Niraj Kumar Singh vs Faihzan Khan & Anr

Company Appeal (AT) (Ins.) No. 566 of 2022

[Arising out of order dated 18.04.2022 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench-II in C.P. No. (IB) 656 (ND) /2020]

IN THE MATTER OF:

Niraj Kumar Singh S/o Mr. Baliraj Singh, R/o Phoolpur, Foolpur, Varanasi, Uttar Pradesh - 221206 ....Appellant

Vs.

Mr. Faihzan Khan S/o Mr. Suleman Yakub Khan R/o Asmita Horizon, A-Wing, Flat No.706, Next to Asmit Club, Mira Road East, Thane - 401107 ....Respondent No.1

M/s LI Digital Payments Pvt. Ltd. Through IRP Aditya Kumar Khasra No. 632, Ground Floor, Village Rangpuri, Near Telco, Delhi, South West Delhi - 110037 ....Respondent No.2

Present:

For Appellant: Ms. Charu Sangwan, Ms. Shubhi Agarwal, Advocates

For Respondents: Mr. Suprateek Neogi and Mr. Arnav Kumar, Advocates for R-2 Mr. Jain, Advocate

Company Appeal (AT) (Ins.) No. 566 of 2022 1 JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 ("IBC" in short) by the Appellant arises out of the order

dated 18.04.2022(hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority, National Company Law Tribunal, New Delhi Bench-II in

C.P IB No. 656(ND)/2020. By the impugned order, the Adjudicating Authority

has admitted the petition under Section 9 of IBC and allowed the initiation of

Corporate Insolvency Resolution Process ("CIRP" in short) of the Corporate

Debtor. Aggrieved by this impugned order the present appeal has been preferred

by the suspended Director of the Corporate Debtor.

2. The brief factual matrix of the case is as follows: -

 The Appellant is the erstwhile Director of the Corporate Debtor

/Respondent No.2, namely, M/s LI Digital Payments Private Limited,

which is a mobile payment platform for financial transaction services.

 The Respondent No.1/Operational Creditor was an employee of the

Corporate Debtor having been appointed as General Manager, Sales

Support vide appointment letter dated 02.08.2018.

 Services of the Respondent No.1 was terminated/laid off by the

Corporate Debtor after issue of a notice of Lay Off on 16.08.2019. A

full and final settlement statement slip was issued by the Corporate

Company Appeal (AT) (Ins.) No. 566 of 2022 2 Debtor in respect of the Operational Debt owed to the Operational

Creditor on 21.11.2019.

 The Operational Creditor not having received the due payment of

operational debt owed by the Corporate debtor, sent a Demand Notice

on 09.12.2019 seeking settlement of his operational dues of

Rs.10,62,977/-.

 On not having received any reply from the Corporate Debtor to the

Demand Notice, the Operational Creditor filed a Section 9 application

before the Adjudicating Authority on 22.02.2020.

 The Adjudicating Authority admitted the Section 9 application on the

ground that the Operational Creditor had established default on the

part of the Corporate Debtor and that the Corporate Debtor failed to

demonstrate any pre-existing disputes between the parties.

 Aggrieved by the said impugned order, this appeal has been preferred

by the Corporate Debtor.

3. Making his submissions, the Learned Counsel for the Appellant has

admitted that the Respondent No.1/Operational Creditor was appointed in the

capacity of General Manager, Sales Support vide appointment letter dated

02.08.2018 and that he rendered his services for a year until he was removed

from services vide termination letter dated 16.08.2019. It has been further

submitted that the Operational Creditor had been notified of his fraudulent and

unlawful conduct during his service period. Describing the unlawful conduct, it

Company Appeal (AT) (Ins.) No. 566 of 2022 3 has been submitted that the Operational Creditor while working as an employee

of My Mobile Payments Limited ("MMPL" in short) had connived with the sales

team of MMPL in siphoning cash by creating fake transactions on the said

company's platform. Subsequently, when MMPL was acquired by Corporate

Debtor and the Operational Creditor joined the services of the Corporate Debtor

he continued with the same modus operandi and misappropriated funds.

