Anand Kumar Hasmukhbhai Patel And Ors vs Mr. George Samuel Liquidator Of Shreem ...

Gandhinagar 382421 Respondent

For Appellant: Mr. Jay Savla, Sr Advocatge with Ms Shilpi Chowdhary, Mr Harmish Shah, Ms Smriti Sandhu, Advocates. For Respondent: Mr Madhusudan Sharma, Advocate for R1/Liquidator. JUDGEMENT

(21st APRIL, 2023) JUSTICE RAKESH KUMAR, MEMBER (JUDICIAL) The present appeal has been preferred under Section 61 of

the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to

as the Code) against an order dated 17.11.2022 passed by National

Company Law Tribunal, Ahmedabad Bench, Ahmedabad

(hereinafter referred to as the Adjudicating Authority) in IA

No.1010/2022 in CP(IB) 550/2018. By the said order the Learned

Adjudicating Authority rejected the application i.e. IA

No.1010/2022 filed by the appellants which was filed for setting

aside an order dated 14.6.2022 for proceeding ex-parte against

appellants.

2. The short facts of the case is that the appellants are

suspended directors of the Corporate Debtor namely Shreem Spa

and Resorts Ltd. In respect of the Corporate Debtor vide order

dated 23.09.2019, CIRP was initiated by the order of the Learned

Adjudicating Authority in which the Respondent Mr. George 3

Samuel was appointed as Interim Resolution Professional.

Subsequently IRP was allowed to continue as Resolution

Professional. Since CIRP was not going to be concluded within 180

days vide order dated 20th March, 2020, 90 days period was

extended for concluding CIRP. Since the RP was unable to improve

the condition of the Corporate Debtor or recover the debt the

Committee of Creditors (hereinafter referred to CoC) in its meeting

dated 22.10.2020 resolved to liquidate the Corporate Debtor by

100% voting in favour of the same and thereafter vide order dated

3.3.2021 the Adjudicating Authority directed for liquidation of the

Corporate Debtor and at the same time Respondent was appointed

as Liquidator.

3. In the meanwhile Forensic Audit was conducted in respect of

the affairs of the Corporate Debtor. In the Forensic Audit several

illegalities, fraud etc were noticed and it was concluded that there

were fraudulent transaction to the tune of Rs.6,10,35,333/-

(Rupees Six crores ten lakhs thirty five thousand three hundred

thirty three only). On the strength of such information the

Liquidator/respondent thereafter filed an IA No.157/2021 in CP

(IB) No.550/2018 under Section 49, 66 and 60(5) of the code. The

said application was filed on 17.07.2021. The Adjudicating 4

Authority vide its order dated 23.11.2021 granted three weeks time

for filing reply and the petition was directed to be listed on

13.01.2022. However, on 13.01.2022 the Learned Adjudicating

Authority directed the applicant/liquidator to take appropriate

steps since the application was filed under Section 49 and 66 of

the Code which according to Adjudicating Authority was needed to

be separated. By directing for taking appropriate steps it was

directed to be listed on 21.04.2022. On 21.04.2022, the liquidator

filed an affidavit and requested to confine the said application

under Section 66 read with Section 60(5) of the Code. By order

dated 21.04.2022 the Adjudicating Authority recorded the

submission of the applicant (liquidator) regarding filing of the

affidavit to the effect that the application will be prosecuted under

Section 66 of the code read with Section 60(5). The Adjudicating

Authority further recorded that "let the replies be filed by all the

respondents, as a last chance, failing which respondents will be

proceeded to be ex parte" and it was directed to list it on

14.06.2022. On 14.06.2022 though reply of Respondent No.8 was

filed and the Adjudicating Authority recorded the submission on

behalf of Respondent No.9 regarding filing of the reply which was

not on record. The Learned Adjudicating Authority also recorded 5

in its order dated 14.06.2022 that "other respondents were given

last chance to file reply failing which they will be proceeded ex-

parte. Respondent No.1 to 7, none appeared neither reply is filed.

