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TMI Blog2024 (11) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... solution of Company Petition under Section 241 242 of Companies Act, 2013 before the CIRP petition does not hold water. The NCLT has passed the order after hearing both the parties and it s an order complying with relevant provisions of the code. The debt and default are on record and there was no pleading of pre-existing dispute in this case. As owners the equity shareholders are biggest beneficiaries when the company does well. Their capital is multiplied due to increase in share prices and by receipt of dividends. On the other hand, if the company performs badly and goes in liquidation, the equity shareholders loose their entire share capital. The owners of the company have a major role to play in the proper functioning of the company, as equity shareholders are represented through the Board of Directors (BoD) and the BoD holds the management accountable for its proper functioning - As soon as the CIRP petition is admitted and IRP is appointed, the functions of the BoD are taken over by IRP. As a representative of Shareholders erstwhile Directors of CD are allowed to intervene and file appeals under Section 61, but the individual or even majority shareholders are not allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of Corporate Debtor M/s. Goli Vada Pav Pvt Ltd./Respondent No.1. ii. The Vista Processed Foods Pvt. Ltd., Operational Creditor/Respondent No.2 filed Petition No. CP (IB) 145(MB) 2023 before the AA under Section 9 of the Code. The petition was filed against Respondent No. 1, Goli Vada Pav Pvt Ltd, alleging a default in payment of Rs. 3,56,04,233/-. The petition was filed on 29.01.2023 and registered on 16.02.2023 after detailed hearing the AA admitted the CP No. (IB)-145(MB) 2023 and initiated the CIRP process against the CD by order dated 05.09.2023. iii. The appellant though the majority shareholder of CD, did not know about initiation of CIRP against the CD as he was not a party in the case and it was not represented on the board of the CD. iv. The Appellant had filed a Company Petition on 05.01.2023 against the CD before the NCLT under Sections 166, 241, 242, 243, 244, and 447 of the Companies Act, 2013. The aforesaid petition was registered on 08.02.2023 as CP-28/2023. v. In the aforesaid Company matter CP-28/2023, the Respondent no.1 submitted copy of impugned order dated 05.09.2023, by which AA admitted the application under section 9 of the code against the CD and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 61 of the code. Submissions of Appellant 5. The Appellant, holding a majority 63.64% stake in the CD filed a petition (C.P. No. 28 of 2023) under Section 241-242 of the Companies Act, 2013 on 05.01.2023 against the (a) Corporate Debtor and (b) Srinivasan Venkatesh Gurumurthy Srinivasan Iyer (Promoter, CEO and Managing Director of CD) and representative of other shareholders. Shortly thereafter, on 29.01.2023 Respondent No. 2 filed a petition under Section 9 of the Code in the NCLT, Mumbai, which the CEO of the CD defended on behalf of the CD. The CD admitted the debt, but did not inform the Appellant or the same NCLT Bench hearing the CP-28/2023 about this Section 9 petition. The Section 241-242 petition was filed on 05-01-2023, registered on 08.02.2023 and listed on 13.02.2023, where company was represented, but the fact of Section 9 proceedings was never mentioned in the Court by the CD. 6. It is the submission of the appellant that in the hearing on 13.06.2023 the Section 9 petition hearing went unopposed, leading to its admission on 05.09.2023. On 16.10.2023, the CD informed the NCLT about the Section 9 petition s admission during the Section 241-242 proceedings. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders have intervened in original proceedings under Sections 7, 9, and 10 of the Code. However, the present case is distinct, as the appeal is filed by the majority shareholders, who were unaware of the Section 9 petition that initiated the CIRP process. This unusual circumstance, compounded by the fact that the majority shareholder is actively pursuing a separate petition under Sections 241 and 242 of the Companies Act, warrants special consideration from the Hon'ble Tribunal and suggests that the Appellant s standing should not be evaluated merely as a typical shareholder. 