Neha Himatsingka & Anr vs Himatsingka Resorts Pvt. Ltd. & Anr

(Arising out of Order dated 19th March, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Guwahati Bench, in Diary No. 733/2017)

IN THE MATTER OF:

Neha Himatsingka & Anr. ...Appellants

Vs

Himatsingka Resorts Private Limited & Anr. ....Respondents

WITH

Company Appeal (AT) (Insolvency) No. 205 of 2018

(Arising out of Order dated 5th April, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Guwahati Bench, in Diary No. 3(015) of 2018)

IN THE MATTER OF:

Himatsingka Auto Enterprises ...Appellant

Vs

Himatsingka Resorts Private Limited & Anr. ....Respondents

Present:

For Appellant: Ms. Varsha Banerjee, Mr. Milan Singh Negi, Ms. Juhi Bhambani, Mr. Tarun Mehta and Mr. Kunal Godhwani, Advocates.

For Respondent: Mr. Arnav Dash and Mr. Omar Hoda, Advocates for R-1.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 2

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

As both the appeals relate to initiation of 'Corporate Insolvency

Resolution Process' against 'M/s. Himatsingka Resorts Private Limited'-

('Corporate Debtor'), they were heard together and disposed of by this

common judgment.

2. Ms. Neha Himatsingka and Mr. Kanishka Himatsingka- ('Financial

Creditors') jointly filed application under Section 7 of the Insolvency and

Bankruptcy Code, 2016 ('I&B Code' for short) for initiation of 'Corporate

Insolvency Resolution Process' against 'M/s. Himatsingka Resorts Private

Limited'- ('Corporate Debtor').

3. The Adjudicating Authority (National Company Law Tribunal),

Guwahati Bench, by impugned order dated 19th March, 2018, rejected joint

application preferred by Ms. Neha Himatsingka and Mr. Kanishka

Himatsingka- ('Financial Creditors'), by exercising its inherent powers to

address some extraordinary situations regardless of the fact, which

otherwise is not required for determination under the provisions of the 'I&B

Code'.

4. 'Himatsingka Auto Enterprises', another 'Financial Creditor' filed an

application under Section 7 of the 'I&B Code' for initiation of 'Corporate

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 3

Insolvency Resolution Process' against 'M/s. Himatsingka Resorts Private

Limited'- ('Corporate Debtor').

5. The same very Adjudicating Authority, Guwahati Bench, by other

impugned order dated 5th April, 2018 citing similar facts held there is lack

of merit since the debt which the 'Financial Creditors' firm made available

to the 'Corporate Debtor' during the period become not due even on the

representation of the application and thereby, there is no default in

repayment of loan.

6. The Adjudicating Authority in both the cases has not disputed that

the Appellants are the 'Financial Creditors' and the 'Corporate Debtor' has

obtained loan for its business. But in both the cases, the Adjudicating

Authority has gone beyond the scope of the 'I&B Code' to come to a

conclusion that the application under Section 7 is not maintainable.

7. Ms. Neha Himatsingka and Mr. Kanishka Himatsingka- ('Financial

Creditors') brought on record that the 'Corporate Debtor' obtained an

unsecured loan to the tune of Rs. 51,50,000/- (Rupees Fifty-One Lac Fifty

Thousand only) from Ms. Neha Himatsingka- ('Financial Creditor') in six

installments during the period from 30th April, 2013 to 24th April, 2014.

They alleged that there was a default in repayment of the principal amount

as well as the interest accrued thereon for which an amount to the tune of

Rs. 83,30,499.00/- (Rupees Eighty-Three Lacs Thirty Thousand Four

Hundred Ninety-Nine Only) had fallen due for payment to Ms. Neha

Himatsingka as on 15th November, 2017.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 4

8. It was also brought to the notice of the Adjudicating Authority that

Mr. Kanishka Himatsingka disbursed an unsecured loan to the tune of Rs.

