National Company Law Appellate Tribunal
Howrah Mills Company Limited vs Jm Financial Asset Reconstruction ... on 11 January, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Ins.) No. 339 of 2021
[Arising out of order dated 02.02.2021 passed by the National Company Law
Tribunal, Kolkata Bench, Kolkata in RST. A. No. 842/KB/2020 in CP (IB) No.
04/KB/2019]
IN THE MATTER OF:
Howrah Mills Company Limited
A company incorporated under the
provisions of the Companies, Act,
1956, having its registered office at
Howrah House, 135, Foreshore
Road, Howrah-711102, West Bengal.
...... Appellant
(Corporate Debtor)
Versus
1. J.M. Finance Asset Reconstruction
Company Limited
A company incorporated under the
Companies Act, 1956 and incorporated as
an Asset Reconstruction Company
pursuant to Section 3 of the Securitization
& Reconstruction of Financial Assets &
Enforcement of Security Interest Act, 2002
(SARFAESI Act) having its registered
address at 7th Floor, Cnergy, Appasaheb
Marathe Marg, Prabhadevi Mumbai
400025,
2
Maharashtra and amongst others also
branch office at 8th floor, Kankaria Estate,
6, Little Russel Street, Kolkata-700071,
West Bengal acting in its capacity as a
trustee of the JMFARC-Federal Bank March
2016 Trust for the benefit of the holder of
the security receipts issued by the trustee.
....... Respondent No. 1.
(Financial Creditor)
2. Abhinandan Holdings Private Limited.
....... Respondent No. 2.
Present:
For Appellant: Mr. Sudhir Makkar, Sr. Advocate with Ms.
Sadapurna Mukherjee, Advocate.
For Respondent:- Mr. Abhijeet Sinha, Mr. Utsav Mukherjee, Mr.
Jaiveer Kant, Mr. Hardik Khatri, Advocates for R-1.
Mr. Tanmay Mehta, Mr. K. Singh, Advocates.
JUDGMENT
(11th January, 2023) Justice Anant Bijay Singh;
The present Appeal has been filed by the Appellant under Section 61 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) being aggrieved and dissatisfied by the order dated 02.02.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in RST. A. No. 842/KB/2020 in CP (IB) No. 04/KB/2019, whereby and whereunder the application i.e. RST. A. No. 842/KB/2020 for restoration of main petition i.e. CP Company Appeal (AT) (Insolvency) No. 339 of 2021 3 (IB) No. 04/KB/2019 was allowed and further directed that the CP (IB) No. 04/KB/2019 be listed for hearing on 16.03.2021.
2. The facts giving rise to this Appeal are as follows:
i) The Respondent as the Financial Creditor in the month of 2019 filed application being CP (IB) No. 04/KB/2019 under Section 7 of the IBC. During the pendency of the Section 7 application the Respondent had filed an application before the Adjudicating Authority being CA (IB) No. 123/KB/2020 seeking to withdraw the Section 7 application which was filed against the Appellant / Corporate Debtor with liberty to pursue the matter against the corporate debtor in the event of default in execution of the Deed of Assignment between the Respondent and one Abhinandan Holdings Pvt. Ltd. (intending assignee).
ii) By an order dated 23rd January, 2020, the Adjudicating Authority allowed CA (IB) No. 123/KB/2020 filed by the Respondent by passing the following order:-
"Ld. Sr. Counsel for the financial creditor appears. Ld. Counsel for the corporate debtor appears. Both of them submitted that matter is settled. For this purpose, CA(IB) 123/KB/2020 is filed for recording settlement. In view of this, this proceeding stands disposed off with liberty to the financial creditor to get the matter revived, if the settlement fails. CP alongwith all the CAs stand disposed off."
Company Appeal (AT) (Insolvency) No. 339 of 2021 4
iii) Further case is that the Appellant received a copy of an application being RST. A. No. 842/KB/2020 filed by the Respondent before the Adjudicating Authority seeking revival of the section 7 application which was filed against the Appellant to be heard on merits in view of the settlement having been failed according to the Respondent. Thereafter, the Appellant has filed its reply to the restoration application recording its objection to the maintainability of application and also to the revival of the main section 7 application. After hearing the Appellant and Respondent being the financial creditor and the corporate debtor, the Adjudicating Authority allowed the Application i.e. RST. A. No. 842/KB/2020 for restoration of main petition i.e. CP (IB) No. 04/KB/2019 and further directed that the CP (IB) No. 04/KB/2019 be listed for hearing on 16.03.2021. Hence this Appeal.
