K. Srinivas Krishna vs Shyam Arora

1

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No. 221 of 2021 IN THE MATTER OF: MR. K. SRINIVAS KRISHNA Suspended Director of M/s C-Tel, Infosystems (P) Ltd. DSM361 - 362, DLF Tower, Shivaji Marg New Delhi - 110015 ...Appellant Versus 1.SHYAM ARORA Interim Resolution Professional of the Corporate Debtor 96, Aravali Apartment, Alaknanda, New Delhi - 110019 2. STATE BANK OF INDIA Hitech City Branch, Quadrant-1, Fist Floor, Cyber Tower Madhapur, Hyderabad - 500081 3. PVM INNVENSYS PVT. LTD. Plot No. C-5, Road No. 2, Vikrampuri Colony Kakaguda, Secunderabad Hyderabad - 500001 ...Respondents Present: For Appellant : Mr. P Nagesh, Sr. Advocate with Mr. Srinivas Kotni, Mr. Shantam Gorwara, Advocates and Mr. Srinivas Krishna, in person. For Respondents : Mr. Shyam Arora, Respondent No. 1 in person, Mr. Sharad Tyagi, Mr. K. Gayatri, Advocates for Respondent No. 1.

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Mr. Sanjay Kapur, Mr. V M Kannan, Ms. Shubhra Kapur, and Mr. Arjun Bhatia, Advocates for Respondent No. 2. Dr. Laxhmi Narashimha, Advocate for RP.

Jarat Kumar Jain: J.

The Appellant "Mr. K. Srinivas Krishna" Suspended Director of Corporate

Debtor has filed this Appeal against the order dated 18th February, 2021

passed by the Adjudicating Authority (National Company Law Tribunal) New

Delhi, Bench-V in I.A. No. 4639/2020 and in I.A. No. 5317/2020 in (IB) No.

295(ND)/2019 whereby dismissed the application filed u/s 12A of 'IBC' read

with Regulation 30A of Insolvency & Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 (Regulations) filed

by Mr. Shyam Arora, IRP Respondent No. 1.

2. The Brief facts of this case are that Operational Creditor "PVM Innvensys

Pvt. Ltd." filed an Application under Section 9 of the IBC against the C-Tel

Infosystems (P) Ltd. which was admitted vide order dated 23.01.2020 by the

Adjudicating Authority and initiated 'Corporate Insolvency Resolution Process'

(CIRP) against C-Tel Infosystems Pvt. Ltd. (Corporate Debtor) and Shyam Arora

was appointed as 'Interim Resolution Professional' (IRP).

3. Mr. K. Srinivas Krishna, Suspended Director of Corporate Debtor has

filed the Company Appeal (AT) (Ins.) No.205/2020 against the order of

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admission dated 23.01.2020 passed by the Adjudicating Authority before this

Appellate Tribunal.

4. This Appellate Tribunal vide order dated 25th September, 2020 held that

the claim of 'Operational Creditor' i.e. PVM Innvensys Pvt. Ltd. for Rs.

50,32,028/- is not tenable. However, amount of another claim of Rs.

3,67,200/- has been paid to the 'Operational Creditor'(OC). Thus, the Appeal

was disposed of and the interim stay passed by this Tribunal was vacated and

IRP was directed to take further action with regard to CIRP. Thereafter,

'Committee of Creditors' (CoC) was constituted by the IRP on 05th October,

2020 with the sole claim of 'Financial Creditor' (FC) viz. State Bank of India of

Rs. 12,66,000/-. Subsequently, the 'Corporate Debtor' has satisfied the claim

of State Bank of India then the CoC approved the resolution for withdrawal of

application under Section 9 of the IBC by 100% voting share and IRP was

authorized to do necessary acts in this regard.

5. Pursuant to the said resolution of CoC, the Interim Resolution

Professional filed an application in I.A. No. 4639 of 2020 u/s 12A read with

Regulation 30A of the Regulations. In response of the said Application the

Operational Creditor has raised some objections. Therefore, the IRP has filed

another Application I.A.No. 5317 of 2020 for clarification of the objections

raised by the Operational Creditor.

6. The IRP stated that the objections raised by the Operational Creditor are

that (i) the IRP has not considered Operational Creditor's claim in entirety (ii)

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the application filed in contravention of Section 12A read with Regulations 30A

of the Regulations and (iii) form FA has been filed wrongly by the IRP. (iv) The

IRP has not taken into consideration the claim of 'Axis Bank' while constituting

the CoC. In response, the IRP submitted that the Operational Creditor had two

claims one for Rs. 50,32,028/- and another claim for Rs. 3,67,200/-.

7. The Adjudicating Authority vide order dated 23rd January, 2020 had

accepted only one claim of the OC for Rs. 3,67,200/- and directed that the

other claim to be examined by the IRP. The IRP had examined the claim of

Rs. 50,32,028/- and found the claim not to be in order. It is also stated that

this Appellate Tribunal in CA (AT) (Ins.) No. 205/2020 vide order dated

25.09.2020 observed that the said claim is not maintainable.