25,00,000.00 (Rupees Twenty-Five Lac Only) to the 'Corporate Debtor' on

27th February, 2013 and there was a default in repayment of the principal

amount as well as the interest accrued therein to the tune of

Rs. 38,52,630.00 (Rupees Thirty-Eight Lac Fifty-Two Thousand Six

Hundred Thirty Only) which became due to the said Mr. Kanishka

Himatsingka as on 15th November, 2017.

9. The parties placed reliance on the agreement and earlier agreement

relating to complete management of the HOTEL with effect from 15th

December, 2014.

10. The 'Corporate Debtor' had raised objection alleging that the

application is not maintainable. It was submitted that the present

management of the 'Corporate Debtor' is in the hands of 'BK Group' which

never ever committed any default in repayment of loans in question

requiring the 'Financial Creditors' to initiate a proceeding under Section 7

of the 'I&B Code'.

11. Further plea of the 'Corporate Debtor' was that the management of

the 'Corporate Debtor' up to 15th December, 2014 were with the 'Financial

Creditors' and their father/ father-in-law. Thereafter, it was transferred to

'BK Group' on 15th December, 2014 under certain terms and conditions,

relevant of which is extracted below:

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 5

"That the Second Party has agreed to take over the

complete management of the HOTEL with effect from

15.12.2014 (afternoon) and payment for the same will be

made as per Schedule "A" attached hereto."

"Schedule A

To shareholder 3,71,68,000.00 Unsecured Loan 2,20,00,000.00 State Bank of India 6,68,47,077.00 Loan Allahabad Bank loan 49,53,200.00 Statutory and Other 1,60,51,723.00 Liability For land 29,80,000.00

"Clause-8: That the Second party will arrange for

funds to invest in the repayment of unsecured loan

amounting to Rs. 2,20,00,000.00 (Rupees two Crore

twenty lakh) only and balance amount of unsecured loan

if any will be arranged and repaid by party of the first

part. Loan standing against Allahabad Bank amounting

to Rs. 43,53,200.00 (Rupees Forty nine Lakh fifty three

thousand two hundred) only, statutory and other liability

amounting to Rs. 1,00,41,723/- (Rupees one Crore Sixty

lakh fifty one thousand seven hundred twenty three) only

will paid and settled by the 2nd party."

12. Therefore, according to the 'Corporate Debtor', the application as well

as the documents, do not disclose any default having been committed by

the 'Corporate Debtor' in repayment of debt due to the 'Financial Creditors'.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 6

13. The 'Corporate Debtor' also raised the question about the status of

the Appellants and pleaded that they do not come within the meaning of

'Financial Creditors' as defined under Section 5(7) read with Section 5(8) of

the 'I&B Code'.

14. The objection was also raised that the claim was barred by limitation.

However, the Adjudicating Authority has not accepted the aforesaid

objections and proceeded on merit relating to 'agreement' and the so-called

dispute and documents relating to 'restructured term loan'.

15. At this stage, it is desirable to notice that after conclusion of the

hearing of the application under Section 7 and before the impugned order

was passed, the 'Corporate Debtor' filed affidavit requesting the

Adjudicating Authority to allow the 'Corporate Debtor' to bring on record

two post-dated cheques in favour of each of the 'Financial Creditors'

without prejudice to its rights and contentions.

16. The Adjudicating Authority without waiting for those cheques,

rejected the application on the ground that 'BK Group' which is presently

managing the 'Corporate Debtor' has brought on record the agreement

dated 30th July, 2013, wherein one of the clause no.3 (i) stipulates that "the

Company will furnish undertaking that the unsecured loans will not be

withdrawn during the currency of the Bank Loan and that these unsecured

loans will be non-interest bearing."

17. The Adjudicating Authority highlighted the undertaking that the

Appellants will not withdraw the amount during the currency of the Bank

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 7

Loan and no interest will be paid. However, the Adjudicating Authority

failed to take into consideration that the said agreement relates to loan

given by Bank to the 'Corporate Debtor'.

18. The 'Corporate Debtor' has obtained term loan from the State Bank of

India on executing the agreement dated 30th July, 2013, when the

'Financial Creditors' were part of the management of the 'Corporate Debtor'.

