Navneet Jain vs Manoj Sehgal Rp Of Sarbat Cotfab Pvt Ltd & ...

2. Tejinder Singh Kocher, R/o 63/B, Model Town, Patiala-147001 ... Respondent No. 2

3. Bhupinder Singh Mann, Suspended Director of Sarbat Cotfab Private Ltd., (Corporate Debtor), R/o Lutki Majra, Jor Majra, P.O. Dhanetha, Tehsil Samana, Distt. Patiala-147001 ... Respondent No. 3

4. Phoenix ARC Private Limited, Having its office at:-

Dani Corporate Park, 5th Floor, 158, CST Road, Kalina, Santa Cruz (E), Mumbai-400098. ... Respondent No. 4 Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 1 of 19 Present

For Appellant: Shri S.K. Jain, Advocate

For Respondents: Ms.Varsha Banerjee, Adocate (R-1) Shri Mohak Sharma, Advocate (R-2) Shri Rajeev Gupta, Advocate (R-3) Shri Suresh DuttDobhal and Shri Nirmal Goenka, Advocates (R-4)

Judgment (Date: 01.06.2021)

{Per: Dr. Alok Srivastava, Member (T)}

1. This appeal has been preferred under Section 32 read with

Section 61 of the Insolvency and Bankruptcy Code, 2016

(hereinafter called IBC) by Appellant, who is aggrieved by the order

dated 8.6.2020 (hereinafter called Impugned Order) passed by the

National Company Law Tribunal, Chandigarh Bench (the

Adjudicating Authority) in CA No.354/2018 in CP(IB) No.

123/Chd/CHD/2017 in the matter of Phoenix ARC Private Limited

vis. Sarbat Cotfab Pvt. Ltd. qua which Resolution Plan submitted

by the Resolution Applicant (Respondent No. 2 in this appeal) was

approved by the Adjudicating Authority.

2. During the consideration of this appeal, M/s Phoenix ARC

Private Limited filed application IA No.1661/2020 for joining in this

appeal as an intervener. This application was permitted by this

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 2 of 19 tribunal and Phoenix ARC Private Limited was allowed to join this

appeal as Respondent No.4 vide order dated 24.7.2020.

3. The brief facts of the case as presented and argued by the

parties is that the Resolution Applicant Tejinder Singh Kocher

(Respondent No.2) and Bhupinder Singh Mann, suspended Director

of the Corporate Debtor Sarbat Cotfab Pvt. Ltd. (Respondent No.3)

were partners in two firms, viz. M/s Prabh Films and M/s Prabh

International. It is claimed by the Appellant that during the

Corporate Insolvency Resolution Process of the Corporate Debtor,

Respondent No.2 (who is allegedly a related party of Respondent

No. 3 as per Section 29A of the IBC) filed a resolution plan. The

Appellant has claimed that being a related party of an erstwhile

Director of the Corporate Debtor, Respondent No. 2 was ineligible

to submit Resolution Plan for resolution of the Corporate Debtor as

per Section 29A of the IBC.

4. The Appellant's claim is that he is a promoter/shareholder of

the Corporate Debtor, holding 1,00,000 equity shares of Rs. 10

each, amounting to 1.05% of the total shareholding. He has also

claimed that he effectively controls 6,70,000 shares of his friends,

family and associates, which @ Rs.10/- per share amounts to

7.05% of the total shareholding, and therefore he is an interested

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 3 of 19 party in the resolution of the Corporate Debtor. He has stated that

the CIRP was initiated against the Corporate Debtor as a result of

admission of Section 7 application under IBC, filed by Phoenix ARC

Pvt. Ltd. (Respondent No. 4) as Financial Creditor vide order dated

15.2.2018 of NCLT, Chandigarh Bench, and Manoj Sehgal was

appointed as Internal Resolution Professional, who has

subsequently been confirmed as Resolution Professional.

5. It has been claimed by Respondent No. 2 that Respondent

No. 3 retired as Director from the aforementioned two firms, M/s

Prabh Films and M/s Prabh International, vide two retirement

deeds w.e.f. 31.10.2017. These retirement deeds were presented to

the Resolution Professional (Respondent No.1) who on finding

Respondent No.2 as eligible to file Resolution Plan submitted these

retirement deeds before the Adjudicating Authority in CA No. 852 of

2019.

