K.N Rajakumar vs V Nagarajan

Corporate Insolvency Resolution Process (hereinafter

referred to as ‘CIRP’) in respect of the Corporate Debtor; and

the order passed by the Adjudicating Authority/NCLT dated

6.7.2021 thereby closing the proceedings initiated by D.

Ramjee.

3. Civil Appeal No. 1792 of 2021 is filed by K.N.

Rajakumar, suspended Director of the Corporate Debtor

(respondent No.1 in Civil Appeal No.2901 of 2021 filed by D.

Ramjee) thereby challenging the order passed by the

National Company Law Appellate Tribunal, Chennai Bench

(hereinafter referred to as ‘NCLAT’) dated 30.4.2021

dismissing the appeal filed by K.N. Rajakumar challenging

the order dated 22.4.2021 passed by NCLT vide which NCLT

had directed the Resolution Professional (hereinafter

referred to as ‘RP’) to convene a meeting of CoC consisting of

the members who constituted CoC originally in the year 3

2017, soon after the order of admission of CIRP was passed

by NCLT.

4. The facts giving rise to the present appeals have

been taken from Civil Appeal No.2901 of 2021, and are as

under:

The Corporate Debtor was incorporated under the

provisions of the Companies Act, 1956 on 9.9.1960. It had

started various businesses like sugar, distillery, flour mill,

chemical unit, finance company, a 4­star hotel etc. in

Chennai, but as on date owns only a hotel in Chennai. The

hotel business of the Corporate Debtor was shut down for

more than 7 years.

D. Ramjee joined the Corporate Debtor as a

Junior Assistant on 11.5.1964. Since D. Ramjee was not

receiving salary regularly, he sought to get relieved from the

services with effect from 30.9.2006 and sought for

settlement of his salary dues. However, it is his case that as

the Corporate Debtor requested him to continue in the

service, he continued to do so on a salary which was much

less than the one he was entitled to. On 31.5.2013, D.

Ramjee officially retired after serving for 49 years. 4

In February, 2015, the Management of the

Corporate Debtor was taken over by one Subasri Realty

Limited, thereby acquiring the shareholding of the earlier

promoters, M. Sivaram and his family. According to D.

Ramjee, the new Management disowned itself from the

admissions of previous management pertaining to

settlement of arrears of salary.

On 27.2.2017, Ramjee issued a Demand Notice

under Section 271(1)(a) of the Companies Act, 2013 read

with Section 8(1) of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as ‘the IBC’) calling upon the

Corporate Debtor to pay dues of outstanding salary

amounting to Rs.2,60,68,883/­ along with interest at the

rate of 12%.

On failure of the Corporate Debtor to comply with

the notice, D. Ramjee filed an application under Section 9 of

the IBC, being C.P. No.478 of 2017 on 3.4.2017 before

NCLT. Two other employees of the Corporate Debtor had

also filed applications under Section 9 of the IBC. Vide

order dated 13.6.2017, the Adjudicating Authority admitted 5

D. Ramjee’s application under Section 9 of the IBC and

initiated CIRP against the Corporate Debtor. One P. Sriram

was appointed as interim RP and moratorium was declared.

Being aggrieved by the order passed by NCLT

dated 13.6.2017, the Corporate Debtor filed an appeal being

Company Appeal (AT) (Insolvency) No.87 of 2017 before

NCLAT. NCLAT vide order dated 2.8.2017 allowed the said

appeal filed by the Corporate Debtor and set aside the order

dated 13.6.2017 passed by NCLT. NCLAT had also recorded

the assurance given by the Corporate Debtor that they will

be paying three years’ arrears of salary to the three

employees including Ramjee, who had initiated CIRP

proceedings against the Corporate Debtor.

In pursuance to the assurance given to NCLAT,

the Corporate Debtor made payment vide two Demand

Drafts dated 8.8.2017 for a sum of Rs.18,50,000/­ to D.

Ramjee along with a letter dated 22.8.2017.