The members of 'RHS Group' had signed the agreement dated 30th July,

2013 as the guarantors. The clause 3 (i) of the agreement dated 30th July,

2013 do not show that it relates to the 'Financial Creditors' by their names

particularly when the 'RHS Group' was the guarantor.

19. Without discussing the aforesaid relevant fact, the Adjudicating

Authority held that there was no proof whatsoever of securing any

undertaking from the unsecured creditors of the 'Corporate Debtor'

including the 'Financial Creditors', and such vital condition was not met

before availing of aforesaid term loan. The Adjudicating Authority while

dealing with the matter observed as follows:

"49. Since there was no proof whatsoever of

securing any undertaking from the unsecured

creditors of the CD including the FCs herein, it needs

to be concluded that such a very vital condition was

not met before availing of aforesaid term loan,

provided by the Bank. In other words, in securing

the aforesaid term loan, the CD has ruthlessly

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 8

violated some very inviolable terms under which the

term loan was made available to the CD and

therefore, it is impossible for the BK Group to enforce

conditions in clause No. 3 against the unsecured

creditors of the CD including the FCs.

xxx xxx

xxx

52. On a perusal of the agreement dated

30.07.2013, it is found that the Bank concerned had

persistently called upon the CD to fulfill all the

requirements, incorporated in the said agreement

including conditions in Clause No. 3 before availing

of the loan by the CD here. The various documents,

annexed with the additional affidavit, further give

an irresistible impression that before disbursing said

loan, the bank concerned had evidently required the

CD to fulfill all the requirements, specified in the

said agreement.

53. In the face of such revelations, it would

appear clear that all the unsecured creditors are

bound by all the conditions, incorporated in the

agreement including conditions incorporated in

clause No.3 thereof. Therefore, there can be no

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 9

escape from the conclusion that the unsecured

creditors of the CD including the FCs herein cannot

claim re-claim loans, they have granted to the CD

before the liquidation of the entire loan which the

bank had made available to the CD. What is equally

important to note is that the unsecured creditors of

the CD are also not entitled to claim any interest on

the loans since such loans are found to be non-

interest bearing."

20. According to learned counsel for the Appellant- 'Neha Himatsingka &

Anr.', the Adjudicating Authority failed to consider the fact that during the

pendency of the application under Section 7, the 'Corporate Debtor' had

paid the principal amount of Rs. 51,50,000/- and Rs. 25,00,000/- to the 1st

and 2nd Appellants and also issued postdated cheques of Rs. 29,75,415/-

and Rs. 12,46,808/- towards interest thereof, after deducting TDS to the 1st

and 2nd Appellants respectively.

21. Learned counsel for the Appellant also brought on record the records

of 'M/s. Himatsingka Resorts Private Limited'- ('Corporate Debtor') relating

to confirmation of accounts for the period from 15th April, 2013 to 31st

March, 2014, Form- 26AS of the Income Tax Act, 1961 relating to TDS as

well as the books of the accounts for the financial year 2015-2016 with the

'Corporate Debtor's Audit Report wherein against the name of the

Appellants 'term borrowing' loan have been shown.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 10

22. The Respondents have taken similar plea as was taken before the

Adjudicating Authority.

23. In "Innoventive Industries Limited Vs. ICICI Bank and Another−

(2018) 1 SCC 407", the Hon'ble Supreme Court explaining Sections 7 & 9

of the 'I&B Code' observed and held as follows:

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a

debt becomes due and is not paid, the

insolvency resolution process begins. Default is

defined in Section 3(12) in very wide terms as

meaning non-payment of a debt once it

becomes due and payable, which includes non-

payment of even part thereof or an instalment

amount. For the meaning of "debt", we have to

go to Section 3(11), which in turn tells us that a

debt means a liability of obligation in respect of

a "claim" and for the meaning of "claim", we

have to go back to Section 3(6) which defines

"claim" to mean a right to payment even if it is

disputed. The Code gets triggered the moment

default is of rupees one lakh or more (Section

4). The corporate insolvency resolution process

may be triggered by the corporate debtor itself

or a financial creditor or operational creditor. A

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 11

distinction is made by the Code between debts

owed to financial creditors and operational

creditors. A financial creditor has been defined

under Section 5(7) as a person to whom a

financial debt is owed and a financial debt is

defined in Section 5(8) to mean a debt which is

disbursed against consideration for the time

value of money. As opposed to this, an

operational creditor means a person to whom

an operational debt is owed and an operational

debt under Section 5(21) means a claim in

respect of provision of goods or services.