6. Upon invitation of Expressions of Interest, Respondent No. 2

submitted a Resolution Plan jointly with two other persons, which

was taken into consideration by the Adjudicating Authority for

approval in CA No. 354 of 2018. When the Appellant came to know

that Respondent No.2, who has filed a Resolution Plan, and who is

a business partner of Respondent No. 3 in two firms viz. M/s Prabh

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 4 of 19 Films and M/s Prabh International, he informed the Resolution

Professional through e-mail dated 29.6.2019 about the relatedness

of Respondents Nos. 2 & 3, and hence the ineligibility of

Respondent no. 2 to file a resolution plan. When the Resolution

Professional did not act on his e-mail, the Appellant filed CA No.

492 of 2019 before the Adjudicating Authority on 10.7.2019

agitating this issue. This application was dismissed vide order

dated 9.10.2019 by the Adjudicating Authority.

7. The Appellant claims that he again sent an e-mail to the

Resolution Professional on 21.9.2019 alongwith some documents

showing the fraudulent activities of Respondent No. 3 in disposing

off assets of the Corporate Debtor. When the Resolution

Professional did not act on this information, the Appellant filed CA

No. 787 of 2019 and CA No.788 of 2019 before the Adjudicating

Authority on 24.9.2019 placing on record additional facts and

information in the form of GST and Income Tax returns of two

firms, M/s. Prabh Films and M/s. Prabh International, to show

that Respondent No.2 and Respondent No.3 were still partners in

the two aforementioned firms. The Adjudicating Authority

dismissed both these applications (CA no. 787/2019 and CA no.

788/2019) with liberty given to the Applicant (Appellant) to file

appeal in case he is unable to get favourable order in CA No. 492 of

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 5 of 19 2019. Upon being unsuccessful, the Appellant filed CA No.

850/2019 on 4.10.2019 before the Adjudicating Authority with

additional information about the connection between Respondent

No.2 and Respondent No. 3. In the meanwhile, as mentioned

earlier, the Resolution Professional also filed CA No. 852/2019

placing before the Adjudicating Authority the record of retirement

deeds to show that Respondent No.3 Bhupinder Singh Mann had

retired from two aforesaid firms w.e.f. 31.10.2017.

8. In CA No. 850/2019, the Applicant Navneet Jain, who is

shareholder of the Corporate Debtor, submitted information

extracted from GST portal and Income Tax Returns pertaining to

M/s. Prabh Films and M/s. Prabh International before the

Adjudicating Authority to show the relationship between

Respondent No.2 and Respondent No.3. The Adjudicating

Authority vide order dated 25.2.2020 in CA No.850/2019 and CA

No. 852/2019 relied on the retirement deeds submitted by

Respondent No. 3 and signed by the continuing partner

(Respondent No. 2) and retiring partner (Respondent No. 3) to

dismiss the CA No. 850/2019. This was despite the fact that GST

and Income Tax returns which were extracted from public portals

and filed by the Applicant Navneet Jain were public documents and

their authenticity was not disputed by the Respondent No.2.

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 6 of 19

9. The Appellant, thereafter, preferred appeal CA No.1168/2019

before this Tribunal, which was disposed off vide order dated

13.12.2019, whereby the Adjudicating Authority was directed to

look into all documents submitted by the Appellant regarding

ineligibility of Respondent No. 2 as Resolution Applicant and take

decision in CA No. 354/2018 while considering the Resolution Plan

for final approval. Consequent to this order of the Adjudicating

Authority, the Adjudicating Authority again had an opportunity to

look at the eligibility of Respondent No. 2 under Section 29A vis-a-

vis the two retirement deeds and the GST and Income Tax returns.

The Adjudicating Authority vide order dated 8.6.2020 in CA No.

354/2018 approved the Resolution Plan submitted by Tejinder

Singh Kochar, inter alia, accepting the eligibility of the Resolution

Applicant, Tejinder Singh Kochar under Section 29A of IBC.

10. In the oral arguments, the Ld. Counsel of Appellant has

urged that it is the Adjudicating Authority's responsibility under

the IBC to examine that the Resolution Plan complies with Sections

30(2) and 30(4) of the IBC, and therefore, infringement, if any, of

Section 29-A of IBC is a matter to be looked into by the

Adjudicating Authority.

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 7 of 19

11. The Learned Counsel for Respondent No.1 has claimed that

his action has been in accordance with the retirement deeds,

wherein Respondent No. 3 Bhupinder Singh Mann has shown his

retirement from 31.10.2017 from both the firms, and therefore

having no relationship with the Resolution Applicant Tejinder

Singh Kochar. Therefore, he has not infringed on Section 29A of

the IBC while submitting the resolution plan.