8. It is also stated that the form FA is an Application for withdrawal of

CIRP. Such form should be signed by the Applicant (Operational Creditor), the

IRP had sent the email dated 17th October, 2020 to the Operational Creditor

for his signing the form FA but no response was received by the IRP for the said

email.

9. The Operational Creditor had not signed the form FA. Therefore, the IRP

has filed the form FA alongwith the Application under Section 12A of the IBC

pursuant to the resolution of CoC.

10. The non-inclusion of 'Axis Bank' in the CoC as the claim form submitted

by the 'Axis Bank' was defective which was communicated to the Bank vide

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email dated 01st October, 2020 by the IRP, the CoC was constituted on 05th

October, 2020. By that time, the response of Axis Bank was not received.

11. The Ld. Adjudicating Authority after considering the objections raised by

the Operational Creditor rejected the application on the ground that the

application u/s 12A is not filed by the Applicant(OC) on whose application

CIRP was initiated. Therefore, the application is dismissed as not

maintainable.

12. Being aggrieved with this order, the Suspended Director of the 'Corporate

Debtor' Company has filed this Appeal seeking relief that the impugned order

may be set aside.

13. Ld. Counsel for the Appellant submitted that the Corporate Debtor has

paid the admitted amount to the Operational Creditor and the claim of Rs.

50,32,028/- was not supported with documents, therefore, IRP has not

admitted the same and this Appellate Tribunal in CA (AT) (Ins) No. 205 of 2020

held that the said claim is not maintainable, thereafter, the CoC has taken

decision for withdrawal of the CIRP by 100% voting share. The IRP has sent a

form FA to Operational Creditor for signature, however, the Operational

Creditor has deliberately not signed the form. Therefore, the IRP has filed

Application under Section 12A of the IBC r/w Regulation 30A of the

Regulations, however, Ld. Adjudicating Authority has without considering the

peculiar facts and circumstances of the case, dismissed the Application on the

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ground that the Application for withdrawal under Section 12A of the IBC is not

filed by the Applicant i.e. Operational Creditor.

14. It is submitted that the Hon'ble Supreme Court in the matter of Brilliant

Alloys Pvt. Ltd. Vs. Mr. S. Rajagopal SLP (C) No. 31557 of 2018 held that the

Regulation 30A can be construed as directory. Hon'ble Supreme court in

another Judgment of Uday Shankar Triyar vs Ram Kalewar Prasad Singh &

Anr Civil Appeal No. 6701 of 2005 held that procedural highper technicalities

cannot defeat the very purpose of the statute and hence, this Appellate

Tribunal shall act in compliance with the same and allow the Appeal.

15. Ld. Counsel for the Appellant submitted that the Operational Creditor

has refused to sign the FA form on the basis of its illegal claim which is

rejected by this Appellate Tribunal and the Corporate Debtor has already

satisfied the admitted claim of the Operational Creditor, therefore, continuance

of CIRP is misused the process when the resolution has already been came to

an end. It is settled law that the Operational Creditor cannot use the CIRP as a

recovery mechanism as held by the Hon'ble Supreme Court in the case of

Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. 2018 (1) SCC 3533.

16. Ld. Counsel for the Appellant submitted that the Adjudicating Authority

rejected the withdrawal application on the hyper technical ground that the

same has not been signed by the Operational Creditor. Particularly, when after

satisfying admitted claim of the Operational Creditor nothing survives in the

CIRP. The Operational Creditor has acted with malafide and has refused to

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signed form FA. Hence, the Adjudicating Authority should have interpret

section 12A of the IBC r/w Regulation 30A of the Regulations using purposive

interpretation, particularly in such cases where literal interpretation may not

serve the purpose. For this preposition, cited the Judgment of Hon'ble Supreme

Court in the case of Shailesh Dhairyawan vs Mohan Balkrishna Lulla (2016) 3

SCC 619. Thus, the impugned order is liable to be set aside.

17. The Respondent No. 1 (IRP) present in person supports the argument

advanced by the Ld. Counsel for the Appellant and submitted that he has filed

the Application for withdrawal under Section 12A of the IBC as per resolution

passed by the CoC. Ld. Adjudicating Authority on the technical ground that the

form FA is not signed by the Operational Creditor, erroneously dismissed the

Application.

18. Per Contra, Ld. Counsel for the Respondent No. 3 (Operational Creditor)

submitted that Operational Creditor's claim for Rs. 50,32,028/- is still under

dispute and need to be resolved. Hence, the entire amount of claim is not paid

to the Operational Creditor. Ld. Adjudicating Authority has rightly held the

Application is filed by the IRP on behalf of the Corporate Debtor which is not

maintainable since there is no exit route for the IRP or the Corporate Debtor.