28. 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

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

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 12

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. Under Rule 4(3), the applicant

is to dispatch a copy of the application filed

with the adjudicating authority by registered

post or speed post to the registered office of the

corporate debtor. The speed, within which the

adjudicating authority is to ascertain the

existence of a default from the records of the

information utility or on the basis of evidence

furnished by the financial creditor, is

important. This it must do within 14 days of

the receipt of the application. It is at the stage

of Section 7(5), where the adjudicating

authority is to be satisfied that a default has

occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the

sense that the "debt", which may also include

a disputed claim, is not due. A debt may not be

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 13

due if it is not payable in law or in fact. The

moment the adjudicating authority is satisfied

that a default has occurred, the application

must be admitted unless it is incomplete, in

which case it may give notice to the applicant

to rectify the defect within 7 days of receipt of a

notice from the adjudicating authority. Under

sub-section (7), the adjudicating authority shall

then communicate the order passed to the

financial creditor and corporate debtor within 7

days of admission or rejection of such

application, as the case may be.

xxx xxx xxx

30. On the other hand, as we have seen, in

the case of a corporate debtor who commits a

default of a financial debt, the adjudicating

authority has merely to see the records of the

information utility or other evidence produced

by the financial creditor to satisfy itself that a

default has occurred. It is of no matter that the

debt is disputed so long as the debt is "due"

i.e. payable unless interdicted by some law or

has not yet become due in the sense that it is

payable at some future date. It is only when

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 14

this is proved to the satisfaction of the

adjudicating authority that the adjudicating

authority may reject an application and not

otherwise."

24. As per the 'I&B Code' and the law laid down by the Hon'ble Supreme

Court, as referred above, the Adjudicating Authority is required to go

through the details in Form-1 including Part IV and Part V therein to find

out whether there is a debt and default. Once it is satisfied that a default

has occurred, it is open to admit the case. The 'Corporate Debtor' can show

and satisfy the Adjudicating Authority "that a default has not occurred in

the sense that the 'debt', which may also include a disputed claim, is not

due or payable in law or in fact". The Adjudicating Authority has no

jurisdiction to decide any other issue including whether one or other party

is guided by a third party agreement relating to loan between the 'Corporate

Debtor' and Bank, till specific agreement is reached between the 'Financial

Creditor' and the 'Corporate Debtor' referring to a third party agreement.

25. In the present case, we find that the Adjudicating Authority has

exceeded its jurisdiction and exercised its inherent powers under Rule 11 of

the National Company Law Tribunal Rules, 2016, which is actually not

applicable in the cases under Sections 7 or 9 or 10 of the 'I&B Code'.

26. In absence of inherent powers of the Adjudicating Authority, we have

no other option but to set aside the impugned order dated 19th March,

2018.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 15

27. In "Binani Industries Limited Vs. Bank of Baroda & Anr. -

Company Appeal (AT) (Insolvency) No. 82 of 2018 etc.", this Appellate

Tribunal by its judgment dated 14th November, 2018 held as follows:

"17. To decide the issue, it will be desirable to notice

the object of the 'I&B Code', object of 'Resolution' and what is

expected from the 'Committee of Creditors', as summarized

below: -

1. The objective of the 'I&B Code'

As evident from the long title of the 'I&B Code', it is

for reorganisation and insolvency resolution of

corporate persons, partnership firms and individuals

in a time bound manner for maximisation of value of

assets of such persons to promote entrepreneurship,

availability of credit, and balance the interests of all

stakeholders. The recent Ordinance explicitly aims to

promote resolution over liquidation.