13. The counsel for Appellant during the course of arguments had referred the definition of person aggrieved. The Appellant also placed reliance upon the judgement passed by the Hon ble Tribunal in the matter of Trimex Industries Pvt. Ltd. Vs. Bhuvan Madan, RP of Sathavahana Ispat Ltd. bearing Ref. (CH) No. 01 of 2023 in Company Appeal (AT) (Ins.) No. 130 of 2023 which has referred the definition of person aggrieved. The same is being reproduced herein below: 4. He submitted that Hon ble Supreme Court in a case reported in (2013) 4 SCC 465 Ayaaubkhan Noorkhan Pathan Vs State of Maharashtra and Others He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice that anything which eludes or frustrates the recipient of justice should be avoided and reasonable opportunity of hearing be allowed to advance the cause of justice. We are of the view that Respondents No.2 and 3 being majority shareholders holding 98.98% share of the Corporate Debtor company, they deserve a chance to safeguard the rights and interests of the Corporate Debtor and their respective stakeholders given that the Appellant and KKV had in collusion foisted an abnormal situation by their resignation from the Corporate Debtor company causing a void and leaving none on the Board of Directors to defend the interests of Respondent No.1/Corporate Debtor company. To add to this, KKV was unauthorisedly representing the Corporate Debtor company before the Adjudicating Authority even after having submitted his resignation thus causing serious miscarriage of justice for the Respondent No.1. Hence, in the interest of justice, we are of the view that the present appeal filed before this Tribunal by Respondents No.2 and 3 deserves to be considered on merit. . 15. Further the appellant submitted that the judgment in Ashish Gupta vs. Delagua Health India Pvt. Ltd. (Company Appeal 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny pre-existing dispute as required under the code. 20. The counsel for the respondent places reliance on the judgement of the Hon ble Supreme Court in the matter of Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353 which provides following in Paragraph No. 34: 34 . the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs.1 lakh? (See Section 4 of the Act). (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. 21. The counsel further submitted that this Hon ble Tribunal in its judgement in the matter of Chetan Sharma Vs. Jai Laxmi Solvents (P) Ltd. Anr. in CA(AT)(Ins) No. 66 of 2017, and other connected cases d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018) SCC OnLine NCLAT 914), has held following in Paragraph 6: 6. From the aforesaid decision, it is clear that the Adjudicating Authority is only to satisfy that the default has occurred and that the Corporate Debtor is entitled to point out that the default has not been occurred in the sense that the debt is not due. No other person has a right to be heard at the stage admission of the application under Section 7 and 9 of the I B Code including the shareholders or the personal guarantor etc. 25. The Respondent No. 1 submitted that the disputes related to shareholder oppression or mismanagement under the Companies Act, 2013 are distinct issues governed by separate statutory provisions and fall outside the purview of the Code. As a special statute, the IBC prevails over the Companies Act pursuant to Section 238, as affirmed by the Hon ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2018), which held that the resolution process under the IBC takes precedence over any conflicting laws. The cases cited by the appellant are distinguishable on factual grounds and, therefore, do not apply to the present matter. Furthermore, the CIRP is approaching finalization, with the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Industries Pvt. Ltd. v. Bhuvan Madan, the Tribunal addressed the need for leave to appeal under Section 61, with no challenge on whether the Appellant was an aggrieved person, making it unrelated to the present appeal. Lastly, the judgment in Ashu Dutt v. Celadon Real Estate Advisers Pvt. Ltd. from the NCLT, Mumbai Bench, pertains to a different scenario involving an application under Section 9, which was dismissed due to the lack of operational debt and a pre-existing dispute. This judgment does not support the Appellant's case as the operational debt claimed here is unrelated to any management disputes. 29. The Respondent No. 2 argues that the Appeal should be dismissed as it is misconceived. The Appellant's only argument in the Appeal relates to a supposed pre-existing dispute between the Appellant, a shareholder, and the Corporate Debtor, which has no bearing on Respondent No. 2 (the Operational Creditor). The operational debt of Rs.3,56,04,233/- is undisputed, and the Hon ble NCLT confirmed this in its Admission Order. This Tribunal in Chetan Sharma v. Jai Lakshmi Solvents (P) Ltd. (2017) clarified that disputes under Section 5(6) of the Code must be between the CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the CD prior to the application by the Respondent No.2 for initiation of CIRP against the CD. The contention of the appellant is that the Respondent No.1 did not bring this fact about the pendency of existing Company Petition to the notice of AA. It is due to malafide intention of Respondent No.1 that the Corporate Debtor could not be saved under Section 241 and 242 of Companies Act. He further contended that the AA passed the impugned order in ignorance of Company Petition No. 28/2023. 