For this purpose, he placed reliance on the Judgment of Hon'ble Supreme

Court in the case of Swiss Ribbons Pvt. Ltd. Vs. Union of India (2019) 4 SCC 17

and Maharashtra Seamless Limited V Padmanabhan Venkatesh reported in

2020 (11) SCC 467. Ld. Counsel for the Respondent No. 3 further submitted

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that this Appellate Tribunal in CA (AT) (Ins) No. 205 of 2020 held that the claim

for Rs. 50,32,028/- is not maintainable, against that order the Respondent has

filed the Civil Appeal No. 1689 of 2021 which is pending before the Hon'ble

Supreme Court.

19. It is submitted that language of Section 12A of the IBC is clear that the

Applicant who has filed Application under Section 7, 9 or 10 alone can file

withdrawal application then there is no scope to add something and interpret

that the IRP can file the Application for withdrawal. The facts of the case of

Brilliant Alloys (Supra) are totally distinguishable from the facts of the present

case and hence, the ratio of the Judgment is not applicable. Therefore, it is

prayed that the Appeal may be dismissed with costs.

20. After hearing Ld. Counsel for the parties we have minutely gone through

the record and considered the submissions advanced by the Ld. Counsel for

the parties.

21. It is admitted fact that the Operational Creditor has filed Application

under Section 9 against the Corporate Debtor for two claims one of Rs.

50,32,028/- and another claim for Rs. 3,67,200/-. The amount of Rs.

3,67,200.- has been paid to the Operational Creditor. The IRP has not admitted

the another claim as it is not supported by any reliable documentary evidence.

Against that rejection the Operational Creditor has filed I.A. No. 3874 of 2020

before the Adjudicating Authority. It is also admitted fact that CIRP admission

order has been challenged by the suspended director by way of CA (AT) (Ins)

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No. 205 of 2020 before this Appellate Tribunal, while deciding the Appeal, this

Appellate Tribunal observed that the claim of Rs. 50,32,028/- is not tenable

and vide order dated 25.09.2020 the Appeal was disposed of and the IRP was

directed to take further action with regard to CIRP. Thereafter, the CoC was

constituted by the IRP on 05.10.2020 with the sole claim of Financial Creditor

viz State Bank of India for Rs. 12,66,000/-. Subsequently, the Corporate

Debtor has satisfied the claim of State Bank of India then the CoC approved

the resolution for withdrawal of the Application under Section 9 of the IBC by

100% voting share and IRP was directed to do necessary acts in this regard.

22. it is admitted fact that this Appellate Tribunal held in CA (AT) (Ins) No.

205 of 2020 vide order dated 25.09.2020 that the claim of Rs. 50,32,028/- is

not maintainable against that order the Operational Creditor has filed Civil

Appeal No. 1689 of 2021 before the Hon'ble Supreme Court challenging the

observations made by this Appellate Tribunal. Hon'ble Supreme court vide

order dated 09.08.2021 has dismissed the Appeal. Thus, it is finally decided by

the Hon'ble Supreme Court that the claim of Rs. 50,32,028/- is not

maintainable under Section 9 of the IBC application. The Operational Creditor

has not signed form FA solely on the ground that its said claim has not been

considered. But now, the Hon'ble Supreme Court has finally ruled that the said

claim is not maintainable. Thus, the Operational Creditor has no ground to

contest the withdrawal Application.

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23. Ld. Adjudicating Authority has rejected the Application on the ground

that the Application Section 12A of the IBC is not filed by the Applicant

(Operational Creditor) on whose instance CIRP initiated against the Corporate

Debtor. No doubt, as per Section 12A of the IBC, the Application must be filed

by the Applicant and Regulation 30A of the Regulations provides the procedure

and format of the Application i.e. FA. Now the question arises that when the

admitted claim of the Operational Creditor and other creditors are satisfied by

the Corporate Debtor and CoC approved the resolution for withdrawal of the

Application by 100% voting share and the Corporate Debtor has provided a

bank guarantee as per sub-Regulation 2 of Regulation 30-A even though the

Operational Creditor (Applicant) misusing his position, refused to sign the form

FA and does not file Application under Section 12A of the IBC.

24. In aforesaid peculiar facts and circumstances of the case no cause of

action survives in favour of the Operational Creditor to proceed with CIRP.

Thus, exercising the inherent powers under Rule 11 of National Company Law

Appellate Tribunal, Rules, 2016 to prevent abuse of process, we hereby set

aside the impugned order as well as the order of initiating CIRP against the

Corporate Debtor. Resultantly, the Corporate Debtor Company is released from

the rigours of the CIRP and is allowed to function through its Board of

Directors from immediate effect. The IRP shall hand over the records to the

Board of Directors.

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25. The matter is remitted back to the Ld. Adjudicating Authority to decide

the fees and costs of CIRP payable to IRP which shall be borne by the

Corporate Debtor.

Thus, the Appeal is allowed as indicated above. However, no order as to

costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

New Delhi 02nd September, 2021 sc

Company Appeal(AT)(Insolvency) No. 221 of 2021