Amrit Rajani Erstwhile Director M/S ... vs Pegasus Assets Reconstruction Pvt. Ltd ...

Comp. App. (AT) (Ins) No. 375 of 2023 & I.A. No. 1261, 1262 of 2023

(Arising out of the Order dated 03.02.2023 passed by the National Company Law Tribunal, Mumbai Bench- IV in IA No. 2599 of 2022 in CP (IB) No.- 529/MB/2021.)

IN THE MATTER OF:

Amrit Rajani ...Appellant Erstwhile Director M/S Shri Balaji Entertainments Private Limited Address:- 502, Ghanshyam Chamber, B-12, Link Road, Andheri (W), Mumbai - 400053. (Maharashtra) Versus

1. Pegasus Assets Reconstruction Private Limited 55/56, 5th Floor, Free Press House, Nariman Point, Mumbai - 400-021 (Maharashtra) ...Respondent No. 1

2. Shri Balaji Entertainment Private Limited Through Liquidator Mr. Sandeep Goel 1604, Verona Hiranandani Gardens, Powai, Mumbai 400076 (Maharashtra) ...Respondent No. 2

Present For Appellants: Mr. Umang Mehta & Mr. Harsh Jain, Advocates.

For Respondents: Mr. Dinkar Singh & Mr. Rohit Singh, Advocates. Comp. App. (AT) (Ins.) No. 375 of 2023

JUDGEMENT

(23. 01.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed U/S 61(1) of the Insolvency and Bankruptcy

Code, 2016 ('Code') by the Appellant i.e., Amrit Rajani, Erstwhile Director of

Shri Balaji Entertainment Private Ltd., the Corporate Debtor/Respondent No. 2

herein against the Impugned Order 03.02.2023 passed by the National Company

Law Tribunal, Mumbai Bench (IV) ('Adjudicating Authority') in IA. No. 2599

of 2022 in Company Petition No. (IB)-529/MB/2021 wherein the application filed

under Section 33 (1) of the Code by the Respondent No. 2 has been allowed and

disposed of.

2. M/s Pegasus Assets Reconstruction Private Limited, the Financial Creditor,

is the Respondent No. 1 herein, who filed an application being CP (IB)

No.529/MB/2021 under Section 7 of the Code for initiating Corporate Insolvency

Resolution Process ('CIRP') against Shri Balaji Entertainments Pvt Ltd

("Corporate Debtor") and Respondent No. 2 herein claiming a total default of

Rs.35,90,56,629/-.

3. The Financial Creditor (Respondent No. 1) stated that the account of the

Corporate Debtor (Respondent No. 2) was classified as Non-Performing Asset

("NPA") on 02.12.2019, with the date of default being 01.06.2019. The

Respondent No. 1 further stated that the Corporate Debtor was both a co-borrower

and a corporate guarantor under the loan agreement, primarily in relation to a loan

Page 2 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

extended to Principal Borrower M/s Universal Textile Waterproof Company

(India) ("UTWC").

4. The Appellant stated that on 18.06.2021, SVC Co-operative Bank Limited

(SVC Bank), a Multi-State Co-operative Bank registered under the Multi-State

Co-operative Societies Act, 2002, sanctioned a Term Loan of Rs. 2037.87 Lakhs

and an Overdraft limit of Rs. 423.29 Lakhs in favour of Principal Borrower

UTWC, wherein the Corporate Debtor was alleged to be a co-borrower and

corporate guarantor for UTWC.

5. The Appellant submitted that on 31.07.2018, to effectuate the sanction letter

dated 19.07.2018, the Corporate Debtor provided a corporate guarantee for the

loan to SVC Bank. According to the Appellant, UTWC defaulted on repayment

on 01.06.2019, leading to UTWC being declared as a Non-Performing Asset

(NPA) on 02.12.2019. The Appellant stated that SVC Bank issued a notice under

Section 13(2) of the SARFAESI Act, 2002, demanding repayment of

₹29,89,96,940/-. Subsequently, on 27.02.2020, a Deed of Assignment was

executed between SVC Bank and the Respondent No. 1 regarding financial

assistance. It has been brough out that as per the Respondent No 1's Statement of

Accounts dated 30.04.2021, the debt owed by the Corporate Debtor amounted to

₹35,90,56,629/-.

