Ome Prakash Verma vs Amit Jain

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 827 of 2020 (Arising out of Order dated 27.07.2020 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad Court 2, in IA 415 of 2020 in CP (I.B) No.127/7/NCLT/AHM/2017)

IN THE MATTER OF: Ome Prakash Verma (Suspended Director of Neesa Leisure Limited) R/o 86, Village and Post PARSA Tiwari, Tehsil Mankapur, District Gonda Uttar Pradesh - 271313. .... Appellant Vs

1. Amit Jain, (RP of Neesa Leisure Limited) 8th Floor, Building No.10, Tower-C, DLF Cyber City, Phase-2, Gurugram, Haryana - 122002. 2. Asset Reconstruction Company (India) Limited, Through its Authorized Representative The Ruby, 10th Floor, Senapati Bapat Marg, Dadar (West), Mumbai Maharashtra - 400028. .... Respondents

Present: For Appellant: Mr. Uday Bali and Mr. Jaitegan Singh Khurana, Advocates. For Respondents: Mr. Sumant Batra, Ms. Niharika Sharma and Ms. Ruchi Goyal, Advocates (R1). Mr. Dinkar Singh, Mr. Gagan Garg and Mr. Rohit Singh, Advocates (R2).

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by a Suspended Director of the Corporate

Debtor, challenging order dated 27th July, 2020 passed by Adjudicating

Company Appeal (AT) (Insolvency) No. 827 of 2020 1 Authority (National Company Law Tribunal), Ahmedabad Bench,

Ahmedabad by which I.A. No.415 of 2020 filed by the Appellant was

rejected.

2. Brief facts of the case and sequence of events necessary to be noted

for deciding this Appeal are:

(i) Asset Reconstruction Company (India) Limited - Respondent

No.2. filed an Application under Section 7 against the

Corporate Debtor M/s Neesa Leisure Limited. Adjudicating

Authority by an order dated 24th April, 2019 initiated the

Corporate Insolvency Resolution Process (CIRP) against the

Corporate Debtor. Section 7 Application was filed on the

strength of assignment of debt by ICICI bank in favour of

Respondent No.2.

(ii) On 31.05.2019 first Meeting of the Committee of Creditors

(CoC) of Corporate Debtor was held. The Asset Reconstruction

Company (India) Limited - the Financial Creditor was assigned

23.10% voting share in the constitution of Committee of

Creditors.

(iii) After 9th Meeting of CoC held on 11th June, 2020, the Appellant

sent an email to the Resolution Professional on 14th June 2020,

objecting to the acceptance of delayed claim by ARCIL on

account of assignment of debt by United Bank of India in

favour of ARCIL.

Company Appeal (AT) (Insolvency) No. 827 of 2020 2

(iv) On 15th June, 2020, Resolution Professional replied to the

Appellant stating that on the basis of document provided by

ARCIL, the claim has been provisionally admitted.

(v) The Appellant filed the detailed objection on 19th June, 2020,

objecting to acceptance of ARCIL claim on account of

assignment from United Bank of India on grounds of

limitation. The Appellant stated in the objection that United

Bank of India in the year 2015 placed the account of the

Corporate Debtor as an NPA. Therefore, period of limitation

ended in the year 2018 and hence, the said claim has become

barred by limitation.

(vi) The Appellant thereafter filed Application being I.A. No.415 of

2020 before the Adjudicating Authority praying for a direction

that the claim of Respondent No.2 as assignee of United Bank

of India be held to be time barred.

(vii) The said Application has been rejected by the Adjudicating

Authority by the impugned judgment dated 27th July, 2020

observing that the commercial wisdom of the Committee of

Creditors cannot be interfered with by the Adjudicating

Authority. Challenging the order of the Adjudicating Authority,

this Appeal has been filed.

