National Company Law Appellate Tribunal
D. Muthukumar vs A. Premkumar & Another on 6 December, 2017
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IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Company Appeal (AT) (Insolvency) No. 209 of 2017
(Arising out of Order dated 21st August, 2017 passed by the
Adjudicating Authority (National Company Law Tribunal), Chennai
Bench, Chennai in TCP/89/(IB)/CB/2017)
IN THE MATTER OF:
D. Muthukumar ...Appellant
Vs.
A. Premkumar & Another ...Respondents
Present: For Appellant:- Mr. Goutham Shivshankar, Advocate
For Respondents:- Mr. Biju Thankappen with Mr. Prakash
Yedhola, Advocates.
JUDGMENT
SUDHANSU JYOTI MUKHOPADHAYA, J.
The Respondents, A. Prem Kumar & Another originally filed an application under Section 433(e) & (f) of the Companies Act, 1956 before the Hon'ble High Court of Madras. The case was transferred to the Adjudicating Authority (National Company Law Tribunal), Chennai Bench, Chennai, pursuant to "The Companies (Transfer of Pending Proceedings) Rules, 2016" framed by Central Government in exercise of the powers conferred under sub-sections (1) and (2) of Section 434 of the Companies Act, 2013 read with sub-section (1) of Section 239 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code").
Company Appeal (AT) (Insolvency) No. 209 of 2017 2
2. The Adjudicating Authority by impugned order dated 21st August, 2017 in TCP/89/(IB)/CB/2017 treated the application under Section 433(e) & (f) of the Companies Act, 1956 to be an application under Section 7 of the 'I&B Code' read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as "Adjudicating Authority Rules, 2016"), admitted the application, passed order of moratorium and appointed 'Interim Resolution Professional' with certain directions. The said order is under challenge in this appeal.
3. The case of the Appellant is that prior to 2004, he along with his wife and one Mr. P. Asokan and Mr. P. Velraj were doing real estate business through a proprietary concern in the name and style of M/s. K.K.Flats. During the year 2004, the said Company was floated and ventured into a land project belonging to M/s. Madura Coats Ltd. at Madurai by utilising the funds available with the proprietary concern and taking further investments from different persons including Mr. P. Asokan and Mr. P. Velraj. Thereby, the land was procured, details of completion of the projects that the Company purchased and promoted an amount contributed by different persons have been shown. The amount paid by one or other persons in favour of one or other creditors has also been detailed and it was submitted that the table shows that the Company had paid back the investments made in it through various Company Appeal (AT) (Insolvency) No. 209 of 2017 3 transactions coming to its total sum of Rs. 1,54,93,980/- (Rupees one Crore fifty-four lakhs ninety-three thousand nine hundred and eighty only). It is alleged that the Respondents without paying back the amount with sole motive of unjustly enriching themselves, issued a statutory notice on 25th October, 2014 alleging that the Company has taken loan from them, to which, the Appellant objected.
4. Thereafter, the Respondents filed an application for winding up under Section 433(e) & (f) of the Companies Act, 1956 before the Hon'ble High Court of Madras. The said case was transferred to the Adjudicating Authority, who treated the petition as an application under Section 7 of the 'I&B Code' and passed the impugned order dated 21st August, 2017.
5. Learned counsel for the Appellant submitted that the Respondents are not 'Financial Creditor', within the meaning of sub-section (7) read with sub-section (8) of Section 5 of the 'I&B Code'. It was also submitted that before admitting the application under Section 7, all facts were required to be brought to the notice of the Adjudicating Authority, were not pleaded.
6. The Appellant has enclosed copies of the cheques issued by Mr. P. Asokan, apart from copies of the relevant pages of ledger book to suggest that repayment has already been made to the 1st Respondent- A. Company Appeal (AT) (Insolvency) No. 209 of 2017 4 Premkumar. Balance sheets has been enclosed in support of the plea that the due amount had already been paid to the 1st Respondent.
