Logvis Ag vs Quinn Logistics India Ltd

Mack Soft Tech Pvt Ltd. ....Appellant

Versus

Quinn Logistics India Ltd. ....Respondent

Present:

For Appellant : Dr. Abhishek Manu Singhvi and Dr. U.K. Chaudhary, Senior Advocates with Ms. Diya Kapur, Ms. Akshita Sachdeva, Ms. Ranjana Roy Gawai, Ms. Ferida Satarwala, Mr. Pervinder, Mr. Vivek Kumar, Mr. Himanshu Vij, Mr. Rohan Jaitly, Mr. Avishkar Singhvi and Ms. Madhavi Khanna, Advocates

For Respondent : Mr. S.N. Mookherjee, Senior Advocate with Mr. Rudreshwar Singh and Ms. Shivambika Sinha, Advocates

And

Company Appeal (AT)(Insolvency) No. 175 of 2017

IN THE MATTER OF:

Logvis AG ....Appellant

Versus

Quinn Logistics India Ltd. ....Respondent

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 2

Present:

For Appellant : Dr. Abhishek Manu Singhvi, Senior Advocate, Dr. U.K. Chaudhary, Senior Advocate with Ms. Diya Kapur, Ms. Akshita Sachdeva, Ms. Ranjana Roy Gawai, Ms. Ferida Satarwala, Mr. Pervinder, Mr. Vivek Kumar, Mr. Himanshu Vij, Mr. Rohan Jaitly, Mr. Avishkar Singhvi and Ms. Madhavi Khanna, Advocates

For Respondent : Mr. Jayant Mehta, and Mr. Ujjal Banerjee Advocates

And

Company Appeal (AT)(Insolvency) No. 176 of 2017

IN THE MATTER OF:

Mecon FZE ....Appellant

Versus

Quinn Logistics India Ltd. ....Respondent

Present:

For Appellant : Dr. Abhishek Manu Singhvi, Senior Advocate, Dr. U.K. Chaudhary, Senior Advocate with Ms. Diya Kapur, Ms. Akshita Sachdeva, Ms. Ranjana Roy Gawai, Ms. Ferida Satarwala, Mr. Pervinder, Mr. Vivek Kumar, Mr. Himanshu Vij, Mr. Rohan Jaitly, Mr. Avishkar Singhvi and Ms. Madhavi Khanna, Advocates

For Respondent : Mr. Arun Kathpalia, Senior Advocate with Mr. Swapnil Gupta and Ms. Ankiya Sinha, Advocates

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 3

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

Mack Soft Tech Private Limited ('Corporate Debtor') was developing

an office complex by the name of 'Q-City' in Hyderabad. While it was in

developing process, the 'Quinn Logistics India Private Limited' ('Financial

Creditor') acquired the entirety/majority of the shareholding of the

'Corporate Debtor' on 23rd October, 2017 for a total consideration of Rs.

126.73 crores.

2. According to the 'Quinn Logistics India Private Limited' ('Financial

Creditor'), 'Mack Soft Tech Private Limited' ('Corporate Debtor') become

subsidiary Company of the 'Financial Creditor'. During the period 2007-

2010, the 'Financial Creditor' disbursed an interest free unsecured loan of

Rs. 62.90 crores to the 'Corporate Debtor' for development of 'Q-City'.

Such interest free loan at the relevant time was permitted under the

provision of Section 327A (8) of the Companies Act, 1956.

3. 'Mack Soft Tech Private Limited' ('Corporate Debtor'), 'Quinn

Logistics India Private Limited' ('Financial Creditor'), 'Quinn Investments

Sweden AB' and 'Quinn Logistics Sweden AB' were all part of a group of

companies controlled by an Irish businessman, Mr. John Sean Ignatius

Quinn, and his family ("Quinn Family"). They were part of a group of

Companies known as the "Quinn Group". In April 2011, the "Quinn

Group" defaulted in repayment of loans amounting to 2.8 billion Euro

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 4

taken from one Anglo Irish Bank Ltd. (now known as Irish Bank

Resolution Corporation (In Special Liquidation) ("IBRC"), which is

controlled by the Minister of Finance for the Government of Republic of

Ireland in terms of the Irish Bank Resolution Corporate Act, 2013.

4. Part of default included default by 'Quinn Investments Sweden AB'

under a guarantee furnished to IBRC in respect of such loans. It resulted

in IBRC initiating bankruptcy proceedings in Sweden against 'Quinn

Investments Sweden AB', wherein order was reserved on 21st June, 2011.