4. While admitting that at the time of lay-off of the Operational Creditor on

16.08.2019, the Corporate Debtor was unaware of the dishonest acts of the

Operational Creditor, it was submitted by the Learned Counsel for the Appellant

that subsequently on a complaint filed by one person, namely, Mr. Abdul Hashmi

before the Mumbai Police Station vide FIR No. 499/2019 on 19.11.2019, it came

to their notice that the Operational Creditor had acted dishonestly. It was added

that this dishonest and fraudulent conduct on the part of the Operational

Creditor had led to financial crunch of the Corporate Debtor. Further, the

Operational Creditor was informed about the breach of Clause 6 of the

employment agreement committed by him. The Learned Counsel for the

Appellant has claimed that the Adjudicating Authority failed to appreciate that a

pre-existing dispute existed between the parties in the context of the FIR which

had been inter-alia filed against the Operational Creditor which was under

investigation.

Company Appeal (AT) (Ins.) No. 566 of 2022 4

5. It has been further submitted that the Operational Creditor has claimed

to have issued a Demand Notice on 09.12.2019 demanding a payment of

Rs.10,62,977/- but the Demand Notice was never served upon the Corporate

Debtor and the tracking report filed by the Operational Creditor is erroneous and

incomplete and does not demonstrate service of Demand Notice. As the Demand

Notice was not received, the Corporate Debtor was not able to reply to the Section

8 Demand Notice within 10 days for no fault of theirs and this is therefore

violative of the principles of natural justice.

6. It has been contended that the Operational Creditor failed to comply with

the provisions of Rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 which provides that the Demand Notice may

be delivered at the registered office of the Corporate Debtor. It has been stated

that the service of the Demand Notice dated 09.12.2019 at 4th Floor, Plot No.30,

STPI Building, Electronic City, Udyog Vihar, Sector 18, Gurgaon-122015 is

defective and incomplete as the said office premises was a leased premises and

was not in possession of the Corporate Debtor. It has also been contended that

the Operational Creditor failed to file the tracking report reflecting proper service

of the Demand Notice. It has also been stated that the Operational Creditor failed

to serve the Demand Notice at the Malad Office in Mumbai which is the alternate

address of the Corporate Debtor which is denoted at the MCA Website. Further

the alleged service of the Demand Notice is defective as the Demand Notice has

been addressed to a non-existing entity, "Lex Innova Digital Payments Private

Limited" whereas the correct name of the Corporate Debtor Company is "LI Company Appeal (AT) (Ins.) No. 566 of 2022 5 Digital Payments Private Limited" as per Company Master Data. It has, therefore,

been contended that the Adjudicating Authority had erred in accepting the

application filed under Section 9 of the IBC despite non-service of Demand Notice

and that the Demand notice was defective.

7. The Learned Counsel for the Respondent No.1/Operational Creditor

refuting the submissions made by the Appellant has contended that his

operational debt has been clearly admitted by the Corporate Debtor in their email

dated 21.11.2019 and the present plea taken about his conduct is with the intent

of evading the liability to clear his legitimate dues. The Corporate Debtor had

never ever raised the issue of unlawful conduct by him while he was in service.

Further, it was strenuously denied that the Operational Creditor was terminated

from service. It was claimed that he was laid off due to financial squeeze faced

by the Corporate Debtor and not due to his conduct or performance. It has also

been contended that the Operational Creditor was not a party in the FIR in

question nor any case or investigation going on against him and therefore this

plea also looks substance.

8. It has been further submitted that the Demand Notice was duly served

upon the Corporate Debtor and that the tracking report filed along with the

application is complete as per the provisions of the Indian Post Office Act, 1892.

The Corporate Debtor was running his office from 4th Floor, Plot No.30, STPI

Building, Electronic City, Udyog Vihar, Sector 18, Gurgaon-122015 and this

address is clearly brought out from the settlement slip issued by the Corporate

Company Appeal (AT) (Ins.) No. 566 of 2022 6 Debtor. Stating that the notice has been issued and served at the registered

address from where the Corporate Debtor was operating his office, it was pointed

out that it is not mandatory to serve notice on each and every address of the

company and therefore the notice was issued in compliance of the provisions of

the IBC and Rule 5 of the Insolvency and Bankruptcy Rules, 2016.

