Bhaskar vs Sai Precious Traexim Pvt Ltd & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 531 of 2020 [Arising out of Order dated 31.01.2020 passed by the National Company Law Tribunal, New Delhi Bench-VI, New Delhi in C.P. No. IB-3228 (ND)/2019].

IN THE MATTER OF: Mr. Bhaskar, S/o Mr. Kailash Ram, R/o House No. 92, Karchuli, Kotuli Amyari, Ranikhet Almora, Uttarakhand - 263645. ...Appellant

Versus M/s Sai Precious Traexim Pvt. Ltd. Having its registered office at: A-14, Lower Ground Floor, New Friends Colony, New Delhi - 110025. ....... Respondent No. 1

Mr. Ajay Kumar Kathuria Interim Resolution Professional Pine View Portfolio Consultants Pvt. Ltd. [Registration No. IBBI/IPA-002/IP-N00655/2018-19/12037] R/o A-139, 2nd Floor, Shanker Garden, Vikaspuri, New Delhi. ......Respondent No. 2

Present: For Appellant: Mr. Sushil Aggarwal, Advocate

For Respondent: No Appearance

Company Appeal (AT) (Insolvency) No. 531 of 2020 1

Venugopal M. J Heard the Learned Counsel for the Applicant / Appellant in I.A. No. 1343

of 2020. As a matter of fact, the Applicant / Appellant prays for condonation of

delay of 16 days in filing the Appeal, on the ground that the free copy of the

impugned order dated 31.01.2020 passed by the National Company Law

Tribunal, New Delhi Bench-VI, New Delhi in C.P. No. IB-3228 (ND)/2019 was

not communicated as per Section 7(7) of the 'I&B' Code. Furthermore, the copy

of the impugned order was communicated to the Applicant / Appellant by the

representative of the first Respondent on 04.03.2020 and accordingly the

Applicant / Appellant had produced the copy of the impugned order from the

website of National Company Law Tribunal. Therefore, according to the

Applicant / Appellant the instant Appeal was filed within the period of limitation,

from the date of knowledge of passing the impugned order. The other plea

taken on behalf of the Applicant / Appellant is that the 'Corporate Debtor' was

never issued with a notice by the Tribunal, in the application filed by the First

Respondent / 'Financial Creditor'.

2. Taking note of the fact that the Applicant / Appellant had averred in I.A.

No. 1343 of 2020 that the Appellant to know of the impugned order only on

04.03.2020 through the representative of the First Respondent on being

communicated etc., this Tribunal by taking a practical, purposeful, meaningful,

pragmatic view and result oriented approach condones the delay in question and

disposes of the Interlocutory Application. No costs.

Company Appeal (AT) (Insolvency) No. 531 of 2020 2

3. The Appellant (one of the erstwhile Director of 'Corporate Debtor' - Pine

View Portfolio Consultants Pvt. Ltd.) and Member of the Suspended Board of

'Corporate Debtor' has filed the instant Appeal, as an 'Aggrieved person', in

respect of the order dated 31.01.2020 passed by the 'National Company Law

Tribunal', New Delhi Bench-VI, New Delhi in C.P. No. IB-3228 (ND)/2019 in

admitting the Section 7 application filed by the First Respondent / Petitioner.

4. The 'National Company Law Tribunal', New Delhi Bench-VI, New Delhi

while passing the impugned order dated 31.01.2020 interalia at paragraph 5 to

8 had observed the following: -

"5. The applicant further

submitted that despite several

reminders on the part of the

petitioner, the respondent has

failed to make the payment of Rs.

29,52,765/- which are due and in

default.

6. The respondent did

not reply to either the legal notice

or the application.

7. Despite opportunity none

appeared on behalf of the respondent.

Company Appeal (AT) (Insolvency) No. 531 of 2020 3 Proof of service is also annexed with

the main petition.