5. Subsequent to reserving of such order the Board of Directors of the

'Corporate Debtor' (Mack Soft Tech Private Limited) purported to show

dilution of the Respondent's shareholding in 'Mack Soft Tech Private

Limited' by allegedly issuing 376,301 fresh equity shares to one 'Mecon

FZE', a Dubai Company, for a consideration of only INR 40,71,578/- on

22nd June, 2011. Since then 'Mack Soft Tech Private Limited'- ('Corporate

Debtor') ceased to be a subsidiary of the 'Quinn Logistics India Private

Limited'- ('Financial Creditor').

6. On the date of such issue, the Board of Directors of the 'Quinn

Logistics India Private Limited' ('Financial Creditor') was under control by

the Quinn Family as the Quinn Family was in control of the 'Quinn

Investments Sweden AB' and the 'Quinn Logistics Sweden AB'. Such issue

of shares to 'Mecon FZE' is the subject matter of challenge in Suit No. OS

21 of 2012 filed, inter-alia, by the 'Quinn Logistics India Private Limited'-

('Financial Creditor') before the learned District Judge, Rangareddy Court,

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 5

Hyderabad. Since then certain development has been taken place and

matter is pending in Suit which are not necessary to be taken into

consideration at this stage.

7. The 'Quinn Logistics India Private Limited'-('Financial Creditor') by

its letter dated 15th June, 2017, called upon the 'Mack Soft Tech Private

Limited'- ('Corporate Debtor') to repay the alleged outstanding loan

amount of Rs. 62,90,45,905/- (Sixty-two crores ninety lakh forty-five

thousand nine hundred five only) on or before 30th June, 2017. In

response, the 'Mack Soft Tech Private Limited'-('Corporate Debtor') by

letter dated 29th June, 2017, sought time to verify its records to clarify the

position. According to the 'Mack Soft Tech Private Limited'- ('Corporate

Debtor'), there is no amount outstanding in the books of account of the

'Corporate Debtor' payable to the 'Quinn Logistics India Private Limited'-

('Financial Creditor').

8. Having not received the amount, the 'Quinn Logistics India Private

Limited'-('Financial Creditor') filed an application under Section 7 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B

Code") for initiation of the 'Corporate Insolvency Resolution Process'

against the Mack Soft Tech Private Limited- ('Corporate Debtor').

9. On notice from the Adjudicating Authority (National Company Law

Tribunal), Hyderabad Bench, the 'Mack Soft Tech Private Limited'-

('Corporate Debtor') raised its objections. However, objections were not

accepted by the Adjudicating Authority. By impugned order dated 11th

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 6

August, 2017 passed in CP (IB) No. 97/7/HDB/2017, admitted the

application, order of 'Moratorium' was passed and 'Interim Resolution

Professional' has been appointed with certain directions.

10. Learned Senior Counsel for the Appellant- 'Mack Soft Tech Private

Limited' ('Corporate Debtor') submitted that the Respondent- ('Financial

Creditor') was the parent company of the 'Mack Soft Tech Private Limited'-

('Corporate Debtor'). The books of account of the Appellant- ('Corporate

Debtor') used to be maintained by the Respondent- ('Financial Creditor')

and the common auditor. Since 2011, there being a change in control of

shareholding and management and the current shareholder took control

of the 'Corporate Debtor' and therefore, the Respondent- 'Financial

Creditor' was no longer the parent company of the Appellant- 'Corporate

Debtor'.

11. It was submitted that at the time of takeover (since 2009) the

balance sheet showed a book entry of Rs. 62.9 Crores as owing to the

Respondent- ('Financial Creditor'). In the second suit they have casually

referred to Rs. 62 Crores payable by the Appellant- ('Corporate Debtor')

but had not sought to recover the same in its prayer.

12. Further, according to the Appellant- ('Corporate Debtor'), in respect

of books of account entry of Rs. 62.9 Crores from 2011 to 2017, the

Respondent- ('Financial Creditor') did not treat it as a debt that was due

and payable but merely as a book entry.

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 7

13. It was submitted that the Appellant- ('Corporate Debtor') having

realised that there was no document in support of the accounts for this

entry and in absence of any correspondence, claim or demand the

Appellant changed the entry from its balance sheet and removed the name

of the Respondent- ('Financial Creditor'). Therefore, according to the

Appellant- ('Corporate Debtor'), as per the legal and accounting advice as

the amount was required to be kept on the books until the debt was time

barred, after it became time barred in the year 2016, the amount has not

been reflected.

14. It was submitted that since 2016 there was no demand or

correspondence made by the 'Financial Creditor' in respect of Rs. 62.9

Crores alleged loan and on legal advice the loan has been wrote-off. Even if

any such loan was given, it cannot be shown in the books as a claim, it

being time barred.

