Aditya Kumar Jajodia vs Srei Infrastructure Finance Ltd. & Ors

(Arising out of Order dated 26.10.2017 passed by the Adjudicating Authority (National Company Law Tribunal), Guwahati Bench, Guwahati in Company Petition (IB) No.-20/GB/2017)

IN THE MATTER OF:

Aditya Kumar Jajodia ...Appellant

Versus

Srei Infrastructure Finance Ltd. & Ors. ...Respondents

Present:

For Appellant : Mr. Ajay Gaggar, Mr. Robin Singh Sirohi and Ms. Vineeta Rathore Advocates.

For 1st Respondent : Mr. Abhijeet Sinha, Mr. Arijit Mazumdar, Mr. R. N. Ghosh, Mr. Akshay Chandna, Mr. Saikat Sarkar and Mr. Aditya Shukhla, Advocates.

For 2nd Respondent: Ms. Jayantika Ganguly and Mr. Rishav Banerjee, Advocates.

For 3rd Respondent: Mr. Amitesh Gaurav and Mr. Bhavesh Verma, Advocates.

Company Appeal (AT) (Insolvency) No. 324 of 2017

(Arising out of Order dated 26.10.2017 passed by the Adjudicating Authority (National Company Law Tribunal), Guwahati Bench, Guwahati in Company Petition (IB) No.-20/GB/2017)

IN THE MATTER OF:

Allahabad Bank ...Appellant

Versus

Srei Infrastructure Finance Ltd. & Ors. ...Respondents 2

Present:

For Appellant : Mr. O.N. Rai and Mr. Ashok Kumar Jain, Advocates.

For 1st Respondent : Mr. Abhijeet Sinha, Mr. Arijit Mazumdar, Mr. R. N. Ghosh, Mr. Akshay Chandra, Mr. Saikat Sarkar, Mr. Shambo Nandy and Mr. Aditya Shukhla, Advocates.

For 2nd Respondent: Ms. Jayantika Ganguly and Mr. Rishav Banerjee, Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

Srei Infrastructure (P) Limited ('Financial Creditor') filed an

application under Section 7 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as "I&B Code") for initiation of 'Corporate

Insolvency Resolution Process' against Assam Company India Limited

('Corporate Debtor'). By impugned order dated 26th October, 2017, the

Adjudicating Authority (National Company Law Tribunal), Guwahati

Bench, Guwahati, admitted the application, passed order of 'Moratorium'

and appointed 'Resolution Professional' with certain directions.

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 3

In Company Appeal (AT) (Insolvency) Nos. 292 & 293 of 2017

2. The Appellant- Mr. Aditya Kumar Jajodia, a Shareholder and

Director of the Company being aggrieved has challenged the impugned

order.

3. Learned counsel appearing on behalf of the Appellant submitted

that the 'Financial Creditor' has already taken steps under Section 19 of

the 'Recovery of Debts Due to Banks and Financial Institutions Act,

1993' (DRT Act). Further, according to him, action has been taken under

Section 13(4) of the 'Securitisation and Reconstruction of Financial

Assets and Enforcement of Securities Interest Act, 2002' (the SARFAESI

Act). Therefore, according to the Appellant, proceedings under the

aforesaid provisions having already initiated, the application under

Section 7 of the 'I&B Code' is not maintainable.

4. However, the aforesaid submissions cannot be accepted in view of

the decision of this Appellate Tribunal in "M/s. Unigreen Global Private

Limited v. Punjab National Bank & Anr.─ Company Appeal (AT)

(Insolvency) No. 81 of 2017", wherein this Appellate Tribunal by its

judgment dated 1st December, 2017 held:

"25. Similarly, if any action has been taken by a

'Financial Creditor' under Section 13(4) of the

SARFAESI Act, 2002 against the Corporate Debtor

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 4

or a suit is pending against Corporate Debtor

under Section 19 of DRT Act, 1993 before a Debt

Recovery Tribunal or appeal pending before the

Debt Recovery Appellate Tribunal cannot be a

ground to reject an application under Section 10, if

the application is complete.

26. Any proceeding under Section 13(4) of the

SARFAESI Act, 2002 or suit under Section 19 of

the DRT Act, 1993 pending before Debt Recovery

Tribunal or appeal pending before Debt Recovery

Appellate Tribunal cannot proceed in view of the

order of moratorium as may be passed.

27. It is also desirable to refer to Section 238 of

the I & B Code, as quoted below :

"238. Provisions of this Code to

override other laws - The

provisions of this Code shall have

effect, notwithstanding anything

inconsistent therewith contained in

any other law for the time being in

force or any instrument having effect

by virtue of any such law."

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 5

In view of the aforesaid provision also, I &

B Code shall have the effect notwithstanding

anything inconsistent therewith contained in any

other law for the time being in force including DRT

Act, 1993; SARFAESI Act, 2002; money suit etc."

5. It was next contended that the claim amount as shown by the

'Financial Creditor' is different than the claim amount as has been

shown in the application under Section 7 of the 'I&B Code'. There

being a mismatch of the claim amount, the application is to be

rejected. Reliance has been placed on the decision of this Appellate

Tribunal in "M/s. Starlog Enterprises Limited V/s. ICICI Bank

Limited─ Company Appeal (AT) (Insolvency) No. 5 of 2017",

wherein this Appellate Tribunal observed and held as follows:

" xxx xxx xxx

20.3 The notice has been given without

considering the provisions of sub-rule (3) of Rule

4 of Insolvency & Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 which

mandates that an application shall "dispatch

forthwith", a copy of the application "filed with

the Adjudicating Authority". Thereby meaning

a post-filing notice and not 'before filing", the

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 6

obvious purpose for the same being to put the

corporate debtor to adequate and informed

notice. The 'adjudicating authority' ought to have

realised these deviations from the prescribed

procedure and either rejected the application or

directed the Respondent to follow the provisions

of sub-Rule (3) of Rule 4 of Insolvency &

Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 and Rule 21 of the

National Company Law Tribunal Rules.

20.4 Lastly, the 'adjudicating authority' has

reached a conclusion at paragraph 9 of the

impugned order that it is satisfied that the

Appellant has committed a default of Rs.27.77

crores, which finding is not only perverse, but

also is contrary to the very application of the

Financial Creditor itself in complete disregard to

the apparent and conspicuous mismatch

between the amount demanded by the Financial

Creditor from the Appellant-Corporate Debtor in

its demand notice dated 6th February 2017 and

the amount stated to be in default in the said

application.

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 7

21. Showing an incorrect claim, moving the

application in a hasty manner and obtaining an

ex-parte order from the 'adjudicating authority'

which admitted such an incorrect claim, the

Financial Creditor cannot disprove its mala fide

intention by stating that the claim submitted is

correct amount. The I&B Code does not provide

for any such mechanism where post-admission,

the applicant financial creditor can modify their

claim amount.

22. In some of the cases, an insolvency

resolution process can and may have adverse

consequences on the welfare of the company.

This makes it imperative for the 'adjudicating

authority' to adopt a cautious approach in

admitting insolvency applications and also

ensuring adherence to the principles of natural

justice."

6. However, we are not inclined to accept the submissions as made

on behalf of the Appellant- Mr. Aditya Kumar Jajodia for the reasons

mentioned below.

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 8

7. This Appellate Tribunal by aforesaid judgment dated 24th May,

2017 in "M/S. Starlog Enterprises Limited (Supra)" set aside the

order on different grounds as mentioned in Paragraph No. 23, which

reads as follows:

"23. Admittedly the impugned order is ex-

facie illegal and ought to be set aside by the

Appellate Tribunal. For the reasons aforesaid,

we set aside the ex-parte impugned order dated

17th February 2017 passed by 'adjudicating

authority', Mumbai Bench in C.P. No.

12/1&BP/NCLT/MAH/2017 and allow the

appeal."

8. It is not the case of the Appellant- Mr. Aditya Kumar Jajodia

that the 'Financial Creditor' mislead the Adjudicating Authority and

impugned order was passed ex parte in view of such misleading

statement.

9. In "Innoventive Industries Ltd. v. ICICI Bank─ 2017 SCC

OnLine SC 1025", the Hon'ble Supreme Court noticed the Scheme of

Code under Section 7 which stands in contrast with the scheme under

Section 9 and observed as follows:

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 9

debt becomes due and is not paid, the

insolvency resolution process begins. Default is

defined in Section 3(12) in very wide terms as

meaning non-payment of a debt once it

becomes due and payable, which includes non-

payment of even part thereof or an instalment

amount. For the meaning of "debt", we have to

go to Section 3(11), which in turn tells us that a

debt means a liability of obligation in respect of

a "claim" and for the meaning of "claim", we

have to go back to Section 3(6) which defines

"claim" to mean a right to payment even if it is

disputed. The Code gets triggered the moment

default is of rupees one lakh or more (Section

4). The corporate insolvency resolution process

may be triggered by the corporate debtor itself

or a financial creditor or operational creditor. A

distinction is made by the Code between debts

owed to financial creditors and operational

creditors. A financial creditor has been defined

under Section 5(7) as a person to whom a

financial debt is owed and a financial debt is

defined in Section 5(8) to mean a debt which is

disbursed against consideration for the time

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 10

value of money. As opposed to this, an

operational creditor means a person to whom

an operational debt is owed and an operational

debt under Section 5(21) means a claim in

respect of provision of goods or services.

28. When it comes to a financial creditor

triggering the process, Section 7 becomes

relevant. Under the explanation to Section 7(1),

a default is in respect of a financial debt owed

to any financial creditor of the corporate debtor-

it need not be a debt owed to the applicant

financial creditor. Under Section 7(2), an

application is to be made under sub-section (1)

in such form and manner as is prescribed,

which takes us to the Insolvency and

Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the

application is made by a financial creditor in

Form 1 accompanied by documents and records

required therein. Form 1 is a detailed form in 5

parts, which requires particulars of the

applicant in Part I, particulars of the corporate

debtor in Part II, particulars of the proposed

interim resolution professional in part III,

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 11

particulars of the financial debt in part IV and

documents, records and evidence of default in

part V. Under Rule 4(3), the applicant is to

dispatch a copy of the application filed with the

adjudicating authority by registered post or

speed post to the registered office of the

corporate debtor. The speed, within which the

adjudicating authority is to ascertain the

existence of a default from the records of the

information utility or on the basis of evidence

furnished by the financial creditor, is important.

This it must do within 14 days of the receipt of

the application. It is at the stage of Section 7(5),

where the adjudicating authority is to be

satisfied that a default has occurred, that the

corporate debtor is entitled to point out that a

default has not occurred in the sense that the

"debt", which may also include a disputed

claim, is not due. A debt may not be due if it is

not payable in law or in fact. The moment the

adjudicating authority is satisfied that a default

has occurred, the application must be admitted

unless it is incomplete, in which case it may

give notice to the applicant to rectify the defect

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 12

within 7 days of receipt of a notice from the

adjudicating authority. Under sub-section (7),

the adjudicating authority shall then

communicate the order passed to the financial

creditor and corporate debtor within 7 days of

admission or rejection of such application, as

the case may be."

10. It is not the case of the Appellant- Mr. Aditya Kumar Jajodia

that they do not owe any debt to the 'Financial Creditor' or there is no

default. The Adjudicating Authority being satisfied that a default has

occurred admitted the application which was complete.

11. Another ground taken by the Appellant is that the Form 7 was

not signed by the authorised person. However, we are not inclined to

set aside the impugned order on such ground as the application under

Section 7 (in Form-1) was filed by the authorised employees of the

'Financial Creditor'.

In Company Appeal (AT) (Insolvency) No. 324 of 2017

12. The Appellant- Allahabad Bank is aggrieved against part of the

same impugned order dated 26th October, 2017 (Paragraph No. 84),

which reads as follows:

"84. On considering the submission by the

parties having regard to the materials on record,

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 13

it is found that the FC has established that on

11.08.2017, the CD owed an amount to the tune

of Rs. 59560655355.00 to the FC and there was

clear default on 11.08.2017 in respect of

repayment of the same. I have also found that

application is complete in all respects."

13. Learned counsel for the Appellant- Allahabad Bank submitted

that the Adjudicating Authority was not authorised to decide the claim

which is to be determined by the 'Resolution Professional' and then by

the 'Committee of Creditors'.

14. The 'Resolution Professional' appeared in person and submitted

that the 'Resolution Professional' has considered the claim of the

Allahabad Bank on the basis of the claim made by it uninfluenced by

the observations made at Paragraph No. 84 of the impugned order. It

was further submitted that the 'Committee of Creditors' has also

considered the claim of the Appellant- Allahabad Bank independently

uninfluenced by observations made at Paragraph No. 84 and quoted

above.

15. Having heard learned counsel for the parties, we accept the

submissions made on behalf of the Appellant- Allahabad Bank, and

accepted by the 'Resolution Professional' that the Adjudicating

Authority was not required to make any observations with regard to

any claim amount owed to one or other 'Financial Creditor' or

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017 14

'Operational Creditor' or other Creditor, which is required to be

determined by the 'Resolution Professional', and the 'Committee of

Creditors'. In case of any dispute, it is open to the Adjudicating

Authority to decide the claim. We accordingly, set aside Paragraph no.

84 of the impugned order, but affirm the rest part of the said order.

16. In the result, Company Appeals (AT) (Insolvency) Nos. 292 & 293

of 2017 are dismissed. The Company Appeal (AT) No. 324 of 2017 is

allowed with aforesaid observations. However, in the facts and

circumstances of the case, there shall be no order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 26th April, 2018 /AR/

Company Appeals (AT) (Insolvency) Nos. 292 & 293 & 324 of 2017