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TMI Blog2023 (3) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... te for initiation of CIRP against the corporate debtor? - Was the admission of section 7 application and consequent initiation of CIRP against the corporate debtor in accordance with the legal requirements and provisions of the IBC? - HELD THAT:- While the financial creditor Nandakini has claimed a financial debt, evidently there is no document included in the Form 1 application in proof of any loan agreement and/or disbursement of the said loan. A purported proof of the disbursement of the said loan has been filed by the corporate debtor in the form of its balance sheet, but notably there is no balance sheet or ledger account of the financial creditor for the same financial year showing such a loan. We further find that no document or record regarding entries in the banker books in accordance with the Bankers Book Evidence Act, 1891, which are required to be furnished by the financial creditor along with Form 1 application under section 7 was filed by the Nandakini - The financial creditor did not either submit any document or record regarding the financial loan and/or its disbursement, but only relied on letters ostensibly sent by the financial creditor demanding repayment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Applicant through common directors sitting on the board of more than one company, different levels of shareholdings and common registered addresses and working-email IDs thus adds strength to the argument that they belong to the same group of companies working towards common objective insofar as the CIRP in the instant case goes - looking at the events in this case from the lens of the nature, involvement and conduct of the companies, we find the inference inescapable that these companies were acting in concert and being guided and led by a controlling mind as part of a fraudulent project to defraud the creditors of the corporate debtor by misusing the instrumentality of the IBC, completely against its objectives and spirit and such actions, which are infringing the provisions of the IBC cannot be condoned or overlooked. The constitution of CoC with related parties of the corporate debtor participating in the CoC as a majority, is also vitiated. Consequently, we find force in the submission of the Appellants HIL and HIW Workers Union that the corporate debtor is influencing decisions in the CoC and through members of the CoC, who have shareholding and through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astava ] Member ( Technical ) For the Appellant : Mr. Krishnan Venugopal, Sr. Advocate with Mr. Ashish Prasad, Mr. Kaustubh Mishra, Mr. J Rajesh, Advocates For the Respondents : Mr. Siddhartha Sharma, Mr. Arjun Asthana, Advocates for SRA. Mr. Krishnraj Raj Thakkar, Advocate and Mr. Ashok Kumar Jain, Advocate for RP. JUDGMENT [ Per. Dr. Alok Srivastava , Member ( Technical ) ] This judgment disposes of the following appeals, namely : - (i) Company Appeal (AT) (Insolvency) No. 42 of 2022 filed by Hindalco Industries Ltd. (ii) Company Appeal (AT) (Insolvency) No. 43 of 2022 filed by Hindalco Industries Ltd. (iii) Company Appeal (AT) (Insolvency) No. 52 of 2022 filed by H.I.W. Workers Union (iv) Company Appeal (AT) (Insolvency) No. 53 of 2022 filed by H.I.W. Workers Union 2. The above mentioned four Company Appeals have been filed by respective appellants under section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called IBC ) assailing the order dated 22.12.2021 (hereinafter called the Impugned Order ) passed by the Adjudicating Authority (NCLT, Cuttack Bench) in IA (IBC) no. 42/CTB/2020 in CP (IB) No. 1/CTB/2019. 3. The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/CTB/2020 dated 30.1.2020 whereby HIL sought setting aside of resolutions and approvals given in the meetings of the Committee of Creditors (in short CoC ) as the same were vitiated on account of participation and voting by the related parties in the meetings of CoC. 7. The Appellants have further stated that an application for approval of the Resolution Plan bearing IA No.197/CTB/2019 filed by the RP was approved by the Adjudicating Authority by order dated 22.12.2021. This resolution plan was submitted by Regus Impex Private Limited, the successful resolution applicant, (in short Regus Impex ) and at the time the resolution plan was approved, IA No. 50/CTB/2020 which was filed by the Appellant HIL remained pending for disposal though arguments were heard at length in this IA and the Appellant has pointed out that this application raised issues relating to illegal constitution of the CoC by including related parties . The Appellant HIL has thus claimed that the Impugned Order was passed by the Adjudicating Authority without considering the information regarding the presence of related parties in the CoC and fraudulent initiation of CIRP placed by HIL on record, whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of its stake in the corporate debtor by Infrastructure Development Company Limited (in short IDCOL ) of the Government of Odisha, 100% shareholding in the corporate debtor HIWL was offered to three companies viz., Varsha Fabrics (P) Ltd., Mudrika Commercial Limited and India Finance Pvt. Limited (also referred to as three companies ). Soon thereafter, on a writ petition bearing WP(C) No. 4442/2006 filed by these three companies before the Hon ble High Court of Odisha, a direction was given that a tripartite agreement should be entered into between the H.I.W. Workers Union, IDCOL and the three companies to ensure disbursement of pending dues to the workmen, and consequently a tripartite agreement came to be signed on 2.6.2006 in compliance of the Hon ble High Court s order. 