Rishim~ Sa Investments Llc {Mauritius) vs Sarga Hotel Private Limited & Ors on 4 April, 2024

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National Company Law Appellate Tribunal

Rishim~ Sa Investments Llc {Mauritius) vs Sarga Hotel Private Limited & Ors on 4 April, 2024

This Appeal by a creditor of the Corporate Debtor has been filed challenging the order dated 04.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Court No. II, Kolkata in IA (IB) No.1271/KB/2022 filed by the Appellant. By the impugned order the application filed by the Appellant IA (IB) No.1271/KB/2022 has been rejected. Aggrieved by which order this Appeal has been filed. Brief facts necessary to be noticed for deciding the appeal are:

Company Appeal (AT) (Insolvency) No.142 of 2024 -3-

(i) The Corporate Debtor - Sarga Hotel Pvt. Ltd. was established as a Special Purpose Vehicle in the year 2004. On 22.03.2007, West Bengal Housing Infrastructure Development Corporation Limited leased a land of 8 acres to Shristi Infrastructure Development Corporate Ltd.

(ii) On 31.03.2007, Shristi Infrastructure Development Corporate Ltd. executed a lease deed for 3.5 acres of land to the Corporate Debtor. On 07.08.2008, a Share Subscription and Shareholders' Agreement was executed between the Appellant - Rishima SA Investments LLC (Mauritius), Shristi Infrastructure Development Corporate Ltd. and the Corporate Debtor, wherein the Appellant and Shristi acquired 35% and 65% shareholding in the Corporate Debtor, respectively. Under the Share Subscription and Shareholders' Agreement, the investments made by the Appellant were to be utilized for the construction and development of a branded five-star hotel at Rajarhat in Kolkata.

(iii) On account of breaches by Shristi and the Corporate Debtor, on 11.02.2016, a Singapore-seated Arbitration was commenced by the Appellant.

(iv) On 16.03.2016, Yes Bank Ltd. issued a Facility letter in favour of the Corporate Debtor to obtain a financial assistance of Rs.325 Crores. The facility letter was brought to the notice of the Board of Directors of the Corporate Debtor, on 23.05.2016 a resolution Company Appeal (AT) (Insolvency) No.142 of 2024 -4- was passed to obtain facility from the Yes Bank by resolution dated 26.05.2016, which minutes of the meeting dated 25.06.2016 were shared with the Appellant on 15.09.2016. The Yes Bank disbursed loan amount to the Corporate debtor in December, 2016.

(v) On 21.12.2016, Appellant addressed a letter to Yes Bank objecting to any agreement executed and encumbrances created on the assets of the Company which were stated to be void, illegal and ultra vires to the articles of association. Appellant also sent a letter to Registrar of Companies on 21.02.2017.

(vi) A partial award dated 30.04.2019 was made in favour of the Appellant. Challenge to partial award was dismissed by the Singapore International Commercial Court on 03.03.2020. A final award dated 12.07.2020 was passed directing payment of Rs.132.39 Crores towards costs, interest, damages for breach of SHA.

(vii) An Enforcement Petition before the Hon'ble High Court of Delhi was filed by the Appellant in which an order was passed on 30.05.2019 by the Delhi High Court restraining the Shrishti and the Corporate Debtor from creating any third party interest or parting with the possession of Westin Hotel, Rajarhat, Kolkata, which order was also affirmed by the Hon'ble Supreme Court on 19.07.2019.

Company Appeal (AT) (Insolvency) No.142 of 2024 -5-

(viii) Yes Bank filed an application under Section 7 against the Corporate Debtor on which CIRP commenced by order dated 11.02.2022. Yes Bank filed its claim in the capacity of Financial Creditor to the tune of Rs.370,36,10,306/- which was admitted by the Resolution Professional. Appellant also filed its claim in Form C on 25.02.2022 followed by Form F, which was rejected by the Resolution Professional.

(ix) Due to claim of Yes Bank having been admitted by the Resolution Professional, Appellant filed IA (IB) No. 1271/KB/2022 under Section 60(5) of the Code seeking directions to the Resolution Professional to reject the claim made by the Yes Bank.

(x) I.A. (IB) No.1131/KB/2022 filed by the Appellant was partly allowed setting aside the action of the Resolution Professional rejecting entire claim of the Appellant of Rs.132 Crores.