6. The Appellant submitted that on 18.05.2021, Respondent No. 1 filed

Company Petition No. 529/MB/2021 under Section 7 of the Code against the

Page 3 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Corporate Debtor which was admitted by the Adjudicating Authority and

Mortarium was declared.

7. The Appellant submitted that, through the Impugned Order dated 03.02.2023,

the Adjudicating Authority allowed the application of the Resolution Professional

and appointed a liquidator, following just four meetings of the Committee of

Creditors ('CoC'), which unanimously resolved to liquidate the Corporate Debtor

with a 100% vote. The Appellant stated that the Interim Resolution Professional,

Shri Gajesh Labhchand Jain, filed his first progress report on 16.05.2022,

indicating that the Corporate Insolvency Resolution Process had commenced on

20.04.2022 and the public announcement of the same was made on 22.04.2022.

8. It is submitted by the Appellant that upon verification of the claims, a report

under Regulation 17(1) certifying the constitution of the CoC was submitted. The

Appellant further submitted that the Committee was constituted with the

following financial creditors, along with their respective shares of the claimed

amounts: -

a) Pegasus Asset Reconstruction Private Limited - amount claimed: -

40,67,84,523/-

b) NKGSB Co-operative Bank Limited - amount claimed - 10,78,93,356/-

The Appellant submitted that the IRP had distributed the voting share

of Pegasus and NKGSB as 79% and 21%.

9. The Appellant submitted that the entire amount claimed had been treated

as admitted by the Interim Resolution Professional without any details being

Page 4 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

provided regarding the verification process. The Appellant contended that the

Interim Resolution Professional has demonstrated gross negligence by failing to

make any effort to verify or scrutinize the said claims to assess their veracity. The

Appellant submitted that the Interim Resolution Professional, upon receiving the

order of his appointment, was fully aware of the contest raised by the Appellant

before the Adjudicating Authority and yet neglected to undertake a thorough

examination of the claims of the Financial Creditors.

10. The Appellant submitted that the mere admission of the application under

Section 7 of the Code does not automatically verify the claims of all the financial

creditors and necessary exercise of due diligence in the process of verifying the

same should have been undertaken by the Interim Resolution Professional.

11. The Appellant submitted that the adjudication of an application under

Section 7 of the Code by the Adjudicating Authority is limited to a prima facie

determination of the corporate debtor's default and does not constitute an

exhaustive verification of all claims by financial creditors and submitted that the

Interim Resolution Professional's failure to undertake or present any verification

of the claims, particularly when the very existence of the alleged debt is under

scrutiny before this Appellate Tribunal amounts to gross negligence. The

Appellant alleged that IRP has taken steps towards expediting the liquidation of

the corporate debtor without due diligence and further alleged that the conduct of

the Resolution Professional in merely recording claims and notifying them as

verified, without any supporting proof, coupled with the ongoing challenge to the

Page 5 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

veracity of the entire claim, demonstrates a mala fide intention to push the

Corporate Debtor into liquidation.

12. The Appellant submitted that during the second meeting of the CoC on

13.06.2022, it was resolved that the Resolution Professional would present

detailed Expression of Interest documents and FORM-G was published.