8. Heard the applicant and

peruse the record."

and ultimately held that there was Overwhelming evidence to prove the default

and on being satisfied that a default amounting to lakhs of rupees had occurred

within the meaning of the section 4 of Code and admitted the application by

appointing Mr. Ajay Kumar Kathuria, as an 'Interim Resolution Professional' and

declared moratorium etc.

5. The Learned Counsel for the Appellant contends that the Hon'ble Tribunal

never had the occasion to issue notice to the 'Corporate Debtor' in the application

filed by the first Respondent u/s 7 of the Code. Furthermore, a plea is taken on

behalf of the Appellant that service of advance copy of the application to the

'Corporate Debtor' cannot be deemed to be 'Service of Notice' in the application.

6. It is represented on behalf of the Appellant that neither the First

Respondent / Petitioner ('Financial Creditor') nor the 'Corporate Debtor' was

present in any of the hearings before the Tribunal. Therefore, it is the stand of

the Appellant that the Tribunal should have dismissed the application filed by

the First Respondent / Petitioner for non-prosecution.

7. The Learned Counsel for the Appellant refers to the order passed by the

Tribunal on the first date of hearing i.e. 06.12.2019 which is to the following

effect:-

Company Appeal (AT) (Insolvency) No. 531 of 2020 4 "No one is present on behalf of both the

parties. Therefore, in the interest of justice,

matter is adjourned to 06.12.2019."

Moreover, on 19.12.2019 (2nd date of hearing) no one from the 'Financial

Creditor' or 'Corporate Debtor' was present and 'order' was reserved.

8. The Learned Counsel for the Appellant emphatically takes a plea that there

is no 'Debt' extended by the First Respondent /'Financial Creditor' to the

'Corporate Debtor' and in fact, there is no privity of contract between them. Apart

from that, the 'Debt' alleged to be due and payable was purportedly paid by the

3rd party, who is not even part of the proceeding before the Tribunal. Besides

this, there is no 'Contract' with that 'Third Party' and the single document

attached with the application in regard to alleged 'Debt' is 'Bank Statement' and

that too is of 'Third Party'.

9. Advancing his arguments, the Learned Counsel for the Appellant

strenuously contends that the 'Bank Statement' belongs to a third party viz. 'Taj

Consultancy' which is not even a party to the proceeding before the Tribunal.

According to the Appellant, it is alleged that under instructions from one Rajeev

Aggarwal who had financial dealings with the First Respondent / 'Financial

Creditor' transferred Rs. 15 Lakhs through RTGS on 30.01.2019 and Rs. 10

Lakhs through its authorised financial services provider viz. 'Taj Consultancy'.

10. An argument is projected on the side of the Appellant that Mr. Rajeev

Aggarwal is neither a Director nor a shareholder of 'Corporate Debtor' and further

Company Appeal (AT) (Insolvency) No. 531 of 2020 5 there was no independent finding arrived at by the Tribunal as to how a 'Third

Party' payment become a 'Financial Debt' or how 'Financial Creditor' had become

again 'Financial Creditor' in the absence of any 'Financial Debt' and the

impugned order is silent in this regard.

11. The Learned Counsel for the Appellant submits that the 'Corporate

Insolvency Resolution Process' proceedings were initiated against the 'Corporate

Debtor' by the First Respondent / 'Financial Creditor' with an intention to extort

money from the 'Corporate Debtor' by filing frivolous proceedings and not

appearing before the Tribunal. Even after providing adequate opportunities,

neither the First Respondent / 'Financial Creditor' nor the 2nd Respondent

(Interim Resolution Professional) had appeared before this Appellate Tribunal

and, therefore, the Appellant prays for setting aside the impugned order passed

by the 'Adjudicating Authority' and to allow the 'Appeal' to meet the ends of

justice.

12. It comes to be known that before the 'Adjudicating Authority' the First

Respondent / 'Financial Creditor' filed an application u/s 7 of the 'I&B' Code and

as seen from part IV caption the total amount of debt was mentioned as Rs.

