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2024 (11) TMI 1052
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....lty of Rs.1,00,000/- was also imposed on the Applicant/ Appellant. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are: (i) M/s Shivpriya Cables Pvt. Ltd. (Principal Borrower) availed fund based and non-fund-based loan facilities to the tune of Rs.19,77,00,000/- from the SBI, wherein the Appellant executed a Corporate Guarantee in favour of the SBI. A credit facility of Rs.1,64,59,163/- was also availed by the Principal Borrower from M/s Northern ARC Capital Ltd. A Corporate Guarantee was also executed by the Appellant in favour of Northern ARC Capital Ltd. ("Northern ARC") on 30.07.2019. The Principal Borrower also availed enhancement facilities from SBI and as on 16.10.2015, the sanctioned facilities was Rs.42,58,00,000/-. (ii) On 04.08.2022, the loan account of Shivpriya Cables Pvt. Ltd. ("Shivpriya Cables") was classified as Non-Performing Asset ("NPA") by the SBI. Northern ARC issued notice invoking Corporate Guarantee on 23.01.2023 and demanded payment of outstanding amount of Rs.1,64,59,163/-. (iii) The SBI initiated proceedings under Section 13, sub-section (2) of the SARFAESI Act, 2002 against Applicant/ Appellant, d....
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.... section 10 application of the Appellant has been rejected by the Adjudicating Authority invoking Section 65 of the IBC, whereas ingredients of Section 65 application were neither pleaded nor proved by the SBI. It is submitted that Section 10 of the IBC is a statutory provision, giving entitlement to a Corporate Applicant to file an application for initiation of CIRP, when a Corporate Debtor has committed a default. The right under Section 10 given to a Corporate Debtor, cannot be taken away only on the ground that proceedings under Section 13, sub-section (2) of SARFAESI Act has been initiated prior to filing of application under Section 10. It is submitted that right to file an application under Section 10 on the ground that Corporate Debtor has committed default is a sine-qua-non for filing an application under Section 10. The proceedings under Section 13, sub-section (2) initiated by the SBI against the Appellant is a proof that the Appellant has committed a default and cannot be read to mean as any ineligibility of the Corporate Debtor to file Section 10 application. Section 65 is to be invoked when a person initiate an insolvency resolution process fraudulently or with malici....
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....by the Adjudicating Authority. Northern ARC has not taken any action to recovery of its money from the Corporate Debtor, even after invoking the guarantee. The Northern ARC also supported Section 10 application. In Section 10 application, SBI was not made a party, which application was filed behind the back of the SBI, whereas the Appellant was well aware that SARFAESI proceedings related to immovable mortgaged property of the Appellant is on the verge of completion. Learned Counsel for the SBI submits that Section 10 application has been rejected by the Adjudicating Authority by allowing Section 65 application as well as on the basis of other relevant facts as noticed in the judgment. 6. Learned Counsel for both the parties have placed reliance of various judgments of Hon'ble Supreme Court and this Tribunal in support of their respective submissions. 7. The main reason for dismissal of Section 10 petition has been given in paragraph 7 (xix) of the impugned order, which is as follows: "7(xix) There is no quarrel over the fact that Section 10 vests rights on the Corporate Applicant to resolve their insolvency. However, one cannot lose sight of the fact that this prote....
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....ncial/ Operational Debt [Creditor Wise, as Applicable]'. The copy of the application which was filed by the Application under Section 10 has been brought on the record by Appellant as Annexure A-10. In the petition under Section 10, it is stated that the Principal Borrower has obtained financial facilities from the SBI, details of such facilities has been mentioned in the application, totaling to Rs.42,58,00,000/-. The Applicant also pleaded that Equitable Mortgage of Immovable property on the first charge basis was also created, i.e. factory land and buildings bearing Survey Number/ Plot No. E-448, RIICO Industrial Area, Chopanki, Bhiwadi, Alwar, Rajasthan, standing in the name of Corporate Debtor/ Corporate Applicant. The Applicant further stated that Principal Borrower has defaulted in repayment and account has been declared as NPA. It was also further pleaded that both the Financial Creditors have invoked the guarantee provided by the Corporate Debtor and the Corporate Applicant is not in a position to repay the aforementioned liabilities since it has not been carrying out business for the last five years. It is useful to notice the following statements made in Section 10 appli....
