TaxTMI 
TaxTMI 
2024 (11) TMI 1050
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....any Petition (I.B.) No. 145 (MB) 2023 passed on 05.09.2023 filed under the provisions of the Section 9 of the Code. 2. The Adjudicating Authority (in short 'AA') has admitted the petition filed by Vista Processed Foods Pvt. Ltd. (Respondent No.2/Operational Creditor) against Goli Vada Pav Pvt. Ltd. (Corporate Debtor) for the initiation of the CIRP under Section 9 of the Code, based on an operational debt of Rs. 3,56,04,233/- that the CD failed to pay. 3. The brief facts of the case are as follows: i. The Appellant M/s. Clarion Health Foods LLP is Limited Liability Partnership firm and is major shareholder holding 63.64% of paid-up share capital of Corporate Debtor M/s. Goli Vada Pav Pvt Ltd./Respondent No.1. ii. The Vista Processed Foods Pvt. Ltd., Operational Creditor/Respondent No.2 filed Petition No. CP (IB) 145(MB) 2023 before the AA under Section 9 of the Code. The petition was filed against Respondent No. 1, Goli Vada Pav Pvt Ltd, alleging a default in payment of Rs. 3,56,04,233/-. The petition was filed on 29.01.2023 and registered on 16.02.2023 after detailed hearing the AA admitted the CP No. (IB)-145(MB) 2023 and initiated the CIRP process against ....
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....el for the respondent has also relied upon the following Judgments: (i) Ashish Gupta v. Delagua Health India Pvt. Ltd. in CA (AT) (Ins.) No. 17 of 2022 passed by NCLAT, Delhi Bench. (ii) Ashmeet Singh Bhatia v. Pragati Impex India Pvt. Ltd. & Anr. in CA (AT) (Ins.) No. 1413 of 2023 passed by NCLAT, Delhi Bench. (iii) Ashu Dutt v. Celadon Real Estate Advisors Pvt. Ltd. in CP (IB) No. 3848 of 2019 passed by Ld. NCLT, Mumbai. (iv) Trimex Industries Pvt. Ltd. v. Bhuvan Madan, RP Sathavahana Ispat Ltd. in CA (AT) (CH) (Ins.) No. 130 of 2023 passed by NCLAT, Chennai Bench. 4. We have heard counsel for the parties on the issue of maintainability of the appeal to decide as to whether the appellant is an aggrieved person for filing the appeal under Section 61 of the code." Submissions of Appellant 5. The Appellant, holding a majority 63.64% stake in the CD filed a petition (C.P. No. 28 of 2023) under Section 241-242 of the Companies Act, 2013 on 05.01.2023 against the (a) Corporate Debtor and (b) Srinivasan Venkatesh Gurumurthy Srinivasan Iyer (Promoter, CEO and Managing Director of CD) and representative of other shareholders. Shortly ther....
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....ant has placed reliance on Section 61 of the Code. The relevant extract has been reproduced as under: "1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. 5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order." 12. It was contended by the counsel for the appellant that the relevant section of the Insolvency and Bankruptcy Code does not bar shareholders from filing an appeal as an "aggrieved person." This position is supported by examples where shareholders have intervened in original proceedings under Sections 7, 9, and 10 of the Code. However, the present case is distinct, as the appeal is filed by the majority shareholders, who were unaware of the Section 9 petition that initiated the CIRP process. This unusual circumstance, compounded by the fact that the majority shareholder is actively pur....
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....lder had sought intervention in the CIRP proceedings. The same was agitated by the opposite party. The contention of the majority shareholder was that the aforesaid petition was collusive in nature. The Application filed by the majority shareholder was allowed. The Appeal filed against the said order was challenged before this Appellate Tribunal. The Appeal was dismissed with the observation that the interest of the majority shareholders should be protected in CIRP proceedings. The relevant extract is reproduced herein below: "13. In view of the peculiar circumstances of the present case where the Section 8 Demand Notice could not be responded to by the Corporate Debtor company for reasons beyond their control and a collusive petition having been filed, Respondents No.2 and 3 being majority shareholders of the Corporate Debtor Company deserve to be heard. It is a well settled canon of natural justice that anything which eludes or frustrates the recipient of justice should be avoided and reasonable opportunity of hearing be allowed to advance the cause of justice. We are of the view that Respondents No.2 and 3 being majority shareholders holding 98.98% share of the Corporat....
