Mr. Rahul Gupta & Anr vs Mr Chandra Prakash

(Arising out of the Order dated 07.06.2022 passed by the National Company Law Tribunal, New Delhi (Court-III) in I.A. 1678 of 2021 in CP (IB) No. 921 (ND) of 2020.)

IN THE MATTER OF: 1. Mr. Rahul Gupta I-6, 2nd Floor Lajpat Nagar - III New Delhi - 110024. ...Appellant No. 1.

2. Ms. Divya Gupta I-6, 2nd Floor, Lajpat Nagar-III New Delhi - 110024. ...Appellant No. 2.

Versus

Chandra Prakash (Erstwhile Resolution Professional) Now Liquidator Of M/s Gem Batteries Pvt. Ltd. R/o 812, Indraprakash Building Barakhamba Road Delhi - 110001. ...Respondent

Present

For Appellants: Mr. Abhishek Anand and Mr. Sajal Jain, Advocates.

For Respondent: Mr. Shrey Patnaik and Mr. Riturik Batra, Advocates.

JUDGEMENT

(19.10.2023) NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Appeal i.e., Company Appeal (AT) (Insolvency) No. 966 of

2022 has arisen from Impugned Order dated 07.06.2022 passed by the i.e., -2- Comp. App. (AT) (Insolvency) No. 966 of 2022

National Company Law Tribunal, New Delhi Bench, Court-III (in short

'Adjudicating Authority').

2. The instant appeal has been preferred by Mr. Rahul Gupta & Ms.

Divya Gupta in the capacity of Members of the Suspended Board of Directors

of the Corporate Debtor being Gem Batteries Pvt Ltd against order dated

07.06.2022 ("Impugned Order") passed by the National Company Law

Tribunal, New Delhi Bench - III in I.A. 1678 of 2021 in CP (IB) No. 921(ND) of

2020, thereby, allowing the Application under Section 19(2) read with Section

19(3) of the Code read with Rule 11 of the NCLT Rules, 2016. The

Adjudicating Authority imposed a cost of Rs. 10,00,000/- each on the

Appellants under Section 70 of the Code. It is the case of the Appellants that

Adjudicating Authority while passing the Impugned Orders, failed to

appreciate the fact that Section 70 of the Code comes within Part II Chapter

VII of the Code which deals with offences and penalties and - appropriate

order if any under Section 70 can only be passed by way of trial offences by a

Special Court in terms of Section 236 of the Code.

3. The Respondent is Mr. Chandra Prakash, Liquidator (Erstwhile

Resolution Professional) of the Corporate Debtor.

4. M/s Gem Batteries Pvt Ltd. ("Corporate Debtor") is a private limited

Company, incorporated on 13.08.2003, engaged in the business of

manufacturing of Electrical Equipment's.

5. Upon an Application under Section 7 of the Code by RBL Bank being a

Financial Creditor, the Adjudicating Authority initiated Corporate Insolvency -3- Comp. App. (AT) (Insolvency) No. 966 of 2022

Resolution Process (in short "CIRP") in respect of Corporate Debtor vide

Order dated 01.12.2020 and the Respondent was appointed as the Interim

Resolution Professional in respect of CIRP of Corporate Debtor.

6. It has been alleged that documents and information were not provided

by the Appellants herein to the Respondent being the Erstwhile Resolution

Professional. The Respondent alleged that the Appellants were not

cooperating with the Respondent and they were not providing the

documents and information in respect of the Corporate Debtor. In view

thereof, the Respondent filed an Application being I.A. 1678 of 2021 under

Section 19(2) read with Section 19(3) of the Code for seeking necessary

directions against the Appellants herein.

7. The Adjudicating Authority vide Order dated 17.09.2021 allowed the

I.A. 3697 of 2021 filed by the Respondent thereby, initiating Liquidation in

respect of the Corporate Debtor and appointing the Respondent as the

Liquidator of the Corporate Debtor. Copy of Order dated 17.09.2021

8. The Application bearing I.A. 1678 of 2021 filed by Respondent for

seeking directions against the Appellants under Section 19(2) of the Code

came up before the Adjudicating Authority on 26.10.2021. The Adjudicating

Authority on 25.11.2021 directed the Appellants herein to ensure that the

information/documents as listed in the email dated 24.03.2021 be provided

to the Respondent within 15 days from the date of the Order and also

directed the Appellants to file compliance Affidavits. -4-

Comp. App. (AT) (Insolvency) No. 966 of 2022

9. The Adjudicating Authority vide Order dated 07.06.2022 allowed I.A.

1678 of 2021 whereby, the Adjudicating Authority held that the Appellants

failed to extend cooperation to the Respondent and imposed, a fine of Rs.