9. We have duly considered the detailed arguments and submission advanced

by the Learned Counsel for both the parties and perused the records carefully.

10. The pointed issues before us for our consideration is two-fold. Firstly, we

need to determine whether the Demand Notice as issued was defective and

whether it was ineffectively served. Secondly, we need to see whether the pre-

existing dispute existing between the parties arising from FIR No. 499/2019 is

supported by evidence.

11. Coming to the first issue, we may begin with the rival contentions

surrounding the nomenclature of the Corporate Debtor. It has been contended

by the Corporate Debtor that the correct name of the Respondent No. 2 company

is "LI Digital Payments Pvt. Ltd." but has been wrongly depicted as "Lex Innova

Digital Payments Pvt. Ltd". The two being different entities and the Demand

Notice having been addressed to "Lex Innova Digital Payments Pvt. Ltd.", the

notice was therefore defective. The rival contention of the Operational Creditor

is that the acronym "LI" stands for Lex Innova and the Corporate Debtor have

themselves used the word Lex Innova in the letter-head of the Appointment

Company Appeal (AT) (Ins.) No. 566 of 2022 7 Letter dated 02.08.2018 issued by them to the Operational Creditor. Thus, the

Corporate Debtor is also clearly associated with the name "LexInnova".

12. We also note that this issue of nomenclature has been deliberated at length

by the Adjudicating Authority in the Impugned Order after having examined

various material on record including the Appointment letter, Demand notice and

Company Master data as reproduced below:

"23. That from perusal of the aforesaid document, we observe that

although the Demand Notice is addressed to Lex Innova Digital

Payments Pvt. Ltd., however, in the main body of the Demand Notice,

the Corporate Debtor has also been addressed as "LI Digital Payments

Pvt. Ltd bearing CIN No. U74999DL2018PTC330177", which matches

with the CIN of the Corporate Debtor herein, as reflected in the master

data annexed.

24. Since the Corporate Debtor has identified itself as "lexinnova" in

the Appointment Letter and the Demand Notice issued under Section 8

contains both the names of the Corporate Debtor i.e, "Lex Innova Digital

Payments Pvt. Ltd." as well as the "LI Digital Payments Pvt. Ltd.", we

do not find any deficiency in the issuance of the Demand Notice by the

Applicant on this ground."

13. In addition we note that even in the Settlement slip at page 117 of Appeal

Paper Book ("APB" in short), the word Lexinnova has been used by the Corporate

Debtor Company. Further the forwarding email from the HR Team of the

Company Appeal (AT) (Ins.) No. 566 of 2022 8 Corporate Debtor to the Respondent No.1 also uses the word Lexinnova as may

be seen at page 116 of APB. We are therefore satisfied that there are no cogent

reasons to disagree with well-considered findings of the Adjudicating Authority

that there was no deficiency in the Demand Notice with regard to nomenclature

of the Corporate Debtor Company.

14. This now brings us to the issue of effective service of the Demand Notice.

The Learned Counsel for the Appellant has stated that the Operational Creditor

annexed two Speed Post receipts bearing two separate consignment numbers to

prove the service of the Demand Notice dated 09.12.2019 but filed the tracking

report of only consignment. Furthermore, the demand notice seems to have been

served at 4th Floor, Plot No.30, STPI Building, Electronic City, Udyog Vihar,

Sector 18, Gurgaon-122015 which was the previous branch office of the

Corporate Debtor. The Demand Notice has been claimed to have been allegedly

served at an office address which had ceased to be office of the Corporate Debtor

since their lease for this building stood terminated and the physical possession

of the office was not with the company from 30.09.2019.

15. Moreover, it is the Appellant's contention that the address at which the

Operational Creditor had served the Demand Notice was the branch office

address and not the registered address of the Corporate Debtor in terms of the

Company Master data. The Operational Creditor had thus failed to serve the

Demand Notice at the registered office of the Corporate Debtor. It is, therefore,

the case of the Appellant that the Operational Creditor failed to serve the Demand

Company Appeal (AT) (Ins.) No. 566 of 2022 9 Notice at the correct address and also in not having sent the same by email had

defaulted in complying with the provisions of the Rule 5(2)(b) of the Insolvency

and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Thus the

statutory mandate given for 10 days to reply to the Demand Notice having been

denied and thereby the defence to raise a pre-existing dispute not being

available, admission of Section 9 application by the Adjudicating Authority was

legally untenable.