However, at the time of this meeting, the claim amount submitted by NKGSB Co-

operative Bank Limited was revised to Rs. 27,85,33,677/- on the grounds that an

alleged corporate guarantee had been issued by the Corporate Debtor to "Whiz

Enterprises Private Limited." The Appellant stated that the Resolution

Professional accepted this revised claim without objection, treating it as verified,

without any consideration of whether the alleged corporate guarantee was valid,

properly invoked, or the debt adjudicated. As a result, the voting percentage of

NKGSB Co-operative Bank Limited increased to 41%. It is the case of the

Appellant that the conduct of the Resolution Professional in accepting both the

initial and revised claims and treating them as verified on both occasions clearly

demonstrates a lack of independent verification of the claims. The Appellant

highlighted that the Resolution Professional has simply treated these claims as an

admission of debt on the part of the Corporate Debtor, without due diligence or

scrutiny.

13. The Appellant submitted that the earlier Resolution Professional, Shri

Gajesh Labhchand Jain, continued to act as the Resolution Professional despite

expressing his disinterest, even after a new Resolution Professional had been

Page 6 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

appointed which is in direct contradiction to the fact that the earlier Resolution

Professional was functus officio. Furthermore, the Appellant submitted that the

minutes of the meetings of the CoC fails to reflect any effort on the part of the

CoC or the Resolution Professional to revive the Corporate Debtor. The

Appellant further submitted that the minutes of the CoC meetings noted that the

company possesses working capital, movable assets, and ongoing projects, yet no

tangible steps were taken to utilize these resources to facilitate the revival of the

Corporate Debtor.

14. The Appellant submitted that without prejudice to the submissions

regarding the existence of the corporate debt and the arbitrary initiation of the

Corporate Insolvency Resolution Process by the order of the Adjudicating

Authority, it was the duty of the CoC to actively engage in efforts to revive the

Corporate Debtor before making a unilateral decision to liquidate.

15. The Appellant submitted that the primary objective of the Code is to the

resolution and revival of the Corporate Debtor, with liquidation being considered

only as a measure of last resort. The Appellant assailed the Impugned Order which

fails to adjudicate or even take note of the complete absence of any meaningful

effort by the CoC toward reviving the Corporate Debtor and instead, the order has

mechanically allowed the application and appointed a liquidator without

considering whether the CoC had discharged its duty to explore resolution

opportunities.

Page 7 of 18

Comp. App. (AT) (Ins.) No. 375 of 2023

16. The Appellant further submitted that it is evident from the conduct of the

CoC and the meetings held that no genuine efforts were made to explore viable

revival options. The proceedings reveal a lack of commitment to the revival

process, as demonstrated by the fact that the Resolution Professional, Shri Gajesh

Labhchand Jain, who had already expressed his unwillingness to continue as

Resolution Professional, remained in the role until the fourth CoC meeting where

it was resolved to liquidate the Corporate Debtor. The Appellant submitted that

the decision to liquidate a corporate debtor is a serious matter and cannot be

treated as routine and necessitates adherence to all prescribed procedures and a

thorough exploration of resolution possibilities before resorting to liquidation.

17. The Appellant submitted that Respondent No. 1 had filed certain additional

documents before the Adjudicating Authority which should not have been

allowed. It is submitted by the Appellant that the filing and reliance on such

documents are prima facie in violation of the principles of natural justice and the

rule of law.

18. Concluding his arguments, the Appellant urged this Appellate Tribunal to

dismiss the Impugned Order and allow his appeal.

19. Per contra, the Respondent No. 1 denied all the averments made by the

Appellant in the present appeal

20. The Respondent No.1 submitted that based on his application filed under

Section 7 of the Code, the Adjudicating Authority ordered for CIRP against the

Corporate Debtor. The Respondent No.1 elaborated that Mr. Gajesh Labhchand

Page 8 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Jain was appointed as the Interim Resolution Professional ("IRP") for the

Corporate Debtor and was later confirmed as the Resolution Professional.

21. The Respondent No.1 contended that Corporate Insolvency Resolution

Process commenced with a public announcement on 22.04.2022, initiated in

accordance with the statutory mandate of the Code and Form G was issued on

22.06. 2022, inviting interested parties to submit Expressions of Interest ("EoI")

by 07th July 2022. The Respondent No.1 submitted that no EOIs were received

by the deadline of 07th July 2022 from any prospective Resolution Applicants in

response to Form G published on 22.06.2022.

