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TMI Blog2024 (11) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... 023, prior to filing of the application under Section 10 by the Corporate Applicant. Admittedly, Section 10 application was filed by the Appellant, subsequent to initiation of proceedings under Section 13, subsection (2) by the SBI. The pleadings of the of the SBI in proceedings under Section 13, sub-section (2) were that 13(2) proceedings were on the verge of being completed, when Corporate Applicant has filed application under Section 10 with malafide and fraudulent intent. From the pleadings in Section 65 application, we do not find any foundation to come to the conclusion that application under Section 10 was fraudulently initiated. The learned Counsel for the Appellant has relied on judgment of this Tribunal in Unigreen Global Private Limited vs. Punjab National Bank and Ors. [ 2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ], where this Tribunal noticing Section 7 and Section 10 of the IBC held that, two factors are common i.e. the debt is due and there is a default - This Tribunal further held that action under Section 13(4) of SARFAESI Act against Corporate Debtor or proceedings before Debt Recovery Tribunal, if any, are pending, cannot be a ground to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocates for R1. Mr. Harshit Gupta proxy counsel for R2 JUDGMENT ASHOK BHUSHAN , J. This Appeal has been filed by a Corporate Applicant, challenging order dated 30.09.2024 passed by National Company Law Tribunal, New Delhi Court III rejecting application filed by the Appellant under Section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC ) and allowing application under Section 65 of the IBC being IA No.1955 of 2024 filed by the State Bank of India ( SBI ). By the impugned order, a penalty of Rs.1,00,000/- was also imposed on the Applicant/ Appellant. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are: (i) M/s Shivpriya Cables Pvt. Ltd. (Principal Borrower) availed fund based and non-fund-based loan facilities to the tune of Rs.19,77,00,000/- from the SBI, wherein the Appellant executed a Corporate Guarantee in favour of the SBI. A credit facility of Rs.1,64,59,163/- was also availed by the Principal Borrower from M/s Northern ARC Capital Ltd. A Corporate Guarantee was also executed by the Appellant in favour of Northern ARC Capital Ltd. ( Northern ARC ) on 30.07.2019. The Principal Borrower also availed enhancement faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent within the meaning of Section 65 of the IBC only on the ground that proceedings under Section 13, sub-section (2) of the SARFAESI Act was initiated by the SBI against the Appellant prior to filing of Section 10 Application. It is submitted that mere initiation of proceedings under SARFAESI Act by the SBI cannot be the basis for coming to a finding that Section 10 application is filed with malicious and fraudulent intent. It is submitted that section 10 application of the Appellant has been rejected by the Adjudicating Authority invoking Section 65 of the IBC, whereas ingredients of Section 65 application were neither pleaded nor proved by the SBI. It is submitted that Section 10 of the IBC is a statutory provision, giving entitlement to a Corporate Applicant to file an application for initiation of CIRP, when a Corporate Debtor has committed a default. The right under Section 10 given to a Corporate Debtor, cannot be taken away only on the ground that proceedings under Section 13, sub-section (2) of SARFAESI Act has been initiated prior to filing of application under Section 10. It is submitted that right to file an application under Section 10 on the ground that Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 65 to dismiss Section 10 application. Section 65 application has been filed by the SBI on the basis of malicious and fraudulent intent of the Appellant, which is reflected in the sequence of events. It is submitted that ingredients of Section 65 were fully met in the application under Section 65 filed by the SBI. The Personal Guarantor Mr. Ajay Kumar Gupta also filed petition under Section 94 of the IBC, which has also been admitted by the Adjudicating Authority. Northern ARC has not taken any action to recovery of its money from the Corporate Debtor, even after invoking the guarantee. The Northern ARC also supported Section 10 application. In Section 10 application, SBI was not made a party, which application was filed behind the back of the SBI, whereas the Appellant was well aware that SARFAESI proceedings related to immovable mortgaged property of the Appellant is on the verge of completion. Learned Counsel for the SBI submits that Section 10 application has been rejected by the Adjudicating Authority by allowing Section 65 application as well as on the basis of other relevant facts as noticed in the judgment. 6. Learned Counsel for both the parties have placed rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, provides: Part-I PARTICULARS OF THE CORPORATE APPLICANT 9. DETAILS OF THE CORPORATE DEBTOR AS PER THE NOTIFICATION UNDER SECTION 55 (2) OF THE CODE (i) ASSETS AND INCOME (ii) CLASS OF CREDITORS OR AMOUNT OF DEBT (iii) CATEGORY OF CORPORATE PERSON (WHERE APPLICATION IS UNDER CHAPTER IV OF PART II OF THE CODE) 11. Part-III of the Form, deals with Particulars of Financial/ Operational Debt [Creditor Wise, as Applicable] . The copy of the application which was filed by the Application under Section 10 has been brought on the record by Appellant as Annexure A-10. In the petition under Section 10, it is stated that the Principal Borrower has obtained financial facilities from the SBI, details of such facilities has been mentioned in the application, totaling to Rs.42,58,00,000/-. The Applicant also pleaded that Equitable Mortgage of Immovable property on the first charge basis was also created, i.e. factory land and buildings bearing Survey Number/ Plot No. E-448, RIICO Industrial Area, Chopanki, Bhiwadi, Alwar, Rajasthan, standing in the name of Corporate Debtor/ Corporate Applicant. The Applicant further stated that Principal Borrower has defaulted in repayment and account has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 22.02.2023. Part III of Item No.3 is as follows : PART-III PARTICULARS OF FINANCIAL/ OPERATIONAL DEBT [CREDITOR WISE, AS APPLICABLE] 3. TOTAL DEBT RAISED AND AMOUNT IN DEFAULT Debt Raised is Nil being Corporate Guarantor Amount in Default:- 1. State Bank of India: Rs.52,94,32,352/- in terms of Notice, dated 22.02.2023. 