Ashish Gupta vs Delagua Health India Private Limited ...

[Arising out of order dated 11.10.2021 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench, Court No.VI in CP(IB) No.1840(ND) of 2019.]

IN THE MATTER OF:

Ashish Gupta, 61/62, Model Basti, Karol Bagh, New Delhi - 110005 India ....Appellant

Vs.

1. Delagua Health India Pvt. Ltd. 119/120, Model Basti, New Delhi - 110005, India ....Respondent No.1

2. Delgua Health Limited (Grand Bahamas) Poinciana House, West Main Poinciana Drive, PO Box F-42614 Freeport, Grand Bahamas ....Respondent No.2

3. Delgua Water Testing Limited, The Old Diary, Lower Fyfield, Marlborough, SN8 1PY, United Kingdom ....Respondent No.3

Present:

For Appellant: Mr. Nilotpal Shyam, Advocate.

For Respondents: Ms. Swati Dalmia, Mr. Indranil Ghosh, Mr. Orijit Chatterjee and Mr. Palzer Moktan, Advocates for R-2 & R-3.

Company Appeal (AT) (Ins.) No. 17 of 2022

1 JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of the Order dated

11.10.2021 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi, Court -

VI) in CP (IB) No. 1840(ND) of 2019. By the Impugned Order the Adjudicating

Authority has rejected the Section 9 application filed by the Appellant.

Aggrieved by this impugned order, the present appeal has been preferred by

the Appellant/Operational Creditor.

2. Placing before us the brief factual background of the case, the Learned

Counsel for the Appellant/Operational Creditor submitted that the Appellant

started working with Delagua Health India Pvt. Ltd./Corporate Debtor

("DHIPL" in short) since 11.02.2014 as Director of the Corporate Debtor and

tendered his resignation from the position of Director of the said DHIPL on

02.07.2017 with immediate effect. He has not been paid salary from January

2016 till June 2017 amounting to Rs.40,50,000/- and further submitted that

the said operational debt of the Corporate Debtor fell due on 30.06.2017. Not

having received the said payment, a demand notice was sent to the Corporate

Debtor/Respondent No. 1 on 15.06.2019. It was added that the demand

notice was duly despatched at the address of the Corporate Debtor.

Submitting further, it was mentioned that the Appellant did not receive any

Company Appeal (AT) (Ins.) No. 17 of 2022

2 response from the Corporate Debtor by way of any notice of existence of

dispute nor any payment was received and hence an application under

Section 9 of IBC was filed before the Adjudicating Authority.

3. The Learned Counsel for the Appellant making his submissions stated

further that the Corporate Debtor/Respondent No. 1 did not appear before

the Adjudicating Authority. Instead Delagua Health Limited (Grand

Bahamas)/Respondent No. 2 and Delagua Water Testing Limited/Respondent

No. 3 constituting 98.98% stake-holder of the Corporate Debtor subsequently

filed an intervening application though they did not have any locus in the

matter. Furthermore, it has been contended that the Adjudicating Authority

while adjudicating on the matter relied upon the contents of the intervention

application though it had noted that application of the intervenor did not need

examination of the Section 9 of the IBC. The Adjudicating Authority on

11.10.2021 however wrongly proceeded to dismiss the petition filed by the

present Appellant by holding it to be a collusive petition without giving any

reasons. It was also submitted that while dismissing the petition, the

Adjudicating Authority had directed the 98.98% stake-holder that a new

management of the Company be put in place within one month from the date

of the order for its smooth running in accordance with the provisions of the

Companies Act which has not been acted upon so far by them. Challenging

the Impugned Order, it was submitted that the dues claimed by the

Operational Creditor is lawful and there being no pre-existing disputes

thereto, Section 9 application should have been admitted.

Company Appeal (AT) (Ins.) No. 17 of 2022

3

4. Advancing the rival contentions, the Learned Counsel for Respondents

No. 2 and 3 submitted that that the Appellant and Respondent No. 2 had

signed a Consultancy Agreement on 04.11.2013 by virtue of which the

Appellant had agreed to provide certain services to Respondent No.2 to assist

them in setting up an entity in India and for overseeing its operations.

