M/S Mist Direct Sales Pvt. Ltd vs Nitin Batra & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 96 of 2024 (Arising out of Order dated 05.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Court-VI, New Delhi in IA/5400/2023, IA 4121/2023, IA 4122/2023, IA 4312/2023 in IB-682/PB/2021)

IN THE MATTER OF: M/s Mist Direct Sales Pvt. Ltd. Through its Authorized Signatory Having Registered Office at: I A, Kanchanjunga Building, I8 Barakhamba Road, New Delhi- 110001 ... Appellant Vs

1. Mr. Nitin Batra S/o Sh. MM Batra HRC Professional Hub, WZ- I 02, Vaibhav Khand, Indirapuram, Ghaziabad, UP- 201010

2. Mr. Gaurav Bharadwaj Batra S/o Late Sh. B.N. Bhardwaj Flat No. CM 3/305 Supertech Capetown, Sector 74, Noida.

3. Col. Gulshan Juneja EA- 1/37 (G.F.) Inderpuri, New Delhi- 110012. ... Respondents

Present: For Appellant: Ms. Sonal Alagh, Mr. Harsh Mishra, Mr. Vijay Agarwal, Mr. N.P.S Chawla, Mr. Sujoy Datta, Mr. Surekh Kant Baxy, Ms. Mahima Shekhawat, Mr. Jaspeet Singh, Advocates.

For Respondent: Mr. Sahil Sethi, Mr. Samriddh Bindal, Mr. Vikash Kumar, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed against the order dated 05.01.2024

passed by National Company Law Tribunal, Court VI, New Delhi, by which

Company Appeal (AT) (Insolvency) No.96 of 2024 1 order IA No.5400/2023 and other IAs filed by the Appellant in IB-

682/PB/2021 were rejected.

2. The Appellant was Respondent No.3 in Section 7 Application filed by

Respondents-Home Buyers. This is second round of Appeal filed by the

Corporate Debtor to resist Section 7 Application filed by homebuyers/

allottees to initiate Corporate Insolvency Resolution Process against the

Corporate Debtor. The brief facts of the case and sequence of events giving

rise to this Appeal need to be noticed first:

(i) The Appellant entered into a Collaboration Agreement on

27.07.2017 with another Company Anand Infoedge to develop

land measuring 100,980 sq. mtrs bearing Plot No.1, Sector

143, Noida. The real estate project could not be completed

within the stipulate time, an Application under Section 7 was

filed by Nitin Batra and other 143 allottees/ Applicants

representing 115 units in the project on 11.10.2021. The

Appellant herein was impleaded as Respondent No.3 in Section

7 Application.

(ii) The Appellant raised objection to the maintainability of Section

7 Application on the ground that threshold limit of 100

allottees for filing of Section 7 Application is not fulfilled in the

Application, hence, the Application deserves to be rejected.

The Adjudicating Authority by order dated 21.10.2022 rejected

the objection raised by the Appellant and held that Section 7

Application is maintainable as it fulfils the threshold limit

Company Appeal (AT) (Insolvency) No.96 of 2024 2 prescribed under Section 7. The Appellant filed an Appeal

being Company Appeal (AT) (Insolvency) No. 1478 of 2022

challenging the order dated 21.10.2022. This Appellate

Tribunal vide its judgment and order dated 17.11.2023

dismissed the Appeal filed by the Appellant and upheld the

order dated 21.10.2022. Against the judgment of this Tribunal

dated 17.11.2023 dismissing the Appeal of the Appellant, the

Appellant filed Civil Appeal before the Hon'ble Supreme Court,

which too was dismissed by Hon'ble Supreme Court in

December 2023, which order was also placed before the

Adjudicating Authority.

