Fuse Base Eltoro Pvt. Ltd vs Shalu Khanna & Ors

Company Appeal (AT) (Insolvency) No. 478 of 2022 [Arising out of order dated 21.02.2022 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi, Bench IV in IA No. 1179/(ND)/2020 in Company Petition No. (IB)/114/(ND)/2018]

IN THE MATTER OF: 1. Fusebase Eltoro Pvt. Ltd. 52A, Okhla Industrial Estate Phase-III, Delhi. ...Appellant No. 1

2. Mr. Anuj Gupta Director, Fuse Base Eltoro Pvt. Ltd. 5/17, Shanti Niketan, New Delhi - 110021. ...Appellant No. 2

3. Mr. Ankur Goyal Director, Fuse Base Eltoro Pvt. Ltd. 261, Gali No. 10, Faiz Road, Karol Bagh, New Delhi - 110005. ...Appellant No. 3

4. Mr. Vineet Kumar Sharma Director, Fuse Base Eltoro Pvt. Ltd. 4837/24, Govind Lane, Ansari Road, Darya Ganj New Delhi - 110002. ....Appellant No. 4

Versus Ms. Shalu Khanna Partner, Luthra and Luthra Restructuring and Insolvency Advisors LLP Interim Resolution Professional M/s. Saubhagya Ornaments Pvt. Ltd. A-16/9, Vasant Vihar, New Delhi - 110057. ...Respondent

Company Appeal (AT) (Insolvency) No. 478 of 2022

1 Present: For Appellant: Present but appearance not marked. For Respondent: Mr. Rishi Sood, Advocate.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal, filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016('IBC' in short) by the Appellants arise out of order dated

21.02.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench-IV)

in I.A. No. 1179/(ND)/2020 in Company Petition No. (IB)/114/(ND)/2018. By

the impugned order, the Adjudicating Authority had allowed the application filed

by Resolution Professional (present Respondent) under Sections 60(5) and 25 of

the IBC directing the present Appellants to jointly and severally pay the

Corporate Debtor the principal amount outstanding alongwith interest as

claimed by the Resolution Professional. Aggrieved by this, the present appeal has

been preferred.

2. The brief facts and genesis of the case is that a Section 9 application under

IBC was admitted by the Adjudicating Authority against M/s Saubhagya

Ornaments Pvt. Ltd./Corporate Debtor on 13.03.2019 on an application filed by

M/s. SRS Ltd./Operational Creditor. Ms. Shalu Khanna, the present

Respondent was appointed as Interim Resolution Professional ('IRP' in short) Company Appeal (AT) (Insolvency) No. 478 of 2022

2 and later confirmed as Resolution Professional ('RP' in short). The

RP/Respondent during the ongoing Corporate Insolvency Resolution Process

('CIRP' in short) on examining the records and financial statement of the

Corporate Debtor found that an amount of Rs. 50 lakhs was outstanding for

payment from Fusebase Eltoro Pvt. Ltd./Appellant No.1 Company to the

Corporate Debtor on account of advance extended by the Corporate Debtor. An

application was filed by the RP /Respondent before the Adjudicating Authority

seeking directions qua the Appellant no. 1 company and it's Directors to jointly

and severally make payment of the above outstanding amount alongwith 18%

interest and furnish details of transactions on the use of the said funds advanced

by the Corporate Debtor to them.

3. The Adjudicating Authority in the impugned order dated 21.02.2022 held

that Rs. 50 lakhs being an amount outstanding as per the ledger statement was

due and recoverable and directed Fusebase Eltoro Pvt. Ltd./Appellant No. 1

company; Mr. Anuj Gupta, Director of Fusebase Eltoro Pvt. Ltd./Appellant No.

2 and Mr. Ankur Goyal, Director of Fusebase Eltoro Pvt. Ltd./Appellant No. 3 to

jointly and severally pay the amounts claimed by the Resolution Professional.

Aggrieved by the impugned order, the Appellants have come up in appeal.

