TaxTMI 
TaxTMI 
2020 (12) TMI 1293
X X X X Extracts X X X X
X X X X Extracts X X X X
.... submits that the Applicant No. 1 is the registered Company under the provisions of the Companies Act, 1956, engaged in the business of construction, whereas Applicants No. 2 & 3 are the Directors of Applicant No. 1. All the Applicants herein are mainly the investors and shareholders of the Corporate Debtor, i.e., E. & G. Global Estates Limited, having 48% of the shareholding. Respondent No. 1 herein is Small Industrial Development Bank of India (hereinafter referred as "SIDBI") which had initiated insolvency proceedings against the Corporate Debtor under the I & B Code. Respondent No. 2 is the Interim Resolution Professional of the Corporate Debtor. Respondent No. 3 is the elected representative of home buyers of Corporate Debtor in the 1st CoC meeting dated 24.07.2020. Respondent No. 4 is the Corporate Debtor. Respondents No. 5 to 9 are the promoters/ directors of the Corporate Debtor and personal guarantors to the financial loan of SIDBI. Respondent No. 10 is one of the alleged Financial Creditor of the Corporate Debtor who has filed his financial claim and the same is under verification. 3. The Applicant submits that the Respondents No. 3 to 7 approached the Applicants somew....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r in February, 2019 but the composition of Board of Corporate Debtor was always dominated by the Respondents No. 5 to 9. The Applicants were made signatory to the operating Bank Account of the Corporate Debtor but other bank accounts of the Corporate Debtor were never disclosed to the Applicants and Respondents No. 5 to 9 were having access of the same. It is further submitted that the posts of Additional Director of the Applicants No. 2 & 3 were vacated automatically as per the provisions of the Companies Act, 2013 since Respondents No. 5 to 9 failed to conduct Annual General Meeting (AGM) of the Corporate Debtor in 2019. The said fact was also confirmed by the Respondents No. 5 to 9 in their notice dated 10.12.2019 sent to the Applicants. The Respondents No. 5 to 9 were having access for the compliance with the ROC and they did not updated in ROC portal about the Applicants No. 2 & 3's vacating of post as Additional Directors, due to which the Applicants No. 2 & 3 reflect as Directors and not Additional Directors till date. The same was also reflected in earlier MA No. 3182 of 2019. 6. The Applicant then submits that the Applicants started following up with the Respondents No.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uggestion of this Tribunal and with an intention to prove their bonafide intention, deposited Rs. 50 lakhs with SIDBI without prejudice to their rights and contentions and even after pending settlement talks with the Respondents No. 5 to 9 as well as SIDBI. Inspite of all the efforts of the Applicants, the said Company Petition was heard and admitted by this Tribunal on 24.06.2020 and the said M.A. was dismissed. The Applicants further submit that by virtue of the said order dated 24.06.2020 passed in the Company Petition, Interim Resolution Professional (IRP) started the Resolution Process as per the provisions of I& B Code and sought claims through publication. The Applicants, being the Financial Creditor of the Corporate Debtor, submitted their claim by filing Form-C along with supporting documents to the IRP, but the IRP considered Applicants No. 2 & 3 as the Suspended Directors of the Corporate Debtor. The Applicants, through their written Representation dated 23.07.2020, illustrated to the IRP about why the Applicants deserve to be considered as Financial Creditors and not as Suspended Directors. The Applicants also submitted all the supporting documents and quoted latest cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lf for obtaining written consent from the Respondent No. 1. Also, Section 5 (h) of the General Conditions to the Loan Agreement dated 18.02.2016 prevents any transfer of shares in the borrowers capital without intimation or approval of SIDBI and as such any agreement without intimation or approval of SIDBI will not create any legal rights of whatsoever nature. 14. The Respondent No. 1 further submits that the Applicants have primarily relied upon the two documents to be considered as a Financial Creditor and those are MoU dated 10.12.2018 and Loan Agreement dated 12.02.2019. These two are the two distinct transactions and cannot be conjoined together to derive at one claim. A financial debt cannot be claimed through such a MoU as the same is for the purpose of investment in the Corporate Debtor, thereby obtaining a shareholder's capacity within the Corporate Debtor. 