16. The Learned Counsel for the Respondent No. 1 vehemently contended the

arguments proffered by the Appellant and insisted that the Corporate Debtor was

running office from 4th Floor, Plot No.30, STPI Building, Electronic City, Udyog

Vihar, Sector 18, Gurgaon-122015 as borne out by the settlement slip issued by

the Corporate Debtor. It was argued that this slip clearly shows that the

Corporate Debtor was running his office from the said address. Moreover, the

tracking report at page 130 of APB shows effective delivery of the notice at this

address and the ground raised of non-delivery of Demand Notice is misleading

and a cover-up on the part of the Corporate Debtor for having failed to reply to

the Demand Notice on time. It has also been submitted that the delivery of the

demand notice has been shown in the tracking receipt and that at the top thereof,

it clearly mentions that item delivery was confirmed on 18.12.2019.

17. We find that this aspect has also been dwelled upon at length by the

Adjudicating Authority and that after taking due cognisance of the address

mentioned on the Letter-head of the Settlement Slip issued by the Corporate

Company Appeal (AT) (Ins.) No. 566 of 2022 10 Debtor to the Operational Creditor it has been correctly held in the Impugned

Order that the said slip clearly depicts that the aforesaid address 4th Floor, Plot

No.30, STPI Building, Electronic City, Udyog Vihar, Sector 18, Gurgaon-122015

belongs to the Corporate Debtor. The postal tracking report has also been

perused by the Adjudicating Authority and thereafter it has been rightly held at

Paras 28 and 29 of the Impugned Order that the service having been done on the

Gurgaon address, the demand notice has been correctly serviced without defects.

In the circumstances, we agree with the reasoned findings of the Adjudicating

Authority that the Demand Notice was not defective and that it had been both

despatched and serviced properly.

18. We now come down to the second issue of pre-existing dispute and proceed

to examine in the light of the guiding principles laid down by the Hon'ble Supreme

Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1

SCC 353 ('Mobilox' in short) whether in the facts of the present case any dispute

between the parties truly exists in fact and that the dispute raised is not

spurious, hypothetical or illusory.

19. It has been submitted by the Learned Counsel for the Appellant that the

Operational Creditor was informed about the breach committed by him to Clause

6 of the employment agreement. It has also been contended that the impugned

order has failed to take cognizance of the fact that the Operational Creditor has

been held a conspirator in reference to fraud committed on the Corporate Debtor

company along with others as evidenced from FIR No. 499/2019 filed under

Company Appeal (AT) (Ins.) No. 566 of 2022 11 Sections 409 and 420 IPC which had been registered at the Malad Police Station,

Mumbai on 19.11.2019.

20. According to the Learned Counsel for Respondent No.1, the Operational

Creditor has denied that he was time and again informed about the alleged

breach of Clause 6 of the employment agreement. As regards, his conduct, the

Operational Creditor has contended of not having been notified of any fraud or

unlawful activity on his part by the Corporate Debtor during his service period.

What lends credence to the above contention of the Operational Creditor is that

the Corporate Debtor has failed to produce any document on record to

substantiate their averments in respect of the same.

21. Further, it has been denied by the Operational Creditor that he was

terminated from service. It was asserted that he was laid off and that the lay-off

was not related to his individual performance but due to liquidity crunch faced

by the Corporate Debtor. At this stage, it would be useful to extract the lay-off

notice delivered upon the Operational Creditor as placed at page 75 of APB which

is extracted hereunder:

"Li Digital Payments Pvt. Ltd.

CIN No.U74999DL2018PTC330177

August 16, 2019 Subject: Notice of Layoff Dear Faihzan, lWe regret to inform you that you are being laid off from your position as Business Development Manager effective August 16, 2019. This layoff should be considered permanent.

Company Appeal (AT) (Ins.) No. 566 of 2022 12 A recent (word not clear) prevailing liquidity crunch being faced by the company and fund issues currently being encountered we need to take this unforeseen step.

This layoff is not related to individual performance.

You will receive the severance pay as per company policy.

