National Company Law Appellate Tribunal
Manoj Kumar Umashankar Saraf & Ors vs Bhuvan Madan & Ors on 15 November, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Ins.) No. 472 of 2022
IN THE MATTER OF:
1.MANOJ KUMAR UMASHANKAR SARAF
Ferro Alloys Corporation Ltd. D.P. Nagar
Randia - 756135, Dist. Bhadrak
2. ROHIT SARAF
E-5, Maharani Bagh
New Delhi - 110065
3. RAM KISHAN SARAF
191/A, Sainik Farms,
Ekta Marg, Western Avenue,
New Delhi - 110062
4. VINOD SAFAR
Shreeram Bhavan,
Ramdaspeth, Nagpur,
Maharashtra - 440010 ...Appellants
Versus
1.MR. BHUVAN MADAN
RP, Ferro Alloys Corporation Ltd.
Registration No. IBBI/IPA-001/IP-P01004/2017-2018/
11655 Price Waterhouse Coopers Professional Services LLP,
Building No. 10, 17th Floor, Tower-C,
DLF Cyber City, Gurugram - 122 002
Email: [email protected]
Also At:
A-103, Ashok Vihar - Phase -3,
(Behind Laxmi Bai College)
Delhi - 110052
Email: [email protected]
2. MR. K.G. SOMANI
163, Tagore Park, Delhi 110009
3. SARAF ENTERPRISES PVT. LTD.
Having its registered office at:
Manganese House, Harbour Road,
Vishakhapatnam, Andhra Pradesh -
2
530 065
4. MRS. PRITI ROHIT SARAF
E-f, Maharani Bagh,
Delhi - 110065
5. FACOR ALLOYS LTD.
Having registered office at;
Facor House, A-45-50,
Sector - 16, Noida,
District Gautam Budha Nagar,
Uttar Pradesh - 201 301
6. COMMITTEE OF CREDITORS
Ferro Alloys Corporation Ltd.
Through Its Erstwhile RP
Mr. Bhuvan Madan
Price Waterhouse Coopers Professional Services LLP,
Building No. 10, 17th Floor, Tower-C,
DLF Cyber City, Gurugram - 122 002 ...Respondents
Present:
For Appellant: Mr. N.M. Sharma and Ms. Yashika Singla, Mr. Utkarsh
Sharma, Advocates
For Respondent: Mr. Saurav Panda, Ms. Charu Bansal and Ms. Prabhu
Simren, Advocates for R1& 6
Mr. Debmalya Ganguli, Adv. for R2
JUDGMENT
Per: Justice Rakesh Kumar Jain:
This appeal is filed by four Appellant, namely, Manoj Kumar Umashankar Saraf, Rohit Saraf, Ram Kishan Saraf & Vinod Saraf, being aggrieved against the order dated 28.03.2022, passed by the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench) by which an application bearing CA No. 09/CTB/2020 in T.P. No. 42/CTB/2019 [CP(IB) No. 251/KB/2017] filed by Bhuvan Madan (Resolution Professional) under Section 28 r/w Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') has been allowed with a direction to Rohit Saraf to pay a Company Appeal (AT) (Ins.) No. 472 of 2022 3 sum of Rs. 46,85,750/-, Ram Kishan Saraf to pay a sum of Rs. 20,40,000/-
and all the Appellants jointly and severally to pay sum of Rs. 1,39,50,407/-
to Respondent No. 1 within a period of one month from the date of the order, failing which they are held liable to pay an interest of 12 % per annum, calculated from the date of passing of the order (28.03.2022) till the date of realisation.