3. The Ld. Sr. Counsel for the Appellant during the course of argument and in his memo of Appeal along with written submissions submitted that the impugned order was passed by the Adjudicating Authority without joining all necessary and proper parties without disclosing the true and correct facts and is vitiated by fraud. Further, the fact that there was an agreement to assign the debt of Howrah Jute Mill Limited between Abhinandan Holding (NBFC) and JM Finance (ARC) dated 15.01.2020 makes Abhinandan Holding a necessary party but despite the same it has not been made a party by JM Finance before the Adjudicating Authority when the main prayer is against Abhinandan Holding (AHPL). The Adjudicating Authority failed to appreciate that the third-party rights will be affected and it is not possible to hold default against the said Company Appeal (AT) (Insolvency) No. 339 of 2021 5 intending assignee/AHPL/third party without making the said assignee/AHPL to be a party to the restoration application and to be heard before the passing any final order holding against the said assignee/AHPL by holding that there is default committed by the said assignee/AHPL. The impugned order is contrary to the principles of natural justice and is liable to be set aside at the very threshold.
4. It is further submitted that the Respondent has fraudulently suppressed material facts in an attempt to pollute the pure stream of justice and unless the proceedings before the Adjudicating Authority and immediately stayed it will amount to abuse of the process of law since the party against whom the order is passed was not made a party to the impugned proceedings and accordingly could not place material documents on record imperative for adjudication of the revival application. The Apex Court has repeatedly invoked and applied the rule that a person who does not disclose all material facts and has not made necessary parties a part of the proceedings has no right to be heard on merits of his grievance:
• Union of India and others Vs. Maneesh Suneja (2001) 3 SCC 92, • Sunil Poddar and Others Vs. Union Bank of India (2008) 2 SCC 326 and • G. Jayshree and Others Vs. Bhagwandas S. Patel and others (2009) 3 SCC 141.
5. It is further submitted that the Adjudicating Authority has passed the impugned order on the basis of a prima facie satisfaction that there is default on Company Appeal (AT) (Insolvency) No. 339 of 2021 6 the part of the assignee based on the rejection letter dated 2nd March, 2020, not taking into account the fact that the same letter is under challenge in a Civil Suit being T.S. No. 22 of 2021 which was filed by AHPL against the Respondent and the Appellant before the learned Howrah Commercial Court. Therefore, the embargo under Section 238 of the Code 2016 could not have been be made applicable. On 29.09.2021, Civil Court passed an order of injunction restraining the defendants in the suit which included the Respondent from giving any effect to the document/revocation letter dated 2nd March, 2020. The stay was continued vide order dated 03.12.2021. The application for revival was thus non- est and could not have been entertained. This Tribunal ought to take into account the order of injunction passed by the Learned Howrah Court dated 29.09.2021 as the resultant effect of the same is that the revocation letter is non- est in law and the restoration of the insolvency proceedings is unwarranted. Moreover, a memorandum of settlement was entered between the parties.