However, this fact had not been deliberately disclosed by the Appellant before

the Adjudicating Authority. The Corporate Debtor/Respondent No. 1 had been

subsequently incorporated on 11.02.2014 with 98.98% of the paid-up share

capital of the Corporate Debtor/Respondent No.1 being held by Respondents

No.2 and 3. Post incorporation of Respondent No. 1 company, the Appellant

along with one Mr. K.K. Vashishtha ("KKV" in short) were appointed as

Directors of the Corporate Debtor/Respondent No.1 and thereafter their

fees/remuneration were paid directly by the Corporate Debtor. Both the

Directors including the Appellant resigned from the Directorship of the

Corporate Debtor company with effect from 02.07.2017 without sending

proper intimation to the shareholders of the Corporate Debtor. The abrupt

resignation of both Directors had caused a void in the Board of the Corporate

Debtor company. Further, because of the said void on the Board, the

Appellant continued to remain in control of all modes of communications in

respect of Corporate Debtor company and hence by design ensured that the

demand notice never actually got served upon the Corporate Debtor. In this

way the Appellant intentionally and deliberately shut the opportunity for the

Corporate Debtor to respond to the Section 8 notice.

Company Appeal (AT) (Ins.) No. 17 of 2022

4

5. Furthermore, though the Appellant and KKV had submitted their

respective resignations on the same day and the Appellant had full knowledge

of the resignation of KKV, he acted in collusion with KKV and chose to serve

Section 8 demand notice upon KKV with an ulterior motive. And KKV even

though he had already resigned as Director of the Corporate Debtor,

presented himself before the Adjudicating Authority on behalf of Corporate

Debtor/Respondent No.1 and unauthorisedly expressed inability to pay the

amount claimed by the Appellant in the demand notice when the Section 9

application came up for hearing. The Adjudicating Authority having observed

this act of connivance between the Appellant and KKV, it therefore correctly

dismissed the petition as collusive.

6. It was further argued by the Learned Counsel for the Respondents that

the Corporate Debtor having been denied opportunity to respond to the

collusive Section 8 notice or to defend their interests before the Adjudicating

Authority in the context of subsequent Section 9 application, the Respondents

No.2 and 3 had filed an intervention application vide IA No. 60 of 2019 in CP

(IB) No.1840/ND/2019 before the Adjudicating Authority. It was strenuously

contended that the Corporate Debtor/Respondent No.1 being a subsidiary of

Respondent No.2, they were fully entitled to file the intervention application

to protect the interest of the share-holders of the Corporate Debtor Company.

7. It was further pointed out that the Appellant had breached the terms

and conditions of the aforesaid Consultancy Agreement of 04.11.2013.

Elaborating further, it was stated that the Corporate Debtor company was

Company Appeal (AT) (Ins.) No. 17 of 2022

5 engaged in the business of water testing and sanitation products and services

related purchase, the Appellant violated various clauses of the Consultancy

Agreement having engaged himself in the activities of a competing entity thus

causing loss to the business of the Corporate Debtor. In addition, the

Appellant had made excess withdrawals from the accounts of the Corporate

Debtor aggregating to Rs.19,33,418/- purportedly on account of tour and

travelling without supporting documents to substantiate such withdrawals.

Pointing out at these pre-existing disputes, it was submitted that the present

Section 9 application is not maintainable.

8. We have duly considered the detailed arguments and submissions

advanced by the Learned Counsel for both the parties and perused the records

carefully.

9. The main issues before us for our consideration are as follows: -

(i) Whether the Section 9 petition filed before the Adjudicating

Authority was a collusive petition;

(ii) Whether in the given facts and circumstances of the present case

the Respondents No. 2 and 3 are entitled to defend the interests of

Respondent No.1; and

(iii) Whether there is any pre-existing dispute surrounding the

operational debt.

10. Since the issues at items 9 (i) and (ii) above are interlinked, we proceed

to examine both these issues conjointly. It is noted that the Section 8 demand

notice dated 15.06.2019 was addressed by the Appellant to DHIPL at the

Company Appeal (AT) (Ins.) No. 17 of 2022

6 address 119/120, Model Basti, New Delhi - 110005 as well as to KKV as

placed at Page 70 of Appeal Paper Book ("APB" in short). It is the submission

of the Appellant that according to Company Master Data as on 21.07.2019 as

placed at Page 86 of the APB, the registered address of the Corporate Debtor

company is 119/120, Model Basti, New Delhi-110005 with email ID being

ashish.gupta@delaguahealth.com. It is also submitted by the Learned

Counsel for the Appellant that proof of service of the said demand notice to

both the addressees have been placed at page 75 of the APB alongwith

tracking receipt placed at page 76-78 of the APB. The Learned Counsel for

the Appellant has placed reliance on the judgment of this Tribunal in Alloys

Min Industries Vs. Raman Casting Pvt. Ltd., in Company Appeal (AT)

(Ins.) No. 684 of 2018 (2019 SCC OnLine NCLAT 492) to contend that since

the demand notice had been sent at the registered address of the Corporate

Debtor company, there was no infirmity in the service of the demand notice.

