Innoventive Ventures Limited vs Dhinal Shah Liquidator Of Innoventive ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Ins) No.102-104 of 2021

IN THE MATTER OF:

Innoventive Ventures Limited Office No. 606, 6th Floor, Nucleus Mall, 1 Church Road, Camp, Pune - 411 001, Maharashtra ...Appellant

Vs.

1.Mr. Trupal.J.Patel, Liquidator of Innoventive Industries Limited C/505-506,the First, B/h ITC Narmada, Nr. Keshav Baug Party Plot, Vastrapur, Ahmedabad, Gujarat 380015 ...Respondent No.1

2.Innoventive Americas, INC Office at 1000 North West Street, Suite 1200 Wilmington, DE 19801 ...Respondent No.2

3. Mr. Chandu Laxman Chavan Promoter and Shareholder of Innoventive Industries Limited, Residing at C-20, Ambience Empyrean, Sopan Baug, Ghorpadi, Pune Maharashtra - 411 001 ...Respondent No.3

Present: For Appellant : Mr. Shikhil Suri, Ms. Madhu Suri, Advocates For Respondents : Ms. Pooja Mahajan, Ms. Mahima Singh, Advocates For R1

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 1 of 39

( 23rd December, 2022)

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appellant has filed the appeal under Section 61 of the 'Insolvency and

Bankruptcy Code 2016' (hereinafter referred as to 'the Code') against the

two impugned orders dated 29.10.2020 passed by the 'National Company

Law Tribunal, Mumbai Bench (hereinafter referred as to 'the Adjudicating

Authority') in M.A No. 253 of 2018 in CP(IB) 01/NCLT/MB/2016 &

06.01.2021 in IA No. 2444 of 2020 in CP(IB) 01/NCLT/MB/2016.

2. The Appellant has sought the following reliefs:

• Set aside the impugned order dated 29.10.2020 and impugned order

dated 06.01.2021 passed by the Adjudicating Authority in MA No.

253 of 2018 and IA No. 2444 of 2020 in CP(IB) 01/NCLT/MB/2016;

• In the alternative, modify the order dated 07.11.2020 so as to protect

and recognize the pledge created in favour of the Applicant under

Share Pledge Agreement dated 10.06.2014;

• Pass such appropriate directions to the Liquidator to not treat the

pledge in favour of the Appellant as a preferential transaction during

the pendency of the Appeal etc.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 2 of 39

3. The Ld. Counsel for the Appellant has submitted that the Appellant

company is a listed company and majority owned and controlled by the

Promoter of the Corporate Debtor (CD), Mr. Chandu Chavan (Respondent

No.3 herein) and his relative. The Appellant has involved in activities

auxiliary to financial intermediation, except insurance and pension fund.

The Corporate Debtor, represented by the Liquidator is a company which

is involved in the multiple sectors such as composite tubes, precision

tubes and other innovations in tube manufacture.

4. It is submitted by the Ld. Counsel for the Appellant that the CD availed

certain working capital facilities from SBI under which the Bank provided

an additional cash credit facility of Rs. 20 Crores vide sanction letter dated

06.03.2013. Additionally, CD availed certain working capital facilities from

RBL under which the Bank provided a cash credit facility of Rs. 50 Crore

vide sanction letter dated 25.03.2013. Creditor facility Agreement dated

28.05.2013 was entered into between the CD and RBL. In order to secure

the aforesaid agreement, the Appellant had pledged its own shares held in

two companies, namely, Aim Filtertech Pvt. Ltd. & GeneOmbio

Technologies Pvt. Ltd. in favour of SBI by way of agreement dated

11.11.2013. Vide another Pledge Agreement dated 20.11.2013, the

Appellant created a pledge on its share held in Opal Luxury Time products

Ltd. with RBL in order to secure CD's borrowings. In the year 2014, SBI &

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 3 of 39 RBL both invoked their respective pledges and sold some shares belonging

to the Appellant. Thus, liability of the CD towards the Appellant arose in

2014 and hence CD decided to pledge its shares held in R2 in favour of

the Appellant. A share Pledge Agreement dated 10.06.2014 was executed

between the CD as pledger, wherein the CD pledged its 85% shares held

in R2 company in favour of the Appellant as pledgee for the purpose of

securing an advance loan of Rs.2,56,00,000/- from the Appellant. The

intention of such transaction was to ensure smooth and continuous

functioning of the CD. It is an admitted fact that the said pledge is not

under challenge. It is also an admitted fact that the Pledge Agreement of

2014 is a notarized agreement between the parties and, therefore,

authentic and genuine.

5. It is further submitted by Ld. Counsel for the Appellant that the CD vide

letter dated 10.06.2014 informed about the share pledge agreement to

Central Bank of India. The said letter records that the said shares are not

pledge to consortium of bankers.