11. The Appellants have further submitted that the corporate debtor closed its factory at Hirakud in the year 2007 and in the same year, the three companies owning the corporate debtor transferred their entire shareholding to a company called Indo Wagon Limited (in short Indo Wagon ), but the workmen s dues still remained unpaid and so the H.I.W. Workers Union filed a Writ Petition WP(C) No. 12479/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (IB) No. 01/CTB/2019 was filed by the financial creditor Nandakini for initiating CIRP against the corporate debtor, which was taken up for consideration on request for urgent hearing jointly by the corporate debtor and financial creditor. This joint request by the financial creditor and corporate debtor for early hearing of section 7 application was made before the Adjudicating Authority/NCLT on 3.6.2019, and on 4.6.2019 the Adjudicating Authority admitted the section 7 application filed by the financial creditor initiating CIRP against the corporate debtor, simultaneously imposing moratorium under the IBC regarding the assets of the corporate debtor and appointing Mr. Anand Rao Korada as the Interim Resolution Professional. 14. The Appellants have added that as moratorium had been imposed consequent to the admission of section 7 application by the Adjudicating Authority, the RP preferred an interlocutory application in WP(C) No. 7939/2011 before the Hon ble High Court of Odisha on 6.8.2019 praying for stay of the auction proceedings, and thereafter, the RP filed Civil appeal No. 23349-23350/2019 in Hon ble Supreme Court challenging various orders of the Hon ble High Court of O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld qualify as financial debt under IBC and appropriate for initiation of CIRP against the corporate debtor? (ii) Was the admission of section 7 application and consequent initiation of CIRP against the corporate debtor in accordance with the legal requirements and provisions of the IBC? (iii) Was the constitution of CoC with the inclusion of a number of financial creditors vitiated as they were related parties closely connected with the CD, and were the approvals and resolutions passed in the meetings of CoC vitiated and bad in law? (iv) Were the actions taken by the Resolution Professional in accordance with the provisions of IBC, and free from the allegations of prejudice and partisan approach? (v) Was the Successful Resolution Applicant Regus Impex Private Limited disqualified to submit a resolution plan for the corporate debtor? 18. We heard the arguments of Learned Senior Counsels/Learned Counsels for the parties in the appeals and perused the record. It is noted that the financial creditor Nandakini, impleaded as Respondent in some appeals under consideration, has chosen not to file any reply or submit oral arguments in support of its case. 19. The Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had vide order dated 28.2.2020 in IA No. 42/CTB/2020 filed under section 65 of the IBC whereby the Appellant had brought to the notice of the Adjudicating Authority that Respondent Nandakini, in its Annual Financial Statement for the FY 2015-16, has declared that it has not given any loan and the CIRP has been stage-managed on a false and imaginary loan, the Adjudicating Authority agreed that sufficient proof of the loan is not provided in the application, and directed the RP to furnish the proof of debts regarding the claims of all the purported financial creditors. This direction was not complied by the Respondent, and hence the members of CoC who claim to be financial creditors are not backed by adequate and appropriate proof of their debts, and therefore, the constitution of CoC with the inclusion of such members is fraudulent and void ab initio. Further, the Learned Senior Counsel for Appellant HIL has argued that the e-mail dated 5.3.2020, which is produced by the RP as showing proof of his submission of the requisite evidence of the financial debts and claiming to be compliance of the order dated 28.2.2020, was sent to the Registry of NCLT and not submitted before the Adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ministry of Corporate Affairs website, filed an application bearing IA No. 42 (CTB)/2020 under section 65 of the IBC challenging the initiation of CIRP as being fraudulent. He has claimed that in view of his contention that the CIRP against the corporate debtor was initiated fraudulently, the approval of the resolution plan by the COC and the Adjudicating Authority vide order dated 19.12.2019 is bad in the eyes of law