Gp Capt Atul Jain vs Tripathi Hospital Pvt Ltd

Company Appeal (AT)(Insolvency) No. 655 of 2020 & I.A No.3714, 4538 of 2022

[Arising out of order dated 25.06.2020 passed by the Adjudicating Authority, National Company Law Tribunal, Allahabad Bench in CP(IB) No. 457/ALD/2019]

IN THE MATTER OF:

Gp. Capt Atul Jain (Retd.), P-567, Jal Vayu Vihar, Sector-21, Noida, Uttar Pradesh - 201301 ...Appellant

Versus

Tripathi Hospital Pvt. Ltd. H-27, Sector-22, Noida, Uttar Pradesh - 201301 ...Respondent No.1

Dr. Birendra Kr. Tripathi (Managing Director), Flat No.1101, Tower S-2, Amantran Apts, Sector-119, Noida ...Respondent No.2

Dr. Mrs. Nidhi Tripathi (Director) Flat No. 1101, Tower S-2, Amantran Apts, Sector-119, Noida ...Respondent No.3

Dr. Mrs. Manju Lata Tripathi (Director) E-14, Sector-9, New Vijay Nagar, Ghaziabad-201009 ...Respondent No.4

Ms. Sunayana Agarwal (Addl. Director-THPL), 1449/9B, 8 Durga Puri, Mandoli, East Delhi - 110091 ...Respondent No.5

Company Appeal (AT)(Insolvency) No. 655 of 2020

1 Dr. Manoj Agarwal (Addl. Director-THPL), House No. D-80, Near Manav Rachna School, Sector-51, Noida-201301 ...Respondent No.6

Dr. Mayak Gupta (Addl. Director-THPL), A-71, Near Ramagya School, Sector-50, Noida - 201301 ...Respondent No.7

Mrs. Rakhi Shukla, B-116, Gaur Global Village, Crossing Republic, Ghaziabad - 201016 ...Respondent No.8

M/s Heritage Hospitals Ltd., B-27/5, Ramesh Nagar, Near Raja Garden, New Delhi - 110015 ...Respondent No.9

Present:

For Appellant: Gp. Capt. Atul Jain (Retd), in person

For Respondent: Mr. Ashok Kumar Singh, Sr. Advocate, Mr. Vikram Singh Baid, Mr. Adarsh Tripathi, Ms. Meghna, Mr. Kunal, Advocates for R-9.

Ms. Ekta Choudhary, Mr. Dinyank Dutt Dwivedi, Advocates

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

25.06.2020 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, Allahabad Bench) in CP

Company Appeal (AT)(Insolvency) No. 655 of 2020

2 (IB) No. 457/ALD/2019. By the impugned order, the Adjudicating Authority has

dismissed the application filed under Section 7 of the IBC by the Appellant to

initiate Corporate Insolvency Resolution Process ("CIRP" in short) against the

Corporate Debtor/Respondent No.1. Aggrieved by this impugned order, the

present appeal has been preferred by the Appellant.

2. Making his submission in person, the Appellant, Gp. Capt. Atul Jain (Retd.),

submitted that on the request made by one Mr. D.K. Chaturvedi, ("DKC" in short)

he agreed to providing a loan to help the Corporate Debtor-Tripathi Hospital Pvt.

Ltd., ("THPL" in short) for construction of their hospital. It is the case of the

Appellant that he transferred Rs.7.5 lakh, Rs.2.5 lakh and Rs.10 lakh to the bank

account of DKC for advancing the above sum as loan to the Corporate Debtor at

an agreed interest of 18%. It is claimed that with a view to generate a feeling of

trust and confidence, it was proposed by DKC to give the above sum to his account

who in turn was to transfer the same to the Corporate Debtor. It was further

submitted that another sum of Rs.20 lakh was advanced directly to the account

of Dr. B.K. Tripathi ("BKT" in short)-Respondent No.2, towards hospital

construction. The Appellant further submitted that BKT and and Dr. Nidhi

Tripathi ("NT" in short)-Respondent No.3, were husband-wife duo, who were

running THPL as Managing Directors and were 100% promoter cum shareholders

of THPL. It was also contended that the Article of Association of the Corporate

Debtor empowered BKT to borrow money as Managing Director of THPL. The

Appellant further submitted that the entire cumulative amount of Rs.40 lakh

given by him was finally transferred to the Corporation Bank account of the

Corporate Debtor from the personal account of BKT and NT maintained in Noble

Bank, Noida. It was submitted that all transactions from the Appellant to DKC

Company Appeal (AT)(Insolvency) No. 655 of 2020

3 and to BKT-NT and onward transactions from the Noble Bank to the Corporation

Bank should therefore be viewed as legitimate loan transactions between the

Appellant and the Corporate Debtor.