6. It is also submitted that the said Pledge Agreement gives right to the

Appellant as a pledge to undertake the sale of shares as per Clause 10

upon event of default having occurred. It is further submitted that even

default also includes insolvency, bankruptcy or winding up against the

pledger. In continuation of the said document, another share pledge

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 4 of 39 agreement dated 25.11.2016 was executed wherein the CD gave

additionally 15% of the its share held in R2 making 100% shares of R2 in

favour of the Appellant for securing a loan/advance of Rs. 12,14,86,020/-

from the Appellant. Apart from the shares of R2, Corporate Debtor also

pledged shares held by it in Aim Filtertech Pvt. Ltd., GeneOmbio

Technologies Pvt. Ltd. & Opal Luxury Time Products Ltd. under the same

agreement.

7. It is also submitted that the said pledge agreement gives right to the

Appellant as a pledge to undertake the sale of shares as per clause 10

upon event of default having occurred. It is submitted that both the share

pledge agreements of 2014 and 2016 are identical and part of one

transaction, rather than different and/or unconnected

transactions/transfer. On 17.01.2017 the Adjudicating Authority has

admitted the petition and appointed IRP and on 08.12.2017 the

Adjudicating Authority has admitted to liquidation. As per Section 25(2) (j)

and Regulation 39(2) of IBBI (Corporate Insolvency Resolution Process)

Regulation 2016, RP have a duty to report such transactions to the CoC

and to file applications to set them aside during CIRP period and suddenly

now it becomes preferential transaction, this is an afterthought. The

shares of Innoventive America's INC (Respondent No.2 herein) was the only

asset/security which was unencumbered and free from tall charges that's

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 5 of 39 why to secured Appellants debt, and to raise funds, CD created pledge as

there was no other unencumbered security available with CD and

business operation had shut down in 2014 only. The Appellant had been

providing support the CD since June 2014 to keep the operations of CD

running and also to ensure that interest of around 1200 workers employed

by the CD is safeguarded and the continuation of the debtor as a going

concern for the benefit of creditors and non-creditor third parties.

8. It is also submitted by Ld. Counsel for the Appellant that if this

transactions or pledge agreement will be considered as preferential

transaction then all the loan/pledge agreement where appellant has

granted its guarantee or provided security for the CD's loan shall be

considered as preferential transaction and if that happens then CD need

to pay more money to Appellant.

9. It is also stated that the Appellant is of the view that while impounding the

documents, the Adjudicating Authority went beyond the scope of Section

43 and the power conferred upon it by the provision for the above rea-

sons. If this trend is set forth, then it would directly hamper the future

proceedings and set a precedent which might allow the Ld. Adjudicating

Authority to divulge into issues which do not materially hamper the case,

in turn negating the legislative intent behind the Code. This transaction

has already been taken place in June 2014 which is before the

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 6 of 39 commencement of Code. Section 43 is notified as on December 15,

2016. The Appellant was not aware that this transaction will be considered

as preferential transaction otherwise would it have not granted any

financial assistance to corporate debtor or would have stopped to continue

supporting corporate debtor (distressed business) during the time when

the Appellant's support was most required. Vide letter dated 04.01.2018,

the Appellant informed the Liquidator that it was invoking the pledge as

per Agreement. On 05.01.2018, the Appellant filed Form-D as

Financial Creditor with the Liquidator an amount of Rs. 32,14,86,020/-

as principal and Rs. 48,71,938/- as interest. It is however submitted that

in all fairness, the Appellant could not bring on record that earlier pledge

agreement dated 10.06.2014 with the Form D since all the records of the

CD were under the control of the Liquidator. On 22.03.2018, the

Liquidator preferred an application under Section 43 and 44 R/w Section

60(5) of the Code being MA No. 353 of 2018 in CP(IB) 01/NCLT/MB/2016

seeking to declare the share pledge agreement dated 25.11.2016 as

preferential transaction and thereby to release the impugned pledge. The

Appellant filed its Reply on 20.08.2018 bringing on record the earlier

pledge agreement dated 10.04.2016. The Liquidator filed his Rejoinder to

the Appellant's reply on 10.09.2018 before the Adjudicating Authority. The

Appellant filed detailed written submissions before the Adjudicating

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 7 of 39 Authority on 18.02.2020. The Appellant has subsequently filed an interim

application no. 2444/2020 in CP(IB) No. 01/NCLT/MB/2016 seeking

recall of the impugned order dated 29.10.2020 before Adjudicating

Authority That subsequently, the company appeal (AT) (Ins.) No. 1132-

1133 filed by the Appellant before this Appellate Tribunal against the

impugned order dated 29.10.2020 was listed and heard on 04.01.2021

vide which this Appellate Tribunal dismissed the said company appeal as

withdrawn with liberty to assail the impugned order along with the order

passed in Recall Application, if adverse to Appellant. Further, the said

recall application was listed before the Ld. Adjudicating Authority on

06.01.2021 which was heard and dismissed in limine. Hence, being

aggrieved, the Appellant is filing the present Appeal to challenge the

impugned orders dated 29.10.2020 and 06.01.2021.