and, therefore, null and void. 24. The Learned Senior Counsel for Appellant HIL has further argued that it is clear from the financial information of the companies who are members of CoC, which is available on the Ministry of Corporate Affairs website that they belong to the same group of companies. He has submitted charts showing the shareholding status of the members of the CoC and their inter-connectedness through shareholdings to show how these entities are closely connected with each other and with the holding companies of the corporate debtor and also the SRA Regus Impex. He has emphasised that it is necessary to examine the fraud that is claimed in the present case, and that to examine the element of fraud in the initiation of CIRP, the ambit of enquiry is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and information submitted by him. He has also pointed to the shareholding and cross shareholding between Adishwar Nivesh, the holding company of corporate debtor and member companies of the CoC as well as the Successful Resolution Applicant to emphasise that they are all members of the same group of companies and were, therefore, working towards the common objective of putting the corporate debtor in insolvency resolution and moratorium on its assets, in order to deny the just, fair and legitimate claims of the workers and other creditors, such as the Bank of India, and also ensure that despite insolvency resolution, the corporate debtor remains within the ambit of the same group of companies. He has, therefore, made a case for piercing of the corporate veil to look at such inter-connectedness and to also unravel the ulterior design of the corporate debtor, purported financial creditor Nandakini and the parent company. 27. The Learned Senior Counsel for HIL has also submitted detailed information to show how majority of these companies have common directors, cross shareholdings, common registered addresses and common email addresses. He has clarified that this information is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been initiated under section 7 of the IBC for insolvency of the corporate debtor are fraudulent and clearly infringe section 65 of the IBC, and therefore, all actions taken thereafter in the CIRP including constitution of the CoC and its decisions, approval of the resolution plan of Regus Impex are illegal and non est in the eyes of law, and liable to be set aside. 30. The Learned Senior Counsel for Appellant HIW Workers Union has submitted in his arguments that the section 7 application was not based on any financial contract or any entry in the Bankers Book in accordance with the Bankers Book Evidence Act, 1891 and the prescribed Form 1 of section 7 application did not contain any particulars regarding disbursement through a bank account or any entry in the ledger account or account book, and merely on the admission of some imprecise loan amount by the corporate debtor, the section 7 application was admitted without proper enquiry and satisfaction of the Adjudicating Authority. He has added that the Note 3 referred to in para no. 3.6 of the Impugned Order suggests that the amount of Rs.14,51,047/- was included under the head Trade Payable in the financial statement which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... union filed IA No. 42/CTB/2020 under section 65 of the IBC, bringing to the notice of the Adjudicating Authority that the financial creditor Nandakini had declared and admitted in its Annual Returns for the financial year 2015-16 that it had not given any loan, and the CIRP is being orchestrated by the same group of companies which controls the corporate debtor, and on this basis the Adjudicating Authority in its order dated 28.2.2020 observed that there was no proof of disbursement of loan from the financial creditor to the corporate debtor and directed the RP to furnish proof of debts in respect of all the claims of purported debts against financial creditors, who were included in the CoC. He has added that this direction was not complied by either the financial creditor Nandakini or the RP, who was representing the corporate debtor. He has rebutted the contention of the erstwhile RP that compliance of the Adjudicating Authority s order dated 28.2.2020 was done by submitting requisite documents by an e-mail dated 5.3.2020 to the Registry of NCLT by contending that the direction of the Adjudicating Authority should have been complied by submitting documents before the Adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor HIWL, but in the meanwhile, the purported financial creditor Nandakini filed section 7 application under IBC regarding its alleged dues, which was admitted vide order dated 4.6.2019. He has pointed out that when the auction of the corporate debtor s assets became imminent and a distinct event, the section 7 application was filed fraudulently in March, 2019 with a clear objective of blocking the payment of workers dues through e-auction of the corporate debtor s assets. 