Manish Jaju vs Malharshanti Enterprises & Ors

Comp. App. (AT) (Ins) No. 545 of 2023 & I.A. No. 1768 of 2023

(Arising out of the Order dated 16.02.2023 passed by the National Company Law Tribunal, Mumbai Bench, Court- III in IA No. 47 of 2021 in Company Petition being C.P.(IB) - 3753(MB)/2018)

IN THE MATTER OF:

Mr. Manish Jaju Resolution Professional of CAN Enterprises Pvt Ltd having his address at D 502, Neelkanth Business Park, Vidyavihar, Mumbai - 400086 (Resolution Professional of Original Corporate Debtor) ...Appellant

Versus

1. Malharshanti Enterprises Through its sole Proprietor Mr. Sunil Pande Having office at 59A/12, nigari Niwara Parishad Gen. A. K. Vaidya Mag (Film City), Road, Goregaon (West), Mumbai - 400 053 (Original Applicant /Operational Creditor) ...Respondent No. 1

2. Mr. Naresh Sevantilal Shah, Having address at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel Vile Parle (E), Mumbai - 400 057 (Suspended Director) ...Respondent No. 2

3. Charu Naresh Shah Having address at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel Vile Parle (E), Mumbai - 400 057 (Suspended Director) ...Respondent No. 3

Present

For Appellant: Mr. Gauhar Mirza, Bhumika Kapoor, Adv. -2- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

For Respondents : Mr. Anshuj Dhingra, Kartik Sethi, Shubhamngda Singh, Muskan Bagga, Adv. for R1 With

Comp. App. (AT) (Ins) No. 598 of 2023 & I.A. No. 1992 of 2023

(Arising out of the Order dated 16.02.2023 passed by the National Company Law Tribunal, Mumbai Bench, Court- III in IA No. 47 of 2021 in Company Petition being C.P.(IB) - 3753(MB)/2018)

IN THE MATTER OF:

Paton Constructions Pvt Ltd, a Company incorporated under the provisions of the Companies Act, 1956, having its registered office at A1, 1st Floor, Sagar Complex Co-Operative Housing Society Ltd, M.G. Road, Vile Parle (E), Mumbai - 400 057 ...Appellant

Versus

1. M/s Malharshanti Enterprises, Through its Sole Proprietor Mr. Sunil Pande, having his office at 59A/12, Nagari Niwara Parishad, Gen. A.K. Vaidya Marg (Film City) Road, Goregaon (W), Mumbai - 400 053. ...Respondent No. 1

2. CAN Enterprises Pvt Ltd, a company incorporated under the provisions of the Companies Act, 1956, having its registered address at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel, Vile Parle (E), Mumbai - 400 057. ...Respondent No. 2

3. Naresh Sevantilal Shah, s/o Sevantilal Shah, aged: 57 yrs, residing at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel, Vile Parle (E), Mumbai - 400 057. ...Respondent No. 3 -3- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

4. Charu Naresh Shah, w/o Naresh Shah, aged: 56 yrs, residing at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel, Vile Parle (E), Mumbai - 400 057. ...Respondent No. 4 5. Jitendrakumar Rambaran Yadav, erstwhile Interim Resolution Professional, having his address at 11, Singh House, 2nd Floor, 23 Ambalal Doshi Marg, Besides BSE Building, Fort, Mumbai - 400 001. ...Respondent No. 5 6. Manish Jaju, Resolution Professional of CAN Enterprises Pvt Ltd, having his address at D-502, Neelkanth Business Park, Vidyavihar (W), Mumbai - 400 086 ...Respondent No. 6

Present

For Appellant: Mr. Akshay Goel, Harsh Jadon, Adv.

For Respondents : Mr. Anshuj Dhingra, Kartik Sethi, Shubhamngda Singh, Muskan Bagga, Adv. for R1 With

Comp. App. (AT) (Ins) No. 600 of 2023 & I.A. No. 1996, 1997, 1999 of 2023

(Arising out of the Order dated 16.02.2023 passed by the National Company Law Tribunal, Mumbai Bench, Court- III in IA No. 47 of 2021 in Company Petition being C.P.(IB) - 3753(MB)/2018)

IN THE MATTER OF:

1. Mr. Naresh Sevantilal Shah, Having address at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel Vile Parle (E), Mumbai - 400 057 -4- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

(Suspended Director) ...Appellant No. 1

2. Charu Naresh Shah, w/o Naresh Shah, aged: 56 yrs, residing at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel, Vile Parle (E), Mumbai - 400 057. ...Appellant No. 2

Versus

1. Malharshanti Enterprises Through its sole Proprietor Mr. Sunil Pande Having office at 59A/12, nigari Niwara Parishad Gen. A. K. Vaidya Mag (Film City), Road, Goregaon (West), Mumbai - 400 053 (Original Applicant /Operational Creditor) ...Respondent No. 1

2. CAN Enterprises Pvt Ltd, a company incorporated under the provisions of the Companies Act, 1956, having its registered address at Flat No. 103, Thosar House, Hanuman X Road No. 1, Near Shiv Leela Hotel, Vile Parle (E), Mumbai - 400 057. ...Respondent No. 2

3. Jitendrakumar Rambaran Yadav, erstwhile Interim Resolution Professional, having his address at 11, Singh House, 2nd Floor, 23 Ambalal Doshi Marg, Besides BSE Building, Fort, Mumbai - 400 001. ...Respondent No. 3

4. Manish Jaju, Resolution Professional of CAN Enterprises Pvt Ltd, having his address at D-502, Neelkanth Business Park, Vidyavihar (W), Mumbai - 400 086 ...Respondent No. 4

5. Paton Constructions Pvt Ltd, a Company incorporated under the provisions of the Companies Act, 1956, -5- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

having its registered office at A1, 1st Floor, Sagar Complex Co-Operative Housing Society Ltd, M.G. Road, Vile Parle (E), Mumbai - 400 057 ...Respondent No. 5

Present

For Appellant: Ms. Anjali Sharma, Ms. Kanishka Sharma, Advocates. Mr. Neeraj Malhota, Sr. Advocate, Mr. Ashutosh Gupta, Mr. Gaurav Rana, Mr. Nimesh, Mr. Ajitesh Kumar, Advocates

For Respondents : Mr. Akshay Goel, Harsh Jadon, Adv. for R5 Mr. Anshuj Dhingra, Kartik Sethi, Shubhamngda Singh, Muskan Bagga, Adv. For R1

JUDGEMENT

(17.09.2024)

NARESH SALECHA, MEMBER (TECHNICAL)

1. These three Appeals have been filed against the common Impugned Order

dated 16.02.2023 passed by the National Company Law Tribunal, Mumbai

Bench, Court-III (in short 'Adjudicating Authority') in IA No. 47 of 2021 in

Company Petition being C.P. (IB) - 3753(MB)/2018, which was filed by

Malharshanti Enterprises Limited ('Operational Creditor') against the CAN

Enterprises Pvt. Ltd. ('Corporate Debtor').

2. In Company Appeal (AT) (Ins.) No. 545 of 2023, Mr. Manish Jaju,

Resolution Professional of the Corporate Debtor is the Appellant. The

Respondents in this appeal are Malharshanti Enterprises Limited is the Corporate -6- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Debtor (Respondent No. 1), Naresh Sevantilal Shah (Respondent No. 2) and

Charu Naresh Shah (Respondent No. 3) who are Suspended Directors of the

Corporate Debtor.

The Company Appeal bearing Company Appeal (AT) (Ins.) No. 545 of

2023 has been filed by the Mr. Manish Jaju who has challenged the Impugned

Order and has sought the following reliefs before this Appellate Tribunal

contained in Para 21 of this appeal :-

"a. That this Hon'ble Tribunal be pleased to set aside the order dated 16th February, 2023 passed in IA No. 47 of 2021 in CP No. 3753 of 2020.

b. For Costs;

c. For such further and other reliefs, as this Hon'ble Tribunal may deem fit and proper in the nature and circumstances of the case." SIC...

The Resolution Professional has challenged the Impugned Order on the merits.

3. The Company Appeal bearing Company Appeal (AT) (Ins.) No. 598 of

2023 has been filed by Paton Construction Pvt. Ltd. the Unsecured Financial

Creditor of the Corporate Debtor against the Malharshanti Enterprises Limited

who is the Operational Creditor of the Corporate Debtor and who originally filed

an application under Section 9 of the Insolvency & Bankruptcy Code, 2016 (in -7- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

short 'Code') which was admitted by the Adjudication Authority vide order dated

27.01.2020.