22. The Respondent No. 1 highlighted that during the third meeting of the CoC

on 12.07.2022, it was disclosed that suspended directors of the Corporate Debtor

informed that the Corporate Debtor had no assets, raising concerns regarding the

physical availability of assets w.r.t., assets mentioned in the last balance sheet.

The Respondent No. 1 noted that several issues were faced while conducting asset

valuation due to non-availability of details about the Corporate Debtor's assets,

which caused reasonable apprehension regarding their existence and

manipulation done by the Ex-Promoter/Appellant of the Corporate Debtor.

23. The Respondent No. 1 submitted that at the end of the third CoC meeting,

the Resolution Professional sought members' views on whether to issue a fresh

Form G or proceed with liquidation, but this decision was deferred to a subsequent

CoC meeting. The Respondent No. 1 contended that after considering all facts,

the CoC unanimously resolved to liquidate the Corporate Debtor with a 100%

Page 9 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

vote from its members in the fourth Coc meeting as it found no reasonable

chances of revival of the Corporate Debtor.

24. The Respondent further submitted that as per Section 33(2) of the Code, if

the resolution professional intimates a decision by not less than sixty-six percent

of voting shares to liquidate, the Adjudicating Authority must pass a liquidation

order. The Respondent No. 1 emphasised that in case where the corporate debtor

has no assets, the CIRP must end and liquidation must start keeping in view the

cardinal principle of value maximization.

25. The Respondent No. 1 submitted that Mr. Sandeep Goel was appointed as

Liquidator to conduct the liquidation process of Shri Balaji Entertainments

Private Limited as provided under Section 34(1) of the Code.

26. The Respondent No. 1 submitted that after considering all pleadings and

evidence presented by both parties, Adjudicating Authority justifiably allowed

the application for liquidation under Section 33 of the Code.

27. Concluding his arguments, the Respondent No.1 submitted that the Appeal

is liable to be dismissed with cost.

Findings

28. We have already noted facts of the case, background of CIRP and

background for recommending the Liquidation of the Corporate Debtor, while

recording the pleadings of the parties, hence, we shall not repeat the same for the

purpose of brevity. Suffice to note that certain financial facilities in terms of Term

Page 10 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Loan as well as working capital facilities were granted to UTWC by SVC/

Corporative Bank. It is noted that the Corporate Debtor gave its corporate

guarantee as well as became co-borrower of the loan . The Principal Borrower

i.e., UTWC could not repay the loan and service interest liability, therefore, an

application filed under Section 7 of the Code was initiated for an amount of Rs.

35,90,56,629/- as on 30.04.2021, which was admitted by the Adjudicating

Authority after passing the Order dated 20.04.2022. The Adjudicating Authority,

later on an application made by the Resolution Professional, allowed the

liquidation of the Corporate Debtor vide the Impugned Order dated 03.02.2023

since CoC decided to liquidate not finding the case to be fit for revival of the

Corporate Debtor.

29. We note that the CIRP commenced vide the public announcement on

22.04.2022. The Resolution process was initiated, Form G was issued on

22.06.2022, wherein it was stipulated that interested parties, on or before 07.07.

2022, may submit the EoI but no EoI was received till the last date of submission

on 07.07.2022, from any prospective Resolution Applicant, in response to Form

G, published on 22.06.2022. The CoC in its 3rd meeting held on 12.07.2022, was

apprised about non-availability of details of the assets of the Corporate Debtor,

which causes reasonable apprehension about physical availability of any of the

assets of the Corporate Debtor, as mentioned in the last balance sheet (not filed

with MCA) received from the Promoters on 02.05.2022. We note that the CoC

further appraised the members, about the capital work amounting to Rs. 1.34

Page 11 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Crores, in the financial year 2020, but the promoter directors had not been able to

