D. Muthukumar vs A. Premkumar & Another

D. Muthukumar ...Appellant

Vs.

A. Premkumar & Another ...Respondents

Present: For Appellant:- Mr. Goutham Shivshankar, Advocate

For Respondents:- Mr. Biju Thankappen with Mr. Prakash Yedhola, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Respondents, A. Prem Kumar & Another originally filed an

application under Section 433(e) & (f) of the Companies Act, 1956 before

the Hon'ble High Court of Madras. The case was transferred to the

Adjudicating Authority (National Company Law Tribunal), Chennai

Bench, Chennai, pursuant to "The Companies (Transfer of Pending

Proceedings) Rules, 2016" framed by Central Government in exercise of

the powers conferred under sub-sections (1) and (2) of Section 434 of the

Companies Act, 2013 read with sub-section (1) of Section 239 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B

Code").

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2. The Adjudicating Authority by impugned order dated 21st August,

2017 in TCP/89/(IB)/CB/2017 treated the application under Section

433(e) & (f) of the Companies Act, 1956 to be an application under

Section 7 of the 'I&B Code' read with Rule 6 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016

(hereinafter referred to as "Adjudicating Authority Rules, 2016"),

admitted the application, passed order of moratorium and appointed

'Interim Resolution Professional' with certain directions. The said order

is under challenge in this appeal.

3. The case of the Appellant is that prior to 2004, he along with his

wife and one Mr. P. Asokan and Mr. P. Velraj were doing real estate

business through a proprietary concern in the name and style of M/s.

K.K.Flats. During the year 2004, the said Company was floated and

ventured into a land project belonging to M/s. Madura Coats Ltd. at

Madurai by utilising the funds available with the proprietary concern and

taking further investments from different persons including Mr. P.

Asokan and Mr. P. Velraj. Thereby, the land was procured, details of

completion of the projects that the Company purchased and promoted an

amount contributed by different persons have been shown. The amount

paid by one or other persons in favour of one or other creditors has also

been detailed and it was submitted that the table shows that the

Company had paid back the investments made in it through various

Company Appeal (AT) (Insolvency) No. 209 of 2017 3

transactions coming to its total sum of Rs. 1,54,93,980/- (Rupees one

Crore fifty-four lakhs ninety-three thousand nine hundred and eighty

only). It is alleged that the Respondents without paying back the amount

with sole motive of unjustly enriching themselves, issued a statutory

notice on 25th October, 2014 alleging that the Company has taken loan

from them, to which, the Appellant objected.

4. Thereafter, the Respondents filed an application for winding up

under Section 433(e) & (f) of the Companies Act, 1956 before the Hon'ble

High Court of Madras. The said case was transferred to the Adjudicating

Authority, who treated the petition as an application under Section 7 of

the 'I&B Code' and passed the impugned order dated 21st August, 2017.

5. Learned counsel for the Appellant submitted that the Respondents

are not 'Financial Creditor', within the meaning of sub-section (7) read

with sub-section (8) of Section 5 of the 'I&B Code'. It was also submitted

that before admitting the application under Section 7, all facts were

required to be brought to the notice of the Adjudicating Authority, were

not pleaded.

6. The Appellant has enclosed copies of the cheques issued by Mr. P.

Asokan, apart from copies of the relevant pages of ledger book to suggest

that repayment has already been made to the 1st Respondent- A.

Company Appeal (AT) (Insolvency) No. 209 of 2017 4

Premkumar. Balance sheets has been enclosed in support of the plea that

the due amount had already been paid to the 1st Respondent.

7. According to 1st Respondent, he approached the Appellant

Company on many occasions, seeking repayment of dues, along with the

accrued interests but the amount was not paid. Further, according to 1st

Respondent, the Income Tax Return was submitted by the Company (KK

Flats (P) Ltd) and enclosed by Appellant suggests that the amount was

taken from the 1st Respondent and shown as 'loan', relevant portion of

which is quoted below: -

KK FLATS PRIVATE LIMITED NO. 1E, SUN FLOWER APARTMENT 10, MANDABAM CROSS ROAD KILPAUK, CHENNAI-10 SCHEDULES TO BALANCE SHEET AS ON 31.03.2012 Amount in (Rs.) Particulars 31.03.2012 31.03.2011 SCHEDULE - D Unsecured Loans