11. The Learned Counsel for the Respondents have, however, submitted

that owing to the sudden resignation of both the Directors, there was a

complete vacuum in the Board of the Corporate Debtor company and led to a

situation whereby the Appellant remained in control all modes of

communications in respect of the Corporate Debtor company including the

official email address- ashish.gupta@delaguahealth.com. The registered office

premises of the Corporate Debtor company being in the control of the

Appellant, the Demand Notice dated 15.06.2019 in effect remained under the

control and possession of the Appellant and not with the Respondent

No.1/Corporate Debtor company. Thus, it is the case of the Respondents that

Company Appeal (AT) (Ins.) No. 17 of 2022

7 the Appellant had intentionally and deliberately denied opportunity to the

Corporate Debtor company as such to respond to the Section 8 notice. It was,

however, argued by the Learned Counsel for the Appellant that the Appellant

had taken efforts to delete his name and email address from the Company

Master Data besides taking initiative for a new Board of the Corporate Debtor

company by calling extraordinary meeting of the Corporate Debtor in 2018

but was not allowed to do so by the majority shareholders. Be that as it may,

on the date of issue of the said demand notice, the Appellant having admitted

that both KKV and he had already tendered their respective resignations from

the position of Director of the Corporate Debtor company with effect from

02.07.2017, it defies logic as to why the Appellant sent the demand notice at

the given address at a time when the Board of Corporate Debtor had ceased

to exist.

12. The other copy of the demand notice has admittedly been addressed to

KKV who at that point of time had also resigned from the position of Director

of the Corporate Debtor. The Appellant in spite of having full knowledge of

the fact that KKV had already resigned, yet, addressed the demand notice to

him which puts question marks on the bona-fide of the Appellant.

Furthermore, we notice that when the Section 9 application was filed before

the Adjudicating Authority, at which time KKV had already resigned as a

Director, he still appeared before the Adjudicating Authority, not only

recording his presence but also making a statement expressing inability on

the part of the Corporate Debtor to pay the amount claimed by the Appellant

as may be seen at page 93 of APB. This lends force to the contention of the

Company Appeal (AT) (Ins.) No. 17 of 2022

8 Respondents that the Appellant had connived with KKV to manipulate the

Section 9 proceedings in his favour by making KKV unauthorisedly represent

on behalf of the Corporate Debtor company. We are therefore of the considered

view that the Adjudicating Authority had not committed any mistake in

observing that the Section 9 application was collusive and dismissed it on the

same grounds.

13. The Learned Counsel for the Appellant submitted that intervention on

the part of shareholders of the Corporate Debtor company is not permissible

while adjudicating a matter under Section 9 of the IBC. Further, it was

submitted that since the shareholders and the Corporate Debtor had status

of separate legal entities, hence, Respondent No.2 and 3 being shareholders,

did not enjoy locus to participate in the Section 9 proceedings taken up by

the Appellant against the Corporate Debtor company. In support of this

contention, reliance has been placed by the Learned Counsel for the Appellant

on the judgement delivered by the Hon'ble Supreme Court in Pratap

Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Ltd.,

(2021) 10 SCC 623 and E S Krishnamurthy and Ors. v. Bharath High

Tech Builders Pvt. Ltd. Civil Appeal No. 3325 of 2020 (2022) 3 SCC 161

to state that the IBC does not provide for equity jurisdiction. This however

cannot come to the aid of the Appellant since the facts of the present case are

clearly distinguishable. In view of the peculiar circumstances of the present

case where the Section 8 Demand Notice could not be responded to by the

Corporate Debtor company for reasons beyond their control and a collusive

petition having been filed, Respondents No.2 and 3 being majority

Company Appeal (AT) (Ins.) No. 17 of 2022

9 shareholders of the Corporate Debtor Company deserve to be heard. It is a

well settled canon of natural justice that anything which eludes or frustrates

the recipient of justice should be avoided and reasonable opportunity of

hearing be allowed to advance the cause of justice. We are of the view that

Respondents No.2 and 3 being majority shareholders holding 98.98% share

of the Corporate Debtor company, they deserve a chance to safeguard the

rights and interests of the Corporate Debtor and their respective stakeholders

given that the Appellant and KKV had in collusion foisted an abnormal

situation by their resignation from the Corporate Debtor company causing a

void and leaving none on the Board of Directors to defend the interests of

Respondent No.1/Corporate Debtor company. To add to this, KKV was

unauthorisedly representing the Corporate Debtor company before the

Adjudicating Authority even after having submitted his resignation thus

causing serious miscarriage of justice for the Respondent No.1. Hence, in the

interest of justice, we are of the view that the present appeal filed before this

Tribunal by Respondents No.2 and 3 deserves to be considered on merit.