3. The learned Counsel for the Appellant submits that assignment of

claim of United Bank of India giving rise of voting share of Respondent No.2

to the extent of 8.4% was illegal, since the dues of United Bank of India

Company Appeal (AT) (Insolvency) No. 827 of 2020 3 have become time barred and by virtue of applicability of Section 238A, the

Limitation Act is applicable in proceedings under Section 7 of the IB Code

and time barred claim could not have been considered or added in the

Application. The United Bank of India could not have filed the Application

under Section 7 of IB Code against the Corporate Debtor, hence addition of

that claim in the claim of Respondent No.2 is impermissible. Learned

Counsel for the Appellant submits that the observation of Adjudicating

Authority that suspended management has no role to play in the matter is

incorrect. The Appellant is objecting to inclusion of time barred claim in

claim of Respondent No.2.

4. Learned Counsel for Respondent No.1 refuting the submissions made

by learned Counsel for the Appellant submits that provisions of Section

238A of the IB Code do not apply to the process before the Resolution

Professional and the said provision is applicable only with respect to

proceedings before Adjudicating Authority and National Company Law

Appellate Tribunal. The Appellant does not have the locus to challenge the

admission of claim. The duty of Resolution Professional is only to collect,

collate and admit the claim. The Resolution Professional cannot adjudicate

on the claim. It is submitted that challenge to admission of claim is not

bonafide and has been done with intent to derail the CIRP process. It is

submitted that Appellant had challenged the Resolution Plan even before

an Application for approval was filed before the Adjudicating Authority,

which Application was dismissed with cost of Rs.50,000/-.

Company Appeal (AT) (Insolvency) No. 827 of 2020 4

5. We have heard the learned Counsel for the parties and perused the

record.

6. We may first notice the statutory scheme with respect to Corporate

Insolvency Resolution Process. We need to first notice the duties and

functions of the Resolution Professional. Section 18, sub-section (1) (b)

enumerates that one of the duties of the Interim Resolution Professional is

to receive and collate all the claims submitted by creditors to him. Section

25, sub-section (2)(e) oblige the Resolution Professional to maintain an

updated list of claims. The Regulations have been framed namely - The

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations, 2016. Regulation 8 provides the

manner of submission of claims by Financial Creditors. Regulation 10

deals with 'Substantiation of claims', which is as follows:

"10. Substantiation of claims.

The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim."

7. Next important Regulation to be looked into is Regulation 12, which

deals with 'Submission of proof of claims'. Regulation 12 is as follows:

"12. Submission of proof of claims.

(1) Subject to sub-regulation (2), a creditor shall submit proof of claim on or before the last date mentioned in the public announcement.

(2) A creditor, who failed to submit proof of claim within the time stipulated in the public announcement,

Company Appeal (AT) (Insolvency) No. 827 of 2020 5 may submit such proof to the interim resolution professional or the resolution professional, as the case may be, till the approval of a resolution plan by the committee.

(3) Where the creditor in sub-regulation (2) is a financial creditor, it shall be included in the committee from the date of admission of such claim:

Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion."

8. Regulation 13 deals with 'Verification of claims'. We may also notice

Section 60 of the IB Code. Section 60, sub-section (2) & (5), which are

relevant are as follows:

"60(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or 1 [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before the National Company Law Tribunal.

(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of -

(a) any application or proceeding by or against the corporate debtor or corporate person; (

Company Appeal (AT) (Insolvency) No. 827 of 2020 6

b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

9. When we look into the Regulation and Section 60 of the IB code as

above, it is apparent that as per Section 18 of the IB Code, one of the duties

of Interim Resolution Professional is to receive and collate all the claims

submitted by the creditors to him. Similarly, the Regulations empowers the

Resolution Professional to call for such other evidence or clarification as he

deems fit from the creditors for substantiating the whole or part of the

claim. Regulation 12, sub-regulation (3) uses the expression 'submission

of proof of claims'. Resolution Professional has to thus receive and collate

all the claims, call for such other evidence, ask for any information from

the creditors to substantiate their claims. Regulation 13(b) provides for

'verification of claims'. The above duties and functions are administrative

in nature while accepting, collating and verifying the claim, the Resolution

Professional is to be prima-facie satisfied that claim, which is submitted by

a creditor is made out from the documents submitted. The Resolution

Professional does not enjoy the adjudicatory functions.