(xi) On 04.01.2024, the Adjudicating Authority allowed the application of the Resolution Professional seeking the approval of Resolution Plan in I.A. (IB) No.1054(KB)/2023. Vide impugned order dated 04.01.2024, Adjudicating Authority dismissed the Appellant's application IA (IB) No.1271/KB/2022, against which this appeal has been filed.

2. We have heard Ms. Malvika Trivedi, learned senior counsel for the Appellant, Shri Ramji Srinivasan, learned senior counsel along with Ms. Pooja Mahajan, Advocate appearing for Resolution Professional, Dr. Company Appeal (AT) (Insolvency) No.142 of 2024 -6- Abhishek Manu Singhvi, learned senior counsel for the Committee of Creditors and Mr. Joy Saha, learned senior counsel for the Successful Resolution Applicant.

3. Ms. Malvika Trivedi, learned counsel for the Appellant submits that the Resolution Professional committed error in accepting the illegal and untenable claim of Yes Bank. It is submitted that as per the Share Subscription and Shareholders' Agreement dated 07.08.2008, the Appellant is 35% shareholder of the Corporate Debtor. There being breaches by Shristi Infrastructure Development Corporate Ltd. (SIDCL)and the Corporate Debtor, in Singapore-seated arbitration partial and final award were passed in favour of the Appellant. For enforcement of which award, Enforcement Proceedings were initiated by the Appellant before the Delhi High Court. It is submitted that the financial assistance obtained by the Corporate Debtor from the Yes Bank was void ab initio being ultra vires and contrary to Companies Act, 2013 and Articles of Association of the Corporate Debtor. There was inherent illegality in the Facility Agreement entered between the Yes Bank and the Corporate Debtor. It is submitted that in addition to execution Share Subscription and Shareholding Agreement, Article of Association was also amended by including Articles 101 , 111.11 , 112.1 and 112.3.7. Under the Article of Association, the Appellant has various affirmative voting rights in relation to the affairs of the Corporate Debtor. Without affirmative vote rights various actions could not have been taken by the Corporate Debtor. It is submitted that the resolution passed by the Board of the Corporate Debtor in meeting dated Company Appeal (AT) (Insolvency) No.142 of 2024 -7- 26.05.2016 was without any affirmative vote of Nominee Director of the Appellant in the Board. There being no affirmative vote, the decision to take facility to the extent of Rs.325 Crores was void and illegal. Appellant has also communicated to the Yes Bank on 21.12.2016 about the illegality in the proposal which was approved by the Board, however, no heed was paid by the Yes Bank. It is submitted that no loan could have obtained by the Corporate Debtor from Yes Bank without there being affirmative vote of the Appellant, hence, extension of entire facility by the Yes Bank is illegal, ultra vires to the Articles of Association and ought to have been rejected by the Resolution Professional. It is further submitted that the Adjudicating Authority without considering the objection raised by the Appellant to the admission of claim of Yes Bank has rejected the application of the Appellant on the ground that Appellant has filed the application with delay of six years and the claim of the Appellant held to be belated and rejected without entering into merits of the objections raised.

4. Learned counsel for the Resolution Professional opposing the submission of learned counsel for the Appellant submits that the Resolution Professional has duly vetted and verified the claim of Yes Bank. It is submitted that the Facility Letter dated 16.03.2016 read with Facility Agreement dated 13.12.2013 was vetted and verified. The disbursal of loan was reflected in the Audited Balance Sheets of the Corporate Debtor and Statement of Account also shows disbursement made by Yes Bank. There being disbursement against the time value of money, the claim of the Financial Creditor was admitted in which there is no illegality. It is Company Appeal (AT) (Insolvency) No.142 of 2024 -8- submitted that the Appellant, according to its own case, was aware of the resolution passed by the Board of Directors including receiving the loan from Yes Bank in December, 2016 itself. It has not taken any challenge to the resolution of the Corporate Debtor and it cannot be allowed to challenge the resolution of the Corporate Debtor after six years. It is further submitted that the Nominee Director of the Appellant was present in the meeting dated 26.05.2016 in which Board passed resolution to accept the financial facility by Yes Bank. It is further submitted that without prejudice, that corporate actions and authorization by Corporate Debtor was matter of indoor management of the company which could not be allowed to be questioned by the Appellant. The loan was sanctioned in 2016 and disbursed in 2016 itself, whereas no remedy was taken by the Appellant during said period. The loan extended by the Yes Bank to the Corporate Debtor was neither fraudulent nor illegal. The CIRP admission order has not been challenged by the Appellant. The Adjudicating Authority has rightly rejected the application filed by the Appellant. There is no illegality in admission of claim of the Yes Bank by the Resolution Professional.