10. The ld. Counsel for the Respondent No.1 has submitted that Mr.

Dhinal Shah, the erstwhile Liquidator of the CD, was originally arrayed as

R1 in the appeal. By an order dated 24.12.2021 passed by the Adjudicating

Authority, Mr. Trupal J Patel was appointed as Liquidator of the CD in

place of Mr. Dhinal Shah. In the light of this by an order date 13.05.2022

in IA Nos. 804, 805 & 806 of 2022, this Tribunal allowed Mr. Trupal J Patel

to be substituted in place of Mr. Dhinal Shah as the R1 in the appeal.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 8 of 39

11. It is submitted by ld. Counsel for the Respondent No.1 that the

appeal has been filed by Innoventive Ventures Limited (IVL)- Appellant

herein against the following two orders passed by the Adjudicating

Authority:

(i) Order dated 29.10.2020 by which the Adjudicating Authority

allowed M.A No. 253 of 2018 filed by the Liquidator. The

Adjudicating Authority held that share pledge agreement dated

25.11.2016 by which the CD was a preference transaction under

Section 43 of the Code and thus, directed the Appellant to release

the impugned pledge created by the CD in respect of Innoventive

Americas Inc (IAI/R2) Shares and to handover the share certificates

to the Liquidator.

(ii) Order dated 06.01.2021 by which the Adjudicating Authority

dismissed IA No. 2444 of 2020 filed by the Appellant seeking

review/recall of the impugned order dated 29.10.2020.

12. It is also stated by Ld. Counsel for the Respondent No.1 that under

the impugned 2016 pledge Agreement, the CD pledged its entire

shareholding in Innoventive Americas Inc./R2 in favour the Appellant.

Hence, the CD transferred security interest in all its shares held by the CD

in IAI/R2 in favour of Appellant which is a related party of CD. The chart

of relationship between the parties is set out below:

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 9 of 39

13. It is also stated that the impugned order dated 29.10.2020 was

passed after detailed hearing and consideration of arguments advanced by

both sides. By two separate but concurring orders, the Adjudicating

Authority arrived at the conclusion that the impugned pledge is a

preference transaction covered under Section 43 of the Code. The

Adjudicating Authority examined the submission made by the parties and

gave detailed reasons as to why, in their view, the impugned pledge is a

preference transaction hit by the provisions of Section 43 of the Code.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 10 of 39 Having separate arrived at the same conclusion, the Adjudicating

Authority directed to the Appellant to release the impugned pledge created

over IAI shares and handover the share certificates to the Liquidator. It is

submitted that the preference application was filed in March 2018 and was

initially reserved for order on 16.11.2018 and then on 06.03.2019,

19.09.2019 and eventually on 17.02.2020, after full and proper hearing.

Written submission was also duly filed by parties before the Adjudicating

Authority. Eventually, the Preference Application was allowed on

29.10.2020 by two separate but concurring orders in which contentions of

Appellant have been duly noted and considered. This being so, it is

incorrect and unfair for Appellant to contend in its appeal that it was not

heard or that the gap between hearing and pronouncement of the which

has resulted in some inaccuracies creeping in the impugned order. The

Appellant has accepted that the pledge was created to secure its

antecedent liability. However, it has taken two arguments. Firstly, that the

pledge was created in the ordinary course of business; and secondly, that

2016 pledge is a continuation of 2014 pledge and hence beyond the look

back period.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 11 of 39

14. The Ld. Counsel for the Respondent has also cited the judgment of

Hon'ble Supreme Court in Anuj Jain, IRP for Jaypee Infratech Limited Vs.

Axis Bank Limited & Ors.1 para 28.6:

"28.6.The result of discussion in the foregoing

paragraphs is that the transfers in question could be

considered outside the purview of sub-section (2) of

Section 43 of the Code only if it could be shown that

same were made in the 'ordinary course of business or

financial affairs' of the corporate debtor JIL and the

transferees. Even if transferees submit that such

transfers had been in the ordinary course of their

business, the question would still remain if the

transfers were made in the ordinary course of business

or financial affairs of the corporate debtor JIL so as to

fall within the exception provided by clause (a) of sub-

section (3) of Section 43 of the Code.