2. In brief, Rural Electrification Corporation filed an application under Section 7 of the Code as a Financial Creditor against Ferro Alloys Corporation Ltd. (Corporate Debtor) which was admitted on 06.07.2017 and K.G. Somani was appointed as the Interim Resolution Professional (IRP) who was later on confirmed as RP on 08.08.2017. The Resolution Plan of the Corporate Debtor was approved by the CoC on 19.04.2019. K.G. Somani (RP) was removed vide an order passed in I.A. No. 18/CTB/2019 on 21.04.2019 and Respondent No. 1 was appointed as RP of Ferro Alloys Corporation Ltd. (Corporate Debtor) vide order dated 08.07.2019 passed by the Adjudicating Authority. After his appointment as RP, the Respondent No. 1 came to know that some payments have been made to the related parties by the erstwhile RP without approval of the CoC. The Respondent No. 1 sent an email dated 04.10.2019 to the erstwhile RP seeking explanation for the related parties transaction made during the Corporate Insolvency Resolution Process (CIRP) without approval of the CoC but did not receive any reply and thus it was brought to the notice of the CoC in the 28th meeting held on 16.10.2019 that certain payments have been made to the related parties which have not been approved by the CoC. It is alleged Company Appeal (AT) (Ins.) No. 472 of 2022 4 that the transactions were put before the CoC in the 28th meeting held on 16.11.2019 for their consideration/approval and ratification. The CoC approved few transactions in the 28th meeting of CoC. Subsequently, certain payments have been rejected in the previous meeting of CoC again put for vote in the 29th meeting of CoC held on 30.10.2019 in which various payments were not approved which have been mentioned in the application and are reproduced as under:-
"a. Payments of a sum of Rs. 20,40,000/- made to Facor Alloys Lid. towards residential house situated at 191/A, Sainik Farms, New Delhi taken on lease from it, which is being used by CMD of the Corporate Debtor, b. Payments amounting to Rs.24,00,000/- made to Saraf Enterprises Pvt. Ltd. towards rent for residential house situated at 41-E, Sainik Farms, New Delhi, taken on lease, which is in use as office of Ms. Ashish Saraf, Joint Managing Director, c. Payments amounting to Rs.46,85,750/- made to Priti Saraf towards rent of office cum residence taken on lease from her, which is in use by Mr. Rohit Saraf, Joint Managing Director of the Corporate Debtor, d. Payments amounting to Rs.1,39,50,4071- made to the Key managerial personnels namely, Shri R. K. Saraf,(Respondent No.
6); Shri Manoj (Respondent No. 4), MD; Shri Rohit Saraf, (Respondent No. 5); and Shri Vinod Saraf (Respondent No. 7), President; towards remuneration to directors."
3. It is further alleged that in the 31st Meeting of CoC held on 11/12.11.2019 it was brought to the notice of the CoC that the payments of around Rs. 2,30,76,157 were made to the Respondents in the application despite the members of the CoC rejected the approval of the payments to the related parties. It is alleged that the CoC thereupon directed the Respondent No. 1 to file an application before the Adjudicating Authority for reversal of impugned related party transactions and return of the payments made to Company Appeal (AT) (Ins.) No. 472 of 2022 5 them. It is alleged that in the aforesaid background, the application was filed for declaring related parties transactions mentioned earlier in this order as void as the same carried out during the CIRP without the requisite ratification by the CoC as required under Section 28(b) of the Code and further to direct the Respondents to reimburse the amount of Rs. 2,30,76,157/- in the proportions as received by them pursuant to related party transaction. The application was contested by the Respondents before the Adjudicating Authority in which two issues stated of have arisen, one about the maintainability of the application and the second about the liability of the Respondent to return the amount so received from erstwhile RP. The Adjudicating Authority decided both the issues in favour of the Applicant/Respondent No. 1 and against the Respondents/Appellants herein and hence the present appeal has been filed.
4. Counsel for the Appellant has vehemently argued that in the 9th meeting of CoC the accounts were produced before it which includes the disputed amount incurred by the erstwhile RP. He has referred to the agenda item no. 9 which read thus "Agenda Item No. 9 to take note of limited review financial for quarter dated 31st December, 2017. The Committee considered the unaudited results and the Limited Review Report for the quarter ended December, 2017 as brought out in the Agenda and took note of the same". He has also referred to 4th meeting of the CoC and agenda item no. 8 relating to the accounts placed before the CoC and explained by the RP which includes the disputed amount. It is submitted that the action should have been taken at that time by the CoC. It is further Company Appeal (AT) (Ins.) No. 472 of 2022 6 submitted that in so far as the Appellants are concerned, they cannot be penalised because they have rendered services and if there is a fault then it is on the part of the erstwhile RP. It is also argued that the amount in question cannot be claimed after such a long time with interest @ 12 % without the allegations of fraud on the part of the Appellants.
