TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 67
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....ming an outstanding dues of Rs. 11,60,610/- to Starconn Mobility Pvt. Ltd., the Corporate Debtor. (ii) On 13th August, 2019, Adjudicating Authority issued notice on Section 9 Application filed by Respondent No.1. The Company Petition was taken up on 13th August, 2019 and thereafter on 23rd August, 2019 and the matter was adjourned to 29th August, 2019. On 29th August, 2019, the Corporate Debtor - Starconn Mobility Private Limited appeared and accepted the liability as well as default. The Adjudicating Authority reserved the order on 29th August, 2019 on Section 9 Application. By an order dated 17th September, 2019, Adjudicating Authority admitted the Application under Section 9 of the Code. The Adjudicating Authority in its order has noted that learned Counsel appearing on behalf of the Corporate Debtor admits the liability and default and hence there is no objection for admission of the petition by the Corporate Debtor. One Shri Ashish Vyas was appointed as Interim Resolution Professional (IRP) by the said order. (iii) On 28th September, 2019, the IRP made a public announcement regarding start of the Corporate Insolvency Resolution Process (CIRP) as per the provisions of the C....
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....sting him to provide Financial Statements for last three years. RP was also requested to provide update on status of the Appellant's claim and list of members of the CoC. RP for the first time on 16th December, 2019 wrote to the Appellant "I am sorry for the delay, I will revert back by EOD" (vii) On 17th December, 2019, Valay Group, who had filed the Application under Section 9 filed their claim as Financial Creditor, which was admitted and list of creditors was drawn on 21st December, 2019 including Valay Group as Financial Creditor. (viii) On 18th December, 2019, the Application filed by RP for liquidation was taken up by the Adjudicating Authority. The Adjudicating Authority took the view that there is no specific resolution to liquidate the Corporate Debtor. The RP was directed to call a meeting of CoC and pass proper resolution and produce the same. (ix) The RP called a meeting of CoC on 28th December, 2019. (x) The RP after sending email on 16th December, 2019 to the Appellant, did not sent any communication including communication regarding order of the NCLT dated 18th December, 2019 regarding convening of the meeting of the CoC. (xi) On 28th December, 2019, meeti....
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.... In the email, RP also wrote that the List of Creditors will be filed with NCLT Mumbai. On 7th March, 2020, the Resolution Professional provided the copy of 2nd CoC meeting dated 28th December, 2019. (xvii) On 11th August, 2020, the Adjudicating Authority passed the impugned order of Liquidation under Section 33. Aggrieved by the order dated 11th August, 2020, this Appeal has been filed by the Appellant (Operational Creditor). 3. We have heard Shri Jitender Chaudhary, learned Counsel for the Appellant, Shri CS Omkar Deosthale, learned Counsel for Respondent No.2 and Shri Harshavardhan Bhende, learned Counsel for Respondent Nos.3 and 4. No one appeared for Respondent Nos.1 and 5. 4. Shri Jitender Chaudhary, learned Counsel for the Appellant, challenging the Liquidation order, submits that the impugned order is vitiated by material irregularity and fraud committed by RP in connivance and collusion with Corporate Debtor, Respondent Nos, 1, 3, 4 and 5. Both IRP and RP have not discharged their duties as entrusted to them under the Code and the relevant Regulations. Although, the Appellant's claim was received on 22nd November, 2019 by the IRP and thereafter all relevant documents w....
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....objected by the Corporate Debtor and dues were readily admitted. The RP as per Section 25 of the Code, did not protect the assets of the Corporate Debtor, including the continued business operations of the Corporate Debtor and also did not prepare the Information Memorandum as per Section 29 of the Code. The present was a clear case of material irregularities and fraud committed to deny the legitimate dues of the Appellant. The whole IBC process was pre-planned and proceeded on scripted line, which is apparent from sequence of events clearly exhibited by taking a decision in the very first CoC meeting to liquidate the Corporate Debtor. It is submitted by learned Counsel for the Appellant that the Appellant had already informed the RP and the RP was obliged to initiate transaction audit and have to form an opinion as per Section 43, 44, 45, 46, 47, 48, 49, 50 and 51 of the Code. In order to circumvent the liabilities amounting to more than Rs. 21 crores to the Appellant, the Corporate Debtor and Respondent Nos.3, 4 and 5 orchestrated the present CIRP proceedings. It is a fit case for initiation of prosecution under Section 65 and 69 of the Code. 6. The learned Counsel for Responden....
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....rtained only on the grounds of material irregularity or fraud committed in relation to such a liquidation order. The learned Counsel for the Appellant has pressed this Appeal on both the grounds that is ground of material irregularity and fraud. The submission is that entire CIRP was result of collusion between the Corporate Debtor, Financial Creditor as well as IRP/RP. We first proceed to examine the allegation of material irregularity as contended by the Appellant. 12. We may first notice the statutory provisions regarding duties of RP. Section 25 of the Code, which deals with 'Duties of resolution professional', is as follows "25. Duties of resolution professional. - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third pa....