3. Assailing the impugned order, the Appellant submitted that there is no legal

requirement for proving existence of any written contract to establish that a

financial debt was owed by the Corporate Debtor. Pressing the point that there

is no need to produce any document or agreement to adduce proof of loan given

by the Appellant to the Corporate Debtor, it was added that the "Deemed to be

Authenticated" default report contained in the NeSL/Information Utility Report in

respect of the Corporate Debtor was a conclusive and undisputed evidence of loan,

interest and default. Contending that WhatsApp messages and SMS are

admissible legal evidence, it was stated that analysis of such communications

including emails exchanged between the Appellant and Respondents No.2 and 3

clearly show that there was a financial debt owed by the Corporate Debtor.

Further it was pointed out that BKT had twice paid to the Appellant an interest

amount of Rs.2.5 lakh each which lends credence to the fact that the Appellant

had disbursed certain sum of monies against the consideration for time value of

money and which had the commercial effect of borrowing thus establishing

financial debt. It was also submitted that two legal notices were also served on the

Respondent No.2 and 3 for recovery of financial debt including interest and

damages. In addition, a joint criminal complaint had been filed against BKT and

NT and the matter is still pending before the district court. These Respondents

have not paid the outstanding due even after accepting their liability before the

Hon'ble Allahabad High Court and hence it was erroneous on the part of

Adjudicating Authority not to have admitted the Section 7 application.

Company Appeal (AT)(Insolvency) No. 655 of 2020

4

4. It was asserted that BKT and NT were alter-egos of each other and the

Corporate Debtor. Adding further it was mentioned that the postal and email

address given by BKT-NT in their saving bank account maintained at Noble Bank,

Noida is the same as that of THPL. Moreover, THPL maintained its current account

in Corporation Bank wherein the particulars of postal and email address were the

same as that stated in the Noble Bank account of BKT and NT. It was, therefore,

contended that by inference it can be concluded that the savings bank account

maintained in the Noble Bank was actually the THPL's account. It was, therefore,

asserted that BKT was using his savings account in the Noble Bank as a mask of

THPL and that the Noble Bank account was actually the operational account of

THPL. It was, therefore, contended that there is a need to pierce the corporate veil

since the Board of Directors/Promoters/Shareholders/Noble Bank/Corporation

Bank were one and the same and even their operations were same.

5. It has also been submitted that the Noble Bank account of BKT-NT was the

de-facto account of the Corporate Debtor which they used extensively for routing

loans received from various financial creditors to the Corporation Bank account

of the Corporate Debtor. The Noble Bank account was also used for making

payments of the company to contractors to defraud tax authorities. The Noble

Bank was thus being used as a façade by the Corporate Debtor to cheat and deceit

investors as well as the Government. Since the corporate character was being

employed to commit irregularity and for defrauding others, there is a need to look

behind the corporate veil in the interest of justice.

6. Refuting the above contentions of the Appellant, the Learned Senior

Counsel for Respondent No.9 - M/s Heritage Hospitals Ltd (which had auction

Company Appeal (AT)(Insolvency) No. 655 of 2020

5 purchased THPL in SARFAESI proceedings having paid sale consideration to the

Union Bank of India) stated that in terms of Section 7 of the IBC, three ingredients

are required to be established which are (a) existence of financial debt; (b) a default

in payment of the debt on part of the Corporate Debtor; and (c) no disciplinary

proceedings are pending against the proposed Resolution Professional. It was

submitted that the Appellant had patently failed to produce any proof before the

Adjudicating Authority to show that he had given any money to the Corporate

Debtor directly. The alleged loan was not given to the Corporate Debtor as such

but was actually transferred to the personal accounts of DKC and BKT-NT and

hence cannot be treated as a sum given to the Corporate Debtor. In view of the

above, it was submitted that the Adjudicating Authority had not committed any

error in not treating the same as financial debt in terms of Section 5(8)(a) to (i) of

the IBC and for not treating the Appellant as Financial Creditor in terms of Section

5(7) of IBC. Hence, as money was never transferred by the Appellant to the

Corporate Debtor, the Section 7 application for initiation of CIRP of Corporate

Debtor was not tenable.

