Palm Products Pvt Ltd vs Tvl Narsimha Rao & Anr

[Arising out of Order dated 12th August, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench in I.A. No. 486 of 2020 in C.P. (IB) No. 192/7/HDB/2017]

IN THE MATTER OF:

1. M/s. Palm Products Pvt. Ltd. A company registered under the Companies Act, 1956, registered office At 2, Garstin Place, Level - 2, Suite-205, Kolkata, West Bengal-700001 India ...Appellant Versus

1. T.V.L. Narsimha Rao, Insolvency Professional, RP for M/s. Amrit Jal Ventures Pvt. Ltd., C/o. OMNE Insolvency Solutions, #G-1 & G-2, Mani Plaza, 6-2-101/7/A&B, New Bhoiguda, Secunderabad - 500003. ...Respondent No. 1

2. SREI Infrastructure Finance Ltd., Registered office at Vishwakarma, 86C, Topsia Road (South), Kolkata-700046 And its Corporate Office at Room 12 and 13, 6A, Kiran Shankar Roy Road Kolkata - 700001 ...Respondent No. 2

Present: For Appellant: Mr. Rishav Banerjee, Ms. Bhavya Sethi, Mr. Aman Garg, Advocates.

For Respondent: Mr. T.V.L. Narsimha Rao, in person. Ms. Akanksha Kaushik, Advocate for R-2. JUDGMENT

(08th March, 2021)

A.I.S. Cheema, J.

1. Microscopic gist of the dispute in present matter is that Respondent No.

2 Non-Banking Financial Company (NBFC in short) on being held by

Adjudicating Authority to be related party under Section 29A of Insolvency and

Bankruptcy Code, 2016 (IBC in short) kept the shares and transferred debt to

the Appellant (Another NBFC) in the course of 'Corporate Insolvency Resolution

Process' (CIRP in short) and then Appellant claimed to be entitled to be

included in Committee of Creditors (CoC in short) and this was not accepted.

Thus, the dispute.

2. This Appeal arises out of Impugned Order dated 12th August, 2020

passed by the Adjudicating Authority (National Company Law Tribunal,

Hyderabad Bench, vide I.A. No. 486 of 2020 in C.P. (IB) No. 192/7/HDB/2017.

By the said Impugned Order, the Application of the Appellant was rejected

which sought directions against Respondent No. 1-Resolution Professional of

Corporate Debtor "M/s. Amrit Jal Ventures Pvt. Limited". Appellant sought

acceptance of claim of Rs. 60,47,38,233 and to declare Appellant Financial

Creditor accepting Assignment Deed and entry in CoC.

3. The Appeal claims and it is argued on behalf of the Appellant that the

Adjudicating Authority wrongly concluded that the Resolution Professional has

rightly observed serious circumstances with regard to the assignment of debt of Page | 2 Company Appeal (AT) (Insolvency) No. 809 of 2020 Respondent No. 2, to the Appellant. That, it was wrongly held by Adjudicating

Authority that the Assignment Deed is unregistered. It is argued that under

Section 23 of the Registration Act, Appellant had time of four months to get the

Assignment Deed dated 18th May, 2020 registered but got it registered on 15th

July, 2020 (Appeal Page 93), within two months and thus the Adjudicating

Authority wrongly held that it was unregistered document.

4. The Learned Counsel for Appellant placed reliance on Judgment of the

Hon'ble Supreme Court in the matter of "ICICI Bank Ltd. Vs. APS Star

Industries Ltd." (2010 10 SCC 1) to state that in that matter it was held by

Hon'ble Supreme Court that even when an assignee has purchased the debt for

considerably discounted price, that by itself is not contrary to public policy. It

is argued that on such basis, doubt could not have been made on the

Assignment Deed even if debt of Rs. 60.48 Crores was assigned to the

Appellant by Respondent No. 2 for Rs. 10 Lakhs. The Learned Counsel for the

Appellant referred to document at Page 92 (Annexure A-2) and submitted that

the Appellant was registered as NBFC in January, 2003. It is argued that the

document was filed by the Appellant with the Written-Arguments submitted

but still the Adjudicating Authority wrongly observed that the Appellant was a

non-financial institution and non-ARC.

5. According to the Appellant, the Appellant is not holding any shares in the

Corporate Debtor and thus it is not a related party under Section 5 sub-Section

24 of IBC since the assignor (Respondent No. 2) did not assign the shares held

by the assignor in the Corporate Debtor. According to the Learned Counsel Page | 3 Company Appeal (AT) (Insolvency) No. 809 of 2020 after the Respondent No. 2 was held to be related party in I.A. No. 677 of 2019

by Order dated 20.11.2019 (Page 221), the assignor did not transfer the shares

to the Appellant but only the debt and thus the Appellant could not have been

debarred holding that the Appellant has stepped into the shoes of Respondent

No. 2.