Anitha R 1070224 1070224 Arun P.V. 2064647 2064647 Asokan P 1880913 1880913 Deva Kavitha 7940000 10390000 KK Flats Deva Kavitha 348500 5348500 Muthukumaar 13918058 13667758 Porkodi 961586 961586 Prem Kumar 3110382 3110382 Raja sekar 3366713 3366713 Rithu Pandey 324000 324000 Ram kumar A 2645114 2645114 Shanthi V 1708167 1708167 Others 338000 338000 Paramendra Tiwari 3450000 3450000 Rathinapandian 300000 300000 Tamilselvan 600000 0 Ajay Prakash V 1477521 1477521 Alagesan & Ajitha 500000 500000 Prakash S 100000 100000

TOTAL 52703525 46103825

Company Appeal (AT) (Insolvency) No. 209 of 2017 5

For M/s K K Flats Private Limited For Ravichandran & Thangaraj Associates

Sd/- Sd/- Sd/-

D. Muthukuma M. Devakavitha G. Thangaraj Managing Director Director Partner

Place: Chennai Date :

8. We have heard learned counsel for the Appellant and learned

counsel for the Respondents.

9. To decide the issue, it is desirable to refer the Rule framed by the

Central Government, pursuant to which pending winding up cases were

transferred from the Hon'ble High Courts to the Adjudicating Authority

(Tribunal).

The Central Government in exercise of the powers conferred under

sub-sections (1) and (2) of Section 434 of the Companies Act, 2013 read

with sub-section (1) of Section 239 of the 'I&B Code' framed "The

Companies (Transfer of Pending Proceedings) Rules, 2016". Rule 5

therein relates to transfer of pending proceedings of winding up on the

ground of inability to pay debts and reads as follows: -

"5. Transfer of pending proceedings of Winding

up on the ground of inability to pay debts.- (1) All

petitions relating to winding up under clause (e)

of section 433 of the Act on the ground of inability

to pay its debts pending before a High Court, and

where the petition has not been served on the

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respondent as required under rule 26 of the

Companies (Court) Rules, 1959 shall be

transferred to the Bench of the Tribunal

established under sub-section (4) of section 419

of the Act, exercising territorial jurisdiction and

such petitions shall be treated as applications

under sections 7, 8 or 9 of the Code, as the case

may be, and dealt with in accordance with Part

II of the Code:

Provided that the petitioner shall submit all

information, other than information forming part

of the records transferred in accordance with

Rule 7, required for admission of the petition

under sections 7, 8 or 9 of the Code, as the case

may be, including details of the proposed

insolvency professional to the Tribunal within

sixty days from date of this notification, failing

which the petition shall abate.

2. All cases where opinion has been

forwarded by Board for Industrial and Financial

Reconstruction, for winding up of a company to a

High Court and where no appeal is pending, the

proceedings for winding up initiated under the

Company Appeal (AT) (Insolvency) No. 209 of 2017 7

Act, pursuant to section 20 of the Sick Industrial

Companies (Special Provisions) Act, 1985 shall

continue to be dealt with by such High Court in

accordance with the provisions of the Act."

10. Rule 4 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 relate to "Application by 'Financial

Creditor'", as quoted below: -

"4. Application by financial creditor. ─ (1) A

financial creditor, either by itself or jointly, shall make

an application for initiating the corporate insolvency

resolution process against a corporate debtor under

Section 7 of the Code in Form 1, accompanied with

documents and records required therein and as

specified in the Insolvency and Bankruptcy Board of

India (Insolvency Resolution process for Corporate

Persons) regulations, 2016."

(2) Where the applicant under sub-rule (1) is an

assignee or transferee of a financial contract, the

application shall be accompanied with a copy of the

assignment or transfer agreement and other relevant

documentation to demonstrate the assignment or

transfer.

Company Appeal (AT) (Insolvency) No. 209 of 2017 8

(3) The applicant shall dispatch forthwith, a copy of the

application filed with the Adjudicating Authority, by

registered post or speed post to the registered office of

the corporate debtor."

11. From sub-rule (1) of Rule 4 of the Adjudicating Authority Rules,

2016, it is clear that the applicant is required to provide information as

required under Form-1. Sub-rule (3) of Rule 4 of the Adjudicating

Authority Rules, 2016, mandates the applicant to provide the copy of the

application to the 'Corporate Debtor', immediately after filing of the

application.

12. As per Form-1 i.e. the format for filing an application under Section

7 of the 'I&B Code as per which following details are to be provided.

"Part I- Particulars of Applicant (Please provide for

each Financial Creditor Making the

Application)

Part II- Particulars of Corporate Debtor

Part III- Particulars of the Proposed Interim Resolution

Professional

Part IV- Particulars of Financial Debt

Part V- Particulars of Financial Debt [Documents,

Records and Evidence of Default]

I, hereby certify that, to the best of my knowledge,

[name of proposed insolvency professional], is fully

Company Appeal (AT) (Insolvency) No. 209 of 2017 9

qualified and permitted to act as an insolvency

professional in accordance with the Insolvency and

Bankruptcy Code, 2016 and the associated rules and

regulations.