Respondent No.1 to 7 are proceeded ex-parte." After the order

dated 14.06.2022 whereby the Adjudicating Authority had

recorded for proceeding ex-parte against Respondent No.1 to 7 the

appellants herein after lapse of several months on 8.11.2022 filed

an IA vide IA No.1010/2022 with request to permit the appellants

to join proceedings and recall the ex-parte order dated 14.06.2022.

On the said application, after hearing the parties the Learned

Adjudicating Authority on 17.11.2022 passed the order and

rejected the application which has been assailed in the present

appeal.

4. Mr. Jay Savla, learned senior counsel assailing the impugned

order submitted that it is true that Liquidator had filed application

vide IA No.157/2021 on 17.7.2021 under Section 43, 49, 60(5) and

66 of the Code but same was filed belatedly. He submits that in

IA No.157/2021 on 23.11.2021 time was granted for filing reply

within three weeks. However, subsequently on 13.1.2022 the

Adjudicating Authority directed the liquidator to file separate

application. The learned senior counsel for the appellant has 6

drawn our attention to order dated 13.01.2022 which is at running

page 48 of the Memo of Appeal. According to Mr. Savla since the

Adjudicating Authority observed on 13.1.2022 regarding need for

separate application, the limitation for filing reply was to

commence from the date when in compliance with order dated

13.1.2022 the application was corrected. On 21.4.2022 the

applicant (Respondent herein) was permitted to prosecute the

application under Section 66 read with Section 60(5) of the Code.

However, due to the reason which was beyond the control of the

appellant some delay had occurred in filing the reply. In the

meanwhile learned Tribunal decided to proceed ex-parte against

the appellants herein. As per Mr. Savla, learned senior counsel for

the appellant, without any further delay the appellants filed an

application vide IA No.1010/2022 before the Adjudicating

Authority for setting aside the order dated 14.06.2022 for

proceeding ex-parte and relegate the appellants to the original

position and further permit the appellants to file reply. Mr. Savla,

learned senior counsel at the time of hearing has taken us to para

5, 6 and 7 of the IA No.1010/2022, copy of the same has been

brought on record which is at running page 33 to 45. It would be

appropriate to reproduce para 5, 6 and 7 which have been 7

specifically referred by the learned senior counsel in the appeal as

follows:-

"5. It is submitted that the matter was listed on

14.06.2022 and it is stated that Respondent No.1 to 7,

none appeared neither reply is filed and Respondent

No.1 to 7 are proceeded ex-parte.

6. The present applicant submits that due to

unavailability of staff and financial crunch, the applicant

could not advise and unable to give proper details to its

advocate in time. The applicants were facing the

problems from everywhere. It is submitted that number

of creditors asked for the recovery of their amount but

the applicants were not able to reply/answer because of

financial difficulty. The applicants were disturbed

because of the constant demand of the recovery of the

amount and this one of the reason the applicants had

not attended the proceedings.

7.The financial condition of the applicants are not very

sound for the past few years and the atmosphere at

home has been deteriorating gradually due to the above

circumstances.

8

5. By way of referring to aforesaid stand taken before the

Adjudicating Authority it was submitted by learned senior counsel

for the appellant that delay in filing reply had occurred due to the

reasons which were beyond the control of the appellants and as

such he pleaded that the appellants may be allowed to participate

in the proceedings before the Adjudicating Authority in application

filed by the Liquidator which has been number as IA No.157/2021.

The same has been permitted to proceed ex-parte against the

appellants. It was emphatically argued that no limitation period is

prescribed for filing application for setting aside ex-parte order. In

sum and substance it has been argued that the appellants may

suffer irreparable loss in absence of any opportunity to participate

before the Adjudicating Authority in the proceeding initiated under

Section 66 read with Section 60(5) of Code. He has argued that

order impugned is required to be set aside and the appellants may

be allowed to participate in the proceeding in IA No.157/2021.