give any explanation about such expenditure. The CoC after considering the

aforesaid facts, unanimously resolved to liquidate the Corporate Debtor. The said

resolution was passed with 100% votes from the members of CoC. The

Resolution Professional filed an application seeking liquidation of Corporate

Debtor under Section 33(1) (a), 33(2) and 34(1) of the Code and the Adjudicating

Authority, after considering the peculiar facts of the present case, allowed the

application to liquidate the Corporate Debtor, under the provisions of Section 33

of the Code. It has been pleaded before us by the Respondent No. 1 that the Code

lays down an established process flow for distressed companies, which entails a

compulsory insolvency resolution process prior to liquidation. Thus, as per the

settled law, on the hierarchy of processes, every company before its

Liquidation/Dissolution pursuant to the Code, 2016, has to mandatorily undergo

to the proceeding CIRP. However, there may be some unique cases wherein the

CIRP, would not be purposeful, hence not warranted at all- a common example,

being nil assets in the company. The Respondent No. 1 has argued that where the

company has nil assets, there is practically nothing left to resolve and/ or realise.

As a result, the odds of receiving a resolution plan during CIRP, or realization

during liquidation seems certainly negative. Thus, a prima-facie stance was much

in favour of liquidation and finally to dissolution of the Corporate Debtor.

30. We note that basically the liquidation of the Corporate Debtor has been

challenged by the Appellant on the following grounds :-

Page 12 of 18

Comp. App. (AT) (Ins.) No. 375 of 2023

(I) The CoC had not taken full initiatives to resolve the Corporate Debtor

which is against the spirit of the Code.

(II) The Section 7 application was admitted on forged documents filed by

the Respondent No. 1. The Appellant has also assailed the conduct of

the Resolution Professional as not good as he accepted the claims of the

Financial Creditor without verification.

(III) The additional documents of ledger accounts of SVC Bank were

introduced to harm the Corporate Debtor and requested this Appellate

Tribunal not to consider such additional document filed by the

Respondent No. 1.

31. Since, these points are interconnected and inter dependent and shall be

dealt in conjoint manner in the following discussions :-

(I) The CoC had not taken full initiative to resolve the Corporate

Debtor against the spirit of the Code.

(a) We have noted that CoC indeed had taken the initiatives to

resolve the Corporate Debtor and Form G and invited issuance of

'EoI'. It is noted that no response came and as such CoC

considered remote likelihood of resolution of the Corporate

Debtor.

(b) We have further noted that the CoC in its third CoC meeting held

on 12.07.2022 has came to notice the fact that the Suspended

Page 13 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Directors of the Corporate Debtor informed the CoC that the

Corporate Debtor has no assets.

(c) The Respondent No. 1 also brought out that the CoC faced several

issues while trying to value the assets of the Corporate Debtor

such as non availability of details of the assets of the Corporate

Debtor, physical non-availability of any assets of Corporate

Debtor in contrast to assets being shown in the last balance sheet

received from the ex-promoters of the Corporate Debtor on

02.05.2022.

(d) We have also been apprised that capital works amounting to

Rs. 1.34 Crores as shown in financial year 2020 could not be

explained by the Ex-Promoter Directors of the Corporate Debtor

regarding how this money was spent, which according to the

Respondent No. 1 and CoC was suspicious act of the Appellant.

(e) We have noted from the pleadings as well as from the Impugned

Order that there was no likelihood of revival of the Corporate

Debtor in absence of any assets of the Corporate Debtor as well

as non-availability of records, as such the CoC passed the

resolution to liquidate the Corporate Debtor with 100% voting

rights.

(f) We further note that the Adjudicating Authority, after going

through all details of IA, approved the liquidation of the

Page 14 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Corporate Debtor based on I.A. No. 3150 of 2022 filed by the

Respondent No. 2.

