TaxTMI 
TaxTMI 
2022 (3) TMI 116
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....r Section 65 of the Code) in CP (IB) No.161/2017. 2. It is the case of the Appellant that R3 - BMW India Financial Services Pvt. Ltd has fraudulently filed the petition before the 'Adjudicating Authority' and has put the 'Corporate Debtor' (CD) into 'Corporate Insolvency Resolution Process' (CIRP). It is alleged by the Appellant that the R2- BMW India Pvt. Ltd has fraudulently induced the CD in entering into the dealership agreements from 2014 -2017 and induced the CD to invest approx. Rs. 30 Crore for setting up showrooms and service center to be exclusively used only for selling and servicing BMW vehicles. At a later stage in the year 2017 while dealership agreement was enforced, the R3 being a group company of BMW asked R3 to file Section 7 of the Code petition against the CD and put the CD into CIRP to stifle the legitimate claims of the CD against the BMW group who is presently controlling the 'Committee of Creditors' (CoC) at 88.57% of voting power and implicitly controlling the actions of the Resolution Professional (RP). Presently, as per updated information the company has been put into liquidation. 3. The Adjudicating Authority vide its impugned order dated 04th Jun....
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....wards as per Annexure -IV/27. The statement of accounts and the CIBIL Reports submitted by the application confirm the default committed by the CD. 20. Considering the material, papers filed by the Petitioner, facts mentioned hereinabove and the arguments of both sides, the Adjudicating Authority is satisfied that, a.The CD availed Financial Facilities from the Petitioner. b.Existence of debt is above Rs. One lac; c.Debt is due and defaulted; d.Default has occurred on various dates starting from 10.04.2016 onwards as per Annexure IV/27 e.Petition has been filed on 13.11.2017 i..e within the limitation period f. Copy of the Application filed before the Tribunal has been sent to the CD and the Application filed by the Petitioner under Section 7 of the IBC is found to be complete for the purpose of initiation of CIRP against the CD Company. Hence, the present CP(IB) No. 161 of 2017 is admitted with the following directions/ observations. The date of admission of the petition is 04.06.2020" 4. The Ld. Counsel for the Appellant has submitted that the CD and the Respondent No.2- BMW India Pvt. Ltd. has en....
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....oom and facility at Ahmadabad and Surat. All this investment involved approx. Rs. 30 Crore from CD and CD was supposed to recover in 10 years or so, its investment value recovery based on payback period. The Appellant is alleging that R2- BMW India Pvt. Ltd induced the CD to make such heavy investment to retain the dealership of Gujarat but at a later stage it allows outside Gujarat dealers to sale vehicles of resident of Gujarat. The Appellant is alleging the BMW group another finance company - R3 filed Section 7 of the Code petition around November, 2017 for the dues of sale of BMW vehicles by R2 to CD without placing any bank statement that R3 has made any payment towards R2 and the petition was filed to stifle any kind of prosecution against R2/BMW group by the CD. It is the case of the Appellant that since the management of the R2 - BMW India Pvt. Ltd and R3 being the part of same group of the BMW Company the aforesaid events are fraud perpetrated by R2 - BMW India Pvt. Ltd towards the CD with the connivance of R3 for filing of 'Insolvency Application' and bringing the CD to a liquidation stage and even involving the 'Directors' of the CD personal wealth at risk for having the....
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.... be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case. We have made it clear that we have not commented on the merit of the case. We set aside the impugned order passed by the NCLAT and dispose of the appeal in accordance with the aforesaid direction. 9. The interim protection granted by this Court vide order dated 30.09.2019 shall continue to operate for a period of four weeks from today. In the meantime, it is open to the appellant to file appropriate application for interim protection, if any, before the Adjudicating Authority." The Appellant has further cited the judgment of 'Embassy property Vs. State of Karnataka & Ors.' 2019 (17) Scale 37 to its stands for fraudulent or malicious proceedings initiated by BMW Group companies. The relevant portions are given hereunder: "46. The second question that arises for our consideration is as to whether NCLT is competent to enquire into allegations of fraud, especially in the matter of the very initiation of CIRP. 47.This question has arisen, in view of the stand taken by the Government of Karnataka before the High Court tha....
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....d to be the authorized signatory of the Financial Creditor who initiated the CIRP, eventually for the benefit of the Resolution Applicant which is a related party of the Financial Creditor. 48.In the light of the above averments, the Government of Karnataka thought fit to invoke the jurisdiction of the High Court under Article 226 without taking recourse to the statutory alternative remedy of appeal before the NCLAT. But the contention of the appellants herein is that allegations of fraud and collusion can also be inquired into by NCLT and NCLAT and that therefore the Government could not have bypassed the statutory remedy. 49.The objection of the appellants in this regard is well founded. Section 65 specifically deals with fraudulent or malicious initiation of proceedings. It reads as follows: "65. Fraudulent or malicious initiation of proceedings. - (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be l....