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....fessional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it." 15. Regulation 27, requires RP to within seven days of his appointment to appoint two registered valuers to determine the fair value and the liquidation value of the Corporate Debtor. Regulation 35A of CIRP Regulations, 2016 oblige the RP to conduct transaction audit as per timelines prescribed in regulations. The RP is required to form an opinion whether Corporate Debtor has been subjected to any transaction covered under Sections 43, 45, 50 or 66 on or before 75th day of the initiation of CIRP. Regulation 36 provides for 'Information Memorandum'. Regulation 36(1) and 36(2)(a) & (b) are as follows: "36. Information memorandum. (1) Subject to sub-regulation (4), the resolution professional shall submit the information memorandum in electronic form to each member o....
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....ant was required to be shared the relevant details like filing of an Application for Liquidation. After 5th December, 2019, the RP convened a Meeting of CoC on 28th December, 2019, but did not share the said information with the Appellant nor Appellant was given any information or the notice of the meeting. The Appellant's due being more than 10% of the aggregate debt of the Company, Appellant was entitled to participate in the CoC, which fact has been subsequently admitted by RP himself in his communication dated 17th December, 2019. 17. As noted above, under the Insolvency Professional, Regulation, 2016, by virtue of Regulation 7(2)(h), which oblige the RP to abide by the Code of Conduct specified in the First Schedule of the Regulations. Regulation 7, sub-clause (2)(h) is as follows: "7(2) (h) abide by the Code of Conduct specified in the First Schedule to these Regulations;" The First Schedule, Item Nos.1, 12 and 14 are extracted above for ready reference. 18. The RP is obliged not to conceal any material information from any stakeholders. Firstly, it can be said that information regarding filing of an Application for Liquidation before the Adjudicating Authority after rece....
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....ed the fact that on 27th August, 2019, that is, after initiation of CIRP, the Corporate Debtor has made a payment of Rs. 14.14 crores to the State Bank of India, who certified that charge, which was created on 4th August, 2015 for the immovable properties of the Corporate Debtor, by payment of the above amount was satisfied. The payment was made after filing of the Section 9 Application of the Code and State Bank of India released the properties of the Corporate Debtor, which were mortgaged. The CIRP was initiated by Financial Creditor for an amount of Rs. 11 lakhs and shortly after filing of the Application by Financial Creditor, the Corporate Debtor paid an amount of Rs. 14.14 crores to the State Bank of India. 22. The conduct of Financial Creditor in the very first Meeting of the CoC, resolving to go for Liquidation also does not inspire any confidence. It is relevant to note that the Liquidation was not in the Agenda Item and the same was taken under in any other Item on 22nd October, 2019. The RP in Meeting dated 22nd October, 2019 on Item No.1 regarding "To discuss and deliberate on the financial position of the Company', the submission of one of the Suspended Director was t....
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...., we raised our concern with respect to books of accounts and business dealings of Starconn. We expressed our suspicion about the way IB filed by Valay Group and the entire process being handled by Prachay Advisors. As mentioned by you the total non-cooperation by Prachay Advisors in the matter also indicates the shady aspect in dealing of IBC Process. During the meeting we brought to your attention that: 1. In the year Fy 2017-18 Starconn recorded loss of INR. 21.87 Crores filed with MCA during Jan'20. However, as per MCA record during Fy 2018-19, Starconn discharged all the obligation towards credit facility availed from SBI. Therefore, the source of borrowing or deployment of funds need to be made clear. 2. We have also produced the records of transactions entered into during 2019 between Swipe Innovation/ Starconn/ other Group Companies & BGM to manipulate the books of accounts. In consideration of the above we requested you to provide us ledger account of BGM. However, you denied stating that as per provision of IBC you are not authorized to provide such records related to Corporate Debtor. 3. On our request to provide balance of DIESL as per books of accounts of Starc....
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.... reference." 26. On pointed query with the Counsel for RP whether information of admitting the claim of the Appellant was communicated to the Adjudicating Authority, learned Counsel for the RP said that no such information was placed before Adjudicating Authority. When RP himself on 17.02.2021 stated that he will file the List of Creditors before NCLT, Mumbai bench, it was his duty to file the said List of Creditors (Version 3.0), which was relevant and material for the process. Admittedly, NCLT reserved the order on 1st January, 2020 and the same was pronounced only on 11th August, 2020. There was sufficient time with RP to inform Adjudicating Authority about the developments. 27. When we look into the sequence of events and correspondence exchanged between the parties, we arrive at the conclusion that RP was deliberately keeping the relevant information away from the Appellant and wanted Liquidation order to be passed without even bringing into the notice of the CoC or the Adjudicating Authority about the claim of the Appellant. We are thus, satisfied that material irregularity was committed in the entire process leading to Liquidation, which is sufficient to set aside the Liqu....