Krishna Kraftex Pvt. Ltd vs Hdfc Bank & Ors

Company Appeal (AT) (Insolvency) No.106 of 2017

IN THE MATTER OF:

Krishna Kraftex Pvt. Ltd. ...Appellant

Versus

HDFC Bank & Ors. ...Respondents

Present:

For Appellant : Shri Dhruv Mishra, Advocate

For 7th Respondent: Ms. Ritu Singh, Advocate

ORDER

11.01.2018 The appellant, Krishna Kraftex Pvt. Ltd. (Corporate

applicant) preferred an application under Section 10 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the 'I & B Code') for its

insolvency resolution process. The Adjudicating Authority (National Company

Law Tribunal), New Delhi rejected the application with the following

observations :

"8. The Petitioner has failed to produce any evidence to show that

a claim has been lodged with the Petitioner Corporate Debtor

and is lying unpaid. However, Ld. Counsel for the petitioner

presses his argument that on the petitioner's showing that if a

liability exists as per balance sheet of the Petitioner and the 2

Corporate Debtor is unable to liquidate its liability, the code

provides for the insolvency resolution to be set in motion.

9. We are unable to agree with the ld. Counsel for the applicant.

It could never have been the intention of the legislature to

consider a matter as serious as placing the Company in the

hands of a Resolution professional in a mechanical way

without due application of mind of the Adjudicative Authority.

Should this have been the case, then every corporate entity,

who has no assets in hand and has incurred great liabilities

be it acquisition of cars or assets acquired and to personal use

of Directors, would resort to a simple way of filing such an

application to escape any recovery proceeding or even civil

imprisonment on being declared insolvent. Taking a hyper

technical view of the provisions would open the flood gates of

people forming Companies, incurring expenses in the name of

the company and then filing for Insolvency Resolution Process

under the Code for enjoying a Moratorium. The object of the

Code is not to provide for an escape route to a Company or its

Directors who have incurred great debts and are unable to

liquidate the liabilities after availing services and goods (stock

in trade) from various suppliers, loans from banks, friends and

family."

2. Learned counsel appearing on behalf of the appellant submits that the

application under Section 10 is complete, there is no defect therein. It is

Comp. App. (AT) (Ins) No. 106/2017 3

further submitted that no winding up proceedings is pending against the

appellant and the appellant is not covered by the ineligibilities prescribed

under Section 11 of the I & B Code.

3. Learned counsel appearing on the 7th Respondent submits that the 7th

Respondent is a 'Financial Creditor' and has no objection for imitation of

Corporate Insolvency Resolution Process against the 'Corporate Applicant.

4. Similar issue came for consideration before this Appellate Tribunal in

"M/s. Unigreen Global Private Limited vs. Punjab National Bank and

others" - Company Appeal (AT) (Insolvency) 81/2017. In the said case,

this Appellate Tribunal by its judgement dated 1st December, 2017 held as

follows :

"20. Under both Section 7 and Section 10, the two

factors are common i.e. the debt is due and there is a

default. Sub-section (4) of Section 7 is similar to that of

sub-section (4) of Section 10. Therefore we, hold that the

law laid down by the Hon'ble Supreme Court in

"Innoventive Industries Ltd. (Supra) is applicable for

Section 10 also, wherein the Hon'ble Supreme Court

observed as "The moment the adjudicating authority is

satisfied that a default has occurred, the application

must be admitted unless it is incomplete, in which case

it may give notice to the applicant to rectify the defect

within 7 days of receipt of a notice from the adjudicating

authority" .

Comp. App. (AT) (Ins) No. 106/2017 4

21. In an application under Section 10, the 'financial creditor'

or 'operational creditor', may dispute that there is no

default or that debt is not due and is not payable in law

or in fact. They may also oppose admission on the

ground that the Corporate Applicant is not eligible to

make application in view of ineligibility under Section 11

of the I & B Code. The Adjudicating Authority on hearing

the parties and on perusal of record, if satisfied that there

is a debt and default has occurred and the Corporate

Applicant is not ineligible under Section 11, the

Adjudicating Authority has no option but to admit the

application, unless it is incomplete, in which case the

Corporate Applicant is to be granted time to rectify the

defects.