5. Learned counsel for the Committee of Creditors also opposed the submissions of learned counsel for the Appellant and submits that facility was duly sanctioned and disbursed by the Yes Bank to the Corporate Debtor after having necessary due diligence and could not questioned by the Appellant in these proceedings. It is submitted that the Facility Letter was issued on 16.03.2016 by the Yes Bank, resolution was passed by the Company Appeal (AT) (Insolvency) No.142 of 2024 -9- Corporate Debtor on 26.05.2016 providing authorization for acceptance of the terms of the Facility Letters and to sign and execute all agreements, documents and other writings to its Director. Authorized person of the Corporate Debtor entered into agreement and executed all necessary documents including security document. Disbursement was made by the Financial Creditor to the Corporate Debtor which is not matter of issue. It is submitted that Investor Director was present during the Board meeting dated 26.05.2016 where the Board gave consent and resolution was passed to avail financial facility from Yes Bank. Facility Agreement dated 13.12.2016 clearly evidences that the Corporate Debtor has given representation that it has the necessary power and authority to execute and consummate the transaction and perform obligations under the Facility Agreement. Under the doctrine of indoor management, it is a settled principle that though strangers to the company have constructive notice of the Memorandum of Association and Articles of Association, they are entitled to presume that the provisions therein contained have been complied with by the officers of the company. The Appellant despite having knowledge of the facility extended and disbursed to the Corporate Debtor has not taken any action against the same. The letter dated 21.12.2016 was written by the Appellant subsequent to disbursement by the Yes Bank. Rs.220 Crore were disbursed on 9.12.2016 and an amount of Rs.55 Crore was disbursed on 14.12.2016. There is no infirmity in the order of the Adjudicating Authority dismissing I.A. (IB) No.1271/KB/2022. Company Appeal (AT) (Insolvency) No.142 of 2024 -10-

6. Learned counsel for the Successful Resolution Applicant also opposing the submissions of learned counsel for the Appellant submits that order dated 10.11.2023 holding that Appellant is not a financial creditor has not been challenged and the Appellant's claim has been admitted only as 'other creditor'. It is further submitted that the Corporate Debtor has availed the financial assistance from Yes Bank for which appropriate agreement were executed and amounts were disbursed to the Corporate Debtor. There being disbursal of the amount to the Corporate Debtor, Resolution Professional did not commit any error in accepting the Yes Bank as Financial Creditor and admitting its claim.

7. We have considered the submissions of learned counsel for the parties and perused the record.

8. The order impugned has been passed in I.A. (IB) No.1271/KB/2022. In I.A. (IB) No.1271/KB/2022 following were the prayers made by the Appellant:

"A. Allow the present Application preferred by the Applicant and thereby direct the Resolution Professional to reject the claim of the Petitioner/ Yes Bank Limited, amounting to Rs.370,36,10,306.00/- (Rupees Three Hundred Seventy Crores, Thirty Six Lakhs, Ten Thousand, and Three Hundred and Six only);

B. During the pendency of the present application, stay the operation of the order dated 11.02.2022 in C. Company Appeal (AT) (Insolvency) No.142 of 2024 -11- P. (IB) NO. 302(KB) 2021 and the Corporate Insolvency Resolution Process of the Corporate Debtor;

C. Pass any other order(s) as this Hon'ble Tribunal deems fit in the interest of justice."

9. The Financial Creditor has filed a reply to I.A. (IB) No.1271/KB/2022 justifying admission of its claim by the Resolution Professional. In the reply filed on behalf of the Financial Creditor namely J.C. Flowers Asset Reconstruction Pvt. Ltd. (Assignee of Yes Bank) reliance was placed on the Facility Agreement dated 13.12.2016. In Para 6, details the Facility Letter and Facility Agreement have been given, which are as follows:

"6. Pursuant to a facility letter dated March 16, 2016 (as amended vide addendums dated March 28, 2016, April 26, 2016, May 26, 2017 and April 8, 2019) (collectively, "Facility Letters"), the YES Bank sanctioned rupee facility for an amount of INR 300 Crores and non-fund based facility for an aggregate principal amount of upto INR 25 Crores (collectively referred to as the "Facilities"). It is submitted that the terms of the Facility Letters categorically stated that, the availability of the Facilities was subject to the Corporate Debtor furnishing the corporate approvals (including Board Resolutions) under the Companies Act, 2013 ("Companies Act"). In furtherance of the Facility Letters, YES Bank, Axis Trustee Services Limited ("Security Trustee") and the Corporate Debtor executed a facility agreement dated December 13, 2016 ("Facility Agreement"). A copy of the Facility Agreement is annexed herewith and marked as Company Appeal (AT) (Insolvency) No.142 of 2024 -12- Annexure~3. The Respondent craves leave to produce the Facility Letters at the time of hearing, if required."