The Appellant stated that the based on loan agreement entered between the

Paton Construction Pvt. Ltd. and the Corporate Debtor on 20.08.2019, the

Appellant gave Rs. 1 Lakh as loan and has filed claimed for Rs. 1,05,877/- but

the Impugned Order in Para 20 has been held against the Applicant i.e., Paton

Construction Pvt. Ltd., which reads as under :-

"It is appropriate to mention here that the RP herein filed an application bearing I.A. No. 375/2021 which is also pending before this Bench for withdrawal of the CIRP order under Section 12(A) of the Code on the ground of purported settlement entered into by the Corporate Debtor with the sole COC Member, M/s Paton Construction Pvt. Ltd. who is an unsecured Financial Creditor from whom the Corporate Debtor alleged to have borrowed an amount of Rs. 1,58,077/- recently before passing CIRP order which is an ingenious idea of Respondent Nos. 2 and 3 to bring out the Corporate Debtor from the clutches of CIRP order which attained finality from a back-door entry."

(Emphasis Supplied)

4. The Applicant has also sought the following reliefs :-

"a. That this Hon'ble Tribunal be pleased to set aside the order dated 16th February, 2023 passed by the Adjudicating -8- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Authority, National Company Law Tribunal, Mumbai Bench, in IA No. 47 of 2021 in CP (IB)/ 3753 (MB)/2018. b. For Costs;

c. For such further and other reliefs, as this Hon'ble Tribunal may deem fit and proper in the nature and circumstances of the case."

5. The third Company Appeal bearing Company Appeal (AT) (Ins.) No. 600

of 2023 has been filed by Naresh Sevantilal Shah and Charu Naresh Shah who

are Suspended Directors of the Corporate Debtor against the Malharshanti

Enterprises Limited who is the ('Operational Creditor') as Respondent No. 1,

CAN Enterprises Pvt. Ltd. ('Corporate Debtor') as Respondent No. 2,

Mr. Jitendrakumar Rambaran Yadav, Erstwhile Interim Resolution Professional

of the Corporate Debtor as Respondent No. 3, Mr. Manish Jaju who is the

Resolution Professional of the Corporate Debtor as Respondent No. 4 and Paton

Construction Pvt. Ltd., the Financial Creditor as Respondent No. 5.

The Applicants in this appeal have sought following reliefs:-

"a. That this Hon'ble Tribunal be pleased to set aside the order dated 16th February, 2023 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench, in IA No. 47 of 2021 in CP (IB)/ 3753 (MB)/2018. b. For Costs;

c. For such further and other reliefs, as this Hon'ble Tribunal may deem fit and proper in the nature and circumstances of the case."

-9- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

6. At this stage, from above three appeals we note that the reliefs sought in all

these three appeals i.e., by Resolution Professional, Suspended Directors of the

Corporate Debtor as well as the Unsecured Financial Creditor are exactly same.

7. Thus, it would be necessary for us to take into account the background of

the case under which the original Corporate Insolvency Resolution Process

('CIRP') was initiated by the National Company Law Tribunal, Mumbai Bench,

Court-IV in Company Petition being C.P. (IB) 3753(MB)/C-IV/2018 on

27.01.2020 under Section 9 of the Code, on application filed by Malharshanti

Enterprises Limited ('Operational Creditor') against the Corporate Debtor. The

Operational Creditor issued demand notice dated 02.12.2017 under Section 8 of

the Code which was replied by the Corporate Debtor on 13.12.2017 denying the

operational debts as well as raising issues regarding pre-existing disputes.

8. We also note that after going in detail, the Adjudicating Authority admitted

the application of Malharshanti Enterprises Limited ('Operational Creditor')

appointing Mr. Jitendrakumar Rambaran Yadav as Interim Resolution

Professional.

9. The order dated 27.01.2020 passed by National Company Law Tribunal,

Mumbai Bench, Court-IV in Company Petition being C.P. (IB) 3753(MB)/C-

IV/2018 was challenged by Naresh Sevantilal Shah who is the Suspended

Directors of the Corporate Debtor before this Appellate Tribunal in Company

Appeal (AT ) (Ins.) No. 415 of 2020 which was dismissed by this Appellate -10- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Tribunal vide judgment dated 19.01.2021 upholding the National Company Law

Tribunal, Mumbai Bench, Court-IV order dated 27.01.2020. The same was

challenged by Naresh Sevantilal Shah before the Hon'ble Supreme Court of India

vide Civil Appeal No. 822 of 2021 which was dismissed as withdrawn by the the

Hon'ble Supreme Court of India vide order dated 10.03.2021 and the following

order was passed :-

"Mr. Salman Khurshid, learned senior counsel for the appellant requests permission to withdraw this appeal to pursue other remedies.

Permission is granted.

The Civil Appeal is, accordingly, dismissed as withdrawn with aforesaid liberty."

(Emphasis Supplied)

10. Thus, we note that the case has been contested against the admission of

Section 9 application against the Corporate Debtor by Suspended Director at all

level including, this Appellate Tribunal as well as the Hon'ble Supreme Court of

India and at all places, the judgement came in favour of the Operational Creditor.

11. In this background, we will look into now challenged Impugned Order

dated 16.02.2023. The present Resolution Professional Mr. Manish Jaju rejected

the claims of Operational Creditor in totality and also admitted the claims of one

Unsecured Financial Creditor i.e., Paton Construction Pvt. Ltd. for Rs. 1,05,877/-

and changed the Constitution of Committee of Creditor ('CoC'). It is observed -11- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

that after initiation of CIRP, public announcement dated 22.02.2020 was issued

by Erstwhile IRP and Operational Creditor filed its claim along with proof on

06.03.2020 and the same was admitted.

12. From the Impugned Order, we note that Mr. Manish Jaju was appointed as

Resolution Professional by an order dated 09.06.2020 passed by Principal Bench

of NCLT in Interlocutory Application No. 1007 of 2020 replacing Erstwhile IRP

Mr. Jitendrakumar Rambaran Yadav.

Malharshanti Enterprises Limited (Operational Creditor) on 02.07.2020

filed an Interlocutory Application bearing I.A. No. 1241 of 2020 before the

Adjudicating Authority, inter-alia, challenging the composition of Paton

Construction Pvt. Ltd. as Single Member of CoC.

13. Mr. Manish Jaju, Resolution Professional, through an e-mail dated

05.07.2020 to M/s Malharshanti Enterprises Limited (Operational Creditor),

called upon to submit additional documents in support of claims which were

already admitted by the Erstwhile IRP and Malharshanti Enterprises Limited,

(Operational Creditor) replied to the Resolution Professional Mr. Manish Jaju on

13.07.2020 in response to his e-mail dated 05.07.2020 but the Resolution

Professional again issued a letter and an e-mail dated 04.09.2020 to Malharshanti

Enterprises Limited (Operational Creditor) again calling upon the Malharshanti

Enterprises Limited (Operational Creditor) to submit additional documents and

finally the Resolution Professional Mr. Manish Jaju addressed an e-mail dated -12- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

02.12.2020 to Malharshanti Enterprises Limited (Operational Creditor) that the

subject "claim document" "claim submitted by you is not accepted by Resolution

Professional", and the Resolution Professional rejected the claims of the

Operational Creditor Malharshanti Enterprises Limited (Operational Creditor)

despite clear adjudication by the Adjudicating Authority, upheld by this Appellate

Tribunal and the Hon'ble Supreme Court in favour of the Operational Creditor.

14. We note that the Adjudicating Authority has examined all contentions and

documents of various parties i.e, Malharshanti Enterprises Limited (Operational

Creditor), the Corporate Debtor, the Suspended Directors of the Corporate

Debtor, the Resolution Professional and sole Financial Creditors, while passing

the Impugned Order dated 16.02.2023.

15. We note that the issue of the pre-existing disputes raised by the Appellant

in the present appeal bearing Company Appeal (AT) (Ins.) No. 545 of 2023 had

already been examined by this Appellate tribunal in its detailed judgement dated

19.01.2021, as contained in para 29 & 31 to 37 which reads as under :-

"29.We have heard the arguments of the Learned Counsel for the parties and perused the records. The question that arises for consideration is as follows:

a) Whether there was a pre-existing dispute between the parties and weather the pre-existence of dispute shall be seen from the date of the first demand notice dated 2nd December 2017 or the second demand notice dated 23rd August, 2018?

-13- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

b) Whether the Adjudicating Authority rightly allow the petition of the Operational Creditor under section 9 of I&B Code?