Company Appeal (AT) (Insolvency) No. 478 of 2022

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4. Contending that the Corporate Debtor is a sham Company promoted, run

and managed by M/s. SRS Ltd., Learned Counsel for the Appellant has

submitted that the Corporate Debtor owed Rs. 66.19 crores to M/s. SRS Ltd.

On the instructions of M/s SRS Ltd., a sum of Rs. 50 lakhs was paid by the

Corporate Debtor to the Appellant No.1 Company which sum has been adjusted

as consideration for purchase of shares amounting to Rs. 1.10 crores by M/s.

SRS Ltd. of Hotline CPT. Ltd. which was another company of the Appellant No.

1. It has been further pointed out that the date and amount of the payment is

duly recorded in the Share Purchase Agreement ('SPA' in short) dated

10.03.2016.

5. It has been further submitted that the financial affairs and accounts of the

said Corporate Debtor was being maintained by the employees of M/s. SRS Ltd.

and that this fact was very much within the knowledge of RP/Respondent as

recorded by her in the first meeting of the Committee of Creditors ('CoC' in short)

held on 29.04.2019 which is reproduced below: -

"Since we are unable to get the financial and accounting

records of the Company, we had taken the details of

promoters/shareholder of the Company from the website

of MCA. After meeting them they had informed that they

were appointed only for the sake of name and had no

Company Appeal (AT) (Insolvency) No. 478 of 2022

4 information about the accounts, financial affairs, business

operations etc. of the company and that they were working

under the instructions of certain employees of SRS Group.

However, they had referred us the names of employees of

SRS Group who could provide us the information or

documents...."

6. It has also been submitted that Shri Anil Jindal, Whole Time Director and

Chairman of M/s SRS Ltd had given a statement on 06.10.2020 before the

Serious Fraud Investigation Office ('SFIO' in short) admitting that he had

appointed his known persons as Directors in the Corporate Debtor and that the

bank operations of the Corporate Debtor were looked after by the employees of

M/s. SRS Ltd. It has also been stated that Ms. Shweta Marwah, the Company

Secretary of M/s. SRS Ltd. had submitted a similar statement on 04.04.2019 to

SFIO that she was made part of the Secretariat Department at the instance of

Shri Anil Jindal. Similar admission has been made on 05.04.2019 before SFIO

by Mr. Arun Dutt stating that he was appointed as Director in the Corporate

Debtor on instructions of Anil Jindal. It has also been added that Arun Dutt

made a similar statement before Enforcement Directorate on 30.05.2019.

Similarly on 18.07.2019, another Director of Corporate Debtor, Shri Anil Mittal

admitted before the Enforcement Directorate that he was appointed as a Director

in the Corporate Debtor by Shri Anil Jindal.

Company Appeal (AT) (Insolvency) No. 478 of 2022

5

7. It was also pointed out that since the Corporate Debtor was neither an

NBFC nor a financial institution, it could not therefore have given a loan to

Appellant No. 1 Company. Moreover, there is no Loan Agreement to substantiate

that Rs.50 lakhs was advanced by Corporate Debtor to Appellant No. 1 Company.

It has also been argued that even if the alleged advance given to Appellant No. 1

on 18.02.2016 is accepted, it was no longer a legally payable debt since it had

become barred by law of limitation with the expiry of three years on 17.02.2019.

Furthermore, it has been asserted that for an advance given to a corporate entity,

Appellant No. 1 in the present case, the individual Directors of the corporate

entity cannot be made personally liable as per settled law. Thus the alleged claim

was at best receivable from Appellant No. 1 Company; that no recovery could

be sought against other individual Directors of Appellant No. 1 Company and

therefore impleadment of Appellant Nos. 2 to 4 is a case of misjoinder of parties.

8. The Learned Counsel for the Respondent refuting these submissions

pointed out that the SPA had been signed between the Appellant No. 1 Company

and Mr. Anil Jindal, Director of SRS Ltd on 10.03.2016 with regard to sale of

share of M/s. Hotline CPT Limited wherein there is no mention of the Corporate

Debtor. There is also no documentary proof to show any authorization having

ever been given by the Corporate Debtor to the Appellant No. 1 Company to set

off the money received against sale of shares of Hotline CPT Limited to M/s.