All company assets issued to you during your employment should be returned to Administration and IT Department on or before August 20, 2019 to complete the exit formalities.

Thank you for your contributions to the company. If you have any further queries, please get in touch with the local HR to complete your exit formalities.

We wish you success in your future endeavors.

Sincerely, For Li Digital Payments Pvt. Ltd.

Anamika Chandol Chief Human Resource officer"

The above lay-off notice clearly records that the Corporate Debtor had

complimented the Operational Creditor for his contributions to the company.

This coupled with the fact that there is no material on record placed by the

Corporate Debtor to show that Operational Creditor had been cautioned and

notified for unlawful conduct persuades us to believe that this plea of the

Corporate Debtor is specious and lacks substance.

Company Appeal (AT) (Ins.) No. 566 of 2022 13

22. This now brings us to the fact of registration of FIR No.499/2019 at Malad

Police station and the linkage of the FIR with the dishonest and fraudulent

conduct on the part of the Operational Creditor as claimed by the Corporate

Debtor. We notice that the Adjudicating Authority has given a detailed finding

after considering all the facts which is extracted as follows:

"30. That the Corporate Debtor has also contended that there is a pre-

existing dispute between the parties since the Corporate Debtor had

filed an F.I.R No. 499/2019 dated 19.11.2019 at Police Station Malad,

Mumbai, registered under Sections 409 and 420 IPC, against the

Operational Creditor. However, from perusal of the said FIR annexed at

page no. 48 to 86 of the reply, it is nowhere seen that the Applicant is

made as an accused.

31. Further from perusal of the records, we observe that the Corporate

Debtor, after the date of filing the aforesaid FIR, has sent an email

dated 21.11.2019 to the Operational Creditor annexing therewith a

statement of full and final settlement of dues of the

Applicant/Operational Creditor ......

32. Evidently, the aforesaid email is an acknowledgement of debt by

the Corporate Debtor. Therefore, we are of the considered view that the

Corporate Debtor has failed to demonstrate any pre-existing dispute

between the parties."

Company Appeal (AT) (Ins.) No. 566 of 2022 14

23. A plain reading of the FIR reveals that the Operational Creditor does not

appear to figure in the list of the accused. Going by the contents of the said FIR,

the inference drawn by the Adjudicating Authority after perusing the said FIR

that the Operational Creditor was not an accused party in the FIR and that no

consequential investigation was going on against him is factually in order and

stands to reason. Moreover, the clear admission of operational debt as evidenced

in the revised Full and Final Statement of settlement of dues as sent by the

Corporate Debtor to the Operational Creditor on 21.11.2019 which notably is

post filing of FIR also corroborates that there was no pre-existing dispute at the

time of admission of liability of the operational dues. It is pertinent to add here

that the issue of the Settlement Slip has not been denied by the Appellant.

Cumulatively seen, this puts a serious question mark on the bona fide of the

pre-existing dispute raised by the Corporate Debtor and according to us,

therefore, deserves to be disregarded as concocted and motivated. We have no

hesitation in observing that in the present case, all the requisite conditions

necessary to trigger CIRP under Section 9 stands fulfilled with operational debt

having been acknowledged and a default having been committed thereto;

demand notice served but remained un-replied; and there being no real pre-

existing dispute discernible from the given facts.

24. For the foregoing reasons, we are of the view that the Adjudicating

Authority has not committed any error in admitting the Section 9 Application for

initiation of CIRP of the Corporate Debtor. We are satisfied that the impugned

order does not warrant any interference. The Appeal being devoid of merit is Company Appeal (AT) (Ins.) No. 566 of 2022 15 dismissed subject to following: I.A. No. 125 of 2023 not being part of the subject

matter contained in the main appeal is also disposed of. As allowed on

22.11.2022, the Resolution Professional has submitted the Status Report which

is taken on record. Operational Creditor is also directed to comply to the

directions of the Adjudicating Authority and forthwith deposit Rs. 1,00,000/-

(Rupees One lakh) only with the Resolution Professional to meet expenses

incurred subject to final reconciliation by Committee of Creditors.

No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 27.01.2023

PKM

Company Appeal (AT) (Ins.) No. 566 of 2022 16