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2023 (2) TMI 1046
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....ants herein claiming to be the Financial Creditors of the Corporate Debtor seeking to intervene in the CP (IB) No. 351/Chd/Pb/2018 filed by the Central Bank of India (Respondent No. 2 herein). By which the Adjudicating Authority passed the following orders: "........... 8. In the circumstances and for the aforesaid reasons, we do not find any merit in the IA No. 1/2021 and accordingly, the same is dismissed. However, it is made clear that dismissal of this IA, shall not have bearing on the merits, while considering the contentions of the parties, in the C.P." 2. The facts giving rise to the instant Appeal are as follows: i) The Respondent No. 1/Corporate Debtor borrowed a financial debt of Rs. 21,00,000/- from the Appellant No. 2. The ledger of accounts of the Respondent No. 1 as on 01.04.2018 reflects this financial debt being owed to the Appellant No. 2. Further, the Respondent No. 1 borrowed a financial debt of Rs. 3,00,000/- from the Appellant No. 1. This fact is discernible from the ledger of accounts maintained by the Corporate Debtor. ii) The Respondent No. 2 Bank advanced a financial debt in favour of the Respondent No. 1/Corporate Deb....
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....icating 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." 5. In this regard, the Appellants relied on the following judgments: * SREI Infrastructure Finance Ltd. v. Right Tower Pvt. Ltd Company Appeal (AT) (Ins) No. 38 of 2018 (NCLAT). "4. It is submitted that if any person initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, the Adjudicating Authority may impose such person any penalty as stipulated under Section 65. According to 2nd Respondent (Intervener), any person can bring to the notice of the Adjudicating Authority that the Insolvency Resolution Process has been initiated by the person fraudulently and with malicious intent for the purpose other than resolution of insolvency. For bringing the aforesaid facts to the notice of the Adju....
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....set aside the impugned order passed by the NCLAT and dispose of the appeal in accordance with the aforesaid direction." * Embassy Property Developments Private Limited v. State of Karnataka, 2019 SCC Online SC 1542 (Hon'ble Supreme Court). "52. Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors. Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently "for any purpose other than for the resolution of insolvency or liquidation". 6. Additionally, the impugned order fails to appreciate that the Appellants are affected by the outcome of the Application under Section 7 filed by the Respondent No.2, as insolvency is an in rem proceeding. The Hon'ble Supreme Court held: "82. It is clear that once the Code g....
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....llegal action by granting loan for industrial activity on agricultural land. However, at paragraph 7, the Adjudicating Authority does not refer to this allegation at all. Therefore, there is a prima facie case of fraud, the Appellants ought to have been impleaded by the Adjudicating Authority. Further, the impugned order does not consider that no prejudice caused to any party if the Appellants herein are permitted to place the true facts before the Adjudicating Authority, especially given that the application filed by the Respondent-Bank is based on fraud and has been instituted in order to defraud the Appellants herein. The Adjudicating Authority did not consider that the application of the Appellants before the Adjudicating Authority contains serious allegations of fraud against the Respondent-Bank. It is settled law that "fraud vitiates everything". Based on above submissions, the impugned order is fit to be set aside and remands it back to the Adjudicating Authority for reconsideration of the intervention application. 9. The Ld. Counsel for the Respondent No. 1 during the course of argument and in his Reply Affidavit submitted that the present Appeal must be allowed and t....
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....itioning Creditor before it is a nationalized Bank. Such a reasoning is irrelevant for the purpose of an application under Section 65 of the Code. Additionally, the Impugned Order ignores the fact that the Bank had conveniently suppressed the status of the security as disclosed in its application filed under Section 7 of the Code. Further, the burden of disclosing the correct status of such security was on the Bank. In the absence of the same, the Bank ought to have been called upon to explain the same. Thus, the finding in the Impugned Order of the allegation being unsubstantiated by the Appellants is incorrect in law. Therefore, the Impugned Order is liable to be set aside and the matter be remanded back to the Adjudicating Authority to ascertain the status of creditor. 11. It is further submitted that the limited relief of impleadment sought by the Appellants and adjudication on issue of Respondent no. 2 being a financial creditor be done. However, the Respondent No. 1 prayed this Tribunal must reject the contention of the Appellants that there is any collusion between the Respondent No. 1 and the Bank. In any event, the allegation of collusion has been taken by the Appellant....
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....nterest of both the parties. 14. It is further submitted that as per the scheme of law, upheld by the Hon'ble Supreme Court, the legislature has prescribed a definite time frame for the adjudication of section 7 petition. The petition, if found in order, the adjudicating authority has to ascertain default within 14 days of filing the petition (in this case the same was not required because the bank itself has filed the copy of the record of the utility showing default) and if the adjudicating authority is not able to do so then it shall record the reasons for doing so. The Judgment of Hon'ble Supreme Court in the case of "Innoventive Industries Ltd Vs ICICI Bank reported as (2018) 1 SCC 407" wherein paragraphs 28 and 30 read as follows:- "28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made Under Sub-section (1) in such form and manner as is prescribed, which takes us to the Insolv....