7. According to 1st Respondent, he approached the Appellant Company on many occasions, seeking repayment of dues, along with the accrued interests but the amount was not paid. Further, according to 1st Respondent, the Income Tax Return was submitted by the Company (KK Flats (P) Ltd) and enclosed by Appellant suggests that the amount was taken from the 1st Respondent and shown as 'loan', relevant portion of which is quoted below: -
KK FLATS PRIVATE LIMITED NO. 1E, SUN FLOWER APARTMENT 10, MANDABAM CROSS ROAD KILPAUK, CHENNAI-10 SCHEDULES TO BALANCE SHEET AS ON 31.03.2012 Amount in (Rs.) Particulars 31.03.2012 31.03.2011 SCHEDULE - D Unsecured Loans Anitha R 1070224 1070224 Arun P.V. 2064647 2064647 Asokan P 1880913 1880913 Deva Kavitha 7940000 10390000 KK Flats Deva Kavitha 348500 5348500 Muthukumaar 13918058 13667758 Porkodi 961586 961586 Prem Kumar 3110382 3110382 Raja sekar 3366713 3366713 Rithu Pandey 324000 324000 Ram kumar A 2645114 2645114 Shanthi V 1708167 1708167 Others 338000 338000 Paramendra Tiwari 3450000 3450000 Rathinapandian 300000 300000 Tamilselvan 600000 0 Ajay Prakash V 1477521 1477521 Alagesan & Ajitha 500000 500000 Prakash S 100000 100000 TOTAL 52703525 46103825 Company Appeal (AT) (Insolvency) No. 209 of 2017 5 For M/s K K Flats Private Limited For Ravichandran & Thangaraj Associates Sd/- Sd/- Sd/-
D. Muthukuma M. Devakavitha G. Thangaraj
Managing Director Director Partner
Place: Chennai
Date :
8. We have heard learned counsel for the Appellant and learned counsel for the Respondents.
9. To decide the issue, it is desirable to refer the Rule framed by the Central Government, pursuant to which pending winding up cases were transferred from the Hon'ble High Courts to the Adjudicating Authority (Tribunal).
The Central Government in exercise of the powers conferred under sub-sections (1) and (2) of Section 434 of the Companies Act, 2013 read with sub-section (1) of Section 239 of the 'I&B Code' framed "The Companies (Transfer of Pending Proceedings) Rules, 2016". Rule 5 therein relates to transfer of pending proceedings of winding up on the ground of inability to pay debts and reads as follows: -
"5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.- (1) All petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the Company Appeal (AT) (Insolvency) No. 209 of 2017 6 respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code:
Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.
2. All cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding up initiated under the Company Appeal (AT) (Insolvency) No. 209 of 2017 7 Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act."
10. Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 relate to "Application by 'Financial Creditor'", as quoted below: -
"4. Application by financial creditor. ─ (1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under Section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution process for Corporate Persons) regulations, 2016."
(2) Where the applicant under sub-rule (1) is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer.
Company Appeal (AT) (Insolvency) No. 209 of 2017 8 (3) The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor."
11. From sub-rule (1) of Rule 4 of the Adjudicating Authority Rules, 2016, it is clear that the applicant is required to provide information as required under Form-1. Sub-rule (3) of Rule 4 of the Adjudicating Authority Rules, 2016, mandates the applicant to provide the copy of the application to the 'Corporate Debtor', immediately after filing of the application.
12. As per Form-1 i.e. the format for filing an application under Section 7 of the 'I&B Code as per which following details are to be provided.
"Part I- Particulars of Applicant (Please provide for each Financial Creditor Making the Application) Part II- Particulars of Corporate Debtor Part III- Particulars of the Proposed Interim Resolution Professional Part IV- Particulars of Financial Debt Part V- Particulars of Financial Debt [Documents, Records and Evidence of Default] I, hereby certify that, to the best of my knowledge, [name of proposed insolvency professional], is fully Company Appeal (AT) (Insolvency) No. 209 of 2017 9 qualified and permitted to act as an insolvency professional in accordance with the Insolvency and Bankruptcy Code, 2016 and the associated rules and regulations.