29,50,000/-. The Principal amount was stated to be Rs. 25,00,000/- and the

interest was described as Rs. 4,52,765/-. In fact, the loan amount of Rs.

25,00,000/- was disbursed on 30.01.2019 and 31.01.2019 respectively. Added

further, the amount purported to be in default, on the date in which the default

took place was Rs. 29,52,765/-.

Company Appeal (AT) (Insolvency) No. 531 of 2020 6

13. The stand of the First Respondent / 'Financial Creditor' is that the First

Respondent / 'Financial Creditor', on the instruction of Mr. Rajeev Aggarwal

transferred through its authorised 'Financial Service Provider' viz. 'Taj

Consultancy Services' Rs. 15 Lakhs through RTGS on 30.01.2019 through three

RTGS of Rs. 5 Lakhs each to 'Corporate Debtor' and further paid Rs. 10 Lakhs

by two RTGS by 5 Lakhs each on 01.02.2019.

14. According to the First Respondent / 'Financial Creditor', the said Rajeev

Aggarwal had assured it that the amount of Rs. 25 Lakhs only so paid to

'Corporate Debtor' would be repaid within 3 months together with interest @ 24%

p.a. from the date of payment. It is averred in Section 7 application of the First

Respondent / 'Financial Creditor' that the legal notice dated 05.11.2019 of the

First Respondent / 'Financial Creditor' through its Counsel, demanding the sum

payable was served to the 'Corporate Debtor', but the 'Corporate Debtor' had not

replied to the said notice and after expiry of more than nine months, since the

'Corporate Debtor' had not repaid any amount whatsoever to the First

Respondent / 'Financial Creditor', the default was committed by the 'Corporate

Debtor' in making the payment of Rs. 29,52,765/-.

15. It is to be pointed out that Section 5(8) of 'I&B' Code speaks of 'financial

debt'. In fact, it is defined as a debt along with interest which is disbursed

against the consideration for the time value of money and it may include any of

the events specified under this provision. In short, the definition is an inclusive

one. Also, it cannot be forgotten that a transaction which is not falling under

any of those prescribed in the Section can also be termed as 'Financial Debt'.

Company Appeal (AT) (Insolvency) No. 531 of 2020 7

16. Section 5(7) of the Code deals with 'financial creditor'. Section 5(6) defines

'dispute' including a suit or arbitration proceedings relating to (a) the existence

of the amount of debt, (b) the quality of goods or service, or (c) the breach of a

representation or warranty. Also, that, a dispute must be a reasonable /

genuine one and not a speculative or an illusory one.

17. Be it noted that Section 3(8) of the 'I&B' Code defines "Corporate Debtor"

meaning a corporate person who owes a debt to any person. Further, as per

Section 3(9) of the 'I&B' Code, a corporate person does not include any 'financial

service provider'. It is to be remembered that a financial service provider' can

commence proceedings as a 'Financial Creditor' against any 'Corporate Debt'.

18. Section 3(16) of the Code list the 'Financial Services'. Section 3(17) defines

'Financial Service Provider' meaning a person who provides financial services in

terms of authorisation issued or registration granted by the 'Financial Service

Regulator'.

19. In so far as Section 65 of the 'I&B' Code is concerned, the said section

specifies penalties for fraudulent or malicious commencement of proceedings

and a penalty can be levied by the 'Adjudicating Authority' ('NCLT'). If an

individual initiates IRP or Liquidation proceedings either fraudulently or with

malicious intent or for any purpose other than the resolution of Insolvency or

Liquidation, the 'Adjudicating Authority' may impose a penalty on the concerned

person as per Section 65 of the Code. If there is nothing on record to state that

the 'Corporate Debtor' had not come with clean hands or suppressed any facts,

the penalty will not be levied.