33. We are aware that the disputes related to shareholder oppression or mismanagement under the Companies Act, 2013 are distinct issues governed by separate statutory provisions and fall outside the purview of the Code. As a special statute, the IBC prevails over the Companies Act pursuant to Section 238, which has been affirmed by the Hon ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2018), which held that the resolution process under the IBC takes precedence over any conflicting laws. Hence, the contention of appellant regarding resolution of Company Petition under Section 241 242 of Companies Act, 2013 before the CIRP petition does not hold water. 34. We have seen that the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has further relied upon three balance confirmations Annexed as Annexure F with the Application whereby the Corporate Debtor is purported to have acknowledge its liability to pay the outstanding amounts of Rs. 2,57,00,271/- as on 31.03.2020, Rs. 2,68,20,777/- as on 31.03.2021 and Rs. 2,68,20,867.11/- as on 31.03.2022. The balance confirmations are dated 18.08.2020, 12.07.2021 and 08.07.2022. If the balance confirmations are taken into consideration, whereby the outstanding amounts have been unequivocally acknowledged on behalf of the Corporate Debtor, the instant Application u/w 59 of the Code has to be held to have been filed within the period of limitation. 18. It has been contended on behalf of the Corporate Debtor that the said balance confirmations are bogus, forged and fabricated document which are not signed by any persons duly authorized by the Corporate Debtor. However, in the reply filed on behalf of the Corporate Debtor no such plea has been taken that the balance confirmations were not executed on behalf of the Corporate Debtor or that the persons who signed the balance confirmations were not authorized to do so on behalf of the Corporate Debtor. In the absence of speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Creditors' and an inter-se dispute between two groups of shareholders of the 'Corporate Debtor' does not constitute a 'dispute' in reference to 'Operational Creditors'. 16. On perusal of the documents, we find that there is no pre-existing dispute between the 'Corporate Debtor' and the 'Operational Creditors'. 20. The Appellant- Mr. Tilak Raj Sharma has already purchased the full stake of the other partner i.e. Mr. Dinesh Arora as pleaded by the 'Operational Creditors' and not disputed by the Appellant. Mr. Tilak Raj Sharma, provided exit to Mr. Dinesh Arora from the Company ('Corporate Debtor) before the takeover of the management by Mr. Tilak Raj Sharma Group in the year 2016. If there is any fraud played by one or other shareholders or ex shareholders of the 'Corporate Debtor', the aggrieved shareholder may take appropriate step against the other shareholder but that will not absolve the 'Corporate Debtor' of its liability of payment to 'Operational Creditors'. 37. It can be seen from the above that this Appellate Tribunal has, in the case of Chetan Sharma (supra) categorically held that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred; Section 5 (21). operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; Section 6. Persons who may initiate corporate insolvency resolution process. Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. (emphasis supplied) Section 9. Application for initiation of corporate insolvency resolution process by operational creditor.-(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub- section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. Section 61. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff remains dissatisfied with the decision of IRP, has remedy before the NCLT. 22. I must however note that the aforesaid cases involved a company which was at the stage of liquidation, as distinct from Umang in the present case, against which only the insolvency process has begun. However, considering the duties and role of the IRP under the IBC as discussed hereinabove, the principle in each of the aforesaid cases i.e., of the management of the company, on whose fraud/mismanagement a derivative action becomes maintainable, being no longer in power/control, and consequently a derivative action being no longer maintainable, also applies to the present case. 23. I also find a Single Judge of the High Court of Madras in Jai Rajkumar v. Stanbic Bank Ghana Ltd. 2018 SCC OnLine Mad 10472 to have held a suit by way of a derivative action to be not maintainable when the company, for whose benefit derivative action was initiated, was under insolvency. It was held that it is for the RP to act on behalf of the corporate debtor and to initiate suitable proceedings if any deemed necessary for the benefit of the corporate debtor and its creditors. 