22. Section 10 does not empower the Adjudicating Authority

to go beyond the records as prescribed under Section 10

and the informations as required to be submitted in Form

6 of the Insolvency and Bankruptcy (Application to the

Adjudicating Authority) Rules, 2016 subject to

ineligibility prescribed under Section 11. If all

informations are provided by an applicant as required

under Section 10 and Form 6 and if the Corporate

Applicant is otherwise not ineligible under Section 11, the

Adjudicating Authority is bound to admit the application

and cannot reject the application on any other ground.

Comp. App. (AT) (Ins) No. 106/2017 5

23. Any fact unrelated or beyond the requirement under I &

B Code or Forms prescribed under Adjudicating Authority

Rules (Form 6 in the present case) are not required to be

stated or pleaded. Non-disclosure of any fact, unrelated

to Section 10 and Form 6 cannot be termed to be

suppression of facts or to hold that the Corporate

Applicant has not come with clean hand except the

application where the 'Corporate Applicant' has not

disclosed disqualification, if any, under Section 11. Non-

disclosure of facts, such as that the 'Corporate Debtor' is

undergoing a corporate insolvency resolution process; or

that the 'Corporate Debtor' has completed corporate

insolvency resolution process twelve months preceding

the date of making of the application; or that the

corporate debtor has violated any of the terms of

resolution plan which was approved twelve months

before the date of making of an application under the

said Chapter; or that the corporate debtor is one in

respect of whom a liquidation order has already been

made can be a ground to reject the application under

Section 10 on the ground of suppression of fact/not come

with clean hand."

xxx xxx xxx

28. In a case where a winding up proceedings has already

been initiated against a Corporate Debtor by the Hon'ble

Comp. App. (AT) (Ins) No. 106/2017 6

High Court or Tribunal or liquidation order has been

passed in respect of Corporate Debtor, no application

under Section 10 can be filed by the Corporate Applicant

in view of ineligibility under Section 11(d) of I & B Code,

as quoted below:

"11. Persons not entitled to make application - The

following persons shall not be entitled to make an

application to initiate corporate insolvency resolution

process under this Chapter, namely:--

(a) a corporate debtor undergoing a corporate insolvency

resolution process; or

(b) a corporate debtor having completed corporate

insolvency resolution process twelve months preceding

the date of making of the application; or

(c) a corporate debtor or a financial creditor who has

violated any of the terms of resolution plan which was

approved twelve months before the date of making of an

application under this Chapter; or

(d) a corporate debtor in respect of whom a liquidation order

has been made.

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

corporate debtor includes a corporate

applicant in respect of such corporate

debtor."

Comp. App. (AT) (Ins) No. 106/2017 7

29. In view of the aforesaid provision where a winding up

proceeding has already been initiated under the

Companies Act, 1956 / 2013 by the Hon'ble High Court

such cases have not been transferred to National

Company Law Tribunal, pursuant to "Companies

(Transfer of Pending Proceedings) Rules, 2016", framed

by the Central Government."

5. As the case of the appellant is covered by the decision of this Appellate

Tribunal in "M/s. Unigreen Global Private Limited" (Supra), we have no option

but to set aside the order dated 15th May, 2017 passed in Company Petition

No. (IB)-78(ND)/2017 and the same is accordingly set aside. The case is

remitted back to the Adjudicating Authority (National Company Law

Tribunal), New Delhi to admit the application under Section 10 after notice to

the parties if there is no defect. In case of any defect, appellant be allowed

time to remove the defects. The appeal is allowed with the aforesaid

observations. However, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

/ns/uk

Comp. App. (AT) (Ins) No. 106/2017