TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 268
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.....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 additional director and later her appointment was regularized in t....
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....to 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. Balasubramanya has been set up by the Petitioner to make false claims), it is humbly submitted that when a superior court of the State has been seiz....
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.... 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, Terminals, Subways, Ports, Airports, Waterways, Public Works and such other infrastructural projects and activities and to provide solutions and to render related consultanc....
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....vident 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 on 02 May 2012 with effect from 01 April 2012 i.e. even prior to the incorporation of the Company! The plan to run the Company to the ground is evident from this very fact that without even the company being ....
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....ndividuals, 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 employee of the Company for the pecuniary benefit of himself and his acquaintances, by misusing funds of the Company. This abuse has caused huge losses to the business operations of the Company. As such, the Petitioner has failed to ev....
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....riminal 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, it is evident that the instant application has been filed at his behest, on the basis of documents created by him and his accomplices with a view to providing a counter blast to the criminal investigation pending against him. Such actions amount to an abuse of the proc....
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....(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 operational creditor must have served on the corporate debtor a demand notice or invoice demanding payment under Section 8 of the Code at least 10 days prior to making the application under Section 9; d. The operational creditor making an application must, along with the application, furnish: i. A copy of t....
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.... 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 'Appointment Letter'. (31) It is submitted that the manner in which the debts have been claimed by the Petitioner show that they have been baselessly concocted. A combined reading of the collusive petitions filed in CP (IB) No.99/BB/2017 and CP (IB) No. 116/BB/2017 and the present petition seem to portray that the financial health ....
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....ly 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 investigations under way to determine the extent of embezzlement of fraud perpetrated by the Petitioner and his associates. If the embezzlement were to be proven then the amounts deducted as TDS would be recoverable from the Petitioner. (35) Further, the Petitioner has claimed that in his petition that he has been paid some of these dues in part, though no such docume....
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....f 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 damage it would cause to a booming going concern. (40) This is therefore a fit case for invocation of Section 65 (Fraudulent or malicious initiation of proceedings) of the Insolvency and Bankruptcy Code, 2016 which empowers this Hon'ble Tribunal penalize any person who initiates insolvency resolution process fraudulently or with malicious intent for any purpose other than for the resolution of ins....
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....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 or Resolution, prior to the transaction, if any, so that the same could be enforced. 7. It is seen that the Operational Creditor was appointed as VP (Operations) of the Company on 02.05.2012, w.e.f. 01.04.2012 i.e. even prior to this appointment and also prior to the incorporation of the Company itself. This Appointment Letter was issued by Mr. M.G. Mohan Kumar who was in charge of the overall control and manageme....
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.... 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), wherein in conclusion it is mentioned that the Company had lost a minimum of Rs. 3,76,18,983/- on account of various fraudulent actions undertaken by Mr. M.G. Mohan Kumar, the Petitioner and their associates. 11. Pursuant to these findings of the Independent Auditor the Corporate Debtor, filed Criminal cases against the Petitioner and Mr. M.G. Mohan Kumar and his associate. The Petitioner, as an accused, moved the Hon'ble....
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.... 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 10.04.2017, the Corporate Debtor while denying any payments due to the Operational Creditor, opposed his appointment, charged him with collusion with Mr. M.G. Mohan Kumar and fraudulent siphoning off of funds of the Company, apprised him of the findings of the Independent Auditors Report and made a reference to the criminal cases filed against him. This again shows that there was a pre-existing dispute about the debt in question, much pri....
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....imitation. 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 assuming that salaries were payable for this period, after the conduct of Independent Audit in 2015 instances of misappropriation and siphoning off of funds came to light and cases were filed against the Petitioner and his co-accused, these claims came into dispute. Mere TDS cannot revive his claim looking at the totality of circumstances. 16. Lastly, these proceedings are not recovery proceedings. However, we find that the Petitioner has approa....