24. I respectfully concur. (emphasis supplied) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestor? An investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns. Investors rely on different financial instruments to earn a rate of return and accomplish important financial objectives like building retirement savings, funding a college education, or merely accumulating additional wealth over time. A wide variety of investment vehicles exist to accomplish goals, including (but not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs), options, futures, foreign exchange, gold, silver, retirement plans, and real estate. Investors can analyze opportunities from different angles, and generally prefer to minimize risk while maximizing returns. Investors typically generate returns by deploying capital as either equity or debt investments. Equity investments entail ownership stakes in the form of company stock that may pay dividends in addition to generating capital gains. Debt investments may be as loans extended to other individuals or firms, or in the form of purchasing bonds issued by governments or corporations which pay interest in the form of coupons. (emphasis su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund o of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (Emphasis supplied) 47. As owners the equity shareholders are biggest beneficiaries when the company does well. Their capital is multiplied due to increase in share prices and by receipt of dividends. On the other hand, if the company performs badly and goes in liquidation, the equity shareholders loose their entire share capital. The owners of the company have a major role to play in the proper functioning of the company, as equity shareholders are represented through the Board of Directors (BoD) and the BoD holds the management accountable for its proper functioning. If the company is admitted in CIRP, then it also reflects the failure of BoD on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive stakeholders given that the Appellant and KKV had in collusion foisted an abnormal situation by their resignation from the Corporate Debtor company causing a void and leaving none on the Board of Directors to defend the interests of Respondent No.1/Corporate Debtor company. To add to this, KKV was unauthorisedly representing the Corporate Debtor company before the Adjudicating Authority even after having submitted his resignation thus causing serious miscarriage of justice for the Respondent No.1. Hence, in the interest of justice, we are of the view that the present appeal filed before this Tribunal by Respondents No.2 and 3 deserves to be considered on merit. . However, we observe that in this particular case, the peculiar circumstances were that the Board of Directors of the Corporate Debtor had resigned and therefore there was no representation in CIRP proceedings on behalf of the Corporate Debtor. Accordingly, the shareholders were permitted to defend the Corporate Debtor before the Hon'ble NCLT. Pertinently, this was at the stage of the admission of the Corporate Debtor in CIRP and not in appeal after institution of the CIRP. In the present case, the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary injury; a person aggrieved must therefore, necessarily be one, whose right or interest has been adversely affected or jeopardised. (Vide: Shanti Kumar R Chanji V. Home Insurance Co of New York, and State of Rajasthan Ors V. Union of India Ors).,) . The appellant s argument is that the definition of 'aggrieved person' under Section 61 should include any party whose legal interests are impacted by the outcome of insolvency proceedings, even if not directly named as a party in the original application. The restrictive interpretation conflicts with the broader intent of the IBC to allow for effective appeals by any stakeholder with a demonstrable interest, especially in complex insolvency scenarios where indirect impacts on third-party rights are substantial. Thus, the scope of 'aggrieved person' must not be so narrowly construed as to exclude genuine stakeholders who have a legitimate legal or financial interest in the outcome of the case. However, the facts of the Trimex Industries (supra) are distinguished from the present case, as the question before this Tribunal in Trimex Industries (supra) was whether an application seeking leave to file an appeal under Sec ..... 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