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TMI Blog2024 (11) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... ignor. It has been held by the Hon ble Supreme Court in the case of Phoenix ARC (P) Ltd. [ 2021 (2) TMI 91 - SUPREME COURT] that amount disbursed to third party that too by the related party will not qualify as a financial debt under the Code. It has also been held in the case of Hytone Merchants Pvt. Ltd. [ 2021 (7) TMI 60 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] that even if Section 7 of the Code ingredients are fulfilled then also if collusion is proved CIRP can be set aside. The Appellant has specifically averred in para 33 of the appeal paper book about the presence of Respondent No. 3 in all three companies as shareholder and director which has not been denied by Respondent No. 2 and 3 in their reply, firstly, there is no parawise reply filed and secondly in the reply the emphasis is more on the issue as to how the provision of Section 5(24) is attracted about which an inference can be drawn that the allegation of the Appellant about Respondent No. 3 is correct and once he was the director/promotor 33.34% shareholder in Respondent No. 1 and Director in both Navayuga and Respondent No. 2 with 21.77% and 66.66% shareholder, it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as due and payable. 4. The Tribunal has noticed that the Corporate Debtor/Respondent No. 1, in its reply, admitted the debt and default, therefore, the IRP named by Respondent No. 2 (Financial Creditor), namely, Jagdish Singh Nain was appointed as such and moratorium was imposed. 5. It is pertinent to mention here that the suspended director of the CD/R1 did not challenge the order dated 02.08.2022 by of way an appeal. 6. However, the impugned order has been challenged by the present Appellant who was not a party to the application before the Tribunal. 7. The Appellant is the owner of a property bearing No. C- 2/10, Safdarjung Development Area, New Delhi (property) which was leased out by the Appellant to Respondent No. 1 by a registered lease agreement dated 04.01.2016. Respondent No. 1 was to pay a monthly rent in respect of the property, of a sum of Rs. 17,00,000 p.m (Rupees 18,36,000 after deducting TDS and adding GST) in advance by the 7th day of each calendar month w.e.f 01.03.2016 to 28.02.2019 and Rs. 19,55,000/- p.m (Rupees 21,11,400/- after deducting TDS and adding GST) in advance by the 7th day of each calendar month w.e.f. 01.03.2019. 8. Respondent No.1 defaulted in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a collusive petition under Section 7, with malicious intent, for a purpose other than the resolution of the insolvency, which is hit by Section 65 of the Code. 16. It is also alleged that after the order of admission, when the Appellant came to know that Respondent No. 1 has gone into CIRP and IRP has made public announcement for submission of claim, the Appellant submitted its claim on Form B for an amount of Rs. 17,41,09,137/- but without prejudice to the filing of the claim, the Appellant has filed the present appeal seeking setting aside of the impugned order on the ground that it has been obtained by Respondent No. 2 in collusion with ex- management and shareholder of Respondent No. 1 by initiating the CIRP for a purpose other than the resolution to defraud the appellant and other creditors. 17. It has also been alleged that the Appellant came to know about the initiation of CIRP only on publication made by the IRP and also came to know after making enquires that it is a case of collusion between Respondent No. 1 and Respondent No. 2, therefore, there was no option but to file the appeal to set aside the order dated 02.08.2022 and to prosecute the Respondents in terms of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than three months then the stamp duty of 0.5% of the amount is to be affixed whereas the agreement has been executed on a stamp paper of Rs. 100. It is also alleged that if the outstanding loan of Rs. 11,08,94,834/- assigned to Respondent No. 2 by agreement dated 10.02.2020 then why Navayuga in its financial statement of the year 2018- 19 and 2019 to 2020 did not reflect the loan amount as the loan given to Respondent No. 1 under loan and advances. 22. The Respondent No. 2 3 have filed their joint reply. It is alleged that tripartite agreement was executed between Respondent No. 1, 2 and Navayuga as alleged by the Appellant. As per clause 1.4 of the agreement, the repayment by Respondent No. 1 was to be made by way of issuance of Non-convertible Debentures (NDC), Optionally Convertible Debentures (OCD) or such other instrument acceptable to Respondent No. 2 within two months from the date of the agreement but later on, vide letter 04.05.2020 signed by both parties, it was decided that CD shall repay the principal sum of Rs. 11,08,94,834/- on or before 31.12.2020 and in the event of any delay, Respondent No. 1 shall pay interest on the aforesaid sum at 9% per annum w.e.f. 01.01.2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is alleged that pursuant to the public announcement dated 03.08.2022, he received two claims which were subsequently collated, verified and provisionally admitted upto 17.08.2022, i.e. the last date for filing claim as per public announcement and in terms of Section 21 of the Code the CoC was constituted on 22.08.2022 and report for constitution of CoC was filed with the NCLT on 24.08.2022 which is prior to the order dated 25.08.2022 passed by this Tribunal. 25. It is pertinent to mention that at the time of preliminary hearing of this appeal, this Court had passed the following order dated 25.08.2022 which read as under:- Learned counsel for the Appellant submits that the application under Section 7 was filed by the Financial Creditor in collusion with the Corporate Debtor to defeat the rights of the Appellant. It is submitted that a decree in favour of the Appellant has been passed by Hon ble Delhi High Court on 19.04.2022. He further submits that the Financial Creditor and the Corporate Debtor both are related parties and the Adjudicating Authority Committed error in admitting Section 7 application which was collusively filed. Submission needs scrutiny. Issue notice. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.01.2017. It is submitted that Respondent No. 5, suspended director of CD, also filed ledger of Navayuga maintained by CD which reflects that the said amount which is paid to third parties is treated as Share Application Money in the ledger books of the CD from 01.04.2009 to 31.03.2016 but on 31.03.2016 the amount of Rs. 6.25 Cr. towards the share application money is transferred to loan account, therefore, it is a collusive and sham transaction. It is submitted that the amount was disbursed to third party was collusive and no demand was ever made by Navayuga for repayment of the said amount. The amount was reflected as share application money in the ledger book of CD for a period of 7 years from 01.04.2009 to 31.03.2016 and the share application money is not a financial debt under the Code as held in the case of Parmod Sharma Vs. Karanaya Heartcare Pvt. Ltd., CA (AT) (Ins) No. 426 of 2022. It is also submitted that the Financial Creditor shall mean a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to but if the original debt itself is not a financial debt then the assignee cannot have a better right than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor to third party towards working capital requirements, business expenses, etc. do constitute financial debt. In this regard, a reference has been made to a case of this Tribunal in the case of Rajeev Kumar Jain Vs. Uno Minda Limited, CA (AT) (Ins) No. 947 of 2022. It is further submitted that Navayuga and Respondent No. 2 do not exercise any control over the business or affairs of Respondent No. 1. 30. In the end, it is argued that the appeal itself was not maintainable in this Court. It is submitted that the Appellant cannot be permitted to raise allegation of collusion for the first time before this Tribunal which is required to be agitated before the Adjudicating Authority under Section 65 of the Code as held by the Hon ble Supreme Court in the case of Beacon Trusteeship Limited Vs. Earthcon Infracon Pvt. Ltd. Civil Appeal No. 7641 of 2019. 31. In rebuttal argument, Counsel for the Appellant has submitted that for the purpose of collusion and malicious prosecution, the Appellant has to only show that as to whether Respondent No. 1 and Respondent No. 2 are the related party. It is submitted that the case is covered by Section 5(24) (m)(i) to (iii). It is submitted that Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 of the Code has been filed in which the impugned order has been passed to which the Appellant was not a party but as soon as the Appellant came to know, form public announcement made by the IRP about the CIRP of the CD, it filed the claim on Form B for an a mount of Rs. 17,41,09,137/- and without prejudice to the filing of the claim, the Appellant has also filed the present appeal because the Appellant is aggrieved against the admission of the application under Section 7 of the Code which is according to it an act of collusion to defraud the Appellant and other creditors. 38. The collusion between Respondent No. 1 and Respondent No. 2 can be ascertained if it is found that both are related parties. In this regard, the first evidence which has been referred to by the Appellant is from the audit report of Respondent No. 1 in which Note 3, pertaining to long term borrowings, recorded as under : - As at 31 st March 2020 As at 31 st March 2019 Particulars Non- Current Current maturities Total Non- Current Current maturities Total Term Loan-From Others Rupee term loans others secured Deposits Security deposits payable unsecured Loans and advances from related parties Loans and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial statement of the CD much less Note 3 of the audit report that long term borrowings the amount in question, is taken from the related parties. The collusion between Respondent No. 1 and Respondent No. 2 can be ascertained from such circumstances. 39. Moreover, neither the application under Section 7 was contested by Respondent No. 1 nor any appeal has been filed against the impugned order which means that it was just an eyewash. 40. In so far as the maintainability of the appeal and the application under Section 65 of the Code is concerned, reference has been made by Respondent to the case of Beacon Treusteeship Limited (Supra) in which the Hon ble Supreme Court by way of two members bench has observed as under:- 5. Mr. Gopal Jain, learned senior counsel appearing on behalf of the appellant raised manifold submissions that as per agreement it was necessary to give notice to the appellant before initiating the proceedings before the NCLT which was not given. The three invoices on the basis of which the proceedings have been initiated are vague and prima facie proceedings have been initiated in collusive manner by Respondent Nos. 1 and 2. Reliance has been placed on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith law. The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority. 41. However, in the case of M/s Embassy Property Development Pvt. Ltd. (Supra) the Hon ble Supreme Court by way of three members bench has specifically framed a question ii. whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016 . This question has been answered as under:- Question No. 2 46. The second question that arises for our consideration is as to whether NCLT is competent to enquire into allegations of fraud, especially in the matter of the very initiation of CIRP. 47. This question has arisen, in view of the stand taken by the Government of Karnataka before the High Court that they chose to challenge the order of the NCLT before the High Court, instead of before NCLAT, due to the fraudulent and collusive manner in which the CIRP was initiated by one of the related parties of the Corporate Debtor themselves. In the writ petition filed by the Government of Karnataka be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt under Article 226 without taking recourse to the statutory alternative remedy of appeal before the NCLAT. But the contention of the appellants herein is that allegations of fraud and collusion can also be inquired into by NCLT and NCLAT and that therefore the Government could not have bypassed the statutory remedy. 49. The objection of the appellants in this regard is well founded. Section 65 specifically deals with fraudulent or malicious initiation of proceedings. It reads 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 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 less than one lakh rupees but may extend to one crore rupees. 50. Even fraudulent tradings carried ..... X X X X Extracts X X X X X X X X Extracts X X X X
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