5. On the other hand, Counsel appearing on behalf of Respondent No. 1 has argued that all the payments have been made to the related party and in this regard he has referred to the rental agreements. It is further submitted that remuneration to the key managerial personnels could not have been paid after the suspension of the board. It is also submitted that the Adjudicating Authority has not awarded the amount with interest rather it has been observed that if the amount is not paid within a period of one month from the date of passing of the order then the component of interest would apply. It is further submitted that an application has also been filed before the IBBI for taking appropriate action against the erstwhile RP. The sum and substance of the argument of the Respondent is that all the transactions regarding which the directions have been issued by the Adjudicating Authority are inviolation of Section 28 of the Code which categorically provides the mechanism in which the payments have to be made. It is thus submitted that without prior approval of the CoC, any payment made in terms of Section 28(1) is void as provided in Section 28(4) of the Code.
6. We have heard Counsel for the parties and perused the record with their able assistance.
Company Appeal (AT) (Ins.) No. 472 of 2022 7
7. In this case, it is relevant to mention that the application on which the impugned order has been passed is filed under Section 28 of the Code. Therefore, it would be relevant to refer to Section 28 of the Code, which is reproduced as under:-
"28. Approval of committee of creditors for certain actions. -
(1) Notwithstanding anything contained in any other law for the time being in force, the resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the committee of creditors namely: -
(a) raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting;
(b) create any security interest over the assets of the corporate debtor;
(c) change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company;
(d) record any change in the ownership interest of the corporate debtor;
(e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting;
(f) undertake any related party transaction;
(g) amend any constitutional documents of the corporate debtor;
(h) delegate its authority to any other person;
(i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;
(j) make any change in the management of the corporate debtor or its subsidiary;
(k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;
(l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or
(m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of 1[sixty-six] per cent. of the voting shares.
Company Appeal (AT) (Ins.) No. 472 of 2022 8 (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void.
(5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this code."
8. The bare reading of the aforesaid provision provides that it starts with a nonabstante clause and further says that the resolution professional, during the CIRP, is not supposed to take the actions mentioned in Section 28(1)(a) to(m) without the prior approval of the CoC. Section 28(1)(f) prohibits any related parties transaction without prior approval of the CoC. Section 28(2) says that the RP shall convene a meeting of the CoC and seek their vote for taking any of the actions under sub-section(1). Section 28(3) provides that the action taken under sub-section 28(1) has to be approved by the CoC by not less than 66% of the voting shares. Section 28(4) says that any action taken under sub-Section 28(1) by the RP without approval of the CoC, in the manner which is required under the Section is void. Section 28(5) says that the CoC shall have the jurisdiction to report the action of the RP under Section 28(4) to the Board for taking necessary action against him.
9. Thus, any action which is sought to be taken by the RP, in terms of Section 28(1)(a to m), is protected by an internal mechanism of the prior approval of the CoC. Meaning thereby, the RP is not the absolute authority to take a decision in respect of the subject mentioned in Section 28(1) (a to
m). Section 28(4) clearly provides that in case RP takes any action, not in the manner which is prescribed in Section 28 and without taking prior approval of the CoC, then the said action shall be discarded as being void. The Adjudicating Authority, while allowing the application has categorically Company Appeal (AT) (Ins.) No. 472 of 2022 9 found that no prior approval was taken from the CoC, therefore, action taken under Section 28(1) was void. It has categorically dealt with the argument raised by the Appellant before us that since the accounts were placed before the CoC and they did not raise any objection, therefore, it was deemed approval to hold that no such provision is there in Section 28 we approve the finding recorded by the Adjudicating Authority in Para 20 of the impugned order.
10. Submissions made by the Appellant that they have rendered services and the erstwhile RP is to be blamed is not the subject matter of this application because the fact remains that the erstwhile RP made the payments to the present Appellants which has been ordered to be reimbursed regarding which no approval of the CoC was taken in terms of Section 28(3) of the Code.
11. Thus, in view thereof, we do not find any merit in the present appeal and the same is hereby dismissed. No costs.
[Justice Rakesh Kumar Jain] Member (Judicial) [Dr. Alok Srivastava] Member (Technical) New Delhi 15th November, 2022 Sheetal Company Appeal (AT) (Ins.) No. 472 of 2022