6. It is further submitted that Clause 7.4.5 of the Agreement dated 15th January, 2020 the Respondent had agreed to keep in abeyance all the legal proceedings and actions AHPL upon receipt of 25% of the consideration mentioned in clause 1(d) of the said agreement. Under the said agreement to assign which was entered into between AHPL and Respondent herein, AHPL had undertaken to take over the financial assets of the Appellant from the Respondent. The particulars of the financial assets have been mentioned in Schedule-I of the said agreement which includes creation of charge over fixed assets of the Appellant and all the piece and parcel of land containing by Company Appeal (AT) (Insolvency) No. 339 of 2021 7 estimation an area of 95 Bighas, 1 Kottah, 1 Chittack, 20 Square Feet (more or less), situated in Mouja, Bage Shibpur and partly, Mouja, Ramkrishnapur, PO and PS Shibpur, forming municipal holding number 493/C/A and 493/C/B G.T. Road, Howrah. In addition to the above, inter alia, charge over the plant and machinery and fixed assets of the Respondent lying at the property has to be assigned in favour of the Respondent by AHPL in terms of the said agreement to assign dated 15th January, 2020 which was suppressed by the Respondent before the Adjudicating Authority. The sum and substance of the said agreement which would be evident from a meaningful reading of all the terms is that AHPL and its management is to take over the Appellant Company once 25% (or more) payment in terms of the said agreement is made. It was thus the duty and obligation of the Respondent, to act in terms of the negative covenant in the said agreement and not initiate any legal proceedings against the Appellants, which for the sake of convenience, is set out hereinbelow:
"7.4.5 Upon receipt of initial 25% of the consideration, JMFARC shall keep in abeyance all legal actions and legal proceedings initiated by JMFARC against Howrah Mills and its guarantors."
7. It is further submitted that according to the Respondent the third-party assignee defaulted in making payment under the aforesaid Agreement after having paid the first instalment of Rs. 6.50 crores being 25% of the amount agreed between the Respondent and AHPL. In the Agreement to Assign dated 15th January, 2020, there is no mention or provision of the purported liberty on Company Appeal (AT) (Insolvency) No. 339 of 2021 8 the part of the Respondent to continue legal proceedings against the Appellant, however, despite the same the Respondent filed the revival application and obtained the impugned order by suppressing the foregoing crucial material facts which unequivocally establishes that there is not admitted crystallized debt and the application was pre-mature and liable to be set aside at the very threshold in terms of the finding of this Hon'ble Court in 'Mahendra Trading Vs. Hindustan Controls and Equipment Pvt. in Company Appeal (AT) (Insolvency) No. 97 of 2018' wherein it was held that existence of an admitted debt is sine qua on for initiation of CIRP. In fact, the order of admission of CIRP in respect of a financially going concern which provides livelihood to over 3000 workers and innumerable farmers in the markets is contrary to the true intent of the IBC.
8. It is further submitted that after paying 7.5 crores by AHPL to Respondent and agreeing to a rescheduled payment schedule the Respondent has waived its right to the purported termination dated 02.03.2020. This was incorporated into IBC by way of Section 10A and the amendment was brought into effect on 23.03.2020. In AHPL's case, the default, if any, happened after 25th March, 2020. Inasmuch as the Respondent had waived the earlier default and the time for repayment under the said agreement was extended as would be evident from the Respondents letters dated 12th March, 2020, 29th June, 2020 and 08th July, 2020. Further, this Tribunal should consider directing the Respondent to settle the alleged debt invoking the pre-pack scheme in light of the Judgment of the Hon'ble Supreme Court in 'Swiss Ribbons Vs. Union of India, 2019 SCC Company Appeal (AT) (Insolvency) No. 339 of 2021 9 OnLine SC 7' wherein it held that the intent of the IBC to resolve and revive a corporate debtor and thereby significantly reinforces the efforts of the creditors and other stakeholders to achieve such end. The Assignee Abhinandan Holdings is willing to pay the balance amount of Rs. 18.51 crores to the Respondent No. 1 within 60 days as per its letter dated 12.10.2022. Further submitted that above submissions, the impugned order cannot be sustained, it is fit to be set aside and the Appeal be allowed.
9. From the perusal of the order dated 09.12.2021 passed by this Bench in I.A. No. 2752 of 2021 wherein this Bench after taking note of the fact submitted by Ld. Counsel for the Appellant that the Assignee 'Abhinandan Holdings Private Limited' moved before the Commercial Court and obtained injunction order in the Court of Neyaz Alam, Judge, Commercial Court at Rajarhat, North 24 Parganas vide order dated 29.09.2021 in [T.S.-22/21 (CC) (CNR No. WBNP19- 000000-2021) J.O: WB01398], therefore, proceeding before the Adjudicating Authority in RST. A. No. 842/KB/2020 in CP (IB) No. 04/KB/2019 was stayed. Further, 'Abhinandan Holdings Private Limited' appeared and filed his reply affidavit.