30.In the case of Mobilox Innovations Pvt. Ltd. vs Kirusa Software (P) Ltd. reported at (2017) 1 SCC OnLine SC 353 the Hon'ble Supreme Court held as to what are the facts to be examined by the Adjudicating Authority while examining an application under section 9 of I&B Code which is reproduced below:

"33. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on nonpayment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must -14- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

be preexisting - i.e. it must exist before the receipt of the demand notice or invoice, as the case may be......."

"34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

37.Whether there is an "operational debt" as defined exceeding Rs.1 lakh?

ii. Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And

iii. Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected.

Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act."

From the above decision it is clear that the existence of the dispute must be pre-existing i.e., it must exist before the receipt of the demand notice or invoice. Section 9 of the IBC makes it very clear for the Adjudicating Authority to admit -15- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

the application "if no notice of dispute is received by the Operational Creditor and there is no record of the dispute in the information utility." In the absence of any existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid 'Operational Debt'.

Consequently, the application cannot be rejected under section 9 and is required to be admitted.

31. It is apparent from the records that the Corporate Debtor had not raised any objection pertaining to the work performed by the Operational Creditor prior to the first demand notice dated 2nd December, 2017. It was on 13th December, 2017 when the Corporate Debtor responded for the first time in its reply to the notice issued by the Operational Creditor under Section 8(1) of I&B Code. We have noted that a large number of email communications has been made by the Operational Creditor and not even a single response was made by the Corporate Debtor raising such disputes.

32. The Contention of the Appellant that the relevant date for determining whether there was a pre-existing dispute was the date of second demand notice, i.e. 23rd August, 2018 and not the first demand notice dated 2nd December, 2017 as the first petition was dismissed by the Adjudicating Authority as the Petitioner Counsel had asked for withdrawal of the first petition due to incorrect claims made under first application, -16- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

with a liberty to proceed against the Corporate Debtor with a correct claim as envisaged under I&B Code.

The above Contention raised by the Appellant cannot be sustained. The Adjudicating Authority has rightly relied upon the ratio laid down by this Tribunal in the case of Dinesh Gupta vs. Hajura Singh Bhim Singh & another, Company Appeal (AT) (Insolvency) No. 99 of 2018 wherein is was held that:

"6. On hearing the parties, as we find that there was no dispute in existence prior to the 1st demand notice issued under Section 8(1) of the I&B Code and the Corporate Debtor disputed the claim about quality only after issuance of 1st demand notice, therefore, after withdrawal of 1 st application under Section 9 on technical grounds and issuance of fresh demand notice, the application under Section 9 filed by Respondent was maintainable."

33. The Appellant argued that the Adjudicating Authority misplaced its reliance on the above Judgment as in that case the first petition was dismissed on technical ground. However, in the present case, the first petition was not dismissed on technical ground but because Operational Creditor had made an incorrect claim.

This argument of the Appellant is turned down as firstly the above Judgment was mainly pointing out that there should be no dispute in existence prior to the 1 st demand notice issued under Section 8(1) of the I&B Code. The Appellant has -17- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

wrongly emphasized on the word 'technical ground' and not the ratio that was laid down under the judgment. Secondly, it is the Adjudicating Authority who shall observe whether the ground on which the first application was dismissed was a technical ground or not.

34. It is apparent from the records placed before this tribunal that Corporate Debtor have sent a legal notice on 13th March, 2018 setting out several preexisting disputes as to quality of work and delay in completion of work and also raised a counter claim against the Operational Creditor. The Corporate Debtor also sent a notice invoking arbitration on 10th April, 2018. These issues were raised after the issuance of the first demand notice. Thus there were no disputes existing prior to the issuance of first demand notice.

35. The arbitration notice was sent after the issuance of the first demand notice but prior to the issuance of second demand notice when the Operational Creditor was busy in removing the defects in its first petition. This exhibits that the intention of the Appellant behind this was to misuse the provisions under the Code and to intentionally delaying the process of law. There were no objections raised in relation to quality of work prior to the issuance of first demand notice and the work done by the Operational Creditor was in fact certified by the architect appointed by the Corporate Debtor. Moreover, the Municipal Corporation in September, 2016 issued Occupation Certificate to the Appellant. If there were any discrepancies, the appellant could not have obtained -18- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Occupation Certificate from municipality. This also shows that all the defects pointed out by the architect have been timely rectified within the appropriate time, so that the Municipal Corporation found it appropriate to issue the Occupation Certificate.

36. In the light of the above observations and the records placed before us. We are of the view that there was no dispute existing prior to the first demand notice and only disputes raised prior to the first demand notice are relevant to determine its pre-existence and disputes raised thereafter are totally irrelevant for the same. Also the arbitration was invoked after the first demand notice. Thus the Adjudicating Authority have rightly concluded that there was no dispute existing prior to the demand notice issued under section 8 of I&B Code.

37. Therefore, we are of the considered opinion that there is no reason for interference with the impugned order passed by the Adjudicating Authority. Hence Appeal is dismissed. No order as to costs."

(Emphasis Supplied)

16. The Impugned Order passed by the Adjudicating Authority vide its earlier

order dated 30.08.2021 had ordered for forensic audit of the books of account of

the Corporate Debtor of 5 financial years preceding the date of CIRP and

appointed Mr. Amarjit Chopra, past President of the Institute of Chartered -19- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Accountants of India and the relevant audit observations of the forensic audit have

been captured in the Impugned Order.

17. We would also like to take into consideration the relevant paragraphs of

the Impugned Order dated 16.02.2023 which are self explanatory and contained

in Para 16 to 24.

"16. This Bench further notes that the Resolution Professional has come to a conclusion that no amount is due and payable to the Operational Creditor in the books of accounts of the Corporate Debtor on the date of commencement of CIRP i.e. 27.01.2020 and they are barred by limitation which is not legally correct. The relevant date for computing the period of limitation if any for the claim of the Operational Creditor is the date of filing the petition and not the date of ordering CIRP. The RP can at best apply the above test of limitation for the other creditors who have directly submitted their claims after initiation of CIRP without adjudication by any legal forum and not the claims of the present Operational Creditor in this case since its claim has been already adjudicated through judicial process that attained finality. If this kind of action of the RP is upheld, it would amount to not only setting aside the order of the Adjudicating Authority but also the Appellate Authority thereby giving new dimension to CIRP process.

17. Therefore, it is very clear that the resolution professional has forgot that all the contentions of Corporate Debtor with -20- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

regard to additional works, pre-existence of disputes, limitation etc. have been rejected by the adjudicating authority and also by the Hon'ble NCLAT with their concurrent findings and the CIRP order attained finality. It is appropriate to mention here that the Corporate Debtor as a respondent in the main company petition if failed to take any plea which he might and ought to have taken, he is barred from raising that plea once again in subsequent proceedings as it is barred by the doctrine of "constructive res judicata".

The doctrine of "constructive res judicata applies to every subsequent proceedings except in cases in which the earlier matter was decided ex-parte.

18. The Respondent Nos. 2 and 3 who are the members of the suspended board have no locus once again to raise any please with regard to the merits of the claim of the Operational Creditor in view of finality of the admission order and they are not at all necessary parties to this application.

19. This Bench further observes that the Resolution Professional has miserably failed to understand that the above CIRP order was passed by the adjudicating authority after prima-facie satisfying about the existence of 'debt' and 'default' of more than Rs. 1,00,000/- as on the date of filing the Company Petition and he shall not reject such claim of the Operational Creditor in toto by ignoring the concurrent findings of the adjudicating authority and the appellate authority.

-21-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

20. It is appropriate to mention here that the RP herein filed an application bearing I.A. No. 375/2021 which is also pending before this Bench for withdrawal of the CIRP order under Section 12(A) of the Code on the ground of purported settlement entered into by the Corporate Debtor with the sole COC Member, M/s Paton Construction Pvt. Ltd. who is an unsecured Financial Creditor from whom the Corporate Debtor alleged to have borrowed an amount of Rs. 1,58,077/- recently before passing CIRP order which is an ingenious idea of Respondent Nos. 2 and 3 to bring out the Corporate Debtor from the clutches of CIRP order which attained finality from a back-door entry.

21. This bench further observes that the Resolution Professional miserably failed to understand that he can legally admit the claim of the Operational Creditor without insisting any books of accounts from the Operational Creditor in view of finality of the CIRP admission order and voluntary withdrawal of SLP before Hon'ble Supreme Court by Corporate Debtor.

22. For the aforesaid reasons viewing from any angle, this bench is of the considered opinion that the action of RP in rejecting the claim of the Operational Creditor in toto is illegal, arbitrary and does not stand to the test of legal scrutiny. This bench further observes that the RP has certainly exceeded his power by assuming super power in -22- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

this case and did not perform his duties diligently and the

conduct of RP also needs to be thoroughly investigated.