In the meanwhile, one other ex­employee of the

Corporate Debtor, N. Subramanian, who is respondent No.3

in both the appeals, also issued a Demand Notice dated 6

29.6.2017 under Section 8 of the IBC to the Corporate

Debtor. On failure by the Corporate Debtor to comply with

the Demand Notice, N. Subramanian also filed an

application under Section 9 of the IBC being CP/597/

(IB)/CB/2017 on 21.7.2017 before NCLT. NCLT admitted

the said application under Section 9 of the IBC filed by N.

Subramanian vide order dated 17.11.2017.

Being aggrieved by the initiation of CIRP, the

Corporate Debtor filed an appeal being Company Appeal

(AT)(Insolvency) No.290 of 2017 before NCLAT on

24.11.2017. Vide order dated 16.7.2018, NCLAT allowed

the appeal of the Corporate Debtor and set aside the order

dated 17.11.2017 passed by NCLT on the ground of

‘existence of dispute’ about arrears of salary and that N.

Subramanian had not explained the delay from the year

1998 to 2016.

Being aggrieved by the order dated 16.7.2018

passed by NCLAT, N. Subramanian filed Civil Appeal No.187

of 2019 before this Court. This Court vide judgment and

order dated 3.3.2021 set aside the order dated 16.7.2018 7

passed by NCLAT and restored the order dated 17.11.2017

passed by NCLT admitting the application under Section 9

of the IBC.

It is pertinent to note that D. Ramjee had also

filed an application for permission to file an appeal being D.

No.34836 of 2018, which came to be rejected by this Court

by the same judgment and order dated 3.3.2021.

In the meantime, Subasri Realty Limited, a major

shareholder of the Corporate Debtor filed a Miscellaneous

Application No. 480 of 2021 in Civil Appeal No.187 of 2019

before this Court seeking to compromise with respondent

No. 3. This Court vide order dated 19.3.2021 granted

liberty to the said applicant to approach CoC for settlement

under Section 12A of the IBC.

Vide order dated 22.4.2021, NCLT directed RP to

convene a meeting of CoC consisting of the members, who

constituted CoC originally in the year 2017.

Being aggrieved thereby, the erstwhile Director of

the Corporate Debtor­K.N. Rajakumar, had preferred an

appeal being Company Appeal (AT)(CH)(Ins) No. 48 of 2021 8

before NCLAT. The said appeal came to be dismissed by

NCLAT vide order dated 30.4.2021, which in turn has been

challenged in Civil Appeal No. 1792 of 2021 and Civil

Appeal No.2901 of 2021.

CoC vide its resolution dated 25.5.2021 passed in

its 8th meeting, unanimously resolved to withdraw CIRP

initiated in respect of the Corporate Debtor.

Vide order dated 4.6.2021, NCLT allowed the

application filed by K.N. Rajakumar for withdrawal of CIRP

in respect of the Corporate Debtor and directed RP to hand

over the management of the Corporate Debtor to the Board

of Directors. The application filed by D. Ramjee seeking to

set aside the resolution dated 25.5.2021 passed in the 8 th

CoC meeting thereby approving the withdrawal of CIRP

initiated against the Corporate Debtor was dismissed by

NCLT vide order dated 6.7.2021, having been rendered

infructuous.

Hence Civil Appeal No.2901 of 2021, filed by D.

Ramjee before this Court being aggrieved as aforesaid. 9

5. In Civil Appeal No. 2901 of 2021, this Court on

23.7.2021 passed the following order:

“Permission to file appeal is granted.

Issue notice.

In the meantime, there shall be

stay of operation and implementation of the impugned judgment and stay of further proceedings taken out in pursuance of the impugned order.”

6. In Civil Appeal No.1792 of 2021 filed by K.N.

Rajakumar, this Court vide the same order dated 23.7.2021

directed the said appeal to be listed along with Civil Appeal

No.2901 of 2021 filed by D. Ramjee.

7. Subsequently, K.N. Rajakumar filed an

application being I.A. No.87750 of 2021 in Civil Appeal

No.2901 of 2021 seeking vacation of the stay granted by

this Court vide order dated 23.7.2021. When the said I.A.

was listed, we directed the appeals to be heard on merits.

Accordingly, on 1.9.2021 the appeals were heard at

considerable length.