7. It is further contended that the submission made by the Appellant that

money had been transferred to DKC is false and misleading since only an amount

of Rs.6,00,056/- had been transferred to the account of DKC while the rest of the

monies as per bank statements had actually been transferred to one Mr. R.N.

Chaturvedi (Rs.9 lakhs), M/s Srijan Developers Pvt. Ltd (Rs.6 lakhs) M/s JDS

Design Execution (Rs.3 lakhs) and M/s Sthapana Architect and Engineers (Rs.1

lakh). Moreover, the money transfers were not even made from the account of the

Appellant but done from other account holders.

Company Appeal (AT)(Insolvency) No. 655 of 2020

6

8. It was further contended that even if for argument's sake it is accepted that

certain sum of money was given to DKC, this cannot be a ground of initiation of

CIRP against the Corporate Debtor since the sum was loaned to DKC and not to

the Corporate Debtor. Similarly, the sum transferred to BKT and NT were to their

personal accounts and hence the amount was transferred to them in their

individual capacity and not as Directors of the Corporate Debtor. Hence, these

sums not having been remitted to BKT-NT as "corporate person" under Section

3(7) of IBC also cannot be treated as loan to the Corporate Debtor. Thus, when no

debts were owed by the Corporate Debtor to the Appellant, it did not constitute

sufficient ground for initiation of CIRP of the Corporate Debtor. The Appellant has

therefore failed to prove/establish that the THPL was a "corporate debtor" in terms

of Section 3(8) of IBC. As it is not clear as to who had transferred certain sums of

the said amount to DKC and BKT-NT, the Appellant has failed to satisfy how the

sum of money allegedly transferred from the accounts of others would qualify to

be treated as "debt" owed to him in terms of Section 3(11) of IBC. If debt is not

proven or established, the question of "default" under Section 3(12) of the IBC

does not arise and hence does not warrant initiation of CIRP.

9. The Learned Senior Counsel for the Respondent vehemently contested the

reliance placed by the Appellant on the Information Utility Data on the ground

that the records contained therein was only tentative in nature and not final.

Further, the Information Utility Report not having been authenticated by the

Respondent No.1, it cannot be used to prove acknowledgment of debt. It has also

been submitted that WhatsApp messages do not indicate admission of either debt

or default on the part of Respondent No.1 and hence cannot be accepted as

Company Appeal (AT)(Insolvency) No. 655 of 2020

7 evidence. Moreover, none of the messages disclose any privity of contract between

the Appellant and the Corporate Debtor. Submission was also made that the

Appellant is a vexatious litigant and should not be allowed to do forum shopping

with ulterior motives and more so since the intent of the IBC is for reorganization

and insolvency of corporate persons and not a forum for recovery proceedings.

10. We have duly considered the arguments advanced by both the parties and

perused the records carefully.

11. The short point for consideration before us is whether in the given facts of

the case the application under Section 7 of IBC filed by the Appellant was

maintainable against the Corporate Debtor.

12. Before we proceed to answer the above question, a quick glance at certain

provisions of the IBC would be relevant and constructive: -

Sections

3(6) "claim" means--

(a) a right to payment, whether or not such right is reduced to

judgment, fixed, disputed, undisputed, legal, equitable, secured or

unsecured;

(b) right to remedy for breach of contract under any law for the time

being in force, if such breach gives rise to a right to payment, whether

or not such right is reduced to judgment, fixed, matured, unmatured,

disputed, undisputed, secured or unsecured;

3(7) "corporate person" means a company as defined in clause (20) of

section 2 of the Companies Act, 2013 (18 of 2013), a limited liability

partnership, as defined in clause (n) of sub-section (1) of section 2 of the

Company Appeal (AT)(Insolvency) No. 655 of 2020

8 Limited Liability Partnership Act, 2008 (6 of 2009), or any other person

incorporated with limited liability under any law for the time being in force

but shall not include any financial service provider;