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.... 17. The appellant argues that the aforesaid judgments particularly, the judgement of the Sunstar Hotels & Estates Pvt. Ltd. though has decided the issue on the locus of the shareholder for filing an Appeal under Section 61 of the Code. However, the facts of the present matter with respect to testing the locus of the shareholders is entirely different. 18. The counsel for the appellant has submitted that his appeal is very much maintainable in view of the aforesaid findings. Submission of Respondents 19. The counsel for Respondent No.1 stated that the Appellant has challenged the Hon'ble NCLT's decision, claiming the issue revolves around the interpretation of "dispute" under Section 5(6) of the code, which defines "dispute" specifically as a matter between debtor and creditor. Respondent No. 1 further questioned the petition's maintainability in its reply, which the Appellant argues, is irrelevant given the absence of any pre-existing dispute as required under the code. 20. The counsel for the respondent places reliance on the judgement of the Hon'ble Supreme Court in the matter of Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) ....
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....CC Online NCLAT 102). In this case it was held that shareholders cannot maintain derivative actions. It must be reiterated that the Appellant herein has preferred the present appeal as an independent shareholder aggrieved by the admission order for the commencement of Corporate Insolvency Resolution Process, however, the Appellant has no locus to file the present Appeal as per established principles of law as decided by Hon'ble Courts. In the Case of Nirej Vadakkedathu Paul (supra) the Hon'ble NCLAT considered that the "shareholders" cannot be aggrieved merely by the admission of the 'Corporate Debtor' into 'Corporate Insolvency Resolution Process'. Such objection may render the object of I & B Code, 2016 illusory, since any shareholder of any 'Corporate Debtor' against which Insolvency proceedings have been initiated can then seek to maintain a derivative action and sabotage a valid CIRP initiated by the Adjudicating Authority. 24. In the judgement of this Hon'ble Tribunal in the matter of Axis Bank Vs. Lotus Three Developments & Ors., ((2018) SCC OnLine NCLAT 914), has held following in Paragraph 6: "6. From the aforesaid decision, it is clear that the Adjudicating....
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....tel and Estates Pvt. Ltd. & Anr., where the Hon'ble Tribunal addressed a similar issue. In that case, independent shareholders appealed against the CIRP order, alleging collusion, but the Tribunal held that shareholders lack the locus to challenge a CIRP order under Section 7 of the Insolvency and Bankruptcy Code. Consequently, the Tribunal dismissed the appeal as non-maintainable to uphold the objectives of the Code. 28. The counsel further submitted that the Appellant relies on multiple cases to support their arguments, but each cited judgment is inapplicable due to differing circumstances. In Ashish Gupta v. Delagua Health India Pvt. Ltd., the judgment centred on a pre-existing dispute and unique conditions where shareholders, instead of the Board, represented the Corporate Debtor at the admission stage of CIRP; however, in this case, the Corporate Debtor was represented consistently, and a detailed reply was filed. Similarly, in Ashmeet Singh Bhatia v. Pragati Impex India Pvt. Ltd., the issue related to Section 65 powers, not CIRP, thus irrelevant for this appeal. In Trimex Industries Pvt. Ltd. v. Bhuvan Madan, the Tribunal addressed the need for leave to appeal under Se....