2. Northern ARC Capital Limited: Rs.1,64,59,163/- in terms of Notice, dated 23.01.2023. 13. In the list of other documents, which were attached along with application, have been mentioned, which Item No.8 is as follows : 8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL/ OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT 1. Legal Notice, dated 23.01.2023, issued by Northern ARC Capital Limited and the same is being annexed herewith and marked as Annexure A/1. 2. Legal Notice, dated 22.02.2023, issued by State Bank of India and the same is being annexed herewith and marked as Annexure A/2. 3. Deed of Guarantee, dated 30.07.2019, executed in favour of Northern ARC Capital Limited against the Financial Facility availed by Shivpriya Cables Pvt. Ltd. and the same is being annexed herewith and marked as Annexure A/3. 4. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the aforementioned facts and circumstances, it is pertinent to mention that while the enforcement proceedings initiated by the Applicant (SBI) against the Mortgaged Property of the Respondent No. 1 under SARFAESI Act, 2002 are on the verge of being completed, the Respondent No. 1 herein with a malafide and fraudulent intent had filed the instant captioned petition i.e. C.P.(IB) No. 749/ND/2023; (n) It is pertinent to note that the present Petition filed by the Respondent No. 1 is nothing but an attempt to stall the recovery proceedings by way of SARFAESI action and recovery of Bank's dues, further time loss is expected. As such the Applicant i.e. State Bank of India has already have lost plenty of time during the ongoing CIRP Process, since the Principal Borrower was under NCLT since December, 2023. 15. Section 65 of the IBC is a provision, which empowers the Adjudicating Authority to impose a penalty under Section 65 of the IBC, which is as follows: 65. Fraudulent or malicious initiation of proceedings. - (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effort to express it. ROLLIN M. PERKINS RONALD N. BOYCE, Criminal Law 860 (3d Edition 1982) 18. The Hon ble Supreme Court has defined malice in (2003) 8 SCC 567 Chairman MD. BPL Ltd. vs. S.P. Gururaja and Ors. in paragraph 21, in following words: 21. Malice in common law or acceptance means ill will against a person, but in the legal sense it means a wrongful act done intentionally without just cause or excuse. 19. The question to be answered is as to whether filing of an application by the Appellant under Section 10, can be termed as initiation of proceedings with fraudulent and malicious intent. The basis for Section 65 application filed by the SBI is the fact that SBI has initiated proceedings under Section 13, sub-section (2) of the SARFAESI Act vide notice dated 24.02.2023, prior to filing of the application under Section 10 by the Corporate Applicant. Admittedly, Section 10 application was filed by the Appellant, subsequent to initiation of proceedings under Section 13, subsection (2) by the SBI. The pleadings of the of the SBI in proceedings under Section 13, sub-section (2) were that 13(2) proceedings were on the verge of being completed, when Corporate Applicant has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be granted time to rectify the defects. 22. This Tribunal further held that action under Section 13(4) of SARFAESI Act against Corporate Debtor or proceedings before Debt Recovery Tribunal, if any, are pending, cannot be a ground to rejection application under Section 10, if the application is complete. In paragraph 25, following was laid down: 25. Similarly, if any action has been taken by a Financial Creditor under Section 13(4) of the SARFAESI Act, 2002 against the Corporate Debtor or a suit is pending against Corporate Debtor under Section 19 of DRT Act, 1993 before a Debt Recovery Tribunal or appeal pending before the Debt Recovery Appellate Tribunal cannot be a ground to reject an application under Section 10, if the application is complete. 23. Another judgment of this Tribunal relied by the learned Counsel for the Appellant is Amar Vora vs. City Union Bank Ltd. (2022) SCC OnLine NCLAT 276, where the same principles were reiterated in paragraph 9, which are as follows: 9. In view of the above provision of law the financial Creditor/Operational Creditor/Corporate Persons can file an application under Section 7, 9 10 of the I B Code, 2016 before the respective Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. 