3(8) "corporate debtor" means a corporate person who owes a debt to

any person;

3(10) "creditor" means any person to whom a debt is owed and includes

a financial creditor, an operational creditor, a secured creditor, an

unsecured creditor and a decree-holder;

3(11) "debt" means a liability or obligation in respect of a claim which is

due from any person and includes a financial debt and operational debt;

3(12) "default" means non-payment of debt when whole or any part or

instalment of the amount of debt has become due and payable and is not paid

by the debtor or the corporate debtor, as the case may be;

3(33) "transaction" includes a agreement or arrangement in writing for

the transfer of assets, or funds, goods or services, from or to the corporate

debtor;

5(7) "financial creditor" means any person to whom a financial debt is

owed and includes a person to whom such debt has been legally assigned

or transferred to;

5(8) "financial debt" means a debt alongwith interest, if any, which is

disbursed against the consideration for the time value of money and

includes--

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit

facility or its de-materialised equivalent;

Company Appeal (AT)(Insolvency) No. 655 of 2020

9

(c) any amount raised pursuant to any note purchase facility or the

issue of bonds, notes, debentures, loan stock or any similar

instrument;

(d) the amount of any liability in respect of any lease or hire purchase

contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as

may be prescribed;

(e) receivables sold or discounted other than any receivables sold on

nonrecourse basis;

(f) any amount raised under any other transaction, including any

forward sale or purchase agreement, having the commercial effect of

a borrowing;

[Explanation. -For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real estate project

shall be deemed to be an amount having the commercial effect of

a borrowing; and

(ii) the expressions, "allottee" and "real estate project" shall have

the meanings respectively assigned to them in clauses (d) and

(zn) of section 2 of the Real Estate (Regulation and Development)

Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with

protection against or benefit from fluctuation in any rate or price and

for calculating the value of any derivative transaction, only the market

value of such transaction shall be taken into account;

Company Appeal (AT)(Insolvency) No. 655 of 2020

10

(h) any counter-indemnity obligation in respect of a guarantee,

indemnity, bond, documentary letter of credit or any other instrument

issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or

indemnity for any of the items referred to in sub-clauses (a) to (h) of

this clause;

Section 7: Initiation of corporate insolvency resolution process by financial creditor.

7(1) A financial creditor either by itself or jointly with [other financial

creditors, or any other person on behalf of the financial creditor, as

may be notified by the Central Government] may file an application

for initiating corporate insolvency resolution process against a

corporate debtor before the Adjudicating Authority when a default

has occurred.

Explanation.--For the purposes of this sub-section, a default

includes a default in respect of a financial debt owed not only to the

applicant financial creditor but to any other financial creditor of the

corporate debtor.

13. It is pertinent to note that Section 7(1) clearly spells out that a Section 7

application can only be initiated only by a Financial Creditor either by itself or

jointly. A perusal of the definition of expression 'Financial Creditor' would show

that it refers to a person to whom a financial debt is owed and includes even a

person to whom such debt has been legally assigned or transferred to. The trigger

for initiation of the corporate insolvency resolution process by such a Financial

Creditor under Section 7 of IBC is the occurrence of a default by the Corporate

Company Appeal (AT)(Insolvency) No. 655 of 2020

11 Debtor above a prescribed threshold limit. Default in the IBC framework means

the incidence of non-payment of debt in whole or in part when the debt has

become due and payable, in law and in fact. Debt means a liability or obligation

in respect of a claim which is due from any person and claim means a right to

payment even if it is disputed.

14. Having noticed the above statutory construct, we may now take note of the

relevant excerpts of the impugned order as to why it has held that the application

filed under Section 7 of the IBC is not in accordance with law and not liable to be

admitted as is reproduced below: -

"12. Thus, this Adjudicating Authority is of the view that as the applicants

failed to produce any document to show that the applicant has given the

money to the corporate debtor as it was contented that the amount was

transferred to the personal account of the intermediary as well as the

personal account of the directors and failed to establish that the amount

was given to the corporate debtor. Therefore, the case of the applicant does

not comes under any of the provision Section 5 (8) (a) to (i) of the I&B Code,

thus cannot be considered as financial debt and neither the applicant

comes under the definition of financial creditor in view of Section 5 (7) of

the IB Code.