15. The Respondent No. 1 submits that the Applicants are the related party to the Corporate Debtor only through the Loan Agreement dated 12.02.2019 which was executed between the Applicants and the Corporate Debtor and as such cannot be made part of the COC. Moreover, by virtue of Proviso to Section 21 (2), a Fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same M.A., claimed to have acquired 44% shareholder of the Corporate Debtor in November 2018. Also, the Applicant No. 2 claimed to be the Director of the Corporate Debtor in the said M.A., annexing himself the Master Data of the Corporate Debtor as per the records of MCA website which showed his position as a 'Director' of the Corporate Debtor. The Applicant No. 2 also had accepted the seat on the table as a 'Suspended Director' during the two COC meetings and accepted the notices, agenda and minutes of the COC meetings in his capacity as a 'Suspended Director'. d) The Applicants hold equity shares in the Corporate Debtor which categorizes them as 'Related Party' in terms of the provisions of Section 5(24)(a) and 5(24)(d) of the Code, thereby no voting shares can be given to the Applicants in terms of provisions of the Code. e) On perusal of the Form C, i.e., the claim form, received from the Applicant No. 1, with it a Board Resolution dated 29.11.2018 of the Corporate Debtor was annexed which shows that any infusion of funds from the present Applicant into the Corporate Debtor was purely in the nature of 'takeover offer' and not in the nature of financial disburs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ratification of fees payable to the forensic auditor which was capped at 4 lacs and not the appointment of the forensic auditor per se. As per the Code, the RP has to ratify the fees and costs by the CoC members which stood rejected in the present case. So, the Respondent No. 2 reached out to some other forensic auditors and sought quotations below the limit of Rs. 4 lacs as it is well within his duties to appoint a forensic auditor in terms of provisions of Section 25(2)(d) of the Code. Thereafter, the Respondent No. 2 received a quotation of Rs. 3.75 lacs and the appointment of M/s. Mazars Business Advisors Pvt. Ltd. was finalized and the team would be able to submit its report sometime in next 2 months since the financial statements for the last 4 years are not available. 24. The Respondent No. 2 lastly submits that the prayers of the Applicants are not maintainable as the Application is frivolous and is only with and intention to stall the entire CIRP of the Corporate Debtor and the allegations amongst the suspended promoters/ directors interse show that the issue is more of 'oppression and mismanagement'. Contentions of the Respondent No. 5: 25. The Respondent No. 5 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same into equity, so there is no question of avoiding the implementation of the MoU or any other agreement. The Applicants were supposed to pay the loan amount to SIDBI and even complete the obligations of the Corporate Debtor towards the home buyers. It is then submitted that the Applicants have failed to perform their obligations under the said MoU. 29. The Respondent No. 5 further submits that when the Respondent No. 5 was in Board of the Corporate Debtor, there was no likelihood of the Corporate Debtor becoming NPA in the books of any lender. Later, the Applicants stepped in to protect the Corporate Debtor from becoming NPA. So, the allegations on the Respondent No. 5 for not attending the hearing of the Company Petition before this Tribunal, even after resigning from the post of Director, is self-explanatory. The Respondent No. 5 then had to appear during the hearing of the M.A. 3182 of 2019 because of the baseless allegations against the Respondent No. 5 by the Applicants. 30. The Respondent No. 5 lastly submits that the Applicants had not shown any proof of the amount and to what extent the Applicants are the financial creditor of the Corporate Debtor. Secondly, the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pondent No. 8. It is further submitted that the Respondent No. 8 was not involved in any discussion or negotiation and was only present at the time of execution of MoU. The Respondent no. 8 signed the said MoU only in the capacity of shareholder though the designation as Director was wrongly mentioned in the MoU. Rejoinder filed by the Applicants against the Replies of the Respondents: 34. The Applicants submit that the contention raised by SIDBI regarding 'related party' is factually incorrect and misleading. As per the provision of Section 161(1) of the Companies Act, 2013, the post of the Additional Director will be automatically vacated if the AGM of the company is not conducted within 6 months from the end of the respective financial year. Section 96 of the Companies Act, 2013 compels any company to hold AGM within 6 months from the date of closing if the financial year. The said fact was also confirmed by way of a notice dated 10.12.2019 sent by promoters of the Corporate Debtor to the Applicant. With the said facts, it proves beyond doubt that the Applicants No. 2 & 3 cannot be dragged under the tag of the 'related party'. 35. It was then submitted by the Applicants....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Applicant at Annexure A in MA 3182/2019 filed by the Applicant at the time of admission of the Petition. 