12. The Learned Counsel for Respondent No 2 objected to the

Appellant filing latest Income Tax returns when the arguments

were at final stage on 09.04.2021. We ignore this document of

Income Tax Return for the Assessment Year 2020-21, which the

Appellant proposed to file.

13. Presenting his arguments, the Learned Counsel for

Respondent No. 2 has urged that the Appellant has raised question

about the authenticity of the retirement deeds, thereby seeking an

enquiry about their correctness, which is not in the purview of

Section 29A IBC. He has stated that the Impugned Order dated

8.6.2020 in CA No. 492/2019 approving the Resolution Plan is

appealable under Section 61(3) and the Appellant has not made out

any case under this provision of the IBC. According to him, the

question of eligibility of the Resolution Applicant was raised at an

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 8 of 19 earlier date which was adjudicated upon by the Adjudicating

Authority, and since no appeal was preferred against this order, it

has achieved finality. Therefore, the issue of eligibility of the

Resolution Applicant cannot be raised now once the Resolution

Plan has been approved.

14. The Learned Counsel for Respondent No.2 has pointed out

the date of execution of partnership deeds (showing partnership of

Respondent No. 2 and Respondent No.3 in the two firms viz. M/s.

Prabh Films and M/s. Prabh International) the date of retirement

from both the firms of Respondent No. 2 and the date of execution

of the two retirement deeds. These are given in the table below:-

S.No. Firm Name Partnership Date of Date of Deed retirement as execution of executed on per Retirement Retirement Deed Deed 1. Prabh Films 25/05/2017 31/10/2017 01/11/2017 2. Prabh 03/10/2016 31/10/2017 01/11/2017 International

He has also pointed out the following relevant dates:-

(i) Resolution Plan submitted to Resolution Professional:

06.06.2018.

(ii) Resolution Plan approved by COC: 14.08.2018.

(iii) Resolution Plan approved by the Adjudicating Authority:

08.06.2020.

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 9 of 19

15. On the basis of the dates given above, the Learned Counsel

for Respondent No. 2 has claimed that, as per the two retirement

deeds, Respondent No. 3 had retired as partner in the two firms

w.e.f. 31.10.2017. Hence, Respondent No. 2 was not a related

party to Respondent No.3 on the date he submitted the Resolution

Plan to the Resolution Professional on 06.06.2018. Furthermore,

he has pleaded that he had enquired from the Resolution

Professional about his eligibility as Resolution Applicant which was

duly clarified by the Resolution Professional in his favour.

16. The Learned Counsel for Respondent No. 3 (Bhupinder Singh

Mann) has reiterated that Respondent No. 3 retired as Director of

both the firms w.e.f. 31.10.2017 and, therefore, the Respondent No.

2 was not connected party when the Resolution Plan was

submitted.

17. The Learned Counsel for M/s. Phoenix ARC Pvt. Ltd.

(Respondent No. 4), who was granted permission by this Tribunal

to join the appeal as intervener, has claimed that the Appellant is

trying to indirectly do what he has not been able to do directly -

which is to challenge and reopen the order dated 25.2.2020 in CA

850/2019 passed by the Adjudicating Authority which had

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 10 of 19 achieved finality since it had not been appealed against. He has

also stated that the assets of the Corporate Debtor were handed

over to the Resolution Applicant and the approved Resolution Plan

has been executed and many actions have been successfully

implemented with regard to payment to stakeholders, shareholders,

government departments and CIRP cost have been settled.

18. We have considered averments made in the Appeal, replies of

the Respondents and the rejoinders of Appellant thereon, written

submissions and the oral arguments advanced by the parties.

19. The main issue on which this Appeal rests is whether

Respondent No.2 and Respondent No. 3 are related parties as

defined under Section 29A of the IBC, and if that were so, was

Respondent No.2 eligible to submit a Resolution Plan for the

resolution of with regard to the Corporate Debtor?

20. It is noted that while the Resolution Plan was approved by

the Committee of Creditors in its meeting held on 14.12.2019 and

submitted for approval to the Adjudicating Authority, the Appellant

sent communication to the Resolution Professional raising the

issue of ineligibility of Respondent No. 2 to submit a Resolution

Plan as he was related party to Respondent No.3, the suspended

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 11 of 19 Director of Corporate Debtor. This CA No. 850/2019 was dismissed

by the Adjudicating Authority vide order dated 25.02.2020,

whereupon the Appellant preferred appeal No.