35. The Learned Senior Counsel for HIW Workers Union has brought to our attention paragraphs 4 and 5 of the section 7 admission order to show the financial debt claimed by the financial creditor Nandakini of an amount of Rs.24,11,975 was accepted as an actual and real debt just on the basis of admission of the corporate debtor in its reply, which is mentioned in paragraph 5 of the said order. Further, he has mentioned that the learned counsels of both the financial creditors and the corporate debtor jointly requested the Adjudicating Authority to urgently hear the case and pass necessary orders, when the case was listed for final order on 11.6.2019 and thus, the section 7 admission order came to be passed qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mr. Sujit Dutta Roy is a director in Nandakini and the Successful Resolution Applicant Regus Impex in addition to being director on the board of many member-companies of the CoC and also the holding company Adishwar Nivesh of the corporate debtor. 38. Elaborating on his earlier argument, the Learned Senior Counsel for HIW Workers Union has added that the Nandakini and the 100% shareholders of Indo Wagon i.e. Adishwar Nivesh share common registered address i.e. 9, Ezra Street, Kolkata and claimed that Nandakini and the corporate debtor HIWL are controlled through common directors, namely, Mr. Sujit Dutta Roy and Mr. Tanima Mondal. He has added that Mr. Sujit Dutta Roy is also a director in three of the five shareholding companies of Adishwar Nivesh (which holds 100% shareholding control over the corporate debtor) namely, Divya Mercantile, Sheetal Exports and Goldman Stocks and further in addition to the fact that Adishwar Nivesh has shareholding interest in Gain E Commerce (22.48%), Divya (25.4%), Fragment (19.9%) influences the decision making in these members of the CoC through Mr. Sujit Dutta Roy. He has thus claimed that the web of companies, wherein some companies have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate debtor s assets was ordered by the Hon ble High Court of Odisha on 8.4.2019, but soon thereafter, on 4.6.2019, section 7 application filed by Nandakini was admitted leading to appointment of Mr. Anand Rao Korada as IRP and imposition of moratorium. He submitted that HIL submitted a bid of Rs. 38 crores for the assets of the corporate debtor on 17.5.2019 and when the RP sent a letter to HIL to deposit the balance amount, there was no response. He has contended that thus HIL did not complete the auction sale by depositing the balance amount, but it is now seeking to get hold of the corporate debtor s assets, particularly the railway track, siding and locomotives, by assailing approval of the resolution plan. 42. The Learned Counsel for erstwhile RP has also brought to our attention the fact that an amount of Rs. 4.10 crores is overdue for payment by HIL by way of land rent and licence fees in respect of the railways siding and track. He has also submitted that Hon ble Supreme Court, on an appeal by the RP titled CP No. 8800-8801/2019 passed judgment on 8.11.2020, whereby the auction proceedings were stayed in view of moratorium having been declared on 4.6.2019 by the NCLT. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the erstwhile RP and, therefore, cannot now raise issue about their claims once the Resolution Plan has been finally approved by the Adjudicating Authority. 45. The Learned Counsel for erstwhile RP has clarified that the proof of debts of the financial creditor Nandakini and other members of CoC was provided by e-mail dated 5.3.2020 sent to the Registrar of NCLT in compliance of the Adjudicating Authority s order dated 28.2.2020. He has further submitted that the debt is included in the balance sheet of the corporate debtor as unsecured loan in current liabilities and further stated by the corporate debtor s Chartered Accountant A.K. Ray and Company in their letter dated 12.6.2019 (attached at pp. 626-627 of the Additional Documents Vol. IV, Dy. No. 40342 dated 14.10.2022). 46. The Learned Counsel for the erstwhile RP has clarified that signature of the RP appearing in the affidavit dated 19.12.2019 submitted by Mr. Sujit Dutta Roy under section 30(1) was done inadvertently and it was only done to complete the documentation for record, though the resolution plan had already been approved by the CoC on 16.12.2019. He has referred to the affidavit of Shri Ranjay Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution plan isn t an unlawful objective. He has further pointed out that the principles that should be considered for piercing the corporate veil are given in para 35 of the Arcelor Mittal (supra) judgment and therefore, corporate veil should be pierced only if there is impropriety or it is necessary in the interest of the justice, but mere ownership and control of some companies are not sufficient reasons to justify the piercing of corporate veil. He has also clarified that there was no advantage that the corporate debtor or the Successful Resolution Applicant derived through the submission of resolution plan in this case and hence, there is no necessity for piercing the corporate veil. He has, further referred to Takeover Regulations referred to in the Arcelor Mittal (supra) judgment, wherein to show ultimate control of a company requirement of positive evidence has to be established regarding some company said to be controlled by another company. 