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.... in terms of Notice, dated 22.02.2023. 2. Northern ARC Capital Limited: Rs.1,64,59,163/- in terms of Notice, dated 23.01.2023." 13. In the list of other documents, which were attached along with application, have been mentioned, which Item No.8 is as follows : 8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL/ OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT 1. Legal Notice, dated 23.01.2023, issued by Northern ARC Capital Limited and the same is being annexed herewith and marked as Annexure A/1. 2. Legal Notice, dated 22.02.2023, issued by State Bank of India and the same is being annexed herewith and marked as Annexure A/2. 3. Deed of Guarantee, dated 30.07.2019, executed in favour of Northern ARC Capital Limited against the Financial Facility availed by Shivpriya Cables Pvt. Ltd. and the same is being annexed herewith and marked as Annexure A/3. 4. Master Data of the Corporate Debtor and the same is being annexed herewith and marked as Annexure A/4. 5. Board Resolution dated 30.09.2023, in favour of the deponent authorizing filing of the instant Application and the same is being annexed herewith an....
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.... under SARFAESI Act, 2002 are on the verge of being completed, the Respondent No. 1 herein with a malafide and fraudulent intent had filed the instant captioned petition i.e. C.P.(IB) No. 749/ND/2023; (n) It is pertinent to note that the present Petition filed by the Respondent No. 1 is nothing but an attempt to stall the recovery proceedings by way of SARFAESI action and recovery of Bank's dues, further time loss is expected. As such the Applicant i.e. State Bank of India has already have lost plenty of time during the ongoing CIRP Process, since the Principal Borrower was under NCLT since December, 2023." 15. Section 65 of the IBC is a provision, which empowers the Adjudicating Authority to impose a penalty under Section 65 of the IBC, which is 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 a such person a penalty which shall not be less than one lakh rupees, but may ex....
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....Edition 1982)" 18. The Hon'ble Supreme Court has defined 'malice' in (2003) 8 SCC 567 - Chairman & MD. BPL Ltd. vs. S.P. Gururaja and Ors. in paragraph 21, in following words: "21. Malice in common law or acceptance means ill will against a person, but in the legal sense it means a wrongful act done intentionally without just cause or excuse." 19. The question to be answered is as to whether filing of an application by the Appellant under Section 10, can be termed as initiation of proceedings with fraudulent and malicious intent. The basis for Section 65 application filed by the SBI is the fact that SBI has initiated proceedings under Section 13, sub-section (2) of the SARFAESI Act vide notice dated 24.02.2023, prior to filing of the application under Section 10 by the Corporate Applicant. Admittedly, Section 10 application was filed by the Appellant, subsequent to initiation of proceedings under Section 13, subsection (2) by the SBI. The pleadings of the of the SBI in proceedings under Section 13, sub-section (2) were that 13(2) proceedings were on the verge of being completed, when Corporate Applicant has filed application under Section 10 with malafide and fraudul....
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....tify the defects." 22. This Tribunal further held that action under Section 13(4) of SARFAESI Act against Corporate Debtor or proceedings before Debt Recovery Tribunal, if any, are pending, cannot be a ground to rejection application under Section 10, if the application is complete. In paragraph 25, following was laid down: "25. Similarly, if any action has been taken by a 'Financial Creditor' under Section 13(4) of the SARFAESI Act, 2002 against the Corporate Debtor or a suit is pending against Corporate Debtor under Section 19 of DRT Act, 1993 before a Debt Recovery Tribunal or appeal pending before the Debt Recovery Appellate Tribunal cannot be a ground to reject an application under Section 10, if the application is complete." 23. Another judgment of this Tribunal relied by the learned Counsel for the Appellant is Amar Vora vs. City Union Bank Ltd. - (2022) SCC OnLine NCLAT 276, where the same principles were reiterated in paragraph 9, which are as follows: "9. In view of the above provision of law the financial Creditor/Operational Creditor/Corporate Persons can file an application under Section 7, 9 & 10 of the I & B Code, 2016 before the respective Ad....
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....e as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech." 19. Differently nuanced contextual meanings of the word "fraud" are collected in P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn., Vol. 2, pp. 1914-15). We may extract two of them: "Fraud, is deceit in grants and conveyances of lands, and bargains and sales of goods, etc. to the damage of another person which may be either by suppression of the truth, or suggestion of a falsehood. (Tomlin) * * * 34. 'Fraud' has been defined as any conduct of deceit resulting in injury, loss or damage to someone. Deceit has also been explained by the Hon'ble Supreme Court in (2013) 1 SCC 562 - Ram Chandra Bhagat vs. State of Jharkhand. The Hon'ble Supreme Court explaining the 'deceit' following has been stated in paragraph 17 and 18: "17. Stroud's Judicial Dictionary (5th Edn.) explains "deceit" as follows: "Deceit.-'"Deceit", deceptio, fraus, dolus,....
