Calcutta High Court (Appellete Side)
Edcl Infrastructure Limited vs Urban Infra Projects Pvt. Ltd on 23 February, 2024
Author: Shampa Sarkar
Bench: Shampa Sarkar
23.02.2024
Court No.19
CO 543 of 2024
EDCL Infrastructure Limited
vs.
Urban Infra Projects Pvt. Ltd.
Mr. Bikash Ranjan Bhattacharya, Sr. Adv.
Mr. Swatarup Banerjee
Mr. Nirmalya Dasgupta
Mr. Avishek Guha
Sk. Sariful Haque
Ms. Sonal Agarwal
... for the petitioner
1. This revisional application arises out of an order
dated February 08, 2024 passed by the learned
National Company Law Tribunal, Kolkata.
2. By the order impugned, the application filed by
the petitioner under Section 60 (5) read with Section
65 of the Insolvency and Bankruptcy Code, 2016 (in
short IBC) was rejected.
3. Mr. Bikash Ranjan Bhattacharya, learned Senior
Advocate appearing on behalf of the petitioner
submits that the order of learned Tribunal suffers
from jurisdictional error. The Tribunal proceeded
with material irregularity by not considering the
objections with regard to the maintainability of the
application under Section 7 of the IBC, in its true
legal perspective.
4. According to Mr. Bhattacharya, the application
under Section 7 of the IBC should have been
dismissed on the following grounds:-
(i) The company petition was defective. It was
addressed to the Registrar, NCLT, Cheenai
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Bench, whereas, the application was filed
before the Bench at Kolkata.
(ii) The company petition was filed without
proper authorization.
(iii) The existence of an Arbitration clause in
the purported loan agreement barred the
proceedings under Section 7 of IBC. An
application under Section 8 of the
Arbitration and Conciliation Act was
pending before the learned Tribunal, which
the Tribunal failed to take note of.
(iv) The order suffers from total non-
application of mind.
5. Mr. Bhattacharya contends that the learned
Tribunal ought to have returned the application with
further direction upon the financial creditor to file a
proper application in the proper form with proper
authorization and within the parameters of the IBC.
Time barred claims, claims which were covered by an
arbitration clause, claims arising out of actions
taken in violation of law etc. could not form the sum
and substances of the application under Section 7.
Part of the amount claimed, was not only time
barred, but also beyond the scope of the purported
agreement. The agreement was non-est in the eyes of
law as the financial creditor acted beyond the scope
of such agreement.
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6. Mr. Bhattacharya further submits that some
judgments were cited by the learned Tribunal while
dealing with the issues although, the said judgments
were not cited by the parties. The learned Tribunal
had itself referred to those judgments without
allowing the petitioner any opportunity to deal with
the same.
7. Having heard Mr. Bhattacharya, learned
Advocate for the petitioner, this Court is of the view
that the only question which is to be decided in this
application is whether the order either suffers from
perversity or wrongful exercise of jurisdiction.
8. Normally, a party aggrieved by an order of the
Tribunal must exhaust the statutory remedy of an
appeal before the appellate forum. The IBC is a
complete code, which provides the manner in which
the person aggrieved by an order of the learned
Tribunal, can assail the same before the National
Company Law Appellate Tribunal (in short NCLAT).
Therefore, the High Court should be extremely,
careful and circumspect in exercising its jurisdiction
while interfering with orders passed by the learned
Tribunal. It must be remembered that interference
with an action taken by the financial creditor for
recovery of money due, will have a serious impact on
the financial health of the financial creditor. The
High Court ordinarily should not entertain a petition
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under Article 227 of the Constitution of India, if an
effective remedy is available to the aggrieved person.
IBC is a Code unto itself and it contains a
comprehensive procedure to be followed. The only
exception that has been carved out by judicial
decisions, permitting interference of the High Court
under Article 227 of the Constitution of India, are
instances when the order is either without
jurisdiction or passed in erroneous exercise of
jurisdiction or based on extraneous considerations
and materials not available with the records.
9. Undoubtedly, the jurisdiction of the High Court
under Article 227 of the Constitution of India is
microscopic.
10. Coming back to the facts of this case, on April
18, 2023, the opposite party instituted an
application under Section 7 of the IBC (hereinafter
referred to as the company petition), inter alia,
seeking initiation of Corporate Insolvency Resolution
Process (in short CIRP). The total claim against the
petitioner was Rs.35,18,55,646/- in aggregate,
including interests for a principal sum of
Rs.27,64,00,000/-.
11. The claim was based on an agreement dated
April 12, 2019. The opposite party prayed for the
following reliefs, which are quoted below:-
i. To allow and admit the present petition in
order to enable the Petitioner to initiate
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Corporate Insolvency Resolution process
against the Corporate Debtor;
ii. To appoint Interim Resolution Professional
as the Hon'ble Bench may deem fit and proper;
iii. Such other orders as the Hon'ble Bench
may deem fit in the instant case."
