Acute Daily Media Private Limited & Ors vs M/S Rockman Advertising And Marketing ...

[Arising out of the Impugned Order dated 12.06.2024 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench-II in I.A. No. 3602 /2022 in C.P. No. 50(PB) of 2021]

In the matter of: M/s Acute Daily Media Pvt. Ltd. & Ors. E-3/235, Arera Colony, Bhopal, MP- 462016 ... Appellant No.1

MR. MAYANK JAIN E-3/235, Arera Colony, Bhopal, MP - 462016 ... Appellant No.2

MR. HIT KISHOORE JAIN E-3/235, Arera Colony, Bhopal, MP - 462016 ... Appellant No.3

MS. DEEPANSHI JAIN C-274, Shahpura, Bhopal, Bhopal, Madhya Pradesh ... Appellant No.4

MS. REKHA JAIN R/o C-274, Shahpura, Bhopal, Madhya Pradesh ... Appellant No.5

MS. OJASWI JAIN R/o C-274, Shahpura, Bhopal MP ... Appellant No.6 Versus M/s Rockman Advertising and Marketing (India) Ltd. & Ors. K-15, Hauz Khas Enclave, New Delhi - 110016. ...Respondent No. 1

M/S SHARP EYE ADVERTISING PVT. LTD. (THROUGH RESOLUTION PROFESSIONAL) Regd. Office at: 38, Rani Jhansi Road, (Corporate Debtor) Jhandewalan, New Delhi - 110055 ... Respondent No. 2 MR. ARPAN GUPTA 38, RANI JHANSI ROAD, (DIRECTOR OF CD) AT THE JHANDEWALAN, NEW DELHI - 110055 TIME OF FILING OF MAIN PETITION) ... Respondent No. 3

MS. POOJA AGARWAL 38, RANI JHANSI ROAD, (DIRECTOR OF CD) AT THE JHANDEWALAN, NEW DELHI - 110055 TIME OF FILING OF MAIN PETITION) ... Respondent No. 4

MR. MUKESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (PROMOTER OF CD) ... Respondent No. 5

SMT. PADMA GUPTA W/O MR. MUKESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (PROMOTER OF CD) ... Respondent No. 6

MR. DINESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (PROMOTER OF CD) ... Respondent No. 7

MR. RAKESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (PROMOTER OF CD) ... Respondent No. 8

SMT. URMIL GUPTA W/O MR. RAKESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (PROMOTER OF R-7) ... Respondent No. 9

MR. GAURAV GUPTA S/O MR. RAKESH GUPTA 38, RANI JHANSI ROAD, JHANDEWALAN, NEW DELHI - 110055 (Promoter of R-7) ... Respondent No. 10

Page 2 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Present: For Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Akhil Nene, Mr. Shivam Gautam, Advocates.

For Respondent : Mr. Sakal Bhushan, Mr. Vasu Bhushan, Advocates for R-1. Ms. Eshna Kumar, Mr. Harpreet Singh Malhotra, Mr. Lakshmi Kant, Advocates for R-3 -10.

JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellants arises out of the Order dated

12.06.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-II)

in I.A. No. 3602/2022 in C.P. No. 50(PB) of 2021. By the impugned order, the

Adjudicating Authority has allowed I.A. No. 3602 of 2022 under Section 65 of

IBC terminating the Corporate Insolvency Resolution Proceedings ('CIRP' in

short) initiated against the Corporate Debtor aggrieved by which order, the

Appellants have come up in appeal.

2. Coming to the brief factual background of the present case, basis the

Section 7 proceedings filed by Acute Daily Media Pvt. Ltd. and other financial

creditors, CIRP was initiated on 17.05.2022 against Corporate Debtor-Sharp

Eye Advertising Pvt. Ltd. The Appellants had purportedly advanced loans to

the Corporate Debtor, repayment of which had been defaulted by the

Corporate Debtor. After the above CIRP proceedings had concluded and

resolution plan approval application was filed before the Adjudicating Page 3 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Authority, the Respondent No.1-Rockman Advertising moved an application

vide I.A. No. 3602 of 2022 under Section 65 of the IBC seeking termination of

the CIRP and for action against the Appellants for having filed the Section 7

application collusively and fraudulently with the promoters of the Corporate

Debtor with a malicious intent other than insolvency of the Corporate Debtor.

Respondent No.1 had also filed an Oppression and Mismanagement Petition

('OMP' in short) against the Corporate Debtor and the promoters which was

allowed on 20.07.2022 and the act of reduction of the shareholding of

Respondent No.1-Rockman Advertising in the Corporate Debtor was declared

null and void. The Section 65 application filed by the Rockman Advertising

was allowed by the Adjudicating Authority terminating the CIRP of the

Corporate Debtor and show cause notice issued to the Appellants for

imposition of penalty. Aggrieved by this impugned order, the Appellants have

preferred this appeal.

3. Making submissions on behalf of the Appellants, Shri Krishnendu

Datta, Ld. Senior Counsel for the Appellant challenging the impugned order

stated that the Adjudicating Authority by admitting the Section 65 application

indirectly recalled the CIRP admission order dated 17.05.2022 which is not

permissible in the eyes of law. It was contended that the CIRP admission order

of 17.05.2022 not having been challenged by the Appellant, the same had

already attained finality. Since appeal against this order stood time barred,

with a view to indirectly challenge the CIRP initiation order, the Respondent

took recourse to file Section 65 application vide IA No. 3602 of 2022. Recall of

the CIRP order of 17.05.2022 was violative of the settled principles of law

under IBC.

Page 4 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

4. It was emphatically asserted that the Adjudicating Authority in allowing

the IA No. 3602 of 2022 had failed to appreciate that the records of the

Corporate Debtor clearly reveal that loan was taken by the Corporate Debtor

from the Appellants. There is clear evidence of disbursal of financial debt by

the Appellants-Financial Creditors to the Corporate Debtor. There is ample

proof that the Corporate Debtor had been given several notices for having

defaulted in making repayment of the financial debt before finally filing the

section 7 application. It was also contended that debt and default having been

unequivocally established and the same having been adjudicated upon by the

Adjudicating Authority, this order cannot be indirectly challenged by the

Respondent after the period of limitation had expired.

5. It was also emphasized that at the time of passing the admission of

Section 7 order there was no order passed by the Adjudicating Authority in

respect of the OMP filed by the Respondent. It was pointed out that the

Appellants were not even a party to the OMP filed by the Respondent and

hence were unaware of the facts and circumstances pertaining to the OMP

petition. It was therefore denied that the Appellants had filed the Section 7

petition to pre-empt the likely success of the Respondents in the OMP filed by

them. There is no bar to admission of Section 7 application during the

pendency of OMP proceedings.

6. It was submitted that Section 65 application cannot sustain merely on

the basis of assertion of fraud and malice without any cogent evidence. It was

added that the allegation made by the Respondent that the purpose behind

filing of the Section 7 by the Financial Creditors was propelled by malicious

intent to defeat the rights of the Respondent which were likely to be restored Page 5 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 to them under the OMP was based on surmises and conjectures. Reliance was

placed on the judgment of this Tribunal in Amour Infrastructure LLP vs.

Digital Integrated Technologies Pvt. Ltd. in CA (AT) (Ins) No. 884 of 2022

wherein it has been held that for proving the ingredients of Section 65 of IBC,

the same has to be backed by adequate pleadings and findings. Instead of

placing cogent evidence, the Respondents have merely relied on hyper-

technical objections and assumptions which do not alter or change the nature

of transactions between the Financial Creditors and the Corporate Debtor

which clearly signified debt and default

7. It was further contended that the Respondent No.1-Rockman

Advertising had transferred its entire share-holding in the Corporate Debtor

in favour of Mr. Rakesh Arora and Mr. Shivam Raina for valuable

consideration. However, the Respondent never brought this fact to the

knowledge of the Adjudicating Authority while filing I.A. No. 3602/2022. When

the Respondent had already transferred its entire share-holding, it was alleged

that the Respondent not being a share-holder of the Corporate Debtor it had

no locus to file I.A. No. 3602/2022.

8. Refuting the contentions of the Appellants, Shri Sakal Bhushan, Ld.

Counsel for Respondent No.1 submitted that the share-holding of Respondent

No.1 had been brought down from 62.57% to 17.86% by illegal allotment of

their shares to two other companies by the Corporate Debtor and its

promoters. This had led to the filing of OMP by the Rockman Advertising-

Respondent No.1 against the Corporate Debtor. The Corporate Debtor and the

promoters in their defence in the OMP petition had set up a false narrative by

fabricating an antedated MoU. However, the Adjudicating Authority after Page 6 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 taking notice that the MoU was not backed by original documents/Board

resolutions allowed the OMP and declared the Respondent No.1 to be 62.57%

share-holder of the Corporate Debtor vide its order dated 20.07.2022. It was

also pointed out that even while adjudicating on the OMP, the Adjudicating

Authority had noticed the conduct of the Corporate Debtor of relying on forged

and fabricated documents including the MoU and related board resolutions.

9. Elaborating further, it was submitted that the promoters of the

Corporate Debtor on realising that they were on a weak footing in the OMP

and that the present Respondent No.1 was likely to succeed, they contrived

the Section 7 petition with a view to pre-empt the Respondent No.1 from

gaining control of the Corporate Debtor. Towards this end, they fabricated

antedated loan agreements with Appellants-Financial Creditors and showed

default in repayment of the loan by the Corporate Debtor. It was contended

that the Section 7 petition was pre-meditated and self-induced with

fraudulent intentions. It is contended that no loan transactions had actually

taken place. What has been sought to be projected as loans by the Appellants

were infact not genuine loan transactions but were routine business

transactions. It was pleaded that there was no genuine debt. The Section 7

application was filed by the Financial Creditors to fraudulently initiate CIRP

of the Corporate Debtor. The promoters misled the Adjudicating Authority into

initiating CIRP of the Corporate Debtor so as to extinguish their entire

shareholding including that of Respondent No.1. The malafide intent of the

Appellants is also borne out by the fact that when the OMP was being heard,

the Appellants deliberately suppressed from the notice of both the

Adjudicating Authority as well as the Respondent No.1 of the insolvency

Page 7 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 petition having been filed against the Corporate Debtor. It was vehemently

contended that the Section 7 application was the outcome of fraud and

collusion between the Corporate Debtor, Financial Creditors and Promoters.

The Appellants have failed to bring on record cogent evidence to show that

Section 7 application was filed with an objective other than the resolution of

the Corporate Debtor.

10. It was pressed hard that it is a misplaced contention on the part of the

Appellants that the Adjudicating Authority in a Section 7 application should

have confined their findings only to the aspect of debt and default. It was

asserted that it was open for the Adjudicating Authority to traverse into other

material facts to find out whether any fraud or malafide is involved in the filing

of a Section 7 petition if the facts and circumstances so warrants. Where any

person furnishes any information under Section 7, which is false in material

particulars, or knowing it to be false or omits any material fact knowing it to

be material is liable to be fined, the applicability of Section 65 cannot be

questioned. In such circumstances, the Adjudicating Authority is obligated to

exercise caution to prevent any party from taking undue benefit of the

provisions of IBC in pushing the Corporate Debtor into CIRP unnecessarily.

The Adjudicating Authority had therefore rightly taken note of the several

discrepancies which had come to light from the ledger statements, related

Audited Balance Sheets of the Corporate Debtor and Statutory Auditor's

Reports; infirmities found in the dates of Board resolutions; infraction of the

Companies Act etc. which when cumulatively put in perspective show that the

Section 7 application was fraudulent in nature.

Page 8 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

11. We have duly considered the arguments advanced by the Learned

Counsel for both the parties and perused the records carefully. The short

question before us is whether in the facts of the present case, there is

sufficient evidence before the Adjudicating Authority to establish that the

Section 7 application was filed collusively and with mala-fide intention by the

Appellants which was good enough to attract Section 65 of the IBC and

consequential recall of the initiation of CIRP of the Corporate Debtor.

12. It is the case of the Appellants that it is trite law that under the IBC

once a debt becomes due or payable, in law and in fact, and there is incidence

of non-payment of the said debt in full or part thereof, CIRP may be triggered

by the Financial Creditor as long as the amount in default is above the

threshold limit. The Adjudicating Authority is not required to go into any other

aspect once it is satisfied that there is debt and default. It is their contention

that in the present factual matrix the twin conditions of debt and default is

squarely met. The Adjudicating Authority while passing the earlier order

admitting the Corporate Debtor into CIRP on 17.05.2022 had been fully

satisfied on the issue of debt and default. The said order had attainted finality

and the extendable period of limitation had already been crossed. Hence the

same cannot be reopened indirectly by the Respondent now by raising

frivolous assertions as contained in IA-3602/2022 which has been

erroneously allowed by the Adjudicating Authority without realizing that it is

a belated attempt by the Respondent No.1 seeking recall of the CIRP order of

17.05.2022. By recalling the Section 7 admission order, the Adjudicating

Authority has acted in derogation of settled principles of law.

Page 9 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

13. To buttress their contention that debt and default stood well

established, it was pointed out that the Corporate Debtor had availed loan

from time to time from the Financial Creditors. In the present case, loan

agreements were signed on 21.07.2016, 27.05.2019, 03.12.2019 and

31.12.2019 basis which loan had been disbursed by the financial creditors

which not having been repaid signified default. It was submitted that the loan

agreements categorically prescribed an interest @ 12% p.a. and the Financial

Creditors had calculated interest implications on the basis of the loan

agreements. The total amount under default was Rs.1,20,90,682/- including

Rs.23,90,682/- as interest which conjointly crossed the statutory prescribed

threshold of Rs. one crore for Section 7 application.

14. The details of loan agreements and the amount due and payable as

culled out from details provided by the Appellants is as placed below:

S.No. Financial Date of Amount of Date of Amount due Creditor Loan Loan (In Default and Payable Agreement Rs.) 1. Acute Daily 21.07.2016 50,00,000/- 31.01.2020 72,33,710/- Media Private Limited ("Financial Creditor 1") 2. Rekha Jain 27.05.2019 7,00,000/- 26.02.2020 7,63,000/- (Proprietor of Hotel Amar Vilas) ("Financial Creditor 2") 3. Deepanshi 03.12.2019 30,00,000/- 28.02.2020 30,73,972/- Jain ("Financial Creditor 3") 4. Ojaswi Jain 31.12.2019 10,00,000/- 28.02.2020 10,20,000/- ("Financial Creditor 4") Total- 1,20,90,682/-

Page 10 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

15. It was further contended that the loan agreements executed between

the Financial Creditors and the Corporate Debtor is also backed by disbursal

of corresponding loan amounts by the Financial Creditors to the Corporate

Debtor. The records of the Corporate Debtor clearly reflect the

transaction/loan having been received from the Appellants. There is no

evidence to deny the debt advanced by the Financial Creditor to the Corporate

Debtor. Hence, there exists a financial debt which was due and payable by the

Corporate Debtor to the Financial Creditors. Emphatically asserting that the

bank entries are undeniable and have not been controverted, this clearly

cements the case that loan was disbursed to the Corporate Debtor. That the

loan amount remained unpaid has not been controverted and therefore

remains undisputed. Even the Resolution Professional ("RP" in short) has

confirmed the veracity of the loan disbursement made by the Appellants. The

RP in his affidavit has clarified that: "The borrowings have been shown in the

Financial Statements of CD for the financial year 2016-17 and FY 2019-20 as

long term borrowings and short term borrowing on consolidated basis. Party

wise data was not shown in the audited balance sheet. However, the books of

accounts which are being maintained on the tally accounting software which

had been handed over to the Answering Respondent/Resolution Professional

shows that the same under the head of Unsecured Loans."

16. Advancing their counter arguments, it was stated by the Respondent

No.1 that the Section 7 application had been filed by the Appellants with the

help of fabricated and manufactured documents as well as by suppression of

material facts not for the purpose of insolvency resolution but for the ulterior

motive of preventing the Respondent No.1 from regaining majority shareholder

Page 11 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 position in the Corporate Debtor which was likely to happen in the face of the

anticipated success of the Respondent No.1 in their OMP. Hence, in the

present factual matrix, the Adjudicating Authority rightly took cognizance of

the Section 65 application filed by the Respondent No.1 as the Adjudicating

Authority has an important role to play in preventing any blatant effort to be

made by any party to bring a Corporate Debtor under the rigours of CIRP by

taking recourse to malicious and/or collusive filing of insolvency petition.

17. In support of their contention, it was pointed out that the loan

agreements relied upon by the Appellants were a sham having been fabricated

and antedated. Elucidating further, it was submitted that the claim of the

Appellants that in the Board meetings of the Corporate Debtor of 20.07.2016,

02.12.2019, 26.05.2019 and 30.12.2019, resolutions were purportedly

passed for obtaining loans from the Financial Creditors and the subsequent

board meeting of 14.07.2019 resolving the extension of loan is false. The

Annual Returns of the Corporate Debtor do not indicate that Board meetings

were held on those dates. It was pointed out that when these Annual Returns

which are part of the ROC records do not reflect the Board meetings, it

logically follows that the resolutions which have been claimed to have been

taken in these Board meetings could not have been taken. It was added that

the copies of the relevant Annual Returns can be seen at pages 126-139 of

additional-affidavit of the Appellant.

18. The Respondent No. 1 has come up with other surrounding facts which

show that the alleged loan agreements by the Financial Creditors were

fabricated and antedated and nothing more than a sham. The loan agreement

dated 21.07.2016 mentions its registered office to be at "E-3/235, 10 No. Page 12 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Market, Arera Colony, Bhopal- 462016". However, the registered office of the

Appellant as on 21.07.2016 was at "D.K.-1, Danish Kunj, Kolar Road, Tehsil

Huzur, Bhopal." The change of the address to Arera Colony happened only on

30.04.2019 as reflected in Form No. INC-22 filed by it with ROC. That the loan

document executed in 2016 depicted an address which came into existence 3

years later in 2019 goes to show that the loan agreement was antedated.

Further, all the four alleged loan agreements dated 21.07.2016, 03.12.2019,

27.05.2019 and 31.12.2019 are verbatim copies of each other which lends

credence that the agreements were all fabricated together at one place at a

later point of time. Further, the loan agreement of 21.07.2016 refers to remedy

under IBC at a time when IBC had not been notified on 21.07.2016. Thus, the

fact that the agreement referred to IBC which legislation was not notified at

that point of time reinforces the point that the loan document was antedated.

It was also submitted that the Appellants have admitted that these loan

agreements did not carry any stamp duty. Had the loan agreements been

genuinely executed, appropriate stamp duty would definitely have been paid.

19. It is therefore the contention of the Respondent No.1 that all these

lapses show that no genuine loan transaction had taken place between the

Corporate Debtor and the Financial Creditors. The loan agreements did not

reflect genuine loan transactions and were mere routine business

transactions with the Appellants which were subsequently misrepresented as

loans fraudulently to enable initiation of CIRP against the Corporate Debtor

with the hidden motive of defeating the Respondent No.1 from taking over the

Corporate Debtor as the dominant shareholder.

Page 13 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

20. Elaborating on other false material particulars, it was submitted that

the balance sheets for F.Y.s 2016-17 and 2019-20 during which period the

alleged loans were supposed to have been disbursed by the Appellant-

Financial Creditors do not mention the names of these Financial Creditors.

The reasons for not showing the particulars of these Appellants in the balance

sheets has also not been suitably explained by the Appellants.

21. Further adverting reference to Annexure 10 at page147 of the

additional-affidavit of the Appellant, it was submitted that the statutory

auditor in the Audit Report for FY 2016-17 has clearly stated that the

company did not raise any money by way of IPO and term loans during the

year. A similar entry by the statutory auditor is found in the Audit Report of

the Corporate Debtor for FY 2019-20 though the Appellants have claimed that

they had given loan to the Corporate Debtor during that FY. These entries run

contrary to the claim of the Appellant that the Corporate Debtor had taken

the loans from the Appellant during those FYs.

22. Adding further, it has been contended that the statutory audit report of

the Corporate Debtor for FY 2020-21 also mentions in the notes to the balance

sheet that there was no borrowing cost to the company as at page186 of the

additional-affidavit of the Appellant. It was pointed out by the Respondent

No.1 that a plain reading of this note in the statutory audit report would lead

to the unambiguous understanding that the Corporate Debtor had not taken

any sum of money on interest terms from any party. Thus, when the statutory

audit report negates the fact that any sum of money was taken as loan on

interest by the Corporate Debtor from any quarter including the Appellants,

the calculation of interest in computing the debt and default is intriguing. It Page 14 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 was emphatically asserted that the balance sheet is required to record all

interest income which accrues during the year. However, the balance sheet of

the Appellant No.1 did not indicate any interest income which had accrued to

them. The fact that no accrued interest income is reflected shows that no loan

transaction ever took place. When no interest income had been reflected in

the balance sheet, computing the same in the Section 7 application to achieve

the threshold limit is irregular and not permissible. The interest income was

added just for the sake of crossing the minimum threshold hurdle of Rs. one

crore so that the Section 7 application would become maintainable under IBC.

Their own ledgers have failed to provide basis for calculation of interest.

Hence, the amount taken from the Appellants by the Corporate Debtor not

having interest component or any time value of money, this does not qualify

to be a financial debt as defined under Section 5(8) of the IBC.

23. It was further pointed out that the balance sheet of the Corporate

Debtor showed a deposit of Rs.50.00 lakhs in FY 2016-17. However, in 2021

the same figure has been shown as Rs.97.00 lakhs which sum was equivalent

to the alleged combined principal amount purportedly disbursed as loan by

all the Financial Creditors. When the Financial Creditors were all separate

and distinct juristic and natural persons, clubbing of loans purportedly taken

from individual persons with those secured by a corporate entity is a clear

indication of the pre-planned collusion and connivance between the

Appellants exposing their fraud.

24. Pointing out another incidence of infraction of the Companies Act, it

was submitted that the Corporate Debtor being a private company was not

eligible under Section 76 of the Companies Act, 2013 to accept any loan from Page 15 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 the Appellants as they were not members or share-holders of the Corporate

Debtor. This further goes to expose the fraud played upon the Adjudicating

Authority into believing normal business entries to be loan entries. Further,

under the Section 186(2)(a) of Companies Act, a company cannot grant a loan

exceeding 60% of its paid up share capital. The Appellant No.1 had paid-up

share capital of only Rs.10 lacs but had allegedly given a loan amounting to

Rs.50 lacs. Moreover, there is no special board resolution authorising the said

loan exceeding the limits during the year 2016. This also shows that these

transactions were not loan transactions but transactions undertaken with a

different motive but given the garb of a loan transaction.

25. The Appellants in their defence stated that the allegations of the

Respondent No. 1 are frivolous. There is a clear record of loan disbursal and

the tally records of the Corporate Debtor as per the RPs report which clearly

evidences the disbursal of debt by the Appellants to the Corporate Debtor.

Against these debts, loan recall notices had been issued. The disbursal of debt

was not denied by the Corporate Debtor. Neither has the Corporate Debtor

claimed to have cleared the outstanding debt. Thus, there being a clear-cut

case of loan having been disbursed by the Financial Creditors to the Corporate

Debtor which remained unpaid and the said amount exceeded Rs one crore,

this met the test of Section 7 application.

26. On the allegations of mistakes and discrepancies in the loan agreement

documents, it was argued that even if inadvertent errors had crept into the

loan agreement like insertion of a wrong address, such mistakes have no

material bearing on the validity of a financial debt owed by the Corporate

Debtor to the Appellant when such loan transactions are reflected in the Page 16 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 balance sheets of the Corporate Debtor. Further, on the plea taken by the

Respondent No.1 that the Appellants had antedated the fabricated loan

agreements which is borne out of the fact that all the loan agreement

documents were verbatim copies of each other, it was clarified that use of a

standard format for all the loan agreements was not unusual since in this

case the Financial Creditors of the Corporate Debtors belonged to the same

family. That the mention of remedy of IBC in the loan agreement cannot be a

ground to prove that it was ante-dated, it was contended that the loan

agreement was executed on 21.07.2016 by which time the IBC had already

been assented to by the President of India. On the allegation of non-stamping

of the loan agreements rendering them invalid, it was stated that as long as

there is sufficient material on record which substantiates the debt in question,

the non-stamping of agreement is not relevant. Unstamped loan agreement

does not render a Section 7 application non-maintainable. Such errors do not

either negate or alter the nature or character of loan transactions undertaken

between the parties. It was asserted that it is a well settled legal precept that

a loan transaction even in the absence of written agreement is sufficient to

fulfill the requirements of Section 7, hence, even if there are some infirmities

in the loan agreements, as long as the loan was disbursed to the Corporate

Debtor who thereafter defaulted in repaying the said debt, the tests laid down

under Section 7 of IBC stand fulfilled.

27. On the contention of the Respondent No. 1 that the notes to balance

sheets of the relevant FYs show that there were no borrowing costs for the

Corporate Debtor during the FYs when the loans had been disbursed, it was

contended that this assertion was misplaced and wholly misconceived. Both

Page 17 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 the Loan Agreement of 21.07.2016 and Loan Extension Agreement of

01.08.2019 clearly provided for levy of 12% interest. The reason for the

interest calculation not getting reflected in the balance sheet was because of

the accounting standards followed by the company which allows both receipt

basis or on accrual basis. In any case even if the loan transactions were sans

interest, they still qualify to be a financial debt in terms of Section 5(8) of IBC.

In support of their contention, the Appellants have placed reliance on the

judgment of Hon'ble Supreme Court in the matter of Orator Marketing Pvt.

Ltd. vs. Samtex Desinz Pvt. Ltd. 2021 SCC Online SC 513 which clearly

held that a reading of Section 5(8) of the IBC makes it amply clear that

existence of interest is not mandatory and does not expressly exclude an

interest free loan. In the light of the above judgment, the argument of the

Respondent No.1 that as per the balance sheet, the loan transactions being

interest free, the same did not qualify to be financial debt does not stand to

reason.

28. To rebut the contention of the Respondent No.1 that the Board meetings

as well as the resolutions approving the loan agreements were a sham,

reference was made to the judgement of this Tribunal in the matter of

Agarwal Polysacks Ltd. vs. K.K. Agro Foods and Storage in CA (AT)(Ins)

No. 1126 of 2022 which held that a written financial contract is not the only

basis for proving of a financial debt. Much emphasis was laid that the Hon'ble

Supreme Court after taking note of the findings of its judgment in Asset

Reconstruction Company (India) Ltd. Vs Bishal Jaiswal (2021) 6 SCC 366

had held in the matter of Vidya Sagar Prasad vs. UCO Bank in Civil Appeal

No. 1031 of 2022 that the entry made in the balance sheet clearly amounts

Page 18 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 to acknowledgement of the liability. It has also been asserted that any non-

compliance under the Companies Act cannot negate a petition filed under

Section 7 as long as there is a valid debt and default in payment of the said

debt.

29. Before we come to our analysis and findings, we would like to see the

observations of the RP in respect of the allegations made by the present

Respondent No.1 as submitted in compliance of the directions of the

Adjudicating Authority. It is pertinent to note that it was submitted by the RP

that prior to making their observations, they had sent emails on 09.08.2022

and 20.08.2022 to the Financial Creditors seeking clarifications. When the

financial creditors did not give their clarifications, the RP after perusing the

records of the Corporate Debtor including the Balance sheet submitted a

compliance affidavit to the directions of the Adjudicating Authority dated

23.08.2022. These observations have been placed in a tabular format by the

RP in their affidavit before this Tribunal, the relevant excerpts of which are

reproduced below though not in the original tabular format:

"4.Allegation - Mentioning of new registered office in the alleged old loan agreement.

Remarks- It is to be noted that as per form INC-22 filed with Registrar of Companies, the Registered office of Acute Daily Media Private Limited was shifted from:

D.K-1, Danish Kunj, Kolar Road Tehsil Huzur Bhopal To

E-3/235 Arera Colony, Bhopal-462016 on 30.04.2019.

5. Allegations-Mentioning of the remedy of IBC in the alleged loan agreement dated 21.07.2016.

Page 19 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Remarks- It is submitted that IBC Code came into effect on 28.05.2016 when the assent of President was obtained on 28.05.2016. It was passed by Rajya Sabha on 05.05.2016.

It is further submitted that Section 7 of the Code came into force on 01.12.2016. However, the loan agreement was executed between the Corporate Debtor and Respondent No. 1 Acute Daily Media Private Limited on 21.07.2016 wherein the Code was already in place, however, it did not come into force in July 2016.

6. Allegations- All loan agreements verbatim copy of each other.

Remarks- The loan agreement entered into between all Financial creditors and corporate Debtor are same except the amount of the loans and dates. However, it is also transpired from the address mentioned in the present petition that all Financial creditors are related to each other.

7. Allegations-No stamp duty was paid on the loan agreements.

Remarks- The loan agreements have been entered into between the Respondents and the Corporate Debtor on their respective letter heads.

However, the Answering Respondent/Resolution Professional sought the clarification from the Respondents, however, the Answering Respondent/ Resolution Professional has not received any supplied any Information from them.

8. Allegations-Date of alleged Board meetings not recorded in the Annual return of CD.

Remarks- The dates of the Board meeting such as 20.07.2016, 02.12.2019, 26.05.2019 and 30.12.2019 to avail the loan from Financial Creditor, are different from the date of Board meeting as shown in the Form MGT-7 (Annual Return) as filed by the Corporate Debtor.

9. Allegations- No specific loan to CD shown in the Balance sheets and audit reports of CD.

Remarks- The borrowings have been shown in the financial statements of CD for the financial year 2016-17 and FY 2019-20 as long term borrowings and short term borrowing on consolidated basis. Party wise data was not shown in the audited balance sheet. However, the books of accounts which are being maintained on the tally accounting software which had been handed over to the Answering Respondent/Resolution Professional, shows that the same under the head of Unsecured Loans.

Page 20 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Further, as alleged in the para 13(g) of the IA that "Further, the audit report of the CD for FY 2016-17 prepared by statutory auditor clearly mentions at point 9 to annexure A thereof that the company had not raised any money in the form of loans during the year". However, RP has gone through the point no 9 to the annexure A of audit report which is reproduced below:

"The Company did not raise any money by way of initial public offer or further public offer (including debt instrument) and term loans during the year."

It is pertinent mention here that a similar allegation has been made for the FY 2019-20 and a similar remark/opinion/ stipulation has been made by the statutory auditor in their audit report for the FY 2019-20.

10. Allegations- Audit report of CD clearly shows no borrowing costs.

Remarks- The statutory auditor report of the CD for the FY 2020-21 at point no 1(h) of the notes to the accounts, has a mention that "The company does not have any borrowing cost"

11. Allegation-CD not eligible to accept any loan from Respondent No. 4 to 6

Remarks- Para 4 of the Annexure A to the Independent Auditor Report, the Statutory Auditor report for the FY 2019-20 that the CD has not accepted any deposits from the public covered u/s 73 to 76 of the Companies Act, 2013. However, there was no mention about any loan taken in the statutory auditor report.

12. Allegations- Respondent No.1/ Financial Creditor not eligible to advance any loan to the CD

Remarks- In compliance of Section 186 of the Companies Act, 2013, Respondent No.1 / Financial Creditor being corporate entity, has neither placed any documents pertaining to any resolution authorizing to extend the loan beyond its paid up capital and free reserves nor the Resolution Professional has observed the same documents having filed with ROC by the Respondent No.1/Financial Creditor.

However, it is to be mentioned that Respondent Nos. 4 to 6, being individual are not covered under the Companies Act, 2013.

13. Allegations- Alleged interest of 12% not accrued in the books of accounts of Respondent No.1/Financial Creditor.

Remarks- Having gone through the Financial statements of Respondent No.1/Financial Creditor from 2016-17 tο 2020-21, it is

Page 21 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 observed that no accrued interest income has been shown/ reflected/booked.

14. Allegations- Conduct of Respondents

Remarks- On the perusal of audited financial statements of the R-1 financial creditor, amount receivable from Sharp Eye Advertising Private Limited has been shown under Main head Long term Loan & advance sub-head deposits had been increased from Rs.50.00 lakhs (in FY 2016-17) to Rs. 97.00 lakhs (in FY 2020-21).

However, the other Respondents can only defend such allegations."

30. At this juncture it may be useful to see how the Adjudicating Authority

had dealt with the issue at hand. We find that the Adjudicating Authority has

taken note of the allegations and counter-allegations of both the parties

besides taking note of the ledger accounts and observations of the RP on the

pointed allegations which were raised by the present Respondent No. 1.

However, prior to taking up the matter for adjudication, the Adjudicating

Authority has put in perspective Section 65 of IBC in the light of the

judgements of this Tribunal in Pawan Kumar Ex-Director and Shareholder

Vogue Clothiers Pvt. Ltd. Vs. Utsav Securities Pvt. Ltd. [(2021) ibclaw.in

368 NCLAT]; Shri Amit Katyal Vs. Mrs Meera Ahuja [(2020) ibclaw.in 326

NCLAT]; Ashmeet Singh Bhatia v. Pragati Impex India Pvt. Ltd. and Anr.

[(2024) ibclaw.in 63 NCLAT] and Unigreen Global Pvt. Ltd. v. Punjab

National Bank and Ors. [Company Appeal(AT)(Ins.) 81 of 2017] and

thereafter in paragraphs 10 and 11 has proceeded to note down the reasons

justifying adjudication of the allegations levelled by the present Respondent

No. 1 which is as reproduced below:

"10. Thus, even after the Section 7 application has been admitted, this Adjudicating Authority has the jurisdiction to consider the application alleging initiation of insolvency proceedings fraudulently or with malicious intent for any purpose other than the resolution of the Page 22 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 insolvency of the Corporate Debtor. In the present case, the Applicant has stated that the original Section 7 application was filed to defeat the outcome of Oppression and Mismanagement case filed against the Corporate Debtor by the Applicant/Shareholder in 2013 (CP No. 143(ND)/2013) in which the present Applicant sought redressal of its grievance that the Promoters of M/s Sharp Eye Advertising Pvt. Ltd. decreased the shareholding of 62.57% to 17.86% by illegal allotment of shares to two other companies without due consent. It is noted that the said Petition was ruled in the favor of the Applicant. The Applicant has also pointed out various transactions reflected in the Audited Books of Accounts of the Corporate Debtor, which are purportedly contrary to the assertions made in the impugned proceedings under Section 7 of IBC, 2016 in the case of the Corporate Debtor.

11. These facts obviously were never brought before the Adjudicating Authority during the proceedings which culminated in the order dated 17.05.2022 initiating the CIRP in the case of the Corporate Debtor. Thus, we find enough justification to adjudicate the allegation leveled by the Applicant in the present application on merits."

31. We have no quarrel with the proposition of the Appellants that in terms

of Section 7 of the IBC, what is required to be seen is the existence of a debt

and default of the said debt. Once a debt becomes due or payable and there

is incidence of non-payment of the said debt in full or part, CIRP may be

triggered by the Financial Creditor as long as the amount in default is above

the threshold limit. Be that as it may, Section 65 of the IBC is an enabling

provision within the statutory framework of IBC whereby even if a Section 7

application has been filed or has been admitted, it vests jurisdiction on the

Adjudicating Authority to examine an application under Section 65, if a prima

facie case is made out to show that the Section 7 application had been filed

'fraudulently' or 'with malicious intent' and for purpose other than resolution

of insolvency or liquidation. In the present case too, we therefore do not find

any error on the part of the Adjudicating Authority to consider the Section 65

application filed by the Respondent No.1 on being prima facie satisfied that

Page 23 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 the Section 7 application seeking initiation of CIRP proceedings had been filed

by suppression of relevant material for purposes other than insolvency

resolution. There is no statutory embargo on the Adjudicating Authority to

exercise its discretion carefully and judiciously in a Section 65 application to

prevent and protect the Corporate Debtor from being dragged into CIRP. This

is a well settled proposition of law and the Adjudicating Authority has drawn

reference to the binding precedents laid down by this Tribunal which have

already been noticed at paragraph 30 above. We are therefore not much

impressed by the argument of the Appellants that the Section 7 order of

17.05.2022 having attained finality, it cannot be relooked into by the

Adjudicating Authority even when a Section 65 application is filed.

32. While returning our findings on the tenability of the impugned order,

we must at the very outset add that that to prove any transaction to be

collusive and fraudulent in nature, the degree of proof and evidence required

should be beyond reasonable doubt and we propose to apply the same

standard of proof to the facts of the present case.

33. When we see the material on record, we have no doubt that there was

disbursal of money by the Financial Creditors to the Corporate Debtor. From

available records, we also agree that the receipt of this amount by the

Corporate Debtor has not been controverted by the Corporate Debtor. Neither

has any claim been made that this entire sum was paid by the Corporate

Debtor. That being the case, there was outstanding payment on the part of

the Corporate Debtor qua the Appellants which remained unpaid leading to a

default. Basis this premise, we notice that the Adjudicating Authority on

17.05.2022 had initiated CIRP of the Corporate Debtor in terms of Section 7 Page 24 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 of IBC. However, when the Section 65 application was filed, the Adjudicating

Authority took cognizance of the fact that several facts had not been placed

before the Adjudicating Authority during the Section 7 proceedings which

culminated in the order of 17.05.2022. The question which needs to be

answered is whether the Adjudicating Authority in the impugned order was

correct in coming to the conclusion that in the absence of knowledge of these

material facts, for reasons of having been either falsified or suppressed, the

earlier order of 17.05.2022 failed to note that routine business transactions

were fraudulently given the colour and character of loan transactions to bring

them within the meaning of Section 5(8) of the IBC. It may also not add be out

of place to take note of the fact that when the Section 7 application was being

considered by the Adjudicating Authority, the promoters of the Corporate

Debtor kept the Adjudicating Authority in the dark about the ongoing OMP.

34. The alleged false material particulars and facts which were not put in

the correct perspective before the Adjudicating Authority in the Section 7

application on having been brought to light in the instant Section 65

application has been captured at length in the impugned order which have

been extracted hereunder:

"12. In the case in hand, the Applicant has pointed out to certain financial transactions in the Audited Books of Accounts of the Corporate Debtor and related documents uploaded on the MCA website at the time of the disbursement of the alleged loans to the Corporate Debtor i.e., FY 2016-17. On the basis of the discrepancies in the aforementioned documents, it is alleged that normal financial transactions have been given the colour of a loan transaction subsequently to justify the filing of application under Section 7 against the Corporate Debtor ultimately resulting in the initiation of CIRP by the order of the Adjudicating Authority dated 17.05.2022. This Bench has proceeded to verify the correctness of these allegations with reference to the Audited Books of Accounts and related documents of the

Page 25 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Corporate Debtor, which have been placed before this Bench by the RP of the Corporate Debtor. In this context, the alleged false material particulars as pointed out by the applicant are listed below:

(i) The dates of the alleged Board Meetings such as 20.07.2016, 02.12.2019, 26.05.2019 and 30.12.2019 to avail the loan from Financial Creditor, are different from the date of Board Meetings shown in the Form MGT-7 (Annual Return) as filed by the Corporate Debtor.

(ii) Though the remedy of IBC was mentioned in the alleged Loan Agreement dated 21.07.2016, the relevant Section 7 of the Code came into force only on 01.12.2016.

(iii) These alleged transactions are in violation of Section 186(2) of the Companies Act, 2013 as the Respondent No. 1/ Financial Creditor, being a corporate entity has neither placed any documents pertaining to any resolution authorizing to extend the loan beyond its paid up capital and free reserves nor the relevant documents have been filed before the ROC by the Respondent No. 1.

(iv) The Statutory Audit Report of the Corporate Debtor for the FY 2020- 21 clearly points out at point no. 1(h) of the Notes to the Accounts, that "The company does not have any borrowing cost". It is stated in the Annexure-A to the Independent Auditors' Report, the Statutory Auditor Report for the FY 2019-20 that the CD has not accepted any deposit from the public covered u/s 73 to 76 of the Companies Act, 2013. Further, there was no mention about any loan taken in the statutory auditor report.

(v) The RP has confirmed that he has moved from D.K-1, Danish Kunj, Kolar Road, Tehsil Huzur, Bhopal to E-3/235 Arera Colony, Bhopal- 462016 only on 30.4.2019 through the later address is mentioned in the Loan Agreements dated 21.07.2016.

13. In this context, we observe that:

"It is highly improbable that the first impugned loan transactions were made in the normal course of the business of the Respondent/Corporate Debtor and there is a valid ground to conclude that some of these evidences have been created much after the receipt of the amounts by the Corporate Debtor, which are subsequently given the color of the loan amounts."

14. Furthermore, there is corroborative evidence to support the allegation of fraud in the Audited Books of Accounts itself.

14.1 The Audited Financial Statements of R-1/Financial Creditor shows that the amount receivable from Sharp Eye Advertising Private

Page 26 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 Limited has been shown under Main head Long Term Loan & advance sub-head Deposits which had been increased from Rs. 50.00 lakhs (in FY 2016-17) to Rs. 97.00 Lakhs (in FY 2020-21).

14.2 Furthermore, no accrued interest is shown in the Books of Accounts of R1/ Financial Creditor from Financial Year 2016-17 to 2020-21, which is contrary to the claim of the respondents of an accrued interest at the rate of 12% on the alleged loans."

35. We now proceed to look at the clarificatory response of the Appellants

to the alleged false material particulars which have been brought to light

before the Adjudicating Authority by the Respondent No.1 in the Section 65

application. On the depiction of wrong address in the loan agreement

document of 21.07.2016 which has been confirmed by the RP and is also

borne out by the ROC records we find that the Appellants in their response

have not denied this discrepancy in the address contained in the loan

agreement document except for making a counter assertion that this did not

render the loan agreement document invalid. On the allegation of the loan

agreement documents being verbatim copies of each other, which factum has

again been confirmed by the RP, this has also been admitted with a facile

explanation that common templates of loan agreements were followed since

the financial creditors were all related. On the charge as to how the remedy of

IBC could find mention in the loan agreement of 21.07.2016 at a time when

the IBC had not come into play, the explanation offered by the Appellants is

that IBC had received assent of the President of India by then. This is a weak

defence since IBC came into effect on 01.12.2016 which date was clearly

posteriori to the date of the loan agreement, again a fact which has been

confirmed by the RP. On the allegation of non-stamping of the loan

agreements, the same has not been denied but brushed aside with the

Page 27 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 explanation that unstamped loan agreement does not render a Section 7

application non-maintainable. We are in agreement with the Adjudicating

Authority that the Appellants have not been able to properly rebut these

specific allegations. The tone and tenor of reply of the Appellants to all the

above charges are clearly evasive and far from being resounding. The

Appellants have not repelled the allegations on merits but have simply

dismissed them by holding them as hyper-technical, irrelevant and obnoxious

without adequate substantiation.

36. The Respondent No.1 has also raised the charge that the loan

agreements did not reflect genuine loan transactions but were mere routine

business transactions which were subsequently fraudulently misrepresented

as loans to enable initiation of CIRP against the Corporate Debtor. In support

of their allegations, it has been mentioned that the dates of Board meetings

were not recorded in the Annual Returns of the Corporate Debtor, wherein

resolutions were purportedly passed authorising the grant of loan. However,

the Appellants have simply side-stepped this allegation by dubbing it as a

hyper-technical objection. The RP has also confirmed that these Board

meetings do not find place in the Annual Returns of the Corporate Debtor in

Form No.MGT-7 for the financial years 2016-17 to 2019-20. When the Annual

Returns which form part of the ROC records do not reflect Board meetings, it

follows therefrom that resolutions claimed to have been passed in these Board

meetings regarding loan agreements could not have taken place and therefore

lack sanctity. Hence in the absence of a proper defence or cogent explanation

given by the Appellants, the Adjudicating Authority cannot be faulted for

Page 28 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 finding the alleged loan agreements by the Financial Creditors to be fabricated

and antedated with a fraudulent intent.

37. We also notice that it has been confirmed by the RP that the statutory

auditor in the Audit Report for FY 2016-17 and 2019-20 clearly stated that

the company did not raise any money by way of IPO and term loans during

the year. The statutory audit report of the Corporate Debtor for FY 2020-21

also mentions in the notes to the balance sheet that there was no borrowing

cost to the company. The RP has also confirmed that the balance sheet of the

Appellant No.1 did not indicate any interest income which had

accrued/reflected/booked to them. The fact that no accrued interest income

is reflected shows that no loan transaction ever took place and in the absence

of interest or any other consideration to show time value of money, the

transaction does not become a financial debt. There is no satisfactory

explanation to justify the non-accrual of interest in the Balance Sheet of the

Appellant No.1 except for attributing it to the accounting standards followed

by them which is a feeble defence. When no interest income had been reflected

in the balance sheet, yet computing the interest amount in the Section 7

application to cross the threshold hurdle lends credence to the narrative of

precipitation of fraud.

38. It is also the case of the Respondent that even if loan is reflected in the

books of the Corporate Debtor, there is no creditor-wise split-up of loans

reflected in the books of the Corporate Debtor, hence, the Appellants cannot

claim to have given loan. In response, the Appellants have endeavoured to rest

their explanation on the ground that the RPs remarks show that the

borrowings have been shown in the financial statements of Corporate Debtor Page 29 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 for the financial year 2016-17 and FY 2019-20 as long term borrowings and

short term borrowing on consolidated basis. Since loan transactions are

reflected in the balance sheets of the Corporate Debtor, mere allegations of

the Respondent No.1 cannot alter the nature or character of loan transactions

undertaken between the parties. It is however pertinent to note here that the

RP while returning the finding that the borrowings were reflected in the

Financial statements had also qualified their remark by stating that party wise

data in respect of the borrowings has not been shown in the audited balance

sheet and that this data figures only in the books of accounts which were

being maintained on the tally accounting software of the Corporate Debtor

where same is shown under the head of Unsecured Loans. However, given

that tally data was prepared by the Corporate Debtor itself, the bonafide of

this self-serving data cannot be relied upon.

39. No justification has also been provided by the Appellants as to how the

Appellants inspite of being ineligible to advance the alleged loans had done

so. That this tantamount to violation of Section 186 of the Companies Act has

also not been denied. Yet another violation of the Companies Act has been the

clubbing of the loans of private persons with the alleged loan of a corporate

entity in the balance sheet which also has not been explained. All the non-

compliance of the provisions of the Companies Act have been dealt with a

stock reply that these non-compliances are of no consequence as non-

compliance under the Companies Act cannot negate a petition filed under

Section 7 as long as there is a valid debt and default in payment of the said

debt.

Page 30 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024

40. While there is no quarrel over the fact that Section 7 vests rights on the

financial creditors to initiate CIRP proceedings against the defaulting

Corporate Debtor, however, debt and default cannot always be seen in

isolation. We cannot be unmindful of the fact that the Adjudicating Authority

is also required to take care that the provisions of Section 7 of IBC are not

misused or abused in any manner either by the financial creditor or the

promoters of the Corporate Debtor to take undue advantage at the cost of

insolvency resolution. Present is a case where the promoters of the Corporate

Debtor and the Financial Creditors in trying to create a non-existent financial

debt out of routine business entries, have ended up unwittingly committing

lapses which lapses when seen cumulatively points to a web of conspiracy and

collusion on their part to create a contrived situation of debt and default. The

mistakes and infirmities committed by the Appellants in the process are not

one-off or stand-alone mistakes or inadvertent errors. These errors are also

grave in that it also included violation of other statutes like Companies Act.

When we take a comprehensive and holistic view of the entire conspectus of

facts and circumstances, we find that there is ample proof to show that the

Section 7 application was a motivated attempt to bring the Corporate Debtor

into the rigours CIRP proceedings. The bonafide of the Appellants in the filing

of the Section 7 application is clearly doubtful. Viewed from the angle of the

totality of circumstances, the findings of the Adjudicating Authority that the

insolvency proceedings in C.P.(IB)-50(PB)/2021 resulting in the order dated

17.05.2022 were initiated fraudulently and with malicious intent for a

purpose other than the resolution of the insolvency of the Corporate Debtor,

is neither dehors the records nor unwarranted. When such fraudulent CIRP

Page 31 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024 proceedings are initiated, the Adjudicating Authority has jurisdiction under

the IBC to consider the allegations of fraudulent and malicious initiation of

CIRP proceedings in terms of Section 65 and recall the CIRP admission order.

41. For the foregoing reasons as discussed, we find no good reasons which

warrant any interference in the impugned order. The Appeal is found to lack

merit and is dismissed. No cost.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) Place: New Delhi Date: 16.01.2025

Harleen/Abdul

Page 32 of 32 Company Appeal (AT) (Insolvency) No. 1480 of 2024