Company Appeal (AT) (Insolvency) No. 531 of 2020 8

20. An 'ex facie opinion' is to be formed by the concerned 'Adjudicating

Authority', to impose a penalty as per Section 65 of the Code. The concerned

Authority must reach a conclusion that an individual had filed the petition for

initiation of proceedings fraudulently etc. No penalty under sub-section (1) or

sub-section (2) of Section 65 can be levied by the 'Adjudicating Authority' without

recording an opinion for coming to the conclusion that a prima facie case is made

out to state / suggest that a person 'fraudulently' or 'with malicious intent' for

the purpose, other than the resolution insolvency or liquidation etc.

21. In the instant case, the real grievance of the Appellant is that the Tribunal

never had the occasion to issue notice to the 'Corporate Debtor' in the application

projected by the 1st Respondent / 'Financial Creditor' as per Section 7 of the 'I&B'

Code. In this connection, this Tribunal makes a useful reference of the relevant

portion of the Rule 38 of 'National Company Law Tribunal Rules', which speaks

of 'Service of Notices and Processes' and the same runs as under: -

"(1) Any notice or process to be

issued by the Tribunal may be served

by post [or by courier - Inserted by

G.S.R. 1159(E), dated 20.12.2016

(w.e.f. 20.12.2016) or at the e-mail

address as provided in the petition or

application or in the reply;

(2) The notice or process if to be

served physically may be served in

Company Appeal (AT) (Insolvency) No. 531 of 2020 9 any one of the following modes as

may be directed by the Tribunal-

(a) by hand delivery through a

process server or respective

authorised representative;

(b) by registered post or speed post

with acknowledgement due [or by

courier] or

(c) service by the party himself.

1[Explanation - For the purposes of

sub-rules (1)(2), the term "courier"

means a person or agency which

delivers the documents and provides

proof of its delivery].

Xxxxxxxxxxxxx

(5) A notice or process may also be served

on an authorised representative of the

applicant or the respondent, as the case

may be, in any proceedings or on any

person authorised to accept a notice or a

process, and such service on the

authorised representative shall be

deemed to be a proper service."

Company Appeal (AT) (Insolvency) No. 531 of 2020 10

22. As a matter of fact, Rule 44 of 'National Company Law Tribunal Rules',

2016 deals with hearing of petition or applications - (1) The Tribunal shall notify

to the parties the date and place of hearing of the petition or application in such

manner as the President or a Member may, by general or special order, direct.

23. Rule 49 of 'NCLT' Rules, 2016 speaks of Ex parte hearing and disposal -

"(1) Where on the date fixed for hearing the petition or application or on ay other

date to which such hearing may be adjourned, the applicant appears and the

respondent does not appear when the petition or the application is called for

hearing, the Tribunal may adjourn the hearing or hear and decide the petition

or the application ex parte.

(2) Where a petition or an application has been heard ex parte against a

respondent or respondents, such respondent or respondents may apply to the

Tribunal for an order to set it aside and if such respondent or respondents

satisfies the Tribunal that the notice was not duly served, or that he or they were

prevented by any sufficient cause from appearing (when the petition or the

application was called) for hearing, the Tribunal may make an order setting aside

the ex parte hearing as against him or them upon such terms as it thinks fit:

Provided that where the ex parte hearing of the petition or application is

of such nature that it cannot be set aside as against one respondent only, it may

be set aside as against all or any of the other respondents also".

24. It is to be pointed out the question of whether there is a 'debt' and 'default'

can be looked into only if a 'Corporate Debtor' disputes the debt or comes out

with a plea that there is no default, though there is a 'debt'. Besides this, in

Company Appeal (AT) (Insolvency) No. 531 of 2020 11 (Blacks' Law Dictionary 9th edition) the words 'time value' are defined to mean

the price associated with the length of time that an 'investor' must wait and till

an investment matures or the related income is earned.

25. As regards the plea taken that the 'Corporate Debtor' was never issued

with a notice by the 'Adjudicating Authority' it is to be pointed out by this

Appellate Tribunal that the 'Adjudicating Authority' is to follow the ingredients

of 'Service of notices and processes' as per Section 38 of the 'NCLT' Rules, 2016.