12. The petitioner filed an application which was
registered as I.A. (IB) No.2105/KB/2023, for the
following reliefs, which are quoted below:-
"C.P. No.106 of 2003 (Urban Infraprojects
Private Limited vs. EDCL Infra) be dismissed.
Cost be imposed upon Urban Infraprojects
Private Limited for fraudulently filing C.P.
No.106 of 2003.
Stay of C.P. No.106 of 2003 till disposal of the
instant application.
Ad-interim orders in terms of prayers above;
Such further or other order or orders be
passed and/or direction or directions be given
as this Hon'ble Tribunal may deem fit and
proper."
13. The grounds for seeking dismissal of the
company petition were elaborated in paragraph 4 of
the IA. They were as follows:-
(a) The agreement dated April 12, 2019, on the
basis of which the application under Section 7
had been filed, was a disputed agreement. The
said application was filed fraudulently and with
malicious intent;
(b) The bank's statement showing disbursal of
the funds to the corporate debtor did not reflect
that the same was transferred under the
agreement dated April 12, 2019;
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(c) The purported agreement provided that the
maximum principal amount that could be
disbursed would not exceed Rs.25 crores,
whereas, the claim of the financial creditor was
Rs.27,64,00,000/- as the principal amount
which was contrary to the agreement. The
transactions were made prior to the execution of
the agreement and could not have been included
in the proceedings;
(d) The financial creditor did not issue any
demand notice. There were no documents to
show that the purported agreement had been
acted upon by the parties. The financial creditor
had violated the terms and conditions of the
purported agreement;
14. It was argued before the learned Tribunal that
the company petition was defective as it was
addressed to the Registrar, NCLT, Chennai Bench.
The company petition was filed without proper
authorization. Section 186 of the Companies Act,
2013 was violated by the financial creditor as an
amount in excess of 60% of the paid-up capital of
the company had been paid to the debtor. Part of the
claim was time-barred.
15. In the order impugned, the objections raised by
the petitioner in the IA, have been recorded in
paragraphs 4(1) to 4 (7). The submissions on behalf
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of the petitioner were recorded in paragraphs 5 to 12
thereof. The submissions of the opposite party have
been recorded in paragraphs 13 to 20. The analysis
and findings are at paragraphs 21 to 44.
16. The first ground of the corporate debtor with
regard to the covering letter being addressed to the
Registrar, NCLT, Chennai, was discussed and it was
held that the same was a clerical error which would
not make the company petition defective. The second
ground that the corporate debtor filed the application
without proper authorization was next dealt with. In
paragraph 23, the matter has been answered as
follows:-
"We see that the minutes of the board
resolution contains in the last para as under
'Mr. Tannamy Agarwal, Director of the
Company, be and is hereby authorised to
propose and engage insolvency
professionals, advisors, consultants,
lawyers, advocates and solicitors etc. on
such terms as may be deemed fit from time
to time in connection with the proposed
CIRP and obtain any advisory/consultation
in regard to the above for Urban
Infraprojects Private limited.'
Therefore, we are of the view that the
application has been filed with proper
authorization and consequently, we reject this
ground placed by the Corporate Debtor."
17. Next, the ground that the financial creditor had
not acted as per the agreement dated April 12, 2019
and as such the loan agreement was a disputed
document, was considered.
18. The other contentions of the corporate debtor
that by non-compliance of the clauses of the
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agreement, i.e., granting loan in excess of Rs.25
crore and claiming simple interest at a lower rate
than what was agreed upon, was also decided. The
learned Tribunal found that there was scope for
altering or modifying the terms and conditions as per
clause 18 of the agreement. When the agreement
was read as a whole, it could be inferred that loans
were advanced against payment of interest and the
transactions fell within the definition of "financial
debt".
19. It was further held that changes in the amount of
loan and the amount of interest would not itself
make the agreement invalid. With regard to the
violation of Section 186 of the Companies Act, 2013,
the learned Tribunal was of the opinion that the said
contention was neither a part of the pleadings nor a
part of the reply to the company petition.
20. It was further held that the corporate debtor
benefited from the alleged violation and could not
use the said section as a sword, only to render the
proceedings to be invalid. With regard to the
pendency of an application under Section 8 of the
Arbitration and Conciliation Act, 1996, and the
existence of an arbitration clause, the learned
Tribunal referred to a judgment of the Hon'ble Apex
Court and arrived at the finding as follows:-
"41. Further, the Learned Counsel for the
Applicant has asserted that there exists
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arbitration clause in the agreement and
therefore any such disputes should be referred
to arbitration and it is not open for the
Financial Creditor to file an application under
Section 7 of the IBC. In this context, we would
rely upon the judgment passed by the Hon'ble
Apex Court in Indus Biotech Private Limited vs.