15. Further, according to learned Senior Counsel for the Appellant on

15th June, 2017 a demand notice was sent but with no reference to any

loan agreement or document stating how the loan was repayable on the

said date. The notice was sent only with the malicious intention to initiate

insolvency proceedings against the Appellant- ('Corporate Debtor').

16. It was submitted that on 29th June, 2017, the Appellant- ('Corporate

Debtor') informed the Respondent- ('Financial Creditor') that it requires

two-three weeks' time to verify its records. However, without waiting, in a

premeditated manner, they moved an application under Section 7 of the

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 8

'I&B Code' on the ground that the 'Corporate Debtor' defaulted in payment

of debt of Rs. 62.9 Crores.

17. In "M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr.−

2017 SCC OnLine SC 1025", the Hon'ble Supreme Court raised the

question of maintainability of the appeal by the 'Corporate Debtor' after

initiation of 'Corporate Insolvency Resolution Process' and observed:

"11. Having heard learned counsel for both

the parties, we find substance in the plea taken by

Shri Salve that the present appeal at the behest of

the erstwhile directors of the appellant is not

maintainable. Dr. Singhvi stated that this is a

technical point and he could move an application to

amend the cause title stating that erstwhile

directors do not represent the company, but are

filing the appeal as persons aggrieved by the

impugned order as their management right of the

company has been taken away and as they are

otherwise affected as shareholders of the company.

According to us, once an insolvency professional is

appointed to manage the company, the erstwhile

directors who are no longer in management,

obviously cannot maintain an appeal on behalf of

the company. In the present case, the company is

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 9

the sole appellant. This being the case, the present

appeal is obviously not maintainable. However, we

are not inclined to dismiss the appeal on this score

alone. Having heard both the learned counsel at

some length, and because this is the very first

application that has been moved under the Code,

we thought it necessary to deliver a detailed

judgment so that all Courts and Tribunals may

take notice of a paradigm shift in the law.

Entrenched managements are no longer allowed to

continue in management if they cannot pay their

debts."

18. According to the learned Senior Counsel for the Appellant-

'Corporate Debtor', the appeal under Section 61 was maintainable as it

has been filed through Director. Reliance has been placed on the decision

of this Appellate Tribunal in "Steel Konnect (India) Pvt. Ltd. V. M/s.

Hero Fincorp Ltd.− Company Appeal (AT) (Insolvency) No. 51 of

2017", wherein this Appellate Tribunal held that after initiation of

'Corporate Insolvency Resolution Process', the aggrieved parties including

the 'Corporate Debtor' can prefer the appeal under Section 61 of the 'I&B

Code'.

19. It was submitted that the observations of the Hon'ble Supreme

Court in "Innoventive Industries Ltd. (Supra)" is a passing observation

and cannot be held to be law laid down under Article 141 of the

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 10

Constitution of India. However, we are not inclined to deliberate on such

issue as the same very impugned order has been challenged by individual

in the connected appeals. Further, according to us, any observations of

the Hon'ble Supreme Court on the question of law, even if not treated to

be a law laid down under Article 141 of the Constitution of India, is

binding on this Appellate Tribunal.

20. Learned Senior Counsel for the Appellant challenged the impugned

order on the ground that the application did not satisfy the basic

requirements of Section 7.

21. The case of the Appellant- ('Corporate Debtor') is that Form-1

requires that the specific information are to be provided in Part-IV of the

said Form-1. A bare perusal of the statutory requirements would show

that the same is bereft of the information required statutorily to be

provided under Section 7(2) and (3) of the 'I&B Code'.

22. It was further submitted that the Respondent- ('Financial Creditor')

has not filed any documents "in order to prove the existence of financial

debt, the amount and the date of default", as it required in Part-V at Serial

No.8 of the statutory Form-1. The dates on which the alleged debt was

disbursed or payments were made was not disclosed in the statutory

Form-1.

23. It was submitted that the Applicant in terms of Section 7(3) of the

'I&B Code' is required to provide clear proof of default, either maintained

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 11

by an Information Utility or any other additional documents to prove

default of the 'financial debt', which they failed to provide.

24. We have heard the parties and also perused Form 1 (at Page No. 68).

Part IV therein (at Page 71) relates to "Particulars of Financial Debt". The

Respondent- ('Financial Creditor') has shown the amount disbursed by

way of payments made for, and on behalf of the Appellant- ('Corporate

Debtor') between October 2007 and July 2010. In support of which the

table enclosed at Annexure A-6. The amount claimed to be shown as Rs.