28.6.1. Thus, the enquiry now boils down to the

question as to whether the impugned transfers were

made in the ordinary course of business or financial

1 (2020) 8 SCC 401

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 12 of 39 affairs of the corporate debtor JIL. It remains trite that

an activity could be regarded as 'business' if there is a

course of dealings, which are either actually continued

or contemplated to be continued with a profit motive....

28.6.2. Taking up the transactions in question, we are

clearly of the view that even when furnishing a security

may be one of normal business practices, it would

become a part of 'ordinary course of business' of a

particular corporate entity only if it falls in place as part

of 'the undistinguished common flow of business done';

and is not arising out of 'any special or particular

situation', as rightly expressed in Downs Distributing

Co (supra). Though we may assume 43 vide State of

Andhra Pradesh v. H. Abdul Bakshi and Bros.: 1964

STC 644 (at p. 647). that the transactions in question

were entered in the ordinary course of business of

bankers and financial institutions like the present

respondents but on the given set of facts, we have not

an iota of doubt that the impugned transactions do not

fall within the ordinary course of business of the

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 13 of 39 corporate debtor JIL. As noticed, the corporate debtor

has been promoted as a special purpose vehicle by JAL

for construction and operation of Yamuna Expressway

and for development of the parcels of land along with

the expressway for residential, commercial and other

use. It is difficult to even surmise that the business of

JIL, of ensuring execution of the works assigned to its

holding company and for execution of housing/building

projects, in its ordinary course, had inflated itself to the

extent of routinely mortgaging its assets and/or

inventories to secure the debts of its holding company.

It had also not been the ordinary course of financial

affairs of JIL that it would create encumbrances over its

properties to secure the debts of its holding company.

In other words, we are clearly of the view that the

ordinary course of business or financial affairs of the

corporate debtor JIL cannot be taken to be that of

providing mortgages to secure the loans and facilities

obtained by its holding company; and that too at the

cost of its own financial health. As noticed, JIL was

already reeling under debts with its accounts with

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 14 of 39 some of the lenders having been declared NPA; and it

was also under heavy pressure to honour its

commitment to the home buyers. In the given

circumstances, we have no hesitation in concluding

that the transfers in questions were not made in

ordinary course of business or financial affairs of the

corporate debtor JIL. 25.7. The submissions that

security was disclosed in the Annual Reports or that

none of the creditors expressed dissent are of no effect

because such disclosure or want of objection by

creditors, by themselves, do not operate as estoppel

against anybody nor would take the transaction out of

the purview of the legal fiction predicated in Section 43,

if it is otherwise of a preference at a relevant time.

Similarly, the distinction between 'NPA' and 'wilful

default'; the submission that NPA could be regularised;

and further the submission that the mortgages were

created before JIL was declared NPA, are hardly of any

bearing on the question as to whether the impugned

transactions had been in the ordinary course of

business or financial affairs of JIL. Thus, reference to

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 15 of 39 the decisions like that in Keshavlal Khemchand and

Jah Developers (supra) is not of any consequence and

need not be dilated upon. The answer to this question,

in our view, could only be in the negative. That is to say

that the impugned transactions had not been in the

ordinary course of business or financial affairs of JIL."

Hence, in Anuj Jain case, a mortgage created by the CD in favour of

the lenders of this related party was not treated as ordinary course

transaction as the CD was not in the business of creating such mortgages

which do not create any benefit for the CD.

15. It is also submitted by Ld. Counsel for the Respondent that merely

because Clause 15 of the 'Memorandum of Association' (MoA) of the CD,

which specifies objects incidental or ancillary to the attainment of the main

objects, allows borrowing or raising money for the purposes of the

company by pledge (among other instruments) does not mean that a

company which was in the business of manufacturing precision steel

tubes etc. can suddenly claim to be creating pledges as ordinary course of

its business. Neither the Appellant nor the CD are in the business of

creating pledges with a profit motive, as an ordinary part of their dealings.

The reliance passed by the Appellant on MoA or the CD to justify that the

impugned pledge was created in ordinary course of business is misplaced

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 16 of 39 and liable to rejected. It is submitted that the impugned pledge was created

only to secure the Appellant for an antecedent (past) liability and does not

fall within the exceptions under section 43 (3) of the Code as the same was

neither in the ordinary course of the business or financial affairs of the CD

and Appellant nor was it given to secure any new value.