2. The objective of the 'I&B Code' is Resolution.

The Purpose of Resolution is for maximisation of

value of assets of the 'Corporate Debtor' and

thereby for all creditors. It is not maximisation of

value for a 'stakeholder' or 'a set of stakeholders'

such as Creditors and to promote

entrepreneurship, availability of credit and

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 16

balance the interests. The first order objective is

"resolution". The second order objective is

"maximisation of value of assets of the 'Corporate

Debtor'' and the third order objective is "promoting

entrepreneurship, availability of credit and

balancing the interests". This order of objective is

sacrosanct.

In the matter of "Arcelor Mittal India Pvt.

Ltd. v. Satish Kumar Gupta and Ors.", the

Hon'ble Supreme Court observed that "the

'Corporate Debtor' consists of several employees and

workmen whose daily bread is dependent on the

outcome of the CIRP. If there is a resolution applicant

who can continue to run the corporate debtor as a

going concern, every effort must be made to try and

see that this is made possible".

3. 'Financial Creditors' as members of the

'Committee of Creditors' and their Role.

a. The Bankruptcy Law Reforms Committee (BLRC),

which conceptualised the 'I&B Code', reasoned as

under:

i. Under Para 5.3.1, sub-para 4, the BLRC

provided rationale for 'Financial Creditors' as under:

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 17

"4. Creation of the creditors committee

...

The Committee deliberated on who should be on the

creditors committee, given the power of the creditors

committee to ultimately keep the entity as a going

concern or liquidate it. The Committee reasoned that

members of the creditors committee have to be

creditors both with the capability to assess

viability, as well as to be willing to modify

terms of existing liabilities in negotiations.

Typically, 'Operational Creditors' are neither able to

decide on matters regarding the insolvency of the

entity, nor willing to take the risk of postponing

payments for better future prospects for the entity.

The Committee concluded that for the process to be

rapid and efficient, the 'I&B Code' will provide that

the creditors committee should be restricted to only

the 'Financial Creditors'.

ii. In Para 3.4.2 dealing with 'Principles driving

design', the principle IV reads as under:

"IV. The 'I&B Code' will ensure a collective process.

9. The law must ensure that all key stakeholders

will participate to collectively assess viability. The

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 18

law must ensure that all creditors who have the

capability and the willingness to restructure their

liabilities must be part of the negotiation process.

The liabilities of all creditors who are not part

of the negotiation process must also be met in

any negotiated solution."

b. The 'I&B Code' aims at promoting

availability of credit. Credit comes from the

'Financial Creditors' and the 'Operational Creditors'.

Either creditor is not enough for business. Both

kinds of credits need to be on a level playing field.

'Operational Creditors' need to provide goods and

services. If they are not treated well or

discriminated, they will not provide goods and

services on credit. The objective of promoting

availability of credit will be defeated.

c. The 'I&B Code' is for reorganisation and

insolvency resolution of corporate persons, ....for

maximisation of value of assets of such

persons to.... balance interests of all

stakeholders. It is possible to balance interests of

all stakeholders if the resolution maximises the

value of assets of the 'Corporate Debtor'. One cannot

balance interest of all stakeholders, if resolution

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 19

maximises the value for a or a set of stakeholder

such as 'Financial Creditors'. One or a set of

stakeholders cannot benefit unduly stakeholder at

the cost of another.

d. The 'I&B Code' prohibits any action to foreclose,

recover or enforce any security interest during

resolution period and thereby prevents a creditor

from maximising his interests.

e. It follows from the above:

i. The liabilities of all creditors who are not part

of 'Committee of Creditors' must also be met in

the resolution.

ii. The 'Financial Creditors can modify the terms of

existing liabilities, while other creditors cannot take

risk of postponing payment for better future

prospectus. That is, 'Financial Creditors' can take

haircut and can take their dues in future, while

'Operational Creditors' need to be paid immediately.

iii. A creditor cannot maximise his own interests in view

of moratorium.'

iv. If one type of credit is given preferential treatment,

the other type of credit will disappear from market.

This will be against the objective of promoting

availability of credit.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 20

v. The 'I&B Code' aims to balance the interests of all

stakeholders and does not maximise value for

'Financial Creditors'.

vi. Therefore, the dues of creditors of 'Operational

Creditors' must get at least similar treatment as

compared to the due of 'Financial Creditors'.