23. With the above observations, the action of the RP in rejecting the claim of Operational Creditor is set aside with a direction to him to admit the claim of Operational Creditor and complete the CIRP process as expeditiously as possible.

24. Accordingly, the above I.A. is disposed of."

(Emphasis Supplied)

18. Now we shall deal with these three appeals before us in following

discussions and go through the arguments of the parties. Since, all these three

appeals are inter connected and inter dependent and arising out of the same

common Impugned Order dated 16.02.2023, we shall dispose all three appeals in

conjoint manner by this common order.

Comp. App. (AT) (Ins) No. 545 of 2023

19. The Appellant submitted that on taking charge from the Erstwhile IRP Mr.

Jitendrakumar Rambaran Yadav, the Appellant noted that there are three claims

i.e., of Malharshanti Enterprises Limited amounting to Rs. 1,95,01,079/-; another

claim filed by Naresh Shah, Suspended Director of the Corporate Debtor for

Rs. 1,77,24,370/- and claim of Paton Construction Pvt. Ltd. amounting to

Rs. 1,05,877/- as unsecured Financial Creditor.

-23-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

20. It would be worthwhile to note the table made by the Appellant in the

present appeal in Para 5 which reads as under :-

21. From above, we note that total claims against the Corporate Debtor were

Rs. 3,73,31,326/- and the Appellant admitted of Rs. 1,78,30,247/- and the claims

of the original Operational Creditor (on whose application was initiated CIRP -24- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

against the Corporate Debtor vide order dated 21.01.2020 for Rs. 1,95,01,079/-)

was entirely rejected, whereas a fresh unsecured financial debt claim, which were

received after initiation of the CIRP, from Paton Construction Pvt. Ltd., was

admitted in full and was also declared as "Sole CoC Member" and the claim by

the Suspended Director of the Corporate Debtor of Rs. 1,77,24,370/- was also

admitted in full.

22. It is the case of the Appellant that after examining the books of the

Corporate Debtor it came to his notice that no dues were outstanding and payable

to the Malharshanti Enterprises Limited (Operational Creditor). The Appellant

further submitted that he requested for documentations from the Malharshanti

Enterprises Limited to substantiate its claims but received reply raising frivolous

issues "including unauthorised constitution of CoC" etc.

23. The Appellant further submitted that he received an e-mail dated

31.08.2020 from Arpit Shah and Co., Chartered Accountant, the Statutory

Auditors of the Corporate Debtor who allegedly stated that no debt is due and

payable to the Operational Creditor.

We observe that the need for seeking such unilateral clarification from

Chartered Accountant has not been explained by the Appellant.

24. The Appellant alleged that the Mr. Jitendrakumar Rambaran Yadav, the

Erstwhile IRP admitted the claims of Malharshanti Enterprises Limited without

verifying the same from the books of the Corporate Debtor, thus castigating role -25- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

of Erstwhile IRP Mr. Jitendrakumar Rambaran Yadav in order to justify his stand

which has been held as completely illegal by the Adjudicating Authority.

25. The Appellant also alleged that Malharshanti Enterprises Limited

(Operational Creditor), deliberately and consciously declined to provide any

documents at all to the Appellant despite several reminders and therefore, the

Appellant was constrained to reject the claims of Malharshanti Enterprises

Limited for Rs. 1,95,01,079/- as non verifiable and non substantiated claims. The

Appellant defended his action which according to him was done according to

provisions and regulations provided under the Code.

26. We note that an I.A. No. 47 of 2021 was filed by Malharshanti Enterprises

Limited against the rejection of claims and IA 1241 of 2020 challenging the

claims of Financial Creditor before the Adjudicating Authority. Similarly, the

Suspended Director also filed IA 1609 of 2020 seeking rejection of claims of

Malharshanti Enterprises Limited (Operational Creditor) before the Adjudicating

Authority.

27. The Appellant submitted that vide Order dated 30.08.2021, the

Adjudicating Authority gave direction to Malharshanti Enterprises Limited to

submit the documents and also directed the Appellant to collate the same. The

Appellant also brought out that the Adjudicating Authority had further given the

direction for forensic audit of the Corporate Debtor by Mr. Amarjit Chopra, past

President of the Institute of Chartered Accountants of India. -26-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

The Appellant stated that pursuant to the Adjudicating Authority's order

dated 30.08.2021, the Appellant received claims from the Malharshanti

Enterprises Limited vide mail dated 03.09.2021 but the Appellant still came to

conclusion that the documents were not enough to establish the claims of the

Malharshanti Enterprises Limited and therefore the Appellant rejected the claims

of the Operational Creditor vide e-mail dated 10.09.2021.

28. Concluding his remarks, the Appellant submitted that the Impugned Order

need to be rejected.

29. Per contra, the Respondent No. 1 denied all the allegations of the Appellant

labelling these as mischievous and misleading.

30. The Respondent No. 1 submitted that the Adjudicating Authority correctly

admitted his claims and ordered for CIRP against the Corporate Debtor vide order

dated 27.01.2020 which was challenged by Suspended Director of the Corporate

Debtor and this Appellate Tribunal vide order dated 19.01.2021 dismissed the

appeal upholding the correctness of the CIRP vide order dated 27.01.2020 and

rejecting all the issues raised by the Suspended Director. The Respondent No. 1

submitted that the suspended Board of Directors preferred a SLP against this

Appellate Tribunal Order dated 19.01.2021 before the Hon'ble Supreme Court of

India and the said SLP was withdrawn and therefore, under these circumstances,

the CIRP Order dated 27.01.2020 admitting section 9 petition as well as this

Appellate Tribunal's order dated 19.01.2021 attained finality. -27-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

31. The Respondent No. 1 submitted that in March, 2020, when the agenda

for first CoC meeting was circulated, it came to the knowledge of Respondent No.

1 that one Unsecured Financial Creditor i.e. Paton Construction Pvt. Ltd. was

sought to be inducted as a sole CoC Member on the basis of a paltry sum of

Rs. 1 lakh which was lent to the Corporate Debtor only on 6th September 2019

i.e. on a day just after the conclusion of oral arguments of Section 9 application

filed by the Respondent No. 1. The same was strongly objected by the

Respondent No. 1.

32. The Respondent No. 1 also stated on 3rd September 2019, the Corporate

Debtor had transferred an amount of approximately Rs. 72 lakhs to its Director

Mr. Naresh Sevantilal Shah (as per the ledger account of Corporate Debtor) as

repayment of alleged loan taken from its director by the Corporate Debtor, but on

the other hand the Corporate Debtor is claiming to have taken loan of paltry sum

of Rs. 1 Lakh in similar time frame. The Respondent No. 1 stated that this is

simple fraud being played in the CIRP proceeding by the Corporate Debtor,

Resolution Professional and Unsecured Financial Creditor.

33. The Respondent No. 1 elaborated that in the first CoC meeting conducted

on 18.03.2020, the Interim Resolution Professional admitted the claims of the

Respondent No. 1 (Operational Creditor). The IRP recorded that claims of the

Operational Creditor have been verified on the basis of supporting documents. -28-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

34. The Respondent No. 1 stated that Paton Constructions Private Limited,

Unsecured Financial Creditor for Rs. 1,05,877/- was wrongly made the Sole CoC

Member who misused its power and immediately replaced the Interim Resolution

Professional without assigning any reasons and Mr. Manish Jaju was appointed

as Resolution Professional. The Respondent No. 1 alleged that the minutes for

first CoC meeting have not been finalized.

35. The Respondent No. 1 further submitted that thereafter, the second CoC

meeting was conducted on 04.07.2020 wherein the Financial Creditor sought to

pass a resolution seeking withdrawal of CIRP against the Corporate Debtor on the

ground that the Corporate Debtor is a solvent entity.

36. The Respondent No. 1 alleged that conduct of the Resolution Professional

and the Financial Creditor as well as that of the suspended Director clearly

establish malafide intentions and therefore the Respondent no. 1 filed an IA

bearing no. 1241/2020 before the Adjudicating Authority challenging the

constitution of sole member CoC. The Respondent No. 1 alleged that in

retaliation and even before the 3rd CoC meeting could be conducted, the

Resolution Professional vide Email dated 02.12.2020 rejected the legitimate

claims of the Respondent No. 1 so that the alleged Unsecured Financial Creditor

as sole CoC member could pass a resolution to withdraw the CIRP against the

Corporate Debtor and indeed this exactly happened.

-29-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

37. The Respondent No. 1 submitted that in the third CoC meeting dated

07.12.2020, the Financial Creditor, sole CoC member contended that he does not

wish to continue with the CIRP and wants to continue its business with the

corporate debtor and therefore, the Resolution Professional filed an application

for closure of CIRP through IA 375/2021 under section 12A of the Code.