(iii) The Appellant filed IA No.4121 of 2023 praying for initiating

proceeding under Section 340 r/w Section 195(1)(b) CrPC

against the Financial Creditor on the ground that Financial

Creditors have filed false, fabricated and forged documents

and affidavits before the Adjudicating Authority. Another IA

No.4122 of 2023 was filed praying that Application under

Section 7 filed by the Financial Creditors be dismissed and

proceedings under Section 340 r/w Section 195(1)(b) CrPC be

initiated and reference be made to High Court under Section

15(2) of the Contempt of Court Act, Another IA No.4312 of

2023 was filed seeking direction to impose a penalty on

Financial Creditors under Section 65 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the "Code").

Company Appeal (AT) (Insolvency) No.96 of 2024 3 The Appellant filed a consolidated Application being IA

No.5400 of 2023, praying for dismissal of Section 7 Application

and to initiate proceedings under Section 340 r/w Section

195(1)(b) of CrPC and seeking direction to impose penalty

under Section 65. In the Applications filed by Appellant, a joint

reply was filed by Respondent Nos.1 to 3, who were the

Authorised Representatives of Applicants, which reply was

filed in IA No.5400 of 2023.

(iv) The Adjudicating Authority heard the parties on the

Applications and by the impugned order dated 05.01.2024,

rejected the IAs filed by the Appellant. Aggrieved by which

order, this Appeal has been filed.

3. We have learned Counsel for the parties and have perused the

records.

4. The learned Counsel for the Appellant challenging impugned order,

contends that affidavits filed by six Applicants were forged affidavits and

these six Applicants, who were the residents of Australia, never came to

sworn the affidavits and affidavits were shown to have sworn at Gautam

Buddh Nagar, UP. There is no entry in the Register of Nortary of the

aforesaid affidavits. It is submitted that affidavits were filed in support of

Section 7 Application claiming that those six Applicants, authorised

Respondent Nos.1, 2 and 3 to prosecute the Application on their behalf. It

is further submitted that all the affidavits are shown to have been sworn

on 25.08.2021 whereas, Application under Section 7 was filed much after

Company Appeal (AT) (Insolvency) No.96 of 2024 4 in October 2021. There were no corresponding entries by the Nortary in

the Register when the affidavits were sworn. It is further submitted that

one of the Applicant Shri Ajay Khajuria, who is Application No.106 has

given a declaration that he has not signed the affidavit, which was filed

before the Adjudicating Authority, since there is visible difference in his

signature. The learned Counsel for the Appellant submits that the

aforesaid material information were not before the Appellant earlier and it

came to its knowledge subsequently. Hence, the Applications were filed.

Fraud or forgery vitiated the entire proceedings and Adjudicating Authority

committed error in refusing to direct for investigation under Section 340

CrPC.

5. The learned Counsel for the Respondent refuting the submissions of

the Appellant submits that there was no deficiency in the Application filed

under Section 7 and the requirement of law is that Application has to be

endorsed by 100 allottees. Affidavits, which is claimed by Appellant to be

forged were the affidavits authorizing Respondent Nos.1, 2 and 3 to

prosecute the Application. The allegations made in the IAs are that they

have not sworn affidavits, but none of them denied their authorization.

Further, fresh additional affidavits were filed before the Adjudicating

Authority by the aforesaid six Applicants reiterating their averments.

Hence, there was no ground for directing enquiry under Section 340 CrPC.

It is further submitted that insofar as sworning of the affidavits prior to

filing of the Application is concerned, there is no defect in the Application.

The mere fact that Application was subsequent to sworning of the affidavit

Company Appeal (AT) (Insolvency) No.96 of 2024 5 does not in any manner make it deficient. In so far as affidavit of Shri Ajay

Khajuria is concerned, it is submitted that Ajay Khajuria was Applicant

No.106, who subsequently filed an Application to withdraw his claim on

the ground that he has settled with the Appellant. At the time of filing of

withdrawal Application, no averment was made that he has not sworn the

affidavit and after withdrawing from Section 7 Application, he is now siding

with the Appellant and making allegation. It is submitted that the

Appellant is adopting dilatory tactics to delay the disposal of Section 7

Application, which is pending for last more than two years. The Appellant

has challenged the maintainability of Section 7 Application up to the

Hon'ble Supreme Court unsuccessfully and filing of these IAs are nothing

but an attempt to delay the disposal of Section 7 Application.