(g) We will refer to Section 33 (2) of the Code, which provides that-

"Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by not less than sixty-six per cent of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section ( 1 )[2]"

(Emphasis Supplied)

(h) Thus, Section 33(2) of the Code leaves hardly any choice to the

Adjudicating Authority, once the CoC decide with the 66%

voting rights to liquidate the Corporate Debtor. In the present

case, the resolution to liquidate was passed by 100% votes in

CoC. Hence, we do not find any error in the Impugned Order.

(II) The Section 7 application was admitted on forged documents filed

by the Respondent No. 1 and the conduct of the Resolution

Professional is not good as it accepted the claims of the Financial

Creditor without verification.

Page 15 of 18

Comp. App. (AT) (Ins.) No. 375 of 2023

(III) The additional documents of ledger accounts of SVC Bank were

introduced to harm the Corporate Debtor and requested this

Appellate Tribunal not to consider such additional document filed

by the Respondent No. 1 including ledger account of SVC Bank.

(a) As regard to the forged documents, the same pleading were taken

by the Appellant before the Adjudicating Authority which were

not accepted by the Adjudicating Authority.

(b) Incidentally, we note that in another connected appeal i.e.,

Company Appeal (AT) (Ins.) No. 476 of 2022 before us, the same

issue was taken by the same Appellant in I.A. No. 3150 of 2022

which was filed by the Respondent No. 1 seeking permission of

this Appellate Tribunal to allow additional documents like ledger

account of SVC Bank etc. On 12.12.2022, after hearing both the

parties, we passed the following order:-

"We have heard counsel for the parties and perused the record. The documents Annexure R/1 (a to d) are the ledger account of M/s Shri Balaji Entertainment Pvt. Ltd. whereas another document Annexure R/2 is the writ petition filed by six entities including Shri Balaji Entertainment Pvt. Ltd. before the Hon'ble Supreme Court. In so far as the writ petition is concerned, it is a part of the judicial record and the ledger account is a part of the accounts maintained by the SVC Co-operative

Page 16 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

Bank Ltd.; therefore, these documents are required to be taken on record in order to reach to a conclusion as to whether the application filed under Section 7 of the Code, should have been allowed or not. Accordingly, the application is allowed and these documents R/1 (a to d) and R/2 appended with the application are taken on record. ....."

(Emphasis Supplied)

(c) As such, we do not find any merit in the contention of the

Appellant. Incidentally, we note that the same Appellant had

gone even before the Hon'ble Supreme Court of India, where that

Corporate Debtor has pleaded the fact that he has been co-

borrower of the loan with the principal borrower UTWC.

(IV) The alleged manipulation of record by Financial Creditor.

(a) The Appellant conceded that the director of the Corporate Debtor as

well as the partners of the principal borrower i.e., UTWC are the

same person but argued that the record furnished by them as partners

including blank signed papers have been manipulated by the

Financial Creditor in fraudulent manner.

(b) During pleadings, no concrete evidenced has been reproduced by the

Appellant to establish the said allegations. We have already noted

that the documents produced by the SVC Bank clearly stipulate

Page 17 of 18 Comp. App. (AT) (Ins.) No. 375 of 2023

responsibilities of the Corporate Debtor as co-borrower and

Corporate Guarantor.

(c) As such, we do not find any merit in the submissions made on this

account by the Appellant.

32. The other issue raised by the Appellant are not based on an factual or legal

position, as such we do not find any merit in the contentions of the Appellant.

33. We find that the corporate debtor has no assets, the CIRP Period only

implies zero returns with avoidable costs such as liquidator's fee, public notice

etc. Thus, we do not find any error in the CoC decision to the Liquidator of the

Corporate Debtor which was accepted by the Adjudicating Authority in the

Impugned Order.

34. In view of detailed examination of various issues brought out in the present

appeal, we do not find any merit in the Appeal. Appeal devoid of any merit stand

rejected. No costs. I.A, if any, are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

Sim Page 18 of 18