Jag Mohan Daga vs Bimal Kanti Chowdhary

Mr. Jag Mohan Daga ...Appellant

Versus

Mr. Bimal Kanti Chowdhary, ...Respondents Interim Resolution Professional of M/s. Vindhya Industries Pvt. Ltd. & Anr.

Present:

For Appellant: Mr. Abhijeet Sinha, Mr. Rishav Banerjee, Mr. Saikat, Mr. Aditya Shukla, Mr. Neeraj Kr. Gupta, Advocates For Respondent: Mr. Kunal Tandaon, Mr. Aman Raj Gandhi, Mr. Parthasarathy Bose, Mr. Pranay Tuteja, Advocates for R2. Mr. Samar Kushwaha and Ms. Shivangi Nanda, Ms. Kavita Vinayak, Advocates for Intervenor Mr. Shambo Nandy, Advocate for IRP.

ORDER

31.10.2022: Heard Learned Counsel for the parties.

2. This Appeal has been filed against the Order dated 14th July, 2022

passed by the Adjudicating Authority (National Company Law Tribunal,

Kolkata Bench, Kolkata) in CP (IB) No. 1786/KB/2019. By which Order, the

Adjudicating Authority admitted the Application filed under Section 7 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "The Code")

by the Respondent -Financial Creditor-Smt. Vrinda Karnani against the

Corporate Debtor-Vindhya Industries Pvt. Ltd. for debt totalling Rs.

15,89,632/- which included interest till the date of 31st August, 2019. -2-

3. Notice was issued. The case of the Financial Creditor was that the

disbursement of Rs. 20,00,000/- was made to the Mining and Engineering

Corporation which is proprietary concern of the Corporate Debtor. It is

submitted that certain payments towards interest were made and on default

being committed on 30th September, 2016, an Application was filed under

Section 7 of the Code. The Corporate Debtor appeared and raised various

objections objecting to the Application under Section 7. It was contended

before the Adjudicating Authority that Application against the Corporate

Debtor is not maintainable since the amount was not disbursed to the

Corporate Debtor rather it was given to the proprietary concern the Mining

and Engineering Corporation. The Application is barred by time. It is further

submitted that under the family arrangement amount of Rs. 20 Lakhs was

disbursed by the Financial Creditor in the year 2009. It was not a loan nor

any tenure was fixed for the repayment. The Application is not maintainable.

4. The Adjudicating Authority heard the parties and by the Impugned

Order has admitted the Application under Section 7 of the Code and held that

Application under Section 7 was maintainable against the Corporate Debtor-

Proprietary and Proprietorship can not be deemed to be separate entity and

the Corporate Debtor being the Proprietary will be liable to clear the dues of

the Proprietorship concern.

5. The argument with regard to the Limitation was also rejected by the

Adjudicating Authority and held that there was default hence the Application

was admitted.

6. This Appeal was taken by this Tribunal on 22nd July, 2022 and following

Order was passed:

Company Appeal (AT) (Insolvency) No. 848/2022 -3-

"22.07.2022: Heard Shri Abhijeet Sinha, Learned Counsel for the Appellant. Learned Counsel for the Appellant challenging the order raised various submissions questioning the admission of Application under Section 9 of the IBC. He also submits that in any view of the matter the amount claimed of Rs.

15,89,632/- which he is ready to deposit in the Court subject to outcome of the Appeal.

2. Learned Counsel for the Resolution Professional is present. He submits that the publication of notice has already been issued and he visited the office of the Corporate Debtor. Submission needs scrutiny.

3. Issue notice. Let Reply be filed within two weeks. Rejoinder, if any, may be filed within two weeks thereafter.

4. List the Appeal on 29.08.2022.

Subject to Appellant depositing Demand Draft of Rs. 15,89,632/- within one week from today drawn in the name of "The Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi" in pursuance of the impugned order, no further steps shall be taken by the IRP. However, IRP shall continue and keep the Corporate Debtor as a going concern with co-operation of the Ex-Management."

7. In pursuance of the Order passed by this Tribunal, the Appellant has

deposited Demand Draft of Rs. 15,89,632/-. When the Appeal was taken

today Learned Counsel for the Appellant submits that he is also ready to pay

the interest on the amount which is due up to date and he has offered to pay

Rs. 7 Lakhs towards interest. It is submitted that MOU was entered it was

family business between the parties and Application was filed due to family

dispute i.e. reasons other than resolution of the Insolvency of the Corporate

Company Appeal (AT) (Insolvency) No. 848/2022 -4-

Debtor. On a pointed query to Learned Counsel appearing for the Financial

Creditor, he submits that the Financial Creditor is not interested in accepting

the amount as being offered by the Appellant.

8. The Application for Intervention has also been filed by two other family

namely Maganlal Daga and Mrs. Usha Daga seeking permission to intervene

in the matter. It is submitted that the Applicants also have claims against the

Corporate Debtor and they are entitled to be part of the Committee of

Creditors.

9. We have heard Learned Counsel for the parties and have perused the

record.