38. The Respondent No. 1 stated that consequent upon rejection of his claim,

the Respondent No. 1 moved an Application bearing no. 47/2021 before the

Adjudicating Authority against the rejection of his claim by the Resolution

Professional vide its Email dt. 02.12.2020 and the Adjudicating Authority after

recording the detailed observations allowed the said application vide the

Impugned Order dated 16.02.2023 thereby directing the Resolution Professional

to admit the claims of the Operational Creditor. The Respondent No. 1

highlighted collusion amongst the Resolution Professional, the sole CoC member

and suspended Board of Directors of the Corporate Debtor to derail CIRP and

deny the claims of the Respondent No. 1.

39. The Respondent No. 1 assailed the Resolution Professional for rejecting

his claims and who also concluded certain amount as recoverable by the

Corporate Debtor from the Respondent No.1, thus, transgressing the power and

duties of the Resolution Professional under the Code and assuming himself to be

in role of judicial forum to adjudicate upon claims and the counter-claims

contrary to the laid down law. The Respondent No. 1 emphasised that this -30- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

approach of resolution professional itself demonstrate gross misconduct being

committed by the Resolution Professional and that is why in the Impugned Order

dated 16.02.2023, the Adjudicating Authority was constrained to observe strongly

about the non-transparent conduct of the Resolution Professional with direction

to be thoroughly investigated. The Respondent No. 1 elaborated the instances

wherein the resolution professional just accepted the submissions and documents

of the Corporate Debtor 'as it is' including 'no dues certificate' created by the

chartered accountant of the corporate debtor without verification, allowed the

deductions as directed by the corporate debtor and disallowed the claims of the

operational creditor.

40. The Respondent No. 1 stated that the Erstwhile IRP had correctly admitted

the claims of the Respondent No. 1, but the appellant rejected the claims of the

operational creditor while allowing counter-claims of the Corporate Debtor and

further submitted that there was no requirement for the Corporate Debtor to seek

a miniscule loan of Rs 1 lakh from the alleged financial creditor Paton

Construction Pvt. Ltd. which was solely to oust the operational creditor.

41. The Respondent No. 1 stated that the Appellant has no locus in the present

appeal as he cannot be treated as an aggrieved person. The Respondent No. 1

emphasised that role of Resolution Professional is of neutral qua the claim of any

creditor and therefore there cannot be any interest in the matter let alone any

personal interest since he is only a creature of the Code with specific role and -31- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

obligations. The Respondent No. 1 cited judgement of the Hon'ble Supreme

Court of India in the matter of Regen Powertech (P) Ltd. v. Giriraj Enterprises

& Anr. [(2023) ibclaw.in 111 SC.] in support of this argument.

42. The Respondent No. 1 concluded his remarks stating that there was no

error in the Impugned Order and the appeal is without any merit and deserves to

be set aside with exemplary cost.

Findings

43. We note that the role of the Resolution Professional, the Appellant herein,

has been defined in the Code, inter-alia, regarding collation of claims as against

the adjudicator's role given to the liquidator qua the claims filed in the liquidation

proceedings, whereas, in the present case the Appellant has gone ahead in

deciding the claims and also decided to offset the claims by raising a counter

claims against the Operational Creditor on his own.

44. We have also noted that the prayers made in the present appeal (all

specific prayers noted earlier), nowhere the prayer has been made regarding

expunging of adverse remarks contained in the Impugned Order against the

Appellant, however, when the case was getting concluded, the Appellant

submitted that he will be satisfied if only adverse remarks are expunged and

submitted that the Appellant has made passing remarks in "facts in issues" in Para

8(a) for the same.

-32-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

45. The Appellant has defended his action in rejecting the claims of the

Operational Creditor on the basis that he did not get sufficient documentation.

However, we observe that the claims of the Operational Creditor were properly

adjudicated and admitted at the stage of initiating CIRP proceedings against the

Corporate Debtor on the basis of which Section 9 application filed by the

Operational Creditor vide order dated 27.01.2020.

46. We have already taken into consideration that Suspended Director of the

Corporate Debtor had challenged the CIRP order dated 27.01.2020 before this

Appellate Tribunal and the same was dismissed on merit after going through full

facts and law vide this Appellate Tribunals earlier order dated 19.01.2021. The

observation of this Appellate Tribunal order has been recorded in detail by us in

earlier discussions. It is worth noting that the same was challenged before the

Hon'ble Supreme Court of India by Suspended Director of the Corporate Debtor

which was dismissed as withdrawn. Thus, the CIRP order dated 27.01.2020 has

attained the finality.

47. We have already noted that the Appellant has challenged the present

appeal on the merits against the Impugned Order dated 16.02.2024. On a pointed

query by this Appellate Tribunal, the Appellant stated that the appeal has been

filed in his personal capacity. We wonder what is the locus and personal interest

of the Resolution Professional in this regard.

-33-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

48. In this connection, we note that the Hon'ble Supreme Court of India in the

matter of Regen Powertech (P) Ltd. (Supra) has given ratio decidendi that

Resolution Professional has to be neutral party and not expected to take a stand,

which is contrary in present appeal where the Appellant filed appeal on merits of

the Impugned Order and that too in his personal capacity as Resolution

Professional of Corporate Debtor. This is contrary to ruling of the Hon'ble

Supreme Court of India. The relevant para of the said judgment reads as under :-

"We are of the opinion that in view of the facts and circumstances, the Resolution Professional should not have filed the present appeals. The Resolution Professional should have maintained a neutral stand. It is for the aggrieved parties, including the Committee of Creditors of Regen Powertech Private Limited (RPPL) and Regen Infrastructure and Services Private Limited (RISPL), to take appropriate proceedings or file an appeal before this Court. Recording the aforesaid, the present appeals preferred by the Resolution Professional are dismissed as not entertained."

(Emphasis Supplied)

49. In this detailed background, we wonder as on what basis the Resolution

Professional dismissed the claims of the Operational Creditor altogether which

has gone through the entire round of litigation from the Adjudicating Authority

to this Appellate Tribunal to the Hon'ble Supreme Court of India. Prima-facie

this is much beyond his role and scope. If such approach of Resolution -34- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Professional is to be accepted then the whole process of CIRP proceedings can

get demolished.

50. It is further interesting to note that one Unsecured Financial Creditor,

namely, Paton Construction Private Limited who is supposed to have given a loan

of paltry sum of Rs. 1 Lakh knowing well that CIRP is being initiated against the

Corporate Debtor, then original IRP is removed and the present Appellant is

appointed as Resolution Professional, who in turn rejected the claims of

Operational Creditor and accepted the claims of the Unsecured Financial Creditor

and claims of promoter. This made the way for making Unsecured Financial

Creditor of Rs. 1,05,877/- as a Sole Member of the CoC and ousting the

Malharshanti Enterprises Limited the Operational Creditor out of CoC having

claim of Rs. 1,94, 62, 148/-.

51. We also note that the forensic audit conducted by i.e., Mr. Amarjit Chopra,

past President of the Institute of Chartered Accountants of India, gave clear report

regarding admitted claims of the Operational Creditor along with other

observation which have been discussed in details in the Impugned Order.

52. We observe that the Adjudicating Authority has castigated the role by the

Appellant and recorded in details how the Resolution Professional has exceeded

his role. The relevant para about the non-transparent conduct of the Resolution

Professional has already been recorded by us in our earlier discussion. -35-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

53. As regards contentions of the Appellant that there were pre-existing

disputes between Malharshanti Enterprises Limited (Operational Creditor) and

the Corporate Debtor, we note that this issue was rejected both by the

Adjudicating Authority and by this Appellate Tribunal in earlier order (already

noted above). We are amazed to note tenacity of the Resolution Professional to

assume role of the Adjudicating Authority and even role of the Appellate Tribunal

and overrule the judicial orders which attained finality after the Hon'ble Supreme

Court of India dismissed the appeal of Suspended Director/ Corporate Debtor as

withdrawn.

54. This Act of Resolution Professional is deplorable in strongest term and

need to be denounced in full force at our command. Such blatant illegal action

will defeat the noble cause of the Code.

55. We find the allegations of the Appellant that Malharshanti Enterprises

Limited (Operational Creditor) "since the very inception of the transaction has

perpetrated a systemic fraud upon the Corporate Debtor" without any substantial

basis.

56. In this background, shorn of unnecessary details, since the claims have

been adjudicated at all stages and had been admitted in full by the Erstwhile IRP

after verification of all documents, we do not need to go into these aspects again

which has attained finality at all judicial fora including the Hon'ble Supreme

Court of India.

