Chetan Sharma vs Rungta Industries (P) Ltd. & Anr

[Arising out of Orders dated (30th May, 2017)/1st June, 2017 passed by the Adjudicating Authority (National Company Law Tribunal) Allahabad Bench, Allahabad in Company Petition No. 13/ALD of 2017]

(Company Appeal (AT) (Insolvency) No. 66 of 2017)

IN THE MATTER OF:

Mr. Chetan Sharma ...Appellant

Vs.

Jai Lakshmi Solvents (P) Ltd. & Anr. ...Respondents

(Company Appeal (AT) (Insolvency) No. 67 of 2017)

IN THE MATTER OF:

Mr. Chetan Sharma ...Appellant

Vs.

Abhi Agro Pvt. Ltd. & Anr. ...Respondents

(Company Appeal (AT) (Insolvency) No. 68 of 2017)

IN THE MATTER OF:

Mr. Chetan Sharma ...Appellant

Vs.

JR Agro Industries Pvt. Ltd. & Anr. ...Respondents

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 2

(Company Appeal (AT) (Insolvency) No. 69 of 2017)

IN THE MATTER OF:

Mr. Chetan Sharma ...Appellant

Vs.

Arohul Foods Pvt. Ltd. & Anr. ...Respondents

(Company Appeal (AT) (Insolvency) No. 70 of 2017)

IN THE MATTER OF:

Mr. Chetan Sharma ...Appellant

Vs.

Rungta Industries (P) Ltd. & Anr. ...Respondents

Present: For Appellant:- Shri Arun Kathpalia, Senior Advocate assisted by Shri Dhrupad Das, Advocate. Shri Amit Gupta, Company Secretary.

For Respondents:- Dr. U.K. Choudhary, Senior Advocate assisted by Shri Arvind Kumar Gupta, Ms. Purti Marwaha Gupta and Ms. Henna George, Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

As these appeals have been preferred by a common Appellant- Mr.

Chetan Sharma, Director/Shareholder of the 'Corporate Debtor'-

(Swadisht Oils Pvt. Ltd.) against the common order dated (30th May,

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 3

2017)/ 1st June, 2017 passed by the Adjudicating Authority (National

Company Law Tribunal), Allahabad Bench, Allahabad, and as common

question of law is involved, they were heard together and disposed of by

this common judgment.

2. Five 'Operational Creditors' (Respondents of each appeal) filed five

separate applications under Section 9 of the Insolvency and Bankruptcy

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

'Corporate Insolvency Resolution Process' against 'Swadisht Oils Pvt. Ltd.'

('Corporate Debtor'). They were separately numbered and on notice they

were heard by the Adjudicating Authority and by `the common impugned

order dated 30th May, 2017, one of the applications under Section 9 of

the 'I&B Code' was admitted; order of 'Moratorium' was passed and an

'Interim Resolution Professional' was appointed with certain directions.

The other applications were disposed of accordingly.

3. The Adjudicating Authority by separate order(s) all dated 1st June,

2017, forwarded the operative portions of the reasoned order dated 30th

May, 2017, which are under challenge.

4. The particulars of the operational debts claim/ dues from the

'Corporate Debtor' were described by the 'Operational Creditors' as

follows:

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 4

S.No. Name of the Case no. Amount of Company debt due in Rs.

1. J. R. Agro CP No. 50843252/-

Industries Pvt. 13/ALD/2017 Ltd. 2. Abhi Agro CP No. 2859514/- Industries Pvt. 14/ALD/2017 Ltd. 3. Jai Lakshmi CP No. 2640525/- Solvents Pvt. Ltd. 15/ALD/2017 4. Arohul Foods Pvt. CP No. 2475178/- Ltd. 16/ALD/2017 5. Rungta Industries CP No. 1497879/- Pvt. Ltd. 17/ALD/2017

5. All the 'Operational Creditors' (First Respondents herein) alleged

that despite admitting of their liability to the extent as mentioned above,

the 'Corporate Debtor' failed to pay such amount even after receipt of the

demand notice(s) issued by the 'Operational Creditors' as per sub-section

(1) of Section 8 of the 'I&B Code'.

