2021 (4) TMI 402 - AT - Insolvency and Bankruptcy

Appellate Tribunal upholds decision to revive insolvency application under NCLT Rules

Sree Bhadra Parks and Resorts Ltd. Versus Sri Ramani Resorts and Hotels Pvt. Ltd.

The Appellate Tribunal dismissed the appeal and upheld the Adjudicating Authority's decision to restore and revive the insolvency application. It found ... Maintainability of Application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - amounts advanced towards purchase of shares of the ‘Appellant’/’Company’ - case of appellant is that ‘Respondent’/‘Petitioner’ is neither an ‘Operational Creditor’ nor a ‘Financial Creditor’ and further that there is no ‘debt’ and that the ‘Respondent’ is not in ‘Default’ under the Code - time limitation - HELD THAT:- Keeping in mind that the ‘Appellant’/ ‘Corporate Debtor’ acknowledged the debt of ‘Respondent’/ ‘Financial Creditor’ on 28.11.2018, it is held by this ‘Tribunal’ that the application filed by the ‘Respondent’/ ‘Applicant’/ ‘Financial Creditor’ is within the limitation period. The ‘Adjudicating Authority’ (National Company Law Tribunal, Kochi Bench, Kerala) on 25.8.2020 came to the conclusion that the present debt arose out of the ‘Share Purchase Agreement’ dated 21.11.2012 and that the said amount was a ‘debt’ disbursed against the consideration for advance payment as per the agreement and hence was covered within the definition of ‘financial Debt’ and that the ‘Respondent’/ ‘Applicant’ would be treated as ‘Financial Creditors’ and resultantly admitted the Section 7 Application of the ‘Respondent’/ ‘Financial Creditor’/ ‘Applicant’ for initiation of CIRP - It is to be mentioned that an ‘inherent power’ of the ‘Tribunal’ has its gross root in necessity and the said power can be exercised by a ‘Tribunal’ based on the rudimentary principle that an ‘act of Court shall prejudice no person’. Further, to meet the ends of justice an ‘inherent power’ of a ‘Tribunal’ being ‘Co-extensive with need’ can be exercised to render justice to the litigants. Undoubtedly, the Adjudicating Authority (National Company Law Tribunal, Kochi Bench, Kerala) had rightly allowed application on 28.01.2021 (filed under Rule 11 of National Company Law Tribunal Rules, 2016 by the ‘Respondent’/ ‘Financial Creditor’) of course, based on proper material before it and the same requires no interference in the hands of this ‘Appellate Tribunal’ sitting in ‘Appeal’. Looking at from any angle, the ‘Appeal’ sans merits. Appeal dismissed. Issues Involved:1. Maintainability of the application under Section 7 of the Insolvency & Bankruptcy Code, 2016.2. Competence of the signatory to the Section 7 application.3. Allegations of fraud and deceit by the applicant.4. Disqualification of the directors of the applicant company.5. Authority of the Adjudicating Authority to review its own orders under Rule 11 of the NCLT Rules, 2016.6. Compliance with the settlement agreement and subsequent default by the Corporate Debtor.7. Revival of the application under Rule 11 of the NCLT Rules, 2016.Detailed Analysis:1. Maintainability of the Application:The Appellant argued that the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, was not maintainable as it was filed for the return of monies advanced towards the purchase of shares. The Appellant contended that the Respondent was neither an Operational Creditor nor a Financial Creditor and that there was no debt or default under the Code. However, the Adjudicating Authority held that the debt arose out of the Share Purchase Agreement dated 21.11.2012, which was considered a financial debt, thus making the Respondent a Financial Creditor.2. Competence of the Signatory:The Appellant questioned the competence of the signatory to the Section 7 application, arguing that he was disqualified as a director at the time of signing. The Respondent countered this by referring to a judgment by the Hon’ble Madras High Court, which quashed the disqualification of the directors and reactivated their Director Identification Numbers (DINs). The Adjudicating Authority ruled that the disqualification of the directors would not stand in light of this judgment.3. Allegations of Fraud and Deceit:The Appellant alleged that the application was filed by an incompetent person through fraud and deceit. They cited various Supreme Court decisions to argue that a person playing deceit or fraud is not entitled to be heard. However, the Adjudicating Authority did not find merit in these allegations and proceeded with the application based on the settlement agreement between the parties.4. Disqualification of Directors:The Appellant argued that the directors of the applicant company were disqualified under Section 164(2) of the Companies Act, 2013. The Respondent successfully challenged this disqualification in the Hon’ble Madras High Court, which set aside the disqualification and reactivated the DINs of the directors. The Adjudicating Authority held that the directors were qualified to file the application as per the High Court's order.5. Authority to Review Orders:The Appellant contended that the Adjudicating Authority had no power to review its own orders under Rule 11 of the NCLT Rules, 2016. They argued that the Tribunal's jurisdiction to review its orders must be conferred by statute, citing various legal precedents. However, the Adjudicating Authority, relying on the inherent powers under Rule 11 and supported by the Supreme Court's decision in Swiss Ribbons Pvt. Ltd. v. Union of India, held that it could restore and revive the application.6. Compliance with the Settlement Agreement:The settlement agreement dated 26.08.2020 required the Corporate Debtor to pay a total sum of Rs. 2.25 crores as a full and final settlement. The Corporate Debtor made partial payments but failed to pay the remaining amount by the due date. The cheque for Rs. 2.14 crores bounced, leading the Respondent to file an application to restore the original insolvency application. The Adjudicating Authority held that the Corporate Debtor was duty-bound to comply with the settlement terms and could not evade liability on technical grounds.7. Revival of the Application:The Respondent filed an application under Rule 11 of the NCLT Rules, 2016, to restore and revive the original insolvency application due to the Corporate Debtor's default in complying with the settlement agreement. The Adjudicating Authority allowed this application, emphasizing that the inherent powers under Rule 11 could be exercised to meet the ends of justice and ensure compliance with the settlement terms.Conclusion:The Appellate Tribunal dismissed the appeal, upholding the Adjudicating Authority's decision to restore and revive the insolvency application. The Tribunal found that the application was maintainable, the directors were competent to file the application, and the Adjudicating Authority had the inherent power to review its orders under Rule 11 of the NCLT Rules, 2016. The Corporate Debtor's failure to comply with the settlement agreement justified the revival of the original application.