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....ditor (Respondent No. 2) and the CD. This approach aligns with the judgment in Chetan Sharma v. Jai Lakshmi Solvents (P) Ltd. & Anr, which states that only disputes directly involving the Operational Creditor and the Corporate Debtor can be grounds for dismissing a Section 9 application. Claims of fraud and collusion, raised by the Appellant's advocate during the hearing, are unsupported by the record and were not part of the initial pleadings. Moreover, Respondent No. 2 issued a Demand Notice before any alleged disputes between the Appellant and Corporate Debtor arose. Since the operational debt owed to Respondent No. 2 is undisputed, it is urged that the appeal be dismissed for lack of maintainability and, alternatively, on the merits. Analysis and findings 31. We have heard the Ld. Counsels in detail and examined the documents including written submissions filed by parties. 32. The first and main contention of the appellant is that there was a pre- existing dispute between the appellant and Corporate Debtor/Respondent No.1 for which the appellant had preferred Company Petition No. 28/2023 against the CD prior to the application by the Respondent No.2 for initiation of C....
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....tor are not signed or executed by on behalf of the Corporate Debtor and the said confirmations appear to have been forged and fabricated by the Operational Creditor to cover up the period of limitation. 16. As regards the agreement to pay interest in the event of non- payment of invoice amounts by the Corporate Debtor within the due date, it is pertinent to point out that as per clause 18 of the manufacturing agreement dated 06.12.2016, the Operational Creditor was entitled to charge interest as per its prevailing borrowing bank rates for any overdue and unpaid invoices calculated from the due date to the date of payment. Therefore, it cannot be said that the Operational Creditor was not entitled to claim interest. 17. So far as the question as to whether the Application has been filed within the period of limitation is concerned, as per the ledger (Annexure L) annexed with the Petition, the invoices were issued between 02.08.2018 and 30.06.2021. A perusal of the ledger further shows that some payments were made by the Corporate Debtor from time to time against the invoices raised by the Operational Creditor. The Operational Creditor has further relied upon three ....
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....ult has been committed by the latter. It has also been established that the instant Application has been filed within the limitation. Therefore, we find the instant Application to be a fit one to be admitted u/s 9 of the Code, 2016." 35. We observe that NCLT has passed the order after hearing both the parties and it's an order complying with relevant provisions of the code. The debt and default are on record and there was no pleading of pre-existing dispute in this case. 36. The respondents on the other hand have cited the Judgment of this Tribunal in Chetan Sharma Vs. Jai Laxmi Solvents (P) Ltd. & Anr. In CA (AT) (Ins) No. 66 of 2017. In view of the fact that the appellant has quoted Section 5 (6) of the Code regarding the existing dispute between the appellant and CD relating to oppression and mismanagement under Companies Act. The relevant paras 15, 16 & 20 of the Judgment supra are extracted below: "15. It is a settled law that unilateral transfer' of liability does not constitute a 'dispute' within the meaning of Section 5(6) of the I&B Code'. The 'dispute' under Section 5(6) of the 1&B Code' has to be between the 'Corpor....
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....therefore, do not find any merit in this contention. 40. The main contention of the appellant in the hearing was that he is the 'person aggrieved' under Section 61 of the Code and therefore, he has locus to file this appeal and the same is maintainable before this Appellate Tribunal. The appellant has cited several Judgments of this Tribunal to support his case. The respondents on the other hand contended that in the CIRP proceedings shareholders have no locus under Section 9 of the Code and therefore this appeal is not maintainable. They have also cited several Judgments of this Tribunal to support their contention. 41. In order to examine this critical issue of locus and maintainability, we have to look into various provisions of the I&B Code 2016 carefully. The relevant provisions connected to this issue are: "3 (23) "person" includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India;" (emphasis supplied) Section ....
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....to continue their financial interest will be adversely affected and therefore, they are aggrieved by the impugned order and would fall under the category of 'person aggrieved' under Section 61 of the Code and therefore there they have the locus and their appeal is maintainable. 45. In this regard, this Tribunal in the case of 'Nirej Vadakkedathu Paul' (supra) made the following findings in paragraph 88: "During averments, it has been brought to the notice of this 'Appellate Tribunal' one judgment of Delhi High Court on derivative action on behalf of the Corporate Debtor under I & B Code, 2016. In the case of ICP Investments v. Uppal Housing, 2019 SCC OnLine Del 12371, following has been recorded in the judgment :- "18. The IRP appointed with respect to Umang, under the law having powers/authorities as aforesaid, I have wondered about the maintainability of a derivative action on behalf of Umang. 20. It is felt that once the affairs of the Umang are taken over by an IRP, the Directors of Umang can no longer be blamed for not taking the requisite steps to seek redress for the wrong if any done to Umang, and a derivative action by plaintiff, as a majority....