Kotak India Venture (Offshore) Fund and Ors.
reported in (2021) 6 SCC 436 at para 27 that:
'As noted, the issue which is posed for our
consideration is arising in a petition filed Under
Section 7 of IB Code, before it is admitted and
therefore not yet an action in rem. In such
application, the course to be adopted by the
Adjudicating Authority if an application Under
Section 8 of the Act, 1996 is filed seeking
reference to arbitration is what requires
consideration. The position of law that the IB
Code shall override all other laws as provided
Under Section 238 of the IB Code needs no
elaboration. In that view, notwithstanding the
fact that the alleged corporate debtor filed an
application Under Section 8 of the Act, 1996,
the independent consideration of the same
dehors the application filed Under Section 7 of
IB Code and materials produced therewith will
not arise. The Adjudicating Authority is duty
bound to advert to the material available before
him as made available along with the
application Under Section 7 of IB Code by the
financial creditor to indicate default along with
the version of the corporate debtor. This is for
the reason that, keeping in perspective the
scope of the proceedings under the IB Code and
there being a timeline for the consideration to
be made by the Adjudicating Authority, the
process cannot be defeated by a corporate
debtor by raising moonshine defence only to
delay the process. In that view, even if an
application Under Section 8 of the Act, 1996 is
filed, the Adjudicating Authority has a duty to
advert to contentions put forth on the
application filed Under Section 7 of IB Code,
examine the material placed before it by the
financial creditor and record a satisfaction as to
whether there is default or not. While doing so
the contention put forth by the corporate debtor
shall also be noted to determine as to whether
there is substance in the defence and to arrive
at the conclusion whether there is default. If the
irresistible conclusion by the Adjudicating
Authority is that there is default and the debt is
payable, the bogey of arbitration to delay the
process would not arise despite the position
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that the agreement between the parties
indisputably contains an arbitration clause.
(Emphasis Added)
42. Thus, we are of the view that the Learned
Counsel Dr. Binani appearing on behalf of the
Respondent is right in her submissions that
apropos to the arbitration clause in the Loan Agreement, even if any proceedings of arbitration is invoked, the Adjudicating Authority is to consider the application under Section 7 of the IBC independently and pass necessary order pertaining to admission or rejection of the application, consequence of which will befall on the proceedings under the Arbitration and Conciliation Act, 1996. It is further submitted that in the instant case, the proceedings under Section 7 of the IBC have been initiated by the Financial Creditor and no proceedings has been initiated by the Respondent herein in terms of the Arbitration and Conciliation Act, 1996. We are of the considered opinion that even if any proceedings initiated by the Respondent or any other party under the Arbitration and Conciliation Act, 1996, that would be treated as a separate and independent proceeding and no proceedings will vitiate or influence each other."
21. Upon analysis of the order impugned, this Court finds that each and every point raised by the petitioner was considered and answered. The case laws relied upon by the petitioner were dealt with. The submissions of the petitioner and the grounds of challenge with regard to the maintainability of the proceeding were examined, scrutinized and rejected with reasons. The order does not suffer from violation of the principles of nature justice.
22. Each and every issue was scrutinized in detail with special reference to the facts involved. Thus, this Court cannot hold that the order suffers from perversity.
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23. Mention of NCLT, Chennai Bench in the covering letter is curable, which the learned Tribunal can always direct to be corrected. Secondly, with regard to the authorization and Form No.NCLT-12, the learned Tribunal found that Mr. Rohit Sharma, had stated that he was authorized by the director, Mr. Tanmay Agarwal, to file the petition.
24. The board resolution was looked into and the last paragraph therein, stated that Mr. Tanmay Agarwal, director of the company was authorized to propose and engage insolvency professional/advisor/ consultant/solicitor/ advocate on such terms as may be deemed fit and proper. Therefore, the competence of Mr. Rohit Sharma to sign the form on being authorized by Mr. Tanmay Agarwal, was found to be proper.
25. The merits of the said order and the findings of fact are not decided in this proceeding. The order is not patently without jurisdiction. The merits of the issues decided, have to be tested in the alternative remedy of a statutory appeal. The petitioner ought to have preferred an appeal in accordance with law.
26. There is a hierarchy of appeal under the Code and this Court refrains from interfering with the order impugned under Article 227 of the Constitution of India.
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27. The findings of the learned Tribunal cannot be disturbed under the supervisory jurisdiction. All the points raised before this Court can be raised in an appeal before the appropriate forum under the statute.
28. The power of superintendence is to be used most sparingly and only in appropriate cases in order to keep the subordinate courts and tribunals within the bounds of their authority and not for correcting mere errors.
29. Thus, the revisional application is disposed of without any interference.
30. The observations in this order shall not prejudice any proceeding either before the NCLT or NCLAT as the case may be.
31. There shall be order as to costs.
32. Parties are to act on the basis of the sever copy of this order.
(Shampa Sarkar, J.)