3. 'Resolution Plan'

The 'I&B Code' defines 'Resolution Plan' as a

plan for insolvency resolution of the 'Corporate

Debtor' as a going concern. It does not spell out the

shape, colour and texture of 'Resolution Plan', which

is left to imagination of stakeholders. Read with long

title of the 'I&B Code', functionally, the 'Resolution

Plan' must resolve insolvency (rescue a failing, but

viable business); should maximise the value of

assets of the 'Corporate Debtor', and should promote

entrepreneurship, availability of credit, and balance

the interests of all the stakeholders.

It is not a sale. No one is selling or buying

the 'Corporate Debtor' through a 'Resolution Plan'. It

is resolution of the 'Corporate Debtor' as a going

concern. One does not need a 'Resolution Plan' for

selling the 'Corporate Debtor'. If it were a sale, one

can put it on a trading platform. Whosoever pays the

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 21

highest price would get it. There is no need for voting

or application of mind for approving a 'Resolution

Plan', as it will be sold at the highest price. One

would not need 'Corporate Insolvency Resolution

Process', 'Interim Resolution Professional',

'Resolution Professional', interim finance, calm

period, essential services, Committee of Creditors or

'Resolution Applicant' and detailed, regulated

process for the purpose of sale. It is possible that

under a 'Resolution Plan', certain rights in the

'Corporate Debtor', or assets and liabilities of the

'Corporate Debtor' are exchanged, but that is

incidental.

It is not an auction. Depending on the facts

and circumstances of the 'Corporate Debtor',

'Resolution Applicant' may propose a 'Resolution

Plan' that entails change of management,

technology, product portfolio or marketing strategy;

acquisition or disposal of assets, undertaking or

business; modification of capital structure or

leverage; infusion of additional resources in cash or

kind over time; etc. Each plan has a different

likelihood of turnaround depending on credibility

and track record of 'Resolution Applicant' and

feasibility and viability of a 'Resolution Plan' are not

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 22

amenable to bidding or auction. It requires

application of mind by the 'Financial Creditors' who

understand the business well.

It is not recovery: Recovery is an individual

effort by a creditor to recover its dues through a

process that has debtor and creditor on opposite

sides. When creditors recover their dues - one after

another or simultaneously- from the available assets

of the firm, nothing may be left in due course. Thus,

while recovery bleeds the 'Corporate Debtor' to

death, resolution endeavors to keep the 'Corporate

Debtor' alive. In fact, the 'I&B Code' prohibits and

discourages recovery in several ways.

It is not liquidation: Liquidation brings the

life of a corporate to an end. It destroys

organisational capital and renders resources idle till

reallocation to alternate uses. Further, it is

inequitable as it considers the claims of a set of

stakeholders only if there is any surplus after

satisfying the claims of a prior set of stakeholders

fully. The 'I&B Code', therefore, does not allow

liquidation of a 'Corporate Debtor' directly. It allows

liquidation only on failure of 'Corporate Insolvency

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 23

Resolution Process'. It rather facilitates and

encourages resolution in several ways."

28. Therefore, the Adjudicating Authority giving reference to exercising

inherent powers cannot decide any dispute in a proceeding under Section 7

though it may notice pre-existence of dispute while dealing with the

application under Section 9 of the 'I&B Code'.

29. So far as the Appellants- Ms. Neha Himatsingka and Mr. Kanishka

Himatsingka- ('Financial Creditors') are concerned, it is not disputed that

they have given loan to the 'Corporate Debtor'; in fact, the 'Corporate Debtor'

has borrowed for the purpose of its business. Such consideration amount

has been invested by the Appellants having time value of money.

30. The record shows that the 'Corporate Debtor' has paid interest even

after the year 2016-17 and also issued cheques in the year 2018 and,

therefore, it cannot be stated that the claim is barred by limitation.

Therefore, the objection of the 'Corporate Debtor' that the claim is barred by

limitation is fit to be rejected. The Adjudicating Authority has rightly not

accepted such plea.