10. In Swiss Ribbons Private Limited and Anr. vs. Union of India

and Ors. (2019) 4 SCC 17 Hon'ble Supreme Court has held that the

Company Appeal (AT) (Insolvency) No. 827 of 2020 7 Resolution Professional has no adjudicatory powers. In paragraph 88,

following has been laid down:

"88. It is clear from a reading of the Code as well as the Regulations that the resolution professional has no adjudicatory powers. Section 18 of the Code lays down the duties of an interim resolution professional as follows:

"18. Duties of interim resolution professional.--(1) The interim resolution professional shall perform the following duties, namely--

(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to--

(i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15;

(c) constitute a Committee of Creditors;

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the Committee of Creditors;

(e) file information collected with the information utility, if necessary; and

Company Appeal (AT) (Insolvency) No. 827 of 2020 8

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including--

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or authority;

(g) to perform such other duties as may be specified by the Board.

Explanation.--For the purposes of this section, the term "assets" shall not include the following, namely--

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

Company Appeal (AT) (Insolvency) No. 827 of 2020 9 (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.""

11. As per Section 60 and sub-sections (2) and (5) an Application can be

filed before the Adjudicating Authority regarding any claim made by or

against the Corporate Debtor to any proceeding by or against the Corporate

Debtor. In this case, an Application was filed by the Appellant under

Section 60, sub-section (2) and (5) of the IB Code being I.A. No.415 of 2020.

The Adjudicating Authority has complete jurisdiction to adjudicate on the

claim, which was filed against the Corporate Debtor. The Adjudicating

Authority rejected the Application of the Appellant by making the following

observation:

"RP is an appointee of the Court and he has to collate all the information and submit the same before the COC. The COC based on its commercial wisdom is to decide the matter. Hon'ble Supreme Court of India in its judgment passed in Civil Appeal no.8766-67 of 2019 - Committee of Creditors of Essar Steel India limited through Authorise Signatory vs. Satish Kumar Gupta & Ors. observed that the commercial wisdom of the Committee of Creditors cannot be interfered into by the Adjudicating Authority. In that event the Suspended Management has no role to play."

Company Appeal (AT) (Insolvency) No. 827 of 2020 10

12. The Adjudicating Authority has rejected the Application observing

that in view of the judgment of the Hon'ble Supreme Court in Committee

of Creditors of Essar Steel India Limited through Authorise Signatory

vs. Satish Kumar Gupta & Ors. (2020) 8 SCC 531, the commercial

wisdom of the Committee of Creditors cannot be interfered into by the

Adjudicating Authority.

13. The law laid down by the Hon'ble Supreme Court in the above case

is clear and is to be followed by all. The observation made by the

Adjudicating Authority as stated above, however, does not apply in the facts

of the present case. The present is a case where Appellant was complaining

about the addition of certain claims of the Financial Creditor - Respondent

No.2, consequent upon assignment by United Bank of India had become

barred by time. Section 7 Application was filed by Respondent No.2 on the

ground of default as mentioned in the Application. The Respondent No.2

has filed the Application on the basis of inclusion of assignment by ICICI

Bank. The objection raised by the Appellant is with regard to assignment

by United Bank of India, which objection has been specifically taken in

email dated 14th June, 2020 as well as in the Application being I.A. No.415

of 2020 filed by the Appellant. The Appellant's grievance was that there

has been increase in the voting shares of Respondent No.2 consequent to

admitting assignment of United Bank of India by which voting shares

increased by more than 8.4%. The case of the Appellant was that the

United Bank of India placed the account of Corporate Debtor as NPA in the

Company Appeal (AT) (Insolvency) No. 827 of 2020 11 year 2015 and the limitation of three years came to an end in the year

2018, hence, the said claim stood barred by time.

