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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 ..... assed on 05.09.2023 filed under the provisions of the Section 9 of the Code. 2. The Adjudicating Authority (in short 'AA') has admitted the petition filed by Vista Processed Foods Pvt. Ltd. (Respondent No.2/Operational Creditor) against Goli Vada Pav Pvt. Ltd. (Corporate Debtor) for the initiation of the CIRP under Section 9 of the Code, based on an operational debt of Rs. 3,56,04,233/- that the CD failed to pay. 3. The brief facts of the case are as follows: i. The Appellant M/s. Clarion Health Foods LLP is Limited Liability Partnership firm and is major shareholder holding 63.64% of paid-up share 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pvt. Ltd. in CA (AT) (Ins.) No. 17 of 2022 passed by NCLAT, Delhi Bench. (ii) Ashmeet Singh Bhatia v. Pragati Impex India Pvt. Ltd. & Anr. in CA (AT) (Ins.) No. 1413 of 2023 passed by NCLAT, Delhi Bench. (iii) Ashu Dutt v. Celadon Real Estate Advisors Pvt. Ltd. in CP (IB) No. 3848 of 2019 passed by Ld. NCLT, Mumbai. (iv) Trimex Industries Pvt. Ltd. v. Bhuvan Madan, RP Sathavahana Ispat Ltd. in CA (AT) (CH) (Ins.) No. 130 of 2023 passed by NCLAT, Chennai Bench. 4. We have heard counsel for the parties on the issue of maintainability of the appeal to decide as to whether the appellant is an aggrieved person for filing the appeal under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. 5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order." 12. It was contended by the counsel for the appellant that the relevant section of the Insolvency and Bankruptcy Code does not bar shareholders from filing an appeal as an "aggrieved person." This position is supported by examples where shareholders 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 standin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation filed by the majority shareholder was allowed. The Appeal filed against the said order was challenged before this Appellate Tribunal. The Appeal was dismissed with the observation that the interest of the majority shareholders should be protected in CIRP proceedings. The relevant extract is reproduced herein below: "13. In view of the peculiar circumstances of the present case where the Section 8 Demand Notice could not be responded to by the Corporate Debtor company for reasons beyond their control and a collusive petition having been filed, Respondents No.2 and 3 being majority shareholders of the Corporate Debtor Company deserve to be heard. It is a well settled canon of natural justice 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Code. However, the facts of the present matter with respect to testing the locus of the shareholders is entirely different. 18. The counsel for the appellant has submitted that his appeal is very much maintainable in view of the aforesaid findings. Submission of Respondents 19. The counsel for Respondent No.1 stated that the Appellant has challenged the Hon'ble NCLT's decision, claiming the issue revolves around the interpretation of "dispute" under Section 5(6) of the code, which defines "dispute" specifically as a matter between debtor and creditor. Respondent No. 1 further questioned the petition's maintainability in its reply, which the Appellant argues, is irrelevant given the absence of any 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olvency Resolution Process, however, the Appellant has no locus to file the present Appeal as per established principles of law as decided by Hon'ble Courts. In the Case of Nirej Vadakkedathu Paul (supra) the Hon'ble NCLAT considered that the "shareholders" cannot be aggrieved merely by the admission of the 'Corporate Debtor' into 'Corporate Insolvency Resolution Process'. Such objection may render the object of I & B Code, 2016 illusory, since any shareholder of any 'Corporate Debtor' against which Insolvency proceedings have been initiated can then seek to maintain a derivative action and sabotage a valid CIRP initiated by the Adjudicating Authority. 24. In the judgement of this Hon'ble Tribunal in the matter of Axis Bank Vs. Lotus Three Developments & Ors., ((2018) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Bankruptcy Code. Consequently, the Tribunal dismissed the appeal as non-maintainable to uphold the objectives of the Code. 28. The counsel further submitted that the Appellant relies on multiple cases to support their arguments, but each cited judgment is inapplicable due to differing circumstances. In Ashish Gupta v. Delagua Health India Pvt. Ltd., the judgment centred on a pre-existing dispute and unique conditions where shareholders, instead of the Board, represented the Corporate Debtor at the admission stage of CIRP; however, in this case, the Corporate Debtor was represented consistently, and a detailed reply was filed. Similarly, in Ashmeet Singh Bhatia v. Pragati Impex India Pvt. Ltd., the issue related to Section 65 powers, not CIRP, thus irrelevant for this appeal. In Trimex 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and collusion, raised by the Appellant's advocate during the hearing, are unsupported by the record and were not part of the initial pleadings. Moreover, Respondent No. 2 issued a Demand Notice before any alleged disputes between the Appellant and Corporate Debtor arose. Since the operational debt owed to Respondent No. 2 is undisputed, it is urged that the appeal be dismissed for lack of maintainability and, alternatively, on the merits. Analysis and findings 31. We have heard the Ld. Counsels in detail and examined the documents including written submissions filed by parties. 32. The first and main contention of the appellant is that there was a pre- existing dispute between the appellant and Corporate Debtor/Respondent No.1 for which the appellant had preferred Company Petition No. 28/2023 against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the due date, it is pertinent to point out that as per clause 18 of the manufacturing agreement dated 06.12.2016, the Operational Creditor was entitled to charge interest as per its prevailing borrowing bank rates for any overdue and unpaid invoices calculated from the due date to the date of payment. Therefore, it cannot be said that the Operational Creditor was not entitled to claim interest. 