50. The Learned Counsel for Successful Resolution Applicant has also cited the judgment of Hon ble Supreme Court in the matter of Pratap Technocrats Private Limited Ors. vs. Monitoring Committee of Reliance Infratel Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial creditor Nandakini, which itself raises a serious doubt which the Adjudicating Authority should have investigated before admitting the section 7 application, and later RP should have verified the claim before admitting it during CIRP. In support, he has referred to the judgment of Hon ble Supreme Court in Phoenix Arc Private Ltd. vs. Spade Financial Services Ltd. [2021 3 SCC 475] to point out that the debt must be disbursed and hence the matter of the disbursement of debt and the 18% rate of interest shown as time value of money are merely bald and unsubstantiated statements, with no corroboration from any document such as the loan agreement to establish them. He has also pointed out that original loan of Gain E-Commerce (a member of CoC) of Rs. 361.10 lakhs has become Rs. 6903 lakhs and that of Subhlaxmi Compusis of Rs. 1849.58 lakhs has become Rs. 12072 lakhs by claiming an exorbitant rate of interest of 18% compounded quarterly, which is unrealistic and much higher than the market norm, which also shows how the RP has acted to help the colluding parties to get a high vote share in the CoC and also that the payments after the resolution plan is approved are mostly to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such decisions taken by the CoC are liable to be quashed. 56. We now examine issues (i) and (ii) framed by us, which are whether the loan allegedly claimed by financial creditor Nandakini qualifies as a financial debt under IBC and whether the admission of section 7 application filed by Nandakini in accordance with the provisions of IBC and as per law. 57. It is noted that the corporate debtor was acquired by three companies of the same group, namely, Varsha Fabrics (P) Ltd. Mudrika Commercial Ltd. and India Finance Pvt. Limited in the year 2006. These three companies executed a tripartite agreement dated 2.6.2006 with HIW Workers Union and HIL and undertook the obligation to make payments towards outstanding dues of the workers of the corporate debtor whereafter a share purchase agreement dated 10.7.2006 was also executed whereby 100% shareholding of HIL was transferred in the name of three companies named above. The tripartite agreement regarding payment of workers dues was expressly stipulated to be a part of the share purchase agreement and also a condition precedent to the Share Purchase Agreement (refer to Vol. III of the appeal paperbook). It is also noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins particulars of financial debt (documents, records and evidence of default), copy of a letter dated 31.12.2018 regarding demand of repayment and a copy of another letter dated 9.2.2018 also regarding demand of payment are shown as annexed as Annexures A-6 and A-7. Also included in Part V of the application 7 section are two letters dated 16.2.2019 (Annexure A-8) and dated 22.2.2019 (Annexure A-9), both written by the corporate debtor addressed to M/s. Nandakini Contractors Pvt. Ltd. as confirmation of the outstanding debt. These letters are attached at pp.419-420 of appeal paperbook Vol.II in CA No. 54/2022. We note that there is no other document evidencing the loan agreement and/or any rate of interest or in proof of disbursement of the loan claimed to have been given by the financial creditor to the corporate debtor. 61. The relevant portion of section 7 of IBC is reproduced below: 7. Initiation of CIRP by financial creditor xx xx xx xx xx (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich can be submitted as proof of financial debt and evidence of default. Quiet evidently, none of these documents were attached with the section 7 application by the purported financial creditor Nandakini. Thus, we find that the financial creditor did not either submit any document or record regarding the financial loan and/or its disbursement, but only relied on letters ostensibly sent by the financial creditor demanding repayment of the alleged loan and two letters dated 9.2.2019 and 22.2.2019 which was found convincing and worthy of satisfaction by the Adjudicating Authority. 64. We also note that the section 7 applicant Nandakini has chosen not to be represented in any of the appeals under consideration in this judgment. In the absence of any pleadings of Nandakini regarding the contents of the section 7 application, we have relied on the application form along with attachments as submitted in Company Appeal (AT) (Ins.) No. 52/2022 (attached at pp, 402-420 of the appeal paperbook, Vol. II). On perusal, we note the section 7 application does not mention any loan agreement signed between the corporate debtor and financial creditor, but mentions a letter dated 15.4.2018 sent b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and default of repayment by the Adjudicating Authority. In the absence of any document evidencing the loan agreement placed on record by the financial creditor, the only indirect proof of purported loan is contained in the letters dated 15.4.2018 and 9.2.2019 sent by the financial creditor to the corporate debtor, wherein no specific amount of dues either in principal or interest payable to the financial creditor is mentioned. When we look at the content of these letters in conjunction with the absence of any loan agreement and no related proof from any other document including balance sheet from the side of the financial creditor, we wonder as to how the Adjudicating Authority could be satisfied with the requirements of section 7 of IBC regarding disbursement and default of the said loan amount. Therefore, the admission order under section 7 of IBC passed by the Adjudicating Authority stands on shaky foundation. 67. We consider the argument of the Learned Counsel for erstwhile RP that the Adjudicating Authority has to merely see whether there is a default in repayment of debt and that is the trigger for initiation of CIRP. He has cited the following from Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide IA (IB) No. 341 of 2020 but proceeded to dismiss the section 65 application of the workers union. While the inaction of the Adjudicating Authority may be overlooked since reason for such omission is not clear from record, we feel that the IRP/RP did commit a blunder by not placing the proof of debts before the Adjudicating Authority. His alibi that he has submitted the details before the Registry of NCLT is not correct as the compliance of Adjudicating Authority s orders are to be done before the tribunal and not before any other office. 71. We note that the financial creditor Nandakini Contractors and the corporate debtor belong to the same group of companies which has been shown through two charts presented by the Learned Senior Counsel for HIL and which are reproduced in this judgment earlier. We also note that a request for urgent hearing was made by the counsels for the corporate debtor and the purported financial creditor Nandakini when the auction of the corporate debtor s assets had become imminent upon orders of the Hon ble High Court of Odisha. After such a joint request was made to the Adjudicating Authority for urgent hearing, we note that the hearing took p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. Provided that a director or officer of a target company shall not be considered to be in control over such target company, merely by virtue of holding such position. 77. Regarding persons acting in concert , we note the following observations in Hon ble Supreme Court s judgment in the matter of Arcelor Mittal Pvt. Ltd. (supra), which is as follows :- 41. By Regulation 2(1)(g) of the 2011 Takeover Regulations, persons acting in concert is defined as follows: 2. (1)(g) persons acting in concert means. (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly cooperate for acquisition of shares or voting rights in, or exercise of control over the target company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies are being guided by a controlling mind and were acting in concert to defeat the objective and intent of the IBC. 80. On the issue of piercing the corporate veil, Hon ble Supreme Court made the following observations in the Arcelor Mittal (supra) judgment after examining in detail the principles regarding piercing the corporate veil as laid down in Ben Hashem vs. Ali Shayef, [2008 EWHC 2380 (Fam): (2009) 1 FLR 115] further reiterated by the UK Supreme Court in Prest vs. s Ltd. Petrodel Resources Ltd. [(2013) 2 AC 415: (2013) 3 WLR 1: 2013 UKSC 34] and further enumerated by the Hon ble Supreme Court in LIC vs. Escorts Ltd. [(1986) 1 SCC 264]:- 37. It is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the aw, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole. 81. We rely on the above observations insofar as piercing the corporate veil is concerned, in order to examine the role and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition, he is a director of Varsha Fabrics, Subhlaxmi (since 31.3.2019), Gain e-Commerce (since 11.7.2017) and all the four companies (viz. Nandakini, Varsha Fabrics, Subhlaxmi and Gain e-Commerce) are members of the CoC. Additionally, Mr Sujit Dutta Roy is a director of Adishwar Nivesh, which is the holding company (with 99.98% shareholding) of Indo Wagon which in turn holds 99.98% shares of the corporate debtor HIWL. Thus, Mr. Sujit Dutta Roy, being a director of Adishwar Nivesh, is in a position to control the corporate debtor and he, being on the board of directors of Nandakini, Varsha Fabrics, Subhlaxmi and Gain E-Commerce (which are members of CoC) is in a position to advise, direct and instruct these four companies. Thus, by definition of clause (f) of section 5(24-A), the above mentioned four companies are related parties of the corporate debtor and hence their position as members of CoC and to be represented, participate and vote in meetings of the CoC is completely untenable and infringes the first proviso of section 5(24) of IBC. This glaring instance of related parties of the corporate debtor becoming members of the CoC is sufficient to make the constitution