CA(AT)(Ins)1168/2019 before the NCLAT. The NCLAT disposed off

this appeal vide order dated 13.12.2019 directing the Adjudicating

Authority to look into the documents filed before the Adjudicating

Authority regarding eligibility when considering the Resolution Plan

for final approval in CA No. 354/2018. The Resolution Plan was

approved vide order dated 8.6.2020 of the Adjudicating Authority in

CA 354/2018. The eligibility of Tejinder Singh Kochar as

Resolution Applicant was looked into and a final order was passed

approving the Resolution Plan.

21. We find surprising that the Resolution Professional while

filing CA No. 852/2019 did not give credence to the GST and

Income Tax Returns and later the Adjudicating Authority vide order

25.2.2019 in 850/2019 chose to rely on private documents i.e. two

retirement deeds, whose authenticity had been disputed by the

Appellant and dismiss the said Application No. 850/2019. The

applicant approached the NCLAT in appeal against this order but

was not granted leave. Hence he could not file appeal. In the

meanwhile, final order in CA No. 354/2018 dated 8.6.2020 came to

be passed approving the Resolution Plan.

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 12 of 19

22. We accept the claim of the Appellant that the order of

Adjudicating Authority in CA No. 850/2019 and 852/2019 could

not be formally challenged before the NCLAT for want of necessary

permission by the NCLAT and in the meantime the resolution plan

was approved in CA No. 354/2018 vide order dated 08.06.2020.

Further we find strength in the argument of the Appellant that the

order in CA NO. 850/2019 has since got merged into the order of

Adjudicating Authority dated 8.6.2020 approving the Resolution

Plan on which he has come in appeal before us. Even otherwise in

Appeal against approval of Resolution Plan, which opens grounds

which are present in Section 61(3) of IBC, we do not wish to shut

out Appellant on technicalities, in the interest of justice.

23. It is worth reiterating that the Appellant has placed on

record, in CA NO. 850/2019, GST returns and Income Tax returns

of both the companies, viz. M/s Prabh Films and M/s Prabh

International, to show that the successful Resolution Applicant

Tejinder Singh Kocher and the Suspended Director of the Corporate

Debtor Bhupinder Singh Mann are related parties, and hence the

Successful Resolution Applicant was not eligible under Section 29A

of IBC to submit a Resolution Plan vis a vis the resolution of

Corporate Debtor. He has contended that the Respondents have

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 13 of 19 relied upon the Retirement Deeds presented by Respondent No. 2

to show that Respondent No.3 had retired from two aforesaid firms

w.e.f. 31.10.2017.

24. Respondent No. 1's claim that the retirement deeds should

be accepted as Section 29A of IBC does not envisage any inquiry in

the authenticity of retirement deeds is not sustainable because the

retirement deeds have been, at the first instance, being disputed by

the Appellant and the Appellant has placed documents in the form

of GST and Income Tax returns which point towards the

discrepancy in the retirement deeds. Moreover, none of the

Respondents have disputed the GST and Income Tax returns,

which are matters of public record. In the face of these documents

the alleged retirement deeds appear suspect.

25. Now coming to the contents of the Income Tax Returns, it is

seen that the Income Tax return for the Assessment Year 2018-19

filed by Tejinder Singh Kocher on behalf of M/s Prabh Films

(attached at page 136 of the Appeal) include the name of Bhupinder

Singh Mann as a partner of Prabh Films (pg. 139 of the Appeal). It

is filed on 13.8.2018, much after 31.10.2017, the alleged date of

retirement as claimed by Respondent No. 3. Similarly, the Income

Tax return for the Assessment Year 2019-20 filed on behalf of M/s.

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 14 of 19 Prabh Films by Tejinder Singh Kocher on 29.8.2019 includes the

name of Bhupinder Singh Mann as a partner (attached at pages

192-193 of the Appeal).

26. Further in the Income Tax return of M/s. Prabh International

(the second firm) for Assessment Year 2018-19 filed by Tejinder

Singh Kocher on 17.8.2018, Bhupinder Singh Mann is shown as a

partner (attached at pages 249-294 of the Appeal). Also, in the

Income Tax return for the Assessment Year 2019-20 filed on

20.09.2019, on behalf of Prabh International by Tejinder Singh

Kocher (attached pages 295-352 of the appeal), Bhupinder Singh

Mann is shown as a partner.

