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2020 (7) TMI 268
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....e Hundred and Seventy One Only) as on 31.10.2014 including interest @ 18% per annum. 2. Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows: (1) Shri G.V. Sudhindra (hereinafter referred to as 'Applicant/Operational Creditor') has Aadhar Number 2366 3104 9959 and his address is B-2102, Elita Promnade, 18th Main, 7th Phase, J.P. Nagar, Bangalore - 560078. M/s.American Road Technology & Solutions Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor') is a Private Ltd. Company incorporated on 07.05.2012 under the provisions of Companies Act, 1956 with CIN: U45203KA2012PTC063868 and having its registered office situated at No.302, 3rd Floor Sterling Heights No. 139, Infantry Road Bangalore-560001. (2) It is stated in the petition that along with Mr. B K Purushothama, Financial Creditor 1, M.G Mohan Kumar were named as Directors of the Company and Subscriber to the Memorandum of Association. (3) It is further stated that shortly after incorporation, Mrs. Bhanu Prabha Krishna Hebbar, a Non-Resident Indian, the promoter of the Company was inducted as an ....
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....ct that the Accused therein (including the Petitioner) are absconding. (2) Further, the ongoing criminal investigations into the embezzlement of funds constitute a 'dispute' in terms of Section 5 of the Code with respect to moneys owed between the Petitioner and the Company and hence this Petition is barred by law and must be dismissed in limine. Furthermore, it is submitted that the petition, on the face of the record, does not provide adequate evidence proving the creation or existence of any valid and due operational debt, and is not substantiated by adequate documentation as required under law. (3) It is contended that currently a petition for winding up (under Sections 434(1)(a) and 439 of the Companies Act, 1956) against the Company is pending adjudication before the High Court of Karnataka. The petition has been filed by A.V. Balasubramanya on 18 November 2015 in Co.P. 215/2015 on the ground of alleged default of an alleged debt owed to him by the Company. The petition is at the stage of preliminary hearing and has not yet been admitted. Without prejudice to the Company's stand in the aforesaid petition (which is inter alia, that A.V. Balasubram....
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....any has brought to fore that: a. The Petitioner is not entitled to any payments from the Company and his appointment is not in accordance with law; b. The Petitioner, while discharging his responsibility had colluded with other employees of the Company to fraudulently siphon off huge sums of money as revealed by an independent audit report commissioned by Ms. Hebbar; c. Listed out, briefly, the summary of the findings of the auditor's report; and d. Alluded to the various proceedings initiated against the Petitioner, including a criminal case. Material facts have been deliberately suppressed by the Petitioner with a view to fraudulently evading the bar on filing of the instant application placed by Section 9 of the Code. (7) It is submitted that in 2012, one Mr. MG Mohan Kumar (who, incidentally has filed two frivolous insolvency applications against the Company in CP(IB) 99/BB/2017 and CP(IB) 116/BB/2017 through the same counsel) and Ms. Hebbar decided to jointly start the Company which would mainly be in the business of constructing, developing, maintaining, repairing, excavating, renovating and operating all types of Roads, Expressways, Highways, Bridge, Fly-overs, ....
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....d for the operations of the Company for the unjust enrichment of MG Mohan Kumar, other key employees of the Company and the Petitioner himself. As such, given the nature of embezzlement, it is evident that the Petitioner played a critical role in facilitating the same and was hired to the Company for this illegal purpose. (11) Ms. Hebbar then revoked the cheque signing authority of Mr. MG Mohan. The second step was to commission an independent forensic investigation of the Company. These material facts have been suppressed with a view to obtaining orders from this Hon'ble Tribunal. Bringing these facts on record would reveal that no operational debt has been created against the Company. (12) It is stated that Mr. MG Mohan Kumar was in charge of the overall control and management of operations, administration and finances of the Company from incorporation until 17 April 2015, and in this period he had a free rein in running the Company as he saw fit. All key employees hired by him in this period reported directly to him. The Petitioner was one such employee. He claims to have been appointed as the Vice President (Operations) of the Company by the Company ....
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.... included the Petitioner; e. There had been statutory non-compliances with the Income Tax Act, State Labour Laws, and Karnataka State Commercial Tax etc.; f. Unsecured loans had appeared to have been availed from various individuals, HUF and Corporate entities in the form of cash and cheques and in direct contravention of the Companies Act, 2013; and g. There had been misappropriation of funds from the Company whereby the Company had lost a minimum of INR 3,76,18,983/- (i.e., over Rs. 3.7 crores) on account of various fraudulent actions undertaken by Mr. MG Mohan Kumar, the Petitioner and their associates. (15) A true copy of the investigation report prepared by V Raghavan and Co, Chartered Accountants along with accompanying summary letter, write-up summarizing the misappropriation of funds and e-mail from auditor which had enclosed the aforesaid report are produced herewith as Annexure R5 series. The full extent of fraud and misappropriation is yet to be determined and will only come to light after a thorough police investigation and trial. (16) It is evident that the Petitioner had, therefore, grossly abused his statutory and fiduciary responsibilities as a key....
