Mr. Sunil Rajaram Ghag & Anr vs M/S White Water Hospitality Private ...

Sunil Rajaram Ghag & Anr. ...Appellants

Versus

White Water Hospitality Pvt. Ltd & Ors. ...Respondents

Present: For Appellant : Mr. Krishnendu Datta, Sr. Adv. with Ms. Varsha, S. Alagh, Aviral Kapoor, Rishabh Kapoor, Advocates

For Respondents : Mr. Gautam Singh, Adv. for R2. Mr. Aditya Grover Arjun Gover-R2

ORDER

Per: Justice Rakesh Kumar Jain:

17.08.2023: This appeal is filed by the former Directors of the

Corporate Debtor (M/s White Water Hospitality Pvt. Ltd.) against the order

dated 21.11.2019 passed by the Adjudicating Authority (National Company

Law Tribunal, Chandigarh Bench, Chandigarh) by which an application filed

under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code')

by Respondent No. 2/alleged Financial Creditor (M/s V.I.R. Foods Ltd.)

bearing CP (IB) No. 90/Chd/CHD/2018 for the resolution of a debt of Rs.

52,64,161.64/- allegedly payable by the Corporate Debtor as on 31.12.2017

has been admitted, moratorium under Section 14 of the Code was declared

Comp. App. (AT) (Ins) No. 1489 of 2019 2

and Madan Gopal Jindal (Respondent No. 3) was appointed as an Interim

Resolution Professional (in short 'IRP').

2. At the time of preliminary hearing on 18.12.2019, this Court passed the

following order:-

"Learned counsel for the Appellant submits that 'M/s. V.I.R. Foods Ltd.' is an entity controlled by the minority shareholder (Financial Creditor) of 'M/s. White Water Hospitality Private Limited' (Corporate Debtor). It is submitted that the application under Section 7 of the 'I&B Code' was not maintainable for the following grounds:

(i) The 'debt' was barred by limitation;

(ii) The 'MoU' was irrelevant as alleged; and

(iii) The records shows that there is no 'debt' payable in fact.

Let notice be issued on the Respondents by Speed Post. Requisites along with process fee, if not filed, be filed by 19th December, 2019. If the Appellant provides the e-mail address of Respondents, let notice be also issued through email. Post the case 'for Admission (After Notice)' on 16th January, 2020. In the meantime, the 'Interim Resolution Professional' will not sell the assets of the 'Corporate Debtor' without prior approval of this Appellate Tribunal. However, he will ensure that the company remains as an on-going concern and will take the assistance of the (suspended) Board of Directors and the employees. The person who is authorised to sign the Bank Cheques may issue cheques but only after counter signature of the 'Interim Resolution Professional'. The Bank Accounts of the 'Corporate Debtor' be allowed to be operated for day-to-day functioning of the company such as for payment of current bills of the suppliers, salaries and wages of the paid Director, the Employees'/workmen, electricity bills etc."

Comp. App. (AT) (Ins) No. 1489 of 2019 3

3. The appeal was admitted on 03.02.2020 and the following order was

passed:-

"Reply has been filed by the Respondent No. 2. Learned Counsel for the Appellant does not intend to file Rejoinder. Appeal is admitted for hearing.

List the matter for hearing on the top of the list on 26th February, 2020."

4. Thereafter on 02.03.2020, the following order was passed:-

"Any further proceedings shall be subject to the outcome of this appeal. List this appeal 'For Hearing' on 27th March, 2020."

5. Brief facts of this case are that the alleged Financial Creditor filed an

application under Section 7 of the Code bearing CP (IB) No.

101/Chd/CHD/2017 before the Adjudicating Authority on 12.07.2017

(however, it is mentioned in the impugned order as 11.07.2017). The alleged

Financial Creditor made an averment in Part IV of Form 1 in respect of the

debt fell due - "that the Corporate Debtor pursuant to its corporate liability

repaid a sum INR 15,00,000/- on 24.02.2015 and INR 10,00,000/- on

27.02.2015. That thereafter no repayment of balance amount inclusive of

interest due there upon by the Corporate Debtor".

6. No date of default has been specifically mentioned in the said

application, however, in column 2 of Part IV in Form 1, regarding amount

claimed to be in default and the date on which the default had occurred, the

following averments have been made:-

"Total amount unpaid-Operational Debt is Rs. 50,91,854.79/- out of which of Rs. 18 Lakh fell due as on 28.02.2015, as the last payment of Rs. 10 Lakh in the running account maintained with the Applicant was made by the CD Company on 27.02.2015. Further Rs. 32,91,854.79/- stands payable by the CD Company on account of interest levied @ 18% p.a. (daily simple interest) on the

Comp. App. (AT) (Ins) No. 1489 of 2019 4

total advanced loan alongwith outstanding principal due and payable to the Applicant as on 30.06.2017. Total amount unpaid - Operational Deb is Rs. 50,91,854.79/- stands payable by the CD Company to the Applicant as on 30.06.2017. Working for computation of default are set out in Annexure P-3)"

7. This application, however, was withdrawn by the alleged Financial

Creditor in terms of an order dated 15.12.2017, which is reproduced as

under:-

"After arguing for some time, learned counsel for the petitioner seeks permission to withdrawn the instant petition due to some technical defect with liberty to file fresh one on the same cause of action. Permission is granted. The instant petition is dismissed as withdrawn with liberty aforesaid."