10,00,000/- on both the Appellants. The Adjudicating Authority held as

under: -

"14. The conduct of the respondents clearly shows that they no intention to provide their assistance to the liquidator in the liquidation process which falls within the purview of Section 70 of IBC, 2016, hence, we are inclined to take penal action against the respondents and hereby punish the respondent No. 1 and 2 with fine of Rs. 10,00,000/- (Rs. Ten Lakhs only) on each of the said respondents and same shall be deposited to the credit of Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi in two weeks from the date of this order. It is further directed to suspended board of directors to provide all the information as sought by the applicant in paragraph 8 within one months."

(Emphasis Supplied)

10. The Appellants submitted that the present Appeal be allowed on the

grounds that the Impugned Order passed by the Adjudicating Authority is

without jurisdiction and is in violation of the principles of natural justice.

11. It is the case of the Appellants that the Impugned Order is

unreasoned order as the Adjudicating Authority erred in passing Impugned

Order thereby, imposing a penalty of Rs. 10,00,000/- each upon the -5- Comp. App. (AT) (Insolvency) No. 966 of 2022

Appellants herein under the provisions of the Code cannot pass an Order

under Section 70 of the Code which deals with "offences and penalties."

12. It is further case of the Appellants that the Adjudicating Authority

erred in exercising powers under Section 236 of the Code which has only

been vested upon Special Court under and the Adjudicating Authority

erred in considering the true scope, effect purported of Section 70 and

Section 236 of the Code and failed to consider that Section 236(2) of the

Code stipulates that no Court shall take cognizance of any offences

punishable under this Act, save on a complaint made by the Board or the

Central Government or any person authorised by the Central Government

in this behalf. The Appellants stated that the offences under this Code can

be tried only by the Special Court established under Chapter XXVIII of the

Companies Act, 2013 and therefore the Adjudicating Authority failed to

consider that Section 236(2) of the Code stipulates that no Court shall take

cognizance of any offences punishable under this Act.

13. The Appellants pleaded that the Impugned Order is contrary to the

judgment passed by this Appellate Tribunal in Vivek Prakash (Suspended

Director &MD) v. Dinesh Kr. Gupta, Liquidator of M/s Jarvis Infratech

Pvt Ltd & Anr. Company Appeal (AT) (Ins.) No. 169 of 2022 whereby,

whilst dismissing the Appeal, this Appellate Tribunal clarified that any

prosecution under Section 70 can be initiated only in accordance with the

procedure as provided under Section 236(2) of Code. -6-

Comp. App. (AT) (Insolvency) No. 966 of 2022

14. It is allegation of the Appellants that the Adjudicating Authority failed

to consider that this Appellate Tribunal, in another case of Lagadapati

Ramesh v. Mrs. Ramanathan Bhuvaneshwari, Company Appeal (AT)

(Ins.) No. 574 2019 which was further followed in Union of India v.

Maharashtra Development Corporation, Company Appeal (AT) (Ins.) No.

964-965 of 2019 wherein, this Appellate Tribunal specifically held that "The

offences and penalties" as prescribed and dealt with in Chapter VII and

appropriate Order of punishment can be passed only by way of trial of

offences by a Special Court in terms of Section 236 of the Code.

15. Concluding their arguments, the Appellants urged to set aside the

Impugned Order and allow their Appeal.

16. At the outset, the Respondent denied all the averment and

submissions made in the Appeal. The Respondent stated that the instant

Appeal filed by Appellants is gross abuse of process of law, mala-fide and

devoid of any merit whatsoever and deserves to be dismissed with

exemplary costs.

17. The Respondent submitted that the Impugned Order dated

07.06.2022 has been passed by the Adjudicating Authority due to repeated

non-compliance and non- cooperation in CIRP by the Appellants despite

repeated opportunities to the Appellants. It is the case of the Respondent

that the Adjudicating Authority, while passing the Impugned Order, has not

assumed the jurisdiction/power which was not available to the

Adjudicating Authority.

-7-

Comp. App. (AT) (Insolvency) No. 966 of 2022

18. The Respondent reiterated that the Appellants were given opportunity

to explain the non- compliance but the Appellants kept changing their

stand for non- compliance, therefore, the Adjudicating Authority was left

with no other choice but to levy penalty on the Appellants in the interest of

justice.

19. The Respondent submitted that this Appellate Tribunal, in the matter

of Vikram Puri and Anr. vs Universal Buildwell Pvt. Ltd. held, while

holding that issuing of non- bailable warrant by the National Company Law

Tribunal against the erstwhile directors for ensuring the compliance of the

provisions of the Code fell within the ambit of Section 19 of the Code.

