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2022 (9) TMI 395
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.... website (https://nclt.gov.in/) only on or around June 03, 2022. 5.That, the counsel for Applicant/Appellant filed an application on June 06, 2022, requesting that it be provided with a certified copy of the Impugned Order passed in the proceedings in C.P.(I.B.) No. 17/7/2021 on May 13, 2022. The Applicant/ Appellant received a certified copy of the Impugned Order only on June 06, 2022. It is further submitted that the Appellant herein is a foreign entity incorporated in Cyprus, and hence has taken some time from receipt of the copy of the Impugned Order to filing of this instant appeal. The present application has been filed by way of abundant caution." In view of the above reasons, delay of 10 days in filing the `Appeal' is condoned in accordance with Proviso to Section 61(2) of the I & B Code, 2016. Company Appeal (AT) (CH) (Ins.) No. 271 of 2022: Background: The Present Appeal is filed against the 'impugned order' dated 13.05.2022 passed in IA (IBC) 335/2021 in CP (IB) No. 17/7/HDB/2021by the 'Adjudicating Authority', ('National Company Law Tribunal, Hyderabad Bench'), whereby, the main Company Petition was referred, for mediation to `International Arbitrat....
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....ment' dated 03.08.2011, (hereinafter referred to as "Whitestock Investment Agreement") (in short 'WIA'), 'Financial Creditor' made investment in Corporate Debtor company. This investment can be summarised in the following manner :- (a) Subscription to Convertible Debentures issued by 'Corporate Debtor' i.e. Rs. 105.60 crore fully and `Compulsorily Convertible Debentures' (in short 'CCD'), with `Face Value' of Rs.1000 and carrying a coupon of 11% per annum to be issued to 'Financial Creditor' pursuant to 'WIA'. The conversion date of these `Compulsory Debentures' to `Shares' is the `Eighth Anniversary', from the date of the completion date i.e., 10.08.2011. (b) Subscription to Rs. 2,82,151/- Equity Shares of INR 10 each at a premium of Rs. 690 per share aggregating to INR 19.46 Crore. (c) The 'Financial Creditor' had also entered into a `Sale and Purchase Agreement' dated 15.06.2021 relating to 'Corporate Debtor' with 'LB Hyderabad Investments LLC', to purchase by the 'Financial Creditor' from 'LB Hyderabad Investments LLC' of 7,16,265 CCDs of par value Rs. 1000 each, amounting to Rs. 71.62 Crore, carrying a coupon rate, or 10% per annum, along with Purcha....
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....payment of Rs. 64.8 crore, which was `unexplained' and `unauthorised', use of funds for meeting expenses not connected with projects, the interest on `Debentures' (coupon payment) from November, 2012 to 31.03.2017 amounting to Rs. 59.24 Crore has not been paid by the 'Corporate Debtor' to the 'Financial Creditor' and so on. 8. The 'Financial Creditor' also alleged issues relating to post-dated cheques, fictitious Board Meeting and unlawful alteration to 'Board of Directors'. The ` Financial Creditor' came to know that one of the Shareholder of the 'Corporate Debtor', Viz., Mrs. Hymavathi Reddy Dantapalli and signatory to 'WIA', filed a Petition before the 'Adjudicating Authority' in CP No. 119/24/HDB/2018. The `Financial Creditor' had earlier filed a CP No. 468/241/HDB/2018 under Section 241 & 242 of the Companies Act, 2013 against the 'Corporate Debtor' (i.e. Respondent), (its Parent Entity, Subsidiary, Directors, Promoters and purported Additional Directors/ Directors), before the `Adjudicating Authority'. The 'Adjudicating Authority' vide order dated 24.12.2021 in the Company Petitions filed under Section 241 of the Companies Act, 2013, in the CP No. 468/241/HDB/2018 fi....
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....B/2021 ("Insolvency Petition"). The amount in default at this stage, was Rs. 274.26 crore i.e. `Principal', along with `Unpaid Accrued Interest'/ `Coupons' with respect to `CCDs' held by the `Financial Creditor'. Through the 'impugned order' dated 24.12.2021, `Adjudicating Authority' referred the proceedings under Section 241 Petition for mediation before 'IAMCH'. The Learned Counsel laid emphasise that this `Mediation Proceedings of company affairs have no bearing on the Insolvency Petition. The Learned Counsel further argued that despite Appellant's vehemently opposing the reference of the Section 7 Application for `Mediation', the `Adjudicating Authority' passed an order dated 13.05.2022, directing the Appellant and Respondent herein, for `Mediation' in the `Insolvency Petition' proceedings under Section 7 of the I & B Code, 2016. Being aggrieved, the `Financial Creditor' challenged the 'impugned order' dated 13.05.2022 in present `Appeal'. The Learned Counsel for the Appellant alleged that the `Adjudicating Authority' has failed to appreciate the difference between the proceedings initiated by the `Financial Creditor' against the `Corporate Debtor' under Sections 241 and ....