14. Having answered items 9 (i) and (ii), we now proceed to examine

whether there was any pre-existing dispute between the Appellant and the

Corporate Debtor company. It has been submitted by Learned Counsel for the

Respondents No. 2 and 3 that the Appellant had deliberately withheld

information from the Adjudicating Authority about the Consultancy

Agreement which had been signed between the Appellant and Respondent No.

2 on 04.11.2013. The Learned Counsel for the Respondents in support of their

assertion that the Appellant had suppressed information about Consultancy

Company Appeal (AT) (Ins.) No. 17 of 2022

10 Agreement have further submitted that this Consultancy Agreement was

placed on record much later by the Appellant and that too only after directions

were issued on 06.09.2019 by the Adjudicating Authority to produce the

original documents. It is also the contention of the Respondents that this

agreement constituted the basis of relationship between the Appellant and the

Corporate Debtor company and that this continues to subsist. On the other

hand, it is the contention of the Appellant that this Consultancy Agreement

was superseded by an Employment Agreement dated 01.08.2014 and since

their dues arise from this Employment Agreement, only the Employment

Agreement was mentioned in their Section 9 application. Thus, there is no

attempt on their part to suppress the Consultancy agreement and it is the

Respondents who are misleading this Tribunal by making a mention of the

Consultancy agreement which has been superseded by the Employment

Agreement.

15. It is an admitted fact by both parties that the Consultancy Agreement

is dated 04.11.2013 while the Employment Agreement is dated 01.08.2014.

The Appellant was appointed as Director in the Corporate Debtor company on

11.02.2014 which was before the Employment Agreement was signed. Based

on the chronological sequencing of the two agreements, it is the contention of

the Appellant that the Employment Agreement supersedes the terms and

conditions of the said Consultancy Agreement. However, the Learned Counsel

for the Respondents have questioned the validity of the Employment

Agreement since it was a document signed only between the Appellant and

KKV. The Corporate Debtor or the shareholders or their authorised

Company Appeal (AT) (Ins.) No. 17 of 2022

11 representative do not figure anywhere in the document as signatories and

therefore not binding on them. It has also been submitted that the

Employment Agreement is not a registered document and hence legally

untenable. On the other hand, the Consultancy Agreement was signed

between the Appellant and Mr. James Beaumont on behalf of Delagua Health

Limited/Respondent No.2. A copy of this agreement has been placed at pages

20-30 of the Reply Affidavit.

16. The Learned Counsel for the Respondents have submitted that the said

Consultancy Agreement at Clause 9.1 stipulated that without the prior

written consent of the Corporate Debtor company, the Consultant could not

accept any engagement or employment or have any concern in any business

which is similar to or in any way competitive with any of the businesses of the

company or any group company. Further Clause 8.2 of the same agreement

stipulated that the Consultant would indemnify the Respondent No.2 against

loss and liabilities arising out of disregard by the Consultant of their duties

and responsibilities. It may be useful to reproduce the said clause which is to

the effect:

"8.2 The Consultant hereby agrees to indemnify the Company and

all Group Companies against all costs, claims, actions, demands,

penalties and liabilities incurred in respect of or arising in connection:

***** ***** *****

8.2.3 any intentional and conscious or reckless disregard by the

Consultant of his duties or responsibilities.

***** ***** *****

Company Appeal (AT) (Ins.) No. 17 of 2022

12 9.1 During the Term the Consultant shall not, without the prior

written consent of the Company, accept any engagement or

employment or have any concern in any business which is similar to

or in any way competitive with any of the businesses of the Company

or any Group Company.

9.2 The Consultant shall promptly disclosure to the Company in

writing the nature and extent of any actual or potential conflict of

interest which arises in relation to the provision of the Services as a

result of any present or future engagement, employment or other

concern."