20. The Respondent submitted that the instant Appeal is mala-fide and

the Appellants have not approached this Appellate Tribunal with clean

hands as the Appellants have been non-cooperative with the Resolution

Professional/Liquidator since the commencement of the CIRP and used all

tactics to delay the CIRP and to deny the Financial Creditors of the

Corporate Debtor their legitimate claims. The present Appeal is also one of

such tactics of the Appellants and therefore liable to be dismissed.

21. Concluding his argument, the Respondent submitted that the

Adjudicating Authority was well versed with the provisions of the Code and

has passed the Impugned Order after providing opportunity of hearing to

the Appellant to explain non- compliance and also that there were no

requirements of investigation which would have necessitated reference to -8- Comp. App. (AT) (Insolvency) No. 966 of 2022

another forum, the Code, being self contained law. The Respondent

submitted to dismiss the appeal with exemplary costs.

22. After hearing all the averments and cited judgments, we will like to

refer to relevant sections of the Code, which have been cited by both the

Appellants and the Respondent, which reads as under :-

"19. Personnel to extend cooperation to interim resolution professional (1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.

(2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.

(3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor."

"Section 70: Punishment for misconduct in course of corporate insolvency resolution process.

-9- Comp. App. (AT) (Insolvency) No. 966 of 2022

70. (1) On or after the insolvency commencement date, where an officer of the corporate debtor--

(a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or

(b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or

(c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or

(d) fails to inform there solution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or

(e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or

(f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date, he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both:

Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor.

(2) If an insolvency professional deliberately contravenes the provisions of this Part the shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not be less than one lakh rupees, but may extend to five lakhs rupees, or with both.

-10- Comp. App. (AT) (Insolvency) No. 966 of 2022

Section 236: Trial of offences by Special Court.

236. (1) Notwithstanding anything in the Code of Criminal Procedure, 1973, offences under this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013.

(2) No Court shall take cognizance of any offence punishable under this Act, save on a complaint made by the Board or the Central Government or any person authorised by the Central Government in this behalf. (3) The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.

(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, in case of a complaint under sub-section (2), the presence of the person authorised by the Central Government or the Board before the Court trying the offences shall not be necessary unless the Court requires his personal attendance at the trial.

(Emphasis Supplied)

23. We will also like to refer to Rule 11 of the NCLT Rules, 2016 which

describes the inherent powers of the Tribunal and clearly states that:

"11. Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of Justice or to prevent abuse of the process of the Tribunal."

(Emphasis Supplied)

24. At first, we will like to go into the judgment referred by the

Respondent delivered earlier by this Appellate Tribunal, in the matter of -11- Comp. App. (AT) (Insolvency) No. 966 of 2022

Vikram Puri and Anr. vs Universal Buildwell Pvt. Ltd. bearing Company

Appeal (AT) (Insolvency) No.1018 of 2021, where, while holding that issuing

of non- bailable warrant by the National Company Law Tribunal against the

erstwhile directors for ensuring the compliance of the provisions of the

Code fell within the ambit of Section 19 of the Code, observed that:-

"The Code empowers the Adjudicating Authority to take appropriate measures for ensuring compliance of the provisions of the Code and for ensuring that all personnel extend co-operation to IRP/ RP. Section 19 specifically empowers the Adjudicating Authority to issue appropriate direction for compliance."

The facts and the ratio of the quoted judgment is different from the

facts and the basis of the prayer of the present Appeal and therefore, the

submissions of the Respondent on this account are not appreciable.

25. Now, we will examine the judgment quoted by the Appellants. The

first case cited case in the matter of Vivek Prakash(Suspended Director

& MD) v. Dinesh Kr. Gupta, Liquidator of M/s Jarvis Infratch Pvt. Ltd.

C.A.(AT)(Ins.) No. 169 of 2022 , wherein it was held :-

"8. Thus, prosecution under Section 70 has to be on complaint filed by the Board or Central Government or person authorized by the Central Government. The submission of the Learned Counsel for the Appellant that Resolution Professional is not empowered to initiate the prosecution is correct. Learned Counsel for the Resolution- Resolution Professional has however, explained that no prosecution has been initiated under Section 70 by the -12- Comp. App. (AT) (Insolvency) No. 966 of 2022

Resolution Professional and he has only sent the information to the Board and it is for the Board to take appropriate action. We, thus, clarify that any prosecution under Section 70 can be initiated only in accordance with the procedure as provided under Section 236(2) and not by the Resolution Professional. However, with regard to any other offences including the offences under Indian Penal Code, if any complaint is filed by the Resolution Professional before a Police Station that is separate issue and has no concern with the offences under Section 70 and the order impugned shall have no bearing on such proceedings by a Police Station and they are independent proceedings which has to be considered and decided in accordance with law."