6. We have considered the submissions of the learned Counsel for the

parties and have perused the record.

7. From the facts as noticed above, it is clear that Section 7 Application

was filed by 143 Applicants on 11.10.2021. The Appellant was impleaded

as Respondent No.3 in Section 7 Application, who opposed the

maintainability of the Application on the ground that threshold limit as

required under Section 7 of the Code is not fulfilled and the Application is

not made by 100 valid allottees. The said objection raised by the Appellant

was rejected by the Adjudicating Authority vide its order dated 21.10.2022,

against which order Company Appeal (AT) (Insolvency) No.1478 of 2022

was filed by the Appellant, which was decided by this Tribunal on

17.11.2023. In the Appeal, one of the issues framed was whether Section

Company Appeal (AT) (Insolvency) No.96 of 2024 6 7 Application filed by the allottees fulfils the threshold as prescribed under

the IBC. Paragraph-9 of the judgment noticed the issues framed in the

Appeal, which are as follows:

"9. Three main questions which arise for consideration in this Appeal are:-

(i) Whether the joint application under Section 7 against 'Anand Infoedge Pvt. Ltd.', 'Mist Avenue' and 'Mist Direct' is maintainable? Three Respondents- Appellants herein being separate corporate entities.

(ii) Whether Section 7 Application filed by the allottees fulfils the threshold as prescribed under the IBC?

(iii) Whether while scrutinizing the claims of each applicants of joint application filed under Section 7, it has to be established that the financial debt exist against each applicant in which default has been committed and the claim of the applicants is not barred by limitation and applicants fulfil all eligibility of valid allottee who is entitled to file Section 7 application?"

8. This Tribunal considered the Issue Nos.1, 2 and 3 and by detailed

judgment held that Application is fully maintainable. In paragraphs 46

and 47, following was held:

"46. We thus are of the view that the Adjudicating Authority did not commit any error in returning the finding that threshold as required by Section 7(1), second proviso is fulfilled. In the present case, the Application under Section 7 is maintainable and objection that application is not maintainable on the ground that it does

Company Appeal (AT) (Insolvency) No.96 of 2024 7 not fulfil the threshold as provided under Section 7(1) Second Proviso has righty been rejected.

47. In view of the fore-going discussions, we are satisfied that no error has been committed by the Adjudicating Authority in holding that application under Section 7 filed by the Respondents allottees is maintainable. We thus do not find any grounds raised in these Appeals to interfere with the Impugned Order dated 21st October, 2022 passed by the Adjudicating Authority, in result, all the Appeals are dismissed."

9. Against the order passed by this Tribunal on 17.11.2023, an Appeal

was filed in the Hon'ble Supreme Court, which Appeal came to be dismissed

by Hon'ble Supreme Court by order dated December 2023. The order of

Hon'ble Supreme Court has been quoted in paragraph 6 of the impugned

order by the Adjudicating Authority, which is as follows:

"After the application under Section 7 is heard and disposed of on merits, should it become necessary to do so, the parties would be at liberty to take recourse to all appropriate proceedings in accordance with law. At that stage, should it become so necessary, this Court will enquire into both the merits and maintainability. However, we also clarify that the issue of maintainability shall stand concluded by the impugned order dated 17 November 2023 insofar as the National Company Law Tribunal and NCLAT is concerned.

Since the application under Section 7 is pending for over two years, we request the NCLT to take up the application at the earliest possible date and to endeavour an expeditious disposal within two months."

Company Appeal (AT) (Insolvency) No.96 of 2024 8

10. The above facts indicate that Appellant has questioned the

maintainability of Section 7 Application on the ground of threshold and

contested the matter upto Hon'ble Supreme Court unsuccessfully. The IAs,

which have been filed by the Appellant before the Adjudicating Authority in

August 2023 and October 2023, are nothing but another attempt to resist

Section 7 Application and delay the disposal. The Adjudicating Authority

in the impugned order has made strong observation against the Appellant

and has clearly found that intention of the Applicant is malafide to delay

the adjudication of Section 7 Application. In paragraph 10 of the impugned

order, following has been observed by the Adjudicating Authority:

"10. In light of the above, we find no merit in the present Application filed for dismissal of IB-682/PB/2021 which a Section 7 Application. The present Application appears to be misleading, filed only for the purpose of delaying the adjudication of IB682/PB/2021. The applicant has failed to appreciate that the intent behind classification of homebuyers as "Financial Creditor" by the legislature was to enable homebuyers to participate in the insolvency resolution process in a constructive and egalitarian manner. The Applicant is insisting on dismissal of the Section 7 Petition even after the same has been held maintainable by the Hon'ble NCLAT vide order dated 17.11.2023 and the Hon'ble Supreme Court vide order dated 11.12.2023 has held that the issue of maintainability shall stand concluded by the order dated 17.11.2023 insofar as the Adjudicating Authority and NCLAT are concerned. The malafide intention of the Applicant to delay the adjudication of the Section 7

Company Appeal (AT) (Insolvency) No.96 of 2024 9 Petition is also evident from the fact that the Applicant never raised this contention of affidavits being forged during the adjudication of maintainability of the Section 7 Petition neither before this Adjudicating Authority nor before the Hon'ble NCLAT."

11. We now proceed to notice the submissions advanced by learned

Counsel for the Appellant, which were contained in the Applications. It has

been stated before the Adjudicating Authority that the consolidated IA was

filed by the Applicant being IA No.5400 of 2023, which contains all

allegations and prayers made in the earlier Applications, which allegations

were heard and decided. The prayers made in IA No.5400 of 2023 have

been quoted in paragraph-1 of the impugned order, which are as follows:

"(a) Pass necessary orders and directions, thereby dismissing the present Company Petition filed under Section 7 of IBC by the Applicants/Financial Creditors on the ground of playing fraud on this Tribunal;

(b) Initiate proceeding u/s Section 340 r/w section 195(1)(b) CrPC and other provisions of law against the Applicants/Financial Creditors;

(c) Impose penalty u/s 65 of the IB Code 2016, on the Applicants/ Financial Creditors for initiating proceedings fraudulently and with malicious intent;

(d) Take the Information provided by the Respondent No.3 to this Tribunal on record, for making a reference to the Hon'ble High Court under Section 15 (2) of the Contempt of Court Act, 1972, for initiating criminal contempt proceedings against the Applicants/Financial Creditors;

Company Appeal (AT) (Insolvency) No.96 of 2024 10

(e) Pass necessary orders and directions thereby deciding the present Application as a preliminary issue;

(f) Pass necessary orders and directions, thereby deciding the present Application first, before proceeding with the main company petition as the same is in relation to administration of justice;

(g) Take such other actions and pass order as this Tribunal may deem fit and proper in the interest of justice."

12. There are basically three grounds on which the impugned order is

challenged. The first ground of challenge by the Appellant is that the

affidavits filed by six Applicants were forged affidavits as they are resident

of Australia and it is not shown that they have come to sworn the affidavit

at Gautam Buddh Nagar, UP and the Notary has given a certificate that

these affidavits were not entered into the Register. It is to be noted that the

Application, which was filed by the Applicants was Application, which was

signed by Respondent Nos.1, 2 and 3, the Authorised Representative of

homebuyers/ allottees. Copy of the Application has been brought on record

by the Appellant itself as Annexure A-2 to the Appeal, which indicate that

Application was jointly filed by 143 Applicants, which Application was

signed by only three allottes, who claimed to be representative/ power of

attorney holder of the other Financial Creditors.

13. The three Respondents, who claimed to be Authorised

Representatives of the homebuyers and who have signed the Application,

have filed their joint affidavit in reply to IA No.5400 of 2023, where they

Company Appeal (AT) (Insolvency) No.96 of 2024 11 reiterated that they are the Authorised Representative of other Financial

Creditors and the reply has been drafted on instructions of other Financial

Creditors. It is also on the record that those six Applicants, who are

claimed to be sworn false affidavit, have also filed subsequently another

affidavit before the Adjudicating Authority on 24.08.2023. The said fact

has been pleaded by the Appellant in List of Dates and events at 2nd Item

at page-9, which is to the following effect:

"24.08.2023 6 applicants filed their fresh affidavits on 24.08.2023. Given the fact that our application u/s 340 Cr.P.C. was filed on 01.08.2023, the fresh affidavits were filed subsequently at a belated stage after filing of an application under sec 340 cannot said to be a curable defect but admission on part of the financial creditors that misleading affidavits were initially filed before NCLT were subsequently rectified by filing fresh affidavits."

14. When six Applicants against whom allegations were made that they

have not sworn the affidavit, have filed a fresh affidavit dated 24.08.2023

reiterating that they have authorised Respondent Nos.1, 2 and 3 to

represent them in the proceeding, we do not find any reason for taking any

the proceeding any further by the Adjudicating Authority. The Adjudicating

Authority has rightly taken the view that present is not a case where any

investigation under Section 340 CrPC needs to be initiated. The

Adjudicating Authority has relied on judgment of Hon'ble Supreme Court

Company Appeal (AT) (Insolvency) No.96 of 2024 12 in Amarsang Nathaji v. Hardik Harshadbhai Patel & Ors. in paragraph

8 of the impugned judgment, which is as follows:

"8. The Applicant has also alleged that false affidavits have been filed by the Respondents and that the affidavits are not notarized. The Applicant has also relied on Section 340, CrPC, 1973 and various judgements of High Courts and Supreme Court to support his contention that the Petition u/s 7, IBC, 2016 should be dismissed on account of such false affidavits. At this juncture, reliance is placed on the judgement of the Hon'ble Supreme Court in the matter of Amarsang Nathaji v. Hardik Harshadbhai Patel & Ors. [Civil Appeal No. 11120 of 2016] wherein it was held as follows:

"The mere fact that a person has made a contradictory statement in a judicial proceeding is not by itself always sufficient to justify a prosecution under Sections 199 and 200 of the Indian Penal Code (45 of 1860) (hereinafter referred to as "the IPC"); but it must be shown that the defendant has intentionally given a false statement at any stage of the judicial proceedings or fabricated false evidence for the purpose of using the same at any stage of the judicial proceedings. Even after the above position has emerged also, still the court has to form an opinion that it is expedient in the interests of justice to initiate an inquiry into the offences of false evidence and offences against public justice and more specifically referred in Section 340(1) of the CrPC, having regard to the overall factual matrix as well as the probable consequences of such a prosecution."

Company Appeal (AT) (Insolvency) No.96 of 2024 13

15. The Hon'ble Supreme Court in the above case of Amarsang Nathaji

has held that Court has to form an opinion that it is expedient in the

interests of justice to initiate an inquiry into the offences of false evidence

and offences against public justice and more specifically referred in Section

340(1) CrPC. The Adjudicating Authority has rightly not initiated

proceeding under Section 340 of CrPC. In view of the facts of the present

case, we see no error in decision of the Adjudicating Authority not to direct

any action under Section 340(1) of the CrPC.

16. Secondly, insofar as prayer of the Appellant that proceeding under

Section 65 be made and penalty be imposed on the Financial Creditors, it

is relevant to quote Section 65, which is as follows:

"65. Fraudulent or malicious initiation of proceedings. -

(1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.

(2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees.

(3) If any person initiates the pre-packaged insolvency resolution process--

Company Appeal (AT) (Insolvency) No.96 of 2024 14

(a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or

(b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees."

17. Penalty under Section 65 of the Code can be imposed when there is

fraudulent or malicious initiation of proceedings. In the present case, the

Applicants who are allottees in real estate project have filed the Application

to protect their rights and it is not disputed that they are allottees of the

project, which is developed by the Appellant. There is no ground to hold

that initiation of Section 7 proceedings by allottees was fraudulent or

malicious. Hence, no error has been committed by the Adjudicating

Authority in rejecting the prayer of the Appellant to impose the penalty

under Section 65.

18. Now coming to the third ground of attack that one of the Applicant,

i.e. Ajay Khajuria has given a certificate that he has not signed the affidavit,

which was filed along with the Application. In the joint reply, which was

filed by Respondent Nos.1, 2 and 3 to the IA No.5400 of 2023, the detailed

facts regarding Ajay Khajuria has been stated. The Respondent Nos.1 to 3

have pleaded that Shri Khajuria had filed IA No.3755 of 2022, claiming that

due to out of Court settlement of claims with the Corporate Debtor,

Khajuria may be permitted to withdraw his claim. On which Application

Company Appeal (AT) (Insolvency) No.96 of 2024 15 an order was passed on 12.08.2022 in IA No.3755 of 2022, which is as

follows:

"The Applicant has submitted that during the pendency of the present matter the entire claim and outstanding debt of the Applicant against the Corporate Debtor have been settled, satisfied and extinguished by an out of Court settlement dated 21.03.2022 and thus as on date there exists no remaining or subsisting claim of the Applicant against the Corporate Debtor. Therefore, the Applicant is desirous of withdrawing the claim filed against the Corporate Debtor under Section 7 of the Code. Accordingly, the Applicant has also submitted that he revokes the Authority granted to Mr. Nitin Batra, Col Gulshan Singh Joneja and Mr. Gaurav Bhardwaj.

In view of the above, the Applicant Mr. Ajay Khajuria, is permitted to withdraw his claim in the Section 7 application.

19. It is relevant to notice that when Khajuria has withdrawn the claim,

there was no such allegation made in the IA No.3755 of 2022 that he has

not signed the affidavit. Khajuria has given the letter to Corporate Debtor

that his signatures in the affidavit, which was filed along with the

Application are dissimilar. Khajuria has not even filed an affidavit saying

that he did not sign the affidavit, which was earlier filed. More so, when

Khajuria has withdrawn his claim and he is no longer part of Section 7

Application, any certificate given by him to the Corporate Debtor, does not

give any ground to the Appellant to challenge the proceeding. The

Company Appeal (AT) (Insolvency) No.96 of 2024 16 Adjudicating Authority thus, considered the said ground and rightly

overruled the same.

20. The learned Counsel for the Appellant has also placed reliance on the

judgment of Hon'ble Supreme Court in Ajit Kr. Bhuyan and Ors. vs.

Debajit Das and Ors - (2019) 15 SCC 275 stating that even if fraud is

brought with delay, it cannot be ignored. He has relied on paragraph 28 of

the judgment, which is as follows:

"28. That apart, there is one more reason for coming to the conclusion that the Division Bench of the High Court was in error in saving Respondent 1 on the premise that the writ petitions suffered from delay and laches. In fact, the Association had submitted a representation to the then Chief Minister. Going by the nature of allegations, the Chief Minister rightly acted thereupon and referred the matter to a committee which, after examining the matter, had also given its report stating that the promotion of Respondent 1 was against the Rules. This provides reasonable explanation for delay, if any."

21. The present is not a case that the Applications filed by the Appellant

are rejected by the Adjudicating Authority on the ground of delay, rather

the Adjudicating Authority has entered into the allegations and found the

allegations not sufficient to grant any relief. Hence, the judgment of the

Hon'ble Supreme Court relied by the Appellant, does not help the Appellant

in the present case.

22. In view of the foregoing discussions and conclusions, we are of the

view that Adjudicating Authority did not commit any error in rejecting IAs

Company Appeal (AT) (Insolvency) No.96 of 2024 17 filed by the Appellant praying for various reliefs as extracted above. The

Adjudicating Authority has rightly observed that the intention of the

Appellant is malfide and objections are only to delay the adjudication of

Section 7 Application. We do not find any error in the impugned order, as

no ground is made out to interfere with the order, the appeal is dismissed.

No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

[Mr. Arun Baroka] Member (Technical)

NEW DELHI

29th January, 2024

Ashwani

Company Appeal (AT) (Insolvency) No.96 of 2024 18