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....ounds Police Station in respect of Crime No.87/2017. Apprehending their imminent arrest for the purposes of investigation, the Petitioner and the other Accused moved the Hon'ble City Civil and Sessions Court, Bengaluru under Section 438 of the Code of Criminal Procedure, 1972 seeking anticipatory bail in the event of their arrest in connection with Crime No. 87/2017. The anticipatory bail petition was filed on 7 October 2017 and was numbered as Crl. Misc. 8005/2017. (20) After taking on record objections by the Ld. Public Prosecutor and conducting a full hearing of both sides, the Hon'ble Sessions Court was pleased to pass an order dated 19 October 2017 rejecting the petition for anticipatory bail filed by the Petitioner and his co-accused. It is pertinent to note that, in the judgement rejecting the petition, the Hon'ble Sessions Judge has found that there exist incontrovertible circumstances that make out prima facie that the Petitioner and his co-accused were guilty of offences alleged in the criminal complaint in Crime No. 87/2017. (21)When considering the nature of criminality and fraud evident from the actions of the Petitioner as described above....
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....corporate debtor. The Petitioner has failed to provide such a certificate with the instant petition. In view of the same it is submitted that the instant petition deserves to be dismissed in limine for non-compliance with the mandatory requirement of certificate stipulated under Section 9(3)(c) of the Code. (25) The Petitioner claims that the alleged arrears of salary are due to him for the years 2013-2015. At the outset, these claims are barred by limitation and also hit by delay and laches. No explanation has been provided for the delay in making these alleged claims. The timing of the petition, right around the time when the police are investigating them makes it clear that these have been filed as a counterblast to the criminal actions raised by the Company. (26) Regarding the merits of the case it is submitted that as per the provisions of Section 9 of the Code, the following conditions must necessarily be met for admission of an application for initiation of insolvency resolution process: a. There must be an existence of an operational debt owed by the corporate debtor to the operational creditor; b. There must be a default of the operational debt; c. The op....
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....lution. (29) Further, it is stated that this letter, being addressed by a co-accused of the Petitioner in a pending criminal investigation for crimes cannot be relied upon and create any validly enforceable debt as against the victim of these crimes i.e. the Company and its current shareholders. No-one can be seen to take the advantage of his own wrong. (30)ln any event, without prejudice to the aforesaid, it is submitted that as per Clause 17 and 18 of the said appointment letter, the Petitioner was bound by the 'Code of Conduct' of the Company and any other rules and regulations pertaining to discipline and conduct laid down by the management from time to time. It is submitted that the Petitioner's subsequent conduct - in colluding with MG Mohan Kumar and others - to illegally embezzle company funds for personal pecuniary gain amounts to a gross violation of the Code of Conduct of the Company and is an act of sever indiscipline. As such, the Petitioner has committed a wholesale breach of the terms of the said 'Appointment Letter' and is not, under any circumstances, entitled to any payments that may have become due as per the said 'Appoin....
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....ern, she was advised to fulfil all relevant TDS demands at that point in time, regardless of the bona fides of the salary amounts paid in the past for which the T DS demands had been raised. (34) In that regard, Ms. Hebbar made all pending statutory payment including TDS as a preliminary step towards reviving the Company, even prior to investigating thoroughly the affairs of the Company. Any further delay in statutory filings and payments would have resulted in civil and criminal action being taken against the Company. The payments were therefore made prior to the auditor's report which was received only in October 2015. It is submitted that the TDS deductions made by the Company were not an affirmation of the validity of the salary claims of the Petitioner but rather a procedural formality performed to avoid the Company being sunk into regulatory or penal proceedings. In fact, the Company is in the process of taking steps towards filing fresh returns for the relevant years with a view to claiming back arrears for false transactions entered into by the Petitioner and his accomplices including the bogus salary claims made by the Petitioner herein. There are criminal inv....