8. Thereafter, the alleged Financial Creditor filed the present application

on 12.03.2018 in which the alleged Financial Creditor, for the first time,

introduced a Memorandum of Understanding (MOU) dated 02.05.2012, in

Part IV 'particulars of financial debt' of Form 1, about which the following

averments have been made that "a MOU dated 02.05.2012 was also entered

between the parties with regard to the inter-corporate loan facility rendered

by financial creditor to the corporate debtor. A copy of the MOU is appended

hereto as Annexure A-5". Rest of the averments were more or less remained

the same.

9. The MOU dated 02.05.2012, which had no reference in the first petition

filed on 11.07.2017, became the basis of the claim of the alleged Financial

Creditor, therefore, it would be relevant to refer to the said MOU also, which

is reproduced as under:-

Comp. App. (AT) (Ins) No. 1489 of 2019 5

Comp. App. (AT) (Ins) No. 1489 of 2019 6

10. In clause 4 of the MOU dated 02.05.2012, it is specifically provided

that "the second party shall repay the financial assistance sought from the

first party, as and when recalled by the first party. In this case, the second

party is the Corporate Debtor and the first party is a Financial Creditor. It is

conceded before us by Counsel for the Respondent that at no point of time

any letter much less notice was issued and served upon by the first party

upon the second party recalling the amount of alleged loan.

11. It has also been recorded in the impugned order as a contention of the

Respondent (Financial Creditor) that "due to delay in payments by the

Corporate Debtor and being non responsive to the calls of the financial

creditor, the financial creditor was forced to perceive the non-availability of

funds with the corporate debtor". In this regard, the Adjudicating Authority

Comp. App. (AT) (Ins) No. 1489 of 2019 7

has recorded a finding that "as per clause 4 of the MOU dated 02.05.2012,

the Corporate Debtor shall repay the financial assistance from the financial

creditor as and when recalled by the financial creditor. The Petition filed CP

(IB) No. 101/Chd/CHD/2017 on 11.07.2017, therefore, we can say that the

financial assistance was recalled on 11.07.2017".

12. Counsel for the Respondent has also fairly conceded that as per the

averments made in Part IV of both first and second applications, filed under

Section 7 of the Code, by the alleged Financial Creditor, the last payment was

made on 27.02.2015. Since, second application was filed on 16.03.2018,

therefore, the Corporate Debtor raised the question of limitation before the

Adjudicating Authority which was rejected on the ground that since, the

financial assistance was recalled on 11.07.2017 and instant CP (IB) No.

90/Chd/CHD/2018 was filed on 16.03.2018, therefore, it cannot be said that

the same is barred by limitation.

13. The Corporate Debtor also contended before the Adjudicating Authority

that the MOU dated 02.05.2012, which has become the basis of the second

application never saw the light of the day, not being a part of the first

application and hence, it is a fabricated document and cannot be relied upon.

However, this submission has been rejected by the Adjudicating Authority by

observing that "the various contentions raised by the Respondent-Corporate

Debtor with regard to fabrication and forgery of documents by the petitioner

and also various allegations with regard to transactions entered into between

the parties, need not be gone into in detail for the purpose of consideration of

admission of this CP under the provisions of the Code and the Regulations

made thereunder". The Adjudicating Authority merely recorded a finding that

since there is an admission of debt of Rs. 43 Lacs under the heading of

Comp. App. (AT) (Ins) No. 1489 of 2019 8

unsecured loan in Annexure A-16 i.e. auditor's report of the corporate debtor,

therefore, the Adjudicating Authority is not required to delve with the issue

as to whether the MOU dated 02.05.2012 is forged and fabricated.

14. While assailing the finding of the Adjudicating Authority, Counsel for

the Appellant has submitted that the application under Section 7 was itself

not maintainable and could not have been filed only because of the reason

that there was no cause of action available with the alleged Financial Creditor

to file the application as there was no date of default. In this regard, he has

referred to Section 3(12) of the Code which deals with the definition of default

which means non-payment of debt, when whole or any part or instalment of

the amount of debt has become due and payable and is not paid by the debtor

or the corporate debtor, as the case may be. It is submitted that as per clause

4 of the MOU dated 02.05.2012, the alleged Financial Creditor would ask for

repayment of the financial assistance. Meaning thereby, if the financial

assistance is not recalled then the default would not occur, whereas Section

7(1) of the Code provides that a financial creditor either by itself or jointly

with other financial creditors, or any other person on behalf of the financial

creditor, as may be notified by the Central Government may file an

application for initiating corporate insolvency resolution process against

a corporate debtor before the Adjudicating Authority when a default has

occurred. Meaning thereby, occurring of default is the sine qua non for the

purposes of filing an application under Section 7 of the Code which has also

been held by the Hon'ble Supreme Court in the case of Innoventive Industries

Ltd. Vs. ICICI Bank and Anr. (2018) 1 SCC 407 that "When it comes to a

financial creditor triggering the process, Section 7 becomes relevant. Under

the explanation to Section 7(1), a default is in respect of a financial debt owed

Comp. App. (AT) (Ins) No. 1489 of 2019 9

to any financial creditor of the corporate debtor - it need not be a debt owed

to the applicant financial creditor. Under Section 7(2), an application is to be

made under sub-section (1) in such form and manner as is prescribed, which

takes us to the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the application is made by a financial

creditor in Form 1 accompanied by documents and records required therein.