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....n 7 of the I & B Code, 2016 before the 'Adjudicating Authority'. Theoretically, even a 'person' aggrieved by the 'impugned order' challenges admission of 'Corporate Insolvency Resolution Process', it is not going to resolve the issues under any relevant law and the whole exercise with such appeal become futile, purposeless and will only cause delay in resolution, for which the 'Resolution Plan' has already been approved by the 'Committee of Creditors' and is under consideration of the 'Adjudicating Authority'. Similarly, this 'Appellate Tribunal' also take note of its earlier order, where it has been held that an investor in a 'Corporate Debtor' cannot claim to be an 'aggrieved person' for preferring an appeal against an order against insolvency petition in Company Appeal as held in CA (AT) (Insolvency) No. 296 of 2017 in the matter of Anant Kajare Vs. Eknath Aher & Anr. wherein the relevant para reads as under: - "4. Heard learned counsel for the Appellant. Admittedly, the Appellant is an Investor therefore, the Appellant cannot claim to be an 'aggrieved person' for preferring appeal against the order dated 2nd May, 2017 passed by Adjudicating Authority ....
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....that in the present `Appeals', the 'Appellants' do not have any `Locus', and therefore the present `Appeals', are `not maintainable'. This 'Appellate Tribunal', therefore, does not find any `Error' / `Legal Infirmity', in the 'impugned order', on this issue." 46. It is seen from the above that equity shareholders are investors in the company and they are owners of the company to the extent of their proportionate shareholding. They provide risk capital to the company, accordingly when a company is liquidated, they have the last priority in the liquidation state after all other stakeholders are paid. This can be seen from Section 53 (1) of the Code which is reproduced below: "Section 53. Distribution of assets. -(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time be being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall ....
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.... not allowed to pursue derivative action. This comes out very clearly from the judgements of this appellate Tribunal in Nirej Paul (Supra) and Anant Kajare (Supra). The Shareholders or Investors in CD are not to be treated as "person aggrieved" under the IBC. 48. The appellant has in support of his averments has cited several Judgments of this Tribunal, the same are discussed in detail here. (i) Ashish Gupta Vs. Delagua Health India Pvt. Ltd. bearing Company Appeal (AT) (Ins.) 17 of 2022. In the aforesaid matter, the majority shareholder had sought intervention in the CIRP proceedings. The same was agitated by the opposite party. The contention of the majority shareholder was that the aforesaid petition was collusive in nature. The Application filed by the majority shareholder was allowed. The Appeal filed against the said order was challenged before this Appellate Tribunal. This Tribunal had dismissed the Appeal with the observation that the interest of the majority shareholders should be protected in CIRP proceedings. The relevant extract is reproduced herein below: "13. In view of the peculiar circumstances of the present case where the Section 8 Demand Notice ....
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.... group company were allowed to intervene in the CIRP proceedings of another company to contend that the CIRP proceedings were fraudulent. If, the Hon'ble Tribunal can go to any extent to check whether, the person is aggrieved or not, in that case, why the majority shareholder, who are the effected party and without their presence/ information, if the insolvency order is passed, they would in any case be highly aggrieved. Accordingly, it is stated that in the present peculiar facts and circumstances, the majority shareholders of the CD would be squarely covered under the definition of any person aggrieved in terms of section 61 of the Code. We find that the reliance on Ashmeet Singh Bhatia (supra) is misplaced, as in this particular case, the issue related to an application under Section 65 of the Code alleging fraud and collusion between the CD and FC with documentary evidence of circular transaction. The appeal was not against the order of CIRP, and the observations made therein are categorically in respect of the exercise of powers under Section 65. The ratio of the aforesaid case is not applicable in the present case. (iii) Trimex Industries Pvt. Ltd. Vs. Bhuvan ....