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....nal satisfaction of Karnataka Bank Ltd. The letter from Karnataka Bank Ltd. dated 10.11.2017 evidencing the full and final repayment of the aforesaid loan is produced herewith as Annexure R14. It is submitted that the aforesaid letter mistakenly reflects the loan as being for Rs. 2,00,000 (Rupees Two Lakhs only) on account of a typographical error. The Company has applied for a corrected copy of the loan closure letter and craves liberty to produce the same before this Hon'ble Tribunal at a later date. (39)It is evident that, in view of the above circumstances - whereby the Petitioner has failed to prove the existence of the operational debt or default of the operational debt by the Company and whereby the Petitioner is guilty of embezzling funds from the Company and creating the very situations he is now seeking redressal from. The Company is a viable going concern enjoying the backing of a reputable financial institution and the prospect of tremendous future business. Therefore, the instant Petition is liable to be rejected for lack of disclosure of a default of an operational debt by the Company, lack of disclosure of existence of dispute and also for the immense da....
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....of an undisputed debt is sine qua non of initiating CIRP. The facts of the case as obtaining in the present petition and the legal position on the issue have, therefore, to be understood in the light of these decisions. Unless a case is made out that there is a clear and undisputed debt, there is default, and also that the respondent is insolvent and has lost its ability to pay its debts, the proceedings become mere recovery proceedings which is not the intent of legislature in introducing the IBC. 6. The amounts claimed by the Operational Creditor in the present petition are stated to be on account of arrears of salary payable by the Corporate Debtor, which is claimed to be constituting the 'debt' owed to him. Debt, as defined under the Code in section 3(11) means a liability or obligation in respect of a claim which is due from any person, and includes a financial debt or an operational debt. Such a debt would arise from a claim, as also defined in section 3(6), i.e. from a right to payment in the hands of the Creditor. Such a right could arise from some prior terms and conditions agreed to by the concerned opposite parties, in the shape of a Contract or an Agreement o....
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....iminal cases filed against him are taken into account. In fact there are counter claims by the Corporate Debtor of amounts due from him due to alleged acts of misappropriation, siphoning off etc. These are dealt with later to examine if the debt, if any, was clear or disputed. Hence, we are of the view that no debt arose as per the provisions of the Code, on the facts of the case, and was in any case in dispute. 10. As regards the dispute between the Operational Creditor and the Corporate Debtor, headed by Ms. Bhanu Prabha Hebbar after her return from the USA in 2015, it is stated by the Corporate Debtor that Ms Hebbar noticed that Mr MG Mohan Kumar (Petitioner in C.P. (IB) No.116/BB/2017) had indulged in embezzlement of funds, not repaid loans, defaulted in statutory payments, not held Board meetings etc., thus saddling the Company with huge liabilities and losses. To facilitate all this he hired his own men, including the Petitioner in the instant Petition. She ordered a forensic audit by an Independent Auditor, V Raghavan & Co., Chartered Accountants. The detailed report has been placed on record and are summarised in the Respondent's objections at Para 3(14), where....
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....ikely to abscond and hamper the investigation. I am of the opinion that, Petitioners are not entitled to bail. " (emphasis added) The Petition filed by Petitioner as accused no.2, along with Mr MG Mohan Kumar was thus rejected. These events clearly indicate that there were pre-existing disputes which were too grave to be ignored for the purpose of these proceedings, especially as the Audit report was referred to in coming to that conclusion. They are substantial and not a feeble legal ruse by the Corporate Debtor to evade repayment of debts, if any. 12. Further, it is seen that the Operational Creditor had served a Notice dated 10.04.2017 also demanding an amount of Rs. 18,25,000/- towards arrears of salary. Notably, this amount is different from the amount mentioned in the Demand Notice sent later on 08.09.2017 under the provisions of the Code (mentioned in this Petition), being Rs. 28,37,481, indicating that there was no clarity on the debt even by the calculations of the Petitioner. This would also mean that either there was no valid Demand Notice or there is a defective Petition before us, which should be dismissed on this ground alone. In the reply to this notice of 10.0....
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....-13 onwards. The Code came into effect in 2016 and this Petition was filed on 25.10.2017. As per our findings above, the debt does not exist, and in any case the same is disputed and the same is also not borne out of the Accounts maintained by the Corporate Debtor. In this situation there is no case of continuing default or a continuing cause of action. Defaults arising 3 years prior to the filing of the Petition are therefore barred by limitation. In fact part of the alleged debt was barred by limitation even prior to the commencement of the Code, and it is well settled that the IBC cannot be used for reviving a time barred debt. Also, the long delay in filing a petition u/s 9 of the Code itself leads us to believe that the intent is to defend its position in the criminal cases rather than recovery of any genuine debt. 15. The Petitioner's claim that his salary arrears are proved by the TDS Certificates, Form 26AS, of the Income Tax Department also does not hold ground. It is seen from the Form 26AS brought on record that the TDS amounts were booked on 15.05.2015 and 29.07.2015, whereas the payments of salary relate to the period from April 2013 to October 2014. Even assumi....