27. Looking at the GST Returns, we find that in the GST Returns

filed on 24.6.2019 (attached on page 62 of the Appeal) of M/s.

Prabh Films, Bhupinder Singh Mann is shown as a partner.

Furthermore, in the GST Return for M/s. Prabh International filed

on 26.6.2019 (attached at page 75 of the appeal) Bhupinder Singh

Mann has been shown as a partner.

28. The retirement deeds show the date of retirement of

Respondent No. 3 from the two firms w.e.f 31.10.2017. Even if we

presume that on the date Respondent No. 2 submitted the

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 15 of 19 Resolution Plan to Resolution Professional i.e. on 06.06.2018,

Respondent No. 3 was not a partner in the two firms, and became a

partner again later. Some document should have been presented

to show when Respondent No. 3 again became a partner. Such a

document or evidence has not been presented. Hence, it would be

logical to infer that the authenticity of retirement deeds is suspect

in the face of continued relationship appearing from the Income

Tax and GST returns.

29. Furthermore, a discrepancy in the age of Bhupinder Singh

Mann observed in the partnership deed (which is shown as 43

years) and in the Retirement Deed (which is shown as 45 years)

pertaining to M/s Prabh Films also strengthens suspicion as to the

reliability of the retirement deed. A similar discrepancy has also

been observed in Bhupinder Singh Mann's age shown in

partnership deed and retirement deed pertaining to M/s Prabh

International, wherein his age is shown as 42 years and 47 years

respectively, while the difference between the dates of execution of

these deeds is a little over one year. These discrepancies also make

the authenticity of the two retirement deeds suspect.

30. The judgment of Hon'ble Supreme Court in Arcelormittal

India Private Limited V. Satish Kumar Gupta &Ors (2019) 2

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 16 of 19 SCC I, which has been cited by the Respondent No. 2 does not help

Respondent No. 2 in his case since the two retirement deeds are

not found authentic and reliable.

31. In the light of the aforesaid discussion, we are convinced by

the contention of the Appellant that Tejinder Singh Kocher

(Respondent No. 2) and Bhupinder Singh Mann (Respondent No. 3)

were connected parties as per Section 29A of IBC at the time the

Resolution Plan was submitted by the Respondent No. 2. This

leads to the obvious and inevitable conclusion that Tejinder Singh

Kocher was not eligible to submit the Resolution Plan and hence

the Resolution Plan so submitted and approved by the Adjudicating

Authority was bad in law.

32. We pass the following Orders:-

(A) The Impugned Order dated 08.06.2020 in CA

No.354/2018 in CP(IB) No. 123/Chd/CHD/2017

approving the Resolution Plan is, therefore, set aside.

The Resolution Plan is rejected as it was submitted by

a person hit by Section 29A of IBC. All actions taken

in implementation of the Resolution Plan which were

approved by the order dated 08.06.2020 are declared

null and void as the approved Resolution Plan

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 17 of 19 contravenes Section 30(2) of IBC. The matter is

remitted back to Adjudicating Authority. The

Adjudicating Authority is requested to pass orders of

liquidation under Section 33 of IBC and further

incidental orders in that context.

(B) Since the earlier Resolution Professional failed to

examine Resolution Plan as required under Section

30(1) read with Section 30(2) and an ineligible person

was supported in the face of documents to the

contrary, he shall be replaced and another appropriate

Resolution Professional shall be appointed as

Liquidator under Section 34(4) of IBC.

(C) In the facts of the matter, Respondents No. 2 and 3 are

saddled with costs Rs. 4 lakhs of this Appeal as

follows:-

Each of Respondents No. 2 and 3 shall pay costs of

Appeal Rs. 1 lakh to the Appellant (i.e. total Rs. 2

lakhs) and Rs. 1 lakh each (i.e. total Rs. 2 lakhs) to be

deposited in the Prime Minister's Relief Fund within a

month of this order. In case of default, the

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 18 of 19 Adjudicating Authority to take appropriate action for

non-compliance and recovery.

(Justice A I S Cheema) Officiating Chairperson

(Dr. Alok Srivastava) Member(Technical) New Delhi 1st June, 2021

/aks/

Company Appeal (AT) (Insolvency) No. 573 of 2020 Page 19 of 19