. The petitions also claim that the Company had not even commenced operations till end of 2013 when the first machine was imported successfully. Nevertheless, the alleged monthly salary of the Petitioner (who was notably the VP (Operations)) are as follows: FY 2012-2013: INR 1,50,000/- per month, starting from before incorporation of the Company or the start of operations; FY 2013-2014: INR 2,00,000/- per month which represents a 33% increase in pay - despite the company's finances and operations allegedly floundering; FY 2014-2015: Not specified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accomplices including the bogus salary claims made by the Petitioner herein. There are criminal investigations under way to determine the extent of embezzlement of fraud perpetrated by the Petitioner and his associates. If the embezzlement were to be proven then the amounts deducted as TDS would be recoverable from the Petitioner. (35) Further, the Petitioner has claimed that in his petition that he has been paid some of these dues in part, though no such document has been produced to prove this. Even otherwise, the Form 26AS produced for the year 2014-15 on which the Petitioner seeks to rely suggest that an amount of INR was paid to him whereas in the petition he claims that only a sum of INR 9,69,000/- has been paid to him. Such inconsistencies strike at the root of the matter and make it very clear that the petition ought to be dismissed in limine. (If part payments made thus this is only recovery proceedings.) (36) Therefore the Form 26AS statements do not further the Petitioner's case in any manner. In fact they raise a doubt as to why the Petitioner had not made any claims against the Company and MG Mohan Kumar prior to 2017 since evidently TDS had not been paid to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure of existence of dispute and also for the immense damage it would cause to a booming going concern. (40) This is therefore a fit case for invocation of Section 65 (Fraudulent or malicious initiation of proceedings) of the Insolvency and Bankruptcy Code, 2016 which empowers this Hon'ble Tribunal penalize any person who initiates insolvency resolution process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency. The cases decided by the Principal Bench of this Hon'ble Tribunal in Company Petition No.IB-39(PB)/2017 in the matter of Unigreen Global Private Limited has, by an order dated 8 May 2017, and by the Hyderabad Bench of this Hon'ble Tribunal in CP IB No. 96/7/HDB/2017 in the matter of Asset Advisory Services India Private Limited v. VSS Projects Private Limited has, by an order dated 8 September 2017, have been cited in support. 4. Heard Shri Archishman Chaudhury, learned Counsel for the Applicant and Shri M.M. Swamy, learned Counsel for the Respondent. We have carefully perused the pleadings of the parties and the extant provisions of Code and Rule made thereunder. 5. We must observe at the very beginning that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Contract or an Agreement or Resolution, prior to the transaction, if any, so that the same could be enforced. 7. It is seen that the Operational Creditor was appointed as VP (Operations) of the Company on 02.05.2012, w.e.f. 01.04.2012 i.e. even prior to this appointment and also prior to the incorporation of the Company itself. This Appointment Letter was issued by Mr. M.G. Mohan Kumar who was in charge of the overall control and management of operations, administration and finances of the Company since incorporation until 17 April 2015. In that period the Petitioner reported directly to Mr. M.G. Mohan Kumar, against whom also cases for misappropriation and siphoning off of funds etc. have been filed by the Corporate Debtor, along with the Operational Creditor, and which are mentioned in our order in C.P. (IB) No. 116/BB/2017, in which Mr. M.G. Mohan Kumar is the Petitioner. 8. The Appointment Letter is placed on record. Since the appointment was made even prior to the incorporation of the Corporate Debtor, it is evident that there could not have been any Board Resolution to discuss, propose or confirm such an appointment. Nothing has been brought on record to indicate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions at Para 3(14), wherein in conclusion it is mentioned that the Company had lost a minimum of ₹ 3,76,18,983/- on account of various fraudulent actions undertaken by Mr. M.G. Mohan Kumar, the Petitioner and their associates. 11. Pursuant to these findings of the Independent Auditor the Corporate Debtor, filed Criminal cases against the Petitioner and Mr. M.G. Mohan Kumar and his associate. The Petitioner, as an accused, moved the Hon'ble City Civil and Sessions Court, Bengaluru under Section 438 of the Code of Criminal Procedure, 1972 seeking anticipatory bail in the event of their arrest in connection with Crl. No.87/2017. The anticipatory bail petition was filed on 07.10.2017 being Criminal Misc.8005/2017. The Hon'ble Sessions Court passed an Order dated 19.10.2017 rejecting the petition for anticipatory bail filed by the Petitioner and his co-accused. The Hon'ble Sessions Judge found that there existed incontrovertible circumstances that make out prima facie that the Petitioner and his co-accused were guilty of offences alleged in the criminal complaint in Crime No. 87/2017. He concluded, at Para 13, that: "On careful perusal of the entire complaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to this notice of 10.04.2017, the Corporate Debtor while denying any payments due to the Operational Creditor, opposed his appointment, charged him with collusion with Mr. M.G. Mohan Kumar and fraudulent siphoning off of funds of the Company, apprised him of the findings of the Independent Auditors Report and made a reference to the criminal cases filed against him. This again shows that there was a pre-existing dispute about the debt in question, much prior to the Demand Notice issued by the Operational Creditor, not merely on the quantum but on the existence of the debt itself. 13. At this point we may mention that in C.P. No.43/BB/2018 we dealt with a petition filed under section 131 of the Companies Act 2013, wherein the Corporate Debtor had sought revision of its Financial Statements and Board Reports for the FYs 2012-2013 to 2014-15. The revision was sought on the basis of the same Independent Auditor's report as is mentioned in the preceding paras, and which brought out issues of misappropriation, siphoning off of Company funds, statutory non-compliances etc., apart from several accounting deficiencies, and which had led to the filing of Criminal cases against the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014. Even assuming that salaries were payable for this period, after the conduct of Independent Audit in 2015 instances of misappropriation and siphoning off of funds came to light and cases were filed against the Petitioner and his co-accused, these claims came into dispute. Mere TDS cannot revive his claim looking at the totality of circumstances. 16. Lastly, these proceedings are not recovery proceedings. However, we find that the Petitioner has approached this forum only for recovery. He has not made out any case that the Corporate Debtor is insolvent and unable to repay its debts because of which CIRP should be initiated against it. We find that the Company is seeing an upswing in its business. Earlier Canara Bank had issued a SARFAESI Notice to the Company in July 2016 but has now proceeded to extend loans to it showing confidence in the Company's solvency. It is engaged in important task of road repairs and has tied up with important government departments like BBMP. The Work Orders placed on the Company by BBMP show that the Company's business is continuing well and that it is a more than viable going concern. The Company was able to repay the loan of 2,00,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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