Form 1 is a detailed form in 5 parts, which requires particulars of the

applicant in Part I, particulars of the corporate debtor in Part II, particulars

of the proposed interim resolution professional in part III, particulars of the

financial debt in part IV and documents, records and evidence of default in

part V."

15. However, in the present case, the Adjudicating Authority has recorded

a finding in favour of the Respondent that on 11.07.2017, when the first

petition was filed by the alleged Financial Creditor, the date of recalling of the

financial assistance in terms of clause 4 of the MOU dated 02.05.2012.

However, in our considered opinion, this finding cannot be accepted, the date

of default cannot be 11.07.2017 which in fact the date of filing of the petition

under Section 7 of the Code because the date of default has to be mentioned

in the petition and only thereafter, the application is filed under Section 7 of

the Code. It means that the date of default has to be before the date of filing

of application under Section 7 of the Code and the date of filing cannot be

presumed to be the date of default. As a matter of fact, the Adjudicating

Authority, while answering the contention of the Corporate Debtor that the

application under Section 7 was not within limitation, has observed that

"therefore, we can say that the financial assistance was recalled on

Comp. App. (AT) (Ins) No. 1489 of 2019 10

11.07.2017. Since, the instant CP (IB) No. 90/Chd/CHD/2018 was filed on

16.03.2018, it cannot be said that the same is barred by limitation.

16. From this finding, recorded by the Adjudicating Authority, it has taken

the date of default 11.07.2017 and date of filing of second petition 16.03.2018

which is apparently within the period of three years as has been provided in

Article 137 of the Limitation Act 1963.

17. Now looking from another angle, the application filed under Section 7

is not found to be within the period of limitation because the last payment

was admittedly made on 27.02.2015. The application under Section 7 was

filed on 16.03.2018 which is apparently beyond the period of three years and

was barred by limitation had the date of default not been taken as 11.07.2017

by the Adjudicating Authority as the date of recall of the financial assistance.

18. It is also a matter of significance that the Adjudicating Authority did not

care to express any opinion upon the veracity of the MOU dated 02.05.2012

which was not a part of the earlier pleadings of the first petition which was

filed on 11.07.2017. Supposing, the said petition was not withdrawn for the

purpose of filing of second petition, the MOU dated 02.05.2012 could not have

been before the Adjudicating Authority but once the Corporate Debtor had

raised an issue that if this MOU was actually executed on 02.05.2012 between

the parties then why it was not made a part of the first application and has

in fact been created by way of forgery and fabrication to get an order of

admission in collusion. In this regard, Counsel for the Appellant has referred

to the MOU itself in which interestingly the address of the registered office of

both the Corporate Debtor and the Financial Creditor is the same i.e. SCO

2437, Sector 22C, Chandigarh and the director of the Financial Creditor and

the Corporate Debtor happens to be the relatives or brothers. He has also

Comp. App. (AT) (Ins) No. 1489 of 2019 11

referred to the resolution dated 02.05.2012 passed by the board of directors

of the financial creditor in which Kamal Kant Dewan who is the director of the

Corporate Debtor has signed as the director of the Financial Creditor and

Mohit Dewan, director of financial creditor has been appointed as the

authorised representative. The resolution dated 02.05.2012 is also

reproduced as under:-

Comp. App. (AT) (Ins) No. 1489 of 2019 12

19. Counsel for the Appellant has referred to Section 65 of the Code which

provides in the punishment for fraudulent and malicious initiation of

proceedings and contended that it is a case where there was collusion for the

purpose of obtaining order of admission in regard to the initiation of CIRP

against the Corporate Debtor. In our considered opinion, this aspect should

have been looked into by the Adjudicating Authority and should not have

brushed aside only on the ground that it is not required to look into for the

purpose of consideration of admission of the CP.

20. In the end, even after taking into consideration the MOU dated

02.05.2012, which is the basis of the order of admission having been passed

by the Adjudicating Authority and relied upon heavily by the alleged Financial

Creditor, the application under Section 7 could not have been filed until and

unless the financial assistance given by the Financial Creditor to the

Corporate Debtor has been recalled which is a fact conspicuous by its absence

in these proceedings.

21. Thus, looking from any angle, the order of admission passed by the

Adjudicating Authority is found to be patently illegal and therefore, while

allowing the appeal, the said order is hereby set aside although without

imposing any costs and with that any application pending in this appeal is

also hereby closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

Sheetal/RR

Comp. App. (AT) (Ins) No. 1489 of 2019