6. It is claimed that the Appellant has a valid legally enforceable debt

assigned by Respondent No. 2 and should have been included as Financial

Creditor and to be member of CoC. It is argued that it has been held in

Judgment of Hon'ble Supreme Court in the matter of "Swiss Ribbons (P) Ltd. &

Anr. Vs. Union of India & Ors." (2019 4 SCC 17) that the Resolution Professional

does not have adjudicatory powers and thus, the Resolution Professional could

not have found the Assignment Deed to be not enforceable.

7. The Learned Counsel for Respondent No. 2 supported the case being put

up by the Appellant.

8. The Respondent No. 1-Resolution Professional argued the Appeal in

person. The Ld. Resolution Professional submitted that in CIRP he has got

three Resolution Plans pending in CoC to take decision however CoC could not

proceed ahead due to the stay granted by this Tribunal on 22.09.2020 that

Adjudicating Authority will not take a decision with regard to the approval of

the Resolution Plan. The said direction has continued during the pendency of

the Appeal.

Page | 4 Company Appeal (AT) (Insolvency) No. 809 of 2020

9. Learned Resolution Professional submitted that one of the Resolution

Plans submitted is by M/s. Shree Multi Asset Investment Trust Region India

Fund which is a group entity of Respondent No. 2 assignor. It is submitted by

the Ld. Resolution Professional that Respondent No. 2 claiming to be Financial

Creditor was found to be related party. He has assigned debt of Rs. 60.48

Crores due from the Corporate Debtor in favour of the Appellant by Assignment

Deed dated 18th May, 2020 for a mere consideration of Rs. 10 Lakhs at the fag-

end of CIRP. It is argued that on the basis of such Assignment Deed, the

Appellant is wrongly claiming status of "Financial Creditor (non-related party)"

and is wrongly claiming that he should be in CoC. The Resolution Professional

submits that Respondent No. 2 which has been found to be related party is

surreptitiously through its surrogate i.e. Appellant trying to enter the CoC. The

Resolution Professional submits that apart from the Assignment Deed showing

on the face of it under-valued transfer of debt, even that amount of Rs. 10

Lakhs has not been shown by the Appellant or by Respondent No. 2 by any

document showing amount transferred by the Appellant in the Bank Account

of the Respondent No. 2. The Learned Resolution Professional submitted that

Respondent No. 2 recorded receipt on Letterhead which cannot be said to be

accounting practice. The Resolution Professional submitted that he is not

adjudicating on the transaction but it is his duty to see whether the

assignment document on face of it is in Order. That, only a Letter-head receipt

was shown and so he could not accept assignment.

Page | 5 Company Appeal (AT) (Insolvency) No. 809 of 2020

10. At the time of arguments, Learned Counsel for Respondent No. 2

accepted that Respondent No. 2 has not filed Statement of Account from Bank

to show receipt of consideration as recorded in Assignment Deed.

11. The Learned Resolution Professional argued that the Respondent No. 2

and Appellant are in collusion as they have filed documents from confidential

meetings of 6th and 7th CoC meeting which were filed in I.A. No. 486 of 2020

before NCLT although both of them were never members of the CoC. The I.A

No. 677 of 2019 filed by Respondent No. 2 was dismissed on 20.11.2019 (Page

221) holding it to be related party and no Appeal against the order was passed

and thus the order became final. The Resolution Professional submitted that

on 28.02.2020 the Appellant which has been incorporated on 28th February,

1995 opened a new zero balance current account in the same Bank where

Respondent No. 2 has current account. Subsequently on 18th May, 2020,

Respondent No. 2 and Appellant entered into Assignment Agreement. It was

unregistered although there was substantial immovable security backing the

Assignment Agreement. The clauses of the Agreement provided that the

Appellant will pay consideration in future to Respondent No.2. The assigned

amount includes 60.48 Crores which included unreconciled and non-admitted

amount of Rs. 17.76 Crores. It is submitted by the Resolution Professional that

in the new zero balance current account opened by the Appellant, Appellant

deposited Rs. 15 Lakhs on 05th June, 2020 which was only Rs. 10, 000/- since

opening of the Account. According to the Resolution Professional, the Appellant

then issued cheque bearing back date of 18th May, 2020 for Rs. 10 Lakhs in

Page | 6 Company Appeal (AT) (Insolvency) No. 809 of 2020 favour of the Respondent No. 2. The Account of the Appellant Assignee was

debited for Rs. 10 Lakhs on 06th June, 2020. However, Respondent No. 2

Assignor avoided to show its Bank-Statement to show that consideration of Rs.