14. Hon'ble Apex Court in (2019) 11 SCC 633 - B.K. Educational

Services Private Limited vs. Parag Gupta and Associates while

considering the question of applicability of the Limitation Act, 1963 in the

IBC proceedings has held that an Application filed under Section 7 after

the Code has come into force, time barred debt cannot be revived.

15. We may at this stage refer to Report of the Insolvency Law Committee

submitted to the Government of India on 26th March, 2018, with regard to

application of Limitation Act, 1963 in paragraph 28.1 and 28.2 following

was stated:

"28.1 The question of applicability of the Limitation Act, 1963 ("Limitation Act") to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected.147 In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred.148 This requires being read with the definition of 'debt' and 'claim' in the Code. Further, debts in winding up proceedings cannot be time- barred,149 and there appears to be no rationale to exclude the extension of this principle of law to the Code.

Company Appeal (AT) (Insolvency) No. 827 of 2020 12 28.2 Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose of the law of limitation is "to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party's own inaction, negligence or latches"150. Though the Code is not a debt recovery law, the trigger being 'default in payment of debt' renders the exclusion of the law of limitation counter-intuitive. Second, it re- opens the right of claimants (pursuant to issuance of a public notice) to file time-barred claims with the IRP/RP, which may potentially be a part of the resolution plan. Such a resolution plan restructuring time-barred debts and claims may not be in compliance with the existing laws for the time being in force as per section 30(4) of the Code."

16. Referring to the above mentioned Insolvency Law Committee Report

in B.K. Educational Services Private Limited (supra), the Hon'ble

Supreme Court laid down following in paragraph 34:

34. It is important to remember that interpretation is the art of matching the text with the context. In a slightly different context, under Section 86 of the Electricity Act, this Court, in A.P. Power Coordination Committee v. Lanco Kondapalli Power Ltd. [A.P. Power Coordination Committee v. Lanco Kondapalli Power Ltd., (2016) 3 SCC 468] , refused to apply the principle of these cases stating: (SCC p. 497, paras 30-31)

Company Appeal (AT) (Insolvency) No. 827 of 2020 13 "30. ... In the absence of any provision in the Electricity Act creating a new right upon a claimant to claim even monies barred by law of limitation, or taking away a right of the other side to take a lawful defence of limitation, we are persuaded to hold that in the light of nature of judicial power conferred on the Commission, claims coming for adjudication before it cannot be entertained or allowed if it is found legally not recoverable in a regular suit or any other regular proceeding such as arbitration, on account of law of limitation. We have taken this view not only because it appears to be more just but also because unlike labour laws and the Industrial Disputes Act, the Electricity Act has no peculiar philosophy or inherent underlying reasons requiring adherence to a contrary view.

31. We have taken the aforesaid view to avoid injustice as well as the possibility of discrimination. We have already extracted a part of para 11 of the judgment in State of Kerala v. V.R. Kalliyanikutty [State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC 657] wherein the Court considered the matter also in the light of Article 14 of the Constitution. In that case the possibility of Article 14 being attracted against the statute was highlighted to justify a particular interpretation as already noted. It was also observed that it would be ironic if in the name of speedy recovery contemplated by the statute, a creditor is enabled to recover claims beyond the period of limitation. In this context, it would be fair to infer that the special adjudicatory role

Company Appeal (AT) (Insolvency) No. 827 of 2020 14 envisaged under Section 86(1)(f) also appears to be for speedy resolution so that a vital developmental factor -- electricity and its supply is not adversely affected by delay in adjudication of even ordinary civil disputes by the civil court. Evidently, in the absence of any reason or justification the legislature did not contemplate to enable a creditor who has allowed the period of limitation to set in, to recover such delayed claims through the Commission. Hence, we hold that a claim coming before the Commission cannot be entertained or allowed if it is barred by limitation prescribed for an ordinary suit before the civil court."