10. Learned Counsel for the parties have made elaborate submissions

regarding maintainability of the Application under Section 7 of the Code. It is

submitted that Under Section 2 of the IBC, Partnership and Proprietorship

Firms are separate entities as provided under Section 2(f) which has not yet

been notified under the IBC. Learned Counsel for the Respondent relying on

the Judgement of the Adjudicating Authority where reliance has been placed

on the Judgment of the Hon'ble Supreme Court in the matter of "Amway India

Enterprises Pvt. Ltd. Vs. Ravindranath Rao Sindhia & Ors." in paragraph

11.2 of the Impugned Order, submits that proprietorship does not have any

legal entity and Corporate Debtor could have been proceeded in IBC

Proceeding.

11. After having heard Learned Counsel for the parties, we further notice

that before the Adjudicating Authority, one of the submissions which was

raised by the Corporate Debtor has been noticed in paragraph 9.7 which is to

the following effect:

Company Appeal (AT) (Insolvency) No. 848/2022 -5-

"9.7 The Financial Creditor has mischievously and surreptitiously filed the instant petition, simply in order to extort money out of M/s. Vindhya Industries Pvt.

Ltd. with a sole intention to make recovery of its investment in the business of M/s. The Mining and Engineering Corporation, which is not permissible under IBC, 2016. The purported Corporate Debtor herein has craved for leave to file an appropriate application under Section 65 of the IBC, 2016 against the Financial Creditor for maliciously filing the instant application under Section 7 of the IBC, 2016 without having any intention to initiate Corporate Insolvency Resolution Process."

12. The MoU which has been referred to, has been brought on record at

page 184 which was entered into between Shri Magan Lal Daga and Shri Jag

Mohan Daga and Shri Rajesh Kumar Daga. In paragraph 5 of the MoU,

following was mentioned:

"5. The Funds of First Party lying in the SMCPL as on 31/3/2009 shall be transferred to The Mining & Engineering Corporation at the earliest but not later than 31.03.2010:

a. Magan Lal Daga Self Rs. 2567440 b. Usha Daga Wife Rs. 1136653 c. Magan Lal Daga HUF HUF Rs. 1776279 d. Devashish Daga Son Rs. 686418 e. Vrinda Karnani DaughterRs. 1253828"

13. The name of the Financial Creditor is mentioned at paragraph 5 (e) and

amount referred was Rs. 12,53,828/-.

14. From the perusal of the facts and materials on record, it does appear

that the family was carrying a business and business dispute has arisen

Company Appeal (AT) (Insolvency) No. 848/2022 -6-

between the parties. The proprietorship Company i.e. The Mining and

Engineering Corporation had carried out various business. The Amounts were

pooled by the Family Members including Financial Creditor.

15. This Court had by its Order dated 22nd July, 2022 on the offer made by

the Appellant to deposit the entire amount principal and interest as claimed

in the Application was permitted to deposit the amount drawn in the Bank

Draft in favour of "Pay and Accounts Officer" Ministry of Corporate Affairs

which order has been complied with and when the Case is taken today, the

offer made by the Appellant to pay the entire interest up to date by a cheque

has also shown the Court. The offer made by the Appellant to pay entire

demanded amount with interest has been refused by the Financial Creditor

which clearly indicates that Financial Creditor is not interested in the debt or

the Insolvency Resolution of the Corporate Debtor and wants the "Corporate

Insolvency Resolution Process" (hereinafter referred to as "CIRP") to be

continued. The Hon'ble Supreme Court in the matter of "Vidarbha Industries

Private Limited Vs. Axis Bank Limited" (Civil Appeal No. 4633 of 2021)

decided on 12th July, 2022, has clearly laid down that it is not mandatory that

Section 7 Application be admitted on proof of debt and default. In the facts of

the present case without entering into other issues which has been raised by

the parties, we find it a fit case where CIRP should not be allowed to continue

when Financial Creditor proceeded for "CIRP" not for purposes of Resolution

of Insolvency of the Corporate Debtor but for other purposes with some other

agenda. The Court should not permit such "CIRP" to go on, which has been

initiated to settle family business dispute.

Company Appeal (AT) (Insolvency) No. 848/2022 -7-

In view of the above, we set aside the Impugned Order dated 14th July,

2022 passed by the Adjudicating Authority in CP(IB) No. 1786/KB/2019. It

shall be open for the parties to take appropriate remedy for the debt, if any, in

accordance with law. The amount deposited under the Direction of this Court

by the Appellant, should be refunded to the Appellant. Learned Counsel for

the IRP submits that he has made publication and has incurred certain

expenses. Learned Counsel for the Appellant is ready to make payment of Rs.

2 Lakh for Fee and Expenses incurred by the IRP within two weeks by a bank

draft. In so far as the submissions made on behalf of Intervenors, it is always

open for them to take such legal remedy as per law. The Appeal is allowed,

accordingly.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

Basant/nn

Company Appeal (AT) (Insolvency) No. 848/2022