16. It is also stated by Ld. Counsel for the Respondent that the entire

case of the Appellant rests on contention that prior to the impugned 2016

Pledge Agreement, there was another pledge agreement dated 10.06.2014

under which it is claimed that 85% of the share held by the CD in

IAI/Respondent No.2 were pledged in favour of Appellant in 2014 itself and

that, subsequently, vide the impugned 2016 Pledge Agreement, the CD

pledged the remaining 15% shares. It has also been contended by

Appellant that the Alleged 2015 Pledge Agreement could not be produced

by it initially due to "genuine difficulty and inadvertence". It is further

contended that the said 2014 agreement was not challenged or disputed

by the Liquidator and hence it has bene accepted. In this regard, following

may be noted:

a. The Alleged 2014 Pledge Agreement could not have been challenged in

the first instance by the Liquidator in its Preference Application since a

copy of the Alleged 2014 Pledge Agreement surfaced for the first time,

in the reply to the Preference Application.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 17 of 39 b. The Impugned 2016 Pledge Agreement was challenged by the

Liquidator in its Preference Application since Innoventive Ventures Ltd

(IVL)/Appellant had invoked 2016 Pledge Agreement by its notice dated

4 January 2018. In the notice sent by IVL Appellant (notice signed by

Ms. Pournima Gadiya), only 2016 Pledge Agreement is invoked and

there is no mention of Alleged 2014 Pledge Agreement. In fact, till date,

there is no invocation of the Alleged 2014 Pledge Agreement.

c. In the Claim Form dated 5th January 2018 submitted by IVL/Appellant,

there is no mentioned of Alleged 2014 Pledge Agreement. Notably, the

Claim Form contains an affidavit by Ms. Pournima Gadiya (Director of

IVL/ Appellant) stating the documents that have been relied upon in

support of its claim as a financial creditor and affirming that the

information is correct and no information has been withheld. The said

affidavit mentions 2016 Pledge Agreement but does not mention 2014

Pledge Agreement.

d. The 2016 Pledge Agreement (signed, inter alia, by the Respondent No.

3 (Mr. Chandu Chavan) and Ms. Pournima Gadiya (for IVL)), repeatedly

refers to "hereby' creating a pledge over the "entire equity stake" held

by the CD in IAI and nowhere mentions the Alleged 2014 Pledge

Agreement. If indeed there was an Alleged 2014 Pledge Agreement of

85%, it is incomprehensible that a subsequent Impugned 2016 Pledge

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 18 of 39 Agreement, which is stated to be for balance 15% would not even

mention the earlier Alleged 2014 Pledge Agreement.

e. The Liquidator is not in custody of or aware of any such Alleged 2014

Pledge Agreement. In fact, upon the request of Respondent No. 3, the

Liquidator even enquired from Central Bank of India. However, Central

Bank of India also stated that it was not able to locate any such

agreement in its records. In fact, when Central Bank of India enquired

from Mr. Chandu Chavan (promoter of CD and IVL), he himself sent a

scanned copy of the Alleged 2014 Pledge Agreement to Central Bank of

India.

f. While IVL/ Appellant took adjournments from the Adjudicating

Authority for filing reply to the Preference Application saying that it is

trying to locate the Alleged 2014 Pledge Agreement, Mr. Chandu

Chavan sent a scanned copy of the Alleged 2014 Pledge Agreement to

Central Bank of India and only when this was specifically pointed out

by the Liquidator, IVL/ Appellant filed its reply, bringing forth for the

first time, the Alleged 2014 Pledge Agreement.

g. Till date the original of Alleged 2014 Pledge Agreement has not been

produced. Other than the copy of the Alleged 2014 Pledge Agreement

provided by IVL/Appellant itself, there are no surrounding

circumstances and/ or documents which support the existence of such

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 19 of 39 agreement. IVL/ Appellant has not produced or shown any other

documents/ surrounding circumstances, such as financial statements,

creditors' approval, RBI approval, any relevant communications etc.,

which may show that any such agreement was indeed executed by the

CD. No record of this agreement is available.

h. When questioned by the Liquidator on RBI approval for the Impugned

Pledge, Respondent No. 3 sent an email dated 18 March 2018 stating

that the pledge is permitted without RBI approval on basis of an

amendment to Regulation 18 of the Foreign Exchange Management

(Transfer or Issue of any Foreign Security) Regulations, 2014 (FEMA

Regulations). Interestingly, the said amendment to FEMA Regulations

is dated 14 October 2014 (i.e., after 10 June 2014, the date of Alleged

2014 Pledge Agreement). It can, thus, be logically inferred that in its

email dated 18 March 2018, Respondent No. 3 was referring to the

Impugned 2016 Pledge Agreement and could not be referring to the

Alleged 2014 Pledge Agreement.

i. In light of the above, the contention of IVL/Appellant in the Appeal that

the Liquidator has not challenged or disputed the Alleged 2014 Pledge

Agreement has no merit. When the copy of the said agreement surfaced

for the first time in the reply filed by IVL/Appellant, the Liquidator took

a specific plea in the rejoinders clearly stating that the Alleged 2014

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 20 of 39 Pledge Agreement appears to be fabricated to escape the look-back

period under Section 43(4) of the Code. The suspicious circumstances

in which the Alleged 2014 Pledge Agreement was suddenly and for the

first time produced by way of IVL/ Appellant's reply to the Preference

Application, was also highlighted by the Liquidator before the

Adjudicating Authority and the Adjudicating Authority duly noted the

same in the Impugned Order.