8. We have heard Shri Ritin Rai, learned Senior

Counsel appearing on behalf of D. Ramjee, Shri K.V. 10

Viswanathan, learned Senior Counsel appearing on behalf

of K.N. Rajakumar and Shri Mohan Chevanan, learned

counsel appearing for HDFC Bank.

9. It is contended on behalf of D. Ramjee that the

provisions of the IBC require the claims of all the creditors

of the Corporate Debtor to be updated by RP from time to

time.

Relying on Regulation 16 of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations 2016 (hereinafter

referred to as ‘2016 Regulations’), it is submitted on behalf

of D. Ramjee that since the matter was settled between the

financial creditors and the Corporate Debtor, CoC was

required to be constituted only of the operational creditors.

Further relying on Section 25(2)(e) of the IBC, it is

submitted that in recognition of the principle that a creditor

must continue to have a valid claim to be a member of CoC,

it is mandated that RP should maintain an updated list of

claims. It is further submitted that Section 24(6) of the IBC

provides that the voting share shall be based on the

financial debts owed.

11

Relying on various provisions of the IBC and the

2016 Regulations, it is submitted that the composition of

CoC must change on the basis of the updated claims of the

creditors and whenever the claims of the creditors undergo

any change, the composition of CoC must change

accordingly. It is therefore submitted that since the

Corporate Debtor does not have any financial creditors, CoC

ought to have been constituted of operational creditors,

wherein D. Ramjee would have a substantial voting right.

It is further submitted on behalf of D. Ramjee

that the contention of K.N. Rajakumar that since the

Corporate Debtor has taken finance from HDFC Bank

(respondent No.2 in Civil Appeal No.1792 of 2021 and

respondent No.4 in Civil Appeal No.2901 of 2021), CoC

should consist only of HDFC Bank, is without merit,

inasmuch as the finance taken from HDFC Bank was only

an ‘interim finance’ and as such, HDFC Bank could not be

termed as a financial creditor. It is submitted that the view

taken by both NCLT and NCLAT that CoC should constitute 12

only of financial creditors as on the date of initiation of CIRP

proceedings is untenable.

10. Per contra, it is submitted on behalf of K.N.

Rajakumar that the new Management of the Corporate

Debtor has successfully revived the business by settling the

claims of members of CoC, amounting to

Rs.46,31,16,650/­.

It is submitted that order dated 13.6.2017 passed

by NCLT admitting Section 9 application of D. Ramjee

initiating CIRP proceedings was challenged by the Corporate

Debtor before NCLAT. NCLAT vide order dated 2.8.2017

had allowed the appeal and set aside the said order dated

13.6.2017. It is submitted that D. Ramjee did not challenge

the same and as such, said order dated 2.8.2017 had

attained finality.

It is further submitted that D. Ramjee had

received an amount of Rs.18,50,000/­ as arrears of salary.

Vide order dated 3.3.2021, this Court had rejected the

application filed by D. Ramjee for permission to file an

appeal. It is submitted that having not challenged the 13

order dated 2.8.2017 passed by NCLAT allowing the appeal

and setting aside the initiation of CIRP proceedings against

the Corporate Debtor at the behest of D. Ramjee, he did not

have any locus in the proceedings initiated by the Corporate

Debtor for withdrawal of CIRP proceedings.

It is submitted that the new Management of the

Corporate Debtor has taken a loan from HDFC Bank, which

fact has also been acknowledged by NCLT in its order dated

4.6.2021 while permitting withdrawal of CIRP proceedings

under Section 12A of the IBC.

It is the contention of K.N. Rajakumar that as a

matter of fact, NCLT and NCLAT ought to have held that

CoC should consist only of HDFC Bank, which is now the

sole financial creditor.

11. Though, various submissions have been

advanced on behalf of the rival parties, we do not find it

necessary to go into the said issues. It is a settled principle

of law that the Court should not go into the academic issues

and seek to interpret the provisions of law when it is not

necessary for deciding the issues in the appeal(s). Reference 14

in this regard could be made to the judgments of this Court

in the cases of Vidya Charan Shukla v. Purshottam Lal

Kaushik1 and K.I. Shephard and others v. Union of

India and others2.

12. At this juncture, it would be relevant to refer to

Section 12A of the IBC, which reads thus:

“12A. Withdrawal of application admitted under section 7, 9 or 10.— The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified.”