38. The Applicants mention that they were only appointed as additional director and not as director on 11.02.2019 and since they were additional director, as per the provisions of Section 161 of the Companies Act, 2013, additional director have to automatically vacate if the AGM of the Company is not conducted within six months from the end of the respective financial year. The Applicant mentions that as per the Section 96 of the Companies Act, 2013, the Company necessarily have to hold the AGM in six months' time from the closing of the financial year and holding the AGM was the responsibility of other Directors. Resultantly, commencing September 2019, they cease to be Additional Director and therefore are not related party. This Bench, in order to formalize its views on the subject, has also relied on MA 3182/2019 filed by the same set of Applicants before the final consideration of "Admission" of the Corporate Debtor under CIRP wherein the Bench notes the following two facts as mentioned by the same set of Applicants. These facts as reproduced from the MA are as und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Company and now suspended Directors of the Company. They were not only the Directors but also in control of the affairs of the Company. This Bench therefore concludes that the Applicants are "Related Party" in terms of Section 5(24)(a) and also in terms of Section 5(24)(m)(i) which reads as under: "Section 5(24): related party, in relation to a Corporate Debtor, means- (a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; . . . (m) any person who is associated with the corporate debtor on account of- (i) participation in policy making processes of the corporate debtor; or" The Applicants were not only the directors of the Company and covered squarely under Section 5(24)(a) of the Code but they were also managing the day-to-day affairs of the Company as per their own submissions and therefore, they are perfectly covered under Section 5(24)(m)(i) of the Code. The Bench has no doubt in its mind that the Applicants were aware of this fact and it is for this reason that the Applicant No. 2, as brought out by the Resolution Professional, has attended the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i.e., Mr. Sushil Govindrao Uttarwar and Applicant No. 3, i.e., Mrs. Kalpana Sushil Uttarwar, as per terms of the MoU, granted Rs. 58,20,000/- to Respondent No. 5 towards purchase of shareholding thereby acquiring 22% in the shareholding in the Corporate Debtor. In addition to the said, Rs. 9 Lakhs was paid to Respondent No. 6 towards purchase of shareholding thereby acquiring 7% shareholding in the Corporate Debtor. The Bench notes that whatever payments have been made by the Applicants are not as financial debt but for acquisition of shares which finally has resulted into about 48% shareholding with the Applicants in the Corporate Debtor Company. Therefore, the Bench is of the considered view that the payments given, as per MoU dated 10.12.2018, is only for acquisition of shares and not as financial debt. 45. Before this Bench, the Applicant has submitted an Agreement dated 12.02.2019 wherein it has been mentioned that an amount of Rs. 1.6 crores is being given as loan to the Corporate Debtor at an interest of 12% p.a. Therefore, the Applicants' claim that Rs. 1.6 cores should be considered as a "financial debt" and not as a payment towards equity contribution. The Bench, howev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arding the prayer of the Applicants to conduct the forensic audit of the Corporate Debtor Company, the Resolution Professional mentions that a forensic audit has already being conducted by M/s. Mazars Business Advisors Pvt. Ltd. and that the Auditors would be submitting their reports in next two months‟ time. In view of the above, other prayers of the Applicants, regarding the existing CoC, be quashed as it is of no consequence and cannot be considered. 49. In view of the above, IA 1148/2020 in CP 2995/I&B/MB/2019 is "Dismissed". ============= Document 1 a) That this Hon'ble Tribunal appoint IRP for Resolution Process of Corporate Debtor; b) That the Minutes of the Committee of Creditors meeting dated 24th July, 2020 be quashed and set aside; c) That existing Committee of Creditors of the Corporate Debtor be quashed and set aside; d) That the verification of all claims be completed before appointment of new COC; e) That the Applicants be inducted as member of the Committee of Creditors of Corporate Debtor along with the proportionate voting right; That the induction of Bungalow Owners in Committee of Creditors of Corporate Debtor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The mutually agreed price for transfer of 8.67% Equity shares of the Company by the representatives of the shareholders of the Company to the Acquirer is Rs. 2.30 Crores payable to the Equity shareholders of the Company. The consideration will be paid in stages after the receipt of SIDBI NOC for change in shareholding and change in management of the Company. Said consideration will be paid proportionately to the number of Equity shares transferred to the Acquirer by the Shareholders of the Company. 2. The acquirer already infused Rs 85.00 Lakh in company by way of paying 3 installment of SIDBI amounting Rs 75.00 Lakh and Rs 10.00 Lakh towards project related expenses. Further required payment to company and SIDBI will infused as unsecured loan by the acquirer to the company. Document 4 3. SHARE TRANSFER METHODOLOGY: The share transfer modalities will be done by mutual consent of the share holders and acquirer. Promoters of the Company, viz. the Guarantors as mentioned above have agreed to transfer 81.67% of the shares of the Company to be transferred as per attached shareholders list in favor of the Acquirer immediately on receipt of SIDB....