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.... of India in E.S. Krishnamurthy vs. Bharath Hi-Tech Builders (P) Ltd., (2022) 3 SCC 161 (at para nos. 30 to 32), which also followed the ratio given in Innoventive Industries Ltd, vs. ICICI Bank, (2018) 1 SCC 407. The `Adjudicating Authority' is enjoined, under Section 7 of the I & B Code, 2016 to verify `Default' that has occurred or otherwise, within 14 days from the receipt of the Section 7 application, based on records and evidence, furnished by the `Financial Creditor', together with the Application. The Learned Counsel assailed the 'impugned order' dated 13.05.2022, and stated that 'impugned order' is an overreach on the part of the `Adjudicating Authority'. The Learned Counsel stated that the `Adjudicating Authority' cannot compel the Parties to settle a dispute and the I & B Code, 2016 does not envisage for such action, which has been reiterated in plurality of decisions. 16. The Learned Counsel stated that in view of catena of Judgments of Hon'ble Supreme Court of India, the need for `judicial intervention' or `innovation' from the `Adjudicating Authority' should be bare minimum without disturbing the basic tenets of the I & B Code, 2016. The Learned Counsel....
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....6. 19. The Learned Counsel took umbrage of the judgment of this `Appellate Tribunal' (Principal Bench) in Sodexo India Services Pvt. Ltd. vs. Chemizol Additives Pvt. Ltd., (2021) SCC OnLine NCLAT 18. In this case `Adjudicating Authority' had passed the 'impugned order' without obtaining express consent of the `Parties'. 20. The Learned Counsel for the Appellant vehemently opposed the action of the `Adjudicating Authority' for referring the Petition for `Mediation'. The Learned Counsel stated that the Learned Counsel appearing for the `Financial Creditor' opposed for `Mediation' and insisted upon the `Hearing' and `Disposal' of the Section 7 of the I & B Code, 2016 application. Despite such an opposition, the `Adjudicating Authority' was perforced to refer the matter to `Mediation' against the wishes of the `Financial Creditor'. The Learned Counsel while winding up his argument, has made a fervent plea to set aside the 'impugned order' dated 13.05.2022, passed by the `Adjudicating Authority' and to allow the present `Appeal', in the `interest of justice'. Respondent's Submissions: 21. The Learned Counsel for the Respondent argued that the Appellant has treated as if i....
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....o under the I & B Code, 2016. 26. The Learned Counsel assailed the `Appeal' and stated that the `Appellant' failed to establish that it suffers from any legal grievance and also that the 'impugned order' dated 13.05.2022 is not final order disposing of the Section 7 Application. The Learned Counsel concluded his pleadings by stating that the `Appeal' deserves to be dismissed with costs. Findings 27. Heard Learned Counsel for the `Parties' and also perused record available along with Written Submissions filed by the `Parties'. Several issues have been raised in the `Appeal' which are required to be deliberated upon before coming to final conclusion. Based on `Appeal', averments made by both the Learned Counsels, following issues needs to be decided:- (i) Whether there was a debt due of which default was committed by the Corporate Debtor entitling the Financial Creditor to file an Application under Section 7 of the I & B Code, 2016. (ii) Whether, petitions made under Section 241 & 242 of the 'Companies Act, 2013', can be equated with Application filed under Section 7 of the I & B Code, 2016. (iii) Whether, the `Adjudicating Authority' can refer App....
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.... lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in r....
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....bt' was due, remained unpaid and `Default' took place, preferred to refer the `Application' under Section 7 of the I & B Code to `IAMCH' for `Mediation'. In the said 'impugned order' dated 13.05.2022 in Para - 9 onward the `Adjudicating Authority' recorded; "...we found that the amount claimed as financial debt has nexus, to the Investment Agreement executed between the parties on 03.08.2011; besides the Sale Purchase Agreement dated 15.06.2021 which was stated to be the basis for the Applicant herein for the investment in the Corporate Debtor. Admittedly, the matters where in the Applicant herein relied on Investment Agreement and the Sale & Purchase Agreement supra, (CP No. 468/241/HDB/2018 and CP No. 466/241/HDB/2018) have already been referred to IAMC for mediation by an order of this Tribunal dated 24.12.2021." Accordingly, the `Adjudicating Authority' instead of taking decision as per I & B Code, 2016, chose to refer Section 7 `Application' to `IAMCH' for `Mediation' under Section 442 of the 'Companies Act, 2013'. 32. Admittedly, the `Corporate Debtor' has not brought anything on record refuting that `Debt' was not due or was paid and no `Default' took place. T....