6. Mr. Madhusudan Sharma, learned counsel has appeared on

behalf of Respondent/Liquidator. At the very outset he has argued

that from the materials available on record particularly facts

disclosed in the reply filed on behalf of the Respondent No.1 it is

evident that the appellants were never interested to participate in 9

the proceeding, rather one way or the other they wanted to delay

the proceeding. He submits that admittedly in respect of Corporate

Debtor of which appellants are suspended directors an application

under Section 7 of the Code was admitted long back on 23.9.2019

and thereafter by order dated 13.3.2021 liquidation process was

initiated. He further submits that during the proceeding forensic

auditor was appointed to examine the transactions for the period

1.4.2012 to 3.3.2017. In the report of forensic auditor several

instances has come establishing siphoning of the fund of the

Corporate Debtor which includes fraudulent transactions. On the

basis of Forensic audit report which reflected several fraudulent

transactions, the Respondent/liquidator filed an application vide

IA No.157/2021 before the Adjudicating Authority under Section

49, 66 and 60(5) for the following reliefs:-

i) Allow the present IA in terms of Section 49 and 66 of the

Code.

ii) Pass order directing the Respondent No.1 to 3 to provide

the contact details of Yogeshwar Traders, M/s Yash

Enterprise, Chanchalbala Waghela, Mr. Mahendrasingh

Waghela, Mr Rajendra Singh Waghela to enable the applicant

make them party respondent to the present proceedings. 10

iii) Pass appropriate order directing the Respondents jointly

and/or severally to pay sum to the tune of Rs.610,35,333/-

towards the liquidation estate of the CD.

iv) Pass appropriate orders/directions against the

Respondent in terms of Section 66,69 and 73 of the code,

and/or

v) Pass any other order(s) that this Hon'ble Adjudicating

Authority deems fit.

7. According to Mr. Sharma, learned counsel for Respondent

/Liquidator even before filing of IA No.157/2021 the liquidator had

written number of letters to the appellants seeking their

explanation for adverse forensic audit observations, however, after

several reminders the appellants on 27.05.2021 i.e. after more

than two months gave a vague and incomplete reply which was not

satisfactory. After filing of the IA No.157/2021 which was firstly

listed on 28.09.2021 before the Adjudicating Authority on which

date notices were directed to be issued by speed post as well as

email which was validly served by the liquidator. Thereafter

application before the Adjudicating Authority was again listed on

23.11.2021 on which date appellants and other respondents were

present and they were granted three weeks time to file reply. 11

Thereafter the Adjudicating Authority by its order dated

13.01.2022 directed the liquidator to take appropriate steps

regarding need for separating the provisions i.e. Section 49 and 66

of the Code. In compliance with the order dated 13.01.2022 on

behalf of the applicant/liquidator an affidavit was filed to the effect

that the application will be prosecuted under Section 66 read with

Section 60(5) of the code. However, no reply was filed till then by

the appellants herein and this was the reason that on 21.04.2022

the learned Adjudicating authority again granted opportunity to file

reply by all respondents as a last indulgence failing which it was

recorded that the respondents will be proceeded ex-parte. Learned

counsel for Respondent/Liquidator further submits that the order

dated 21.04.2022 was again not complied with by the appellants

and this was the reason that on the next date i.e. on 14.06.2022

the Learned Adjudicating Authority recorded that the case will

proceed ex-parte against Respondent No.1 to 7 "including all the

appellants". This order was also not taken note by the appellants

for several months and much belatedly on 08.11.2022 the

appellants herein filed application i.e. IA No.1010/2022 for setting

aside order for proceeding ex parte and permitting the appellants

to join the proceeding. It was asserted by the learned counsel for 12

the Respondent that the aforesaid facts depicts that the appellant

is not interested to participate in the proceeding but one way or the

other is trying to delay the proceeding. He submits that the appeal

is fit to be rejected with cost.

8. Besides hearing learned counsel for the parties we have

perused the material available on record. At the very outset we

may observe that the time is essence in a proceeding under Code.