17. It is also stated by Ld. Counsel for the Respondent that the non-

production of the Alleged 2014 Pledge Agreement by IVL/Appellant in its

Claim Form was not the result of any "difficulty" or "inadvertence" as

claimed. Rather, the said agreement is nothing but a concocted document

to deflect attention from the Impugned 2016 Pledge Agreement to escape

the look back period (2 years in case of related party). Assuming without

admitting the existence and/ or validity of the Alleged 2014 Pledge

Agreement, it has been rightly held by the Adjudicating Authority that the

Liquidator has questioned the execution of the Impugned 2016 Pledge

Agreement dated 25th November 2016 which was executed at the relevant

time i.e., two years before the initiation of CIRP and by which the CD

pledged 100% shares held by it in IAI/ Respondent No. 2 in favour of IVL/

Appellant. Thus, if at all, there was any such agreement as the Alleged

2014 Pledge Agreement under which it is claimed that 85% of IAI Shares

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 21 of 39 were pledged in favour of IVL/ Appellant, the said alleged agreement would

stand substituted/ subsumed/ superseded by the Impugned 2016 Pledge

Agreement by which the CD pledged its entire (100%) equity stake in IAI/

Respondent No. 2 in favour of IVL/Appellant. Further, as rightly held by

the Adjudicating Authority, since IVL/Appellant did not make any

reference to the Alleged 2014 Pledge Agreement either in the pledge

invocation letter or in its Claim Dorm and only relied upon the Impugned

2016 Pledge Agreement, IVL/ Appellant is estopped by conduct from

making any claims based on the Alleged 2014 Pledge Agreement.

18. It is stated by ld. Counsel for the Respondent that the Appellant has

also submitted in its Appeal that there is "no element of dishonesty or

unfairness in the present transaction". As held by Anuj Jain case, the

question of intention is not relevant for the purpose of determining

whether a transaction is a preferential transaction under Section 43 of the

Code. Section 43 of the Code is in stark contrast to Section 531 of the

Companies Act 1956 which contained provisions regarding 'fraudulent

preference'. Section 53(1) entailed element of fraud and hence, the

question of intention was material thereunder. On the contrary, Section

43 of the Code creates a deeming provision wherein, once the ingredients

of Section 43 are satisfied, it is deemed that a preference is

given, irrespective of whether the transaction was in fact intended or even

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 22 of 39 anticipated to be so. In view of the above, any reference to the erstwhile

regime under the Companies Act, 1956, provisions of the Indian Contract

Act, 1872 and principles governing Chapter XI proceedings in USA is

wholly misplaced and irrelevant and do not support the case of

IVL/Appellant. Notably, no other surrounding circumstances and/ or

documents have been shown or produced, which may support the valid

execution of either the Impugned 2016 Pledge Agreement or the Alleged

2014 Pledge Agreement. Neither of the pledge agreements are supported

by -

• any board resolutions or registrations, despite the fact that the CD

was a listed company and would need to make adequate disclosures

and take approvals of board of directors for related party

transactions;

• any RBI approval or any filings made under the FEMA Regulations

or Companies Act, 2013. For instance, the FEMA Regulations

require reporting of all transactions relating to foreign subsidiaries,

in Form ODI, to the Authorised Dealer Bank within 30 days from the

date of transaction;

• any consent taken from existing lenders, given that the CD had

created non- disposal undertakings in respect of the IAI Shares and

all assets of the CD were charged in favour of the existing lenders.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 23 of 39 No document has been produced to show that any approvals or no

objection certificates were taken by the CD from such existing

lenders, prior to creation of the pledge over IAI Shares. The scan

copy of the Alleged 2014 Pledge Agreement suddenly emerged for the

first time in the reply filed by IVL/ Appellant to the Preference

Application before Adjudicating Authority and appears to be

concocted since even Central Bank of India (security trustee) did not

have any knowledge of the Alleged 2014 Pledge Agreement and

informed the Liquidator that a scanned copy of the said agreement

was in fact provided to Central Bank of India by Respondent No. 3

himself.

19. It is also submitted by ld. Counsel for the Respondent that in stead

of complying with the order of the Adjudicating Authority directing IVL/

Appellant to release the Impugned Pledge and hand over IAI Shares

certificates to the Liquidator, despite repeated requests, IVL/ Appellant

filed Recall Application on 5 December 2020 as a dilatory tactic and in an

evident attempt to save limitation for filing appeal before this Appellate

Tribunal. Further, after filing of the Recall Application, on 21 December

2020, Company Appeal (AT) (Insolvency) No. 1132-33 of 2020 was filed by

IVL/Appellant challenging the Impugned Order dated 29 October 2020.