62,90,45,905/- and the date of default has been shown as 15th June,

2017, when the 'Corporate Debtor' failed to repay the outstanding loan

amount in spite of notice. A working of the computation of the amount

and days of default has been shown in tabular form and is annexed as

Annexure A-6 (at Page No. 92).

25. In so far as Part-V of Form-1 is concerned, it relates to "Particulars

of Financial Debt (Documents, Records and Evidence of Default)". A

certified copy of the bank statements of the 'Financial Creditor's' HSBC

Account Number have been enclosed as Annexure A-7 thereto. The

'Financial Creditor' has also enclosed a copy of the balance sheets as on

31st December, 2008; 31st December, 2009; 1st January, 2010 to 31st

December, 2010 and 31st March, 2012. The Balance Sheets have been

submitted with the Registrar of Companies on 24th December, 2015 and

9th February, 2017. The 'financial statement' for the year 2015-16 has also

filed with the Registrar of Companies on 10th March, 2017 etc.

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 12

On bare perusal of the aforesaid Part V of Form 1, it shows that the

Form is complete and there is no infirmity in the same.

26. Learned Senior Counsel appearing on behalf of the Appellant-

('Corporate Debtor') submitted that certain payments have been made in

favour of the 'Indu Projects', which has been shown as debt of Appellant.

However, no detail deliberation is required to be made on such issue, as it

has been brought on record that the payments were made by the

Respondent- ('Financial Creditor') to Indu Projects on behalf of the

'Corporate Debtor', which is not in dispute.

27. Learned Senior Counsel for the Appellant- ('Corporate Debtor')

referred to the different pages and submitted that the Respondent-

('Financial Creditor') excess amount of Rs. 62,90,45,905/- has been

shown as default, but such submission cannot be accepted as it also

reflects the amount paid to the Indu Projects is (Rs. 35,88,04,434/-) on

behalf of the Appellant, as the Appellant has failed to pay the same.

28. The Hon'ble Supreme Court in "Innoventive Industries Ltd.

(Supra)" observed:

"28. When it comes to a financial creditor

triggering the process, Section 7 becomes relevant.

Under the explanation to Section 7(1), a default is

in respect of a financial debt owed to any financial

creditor of the corporate debtor- it need not be a

debt owed to the applicant financial creditor. Under

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 13 Section 7(2), an application is to be made under

sub-section (1) in such form and manner as is

prescribed, which takes us to the Insolvency and

Bankruptcy (Application to Adjudicating Authority)

Rules, 2016. Under Rule 4, the application is made

by a financial creditor in Form 1 accompanied by

documents and records required therein. Form 1 is

a detailed form in 5 parts, which requires

particulars of the applicant in Part I, particulars of

the corporate debtor in Part II, particulars of the

proposed interim resolution professional in part III,

particulars of the financial debt in part IV and

documents, records and evidence of default in part

V. Under Rule 4(3), the applicant is to dispatch a

copy of the application filed with the adjudicating

authority by registered post or speed post to the

registered office of the corporate debtor. The speed,

within which the adjudicating authority is to

ascertain the existence of a default from the

records of the information utility or on the basis of

evidence furnished by the financial creditor, is

important. This it must do within 14 days of the

receipt of the application. It is at the stage of

Section 7(5), where the adjudicating authority is to

be satisfied that a default has occurred, that the

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 14

corporate debtor is entitled to point out that a

default has not occurred in the sense that the

"debt", which may also include a disputed claim, is

not due. A debt may not be due if it is not payable

in law or in fact. 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.

Under sub-section (7), the adjudicating authority

shall then communicate the order passed to the

financial creditor and corporate debtor within 7

days of admission or rejection of such application,

as the case may be."

29. In the present case, it is not in dispute that the Respondent-

('Financial Creditor') given loan to the Appellant- ('Corporate Debtor') in

connection with 'Q-City' project. The Appellant- ('Corporate Debtor') has

taken plea that the amount so paid is now time barred which is a different

issue but the Appellant- ('Corporate Debtor') had taken debt from the

Respondent- ('Financial Creditor') has not been disputed. It is not the case

of the Appellant- ('Corporate Debtor') that there is no debt or no default

has occurred in a sense that the debt, which may also be included a

disputed claim is not true. The debt cannot be claimed to be not due being

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 15

payable in law and in fact the Appellant- ('Corporate Debtor') having

accepted that it obtained loan from the Respondent- ('Financial Creditor').

30. The default has occurred as evident from the fact that the

Respondent- ('Financial Creditor') asked for refund of the amount by

notice dated 15th June, 2017. In reply after asking for two weeks' time, the

Appellant- ('Corporate Debtor') failed to pay the amount.