of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant HIL regarding shareholding of various corporate entities: - (i) Enormous Nivesh and Divya Mercantile both have more than 20% shareholding in Adishwar Nivesh and they are related parties of Adishwar Nivesh which is the holding company of the corporate debtor through Indo Wagon. (ii) Adishwar Nivesh, along with its shareholders (which are Sheetal Exports, Enormous Nivesh, Fragment Nivesh, Goldman Stocks and Divya Mercantile) control major shareholdings in at least four CoC members. Thus, Gain E-commerce, Subhlaxmi Compusis, Dahisar Traders, Miller Traders, Luni Housing and Developers and Mekong Rubber all are closely inter-connected through shareholdings with Adishwar Nivesh, which is the holding company of Indo Wagon which is the holding company of the corporate debtor. (iii) Miller Traders, Gain E-commerce, Subhlaxmi Compusis, Mekong Rubber, Luni Housing Developers and Dahisar Traders, which constitute six of the seven members of the CoC are intricately connected with Adishwar Nivesh, which controls the corporate debtor. Therefore, these six corporate entities as members of the CoC are closely connected parties of the corporate debtor. 91. We also note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non-est in the eyes of law. Such a judgment/decree - by the first court or by the highest court - has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings. The principle of finality of litigation cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting, justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation. A fraud is an act of deliberate deception with the design of securing something ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to passing of the order admitting section 7 application and declaration of imitation of CIRP by financial creditor soon thereafter. Clearly, this is a case where section 65 of the IBC is attracted. 97. Section 65 of the IBC prescribes a stringent punishment, which may be a penalty extending up to Rs. one crore for fraudulent and malicious initiation of the CIRP. In such a background, we are of the clear view that the initiation of CIRP was done fraudulently by the corporate debtor working in collusion with financial creditor Nandakini and therefore such fraudulent initiation of CIRP started with the admission order under section 7 is liable to be set aside. Therefore, taking recourse to section 65 of the IBC, we set aside the admission order of the section 7 application as its basis, the section 7 application, and loan therein which is claimed to be due and in default are found to be fraudulent. 98. While the existence of fraud in initiation of CIRP is quite apparent now, the issue about constitution of CoC with related parties or with parties who are part of the same group of companies acting in concert becomes inconsequential. This is so because once the foundation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the entering of such related party Financial Creditors in the Committee of Creditors as an act of commercial contrivances through which these entities sought to enter the COC, which could affect the other independent Financial Creditors. An order for liquidation of corporate debtor based on the sole decision of related parties Financial Creditors could be fatal for the existence of the corporate debtor, cannot be sustained. It is also pertinent to mention that when the Constitution of the Committee of Creditors itself is found to be tainted, then the decision of that COC cannot be validated on the pretext of exercise of commercial wisdom. 100. In the instant case, we find that the IRP/RP had formed the Committee of Creditors based on the Financial Creditors' submission of claims even without verification, despite that one of the financial creditors had explicitly requested to defer the e-voting on the resolution of the 5th CoC dated 5th December 2019, till the verification of voting percentage and compliance of CIRP process. The IRP/RP has formed the Committee of Creditors without admitting the claims of the Financial Creditors, which violate Regulation 12 (3) of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal circumstances, we feel that the RP, who is supposed to play the role of a non-partisan functionary, could have advised the workers union to submit the claim of workers so it could be considered in the resolution plan of the corporate debtor. Such an action was reasonably expected from the RP since he was well aware that the workers had been making concerted efforts for payment of their long-pending dues. That the RP did not do so, does raise question about his non-partisan and neutral functioning taking care of the legitimate interests of all the stakeholders including the workers. 