19. Differently nuanced contextual meanings of the word fraud are collected in P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn., Vol. 2, pp. 1914-15). We may extract two of them: Fraud, is deceit in grants and conveyances of lands, and bargains and sales of goods, etc. to the damage of another person which may be either by suppression of the truth, or suggestion of a falsehood. (Tomlin) * * * 34. Fraud has been defined as any conduct of deceit resulting in injury, loss or damage to someone. Deceit has also been explained by the Hon ble Supreme Court in (2013) 1 SCC 562 Ram Chandra Bhagat vs. State of Jharkhand. The Hon ble Supreme Court explaining the deceit following has been stated in paragraph 17 and 18: 17. Stroud's Judicial Dictionary (5th Edn.) explains deceit as follows: Deceit. Deceit , deceptio, fraus, dolus, is a subtle, wily shift or device, having no other name; hereto may be drawn all manner of craft, subtilly, guile, fraud, wilinesse, slight, cunning, covin, collusion, practice, and offence used to dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country. It is, thus, not possible to accede to the argument on behalf of the appellant that given Section 446 of the Companies Act, 1956/Section 279 of the Companies Act, 2013, once a winding-up petition is admitted, the winding-up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC. While it is true that Sections 391 to 393 of the Companies Act, 1956 may, in a given factual circumstance, be availed of to pull the company out of the red, Section 230(1) of the Companies Act, 2013 is instructive and provides as follows: 230. Power to compromise or make arrangements with creditors and members. (1) Where a compromise or arrangement is proposed (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the units to the Homebuyers were to be handed over by 2016 and 90% of the amount from all the Homebuyers were realised before 2016. Filing of the Application under Section 10 took place in March 2021, which indicate that Application was filed with malicious purpose other than resolution of the Corporate Debtor. The Adjudicating Authority has categorically returned a finding that in the garb of IBC proceedings, the Corporate Debtor has attempted to play fraud on its stakeholders. In paragraph 33, 34 and 37, following have been held: 33. Now a question arises, whether the CD has filed the Section 10 application with a malicious and fraudulent intent. The term malicious has not been defined anywhere under IBC, 2016. Therefore, at this juncture we refer to the Judgment of Hon ble Supreme Court, passed in the matter of West Bengal State Electricity Board Vs Dilip Kumar Ray, Civil Appeal 5188 of 2006 dated 24.11.2006, wherein the term malicious has been discussed. The extracts of the Judgment are reproduced below:- Malice means in law wrongful intention. It includes any intent which the law deems wrongful, and which therefore serves as a ground of liability. Any act done with such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to filing of Section 10 application. In paragraphs 11 and 13, this Tribunal laid down following: 11. Be that as it may, we also notice that much before the Section 10 application was filed by the Appellant, the Respondent Bank had issued notices to the Appellant for personal hearing before declaring the Appellant to be a wilful defaulter. We also find that the Adjudicating Authority took notice of the fact that the Appellant Company failed to appear before the Respondent Bank in spite of notices having been issued to them twice and gave a slip to the proceedings initiated by the Wilful Defaulter Identification Committee of the Respondent Bank. Even after being declared a defaulter, the Appellant continued not to respond to the notices issued by the Respondent Bank. Moreover, while on the one hand it was dodging the notices for appearance, on the other hand, it was making strenuous efforts to enter into some sort of settlement with the Respondent Bank. We notice one such letter dated 11.03.2019 placed at page 120-121 of Appeal Paper Book ( APB in short) where the Appellant Company has requested the Respondent Bank to either sanction additional funds to meet the aforesaid requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing was held: 15. When we take a holistic view of the entire conspectus of facts, it does not escape notice that the Appellant was trying to embroil the Respondent Bank in multiple layers of litigation. It is an undisputed fact that the Appellant had filed securitization application SA-365 of 2019 before the DRT, Lucknow for stay on the auction of its properties by the Respondent Bank. Apart from moving the securitization application before the DRT, the Appellant had also knocked at the doors of the Hon ble Allahabad High Court by filing a Writ petition. Though the matter was heard on the same date (16.07.2022) on which the auction in pursuance of the sale notice was to take place, the Hon ble High Court did not stay the e-auction. The Hon ble High Court only observed that the e-auction shall abide by the outcome of the application for interim relief pending before the DRT, Lucknow. Interestingly, we also notice at page 242 of APB that though the DRT, Lucknow in SA-365 of 2019 in its order dated 22.11.2022 had granted status quo in respect of the subject properties under e- auction, but by that time the assets of the Corporate Debtor had already been auctioned by the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 13, sub-section (2) and (4) has been initiated by the creditor prior to filing of Section 10 application, cannot be a ground to hold that Section 10 application is filed with malicious and fraudulent intent. For proving fraudulent and malicious intent, something more is required to be pleaded and proved apart from initiation of proceedings under Section 13, sub-section (2) and (4) by the creditor against the Corporate Applicant. 32. In view of the foregoing discussions, we are satisfied that Adjudicating Authority committed error in allowing Section 65 application filed by the SBI and rejecting Section 10 application. In event a proposition of law is accepted that when a creditor has initiated proceedings under Section 13, sub-section (2) against the CD, he is precluded to file Section 10 application, that proposition will be clearly against the intent and purpose of Section 10 of the IBC. However, in appropriate cases, where it is proved that initiation of Section 10 application is for purpose other than resolution of the Corporate Debtor and has been initiated with malicious and fraudulent intent, the Adjudicating Authority is fully justified in rejecting Section 10 applicati ..... 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