-36-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

57. The entire sequences of events leaves much less to be desired as it become

quite clear that there seems to be conjoint action on part of the Resolution

Professional along with the Suspended Director of the Corporate Debtor and

Unsecured Financial Creditor i.e., Paton Constructions Pvt. Ltd. to derail the

process of CIRP and to deny the admitted claim of the Operational Creditor. This

is evident from fact that the Resolution Professional filed CP (IB) 3753/MB/C-

IV/2018, as per direction of single Member of CoC for closure of CIRP under

Section 12 A of the Code.

The aforementioned circumstances point out the high handedness and the

malafide intentions of the Appellant conjointly with suspended Directors of

Corporate Debtor and the Unsecured Financial Creditor.

58. We note that although the Adjudicating Authority in Impugned Order

dated 16.02.2023 in Para 22 has recorded that "the conduct of the Resolution

Professional also need to be thoroughly investigated". However, the Adjudicating

Authority did not give directions for the further course of action for the same or

direction to the IBBI. Hence, this Appellate Tribunal is required to take this to

logical conclusion as we are upholding the Impugned Order in toto. In this

background, we direct the IBBI to look into the role of the Appellant in

accordance with the law regarding conduct/ misconduct of the Appellant as the

Resolution Professional and take further necessary action as deemed fit and

warranted on the facts of the case and as per law.

-37-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

59. Looking to frivolous appeal, we further impose cost of Rs. 10 Lakhs on

the Appellant to be paid in Prime Minister's National Relief Fund within four

weeks of pronouncement of this order. The compliance for the same will be

reported to the Adjudicating Authority by the Appellant.

Comp. App. (AT) (Ins) No. 598 of 2023

60. This appeal has been filed by Paton Constructions Pvt. Ltd. who is

Unsecured Financial Creditor of the Corporate Debtor who lent Rs. 1 Lakh to the

Corporate Debtor just before the CIRP against the Corporate Debtor got initiated.

It is claim of the Appellant that he did not know about the on going proceedings

by the Respondent against the Corporate Debtor and only on publication of public

announcement by the IRP inviting claims from the Creditors on 28.01.2020, the

Appellant came to know about these developments and filed the claim of

Rs. 1,05,877/- before the IRP/ RP.

61. The Appellant is aggrieved by the Impugned Order specially as contained

in Para 20 which is against the Appellant. The Appellant submitted that being

sole member of CoC, he has 100% voting rights. The Appellant submitted that

the Resolution was passed with 100 % voting rights to replace the Erstwhile IRP

with the present Respondent No. 6. During the CoC meeting held on 18.03.2020,

the Suspended Director of the Corporate Debtor desired to continue the business -38- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

of the Corporate Debtor as going concern and he agreed for filing Section 12A

application to close CIRP of the Corporate Debtor.

62. The Appellant stated that the Respondent No. 1 filed an I.A. No. 1241 of

2020 in C.P.(IB) - 3753(MB)/2018 seeking an order setting aside the loan

transaction dated 06.09.2019 for Rs. 1 Lakh between the Appellant and the

Corporate Debtor and during hearing, the Adjudicating Authority ordered the

appointment of forensic auditor of the Corporate Debtor. The Appellant submitted

that though I.A. No. 1241 of 2020 was listed, however, the Adjudicating

Authority disposed the IA No. 47 of 2021 by way of Impugned Order dated

16.02.2023 by placing reliance of forensic audit report and gave relief beyond

sought in the pleadings concluding that the transaction between the Appellant and

the Corporate Debtor is "ingenious idea of the members of the Suspended

Director of the Corporate Debtor."

63. The Appellant submitted that he is Financial Creditor, who meets the

criteria of Rs. 1 Lakh and therefore was within his right to be sole CoC Member

with 100% voting rights. The Appellant defended the action taken by the CoC

and assailed the Impugned Order which has gone beyond jurisdiction of the

Adjudicating Authority in treating the Financial Creditor unjustly and unfairly.

64. Concluding his remarks the Appellant requested to set aside the Impugned

Order.

-39-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

65. Per contra, the Respondent No. 1 Malharshanti Enterprises Limited denied

of the allegations of the Appellant labelling these as mischievous and misleading.

The Respondent No. 1 emphasised that the Appellant has been inducted in the

CoC only to frustrate the CIRP and to deny the claims of the Respondent No. 1

herein.

66. The Respondent No. 1 also refuted the claims of the Appellant that his

claims of financial debt have been nullified in the Impugned Order. The

Respondent No. 1 elaborated that in the Impugned Order, the Respondent No. 6

has been directed to accept the claim of the Respondent No. 1 and only mentioned

regarding ingenious way of the financial debt but has not nullified the financial

debt of the Appellant.

67. The Respondent No. 1 explained that the only reason that Appellant is

here before this Appellate Tribunal is that observation of the Adjudicating

Authority in para 20 of the impugned order and that too on the basis of the

conclusions drawn by the forensic auditor in its audit report which provoked the

Appellant to such an extent that it chose to file an Appeal against the order which

only directed the Resolution Professional to accept the claims of the Respondent

No. 1. The Respondent No. 1 submitted that there is no ground available to the

Appellant to challenge the impugned order.

68. The Respondent No. 1 stated that the Corporate Debtor had entered into

a transaction in the form of an Inter-Corporate Loan Deposit (ICD)/unsecured -40- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Loan from M/s. Paton Construction Private Limited for a meagre sum of Rs. One

lakh on 06.09.2019. Interestingly this loan amount was credited to the account of

the Corporate Debtor the very next day of completion of oral arguments before

NCLT, Mumbai on 05.09.2019 only to stop the Respondent No. 1 from being sole

member of the Committee of Creditors in its capacity of being only Creditor and

by the this act, the Corporate Debtor through its purported sole Unsecured

Financial Creditor with a debt of mere Rs. 1 lakh to control the CIRP Process with

ultimate aim to reject the claims of the Operational Creditor and file Section 12

A application for close of CIRP.

69. The Respondent No. 1 stated that Appellant M/s. Paton Construction

Private Limited is merely a façade of the Corporate Debtor, who has been brought

into the scheme of things merely to oust the Respondent No. 1 from being and

comprising the sole member of CoC of the Corporate Debtor.

The Respondent No. 1 stated that the Suspended Director of the Corporate

Debtor in its Appeal no. 415/2020 before this Appellate Tribunal against the CIRP

Order, stated that it has an asset base of Rs. 7,09,41,985/- as reserves and surplus;

therefore in such circumstances it is surprising that Corporate Debtor hurriedly

availed a meagre loan of Rs. 1 Lakh from Appellant immediately on the next day

of conclusion of oral arguments before the NCLT to defraud the Operational

Creditor.

-41-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

70. The Respondent No. 1 submitted that vide email dated 14.03.2020, the

erstwhile IRP issued agenda of first CoC meeting and vide the said email, the

identity of the Appellant was recognized for the first time against which the

Respondent no. 1 vide email dated 17.03.2020 objected the Appellant's claim as

the sole CoC member. On 18.03.2020, the first CoC meeting was conducted

wherein the erstwhile IRP admitted the claims of the Respondent no. 1 and also

the Respondent no. 1 was apprised of the fact that Appellant had lent a sum of Rs

1 lakh to the Corporate Debtor on 06.09.2019. The erstwhile IRP also recorded in

the meeting that the claim of the Respondent No. 1 was verified and admitted on

the basis of the supporting documents provided by the Respondent No. 1. The

Respondent No. 1 alleged that since the Appellant became the sole member of

CoC, therefore without any reason, in the very same meeting on 18.03.2020, the

CoC passed the resolution for change of IRP and Mr Manish Jaju, the Respondent

No. 6 herein was appointed as Resolution professional.

71. The Respondent No. 1 assailed that change of IRP was sought to be done

in a haphazard manner when suddenly on 08.06.2020, the Respondent No. 1

receives an email addressed by the appellant wherein the IRP was apprised that

the application for change in the Resolution Professional under Section 22 of the

Code has been listed for emergency hearing on the very next date i.e. 09.06.2020

before the Principal Bench of the National Company Law Tribunal at New Delhi.

The Respondent No. 1 submitted that he was shocked and surprised to have -42- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

received the said e-mail dated 08.06.2020 on such short notice and was rather

awaiting finalization of minutes of the 1st CoC for inclusion of relevant objections

raised by the Respondent No. 1 against the Appellant. The Respondent No. 1

stated that the Principal bench of NCLT then passed order dated 09.06.2020

replacing the erstwhile IRP with current resolution professional. Thereafter the

second CoC meeting was conducted on 04.07.2020 wherein the Appellant sought

to pass a resolution seeking withdrawal of CIRP against the Corporate Debtor on

the ground that the Corporate Debtor is a solvent entity.