104. We also note that the erstwhile RP did not make any meaningful attempt to even enquire into allegations of fraud, collusion, involvement of related parties, and interrelationships between all entities involved in the CIRP, specifically raised by the Appellant in the Additional Affidavit filed in Appellant's IA (IBC) No.1/CTB/2020 as well as IA (IBC) No. 50/CTB/2020 and in HIW Workers Union s IA No. 42/CTB/2020 filed under Section 65 of the IBC. As a person responsible for undertaking the CIRP in a responsible and impartial manner, it was incumbent upon him to do so. 105. We note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies acting in concert with the corporate debtor and financial creditor Nandakini. Thus, in respect of submission of proof of the claims of the financial creditors, who are members of the CoC, as well as the section 7 applicant Nandakini, the RP has quite conveniently overlooked placing them before the Adjudicating Authority, as was required of him vide order dated 28.2.2022 of the Adjudicating Authority. 108. We now look at issue (v) framed by us as to whether the Successful Resolution Applicant Regus Impex was disqualified to submit a resolution plan. On this issue, we note that the Dahisar Traders and Luni Housing and Developers both are 50-50 % shareholders of the Successful Resolution Applicant. Sheetal Exports as 31.63% shareholding in Dahisar Traders and Sheetal Exports also has a 15.8 % shareholding in Adishwar Nivesh, which holds 99.98 % shares in Indo Wagon, which is the holding company of the corporate debtor. Additionally, Divya Mercantile and Fragment Nivesh are holding 1.74% and 1.05% shares in the Dahisar Traders are also shareholders to the extent of 28.45% and 17.55% respectively in Adishwar Nivesh, thereby exhorting an influence which is an infringement of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the financial creditors would be affected, which has no consequence for the operational creditors. In the affidavit which has been filed by the Monitoring Committee in pursuance to the order of 10-3-2021 of this Court, it has also been stated that: ... in terms of the Doha Bank order, upon the exclusion of certain erstwhile financial creditors from the CoC of the corporate debtor (and correspondingly the financial debt of such creditors), the revised financial debt in respect of the corporate debtor shall be IN 31184,51,89,041 (Thirty-one thousand one hundred eighty-four crores fifty-one lakhs eighty-nine thousand and forty-one). Being an amount which is more than 7 times the liquidation value of the corporate debtor, such exclusion will have no implication in respect of the distribution to operational creditors under the resolution plan. The above statement has not been controverted during the course of the submissions. 110. Regarding the observations in the Pratap Technocrats judgment (supra) judgment, we are of the view that the present case is a case of fraudulent and malicious initiation of CIRP, and hence, when the basic edifice on which the resolution plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Committee of Creditors itself is found to be tainted, then the decisions of that COC cannot be validated on any pretext even it is about exercise of commercial wisdom. 113. The Learned Senior Counsel for HIL has pointed to certain material irregularities such as incorrect publication of Form G, defective affidavit under section 29-A submitted by the SRA and admission of exorbitant claims of members of CoC based on unusually high interest rates. He has also raised issues about the material irregularities present in the successful resolution plan. While such issues may have merited consideration, in the instant case we do not consider it necessary to go into these issues once the very foundation of CIRP has been found to be fraudulent and has therefore crumbled due to faulty admission of the section 7 application. 114. In the present case, as the initiation of CIRP itself has been found to be tainted and faulty, and in addition, the subsequently constituted CoC is also found to include parties that are connected with each other and acting in concert with the corporate debtor and other parties, we are of the opinion that the interest of justice would be served if the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to any financial creditor or any other party as a result of the approved resolution plan out of the corporate debtor s accounts or any alienation of corporate debtor s assets and creation of third-party rights in the assets of the corporate debtor shall also be reverted back, all within a period of one month from the date of this order. (v) We also find that there are serious acts of omission and commission by the erstwhile RP Mr. Anand Rao Korada, who has not acted in accordance with the letter and spirit regarding his duties as enshrined in IBC and the CIRP Regulations. This case is, therefore, a fit case to be investigated further by the Insolvency and Bankruptcy Board of India (IBBI) regarding any possible collusion between the RP on one hand and the corporate debtor, financial creditor Nandakini and the Successful Resolution Applicant on the other, and also dereliction of duty as laid down in the IBC. We, therefore, direct that IBBI shall investigate the conduct of RP Mr. Anand Rao Korada in this matter to look at possible acts of commission and omission and take appropriate decision and action in this regard. This enquiry may be completed within a period of three mont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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