13. For the reasons discussed above, this Adjudicating Authority is of the

considered view that in absence of any document or agreement, the

contention of the applicant is not liable to be accepted and the applicants

failed to prove that the amount deposited comes under the definition of

financial debt under Section 5(8) of IBC.

Company Appeal (AT)(Insolvency) No. 655 of 2020

12

15. So for the reasons discussed above, it is of the view that the application

filed under Section 7 is not in accordance with the provision of law and is

not complete, thus this application is not liable to be admitted."

(Emphasis Supplied)

15. It is the case of the Appellant that for a Section 7 application to be admitted,

the Adjudicating Authority is only required to be satisfied whether the Corporate

Debtor has defaulted; whether the application filed by the Financial Creditor is

complete and whether any disciplinary proceedings is pending against the

Insolvency Resolution Professional proposed by the Financial Creditor. It has been

vehemently contended that there is no provision in the IBC which necessitates

proving that there is duly established financial debt.

16. In support of his argument, the Appellant has adverted attention to the ratio

contained in judgment of this Tribunal in M/s Precious Energy Holdings Limited

vs. SBI in Company Appeal (AT) (CH) (Ins) 89/2022 and in Vipul Himatlal

Shah vs. Teco Industries in Company Appeal (AT) (Ins) 470/2022 wherein it

has been held that in the case of a Corporate Debtor who commits a default of a

financial debt, the Adjudicating Authority has merely to see the records of the

information utility or other evidence produced by the financial creditor to satisfy

itself that a default has occurred. It was added that not only there is no need to

produce any document or agreement or written contract to adduce proof of loan

given by the applicant to the Corporate Debtor, but that the "Deemed to be

Authenticated" default report contained in the NeSL/Information Utility Report in

respect of the Corporate Debtor was sufficient evidence of loan and default. It was

also pointed out that a default includes a default in respect of a financial debt

Company Appeal (AT)(Insolvency) No. 655 of 2020

13 owed not only to the applicant financial creditor but to any other financial creditor

of the Corporate Debtor in terms of the explanation clause to Section 7 and hence

the Appellant was entitled to factorize the debt owed by the Corporate Debtor to

others also.

17. It is also the Appellant's contention that WhatsApp messages and SMS

being admissible legal evidence when read with admission of debt by the

Respondents before the Hon'ble Allahabad High Court in their affidavit in a

Criminal Misc. Writ Petition, there is ample proof that financial debt was owed by

the Corporate Debtor. It has also been contended that the very fact that BKT who

was Managing Director of the Corporate Debtor had paid to the Appellant an

interest amount of Rs.2.5 lakh on two occasions signifies that the Appellant had

disbursed monies to the Respondents against consideration for time value of

money thus establishing financial debt under Section 5(8) of the IBC. Hence, it

was erroneous on the part of Adjudicating Authority to have held that Appellant

had failed to produce any document to establish that the Corporate Debtor owed

a financial debt to the Appellant.

18. The Learned senior Counsel for Respondent No. 9 has on the other hand

contended that the Appellant has failed to prove that there is any legally binding

and recoverable debt on the part of the Corporate Debtor as he has failed to

adduce any evidence proving that there was any valid document or any agreement,

verbal or written, between the Appellant and the Corporate Debtor which

substantiates the monetary transaction of Rs.40 lakh allegedly claimed to have

taken place between the Appellant and the Corporate Debtor. It was emphasized

that there is no evidence of any direct transactions to have taken place between

the Appellant and the Corporate Debtor. Whatever transactions have been Company Appeal (AT)(Insolvency) No. 655 of 2020

14 mentioned by the Appellant either took place between the Appellant and DKC or

between the Appellant and BKT-NT and the Corporate Debtor was never in the

picture. It has been argued that even if BKT-NT were Managing Directors of THPL,

monies received by them in their personal accounts cannot be treated as money

given to THPL as Corporate Debtor. In support of this contention, the Learned

Senior Counsel for the Respondent No.9 has relied on the judgment of the Hon'ble

Supreme Court in the matter of M/s Radha Exports (India) Pvt. Ltd. Vs. K.P.