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....s: clause (a), which is the first part, empowers the Adjudicating Authority to admit the application where it is satisfied that: (i) a default has occurred; (ii) the application under sub-section (2) is complete; and (iii) no disciplinary proceeding is pending against the proposed resolution professional; clause (b), which is the second part, empowers the Adjudicating Authority to reject the application where it is satisfied that: (i) default has not occurred; or (i) the application under sub-section (2) is incomplete; or (iii) a disciplinary proceeding is pending against the proposed resolution professional. Under sub-section (7), the Adjudicating Authority has to communicate its order of acceptance or rejection to the financial creditor and the corporate debtor or the financial creditor, as the case may be. In accordance with sub-section (6), the CIRP process commences from the date of the admission of the application under sub-section (5). Thus, a time-limit for the completion of the CIRP within a period of 180 days [under sub-section (1) of Section 12, subject to a further extension under sub-section (3)] commences from the date of the admission of the application to initiate t....
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....he Adjudicating Authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the Adjudicating Authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the Adjudicating Authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the Adjudicating Authority is satisfied that a default has Occured, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the Adjudicating Authority. Under sub-section (7), the Adjudicating Authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such....
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....etition in CP No. 468/241/HDB/2018 was filed before the `Adjudicating Authority' complaining about oppression and mismanagement. Petitions were based on several grievances including exclusion of the Appellant from governance of the Corporate Debtor, non-service of notice of Board/Shareholders Meeting and Siphoning of funds to the Corporate Debtor's parent company etc. "....As per Section 241 (1)- Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or" (c) Whereas Section 7 of the I & B Code, 2016 provides for initiation of `Corporate Insolvency Resolution Process' by the `Financial Creditors'. As per Section 7(5) of the I & B Code, 2016, the `Adjudicating Authority' has been delegated power to decide about default or otherwise; "5) Where the Adjudicating Authority is satisfied that days of the complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admi....
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....uthority' as per ratio grant in Vidarbha Industries Power Limited (Supra) Issue No. (iii) Whether, Adjudicating Authority can refer Application proceedings under Section 7 of I & B Code, 2016 for mediation under Section 442 of the 'Companies Act, 2013'. (a) We have already seen powers of Adjudicating Authority under Section 7(5) of the I & B CODE, 2016 while discussing Issue No. (ii) above. To reiterate the powers of Adjudicating Authority is limited to decide on the records available including evidence of default to either admit CIRP or reject the same within 14 days of the receipt of application. We are conscious of Hon'ble Supreme Court of India Judgment in Vidarbha Industries Power Limited v Axis Bank Limited, 2022 SCC Online SC 841, the Supreme Court held as follows "We are clearly of the view that the Adjudicating Authority(NCLT as also the Appellate Tribunal (NCLAT) fell in error in holding that once it was found that a debt existed and a Corporate Debtor was in default in payment of the debt there would be no option to the Adjudicating Authority(NCLT) but to admit the petition under Section 7 of the I & B Code 2016". (b) However, the circumstances and fact....
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....anel as the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, deems fit." (f) There are several judgments on similar subject especially w.r.t referring the matter for an `Arbitration'. (i) As per the decision in Sodexo India Services Pvt. Ltd. vs. Chemizol Additives Pvt. Ltd., (2021) SCC OnLine, NCLAT 18, under Section 442 cannot refer the parties to arbitration or mediation for the proceedings pending under the Code. Once the `Default' is established, the `Adjudicating Authority' (`National Company Law Tribunal') does not have the power to refer the `Parties' to an `Arbitration', since it becomes an in-rem insolvency proceedings. The relevant portion of this Judgement is herein under:- "5. Our attention has also been invited to some observations made by the Adjudicating Authority in paragraph 10, which reads as under:- "10. .... Therefore, the Respondent Company prima facie appears to be solvent Company so as to resolve the issue of outstanding amount in question. The NCLT is conferred power, even to refer the matter pending before it, to Mediation and Conciliation, U/s 442 of the Companies Act, 2013. The Adjudicating Authori....
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....(AT) (Insolvency) No. 166 of 2018 which has also held that `Existence of an Arbitration Agreement' is no ground to oppose an `Application' filed by a `Financial Creditor' under Section 7 of the I & B Code, 2016. The relevant portion of the order passed by this `Hon'ble Appellate Tribunal' are as follows:- "2. Learned Senior Counsel appearing on behalf of the Appellant submitted that there was an existence of dispute between the 'Corporate Debtor' and the 'Financial Creditor' and the matter was referred for Arbitration. But no such ground can be taken for opposing an application under Section 7, though such ground can be taken if application would have been preferred under Section 9 of the 'I&B Code'. 3. In the present case, as we find that there is a debt and the 'Corporate Debtor' defaulted in payment of debt to the 'Financial Creditor'. The application being complete, we hold that the Adjudicating Authority rightly admitted the application. We find no ground to interfere with the impugned order dated 12th March, 2018. The appeal is accordingly dismissed. No cost." (g) The `Adjudicating Authority' had referred the `Parties' in Section 7 Application of I & B....