SRS Limited.

Company Appeal (AT) (Insolvency) No. 478 of 2022

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9. The Learned Counsel for the Respondent has further contended that the

story of transfer of shares has been created as an after-thought by the Appellant

No. 1 Company when RP/Respondent sought the return of Rs. 50 lakhs from

them which it received from the Corporate Debtor. Further substantiating the

same, it has also been stated that the annual filing of the list of Share-holders

for Hotline CPT Ltd. for the financial years ending 2016, 2017, 2018 and 2019

does not reflect the name of M/s. SRS Ltd. as shareholder and the Appellant

No. 1 continues to be reflected as the shareholder of the Hotline CPT Ltd.

10. It has also been submitted that an amount of Rs. 50 lakhs is found

outstanding in the Books of Accounts and audited financials of the Corporate

Debtor in the financial year ending 2016-2017. Additionally, Bank Statement

has also been referred to by the Learned Counsel for the Respondent to establish

the transfer of Rs. 50 lakhs from the Bank Account of the Corporate Debtor to

the Appellant No. 1 Company. Based on the Bank Statements, financial records

and ledger statements of the Corporate Debtor, the Learned Counsel for the

Respondent contended that notwithstanding the absence of any Loan

Agreement, the alleged transaction of Rs. 50 lakhs is clearly established between

the Corporate Debtor and Appellant No. 1 Company and that this transaction

has no nexus with the share purchase transaction between the Appellant No. 1

Company and M/s. SRS Limited. It has also been stated that a Corporate

Company Appeal (AT) (Insolvency) No. 478 of 2022

7 Debtor, by virtue of the provisions of the Companies Act, 2013 can always

advance loan to another Company even if it is not an NBFC.

11. Learned Counsel for the Respondent has also refuted the submission of

the Appellants that the Corporate Debtor is one of the group company of M/s.

SRS Ltd. It has also been stated that Mr. Anil Jindal, Director of SRS Ltd. was

neither the Director nor the shareholder of the Corporate Debtor. As regards

statements made by employees of the SFIO and Enforcement Directorate, the

Learned Counsel for the Respondent has asserted that their statements have no

bearing on the amount due from the Appellant No. 1 Company to the Corporate

Debtor and thus needs to be disregarded. On the issue of limitation, it has

been argued that there has been no delay on the part of the RP/Respondent in

demanding the repayment of outstanding dues from the Corporate Debtor once

the Corporate Debtor shifted in the hands of the RP on 13.03.2019.

12. It has also been argued that since Appellants No. 2 to 4 have control over

the conduct and management of the affairs of the Appellant No. 1 Company, and

in view of the well settled principle of law that a necessary party is one without

whom no order can be made effectively and a proper party is one in whose

absence an effective order can be made but whose presence is necessary for a

complete and final decision on the question involved in the proceedings, the

Appellants No. 2 to 4 are necessary party and therefore liable alongwith

Appellant No. 1 Company for refunding the amount due to the Corporate Debtor. Company Appeal (AT) (Insolvency) No. 478 of 2022

8

13. We have duly considered the arguments and submissions advanced by the

Learned Counsel for both the parties and perused the records carefully in the

light of rival contentions.

14. The first issue that needs determination is to ascertain whether an

amount of Rs. 50 lakh is outstanding for recovery from Appellant No. 1

Company and payable to the Corporate Debtor. We observe that after proper

examination of records and financial statements of the Corporate Debtor

and after due diligence, the RP has concluded from the ledger account of

Appellant No. 1 company as maintained in the books of account of the Corporate

Debtor as placed as at page 178 of the Appeal Paper Book ('APB' in short) that

an amount of Rs. 50 lakhs was outstanding and due for payment. Following this

discovery, we find that the RP/Respondent methodically took up the matter, as

obligated under the IBC, by sending emails/letters at regular intervals to the

Appellant No. 1 company including the statutory auditor as well as to

Appellants No. 2 to 4 being Directors of Appellant No. 1 company to make good

the outstanding amount along with interest @18% per annum.