6. The case of the Appellant is that the 'Corporate Debtor' ordered for

purchase of 'crude rice bran oil' from the 'Operational Creditors' on

various occasions. However, no supplies were received by the 'Corporate

Debtor' against the various purchase orders placed by it; without

delivering the products, the 'Operational Creditors' raised various

invoices against alleged purchase of the crude oils, as claimed and noted

above.

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 5

7. According to the Appellant, one Mr. Dinesh Arora, the then

Managing Director of the Company fraudulently, with the aid and support

of the 'Operational Creditors', caused the invoices for these goods to be

raised in the name of the 'Corporate Debtor'. The Appellant verily believe

that the delivery of the goods were made to Mr. Dinesh Arora and not to

the 'Corporate Debtor'.

8. The factum of Mr. Dinesh Arora's frauds was subsequently

discovered by the 'Corporate Debtor', who immediately asked him to

resign and take over the liability of debts fraudulently incurred by him.

With a view to end the dispute, a meeting was held between the 'Corporate

Debtor' and Mr. Dinesh Arora, wherein a Memorandum of Understanding

was signed on 19th May, 2016, between the 'Corporate Debtor' and Mr.

Dinesh Arora. As per the agreement, Mr. Dinesh Arora undertook all the

liabilities of the 'Corporate Debtor' incurred by him fraudulently. Thus,

according to the Appellant, a novation of the contract took place, which

makes the alleged sums recoverable only from Mr. Dinesh Arora and not

from the 'Corporate Debtor'.

9. Learned Senior Counsel appearing on behalf of the Appellant

submitted that Mr. Dinesh Arora also signed the Balance Sheets of the

'Corporate Debtor', wherein the sums set out in the Memorandum of

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 6

Understanding dated 19th May, 2016, were written off from the books of

the 'Corporate Debtor'.

10. It was submitted that all the three parties to the transaction: (i) the

'Corporate Debtor', (ii) the 'Operational Creditors' and (iii) Mr Dinesh

Arora; were in consensus ad idem when the 'Operational Creditors' and

the 'Corporate Debtor' agreed that Mr. Dinesh Arora shall stand in

relation to the 'Corporate Debtor' and would be liable for the debts

incurred by the 'Operational Creditors'. Thus a novation of the contract

under Section 62 of the Indian Contract Act, 1872, took place, by which

the 'Operational Creditors' are bound by law and cannot resile.

11. Learned counsel appearing on behalf of the 'Operational Creditors'

disputed the aforesaid claim. It was submitted that the 'Operational

Creditors' were not parties to any of the Memorandum of Understanding

signed between the 'Corporate Debtor' and Mr. Dinesh Arora. Such so-

called Memorandum of Understanding was reached between them

fraudulently with a view to deny the claim of the 'Operational Creditors'.

12. Learned counsel for the 'Operational Creditors' submitted that

Appellant- Mr. Chetan Sharma, on behalf of the 'Corporate Debtor' has

admitted the liability in Company Appeal (AT) (Insolvency) No. 68 of 2017,

which arises out of the main case Company Petition No. 13/ALD of 2017

relates to J.R. Agro Industries (P) Limited-('Operational Creditor').

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 7

13. It was submitted that the said 'Operational Creditors' received the

balance confirmation letter dated 30th November, 2015 from the

'Corporate Debtor' signed by the authorised Director of the 'Corporate

Debtor', wherein they confirmed that as per their books of accounts, there

is a credit balance of Rs. 5,08,43,252/- in the ledger account of the said

'Operational Creditors' as on 30th November, 2015.

14. It was also submitted by the learned Senior Counsel for the

'Operational Creditors' that there was no pre-existing dispute between

the parties.

15. It is a settled law that unilateral 'transfer' of liability does not

constitute a 'dispute' within the meaning of Section 5(6) of the 'I&B Code'.