10. The Ld. Counsel for the Respondent No. 2 - 'Abhinandan Holdings Private Limited' during the course of argument and in his reply affidavit along with written submissions submitted that impugned order is a nullity part from being perverse and should be set aside. In view of the order of injunction passed by a civil court on October 20, 2020 when there was no proceeding pending under the IBC, the financial creditor/Respondent No. 1 herein could not have relied Company Appeal (AT) (Insolvency) No. 339 of 2021 10 upon the revocation letter dated 2nd March, 2020 as part of its restoration application which was filed before the Adjudicating Authority. The order dated 20th October, 2020 is subsisting, the financial creditor remains injuncted to rely upon the purported revocation letter. The financial creditor was restrained from placing reliance upon the revocation letter dated 02nd March, 2020 and therefore, the order impugned passed by the Adjudicating Authority placing reliance upon the revocation letter dated 02nd March 2020 is an act of perversity. The financial creditor in course of hearing of the restoration application before the Adjudicating Authority did not bring to the notice of the Adjudicating Authority the relevant communications which were exchanged between the assignor and the assignee post the revocation letter which includes the communications dated 12th March, 2020, 29th June 2020, 06th July 2020 and 08th July 2020 and hence an incorrect impression was given before the Adjudicating Authority by the financial creditor as if to suggest that there has been a purported default on the part of the AHPL/assignee. AHPL ought to have been added as party Respondent in the restoration application and the impugned order could only and be heard thereafter.
11. It is further submitted that the fact that there was an agreement to assign the debt of Howrah Jute Mill Limited between Abhinandan Holding (NBFC) and JM Finance (ARC) dated 15.01.2020 makes Abhinandan Holding a necessary party but despite the same it has not been made a party by JM Finance before the Adjudicating Authority when the main prayer is against Abhinandan Holding (AHPL). The Adjudicating Authority failed to appreciate that the third-party Company Appeal (AT) (Insolvency) No. 339 of 2021 11 rights will be affected and it is not possible to hold default against the said intending assignee/AHPL/third party without making the said assignee/AHPL to be a party to the restoration application and to be heard before passing any final order holding against the said assignee/AHPL by holding that there is default committed by the said assignee/AHPL. The Respondent has fraudulently suppressed material facts in an attempt to pollute the pure steam of justice and unless the proceedings before the Adjudicating Authority and immediately stayed it will amount to abuse of the process of law since the party against whom the order is passed was not made a party to the impugned proceedings and accordingly could not place material documents on record imperative for adjudication of the revival application.
12. It is further submitted that AHPL is now willing to pay the balance debt of Rs. 18.5 crores within 6 weeks to Respondent No. 1 as per letter dated 12.10.2022, thus it is requested that the settlement be allowed between parties invoking inherent powers in terms of Rule 11 of the NCLAT Rules, 2016 and the judgment of this Tribunal in 'Kanoria Sugar and General Manufacturing Company Ltd. Vs. Punjab National Bank dated 03.06.2022' wherein Section 7 Application before the NCLT, Kolkata be directed to be withdrawn in terms of the settlement.
13. On the other hand, the Ld. Counsel for the Respondent No. 1- J.M. Finance Asset Reconstruction Company Limited during the course of argument and in his reply affidavit along with written submissions submitted that the Appellant is intentionally trying to mislead this Tribunal by stating that no default was Company Appeal (AT) (Insolvency) No. 339 of 2021 12 committed by the Appellant. The Respondent No. 1 had originally filed CP(IB) 04/KB/2019 (Section 7 Application) against the Appellant since the Appellant had defaulted on its legitimate dues owed to the Respondent No. 1. Moreover, said Section 7 Application was withdrawn only in light of the assignment to the Respondent No. 2 on the terms and conditions specified therein. Vide order dated 23.01.2020 passed in presence of the Appellant, the Adjudicating Authority had proceeded to grant liberty to Respondent No. 1 to revive the Section application in case the settlement between Respondent No. 2 and Respondent No. 1 failed. That the said order was passed with the consent of both Respondent No. 1 and Appellant. At the time of the passing of the order dated 23.01.2020, no objection was ever raised by the Appellant with respect to the terms of the settlement or the liberty granted by the Adjudicating Authority to revive the Section 7 application. The said order has never been challenged by the Appellant and the same has attained finality.