Jayaram & Anr. [2020 (10) SCC 538] where it has been categorically held that

a personal loan given to a promoter or a director of a company cannot be the basis

to trigger corporate resolution process under IBC.

19. From a bare reading of Section 7 of IBC, it is amply clear that insolvency

process under IBC can be triggered only by a Financial Creditor either singularly

or jointly. The primary and fundamental basis for a creditor to be treated as a

financial creditor for the purpose of Section 7 in Part II of the IBC requires that a

financial debt is owed to that person in terms of Section 5(7) of IBC. Such a

financial debt could cover any of the transactions outlined in Section 5(8) (a) to (i)

of the IBC. That being so, the basic requirement of existence of financial debt

being owed by the Corporate Debtor to the Financial Creditor has to be first

satisfied and cannot be overlooked.

20. The precise question before us to be answered is, therefore, whether the

Appellant had made any disbursement to the Corporate Debtor against the

consideration for the time value of money. In the present facts of the case, it is an

undisputed fact that the Corporate Debtor has neither admitted to owing a

financial debt to the Appellant nor has the Appellant been able to successfully

Company Appeal (AT)(Insolvency) No. 655 of 2020

15 substantiate that he directly disbursed any sum of money against the

consideration for time value of money to the Corporate Debtor. We also do not find

any material to have been placed on record by the Appellant wherein the Corporate

Debtor can be said to have unambiguously admitted the debt claimed by the

Appellant. We notice that one set of transactions in question had taken place

between the Appellant and Respondents No.2 and 3 in their personal capacity and

not in the capacity of the directors of the Respondent No.1 company since the

money was remitted to their personal account. The other set of transactions

which the Appellant has harped on are those with DKC, who has undisputedly no

official locus standi in the Corporate Debtor. Thus, the Appellant has clearly failed

to adduce evidence to prove the existence of financial debt qua the Corporate

Debtor. In the absence of financial debt qua the Corporate Debtor, the Appellant

cannot be said to be a financial creditor under Section 5(7) of IBC.

21. At this juncture we may also add that there is no doubt in our mind that

under the statutory scheme of IBC, record of information utility which falls in the

category of "deemed to be authenticated" even if not sacrosanct but still is relevant

to establish default in terms of Section 3(12) of the IBC. Be that as it may, the

Appellant is however required, in the first place, to establish himself as a Financial

Creditor of the Corporate Debtor in terms of Section 5(7) of IBC before being

allowed to take advantage of the explanation clause to Section 7 to establish

default owed not only to himself as a financial creditor but to any other financial

creditor of the corporate debtor on the basis of NeSL data for initiation of CIRP

against the Corporate Debtor. The Appellant has clearly misconstrued the

provisions of IBC by taking shelter of Explanation to Section 7 in isolation instead

Company Appeal (AT)(Insolvency) No. 655 of 2020

16 of reading it harmoniously with the non-negotiable requirement of Section 7(1) of

firstly establishing himself as a Financial Creditor qua the Corporate Debtor.

22. It was brought to our notice that the Appellant has also filed criminal

proceedings in respect of the said transactions to prove that a financial debt was

owed to him by the Corporate Debtor but on close scrutiny we find that the legal

notices were sent to Respondents No.2 and 3 in their personal capacity and not

to the Corporate Debtor. The claim of the Appellant that the Respondent No.1 had

filed reply affidavit in the Criminal Writ Petition before the Hon'ble Allahabad High

Court and admitted the debt has also been disputed on the ground that the

signatory therein was not authorized by Respondent No.1. Even the interest

amount defrayed to the Appellant qua the transactions have also not been done

by the Corporate Debtor but from the personal accounts of BKT.

23. In our considered view, therefore, we have no hesitation in holding that the

Appellant does not meet the specific and distinct connotations required to be

treated as a Financial Creditor qua the Corporate Debtor. Since the Appellant is

not a Financial Creditor of the Corporate Debtor and the transactions in question

are not in the nature of financial debt owed by the Corporate Debtor, there is no

error in the judgment of the Adjudicating Authority that no case has been made

out against the Corporate Debtor for initiation of CIRP.

