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TMI Blog2022 (3) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... aud and so also with this Appellate Tribunal. There are several issues (violation of dealership agreement, vis a vis invocation of code for default concurrently happening under floorplan financing agreement of dealership agreement provided by same BMW Group Company) raised by the Appellant on Respondent No.2- BMW India Pvt. Ltd discreetly covering Respondent No.3- BMW India Financial Services Pvt. Ltd. Since, some collusion seems to be apparently existing to thwart the claim of the Corporate Debtor and other related issues. Impugned order dated 04th June, 2020 has not dealt with this IA and has dismissed on the ground that BMW India Pvt. Ltd/R2 in the IA No.300 of 2018 is not a party in the main petition no.167 of 2017. Although IBC is a summary proceeding but if large business houses with multiple business arms are allowed to disrupt on its whims fancies small business firm then how IBC can promote entrepreneurship which is also its objective. Matter remanded back in respect of IA 300 of 2018 to the Adjudicating Authority to go into the details of the allegations decide either way by giving reasonable proper opportunity to all the parties involved - application dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 300 of 2018 filed by the CD. 18.1. The IA No. 300 of 2018 has been filed by the CD on the ground that CP(IB) No. 167 of 2017 is a fraud committed by BMW India Pvt Ltd, the R2 in the IA in collusion with the Financial Creditor and filed the IA u/s 65 of the Code. Section 65 of the Code read as under: .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 such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees .. 18.2. This Adjudicating Authority, on perusal of the records, documents and the arguments put forth by the counsels of both the parties, has observed that BMW India Pvt. Ltd., the R2 in the IA No. 300 of 2018 is not a party in the main petition no. 161 of 2017 and has no locus and cannot be impleaded in the main petition no 161 of 2017. 18.3 Further, the Petitioner of IA no. 300 of 2018/ Respondent of CP (IB) No. 161 of 2017 has vide numerous communications exchanged with the financial creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in India was given the territory of Gujarat for the sale of the BMW Vehicles. The last dealership agreement entered into between the CD and Respondent No.2 was on 14th January, 2015 which contains an arbitration clause. The same agreement was renewed on 09th December, 2017 which was expired by 31st December, 2017. The CD has also entered into a Deferred Payment Facility Agreement dated 15th November, 2010 between the CD and R2 in relation to the sale of BMW vehicles by the R2- BMW India Pvt. Ltd to the CD which was also aiming arbitration clause. The R3 - BMW India Financial Services Pvt. Ltd and CD have also entered into an agreement for Financing and Working Capital Demand Facilities Agreement . However, during the year 2014, the R2 - BMW India Pvt. Ltd allowed the dealers from outside Gujarat to sale to customers based in Gujarat. The CD has opposed this as it is a territory violation and it has an adverse impact on CD. In terms of dealership agreement, the CD was required to spend a minimum amount based on projected turnover of the CD towards promotion/advertisement. All this made revenue to deplete while expenditure is to increase. As a result of this, it became impossibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed KPMG to get the audit / valuation of the CD done and pursuant to the same bids from 3rd parties were invited to take over the CD. BMW India Pvt. Ltd/R2 did not renew the dealership agreement for the year 2018. As a result, the business of the CD has collapsed by using Section 7 of the Code by initiating CIRP by another BMW Group of Companies /R3. The Appellant has also mentioned that they have filed petition under Writ Jurisdiction before the Hon ble High Court of Delhi to appoint arbitrators between the CD and BMW Group and lodge a claim of ₹ 110 Crore against BMW Group by the CD but RP who works as per instruction of the CoC is doing nothing to pursue the claim and all this has laid to the Appellant to a disastrous financial situations and are, therefore, sought the relief from this Appellate Tribunal for setting aside the order dated 04th June, 2020 passed by the Adjudicating Authority and even orally pleaded to refer the matter back to the Adjudicating Authority to prosecute under Section 65 of the Code. In order to supplement its claim for remanding back the matter to the Adjudicating Authority it has cited the Judgment of Hon ble Supreme Court in Beacon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 06.02.2011 with one M/s. D. P. Exports, for carrying out mining operations on behalf of the Corporate Debtor and also for managing its affairs and selling 100% of the extracted iron ore; (ii) that the said M/s. D. P. Exports was a partnership firm of which one Mr. M. Poobalan and his wife were partners; (iii) that another agreement dated 11.12.2012 was entered into between the Corporate Debtor and a proprietary concern by name M/s. P. D. Enterprises, of which the very same person namely, Mr. M. Poobalan was the sole proprietor; (iv) that the said agreement was for hiring of machinery and equipment; (v) that a finance agreement was also entered into on 12.12.2012 between the Corporate Debtor and a company by name M/s. Udhyaman Investments Pvt. Ltd., represented by its authorized signatory Mr. M. Poobalan; (vi) that there were a few communications sent by the said Mr. Poobalan to various authorities, claiming himself to be the authorized signatory of the Corporate Debtor; (vii) that an MOU was entered into on 16.04.2016 between the Corporate Debtor and M/s. Udhyaman Investments Pvt. Ltd., represented by the said Mr. Poobalan, whereby the Corporate Debtor agreed to pay ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors. Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently for any purpose other than for the resolution of insolvency or liquidation . 