14. It is further submitted that the mala fides of the Appellant are clearly evident from the fact that despite the clear default of the Appellant, the Appellant has filed the present Appeal and is argued before this Tribunal that no default was committed by it and the default has been committed by Respondent No. 2. The Appellant by way of the present Appeal is trying to delay and frustrate the Section 7 application that has been filed by Respondent No. 1. The Appellant does not deserve any consideration of this Tribunal as the Impugned Order has granted liberty to the Appellant to take all its requisite defences before the Adjudicating Authority in CP (IB) 04/KB/2019 including that of non- Company Appeal (AT) (Insolvency) No. 339 of 2021 13 impleadment of the Respondent No. 2. Henceforth, the remedy for the Appellant with respect to the said issue lies before the Adjudicating Authority before which the matter is sub-judice.
15. It is further submitted that a third party is not a necessary party during the stage of admission of a Section 7 application and there was no necessity to arraign Respondent No. 2 as a necessary party before the Adjudicating Authority. The Appellant has sought to manufacture a picture before this Tribunal that while passing the impugned order, the Adjudicating Authority did not here the Respondent No. 2 regarding the failure of the settlement and hence the impugned order is patently illegal and erroneous. In this regard, the Appellant has no locus standi to make submissions about the necessity of making the Respondent No. 2 a party before the Adjudicating Authority as it is well settled by a judgment of this Tribunal in the case of 'Vekas Kumar Garg Vs. DMI Finance Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) No. 113 of 2021' that in an application under Section 7 of the IBC the Financial Creditor and the Corporate Debtor alone are the necessary parties and no third-party intervention is contemplated at the admission stage.
16. It is further submitted that the Respondent No. 2 and the Appellant both were very well aware of the restoration application, however, the Respondent No. 2 still intentionally chose not to file any application or raise any challenge before the Adjudicating Authority. In fact, this reveals the nexus and collusion of the Appellant and the Respondent No. 2. In light of the aforesaid intentional omission of the Respondent No. 2 from raising any objection, it is evident that Company Appeal (AT) (Insolvency) No. 339 of 2021 14 Respondent No. 2 was not aggrieved by the impugned order in any manner. The Adjudicating Authority has also granted liberty to the Appellant to raise the aforesaid issue in CP(IB) 04/KB/2019.
17. It is further submitted that the Adjudicating Authority has the inherent power under Rule 11 of the NCLT Rules, 2016 to revive Applications which have been withdrawn as settled if the settlement fails. Pertinently, this Tribunal in its judgments has also clarified the aforesaid position.
• Sree Bhadra Parks and Resorts Ltd. Vs. Sri Ramani Resorts and Hotels Pvt. Ltd., Company Appeal (AT) (Ch) (Ins.) 06 of 2021, • Amrit Feeds Vs. S.S. Enterprises, Company Appeal (AT) (Ins.) 678 of 2019 and • Ruchita Modi Vs. Mrs. Kanchan Ostwal and Anr., Company Appeal (AT) (Ins.) No. 1000 of 2019.
Furthermore, the Hon'ble Supreme Court vide order dated 31.01.2020 decided the fact that the Adjudicating Authority has the power to revive Section 7 Application:
• M/s Ess Investments Pvt. Ltd. Vs. Lokhandwala Infrastructure Ltd. and Anr., Civil Appeal No. 324 of 2020.
18. It is further submitted that neither the Appellant nor the Respondent No. 2 were estopped from raising the said issue before the Adjudicating Authority.