24. This now brings us to the other limb of argument of the Appellant that in

the interest of justice, the corporate veil must be lifted to bring the Appellant under

the definition of Financial Creditor in terms of Section 5(7) of IBC. The Appellant

has placed reliance on several judgments of the Hon'ble Supreme Court and this

Company Appeal (AT)(Insolvency) No. 655 of 2020

17 Tribunal in this regard. Specific reference was made to the judgment of Hon'ble

Supreme Court in LIC vs. Escorts (1986) 1 SCC 264 wherein the Apex Court has

held that a "corporate veil may be lifted where a statute itself contemplates lifting

the veil, or fraud or improper conduct is intended to be prevented or a taxing statute

or a beneficent statute is sought to be evaded or where associated companies are

inextricably connected as to be in reality, part of one concern." It has also been

submitted that the Hon'ble Supreme Court in New Horizons Ltd. Vs. UOI 1995

SCC(1) 478 has noted that piercing the veil concept is applied 'when the notion

of legal entity is used to defeat public convenience, justified wrong, protect fraud or

defend crime, the law will regard the corporation as an association of persons'. Reference was also made to this Tribunal's judgment in Hytone Merchants

Private Limited vs. Satabadi Investment Consultants Private Limited in

CA(AT)(Ins) 258/2021 wherein it has been observed that the Hon'ble Supreme

Court in Arcelor Mittal India (P) Ltd. vs. Satish Kumar Gupta (2019) 2 SCC 1

has recognized the principle of lifting of the corporate veil in matters relating to

insolvency under IBC.

25. We have no quarrel with the proposition that the Hon'ble Supreme Court,

in the interest of equity, justice and good conscience, has allowed the piercing of

corporate veil in IBC matters also. We however must also add here that this

principle has been generally used sparingly in the absence of any strait-jacketed

formula or crystallized guidelines to determine when corporate veil is ought to be

lifted. It therefore follows that it is necessary to establish from the facts of each

case and the totality of circumstances whether it would be desirable and

justifiable for puncturing of the veil.

Company Appeal (AT)(Insolvency) No. 655 of 2020

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26. Before we dwell on the facts of this case, we must note that it is a settled

proposition of law that a company is a legal personality entirely distinct from its

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

must be treated separately from its members. In the present factual matrix, the

Respondent No.1-THPL is a 'corporate person' in terms of Section 3(7) of IBC and

therefore enjoys a legal entity separate from that of BKT and NT. From the juristic

point of view, therefore, the rights, duties and liabilities of THPL are

distinctive from those enjoyed, exercised or discharged by directors in their

personal capacity. It is abundantly clear that the Appellant has not entered into

any direct transactions with the Corporate Debtor at any stage. The transactions

have remained limited to DKC, BKT-NT in their individual capacity or with entities

like RN Chaturvedi, Srijan Developers, JDS Design Execution, Sthapana Architect

and Engineers as may be seen from pages 58-65 of Appeal Paper Book ("APB" in

short). These borrowers have either received money from the Appellant or certain

other unidentified accounts. Under these circumstances the liability of BKT-NT in

their individual capacity cannot be automatically fastened on the Corporate

Debtor. We also cannot but observe that the transactions claimed by the Appellant

to have been made with the Corporate Debtor are themselves shrouded in mystery

being a labyrinthine trail. Given the fact that the Appellant has failed to establish

that he had given any loan to the Corporate Debtor directly, it does not stand to

reason for him to press for piercing the corporate veil to alleviate the burdens of

his financial misadventure. We do not countenance the urge expressed by the

Appellant to pierce the corporate veil. That being so, we are satisfied with the

findings of the Adjudicating Authority that the Section 7 application filed by the

Appellant before it was not liable to be admitted.

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27. In fine, we are of the view that the Adjudicating Authority did not commit

any error in rejecting the Section 7 application filed by the Appellant. The

impugned order does not warrant any interference. The Appellant shall, however,

have the liberty to move any appropriate forum of law to seek remedial action as

permissible in law to recover his debt and it would remain open to him to raise all

pleas and contentions. There is no merit in the Appeal. Appeal is dismissed. All

other IAs filed in this appeal stands disposed of. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 27.07.2023

PKM

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