51.Therefore, if, as contended by the Government of Karnataka, the CIRP had been initiated by one and the same person taking different avatars, not for the genuine purpose of resolution of insolvency or liquidation, but for the collateral purpose of cornering the mine and the mining lease, the same would fall squarely within the mischief addressed by Section 65(1). Therefore, it is clear that NCLT has jurisdiction to enquire into allegations of fraud. As a corollary, NCLAT will also have jurisdiction. Hence, fraudulent initiation of CIRP cannot be a ground to bypass the alternative remedy of appeal provided in Section 61. The Appellant has further ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of ₹ 110 Crore claim lodged on R2 so that he can proceed against R2 but the Appellant has not provided the details. GST Authority have also issued notice on the CD for an amount of ₹ 35.63 Crore. The RP remuneration is not paid by the CD but is being paid by the CoC members in proportion of their voting percentage. It has also been stated by him that no potential Resolution Applicant filed their plan for the Resolution of the CD, the CoC in the 4th CoC meeting considering that there were no interested potential Resolution Applicant, the CoC with 100% voting favored the liquidation of the CD and accordingly, an application seeking liquidation of the CD has been filed before the Adjudicating Authority. 7. The Ld. Counsel for the R2 BMW India Pvt. Ltd has stated that they are only concerned with the IA No. 300 of 2018 which was filed by the CD under Section 65 of the Code. They have also stated that the said IA has been rightly dismissed by the Adjudicating Authority and the impugned order does not merit any interference as it is without jurisdiction and is not maintainable qua R2. They are abusing the process of the Code and delayed the outcome. They are br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantees (invoked and encashed post-filing of Insolvency Application), Promissory Notes and personal Guarantees provided by, inter alia, Mr. Talha Sareshwala, the Appellant herein (page 467 -475 of Appeal paper book) The FPA was utilized from time to time, as indicated by the statement of account at page no.661 to 805 of the Appeal paper book, while the statement of account providing details of utilisation under the SPA is provided at page 806 to 814 of the Appeal paper book. Further, the utilisation under WC is provided at page no.815 to 816 of the Appeal paper book. The said statement clearly state that Parsoli had an aggregate outstanding of INR 51,03,86,650.35 as principal as of 31.10.2017. 9. Evidence of default and admission thereof are stated below: Based on the above evidence of default, FC filed the Insolvency Application on 13.11.2017, to which an objection was filed by Parsoli on 29.11.2017, raising the following frivolous and hyper-technical objections: a.The computation of default, though contained the date of default, however the number of days in default was missing (page 1445 of the Appeal paper book); b.No evidence provided by FC that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces under Section 7 of the Code, including completeness of the Insolvency Application and proposal of an IRP (page no. 80/81 of the Appeal paper book consisting of para 20-21 of the order. Thus, a.FC completely fulfilled the requirements of being a financial creditor in view of the loan facilities provided to Parsoli, a fact which was never denied by Parsoli in its contemporaneous communications; b.Parsoli defaulted in its repayment obligations under the loan facilities as described under Section 3(12) r/w section 7(1) of the Code; c.The Insolvency Application fulfilled all the mandatory requirements as laid down under Section 7(3) of the Code by adducing the relevant records to showcase default for the consideration of the Adjudicating Authority and proposed an IRP. In view of the above stated facts, the Respondent No.3 is praying for dismissal of the Appeal. 10. We have gone through the submissions made by the parties and pleadings available on record and Hon ble Supreme Court Judgment cited above and how to move where fraudulent or malicious initiation of proceedings are involved under Section 65 of the Code and are having following observations: a. It is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved in Embassy property development Pvt. Ltd as stated (supra) vide para 51 that if the CIRP had been initiated by one and the same person taking different avatars not for the genuine purpose of Resolution Insolvency or Liquidation but for the collateral purpose of cornering the mine and mining lease the same would fall squarely within the mischief by Section 65(1) of the Code. The Adjudicating Authority has jurisdiction to enquire into the allegation of fraud and so also with this Appellate Tribunal. e. The Hon ble Apex Court in Beacon Trusteeship Limited as stated (supra) has also held that whether the proceedings have been initiated in a collusive manner will be looked into in accordance with law and appropriate orders have to passed considering the facts and circumstances of the case . f. What we are observing in this case that the Adjudicating Authority has not gone into the reasons put forth by the counsels in IA No. 300 of 2018 but has simplicitor mentioned that R2/BMW India Pvt. Ltd is not a party in the main petition no. 161 of 2017. The Appellant has elaborately given the reasons for invoking Section 65 of the Code and has elaborately explained how the terri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. Para 10 - The Preamble of the Code states as follows: ―An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code meant for Operational Creditors have a protection mechanism that if there is a genuine dispute then even the debt is due and default has happened, the case is not admitted. However, as far as Section 7 of the Code is concerned here protection mechanism is provided not in that section but through Section 65 of the Code, if there is fraudulent or malicious initiation of proceedings. The Objective of the Code is to ensure revival and continuation of Corporate Debtor by protecting the Corporate Debtor from its death. The Court /Tribunal has to ensure that the Code is not being used by perverted human ingenuity and to protect against distortion and abuses. i. However, we made it very clear that we are not going deep in the matter and hence not commenting on the merit of the case. However, we relegate the appeal partially for the remedy before the Adjudicating Authority in respect of I.A No. 300 of 2018 and accordingly, we are remanding the matter back to the Adjudicating Authority by setting aside para 18.2 of the impugned order dated 04th June, 2020 in I.A No. 300 of 2018 in CP(IB) No. 161 of 2017. j. Accordingly, we dispose of the Appeal. No order as to costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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