This appeal was dismissed as withdrawn with liberty to assail the

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 24 of 39 Impugned Order dated 29 October 2020 in the Preference Application

along with the order passed in the Recall Application, if adverse to IVL/

Appellant. Subsequently, the Adjudicating Authority dismissed the Recall

Application by the Impugned Order dated 6 January 2021. All this while,

IVL/ Appellant did not handover the share certificates to the Liquidator,

which was clearly in non-compliance of the Impugned Order dated 29

October 2020 and, as a result, the Contempt Application was filed by the

Liquidator. However, in view of the stay order dated 17 February 2021

passed in the Appeal, the Contempt Application has simply been

adjourned from time to time. It may be noted that the IAI Shares constitute

one major asset block which remains to be liquidated. While a highest

bidder has been identified (who has paid the earnest money), the payment

of the balance amount and conclusion of sale of the shares is dependent

on the release of the Impugned Pledge and hand over of the share

certificates. There is also complete lack of visibility regarding IAI/

Respondent No. 2 and its downstream operating entity, Salem Steels, and

there are genuine apprehensions that the value of the IAI Shares may be

deteriorating due to actions of the erstwhile promoter/director

(Respondent No. 3). The Erstwhile Directors of CD, among others, have

failed to assist the Liquidator with respect to providing proper and

complete information and one of the reasons cited for not providing the

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 25 of 39 required information is the pending litigation around the Impugned

Pledge. By way of the Recall Application, IVL/ Appellant did not seek

rectification/ modification of any clerical errors or accidental slip or

omission apparent from the record but, in fact, sought to re-agitate issues

which were already examined and decided by the Adjudicating Authority

by the Impugned Order dated 29th October 2020 in the Preference

Application. It is humbly submitted that the Recall Application was rightly

dismissed as it is settled law that the Adjudicating Authority does not have

power to review its own order/ judgment but can only correct any mistake

apparent from the record. Reliance in this regard is placed on Deepak

Kumar v M/s Phoenix ARC Pvt. Ltd, Review Application No. 09 of 2020 in

Company Appeal (AT) (Insolvency) No. 848 of 2019 (Ref: Para 25, 26 and

28); Peoples General Hospital Pvt. Ltd. v Alliance Industries Limited & Ors.,

Company Appeal (AT) No. 105 of 2018 (Ref: Para 11, 12, 13, 14 and 18);

and Mrs. Mallina Bharti Rao v Gowthami Solvents Oil Limited, Company

Appeal (AT) No. 387 of 2018 (Ref: Para 5 and 8). This being so, the

Impugned Order dated 6 January 2021 dismissing the Recall Application

also does not warrant any interference by this Appellate Tribunal. In light

of the above submissions, it is prayed that this Appellate Tribunal may

dismiss the Appeal with exemplary costs.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 26 of 39

20. We heard at length the parties and have carefully gone through the

pleadings of the parties, available material on record and we are having

the following observations:

A. The history of the case reveals followings:

i. The Appellant is a listed company.

ii. The CD availed certain working capital facilities from SBI as also

from RBL in 2013. A pledge agreement was created for the

Appellants share held in two companies with SBI and RBL.

iii. SBI and RBL invoked the Pledge in 2014.

iv. The available records reveals that the Appellant has filed a claim

of Principal amount of Rs.32,14,86,020/- alongwith interest and

reference made of Pledge Agreements.

v. The Appellant is aggrieved that while they have filed the claim in

October, 2018 appearing at page No.7 of the Appeal Paper Book

for a principal amount of Rs. 32,14,86,020 and Rs. 48,71,938/-

as interest appearing at page 201 of the Appeal Paper book,

thereafter, the Liquidator has filed M.A No. 253 of 2018 under

Section 43 and 44 for avoidance under the category of

preferential transactions. These transactions relate to the release

of pledge on the shares of Innoventive America Inc. - Respondent

No.2 which is a wholly owned subsidiary of the CD. The Appellant

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 27 of 39 invoked the Pledge Agreement and notified to the same to the

Liquidator vide email dated 04.10.2018.

vi. The RP who has filed the Petition under Section 43 & 44 of the

Code against the Appellant, is the RP since inception of the CIRP

of the Appellant Company in terms of the order of Adjudicating

Authority dated 17.01.2017 appearing at page no. 174 of the

Appeal paper book.