The 'dispute' under Section 5(6) of the 'I&B Code' has to be between the

'Corporate Debtor' and the 'Operational Creditors' and an inter-se dispute

between two groups of shareholders of the 'Corporate Debtor' does not

constitute a 'dispute' in reference to 'Operational Creditors'.

16. On perusal of the documents, we find that there is no pre-existing

dispute between the 'Corporate Debtor' and the 'Operational Creditors'.

17. An outstanding in the account of a borrower (customer), is a debt

due and payable by the borrower to the Creditor. The Creditor is the

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 8

owner of such debt. Such debt is an asset in the hands of a Creditor,

whether 'Secured Creditor' or 'Unsecured Creditor' or 'Operational

Creditor' or 'Financial Creditor'. The creditor can always transfer its

assets (debt) to an assignee but the borrower cannot transfer its liability

of debt to a third party. Therefore, the Appellant cannot take advantage

of agreement of transfer of liability of debt of 'Corporate Debtor' to Mr.

Dinesh Arora.

18. The alleged Memorandum of Understanding was never signed by

the 'Operational Creditors'. It is not the case of the Appellant that the

Memorandum of Understanding was signed on behalf of the 'Corporate

Debtor'; in fact, the Memorandum of Understanding relied upon was

signed as an inter-se agreement between shareholders of the 'Corporate

Debtor' with Mr. Dinesh Arora, which has no binding effect on the

'Operational Creditors'.

19. The 'Corporate Debtor' is a separate corporate entity under Section

9 of the Companies Act, 2013. The order was given by the 'Corporate

Debtor' based on which the supply was made to the 'Corporate Debtor'

by the 'Operational Creditors'. Who received the supply on behalf of the

'Corporate Debtor' is an inter-se dispute amongst the Directors and the

Staff Officers or the Employees of the 'Corporate Debtor'. In absence of

privity of contract between the 'Operational Creditors' and Mr. Dinesh

Arora, the 'Operational Creditor' could not have made any claim against

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 9

him based on an agreement reached between two shareholders of the

'Corporate Debtor'.

20. The Appellant- Mr. Tilak Raj Sharma has already purchased the

full stake of the other partner i.e. Mr. Dinesh Arora as pleaded by the

'Operational Creditors' and not disputed by the Appellant. Mr. Tilak Raj

Sharma, provided exit to Mr. Dinesh Arora from the Company ('Corporate

Debtor') before the takeover of the management by Mr. Tilak Raj Sharma

Group in the year 2016. If there is any fraud played by one or other

shareholders or ex shareholders of the 'Corporate Debtor', the aggrieved

shareholder may take appropriate step against the other shareholder but

that will not absolve the 'Corporate Debtor' of its liability of payment to

'Operational Creditors'.

21. In the case of J.R. Agro Industries (P) Limited a specific plea has

been taken that demand notice under sub-section (1) of Section 8 of the

'I&B Code' was issued by the said 'Operational Creditor' on 18th January,

2017, which was received by the 'Corporate Debtor' on 23rd January,

2017. The Insolvency application under Section 9 was filed on 20th

February, 2017 and no reply was filed within the stipulated period of ten

days. The notice of dispute under Section 8(2) was issued on 2nd March,

2017, which cannot be taken into consideration to hold that there was

'existence of dispute'.

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017 10

22. The 'Operational Creditors' have brought to the notice of the

Adjudicating Authority the copies of Commercial Tax (Sales Tax) monthly

returns of the 'Corporate Debtor'. Therein the 'Corporate Debtor' has

taken plea before the Commercial Tax Department, Kanpur that during

the relevant period supplies were made by the 'Operational Creditors' and

thereby acknowledged the purchase made in their monthly tax returns.

On the basis of such, the 'Corporate Debtor' having already taken 'input

tax credit' from the Tax Department, now cannot take plea that the

'Corporate Debtor' do not owe any debt to the 'Operational Creditors'.

23. We find no merit in these appeals. They are accordingly dismissed.

However, in the facts and circumstances of the case, there shall be no

order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 10th May, 2018

/AR/

Company Appeals (AT) (Insolvency) Nos. 66, 67, 68, 69 & 70 of 2017