15. It is also noted that Appellant No. 3, who is Director in Appellant No. 1

company on 17.10.2019 has admitted and acknowledged to the RP on behalf of

Appellant No. 1 company as at pages 194-195 of the APB that it received Rs. 50

lakhs from the Corporate Debtor while adding the caveat that this amount was Company Appeal (AT) (Insolvency) No. 478 of 2022

9 used by Appellant No. 1 company against the sale of shares of their other

company, M/s Hotline CPT Ltd to M/s SRS Limited. This makes it abundantly

clear that the Appellant No. 1 Company received Rs.50 lakhs from the Corporate

Debtor by their own admission.

16. This brings us to the concomitant aspect as to whether the outstanding

payment was actually repaid by the Appellant No. 1 Company to the Corporate

Debtor. We have noticed that the RP/Respondent wrote to Appellant No. 3 on

22.10.2019 to provide relevant documents, if any, including instructions given

by Corporate Debtor to the Appellant No. 1 company for using the advance of

Rs. 50 lakhs to issue shares to M/s SRS Ltd. Appellant No. 3 on 06.11.2019

clarified the matter to the RP/Respondent by sending the SPA dated 10.03.2016

as signed between Appellant No.1 company and SRS Ltd. to which the RP

informed Appellant No. 3 on 07.11.2019 that the SPA does not provide any

evidence that the Corporate Debtor had authorized the Appellant No.1 company

to issue shares of LG Hotline Pvt. Limited to SRS Ltd. on its behalf in lieu of the

Rs. 50 lakh advanced to them.

17. We have no reasons to disagree with the findings of the RP/Respondent

that the contents of the SPA do not indicate any role of the Corporate Debtor in

the entire transaction. We also note that the SPA has been signed by Appellant

No. 3 on behalf of Appellant No. 1 company as "seller" and Shri Anil Jindal as

authorized signatory on behalf of SRS Ltd. as "buyer" and there is not even a Company Appeal (AT) (Insolvency) No. 478 of 2022

10 whisper in the SPA about the Corporate Debtor, leave aside a remote trace of

any kind of authorization or direction from the Corporate Debtor or on his behalf

regarding the aforementioned share purchase transaction. We also note that in

the absence of any established link of the Corporate Debtor with this share

related transaction between Appellant No. 1 and the SRS Ltd., the Adjudicating

Authority has concurred in the findings of the RP/Respondent that the amount

of Rs. 50 lakh remains outstanding and recoverable from the Appellant No. 1

Company and other Appellants jointly and severally.

18. The SPA undoubtedly constitutes the basic legal edifice of the share

purchase transaction and it is undisputed that the Corporate Debtor is not a

party therein whether express or implied. The assertion of Appellant No. 3 that

the Corporate Debtor was a party to the share-purchase transaction is therefore

at best a fanciful proposition bereft of any substance. In fact, Appellant No. 3

has himself admitted in his email dated 11.11.2019 that this missing link with

the Corporate Debtor was raised during the time of entering the sale-purchase

share transaction, but they got persuaded by the oral assurances of Mr. Anil

Jindal in believing that the Corporate Debtor is one of the group company of

M/s. SRS Ltd. Be that as it may , the gullibility on the part of Appellant No. 3

in believing Shri Anil Jindal, who was neither a share-holder nor the Director of

the Corporate Debtor, is not a valid excuse and is outrightly rejected. This

argument in no way can help the Apellant side from escaping the liability of

recovery of the outstanding amount from them.

Company Appeal (AT) (Insolvency) No. 478 of 2022

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19. As regards, the statements given by Shri Anil Jindal of M/s SRS Ltd. as

well as by some other Directors and employees of the Corporate Debtor before

the SFIO and Enforcement Directorate that the Corporate Debtor and M/s SRS

Ltd. are related parties, it is not within the remit of this Tribunal to comment on

the findings of other investigating agencies and we therefore choose not to make

any comments. Suffice to say, the Appellants have clearly failed to submit any

authentic legal document/certificate/proof which can unimpeachably establish

the fact that the Corporate Debtor is managed and promoted by the M/s SRS

Ltd.