In a proceeding initiated under the code no party can be allowed to

proceed in leisurely manner. This is the reason that for conclusion

of CIRP outer limit has been fixed as 180 days. Even if one is

aggrieved with an order passed by the Adjudicating Authority

though there is provision for appeal under Section 61 of the Code,

there is a rider for filing appeal within a specified time. Under the

provisions contained in Section 61 of the Code a person aggrieved

with the order of the Adjudicating Authority is permitted to file an

appeal within 30 days and thereafter in further 15 days if a party

is in a position to satisfy the Adjudicating Authority regarding the

plausible reasons for delay, the Appellate Tribunal can condone the

delay. It is settled that after expiry of furthe 15 days even this

Appellate Tribunal is not entitled to entertain an appeal. If the

provisions contained in the Code is so strict in such view of the 13

matter the conduct of the appellant which has been noticed by us

reflects that one way or the other he wanted to delay the conclusion

of the proceeding which may not be taken in casual manner.

9. In the proceeding in respect of the affairs of the Corporate

Debtor forensic auditor report was obtained which is evident from

application i.e. IA No.157/2021 which has been brought on record

as Annexure A-3 to the Memo of Appeal. We are conscious of the

fact that while dealing with the present appeal which is confined to

the prayer of setting aside of an order whereby request for setting

aside order for proceeding ex-parte was rejected by the

Adjudicating Authority, we may not record any finding, but at the

same certain facts are required to be reproduced from the IA

157/2021. It is reflected from the record that forensic audit was

concluded on the basis of the trial balance, accounts and financial

statements as available in the Corporate Debtor. The forensic audit

report was prepared by one Maheshwari & Co on 16.07.2020.

Request was made to the suspended management qua the books

of account and other relevant information and explanation to the

transactions. After getting the clarification from the suspended

management/promotors in relation to the said transactions on the

basis of the forensic audit report the appellants were asked to file 14

their response by the Liquidator to the adverse forensic audit

observation by its communication dated 17.3.2021. Thereafter five

reminders were also sent. However, till 26.05.2021 no response

was received. On 27.05.2021 reply of appellants was received

which was vague in nature. Certain transactions as per finding of

the forensic audit report and assessment of liquidator were

highlighted in the application before Adjudicating Authority. Some

of the relevant portion in IA No 157/2021 are reproduced

hereinbelow:

11.From the analysis of the record available, it is observed that Respondent No 5 (being director of the CD during the period till FY 2015-16) has brought in unsecured loans during the financial year 2010-11 which along with interest, amounting to Rs.

101,07.572/- was paid. That as per the clarifications given by the R1 and R2, there was mutual agreement between the CD and Respondent No. 5 that the said loan will be repaid in five years. That the CD with a malafide intention and to defraud other creditors, has repaid the loan on 20.08.2015 which was just before the account of the CD turned NPA. Hereto annexed and marked as collly. Annexure G is the copy of the ledger account of Hasmukhbhai Patel for the period 01.04.2013 to 31.03.2020, copy of the ledger account "Interest paid to Directors' for relevant periods and copy of the 7 Annual Report evidencing that the Respondent No. 5 was director in FY: 2015-2016.

13.Further, the forensic auditors has stated that the CD has paid Rs. 40.48 lakhs during FY- 2013-14 under the head of "interest to depositors" in which the company has paid interest on the funds received from the directors. That there should not be any interest charges on the equity contribution from the promoters but company has paid the above interest to Respondent No. 1, Respondent No. 2 and Respondent No. 5. That the CD with a malafide intention and to defraud other creditors, has paid 15

the interest on contribution from the promoters, despite of the fact that there should not be any interest charges on the equity contribution from the promoters being R1, R2 & RS Hereto annexed and marked as Annexure H is the copy of the ledger account of "Interest paid to Depositors from 01.04.2013 to 31.03.2014

14. During the course of audit, it was observed that CD has given security deposit to Respondent No. 4 (Rs. 4 Lakhs) during FY 2015-16 which is a related party as per section 2 (76) of the companies act, 2013 and section 5 (24A) of the IB Code, by virtue of relative of a director. That the Applicant further submits that applicant has sent a letter dt. 10.05.2021 to the Respondent No.