[Name of the financial creditor] has paid the requisite fee for this application through [state means of payment] on [date]."
As per the instructions, the following documents are required to be attached:
"Annex I Copies of all documents referred to in this application.
Annex II Written communication by the proposed interim resolution professional as set out in Form 2.
Annex III Proof that the specified application fee has been paid.
Annex IV Where the application is made jointly, the particulars specified in this form shall be furnished in respect of all the joint applicants along with a copy of authorisation to the financial creditor to file and act on this application on behalf of all the applicants."
13. From the record we find that except for the information as mentioned in the petition under Section 434 (e) & (f) of the Companies Act, 1956, no further information was provided by the Respondents in terms of Rule 5 of "The Companies (Transfer of Pending proceedings) Rules, 2016". As per proviso, the Respondent was required to submit all Company Appeal (AT) (Insolvency) No. 209 of 2017 10 information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under Sections 7, 8 or 9 of the 'I&B Code. In the present case, there is nothing on the record to suggest that in terms of Part V of Form-1 'Particulars of Financial Debt [Documents, Records and Evidence of Default]' have been supplied by the Respondents nor copies of documents as mentioned below Part V of Form I were provided by the Respondents. For example, the Respondents have not filed any record of default with the information utility nor any other record, as prescribed by 'Insolvency and Bankruptcy Board of India' has been enclosed.
14. This apart, there is a doubt, as submitted by the learned counsel for the Appellant, as to whether the 1st Respondent, A. Prem Kumar can claim to be a 'Financial Creditor'.
15. From the Income Tax Return enclosed by the 1st Respondent, while we find that the 1st Respondent has been treated to be a 'Creditor', but in Schedule D, the debt has been shown to be unsecured loans. The 1st Respondent has not brought on record to suggest that debt along with interest, if any, has been disbursed by the 1st Respondent to the 'Corporate Debtor' against 'the consideration for the time value of money' or that the said money was borrowed by the 'Corporate Debtor' for one or other purpose as shown in sub-section (8) of Section 5 of the 'I&B Code'. Company Appeal (AT) (Insolvency) No. 209 of 2017 11
16. The Adjudicating Authority without ascertaining the question as to whether the 1st Respondent is a 'Financial Creditor' or not, particularly in absence of any pleading treated the application under Section 7 of the 'I&B Code', which shows non application of mind on the part of the Adjudicating Authority.
17. For the reasons aforesaid while we hold that the application under Section 433 (e) & (f) of the Companies Act, 1956 transferred to the Tribunal cannot be treated to be an application under Section 7 of the 'I&B Code', the impugned order dated 21st August, 2017 being bad in law, and in view of the observations made above, is set aside. In the result, in terms of proviso to Rule 5 of "The Companies (Transfer of Pending proceedings) Rules, 2016", the application preferred by the Respondents under Section 433 (e) & (f) of the Companies Act, 1956 stands abated. However, it will be open to the Respondents to move before appropriate forum for appropriate relief.
18. In effect, order (s) passed by Adjudicating Authority appointing 'Interim Resolution Professional', declaring moratorium, freezing of account and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the 'Interim Resolution Professional', including the advertisement, if any, published in the newspaper calling for applications and all such orders and actions are Company Appeal (AT) (Insolvency) No. 209 of 2017 12 declared illegal and are set aside. The application preferred by Respondent is dismissed as abated. Learned Adjudicating Authority will close the proceeding. The 'Corporate Debtor' company is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.
19. The Adjudicating Authority will fix the fee of 'Interim Resolution Professional ', if appointed, and the 'Corporate Debtor' will pay the fees of the Interim Resolution Professional, for the period he has functioned. The appeal is allowed with aforesaid observation and direction. However, in the facts and circumstances of the case, there shall be no order as to cost.
(Justice Bansi Lal Bhat) (Justice S.J. Mukhopadhaya) Member (Judicial) Chairperson NEW DELHI 6th December, 2017 AR
Company Appeal (AT) (Insolvency) No. 209 of 2017