If a notice was not duly served upon the concerned party or he was prevented by

any sufficient cause from appearing when the petition / application was called

for hearing, the 'Adjudicating Authority' (Tribunal) may pass an order setting

aside the ex parte hearing against him, on such terms as it thinks fit.

26. In the instance case, the Appellant has come out with a plea that the

'Corporate Debtor' was never issued with notice by the 'Adjudicating Authority'

(Tribunal) and since the 'serving' of advance copy of the application to the

'Corporate Debtor' cannot be construed / deemed to be service of notice in the

eye of Law, this Tribunal holds that the 'Adjudicating Authority' / Tribunal while

reserving orders in C.P. No. IB-3228 (ND)/2019 had committed error of

jurisdiction in reserving orders and passed the impugned judgement without

issuing notice to the 'Corporate Debtor' which is clearly unsustainable in the eye

of Law.

27. When a plea is taken before this Tribunal that there was no 'Debt' extended

by the 'Financial Creditor' to the 'Corporate Debtor' and added further there was

no privity of contract between the 'Financial Creditor' and 'Corporate Debtor',

Company Appeal (AT) (Insolvency) No. 531 of 2020 12 this Tribunal is of the earnest opinion that in the impugned order there was no

finding rendered by the 'Adjudicating Authority' as to how a third party payment

became a 'Financial Debt' or how a 'Financial Creditor' had become a 'Financial

Creditor', in the absence of any 'Financial Debt'.

28. It cannot be brushed aside that the third party 'Taj Consultancy' was not

a party to the proceeding before the 'Adjudicating Authority' and further that Mr.

Rajeev Aggarwal, according to the Appellant is neither a Director or a

Shareholder of the 'Corporate Debtor' and the impugned order is conspicuously

silent about this vital aspect. On this score also the impugned order of the

'Adjudicating Authority' suffers from legal infirmity.

29. Be that as it may, in the light of foregoing detailed discussions, this

Tribunal to prevent an aberration of justice allows the instant Appeal by setting

aside the impugned order dated 31.01.2020 in C.P. No. IB-3228 (ND)/2019

passed by the National Company Law Tribunal, New Delhi Bench-VI, New Delhi

and remits back the matter to the 'Adjudicating Authority' [National Company

Law Tribunal, New Delhi Bench-VI, New Delhi] for fresh consideration and

appreciation of the entire gamut of the controversies centering around the

Application in C.P. No. IB-3228 (ND)/2019 (after its restoration to file) in an

objective and dispassionate manner, on merits, of course after issuing due notice

to the parties as per 'NCLT' Rules, 2016 and also adhering to the principles of

'natural justice'.

30. Since the instant Appeal is allowed with aforesaid observations, the

'Corporate Debtor' is released from the rigour of the 'Corporate Insolvency

Company Appeal (AT) (Insolvency) No. 531 of 2020 13 Resolution Process'. All actions taken by the 'Interim Resolution Professional' /

'Resolution Professional' and the 'Committee of Creditors', if any, are declared

illegal and set aside. The 'Resolution Professional' is directed to hand over the

records and assets of the 'Corporate Debtor' to the 'Promoter' / Directors of the

'Corporate Debtor' forthwith. Also, that the 'Adjudicating Authority' [National

Company Law Tribunal, New Delhi Bench-VI, New Delhi] is to determine the

fee and cost of 'Corporate Insolvency Resolution Process' as incurred by him,

which is to be borne and paid by the First Respondent / 'Financial Creditor'.

31. I.A. No. 1342/2020 seeking exemption to file certified copy of impugned

order is closed with a direction being issued to the Appellant that the same shall

be filed within two weeks from today.

[Justice Venugopal. M] Member (Judicial)

[V.P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical)

NEW DELHI

14th October, 2020 ss

Company Appeal (AT) (Insolvency) No. 531 of 2020 14