Mr. Pradeep Dayanand Kothari vs A Pandian & Anr

Mr. Pradeep Dayanand Kothari ...Appellant

Vs.

A Pandian & Anr. ...Respondents

Present: For Appellant: - Mr. S. Sivaraman, Ms. Shalini Kaul and Ms. Shabnam, Advocates.

For Respondents:- Mr. Rohan Rajasekaran, Mr. S. Santanam Swaminadhan and Ms. Nishtha Khurana, Advocates for Respondent no.1. Mr. E. Omprakash, Senior Advocate with Ms. Madhusmita Bora, Advocate for Intervenor.

ORDER

07.02.2018- This appeal has been preferred by Mr. Pradip Dayanand

Kothari, Director of M/s. Kothari Industrial Corporation Limited against

order dated 19th December, 2017 passed by the Adjudicating Authority

(National Company Law Tribunal), Chennai Bench, Chennai in

Company Petition No. 649/(IB)/CB/2017, whereby and whereunder

application preferred by 1st Respondent- Mr. A. Pandian under Section

7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to

as "I&B Code") has been admitted, order of moratorium has been passed

and an 'Interim Resolution Professional' has been appointed.

Company Appeal (AT) (Insolvency) No. 11 of 2018 2

2. Learned counsel appearing on behalf of the Appellant submits

that the 1st Respondent-Mr. A. Pandian is not a 'Financial Creditor' as

he does not come within the meaning of 'Financial Creditor' as defined

in sub-section (7) of Section 5 of the 'I&B Code' read with sub-section

(8) of Section 5 of the 'I&B Code'.

3. Learned counsel for the Appellant placed reliance on demand

notice dated 19th April, 2017 given by Mr. A. Pandian under sub-section

(1) of Section 8 of the 'I&B Code', whereby the Respondents demanded

a sum of Rs. 68,61,012/- (Rupees Sixty-Eight Lakh Sixty-One Thousand

and Twelve only) as due amount of 'Operational Debt' purported to have

been defaulted by M/s. Kothari Industrial Corporation Limited

('Corporate Debtor'), the relevant portion of which reads as follows: -

"PARTICULARS OF OPERATIONAL DEBT

1. TOTAL AMOUNT OF Rs. 68,61,012/- (Rupees Sixty Eight Lakhs Sixty One Thousand DEBT and Twelve only)

1. The operational creditor is in the business of fertilizers and possesses DETAILS OF an excellent reputation in the TRANSACTIONS ON market. He has maintained a ACCOUNT OF WHICH healthy balance sheet throughout, DEBT FELL DUE that he has accumulated over a period of time through his sheer hard work and business acumen.

2. In the course of his business, on several occasions, the corporate debtor had approached the

Company Appeal (AT) (Insolvency) No. 11 of 2018 3

operational creditor stating that they required short term loans for the purpose of trading operations in Rock and Super Phosphate. That based on the assurances and representations of the corporate debtor, the operational creditor had advanced several short term loans between 04.01.2013 to 19.06.2014 repayable with interest.

3. After giving due credit to the amounts received by the corporate debtor, there arose a total due of Rs.

49,20,305/- payable to the operational creditor as on

31.12.2014. several reminders had been made to the corporate debtor and the same were answered with a plea for further time to make payments. In fact, vide letter dated 07.03.2014 issued by the corporate debtor to the operational creditor, they had admitted that the debt of Rs. 44,00,000/- (Rupees forty four lakhs only) was payable to the operational creditor and promised to clear all the dues along with interest as soon as possible. In spite of several requests, reminders and admissions the corporate debtor had not made any payments for several months and did not honor their commitment.

4. Thereafter towards discharge of the abovementioned liability, the corporate debtor had issued two cheques bearing Nos. 437421 and 437422 dated 30.09.2014 for a sum of Rs. 28,00,000/- and Rs.

16,14,210/- (totalling to Rs. 44,14,210/-) respectively both drawn on M/s. Axis Bank Ltd.,

Company Appeal (AT) (Insolvency) No. 11 of 2018 4

Mylapore Branch, Chennai. That when the cheques were presented on 23.12.2014, the same were returned on the same day citing reasons 'Funds Insufficient'.

5. It is further understood through reliable sources that the substratum of the company has been eroded and the corporate debtor is unable to make payment of amounts to the creditors and are highly indebted.

