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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 ..... 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 facilities from SBI and as on 16.10.2015, the sanctioned facilities was Rs.42,58,00,000/-. (ii) On 04.08.2022, the loan account of Shivpriya Cables Pvt. Ltd. ("Shivpriya Cables") was classified as Non-Performing Asset ("NPA") by the SBI. Northern ARC issued notice invoking Corporate Guarantee on 23.01.2023 and demanded payment of outstanding amount of Rs.1,64,59,163/-. (iii) The SBI initiated proceedings under Section 13, sub-section (2) of the SARFAESI Act, 2002 against Applicant/ Appellant, demanding in capacity of Corporate Guarantor to repay the outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 Debtor has committed default is a sine-qua-non for filing an application under Section 10. The proceedings under Section 13, sub-section (2) initiated by the SBI against the Appellant is a proof that the Appellant has committed a default and cannot be read to mean as any ineligibility of the Corporate Debtor to file Section 10 application. Section 65 is to be invoked when a person initiate an insolvency resolution process fraudulently or with malicious intent or for any purpose other than for the resolution of insolvency. Section 65 applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 reliance of various judgments of Hon'ble Supreme Court and this Tribunal in support of their respective submissions. 7. The main reason for dismissal of Section 10 petition has been given in paragraph 7 (xix) of the impugned order, which is as follows: "7(xix) There is no quarrel over the fact that Section 10 vests rights on the Corporate Applicant to resolve their insolvency. However, one cannot lose sight of the fact that this protective umbrella over the assets of the Corporate Applicant is not misused or abused in a manner so as to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 declared as NPA. It was also further pleaded that both the Financial Creditors have invoked the guarantee provided by the Corporate Debtor and the Corporate Applicant is not in a position to repay the aforementioned liabilities since it has not been carrying out business for the last five years. It is useful to notice the following statements made in Section 10 application at (vi) and (vii) of the synopsis, which are as follows : "vi) Both the abovementioned financial creditors have invoked the gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. Master Data of the Corporate Debtor and the same is being annexed herewith and marked as Annexure A/4. 5. Board Resolution dated 30.09.2023, in favour of the deponent authorizing filing of the instant Application and the same is being annexed herewith and marked as Annexure A/5. 6. Extracts of Minutes of Board Meeting, dated 30.09.2023, resolving to Corporate Resolution initiate Insolvency IBC against the Corporate Process under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense 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 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. Thus, the question remains as to whether initiation of proceedings under Section 10, can be treated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 Authorities even though in respect of same any proceeding pending before other forums on the ground that the provisions of I & B Code, 2016 is overriding effect of other laws. In view of the aforesaid reasons the Appellant cannot take a stand that the proceedings are pending before DRT and PBPT and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deceive another man by any means, which hath none other proper or particular name but offence'." Black's Law Dictionary (8th Edn.) explains "deceit" thus: "Deceit, n.-(1) The act of intentionally giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 an intent is, in the language of the law, malicious and this legal usage has etymology in its favour. The Lain militia means b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 requirement or grant us a time for 6 to 12 months to arrange for the alternate sources of finance to repay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Respondent Bank. The auction had already been completed by the Respondent Bank and acceptance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 application, which proposition has been laid down and accepted by this Tribunal in cases as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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