17. It is the contention of the Respondents No. 2 and 3 that in breach of

the said terms and conditions of the Consultancy Agreement, the Appellant

while still serving as Consultant with Respondent No. 1 company started

engaging himself in the activities of a competing entity, Caya Constructs

("Caya" in short). In support of their contention, we notice that they have

submitted on record, at pages 37-51 of the Reply Affidavit, few e-mails dated

16.02.2016, 08.03.2016 and 22.06.2016 which purportedly indicate the

direct involvement of the Appellant in generating business for Caya the

competing entity while still serving as Consultant in Respondent No. 1

company.

18. The Appellant has not denied their association with Caya but it has

been submitted by the Learned Counsel for the Appellant that Caya dealings

being in the field of toilet construction while the Respondent No. 1 company

Company Appeal (AT) (Ins.) No. 17 of 2022

13 is engaged in water testing services, Clauses 9.1 and 9.2 of the Consultancy

Agreement is not attracted. Since both these areas constitute different

domains of specialisation, there was no violation of the agreement. As regards

the emails produced by the Respondents linking the Appellant to Caya,

without denying these emails, it has however been contended by the Appellant

that if the Respondents were aware of such a breach, they should have raised

this much earlier and stand estopped from raising this issue at this juncture.

Further they have accused the Respondents of having unauthorized access of

their emails. Countering this the Learned Counsel for the Respondents

submitted that the Section 8 notice not having been delivered to Respondent

No.1/Corporate Debtor or any of its stake-holders the Appellant had

deliberately by design precluded Respondent No.1 from responding to the

Section 8 notice. Further, reliance has been placed upon the judgement of

this Tribunal in M/s Brand Realty Services Ltd. v. M/s Sir John Bakeries

India Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 958 of 2020 (2022

SCC OnLine NCLAT 290) wherein it has been held that it is now a settled

principle of law that even in absence of notice of dispute, the Adjudicating

Authority can reject the Section 9 Application if there is a record of dispute.

19. We are of the considered view that given the framework of Section 9 of

IBC, the remit of this Tribunal is summary in nature and it therefore does not

behove this Tribunal to undertake either the comparative examination of the

areas of specialisation of Caya and the Corporate Debtor company or to

enquire into the veracity of the emails. All that we observe at this stage is that

a dispute centering around breach of fiduciary duty by the Appellant in the

Company Appeal (AT) (Ins.) No. 17 of 2022

14 context of Consultancy Agreement has been raised by the Respondents as

their defence against the claim of the Appellant which is evidenced from the

material placed on record.

20. It has been further submitted by the Learned Counsel for the

Respondent that the Appellant without prior authorisation had made excess

withdrawals aggregating to Rs.19,33,418/- purportedly on account of tour

and travelling without supporting documents to substantiate such

withdrawals. The Appellant has contended that these averments have been

made without any basis and valid proof. However, we see that material has

been placed on record to show that the Respondents No.2 and 3 had requested

the Appellant to provide necessary proof to substantiate such withdrawals

vide their emails dated 29.03.2017 and 01.04.2019 which remained

unresponded. Copies of the email are seen at page 102-103 of Reply Affidavit.

An additional affidavit has also been submitted in this regard by the Learned

Counsel for the Respondents to show that certain expense vouchers have not

been submitted, which is reproduced below, as extracted from Page 3 of their

additional affidavit.

"DelAgua Health India Private Limited Missing Information Summary

May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

3. ICICI bank statement Yes Yes Yes Yes Yes Yes Yes No Yes No

............. ... ... ... ... ... ... ... ... ... ...

20. Referenced Expense Vouchers Part Part No No No No No No No No

............... ... ... ... ... ... ... ... ... ... ..."

Based on the foregoing material, it has been contended by the Respondents

that the claims by the Appellant is disputed. Further they have denied that

Company Appeal (AT) (Ins.) No. 17 of 2022

15 any amount is due and payable by the Corporate Debtor to the Appellant. In

the light of the submissions and pleadings made by the Learned Counsel for

Respondent No.2 and 3 and after seeing the material on record we are satisfied

that dispute raised on behalf of the Corporate Debtor company is not a

moonshine dispute or a bluster. In respect of issue delineated at item 9 (iii)

our answer is therefore in the affirmative.

21. In sum, we are of the view that the Adjudicating Authority has rightly

dismissed the Section 9 application of the Appellant and that the impugned

order does not warrant any interference. There being no merit in the appeal,

the appeal stands dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 01.02.2023

PKM

Company Appeal (AT) (Ins.) No. 17 of 2022

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