Further since the said issue was not canvassed before the Adjudicating Authority, no adjudication on the issue was done. Hence, the said issue cannot now be raised in Appeal before this Tribunal. The Letter of Revocation was already a part of the restoration application, whereas the Title Suit No. 322 of 2020 was only filed on 19.10.2020 and the order staying the letter of revocation Company Appeal (AT) (Insolvency) No. 339 of 2021 15 was passed on 20.10.2020. The said Title Suit was filed as a mere afterthought and it acted as a counterblast to the restoration application filed by the Respondent No. 1, in order to frustrate the application and cause grave prejudice to Respondent No. 1. A similar Title Suit bearing NO. 22 of 2021 before the Commercial Court at Rajarhat was also filed by the Respondent No. 2 on 28.09.2021 i.e. much after the filing of the restoration application. The orders by way of which the effect of the letter of revocation got stayed were ex-parte ad interim orders and were passed without even issuing notice to Respondent NO. 1 by the Civil Court/Commercial Court had no jurisdiction to entertain such suits when the Restoration Application was already pending adjudication before the Adjudicating Authority. Since the Restoration Application dealt with the revival of an application for instituting the CIRP the sole jurisdiction to entertain any objections with respect to the same lies with the Adjudicating Authority. Furthermore, in view of Section 63, 64(2) and 238 of the Code, the Civil Court/Commercial Court did not have any jurisdiction to entertain the Title Suit, when the same was pending adjudicating before the Adjudicating Authority. The aforesaid actions of the Appellant and the Respondent No. 2 further indicate that the parties were acting in hand in glove with each other.
19. It is further submitted that the Respondent No. 2 on 12.10.2022 indicated that it would settle the matter with the Respondent No. 1 and make complete payments. The Respondent No. 2 vide its letter dated 06.07.2020 had earlier also made a representation that complete payments would be done by 15.09.2020. However, no such payments were made as is evident. The said submission was Company Appeal (AT) (Insolvency) No. 339 of 2021 16 being made only to frustrate and delay the present proceedings in as much as the matter be not referred to the Adjudicating Authority for final adjudication. Further, neither the Appellant nor the Respondent No. 2 has approached this Tribunal with clean hands and hence, do not merit any relief from this Tribunal. The Appellant has raised baseless and frivolous contentions which are contrary to settled legal principles in order to cause delay & frustrate the legal rights of the Respondent No. 1 and also create barriers in respect to the liberty granted by the Adjudicating Authority through its order dated 23.01.2020. In light of the aforesaid, the present Appeal be dismissed with exemplary costs on the Appellant and the Respondent No. 2 as the impugned order does not prejudice the Appellant or the Respondent No. 2 in any manner whatsoever.
20. After hearing Ld. Sr. Counsel for the Appellant and Ld. Counsel for the Respondent No. 1 and going through the pleadings made on behalf of the parties and also the Order dated 09.12.2021 passed by this Bench whereby after hearing Ld. Counsel for the parties, further proceedings have been stayed in CP (IB) No. 04/KB/2019, the Respondent No. 2 - the Assignee 'Abhinandan Holdings Private Limited' appeared and contended all these facts and submitted that they are ready and willing to settle the matter with Respondent No. 1. The order dated 23.01.2020 has not been challenged. The settlement has failed since March 2020 and the Agreement is also only till March 2020. Hence, we are of the considered view that no case for setting aside the order dated 02.02.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in RST. A. No. 842/KB/2020 in CP (IB) No. 04/KB/2019 is made out Company Appeal (AT) (Insolvency) No. 339 of 2021 17 as the Section 7 Application bearing CP (IB) No. 04/KB/2019 filed by the Respondent No. 1 was directed to be listed for hearing on 16.03.2021 by the Adjudicating Authority, therefore, there is no ground for interference. However, we dispose of the instant Appeal with request to the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) to hear all the parties i.e. Appellant, Respondent No. 1 & Respondent No. 2 and after hearing the parties, the Adjudicating Authority may pass appropriate orders in CP (IB) No. 04/KB/2019 in accordance with law expeditiously. Keeping in view that the matter is pending before the Adjudicating Authority since 2019, the parties are at liberty to raise all the relevant issues both in fact and in law before the Adjudicating Authority. We have not expressed any view on the merits of the matter and the Adjudicating Authority shall hear the matter afresh uninfluenced by any observations herein.
With the aforesaid observations and directions, the instant Appeal is disposed of.
21. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata), forthwith.
[Justice Anant Bijay Singh] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) New Delhi 11th January, 2023 R. Nath.
Company Appeal (AT) (Insolvency) No. 339 of 2021