AND THE DATE FROM WHICH SUCH DEBT 23-12-2014 FELL DUE 2. AMOUNT CLAIMED TO An admitted sum of Rs. 44,14,210/- BE IN DEFAULT AND plus interest amounting to Rs. THE DATE ON WHICH 24,46,803/- calculated from THE DEFAULT 23.12.2014 @ 24% p.a. stood due, OCCURRED (ATTACH outstanding and payable to the THE WORKINGS FOR Operational Creditor. COMPUTATION OF DEFAULT IN TABULAR FORM) 3. PARTICULARS OF Nil SECURITY HELD, IF ANY, THE DATE OF ITS ESTIMATED VALUE AS PER THE CREDITOR 4. DETAILS OF RETENTION Nil OF TITLE ARANGEMENTS (IF ANY) IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS 5. RECORD OF DEFAULT Nil WITH THE INFORMATION UTILITY (IF ANY) 6. PROVISION OF LAW, 1.Dishonored Cheques dated CONTRACT OR OTHER 30.09.2014. DOCUMENT UNDER

Company Appeal (AT) (Insolvency) No. 11 of 2018 5

WHICH DEBT HAS 2. Chapter II OF THE INSOLVENCY BECOME DUEQ AND BANKRUPCTY CODE, 2016.

7. LIST OF DOCUMENTS 1.Letterfrom corporate debtor dated ATTACHED TO THIS 07.03.2014.

APPLICATION IN ORDER 2. Dishonored Cheques dated TO PROVE THE 30.09.2014.

EXISTENCE OF 3. Cheque return memo dated OPERATIONAL DEBT 23.12.2014.

AND THE AMOUNT IN 4. Loan amount statement dated DEFAULT 31.12.2014.

"

4. It is submitted that Mr. A. Pandian was employee of the 'Corporate

Debtor' but later on he made certain transactions with regard to trading

operations in 'Rock' and 'Super Phosphate'. The aforesaid notice was

replied by the 'Corporate Debtor' disputing the claim. It is only

thereafter, he changes his stand, and filed an application under Section

7 of the 'I&B Code' now claiming him to be a 'Financial Creditor', which

has been admitted by the impugned order dated 19th December, 2017.

5. Learned counsel for the Appellant referring to Form 1 i.e. the

application under Section 7 of the 'I&B Code', submitted that the

relevant portion of the financial transaction has been kept blank and no

details have been shown therein.

6. It is further submitted that the parties have also settled the

dispute and the Respondent has been paid the amount.

7. Mr. Rohan Rajasekaran, learned counsel appearing for the 1st

Respondent, while does not dispute the aforesaid fact accepts the terms

Company Appeal (AT) (Insolvency) No. 11 of 2018 6

of the settlement and the total due amount has been paid to the 1st

Respondent.

8. Mr. E. Omprakash, learned Senior counsel appearing on behalf

of the Intervenor/ 'Financial Creditors', submits that the Appellants

have suppressed certain facts. After the impugned order, the appellant

filed certain application before the Adjudicating Authority, which has

not been brought to the notice of this Appellate Tribunal. However, as

the subsequent orders are not under challenge, we do not intend to pass

any observation in respect of the same.

9. The only question arises for determination in this appeal is

whether the application under Section 7 of the 'I&B Code' filed by 1st

Respondent was maintainable or not.

10. We have noticed that the 1st Respondent- A. Pandian himself was

not clear as to whether he is an 'Operational Creditor' or 'Financial

Creditor'. This is evident from the fact that he issued demand notice

under sub-section (1) of Section 8 of the 'I&B Code' and claiming him to

be the 'Operational Creditor' and having found that there is an 'existence

of dispute', he filed incomplete application under Section 7 of the 'I&B

Code'.

11. The aforesaid fact has not been disputed by learned counsel for

the 1st Respondent. The Adjudicating Authority also failed to notice the

aforesaid fact and failed to notice whether the 1st Respondent is a

Company Appeal (AT) (Insolvency) No. 11 of 2018 7

'Financial Creditor' or not. In such circumstances, we have no other

option but to set aside the impugned order. We accordingly set aside the

order dated 19th December, 2017 passed by the Adjudicating Authority,

Chennai Bench in Company Petition No. 649/(IB)/CB/2017.

12. In effect, order (s), passed by the Adjudicating Authority appointing

'Interim Resolution Professional', declaring moratorium, freezing of

account, and all other order (s) passed by the Adjudicating Authority

pursuant to impugned order and action, taken by the 'Interim

Resolution Professional', including the advertisement, published in the

newspaper calling for applications all such orders and actions are

declared illegal and are set aside. The application preferred by 1st

Respondent under Section 7 of the I&B Code, 2016 is dismissed.

Learned Adjudicating Authority will now close the proceeding. The

appellant 'Corporate Debtor' (company) is released from all the rigour of

law and is allowed to function independently through its Board of

Directors from immediate effect.

13. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional', and the 'Corporate Debtor' will pay the fees for the period

the 'Resolution Professional' has functioned. The appeal is allowed with

aforesaid observation. However, in the facts and circumstances of the

case, there shall be no order as to cost.

Company Appeal (AT) (Insolvency) No. 11 of 2018 8

However, this order will not come in the way of 'Financial

Creditors' to move their respective separate in accordance with law, if

there is a debt and default.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/uk

Company Appeal (AT) (Insolvency) No. 11 of 2018