31. As we find that there is a debt payable by the 'Corporate Debtor' to the

'Financial Creditors' and the 'Corporate Debtor' has defaulted to pay the

same amount, we hold that it is fit case for admission.

32. For the reasons aforesaid, we set aside the impugned order dated 19th

March, 2018 and remit the matter to the Adjudicating Authority for

admission of the application under Section 7 of the 'I&B Code' after notice to Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 24

the parties. The Respondents cannot take any plea other than the plea

already taken and decided in this appeal. However, it will be open to the

Respondents to pay all the dues including the interest, if any, before

admission of the application under Section 7. The appeal preferred by 'Neha

Himatsingka & Anr.' being Company Appeal (AT) (Insolvency) No. 201 of

2018 is allowed.

33. So far as the case of 'Himatsingka Auto Enterprises'- ('Financial

Creditor') is concerned, it is brought on record that the 'Corporate Debtor'

had obtained unsecured loan to the tune of Rs. 2,50,73,525.00 (Rupees Two

Crore Fifty Lac Seventy-Three Thousand Five Hundred Twenty-Five Only)

during the period from 28th June, 2012 to 20th April, 2013. There is an

allegation of default in repayment of the aforesaid loan as well as the

interest accrued thereon, as on 15th May, 2015 and defaulted amount

according to the Appellant comes to the tune of Rs. 2,38,48,327.00 (Rupees

Two Crore Thirty-Eight Lac Forty-Eight Thousand Three Hundred Twenty-

Seven Only).

34. In the present case, we find that the Adjudicating Authority has taken

similar plea as was taken in the earlier case.

35. The Respondents have taken plea that one Sri Bhagya Kalita or for the

matter the 'Corporate Debtor' had no obligation whatsoever to repay the

entire unsecured loans, obtained by the 'Corporate Debtor' prior to 15th

December, 2014 due to change of management. The Adjudicating Authority

has referred to an agreement dated 15th December, 2014, wherein one Sri

Bhagya Kalita, who is the Managing Director of the 'Corporate Debtor' had

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 25

agreed to purchase the entire shareholdings of Mr. Rajesh Himatsingka, his

son Mr. Kanishka Himatsingka and his daughter-in-law Ms. Neha

Himatsingka. Giving reference to their cases and the agreement dated 15th

December, 2014, the Adjudicating Authority has exercised inherent power

and refused to entertain the application.

36. We are not going on the detailed reason given by the Adjudicating

Authority for exercising inherent power as we have already held that the

Adjudicating Authority has no jurisdiction to exercise inherent power for

deciding any disputed question whether claim is bonafide or malafide.

37. For the reasons aforesaid, we set aside the impugned order dated 15th

April, 2018 passed by the Adjudicating Authority in the case of 'Himatsingka

Auto Enterprises' and remit the matter to the Adjudicating Authority for

deciding the matter fresh after notice to the parties.

38. The parties are not given liberty to raise any question or dispute, all

matters having already heard and decided in the present appeal. If there is

debt and default, the Adjudicating Authority will admit the case.

39. If the application under Section 7 filed by 'Neha Himatsingka & Anr.'

is admitted in that case the question of admission of the Second application

under Section 7 by 'Himatsingka Auto Enterprises' against the same

'Corporate Debtor' will not arise. 'Himatsingka Auto Enterprises' in such

case may file claim before the 'Interim Resolution Professional' as may be

appointed while dealing with the case of 'Neha Himatsingka & Anr. Vs.

Himatsingka Resorts Private Limited'.

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018 26

40. However, in case it is informed that the case of 'Neha Himatsingka &

Anr. Vs. Himatsingka Resorts Private Limited' has become infructuous before

admission of amount, having paid the amount including the interest, in

such case, the Adjudicating Authority will independently decide the

application under Section 7 of the 'I&B Code' filed by 'Himatsingka Auto

Enterprises' uninfluenced by the impugned order passed by it.

41. Both the appeals are allowed with aforesaid observations and

directions. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

30th November, 2018

AR

Company Appeal (AT) (Insolvency) Nos. 201 & 205 of 2018