(emphasis supplied) This case is most apposite. As in the present case, and as is reflected in the Insolvency Law Committee Report of March 2018, the legislature did not contemplate enabling a creditor who has allowed the period of limitation to set in to allow such delayed claims through the mechanism of the Code. The Code cannot be triggered in the year 2017 for a debt which was time-barred, say, in 1990, as that would lead to the absurd and extreme consequence of the Code being triggered by a stale or dead claim, leading to the drastic consequence of instant removal of the present Board of Directors of the corporate debtor permanently, and which may ultimately lead to liquidation and, therefore, corporate death. This being the case, the expression "debt due" in the definition sections of the Code would obviously only refer to debts that are "due and payable" in law i.e. the debts that are not time-barred. That this is the case has already been held by us in Innoventive Industries Ltd. [Innoventive

Company Appeal (AT) (Insolvency) No. 827 of 2020 15 Industries Ltd. v. Icici Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] as follows: (SCC pp. 438-39, paras 28 & 30) "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 [Ed.:

The word "any" has been emphasised in original.] 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. 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

Company Appeal (AT) (Insolvency) No. 827 of 2020 16 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 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.

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 this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.""

Company Appeal (AT) (Insolvency) No. 827 of 2020 17

17. When an Application under Section 7 cannot be entertained for a

debt, which is barred by time and is liable to be rejected, any addition in

the claim, which may fall into the category of time barred debt, also cannot

be entertained. The Appellant having objected to the addition of claim

consequent to assignment by United Bank of India, it had every right to

agitate the issue and pray for adjudicatory orders from the Adjudicating

Authority, which he did by filing an Application being I.A. No.415 of 2020.

The Adjudicating Authority by misplaced observation rejected the

Application without considering the merits of the claim.

18. We, thus, are of the view that order impugned is unsustainable and

deserve to be set aside. The Adjudicating Authority having not considered

the claim on merits, ends of justice would be met in directing for fresh

consideration of I.A. No.415 of 2020 by the Adjudicating Authority. This

direction shall, however, subject to one condition, that is, the Resolution

Plan has not yet been approved by the Adjudicating Authority.

19. We have looked into the additional affidavit filed on behalf of

Respondent No.1, where details have been given of various Applications

filed by Suspended Directors of Suspended Management praying for one or

other reliefs in the Corporate Insolvency Resolution Process, which

Applications were rejected. Application filed by Sanjay Gupta and others

being I.A. No.29 of 2020, I.A. No.484 of 2019 and I.A. No.429 of 2020 have

been referred to, which were all rejected by order dated 02.11.2020 and

31.12.2020 of the Adjudicating Authority, wherein observation has also

been made that Applications are nothing but abuse of process of law.

Company Appeal (AT) (Insolvency) No. 827 of 2020 18 Reference to another I.A. No.564 of 2020 needs to be made, which was filed

by Vikalp Gupta, Suspended Board of Directors of the Corporate Debtor

where Audit Report submitted was challenged. The Application was

rejected with cost of Rs.50,000/-. One Application filed by present

Appellant - OME Prakash Verma being I.A. No.761 of 2020 also needs to

be referred to where Appellant has sought direction to Respondent No.1,

not to accept Resolution Plan submitted by Respondent No.2 in the above

Plan, which Application was rejected on 09.11.2020 with cost of

Rs.50,000/-.

20. Due to above reasons, we are of the view that fresh consideration of

Application being I.A. No.415 of 2020 should be done by the Adjudicating

Authority, only when Resolution Plan has not yet been approved. In event,

the Resolution Plan has already been approved by the Adjudicating

Authority, the Application - I.A. No.415 of 2020, needs no further

consideration and be treated to be as closed. This Appeal is disposed of

with aforesaid direction. No costs.

[Justice Ashok Bhushan] Chairperson

[Justice Jarat Kumar Jain) Member (Judicial)

[Dr. Alok Srivastava] Member (Technical) NEW DELHI 4th January, 2022 Ash/NN

Company Appeal (AT) (Insolvency) No. 827 of 2020 19