B. No body has disputed that the amount has not been paid by the

Appellant to the Respondent No.1 as payment is through banking

channels as per submission made by the Appellant and not countered

by the Respondents. Nor there is any dispute on having a share pledge

agreement made on 25.11.2016 between the Appellant Company and

the R1/Innoventive Ventures Limited and confirming party Innoventive

America Inc./ R2. This Pledge Agreement appearing at page 159 vide

para 2 of the Appeal paper book also provides details of other pledges.

To bring a clarity on this, a scanned copy of page 158-164 is reproduced

herein below:

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 28 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 29 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 30 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 31 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 32 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 33 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 34 of 39 Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 35 of 39 C. This pledge agreement has been in the record of the CD which as RP, it

may have been examined by erstwhile Liquidator before auctioning the

shares of R2 hold by R1.

D. The issue of attracting preferential transaction arising only after the

Appellant has filed the claim. It was also brought to the notice by the

Appellant that R1 carried out the auction despite knowing that the

Appellant has lodged this claim in January, 2018 and has also accepted

EMD money from a third party. The Appellant is suspecting that R1

has filed the application under Section 43 of the Code at a later stage

being afterthought in order to save the illegal auction carried out by

him.

E. However, the Form-D proof of claim submitted by the Appellant reflects

the Pledge Agreement dated 24.11.2016 and other Pledge Agreements

but no where it reflects the pledge agreement of 2014. Even glancing at

2016 pledge agreement it no where reflects about 2014 agreement

appearing at page 158 to 167 of the Appeal paper Book.

F. All the problem has erupted from the fact that the Appellants have

mentioned about the share pledge agreement of November, 2016 as an

extension of earlier share pledge agreement dated 10.06.2014 wherein

the substantial portion of shares have been pledged as contemplated

by the Appellants.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 36 of 39 G. It is also a matter of fact to be recorded that since 2017, Respondent

No.1 was having the full knowledge of share pledge agreement of 2016

but he chooses to file Section 43 application after a delay of one year.

This reflects, no doubt, that filing of petition under Section 43 of the

Code alleging that Share Pledge Agreement dated November 2016 is at

belated stage by the R1 to deny the Appellant of their status or rights

as financial creditor. This tribunal has noted vide its order dated

13.05.2022 based on IA No.804 of 2022, 805 of 2022 & 806 of 2022 in

CA(AT) (Ins) No. 102-104 of 2021 that a new Liquidator has been

appointed in place of erstwhile Liquidator - Mr. Dhinal Shah. The name

of new Liquidator is Mr. Trupal.J.Patel who was appointed as

Liquidator in terms of order dated 24.12.2021 passed by the

Adjudicating Authority. At page 13 of the relevant I.As reflect that the

Liquidator desired to start his practice and therefore, was interested in

surrendering his registration as an IP and practice as only an Advocate

and he has also surrendered on 01.07.2021 his certificate of practice

to the ICAI.

H. Now coming to the main issue, it is apparently very much clear that all

the companies (Innoventive Ventures Limited, Innoventive Industries

Limited and Innoventive America Inc.) involved in this case are related

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 37 of 39 party as also Promoter of the CD and Chairman & MD of Innoventive

Ventures Limited - Mr. Chandu Chavan.

I. Incidentally, impugned pledged largely satisfied all ingredients of

Section 43 of the Code. The impugned order dated 29.10.2020 although

passed by two separate orders but in concurring orders both the Ld.

Members arrived at the conclusion that the impugned pledge is a

preferential transaction covered under Section 43 of the Code. The

approach of the Appellant to give the colour of pledge as in the ordinary

course of business is no longer res integra as per the law laid down

under the Code. (2020) 8 SCC 401 - Anuj Jain, IRP for Jaypee Infratech

Limited Vs. Axis Bank and Anr. Para 28.6 as stated supra.

J. This Pledge Agreement even of 2016 only reflects that the IVL/Appellant

does not hold merit for the impugned pledge created during the

ordinary course of business. Circumstantial evidence also suggests

that there is no another pledge agreement dated 10.06.2014. Even the

2016 pledge agreement does not have backing a board resolution or

registration which is a requirement for a listed company. No approval

of RBI is available for 2016 pledge agreement. Hence, the Adjudicating

Authority has rightly held in the impugned order dated 29.10.2020 that

it is a preferential transaction covered under section 43 of the Code.

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 38 of 39 K. Hence, we are constrained to uphold the impugned order dated

29.10.2020 & 06.01.2021 and so also with the order of 07.11.2020 of

the Adjudicating Authority.

L. As a result, the Appeal deserves to be dismissed and is dismissed. No

order as to costs.

Pending application, if any, stands disposed of.

[Justice Rakesh Kumar] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

Raushan

Company Appeal (AT) (Ins) No. 102- 104 of 2021 Page 39 of 39