72. The Respondent No. 1 submitted that the alleged loan taken from the

Appellant by the Corporate Debtor of merely Rs. 1 Lakh was to aimed at the

Appellant to become Sole Financial Creditor which has already been challenged

by the Respondent No. 1 vide an application bearing IA No. 1241 of 2020

challenging the constitution of CoC i.e., Appellant as Sole Member of the CoC

which is pending before the Adjudicating Authority.

73. The Respondent No. 1 reiterated that the Adjudicating Authority in the

Impugned Order as not nullified the alleged loans of the Appellant otherwise even

the CoC would have been reconstituted but has only the Resolution Professional

has been directed to admit the claims of the Appellant.

74. The Respondent No. 1 further submitted that he never misused the

jurisdiction under Section 16(5) of the Code and no prejudiced would be caused

to the Appellant by the observation under Para 20 of the Impugned Order -43- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

particularly when IA 1421/ 2020 is still pending for adjudication before the

Adjudicating Authority. The Respondent No. 1 defended Para 20 which according

to him have mere observation on the basis of inconsistency drawn by the forensic

auditor in its report and also clearly in the facts of the case.

75. Concluding his arguments the Respondent No. 1 requested that the Appeal

should be dismissed with exemplary cost.

Findings

76. We note from the sequence of events that the Appellant has lent Rs. 1

Lakh when CIRP of the Corporate Debtor was almost imminent. We note that by

giving a loan of Rs. 1 Lakh, the Appellant became Unsecured Financial Creditor

and on inviting of claims from the Creditors by Erstwhile IRP, the Appellant filed

claims for Rs. 1,05,877/- which barely meets the threshold of minimum Rs. 1

Lakh prevalent at that time.

77. We put a direct query to the Appellant regarding nature of his business

and whether he has been involved in giving such loans to other parties and

particularly how many such loans were given to the Corporate Debtor prior to this

loan. The Appellant submitted that he is in a construction business and working

as Real Estate Developer and not in financial business but in given circumstances

he decided to give Rs. 1 Lakh loan to the Corporate Debtor which was legal for -44- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

him to do so. The Appellant did not give any details of loans given to other

entities or the Corporate Debtor prior to this transaction.

78. We observe that such construction companies are normally always short

of funds and keep raising the funds from the banks/ NBFC's and are not in

business to give such loans. We wonder as to why the Corporate Debtor, whose

net worth is stated to be more Rs. 7 Crores, still took loan of Rs. 1 Lakhs knowing

very well that CIRP against the Corporate Debtor is likely to happen. We could

not find any satisfactory response from the Appellant as well as the Ex-Promoters

on this account.

79. Prima facie we cannot find any fault in the finding of the Adjudicating

Authority contained in Impugned Order includings as contained in para 20 against

which the Appellant has filed this. The Impugned Order merely recorded that an

application filed under Section 12 A on the ground of purported settlement

entered between the CoC and the sole Appellant herein who is Unsecured

Financial Creditor who took a loan just before passing CIRP order is indigenous

idea of Corporate Debtor and the Promoters of Corporate Debtor to bring out the

Corporate Debtor from the clutches of CIRP which attained the finality through

back door entry.

80. We note that the forensic audit of books of accounts of the Corporate

Debtor was ordered by the Adjudicatory authority and the forensic auditor made

observations in relation to the purported loan transaction which took place -45- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

between the Appellant and the Corporate Debtor. The Appellant vide an

agreement dated 20.08.2019 had to disburse a loan of Rs 50 lakh to the Corporate

Debtor of which only Rs 1 lakh was given to the appellant on 06.09.2019 i.e., the

very next day when the oral arguments were concluded before the adjudicating

authority. The order admitting CIRP against the Corporate Debtor was passed on

27.01.2020. This was for the first and the last time that the Appellant paid money

to the Corporate Debtor. We note from the submissions that after September, 2019

till date, no further loan amount was disbursed to the Corporate Debtor. We do

not find anything which prevented the Appellant to disburse further amount under

the agreement and it is only after the claims of the operational creditor got rejected

the Appellant expressed its intention to continue the business relations with the

Corporate Debtor. Incidentally it has been brought to our notice by the

Respondent No. 1 that the alleged loan agreement was backdated and unstamped

documents.

81. It is interesting to note that value of the said transaction is of Rs. 1 Lakh

vis-à-vis the stand of solvency of the Corporate Debtor, having reserves of more

than Rs. 7 Crores and failure on the part of the corporate debtor to pay back Rs 1

lakh to Appellant when the said amount was never disputed. These circumstances

lead us to belief that the Appellant was brought into CIRP so that the committee

of creditor could comprise of only Unsecured financial creditor and the CIRP

could be stage- managed as per desires. In this context, we reiterate that the -46- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

forensic auditor in its report had observed that loan agreement was prepared on

stamp paper dated May 2019 of Rs 100 for purpose of affidavit only and not for

the purpose of obtaining loan and stamp paper was even prior to the Board

resolution. It has been brought to our notice that as per Maharashtra stamp Act,

stamp duty of 0.2% of the amount agreed in the contract gets attracted if amount

exceeds 10 lakhs which in the present case was Rs 50 lakhs, which obviously was

not paid.

82. We take into consideration that the demand notice under section 8 of the

Code was sent to the Corporate Debtor on 02.12.2017 by the Operational Creditor

whereas the said loan agreement was entered on 20.08.2019 i.e. This sequence

reveals the conduct and intentions of concerned parties.

83. After going through all the facts of the case and submissions made by the

parties as well as also going through the contentions of Resolution Professional

in appeal bearing Company Appeal (AT) (Ins.) No. 545 of 2023 (which we have

discussed at length in our earlier decisions we do not find any error in the

Impugned Order and the Appeal devoid of any merits is dismissed.

Comp. App. (AT) (Ins) No. 600 of 2023

84. This appeal has been filed by Naresh Sevantilal Shah who is Suspended

Director of the Corporate Debtor who submitted that the Corporate Debtor is

involved in the business of Real Estate Development and even on 31.03.2019, the -47- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Corporate Debtor had Rs. 7,09,41,98/- in reserve and surplus and thus is a solvent

company and should be allowed to continue as a going concern.

85. The Appellant submitted that the claims submitted by the Operational

Creditor are fraudulent claims. The Appellant stated that all claims of the

Respondent No. 1 has already been paid by the Corporate Debtor to the extent

payable.

86. The Appellant also submitted that there have been pre-existing disputes

on every issues which has not been factored into by the Adjudicating Authority

while passing the Impugned Order.

87. The Appellant also defended the action of the Resolution Professional for

setting up counter claims against the Respondent No. 1 since the Resolution

Professional was managing the affair of the Corporate Debtor and it was of

Resolution Professional duty to ensure that interest of the Corporate Debtor is

protected and in this background the Resolution Professional rightly raised the

counter claims against the Respondent No. 1.

88. The Appellant submitted that it can be nobody's case that the Respondent

No. 1 is entitled only for payment and not liable for making the payment to the

Corporate Debtor and if this is allowed this will be abuse of the process of law.

89. The Appellant gave the details of the work order, the Corporate Debtor

gave to the Respondent No. 1 with specific task and activities which should have

been completed within specific time period and the same was inclusive of all -48- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

costs. The Appellant submitted that in the work order, it was clear that time was

essence of the work and the work was to be completed by March, 2015 which the

Respondent No. 1 miserably failed to complete. Thereafter, the Corporate Debtor

and the Respondent No. 1 entered into the MoU dated 25.09.2015 where it was

agreed that the Respondent No. 1 would complete the work on or before

10.10.2015 and would be entitled only for payment of Rs. 5 Lakhs for completing

the work.

90. According to the Appellant, it is admitted fact that the Respondent No. 1

could not complete the work even withing the extended time.

91. The Appellant submitted that based on the MoU signed by both the

parties, on 25.09.2015 the Respondent No 1 was entitled to receive only Rs. 5

Lakh in full and final settlement from the Corporate Debtor and assailed the

conduct of the Respondent No. 1 who created false and record and fabricated

documents in order to demand further amount from the Corporate Debtor.

92. The Appellant reiterated that there were pre-existing disputes and MoU

was signed on 25.09.2015, thus the demand notice under Section 8 was illegal

and the same was replied accordingly.