10. The facility was also secured by way of Hypothecation Deed dated 13.12.2016, Indenture of Mortgage dated 04.05.2017, Corporate Guarantee dated 13.12.2016, which fact has been also pleaded in Para 7 is to the following effect:

"7. In terms of the Facility Agreement, the Facilities were secured, inter alia, by way of:

(a) exclusive charge by way of hypothecation created by the Corporate Debtor in favour of the Security Trustee (acting for the benefit of the Respondent No. 2) over certain movable assets, receivables and accounts of the Corporate Debtor, as more particularly described in the deed of hypothecation dated December 13, 2016 ("Deed of Hypothecation");

(b) exclusive charge by way of mortgage over all the leasehold rights and interests of the Corporate Debtor over a divided and demarcated portion of the land containing an area of 3.5 acres out of the total land admeasuring 8 acres along with the entire building of the hotel project constructed thereon being Premises No. CBE/2 in Street No. MAR situated within Mouza Jatragachhi in New Town within Police Station Rajarhat in the District 24 Parganas (North), as more particularly detailed m registered indenture of mortgage dated May 4, 2017 ("Indenture"). The charge created pursuant Company Appeal (AT) (Insolvency) No.142 of 2024 -13- to the Deed of Hypothecation and the Indenture are also duly registered with the Registrar of Companies, which is a matter of record;

(c) an irrevocable and unconditional corporate guarantee from Shristi Infrastructure Development Corporation Limited ("SIDCL"), which holds 65% shareholding (along with its nominees) in the Corporate Debtor, vide Deed of Guarantee dated December 13, 2016 ("Deed of Guarantee"). Pursuant thereto, SIDCL also executed a parent undertaking dated December 13, 2016 ("Parent Undertaking", together with the Deed of Hypothecation, Indenture and the Deed of Guarantee referred to as the "Security Documents")."

It was further pleaded that the facility was sanctioned and disbursed to the Corporate Debtor.

12. There is no dispute between the parties that disbursement was made in pursuance of the Facility Agreement dated 13.12.2016 which disbursement is reflected in the financial documents of the Corporate Debtor, as noticed and verified by the Resolution Professional. The thrust of submission of learned counsel for the Appellant challenging the extension of facility by Yes Bank is that there was no appropriate resolution by the Corporate Debtor for accepting the Facility Letter. It is submitted that as per the Articles of Association, various decisions as referred to in the Articles of Association can be taken by the Board of Corporate Debtor only after affirmative vote is received from the Investor Director who has been given Company Appeal (AT) (Insolvency) No.142 of 2024 -14- affirmative vote right. It is submitted that there being no affirmative vote given by the Investor Director for accepting the Facility Letter extended by Yes Bank, the entire process of execution of Facility Agreement and disbursement is void, contrary to Articles of Association and deserves to be rejected. It is submitted the Resolution Professional ought to have looked into the above aspect and refused to admit the claim. Learned counsel for the Appellant in this context has referred to letter dated 21.12.2016 which was written to the Yes Bank. The subject of the letter clearly mention "Lending transaction with Shristi Hotel Private Limited and/or Shristi Infrastructure Development Corporation Limited". The aforesaid letter clearly indicate that the Appellant was aware of Facility Agreement dated 13.12.2016 and referring to the Articles of Association it was stated that the Company shall not take any action or cause any subsidiary or any joint venture to take any action at any General Meeting or at any Board Meeting without the affirmative vote of Investor Director. It is useful to extract Para 6 and 7 of the letter, which is as follows:

"6. During the board meeting of the Company on May 26, 2016, a proposal was made to the board to avail a fresh term loan of INR 325 crore from YES Bank in terms of the YBL Facility Letter. During the said board meeting which was attended by 3 of the Promoter's directors and 1 of the Investor's nominee directors, the Investor's nominee director noted that there were certain proposed changes to the YSL Facility Letter, and the proposal to avail a fresh term loan in any event had not been Company Appeal (AT) (Insolvency) No.142 of 2024 -15- accorded requisite approval by the Investor's nominee director. The Investor's nominee director, did not approve the proposed resolution, which as stated above in para 4 is an affirmative vote item under the Articles.