17. So far as the question as to whether the Application has been filed within the period of limitation is concerned, as per the ledger (Annexure L) annexed with the Petition, the invoices were issued between 02.08.2018 and 30.06.2021. A perusal of the ledger further shows that some payments were made by the Corporate Debtor from time to time against the invoices raised by the Operational Creditor. The Operational Creditor 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... code. The debt and default are on record and there was no pleading of pre-existing dispute in this case. 36. The respondents on the other hand have cited the Judgment of this Tribunal in Chetan Sharma Vs. Jai Laxmi Solvents (P) Ltd. & Anr. In CA (AT) (Ins) No. 66 of 2017. In view of the fact that the appellant has quoted Section 5 (6) of the Code regarding the existing dispute between the appellant and CD relating to oppression and mismanagement under Companies Act. The relevant paras 15, 16 & 20 of the Judgment supra are extracted below: "15. It is a settled law that unilateral transfer' of liability does not constitute a 'dispute' within the meaning of Section 5(6) of the I&B Code'. The 'dispute' under Section 5(6) of the 1&B Code' has to be between the 'Corporate Debtor' and the 'Operational 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 Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the CIRP proceedings shareholders have no locus under Section 9 of the Code and therefore this appeal is not maintainable. They have also cited several Judgments of this Tribunal to support their contention. 41. In order to examine this critical issue of locus and maintainability, we have to look into various provisions of the I&B Code 2016 carefully. The relevant provisions connected to this issue are: "3 (23) "person" includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India;" (emphasis supplied) Section 5 (20). "Operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; 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. Person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on derivative action on behalf of the Corporate Debtor under I & B Code, 2016. In the case of ICP Investments v. Uppal Housing, 2019 SCC OnLine Del 12371, following has been recorded in the judgment :- "18. The IRP appointed with respect to Umang, under the law having powers/authorities as aforesaid, I have wondered about the maintainability of a derivative action on behalf of Umang. 20. It is felt that once the affairs of the Umang are taken over by an IRP, the Directors of Umang can no longer be blamed for not taking the requisite steps to seek redress for the wrong if any done to Umang, and a derivative action by plaintiff, as a majority shareholder, for the benefit of Umang would not be maintainable. The plaintiff now has to approach the IRP for taking action against Uppal and it is the IRP who has to, if finds any merit in the grievance of the plaintiff, take appropriate remedy on behalf of Umang. Moreover, if the plaintiff 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere it has been held that an investor in a 'Corporate Debtor' cannot claim to be an 'aggrieved person' for preferring an appeal against an order against insolvency petition in Company Appeal as held in CA (AT) (Insolvency) No. 296 of 2017 in the matter of Anant Kajare Vs. Eknath Aher & Anr. wherein the relevant para reads as under: - "4. Heard learned counsel for the Appellant. Admittedly, the Appellant is an Investor therefore, the Appellant cannot claim to be an 'aggrieved person' for preferring appeal against the order dated 2nd May, 2017 passed by Adjudicating Authority whereby the application under Section 9 of the 'I&B Code' was admitted. In fact, the Appellant being an investor is entitled to file its claim before the 'Insolvency Resolution Professional." (emphasis supplied) ➢ The term 'investor' has not been defined in the I & B Code, 2016 as well as in the Companies Act, 2013. A reference, therefore, has been made to 'Investopedia' where investor has been defined as under: - "What Is an Investor? 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w: "Section 53. Distribution of assets. -(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time be being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following: - (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts oved to unsecured creditors; (e) the following dues shall rank equally between and among the following: - (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jority shareholder was allowed. The Appeal filed against the said order was challenged before this Appellate Tribunal. This Tribunal had dismissed the Appeal with the observation that the interest of the majority shareholders should be protected in CIRP proceedings. The relevant extract is reproduced herein below: "13. In view of the peculiar circumstances of the present case where the Section 8 Demand Notice could not be responded to by the Corporate Debtor company for reasons beyond their control and a collusive petition having been filed, Respondents No.2 and 3 being majority shareholders of the Corporate Debtor Company deserve to be heard. It is a well settled canon of natural justice that anything which eludes or frustrates the recipient of justice should be avoided and reasonable opportunity offering 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Code alleging fraud and collusion between the CD and FC with documentary evidence of circular transaction. The appeal was not against the order of CIRP, and the observations made therein are categorically in respect of the exercise of powers under Section 65. The ratio of the aforesaid case is not applicable in the present case. (iii) 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. The appellant placed reliance on para 4 of the Judgment (supra) which is extracted below: "Para 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 has relied on para 10 of the Hon'ble Supreme Court Judgement which is reproduced hereinbelow: - "10.A "legal right", means an entitlement arising out of legal rules. Thus, it may be defined as an advantage, or a benefit conferred upon a person by the rule of law. The expression, "person aggrieved" does not include a person who suffers from a psychological or an imaginary injury; a person aggrieved must therefore, necessarily be one, whose right or i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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