93. The Appellant also gave the background of the appeal made before this

Appellate Tribunal which was dismissed by this Appellate Tribunal on

19.01.2021 and which was challenged before the Hon'ble Supreme Court of India

which was finally dismissed as withdrawn. The Appellant submitted that appeal -49- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

was withdrawn after getting liberty for other legal remedies and based on this

liberty granted by the Hon'ble Supreme Court of India , the present appeal has

been filed by the Appellant.

94. The Appellant submitted that the Corporate Debtor was in need of money

and as such the Corporate Debtor took a loan of Rs. 1 Lakh from Paton

Constructions Pvt. Ltd./ Respondent No. 5.

95. The Appellant submitted that although he is promoter of the Corporate

Debtor but he is also Unsecured Financial Creditor who lent the huge money to

the Corporate Debtor and therefore he has filed the claims of Rs. 1,77,24,370/-.

96. The Appellant submitted that the claim of the Respondent No. 1 for

Rs. 1,95,01,079/-, were wrongly admitted by Erstwhile IRP which was later

corrected by the current Resolution Professional/ Respondent No. 6 based on the

proper documentation and after taking into account the counter claims in favour

of the Corporate Debtor.

97. The Appellant defended change of IRP to the present RP as it was decided

by the Sole Financial Creditor in the interest of Corporate Debtor and no malafide

intention can be attributed although no detailed reasons were recorded in the

minutes of CoC for this change.

98. The Appellant also pointed out that since Section 9 application was

initiated by the Respondent No. 1 with malafide intention and the Corporate

Debtor is the solvent company, in the CoC meeting it was decided that the -50- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Corporate Debtor should be allowed to continue as a going concern and as

application under Section 12A should be filed before the Adjudicating Authority

for closure of CIRP as such there is nothing wrong in withdrawing CIRP

proceedings in accordance with laid down law.

99. The Appellant submitted that even for arguments sake even the entire

claims received by IRP were to be taken into account of Rs. 3,73,31,326/-, the

reserve and surplus of the Corporate Debtor was almost double hence it was

correct decision on part of the CoC to file an application for closure of CIRP, so

to allow the Corporate Debtor to continue as going concern in spirit of the Code.

The Appellant castigated the conduct of the Respondent No. 1 who is unnecessary

dragging the Corporate Debtor into insolvency and litigation.

100. The Appellant also defended the action of Respondent No. 6 for rejection

of claims filed by the Respondent No. 1 since the Respondent No. 1 has not given

the required documentations specifying claims of the Respondent No. 1 despite

several opportunities given to him by the Respondent No. 6.

101. The Appellant assailed the conduct of the Respondent No. 1 who has been

playing fraud on the Corporate Debtor based on fabricated documents in order to

justify his false claims. The Appellant further submitted that the Respondent

No. 1 fabricated document based on which certain payment was made by the

Corporate Debtor to the Operational Creditor and referred to cube testing reports

which are used to determine crushing strength of the concrete tubes utilised by -51- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

the Corporate Debtor in the present project and even cube test reports were found

to be fabricated.

102. The Appellant also assailed the Impugned Order which has ignored the

several vital facts including that the debt was not due and there was no default.

The Appellant also raised the issue regarding limitation which was not considered

properly by the Adjudicating Authority. The Appellant submitted that mere

judicial order regarding admission of Section 9 application does not tantamount

to admission of claims which has to go due process of law and to be followed by

the Resolution Professional in terms of the stipulated requirements.

103. The Appellant also assailed the finding of forensic auditor and relied upon

by the Adjudicating Authority as contained in the Impugned Order.

104. The Appellant submitted that there are FIRs pending before the police and

authorities filed vide FIR No. 99/2023 and 949/2023 and till finalisation of these

FIRs the claims of the Respondent No. 1 cannot be crystalized.

105. Concluding his arguments, the Appellant submitted that this appeal should

be allowed and the Impugned Order should be set aside.

106. Per contra, the Respondent No. 1 denied all the averments made by the

Appellant and accused the Appellant for misusing the process of law only to derail

the CIRP process and to frustrate the legal claims of the Respondent No. 1.

107. The Respondent No. 1 submitted that there has been absolutely non-

responsive attitude of the Corporate Debtor and further so called pre-existing -52- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

disputes were raised for the first time by the Corporate Debtor after the

Respondent No. 1 issued notice under Section 8 of the Code, which is not

permissible in terms of the Code, as well as based on catena of judgments of the

Hon'ble Supreme Court of India on this issue.

108. The Respondent No. 1 submitted that the claims of the Respondent No. 1

were rightly adjudicated by the Adjudicating which was challenged before this

Appellate Tribunal raising issues including pre-existing issues and limitation and

the same were rejected by this Appellate Tribunal after going into all details and

dismissed the appeal of the Appellant vide this Appellate Tribunal order dated

19.01.2021. The Respondent No. 1 further submitted that the Appellant even

challenged this Appellate Tribunal's order dated 19.01.2021 before the Hon'ble

Supreme Court of India which was also dismissed as withdrawn since the

Appellant knew that there was no chance of winning the appeal there.

109. The Respondent No. 1 submitted that there is hardly any ground for the

Appellant to file this appeal since all issues and claims have been adjudicated at

highest level and thus by doctrine of res-judicata the appeal is deserves to be

dismissed with cost.

110. The Respondent No. 1 also denied the averments made by the Appellant

that the Respondent No. 1 has been indulging into fabrication and forging

documents and also denied the fact that the Appellant allegedly got the RTI

information from relevant authorities regarding cube testing report and stated that -53- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

they are manipulated and fabricated by the Appellant since validity of such

information kept by the relevant authority is for 5 years.

111. The Respondent No. 1 submitted that based on these cube test report

which was accepted by the Corporate Debtor and the Corporate Debtor got the

payments from other agencies hence plea of fabricated cube testing report is only

after thought at this stage to somehow mislead this Appellate Tribunal raising

such frivolous issues regarding alleged fabrication and forgery.

112. The Respondent No. 1 reiterated the ploy of the Appellant in connivance

that the Paton Constructions Pvt. Ltd. alleged Unsecured Financial Creditor for

mere amount of Rs. 1,05,877/- and in connivance that the Resolution Professional

Manish Jaju is deny the admitted claims of the Respondent No. 1 and to take out

the Corporate Debtor from the clutches of CIRP.

113. Concluding his remarks the Respondent No. 1 requested this Appellate

Tribunal to dismiss this Appeal with exemplary cost so that such incidence are

not repeated in future.

Findings

114. After going through arguments of all parties we note that the issues raised

by the Appellant has already been dealt by the Adjudicating Authority and

subsequently by this Appellate Tribunal vide order dated 09.01.2023. We also -54- Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

note that the Appellant challenged the same before the Hon'ble Supreme Court

of India which was also dismissed as withdrawn.

115. We wonder if the judicial adjudication of the claims and issues raised by

the Appellant are decided at all floors of law i.e., NCLT, NCLAT, and Hon'ble

Supreme Court of India, how Appellant can raise the same issues again and again.

116. We also note that once the claims of the Operational Creditor have been

crystalized and admitted by the Adjudicating Authority while admitting Section

9 application of Respondent No. 1 and initiating CIRP against the Corporate

Debtor. We also find that IRP was duly appointed by the Adjudicating Authority

who collated the claims and admitted the claims of the Respondent No. 1 basis on

the documentation submitted by the Respondent No. 1. We find surprising as

how the claims of the Operational Creditor have been rejected later by the

Resolution Professional.

117. We are not inclined to go into so called issues of RTI information and FIR

raised by the Appellant as this is summary trial and claims and issue have already

been crystalized and decided upon by all judicial authorities.

118. In find the Appeal bearing Comp. App. (AT) (Ins.) No. 600 of 2023 fails

and stand dismissed. Interlocutory Applications, if any, are closed. -55-

Comp. App. (AT) (Ins.) No. 545, 598 & 600 of 2023

Summary of Findings

119. We are constrained to observe that CIRP was initiated way back on

27.01.2020 and almost after 4.5 years, the case is being dragged and CIRP has

not been concluded. This does not auger well.

120. In fine all three appeals Comp. App. (AT) (Ins.) No. 545 of 2023, Comp.

App. (AT) (Ins.) No. 598 of 2023 & Comp. App. (AT) (Ins.) No. 600 of 2023 fail

and stand dismissed. In Comp. App. (AT) (Ins.) No. 545 of 2023, we have already

given suitable directions including imposition of cost of Rs. 10 Lakhs being

frivolous appeal and further directions to IBBI to investigate the conduct of

Resolution Professional.

121. The Registry is directed to send a copy of this order to the Chairman IBBI

for necessary action and also send a copy to the Adjudicating Authority.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

Sim