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.... near corporate death that no transfer of the winding-up proceeding would then take place to NCLT to be tried as a proceeding under the IBC. Short of an irresistible conclusion that corporate death is inevitable, every effort should be made to resuscitate the corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country. It is, thus, not possible to accede to the argument on behalf of the appellant that given Section 446 of the Companies Act, 1956/Section 279 of the Companies Act, 2013, once a winding-up petition is admitted, the winding-up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC. While it is true that Sections 391 to 393 of the Companies Act, 1956 may, in a given factual circumstance, be availed of to pull the company out of the red, Section 230(1) of the Companies Act, 2013 is instructive and provides as follows: "230. Power to compromise or make arrangements with creditors and members.- (1) Where a compromise or arrangement is propo....
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....plication, which has also been noticed by the Adjudicating Authority in paragraph 22 of the impugned order. The facts brought on record and sequence of events indicate that dominant purpose and object of filing Section 10 Application was to save the Corporate Debtor from liabilities, responsibilities and prosecution. As per the pleadings, the possession of the units to the Homebuyers were to be handed over by 2016 and 90% of the amount from all the Homebuyers were realised before 2016. Filing of the Application under Section 10 took place in March 2021, which indicate that Application was filed with malicious purpose other than resolution of the Corporate Debtor. The Adjudicating Authority has categorically returned a finding that in the garb of IBC proceedings, the Corporate Debtor has attempted to play fraud on its stakeholders. In paragraph 33, 34 and 37, following have been held: "33. Now a question arises, whether the CD has filed the Section 10 application with a malicious and fraudulent intent. The term malicious has not been defined anywhere under IBC, 2016. Therefore, at this juncture we refer to the Judgment of Hon'ble Supreme Court, passed in the matter of West ....
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....Ins.) No.1342 of 2023 - M/s Agroha Paper Industries Pvt. Ltd. vs. Bank of Maharashtra. In the above case, this Tribunal has noted the sequence of events of proceedings taken against the CD. It was also noticed that proceedings have been initiated by the Bank and the CD in the year 2019. The possession of property was taken under Section 14 of the SARFAESI Act and sale was confirmed and all the steps preceded prior to filing of Section 10 application. In paragraphs 11 and 13, this Tribunal laid down following: "11. Be that as it may, we also notice that much before the Section 10 application was filed by the Appellant, the Respondent Bank had issued notices to the Appellant for personal hearing before declaring the Appellant to be a wilful defaulter. We also find that the Adjudicating Authority took notice of the fact that the Appellant Company failed to appear before the Respondent Bank in spite of notices having been issued to them twice and gave a slip to the proceedings initiated by the Wilful Defaulter Identification Committee of the Respondent Bank. Even after being declared a defaulter, the Appellant continued not to respond to the notices issued by the Respondent Ba....
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....on of the property under Section 14 of SARFAESI Act on 24.05.2022 and sale was confirmed to the successful bidder. All these steps under the SARFAESI proceedings had therefore clearly preceded the filing of the Section 10 application by the Appellant." 29. In the above background, this Tribunal took the view that Appellant was trying to embroil the Respondent Bank in multiple layers of litigation. In paragraph 15 of the judgment, following was held: "15. When we take a holistic view of the entire conspectus of facts, it does not escape notice that the Appellant was trying to embroil the Respondent Bank in multiple layers of litigation. It is an undisputed fact that the Appellant had filed securitization application SA-365 of 2019 before the DRT, Lucknow for stay on the auction of its properties by the Respondent Bank. Apart from moving the securitization application before the DRT, the Appellant had also knocked at the doors of the Hon'ble Allahabad High Court by filing a Writ petition. Though the matter was heard on the same date (16.07.2022) on which the auction in pursuance of the sale notice was to take place, the Hon'ble High Court did not stay the e-auction.....
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..... 31. We in the present case are considering the question as to whether rejection of Section 10 application on the ground of invoking Section 65 is justified or not. There are no other facts and ground pleaded to prove any fraudulent and malicious intent by the CD in filing Section 10 application. For allowing Section 65 application, fraudulent and malicious intent of CD has to be proved from some materials on record. Merely because proceeding under Section 13, sub-section (2) and (4) has been initiated by the creditor prior to filing of Section 10 application, cannot be a ground to hold that Section 10 application is filed with malicious and fraudulent intent. For proving fraudulent and malicious intent, something more is required to be pleaded and proved apart from initiation of proceedings under Section 13, sub-section (2) and (4) by the creditor against the Corporate Applicant. 32. In view of the foregoing discussions, we are satisfied that Adjudicating Authority committed error in allowing Section 65 application filed by the SBI and rejecting Section 10 application. In event a proposition of law is accepted that when a creditor has initiated proceedings under Section 13,....