4. The Applicant has received an email dated 18.05.2021 from Respondent No. 4 stating that the Respondent No. 4 will be sending the ledger and related details in first week of June as the R4 is based at Mumbai and it is under partial lockdown till 31st May 2021. However, there are no details received from Respondent No. 4 till date. That the CD with a malafide intention and to defraud other creditors has given security deposit to Respondent No. 4. Hereto annexed and marked as collectively Annexure I is the copy of the ledger account of Respondent No. 4 for the period 01-04-2012 till 31-03-2020 and the correspondences with the beneficiary and related director.

15. During the course of audit, the CD has disposed of the Mercedes Benz car through book entry to Respondent No. 2, without any consideration. CD has purchased the car on 29.02.2012 amounting to Rs. 73.54 lakhs which later, on 30.04.2014 transferred to Respondent No. 2 for a consideration, being the depreciated book value amounting to Rs. 58,72.680/- on 30.04 2014. Further the CD has paid on 31.03.2015 for the insurance of the said car for an amount of Rs 2,77,530/- Thus a total amount of Rs.61,50,250/- is given to the Respondent No. 2 without any consideration being received and the amount is outstanding till date from Respondent No. 2. Hereto annexed and marked as Annexure J is the copy of the Car Sale ledger account of Respondent No. 2 for the period 01-04-2008 till 31-03-2020. That the letter dt 10.05.2021 was sent by Applicant to Respondent No. 2 by registered post, however the letter remains unanswered till date. Hereto annexed and marked as Annexure K is the copy of the letter dt. 10.05.2021. Hence, it can be seen the Respondent No. 2 have cheated and defrauded the other creditors with a malafide intention and have not given any satisfactory answer for the said transaction 16

16. During the course of audit, it was observed that Rs. 10,39,500/- is outstanding from Respondent No. 6. Rs 10.07.080/- is outstanding from Respondent No. 7, and Rs. 5,56,034/- is outstanding from Respondent No. 8 It is pertinent to note that the CD had paid advances just before the account turned NPA on 30.09.2015 for purchasing of goods. However, no goods are received and no refund is received from the said parties. That the CD with a malafide intention and to defraud other creditors had paid advances just before the account turned NPA on 30.09.2015. Hereto annexed and marked colly as Annexure L the copies of the ledger accounts of the said parties for the period 01.04.2012 to 31.03.2017 together with the letters dated 11-05-2021 sent to the parties by the Liquidator in an effort to recover the said amounts

17.During the course of audit, it was observed that Rs. 25,00,000/-is outstanding receivable from one Yogeshwar Traders, 2,20,000/- is outstanding receivable from one M/s Yash Enterprise, 2,00,000/- is outstanding receivable from one Chanchalbala Waghela, 2,00,000/- is outstanding receivable from one Mr. Mahendrasingh Waghela 2,00,000/- is outstanding receivable from one Mr. Rajendra Singh Waghela. These amounts are given as advance without any service or purchase orders. That the Applicant has written letter to the Respondent No. 1 and 2, vide letter dt. 20.05.2021, 27.05.2021 and 11.06.2021 asking for addresses of the said parties as no details of addresses of the said parties and no information as to why the advances were given to the said parties were available in the books. That the CD with a malafide intention and to defraud other creditors gave the advance amount without any service or purchase orders. Hereto annexed and marked as Annexure M are the copies of the letters dt. 20.05.2021, 27.05.2021, and 11.06.2021

18. During the course of audit, it was observed that the CD has paid for Rs. 355.05 lakhs to Respondent No. 9 for interior services provided or to be provided but no bills are provided for the same. It is alleged by the Respondent No. 1 & 2 that the said vendor has not raised any invoices as the said project was stuck in between. However much to the shock and surprise, despite of not getting any services or materials from the said vendor the CD has transferred the said amount from "short term loans & advance" to "Long term loans and advances". That the CD with a malafide intention and to defraud other creditors has paid for Rs. 355,05 lakhs to Respondent No. 9 for interior services provided or to be provided but no bills are provided for the same. Hereto annexed and marked as Annexure N is copy of the ledger account of the Respondent No. 9 for the period 01.04.2012 to 31.03.2017 17

21.In light of the aforesaid, it comes to a conclusion that there are fraudulent transactions to the tune of Rs. 610,35.333/- during the relevant period that have taken place, for which this Hon'ble AA be pleased to pass appropriate orders. Hence, this IA. Hereto annexed and marked as Annexure P is the table showing the amount of fraudulent transactions during the relevant period.