13. It could thus be seen that the Adjudicating

Authority is entitled to withdraw the application admitted

under Section 7 or Section 9 or Section 10, on an

application made by the applicant with the approval of 90%

voting share of the CoC.

14. It is not in dispute that the resolution of CoC

approving withdrawal of CIRP proceedings was supported by

1 (1981) 2 SCC 84 2 (1987) 4 SCC 431 15

the requisite voting majority. NCLT after considering the

resolution passed by CoC in its 8 th meeting held on

25.5.2021 has allowed the application filed by K.N.

Rajakumar vide order dated 4.6.2021.

15. This Court in the case of Ghanashyam Mishra

and Sons Private Limited through the Authorized

Signatory v. Edelweiss Asset Reconstruction Company

Limited Through The Director and Others3 after

considering the earlier pronouncements of law by this Court

with regard to aims and objects of IBC has observed thus:

“86. As discussed hereinabove, one of the principal objects of I&B Code is, providing for revival of the Corporate Debtor and to make it a going concern. I&B Code is a complete Code in itself. Upon admission of petition under Section 7, there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as 3 2021 SCC OnLine SC 313 16

CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is revived and is made an on­going concern. After CoC approves the plan, the Adjudicating Authority is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in sub­section (2) of Section 30 of the I&B Code. Only thereafter, the Adjudicating Authority can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable.”

16. It could thus be seen that one of the principal

objects of the IBC is providing for revival of the Corporate

Debtor and to make it a going concern. Every attempt has

to be first made to revive the concern and make it a going

concern, liquidation being the last resort. 17

17. From the order of NCLT dated 4.6.2021, it could

be seen that the Corporate Debtor has already settled the

issue with the erstwhile financial creditors, who have

resolved to withdraw the CIRP proceedings and by virtue of

withdrawal of CIRP proceedings, the Corporate Debtor now

is a going concern.

18. Insofar as the appeal filed by D. Ramjee is

concerned, we have already observed that the order of

NCLAT dated 2.8.2017 allowing the appeal filed by the

Corporate Debtor and setting aside the order dated

13.6.2017 passed by NCLT in D. Ramjee’s application under

Section 9 of the IBC has admittedly not been challenged by

D. Ramjee. In pursuance of the assurance given before

NCLAT, an amount of Rs.18,50,000/­ was also paid to D.

Ramjee towards arrears of salary by the Corporate Debtor.

The application for permission to file an appeal filed by D.

Ramjee before this Court has been rejected by this Court

vide judgment and order dated 3.3.2021. 18

19. In that view of the matter, we find that insofar as

D. Ramjee is concerned, the issue has attained finality as on

2.8.2017 when the appeal filed by the Corporate Debtor

came to be allowed by NCLAT. We find that NCLT vide order

dated 6.7.2021, passed in the application

(I.A.No.540/CHE/2021) filed by D.Ramjee, has rightly held

that from the date of the order dated 4.6.2021, after the

withdrawal of CIRP proceedings, the powers and

management of the Corporate Debtor were handed over to

the Directors of the Corporate Debtor and from that date RP

and CoC in relation to the Corporate Debtor had become

functus officio. NCLT has rightly disposed of the application

filed by D.Ramjee having rendered infructuous.

20. In the result, we find no reason to interfere with

the same. Civil Appeal No.2901 of 2021 filed by D. Ramjee

is therefore dismissed.

21. Insofar as Civil Appeal No.1792 of 2021 filed by

K.N. Rajakumar is concerned, in view of the subsequent

development i.e. withdrawal of CIRP proceedings vide order

dated 4.6.2021, the counsel for the appellant has circulated 19

a letter dated 23.7.2021, thereby seeking withdrawal of the

appeal leaving the questions of law open. The said appeal

therefore stands disposed of as withdrawn.

22. The appeals are disposed of in the above terms.

All pending applications in both the appeals shall also stand

disposed of.

…….…....................., J.

[L. NAGESWARA RAO]

…….…....................., J.

[B.R. GAVAI]

…….…....................., J.

[B.V. NAGARATHNA]

NEW DELHI;

SEPTEMBER 15, 2021