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.... in the order. In the absence of any discussion, the reasons and the findings on the submissions urged, it is not possible to know as to what led the Court/Tribunal/Authority for reaching to such conclusion. (See State of Maharashtra vs. Vithal Rao Pritirao Chawan, (1981) 4 SCC 129, Jawahar Lal Singh vs. Naresh Singh & Ors., (1987) 2 SCC 222, State of U.P. vs. Battan & Ors., (2001) 10 SCC 607, Raj Kishore Jha vs. State of Bihar & Ors., (2003) 11 SCC 519 and State of Orissa vs. Dhaniram Luhar, (2004) 5 SCC 568). 11. The order impugned in this appeal suffers from aforesaid error, because the High Court while passing the impugned order had only issued the writ of mandamus by giving direction to the State to give some reliefs to the writ petitioner (respondent) without recording any reason. 12. We are, therefore, of the view that such order is not legally sustainable and hence deserves to be set aside. 13. In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The impugned order is set aside. The case is remanded to the High Court for deciding the writ petition afresh, out of which this appeal arises, for its disposal in accordan....
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....etitioner". They have also stated that the CD filed a petition before the 'Competition Commission of India' (CCI) vide Case No.11 of 2018 under section 19 of the Competition Act, 2002 but it was also dismissed for not having made out a prima facie case. It has also alleged that the Appellant is indulging in forum shopping and have malafidely intention of initiating vexatious of litigation against R2- BMW India Pvt. Ltd. 8. The Ld. Counsel for the R3 - BMW India Financial Services Pvt. Ltd has stated that the debt and default is proved and this is sufficient for initiating the CIRP. The loan transactions between the CD and Financial creditor are stated below: a.Floorplan financing agreement dated 15th November, 2010 (FPA) providing credit line, enhanced from time to time to INR 33 Crore (disbursed/utilized : INR 30,37,04,771.98 as on 31.10.2017) @ page 513/515/524/541/563 b.Working capital demand facility agreement dated 28th June 2014 providing credit limit of INR 20 Crore (disbursed/utilized:INR17,49,99,800.01 as on 31.10.2017) (@page 628/637/642/650/659 of Appeal paper book); and c.Spare Parts Financing Agreement dated 13.04.2014 (SPA) (disbursed/uti....
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....sed at the time of filing counter on 29.11.2017. However, suddenly Parsoli filed a Further Affidavit in December, 2017, as an afterthought, raising objection inter alia (i) on sale of cars by outside dealer to the customers of Gujarat (page 1828/1830/1851 of the Appeal paper book) and (ii) regarding alleged erroneous recognition of date of default (page 1829 of the Appeal paper book). The said objections, as apparent, pertained to its business dealings with BMW India, and not with FC. It is also stated that on 06.01.2018, FC filed its rejoinder affidavit rebutting all such allegations by providing inter alia (i) bank details of payments made by FC to BMW India against the cars, (ii) the email communication whereby Parsoli was informed by FC about payment upon utilisation of FPA, (iii) reiterating the contents of clause 5.5 of FPA i.e. sale proceeds ought to be utilized to repay dues under FPA and (iv) admission of default by Parsoli and the Appellant vide their emails (page 1864-66 of the Appeal paper book). The FC filed its response to the said IA on 25.09.2018 demonstrating as to how the IA was filed to cause delay in the insolvency proceedings. A reply to the said IA....
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....cating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. [(3) If any person initiates the pre-packaged insolvency resolution process- (a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or (b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.]" b. This Tribunal has already held in the case of Amit Katyal Vs. Meera Ahuja in CA(AT)(Ins) No. 1380 of 2019 that Section 65 of the Code explicitly said that if any person initiates the Insolvency Resolution Process or Liquidation proceedings fraudulently or with malicious intends for any purpose other than for resolution of insolvency or liquidation, as the case may be, the Adjudicating Auth....
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....tiation where group companies are involved in providing different facilities and in order to supplement the same the certain extracts are depicted below: "Para 8 ,....There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues." (emphasis s....
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....solution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. h. There are several issues (violation of dealership agreement, vis a vis invocation of code for default concurrently happening under floorplan financing agreement of dealership agreement provided by same BMW Group Company) raised by the Appellant on Respondent No.2- BMW India Pvt. Ltd discreetly covering Respondent No.3- BMW India Financial Services Pvt. Ltd. Since, some collusion seems to be apparently existing to thwart the claim of the Corporate Debtor and other related issues. Impugned order dated 04th June, 2020 has not d....
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....ed 15.1.2010 al Clause 823825 of 5.55 FPA as Parsoli was avoiding to immediately deposit the Appeal Page ho sale proceeds et cars so de"Seldoat cfTrus/ SCI" A list of Paper-besk sach unpaid dues was also provided as Annexure B of the show-cane notice 30.08.2016 Parsoli replel to the show-canse, undersigned by the page 8:7 of Appellant hean, taking reora' responsibility for the voiction Appial ncurred by Parsels Motors towards the Floor Plan Francing Paper-book Azreemen e Dead of Hypotecailor The Appellant, linse f, termed the raid violations gross violation and apologised for much sanc al indisciplin 15.12.2019 Dae xo ongoing defaults, a meeting wis caveed on page 07.12.2016 afle which a letter recording the understanding of #28330 parties was issuec cn 15.12.2016. The letter recorte Paccoli's Appsal commitment o mitigate the financial exposure to ensure its contractual commitness towards the FC. The letter recented the amount in dies 01.02.2017 Yet another shew-cause noise was issued by 3 to Parsoli Paper-book of psze 832 of Paper-book referr....