7. On September 15,2016, the Company Secretary Mr. Navin Kr. Agarwal, has shared the agenda and board pack for a proposed board meeting of the Company to be held on September 21, 2016.

The board pack contained draft minutes of the board meeting held on May 26, 2016 which incorrectly record that the Board passed the resolution accepting availing of financial assistance from Yes Bank ("Purported Resolution"). This is not correct as the Investor's nominee director has not granted his affirmative vote during the said board meeting held on May 26, 2016. Recently, it has come to our notice that the Company has filed form MGT-14 with the Ministry of Corporate Affairs attaching the copy of the signed Purported Resolution."

13. The aforesaid contents of the letter of the Appellant itself indicate that the Board meeting was held on 26.05.2016 in which one Investor's Nominee Director was present. The letter further states that minutes of the meeting held on 26.05.2016 were also circulated which incorrectly record that the Board passed the resolution accepting availing of financial assistance from Yes Bank. Above averments of the Appellant clearly indicate that the minutes of the meeting mentions passing of resolution for accepting the Company Appeal (AT) (Insolvency) No.142 of 2024 -16- Facility. In reply filed in this Appeal, the Financial Creditor has brought on the record the resolution dated 26.05.2016, which resolution records as follows:

"RESOLVED FURTHER THAT the Company do accept from Yes Bank Limited, credit facilities of Rs. 325 crores as conveyed vide their facility Letter No.YBL/DEL/FL/1669/2015-16 dated 16th March 2016 and any further addendum thereto and the Board hereby ratifies and approves all actions taken in this regard."

14. Thus, according to its own letter sent by Appellant dated 21.12.2016, as referred above, it is clear that resolution was passed on 26.05.2016 by the Board accepting the Facility extended by Yes Bank. It is clear that no proceedings were taken by the Appellant from December, 2016 till date challenging the resolution of the Board dated 26.05.2016. On the record there is ample material to indicate that the Facility Agreement and other relevant documents were executed between the Yes Bank and the Corporate Debtor for creation of security, Deed of Hypothecation, Indenture and the Deed of Guarantee were executed, veracity of which documents are not questioned. The amount has been disbursed by the Financial Creditor to the Corporate Debtor in which there is no dispute. The Resolution Professional under the CIRP Regulations has to verify the claim of the Financial Creditor on the basis of materials submitted before it. The Resolution Professional after considering the Financial Statements of the Corporate Debtor and other financial documents including statement of Company Appeal (AT) (Insolvency) No.142 of 2024 -17- accounts, satisfied that there is disbursement by the Financial Creditor against time value of money. The Resolution Professional thereafter rightly admitted the claim of the Financial Creditor and we do not find any error in the order of the Adjudicating Authority rejecting I.A. (IB) No.1271/KB/2022 by which the Appellant has prayed for rejection of admission of claim of the Yes Bank to the tune of Rs.370,36,10,306/-.

15. Learned counsel for the Appellant has also contended that the Adjudicating Authority has rejected the application only on the ground of delay and observed that the application is hopelessly belated one. In Para 158 of the judgment, the Adjudicating Authority has made following observation:

"158. In view of above, this application being I.A. (IB) 1271/KB/2022 filed by Rishima SA Investments LLC (Mauritius), Applicant, asking for nullifying the effect of a meeting held at least six years back, is dismissed. The Applicant ought to have pursued its remedies diligently and timely."

16. We have already observed that the Appellant was very well aware of the meeting dated 26.05.2016 in which meeting Board has resolved to accept the Facility. When the Appellant took no steps to challenge the Board Resolution, its plea in its application that sanction of Loan Facility by Yes Bank to the Corporate Debtor should be rejected as void and contrary to the Articles of Association, cannot be accepted. Company Appeal (AT) (Insolvency) No.142 of 2024 -18-

17. In view of the foregoing discussion, there are no grounds made out to interfere with the impugned order rejecting IA (IB) No.1271/KB/2022 filed by the Appellant. There is no merit in the Appeal. Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson [Barun Mitra] Member (Technical) NEW DELHI 4th April, 2024 Archana Company Appeal (AT) (Insolvency) No.142 of 2024

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