31. This Appellate Tribunal in "M/s. Speculum Plast Pvt. Ltd. Vs. PTC

Techno Pvt. Ltd. ─ Company Appeal (AT) (Insolvency) No. 47 of 2017"

held that the law of limitation is not applicable to 'I&B Code' and observed

as follows:

"68. In view of the settled principle, while we

hold that the Limitation Act, 1963 is not applicable

for initiation of 'Corporate Insolvency Resolution

Process', we further hold that the Doctrine of

Limitation and Prescription is necessary to be

looked into for determining the question whether

the application under Section 7 or Section 9 can be

entertained after long delay, amounting to laches

and thereby the person forfeited his claim.

69. If there is a delay of more than three years

from the date of cause of action and no laches on

the part of the Applicant, the Applicant can

explain the delay. Where there is a continuing

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 16

cause of action, the question of rejecting any

application on the ground of delay does not arise.

70. Therefore, if it comes to the notice of the

Adjudicating Authority that the application for

initiation of 'Corporate Insolvency Resolution

Process' under section 7 or Section 9 has been

filed after long delay, the Adjudicating Authority

may give opportunity to the Applicant to explain

the delay within a reasonable period to find out

whether there are any laches on the part of the

Applicant."

32. In the said case, this Appellate Tribunal also noticed the alternative

submissions regarding application of Limitation Act and held as follows:

"58. Even if it is accepted that the Limitation

Act, 1963 is applicable, though we have held

otherwise, in that case also application under

Section 7 or 9 or 10 cannot be rejected on the

ground that the application is barred by limitation

for being filed beyond three years for following

reasons.

Except Article 137 of Part II i.e. 'other

applications', as quoted below, no other provisions

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 17

of Limitation is applicable in the matter of filing

application under Sections 7 or 9 or 10: -

Part II-OTHER APPLICATION

Description of application Period of Time from Limitation which period begins to run

137. Any other application for Three years When the which no period of right to limitation is provided apply elsewhere in this division. accrues

"

33. There is a continuous cause of action which will be evident from the

books of account of the 'Corporate Debtor', wherein it is accepted the

liability of loan payable to the Respondent- ('Financial Creditor'). There

being a continuous cause of action, the application under Section 7 of the

'I&B Code' cannot be held to be barred by limitation.

34. One of the grounds of challenge is that the Respondent- ('Financial

Creditor') do not come within the meaning of 'Financial Creditor' as

defined under Section 5(7) read with Section 5(8) of the 'I&B Code'.

35. The aforesaid submissions cannot be accepted for the following

reasons.

The main object of the company (Quinn Logistics Private Limited)

has been shown in its Memorandum of Association, relevant portion of

which reads as follows:

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 18

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 19

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 20

36. It is not in dispute that the Appellant- ('Corporate Debtor') was

developing an office complex by the name of Q-City Hyderabad. In the

process of developing such office complex on 23rd October, 2017, the

Respondent- ('Financial Creditor') acquired the majority of the

shareholding of the Appellant- ('Corporate Debtor') for a total

consideration of Rs. 162.73 Crores. Subsequently, in between 2007-2010,

the 'Financial Creditor' granted interest free unsecured loan of Rs. 62.90

Crores to the Appellant- ('Corporate Debtor') for development of 'Q-City'.

37. Grant of loan and to get benefit of development is object of the

Respondent- ('Financial Creditor'), as apparent from their 'Memorandum

of Association'. Thus, we find that there is a 'disbursement' made by the

Respondent- ('Financial Creditor') against the 'consideration for the time

value of money'. The investment was made to derive benefit of

development of 'Q-City', which is the consideration for time value of

money. Thus, we find that the Respondent- ('Financial Creditor') come

within the meaning of 'Financial Creditor' and is eligible to file an

application under Section 7, there being a 'debt' and 'default' on the part

of the 'Corporate Debtor'.

38. For the reasons aforesaid, we are not inclined to interfere with the

impugned order dated 11th August, 2017 passed by the Adjudicating

Authority in CP (IB)No. 97/7/HDB/2017. All other connected appeals

being preferred by the other shareholders of the 'Corporate Debtor' against

same very impugned order dated 11th August, 2017 also fail for the

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017 21

reasons aforesaid. All these appeals are accordingly dismissed. However,

in the facts and circumstances of the case, there shall be no order as to

costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice A.I.S. Cheema] [ Balvinder Singh ] Member (Judicial) Member (Technical)

NEW DELHI 21st May, 2018

/AR/

Company Appeals (AT) (Insolvency) Nos. 143, 175 & 176/2017