20. This brings us to the second point which needs determination and that is

whether the recoverable amount of Rs. 50 lakhs is barred by limitation. It has

been contended by the Learned Counsel for the Appellants that since the claim

pertains to 18.02.2016 being the date of transfer of the said funds, the three year

limitation expires on 17.02.2019 and hence the claim is liable to be

rejected. From the material on record, there is no quarrel on the fact that the

Corporate Debtor had given a loan in the nature of an advance to the Appellant

No. 1 company. It is also not in dispute that the Appellant No. 1 company had

not yet paid back the same amount directly into the Corporate Debtor's accounts

and therefore remains outstanding and recoverable. The claim that the share

purchase transaction between the Appellant No. 1 company and SRS Limited

amounted to recovery of the said sum lacks credence in the absence of any Company Appeal (AT) (Insolvency) No. 478 of 2022

12 documentary substantiation. It is also an uncontested fact that there is no loan

agreement between the Appellant No. 1 and the Corporate Debtor in this regard.

Furthermore, nothing has been placed on record to indicate that this amount

had to be repaid back within any specific time-line. In other words, the said sum

was payable on demand anytime. Given the above, we hold that the applicability

of limitation period in the present case does not stand to reason. Once the

Corporate Debtor has come under CIRP, the logical corollary is that all actionable

claims of the Corporate Debtor must be brought back into the corpus kitty of the

Corporate Debtor. We find that the RP/Respondent has rightly issued the

demand notice on 29.04.2019 and 09.05.2019 to the Appellant No. 1 company

as the said amount is due and payable from it.

21. The last issue which falls for consideration is whether Appellant No. 1

company is alone liable for the recovery of the outstanding advance or the

recovery can be jointly and severally sought against Appellant No.2, 3 and 4. It

has been contended by the Learned Counsel for the Appellants that the

Corporate Debtor had given the outstanding amount to Appellant No.1 company

which is a separate and independent body corporate with a distinct legal identity

and not to the Appellants No. 2, 3 and 4 and therefore the Adjudicating

Authority had erred in fixing personal liability on them. We agree that the

Appellant No. 1 company is a legal personality entirely distinct from the

Directors. Once a company is incorporated it becomes an 'artificial person' and

must be treated separately from its members. From the juristic point of view, Company Appeal (AT) (Insolvency) No. 478 of 2022

13 the company is capable of enjoying rights and for being subjected to duties which

are distinct from those enjoyed, exercised or discharged by individual members.

Thus liability of the corporate entity cannot be automatically fastened on the

individual Directors. Furthermore, we note that the Adjudicating Authority while

disregarding the separate legal entity of the Appellant No. 1 company has also

not recorded the reasons for holding the individual members jointly and severally

liable for the obligations of the corporate entity. The Adjudicating Authority is

no doubt entitled to lift the veil of the corporate entity but in doing so must

delineate the reasons for piercing the corporate veil and show as to how and to

what extent the individual members are liable. This not having been done by

the Adjudicating Authority, we are of the considered opinion that the

outstanding amount alongwith interest is recoverable from Appellant No.

1 company and not jointly and severally at this stage.

22. From the aforesaid discussion, we are of the considered opinion, that the

Adjudicating Authority has not committed any error in holding that an

outstanding principal amount of Rs.50 lakhs along with 18% interest is due and

recoverable by the Resolution Professional and to that extent affirm the

impugned order. However, we hold that this amount alongwith interest is

recoverable only from Appellant No. 1 company and therefore set aside that

part of the impugned order which held that this amount is jointly and severally

recoverable from Appellants no. 1 to 3. The Appellant No. 1 company is hereby

directed to entirely pay the aforesaid amount alongwith interest as claimed by Company Appeal (AT) (Insolvency) No. 478 of 2022

14 the Resolution Professional/Respondent within four weeks from the date of the

order. By the above terms, the appeal is therefore partly allowed and disposed

of with no costs.

(Justice Ashok Bhushan) Chairperson

(Barun Mitra) Member(Technical)

Place: New Delhi Date: 27.09.2022 shashi

Company Appeal (AT) (Insolvency) No. 478 of 2022

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