[Name of the financial creditor] has paid the

requisite fee for this application through [state means

of payment] on [date]."

As per the instructions, the following documents are required to be

attached:

"Annex I Copies of all documents referred to in this application.

Annex II Written communication by the proposed interim resolution professional as set out in Form 2.

Annex III Proof that the specified application fee has been paid.

Annex IV Where the application is made jointly, the particulars specified in this form shall be furnished in respect of all the joint applicants along with a copy of authorisation to the financial creditor to file and act on this application on behalf of all the applicants."

13. From the record we find that except for the information as

mentioned in the petition under Section 434 (e) & (f) of the Companies

Act, 1956, no further information was provided by the Respondents in

terms of Rule 5 of "The Companies (Transfer of Pending proceedings)

Rules, 2016". As per proviso, the Respondent was required to submit all

Company Appeal (AT) (Insolvency) No. 209 of 2017 10

information, other than information forming part of the records

transferred in accordance with Rule 7, required for admission of the

petition under Sections 7, 8 or 9 of the 'I&B Code. In the present case,

there is nothing on the record to suggest that in terms of Part V of

Form-1 'Particulars of Financial Debt [Documents, Records and

Evidence of Default]' have been supplied by the Respondents nor

copies of documents as mentioned below Part V of Form I were

provided by the Respondents. For example, the Respondents have not

filed any record of default with the information utility nor any other

record, as prescribed by 'Insolvency and Bankruptcy Board of India'

has been enclosed.

14. This apart, there is a doubt, as submitted by the learned counsel

for the Appellant, as to whether the 1st Respondent, A. Prem Kumar

can claim to be a 'Financial Creditor'.

15. From the Income Tax Return enclosed by the 1st Respondent, while

we find that the 1st Respondent has been treated to be a 'Creditor', but in

Schedule D, the debt has been shown to be unsecured loans. The 1st

Respondent has not brought on record to suggest that debt along with

interest, if any, has been disbursed by the 1st Respondent to the 'Corporate

Debtor' against 'the consideration for the time value of money' or that

the said money was borrowed by the 'Corporate Debtor' for one or other

purpose as shown in sub-section (8) of Section 5 of the 'I&B Code'.

Company Appeal (AT) (Insolvency) No. 209 of 2017 11

16. The Adjudicating Authority without ascertaining the question as to

whether the 1st Respondent is a 'Financial Creditor' or not, particularly in

absence of any pleading treated the application under Section 7 of the 'I&B

Code', which shows non application of mind on the part of the Adjudicating

Authority.

17. For the reasons aforesaid while we hold that the application under

Section 433 (e) & (f) of the Companies Act, 1956 transferred to the Tribunal

cannot be treated to be an application under Section 7 of the 'I&B Code',

the impugned order dated 21st August, 2017 being bad in law, and in view

of the observations made above, is set aside. In the result, in terms of

proviso to Rule 5 of "The Companies (Transfer of Pending proceedings)

Rules, 2016", the application preferred by the Respondents under Section

433 (e) & (f) of the Companies Act, 1956 stands abated. However, it will be

open to the Respondents to move before appropriate forum for appropriate

relief.

18. In effect, order (s) passed by Adjudicating Authority appointing

'Interim Resolution Professional', declaring moratorium, freezing of

account and all other order (s) passed by Adjudicating Authority pursuant

to impugned order and action, if any, taken by the 'Interim Resolution

Professional', including the advertisement, if any, published in the

newspaper calling for applications and all such orders and actions are

Company Appeal (AT) (Insolvency) No. 209 of 2017 12

declared illegal and are set aside. The application preferred by

Respondent is dismissed as abated. Learned Adjudicating Authority will

close the proceeding. The 'Corporate Debtor' company is released from

all the rigour of law and is allowed to function independently through its

Board of Directors from immediate effect.

19. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional ', if appointed, and the 'Corporate Debtor' will pay the fees of

the Interim Resolution Professional, for the period he has functioned. The

appeal is allowed with aforesaid observation and direction. However, in

the facts and circumstances of the case, there shall be no order as to cost.

(Justice Bansi Lal Bhat) (Justice S.J. Mukhopadhaya) Member (Judicial) Chairperson

NEW DELHI 6th December, 2017 AR

Company Appeal (AT) (Insolvency) No. 209 of 2017