10. After the application was filed by the Liquidator the

Adjudicating Authority directed for issuance of notice which we

have already incorporated hereinabove. The Adjudicating

Authority, as claimed in reply filed by the Respondent/Liquidator

on 28.09.2021 directed for issuance of notice to respondent by

speed post as well as email which was validly served by the

Liquidator. From the order dated 23.11.2021 which is at running

page 47 of the Memo of Appeal, it is evident that the respondents

including appellants herein sought time and they were granted

three weeks time to file reply. However, reply was not filed even

upto 21.04.2022 and as such on 21.04.2022, which is reflected

from running page 49 the Adjudicating Authority recorded "let

reply be filed by all the respondents, as a last chance, failing which

respondents will be proceeded to be ex-parte", and case was

directed to be listed on 14.06.2022. However, again till 14.06.2022

no reply was filed by the appellants nor any one appeared which is

reflected from order dated 14.06.2022, which is at running page 18

46 of the Memo of Appeal. The order dated 14.06.2022 is

reproduced hereinbelow:-

"IA 517/2021

Reply of respondent No.8 has come on record. Learned counsel

Mr. Pandya for respondent No.9 states that they have filed

reply. It has not come on record. He undertakes to bring it on

record. On 21.04.2022, other respondents were given last

chance to file reply failing which they will be proceeded ex-

parte. Respondent No.1 to 7, none appeared neither reply is

filed. Respondent No.1 to 7 are proceeded ex-parte.

IA 8 of 2022

Pleadings are complete.

List for hearing on 30.06.2022."

11. Despite the fact that the learned Adjudicating Authority

decided to proceed ex parte against Respondent No.1 to 7 which

includes appellants, the appellants did not take any step for several

months. Suddenly on 08.11.2022 the appellants filed an

application vide IA No.1010/2022 before the Adjudicating

Authority for setting aside order dated 14.06.2022 directing to

proceed ex parte. The Learned Adjudicating Authority by the 19

impugned order i.e. Order dated 17.11.2022 rejected the

application. The impugned order is reproduced hereinbelow:

"IA 1010 of 2022

Application is filed by the liquidator seeking to set aside

the ex-parte order passed on 14.06.2022 in IA 157/2021. On

23.11.2021 Learned Counsel for Respondent No.1,2,5,8 and 9

sought and was granted three weeks time to file reply, but the

reply was not filed till 14.06.2022, hence, ex-parte order was

passed. The present application is filed beyond the prescribed

period for filing an application for setting aside the ex-parte

order, hence, we are not inclined to entertain the application.

Application is rejected and disposed of."

12. On examination of the above orders there is no difficulty in

coming to the conclusion that the intention of the appellant is not

to participate in the proceeding in IA No.157/2021 but one way or

the other put hindrance for non-conclusion of the proceeding. In

a proceeding initiated under the provisions of the code since time

is essence there is no reason to entertain the present appeal. Even

the reasons for delay in filing IA No.1010/2022 which has been

stated in para 5,6 and 7 and reproduced hereinabove, we are of the 20

opinion that such reasons are required to be noticed only for their

rejection. It is not a case in which without service of notice the

Adjudicating Authority decided to proceed against appellants ex-

parte but the appellants participated, took adjournment to file

reply and then disappeared and did not file reply.

13. In view of aforesaid facts and circumstances, we are of the

opinion that the appellants, with an oblique motive, intentionally

did not file reply and waited for several months and thereafter filed

IA No.1010/2022 only for the purposes of further delaying the

proceeding on application, i.e. IA No.157/2021 filed by the

Liquidator under Section 66 read with Section 60(5) of the Code.

14. We are of the considered opinion that learned Adjudicating

Authority in the impugned order has committed no error

warranting any interference.

15. Accordingly the present appeal stands dismissed, however,

we are not imposing any cost.

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical) bm