(Emphasis Supplied)

26. Another case cited by the Appellants i.e. Lagadapati Ramesh v.

Mrs. Ramanathan Bhuvaneshwari [(2019) SCC OnLine NCLAT 1153) is

also decision of this Appellate Tribunal, wherein it was held that :-

"37. In view of the aforesaid position of law, we hold that the Tribunal/ Adjudicating Authority, on receipt of application/complaint of alleged violation of the aforesaid provisions and on such consideration and being Company Appeal (AT) (Insolvency) Nos. 574 & 592 of 2019 satisfied that there are circumstances suggesting that defraud etc. has been committed, may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government. On such investigation, if the investigating authority reports that a person has committed any offence punishable under -13- Comp. App. (AT) (Insolvency) No. 966 of 2022

Section 213 read with Section 447 of the Companies Act, 2013 or Sections 68, 69, 70, 71, 72 and 73 of the 'I&B Code', in such case, the Central Government is competent to refer the matter to the Special Court itself or may ask the Insolvency and Bankruptcy Board of India or may authorise any person in terms of subsection (2) of Section 236 of the 'I&B Code' to file complaint."

(Emphasis Supplied)

27. The Appellants also brought to our notice yet another earlier decision

of this Appellate Tribunal in the matter of in the matter of Union of India

v. Maharashtra Tourism Development Corporation [(2019) SCC OnLine

NCLAT 1414], wherein this Appellate Tribunal had referred the matter to

Central Government for investigation through 'Inspector(s)' for finding out

whether persons related to the company in question has violated the

provisions of Section 70 of the Code, further directed that the procedures

under Section 213 of the Companies Act, 2013 has to be followed.

28. Our attention has been drawn to the decision of this Appellate

Tribunal in the matter of Vikram Puri v. Universal Buidwell (P.) Ltd.

[(2022) SCC OnLine NCLAT 306], where this Appellate Tribunal has

observed that the prosecution under Section 70 of the Code is a separate

and independent proceedings, which in no manner fetter power upon the

Tribunal to invoke the Section 70 of the Code.

29. We will also refer to the judgment passed by this Appellate Tribunal

in the matter of Sapan Mohan Garg, Resolution Professional of Sort

India Enviro Solution Ltd. v. Manish G Patel & Anr. C.A. (AT) (Ins.) No. -14- Comp. App. (AT) (Insolvency) No. 966 of 2022

837 of 2021, wherein it has been held that in order to initiate prosecution

under Section 70 of the Code the complaint has to be filed by the

Insolvency and Bankruptcy Board of India (IBBI) or Central Government or

person authorized by the Central Government.

30. Finally, we find that in another decision of this Appellate Tribunal in

in the matter of Writer Business Services (P.) Ltd. v. Ashutosh

Agrawala, Resolution Professional for Cox & Kings Ltd. [(2022) SCC

OnLine NCLAT 2234], where it was held that :-

"27. When the allegation of Resolution Professional was that Appellant has contravened the Moratorium there was allegation of commission of an offences on which punishment could have been awarded after following the procedure under Section 236. An act which is termed as offence within Comp. App. (AT) (Ins) No. 956 of 2021 specific provision of Chapter VII of Part-II could not have been indirectly dealt with by the Adjudicating Authority by imposing a fine."

(Emphasis Supplied)

31. After careful perusal of all above discussed six judgments of this

Appellate Tribunal on earlier occasions which are on similar facts, we

without any hesitation, conclude that clearly the Adjudicating Authority

erred in passing the Impugned Order overlooking the law of the land (the

Code) and also ignoring the precedent cases settled by this Appellate

Tribunal, as discussed in preceding paragraphs. -15-

Comp. App. (AT) (Insolvency) No. 966 of 2022

32. Based on above detailed analysis, we are unable to sustain the

Impugned Order. In fine, the Appeal succeeds and the Impugned Order is

set aside and remanded back to the National Company Law Tribunal, New

Delhi Bench, Court - III to have a fresh look of the case and decide in

accordance with the law and pass suitable order.

33. The Appellants and the Respondent are directed to appear before the

NCLT, New Delhi Bench, Court- III on 8th November, 2023. No Costs.

Interlocutory Application(s), if any, are Closed.

[Justice Anant Bijay Singh] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim