M Sai Eswara Swamy vs Siti Vision Digital Media Pvt Ltd

IN THE MATTER OF: M Sai Eswara Swamy ... Appellant Vs. Siti Vision Digital Media Pvt. Ltd. ...Respondent Present: For Appellant:- Mr. P Nagesh, Sr. Adv. with Mr. Harshal Kumar, Mr. Shivam Wadhwa, Advocates For Respondent :- Mr. Arvind Nayar, Sr. Adv. with Mr. Shivam Singh, Mr. Abhinav Singh, Advocates

ORDER

(Virtual Mode)

09.09.2021: Heard Ld. Sr. Counsel for the Appellant. He submits that

the Appellant is a Director and 50% Shareholder of both the Financial

Creditor Companies i.e. Vision Infotel India Pvt. Ltd. and Vision Infracon India

Pvt. Ltd. There is a deadlock in the Financial Creditor Company Mr. K Siva

Rama Krishna Kancharla who holds remaining 50% share of the Financial

Creditors Companies is a Managing Director and his wife holds 4%

shareholding in the Respondent Company (Corporate Debtor). The Appellant

has requested several times to Mr. K Siva Rama Krishna Kancharla to sign

the board resolution to initiate legal proceedings against the Respondent

Company but he refused to sign the Board Resolution. Ld. Adjudicating

Authority has dismissed the Application under Section 7 of the IBC on the

ground that no board resolution authorizing the Petitioner (Appellant herein)

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to file the Petition is filed alongwith the Petition. In this regard, it is submitted

that Shareholder/Director of the Company can initiate action on behalf of the

Company if the same is in the interest of the Company and the Board is not

pursuing the same. As per doctrine of derivative action the Appellant being

50% shareholder and director of the Petitioner Company can maintain the

Petition under Section 7 of the IBC. For this purpose, he placed reliance on

the Judgment of Hon'ble Bombay High Court in the case of Onyx

Musicabsolute Com Pvt. Ltd. Vs. Yash Raj Films Pvt. Ltd. 2008 SCC Online

Bom 636, Judgment of Hon'ble Calcutta High Court in the case of Star Light

Real e-State (Ascot) Morisus Pvt. Ltd. Vs. Jagriti Trade Services Pvt. Ltd. AIR

2018 Cal 173 and Federal Court Reports Dr. Satya Churn Law and

Others Vs. Rameshwar Prasad Bajoria and Others, Civil Appeal No. LXV of

1949

2. Ld. Sr. Counsel for the Appellant submits that Ld. Adjudicating

Authority has dismissed the Petition under Section 7 of the IBC on the other

ground that no Board Resolution was passed to advance loan under Section

186 of the Companies Act, 2013. It is submitted that such board resolution

is not required when the Corporate Debtor in his balance sheet acknowledging

the debt. Thus, Ld. Adjudicating Authority has erroneously dismissed the

Petition as not maintainable.

3. Ld. Sr. Counsel for the Respondent on advance notice vehemently

opposes the admission and supports the impugned order. He submits that

the Central Government (Ministry of Corporate Affairs) vide notification dated

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27.02.2019 S. O. 1091 (E). Exercising power under sub-Section 1 of Section

7 of the IBC notified the persons who may file an application for initiating

CIRP against a Corporate Debtor. In the notification at serial No. (iv) a person

duly authorized by the Board of Directors of a Company is competent to file

Petition under Section 7 of the IBC on behalf of the Financial Creditor. Ld. Sr.

Counsel for the Respondent cited the Judgment of this Appellate Tribunal in

the case of Palogix Infrastructure Pvt. Ltd. Vs. ICICI Bank Ltd. CA (AT) (Ins)

No. 30 of 2017 in which this Tribunal has categorically held that a person

duly authorized by the Company can file the Petition under Section 7 of the

IBC.

4. Ld. Sr. Counsel for the Respondent also submits that the Appeal is not

maintainable as the Appeal is filed by the Shareholder of the Financial

Creditor Company. Such person does not come within the definition of

aggrieved person under Section 61 of the IBC. Therefore, the Appeal is not

maintainable.

5. After hearing Ld. Sr. Counsels for the parties, we have considered the

submissions, undisputedly there is no board resolution authorizing the

appellant to file the petition under Section 7 of the IBC and filed this Appeal

as there is deadlock in the Financial Creditors Company.

6. Now, we have considered whether Director and Shareholder of the

Company can file the Petition under Section 7 of the IBC on the doctrine of

derivative action. We have gone through aforesaid citations relied upon by the

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Appellant. The facts of the cited cases are quite different and in theses

citations it is held that a shareholder has no locus standi to maintain the suit,

affirmed one of the exceptions to the aforesaid rule that where a shareholder

can show that the wrong doers are in control of the defendant company and

hence the company would be unable to maintain the action. So far as the

Petition under Section 7 of the IBC is concerned, there is a specific notification

by the Central Government under sub-section (1) of Section 7 of the IBC that

on behalf of the Financial Creditor a guardian, an executor or administrator

of an estate of a financial creditor, a trustee and a person duly authorized by

the board of directors of a company may file Application for initiation of CIRP

against the Corporate Debtor. In such situation, doctrine of derivative action

cannot be applied in Petition under Section 7 of the IBC. Thus, we are affirmed

the findings of Ld. Adjudicating Authority that there is no Board Resolution

authorizing the petitioner to file the Petition. Therefore, the Petition is not

maintainable.

7. Ld. Adjudicating Authority has also held that no Board Resolution was

filed in regard to advance loan to Corporate Debtor Company as required

under Section 186 of the Companies Act, 2013. In this regard, Ld. Sr. Counsel

for the Appellant submitted that the Corporate Debtor Company in his

balance sheet acknowledged the debt. Therefore, such resolution is not

required to maintain the petition under Section 7 of the IBC. We are not

convinced with this argument. We found no flaw in the findings of Ld.

Adjudicating Authority.

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8. With the aforesaid, we are of the view that Ld. Adjudicating Authority

has rightly held that the Petition is not maintainable. Therefore, no

interference is called for in the impugned order.

Thus, the Appeal is dismissed summarily without notice to the

Respondent. No order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

[Dr. Alok Srivastava] Member (Technical)

SC/md.

Company Appeal (AT) (Ins) No. 706 of 2021