10 Lakhs was received by the Respondent No. 2 (and not some endorsee).

According to the Resolution Professional, consequently on 11th June, 2020, the

Resolution Professional declined to act on Assignment Deed and the Appellant

filed I.A. No. 486 of 2020 which has come to be dismissed vide the Impugned

order. Learned Resolution Professional is relying on the Judgment in the

matter of "Fortune Pharma Pvt. Ltd." decided by the Ld. NCLT, Mumbai Bench

(Copies of which are filed with the Reply-Affidavit) to submit that in that matter

Ld. NCLT held that rights of the assignee are no better than those of the

assignor and that assignee steps into the shoes of assignor. The Resolution

Professional did not dispute that the Appellant is an NBFC.

12. We have heard the parties.

13. It is a matter of record that earlier Respondent No. 2 had in the CIRP in

the matter of Corporate Debtor M/s. Amrit Jal Ventures Pvt. Ltd., filed claim

before the Resolution Professional. The Letter sent by the Resolution

Professional on 11.06.2020 to the Appellant and Respondent No. 2 (in which

date is wrongly typed as 11.06.2016) the Resolution Professional had informed

Respondent No. 2 with regard to Form C submitted by Respondent No. 2 on

31st May, 2019 and that it was admitted for Rs. 43,24,16,087/- leaving behind

non-admitted portion of Rs. 17,76,13,007/- pending reconciliation of the

Accounts between Respondent No. 2 and the Corporate Debtor. The then Page | 7 Company Appeal (AT) (Insolvency) No. 809 of 2020 Insolvency Resolution Professional had treated Respondent No. 2 as "Financial

Creditor (related party)".

14. When Respondent No. 2 was treated as "Financial Creditor (related

party)" Respondent No. 2 had challenged the decision of Insolvency Resolution

Professional before the Adjudicating Authority vide I.A. No. 677 of 2019. There

is order dated 20.11.2019 (Page 221 of the Appeal Paper Book) which shows

that for reasons recorded in that order, especially in paragraph 10 benefit of

2nd Proviso to Section 21(2) of IBC was not given and the claim of the

Respondent No. 2 that it was not a related party, was rejected. In paragraph 11

of the Order the acceptance of Part claim of Respondent No. 2 was not

disturbed and for balance liberty was given to approach Resolution

Professional. There is no dispute with regard to the fact that such Order of the

Adjudicating Authority was not challenged by anybody and especially

Respondent No. 2 and that the Order has attained finality.

15. The further fact is also not in dispute that Respondent No. 2 executed an

Assignment Deed copy of which is at Page 93 (Annexure A3) assigning debt to

the Appellant. Learned Counsel for the Appellant has claimed that in the

Assignment Agreement only the debt was assigned alongwith underlined

securities and not the shares. Learned Counsel referred to written-submissions

of the Resolution Professional (filed before the Adjudicating Authority (Page

247)) in which in Paragraph 13 Resolution Professional accepted that in the

Assignment Agreement dated 18th May, 2020 Respondent No. 2 has chosen to

assign debt receivable of Rs. 60.48 Crores except shares of the Corporate Page | 8 Company Appeal (AT) (Insolvency) No. 809 of 2020 Debtor held by Respondent No. 2 as pledged by third parties. Thus, what

appears is that the Respondent No. 2, keeping back the shares, transferred

receivables to the Appellant.

16. The Resolution Professional by the letter dated 11.06.2020 informed the

Appellant and Respondent No. 2 regarding the Order dated 20.11.2019 and

also informed that the Assignment Agreement dated 18th May, 2020 was not

registered as required under Section 17 of the Registration Act, 1908; that

proof of receipt of consideration by Respondent No. 2 had not been

satisfactorily provided and that there was no provision to submit fresh Form C

as Financial Creditor (Non-Related Party) after the assignor had already

submitted Form C (Related Party). For such reasons recorded in details, the

Resolution Professional informed Appellant and Respondent No. 2 that the

submitted documents were inadequate and defectively furnished by Appellant

and Respondent No. 2 and so he was unable to accept the assignment of debt.

17. The Appellant challenged such action before the Adjudicating Authority

vide I.A. No. 486 of 2020 and the present Impugned Order came to be passed.

18. The Learned Counsel for the Appellant submitted that under Section 23

of the Registration Act, the Appellant had time of four months from the date of

execution of the Assignment Agreement to get the same registered and the

document was got registered on 15th July, 2020 as can be seen from Annexure

A3 and thus it is claimed that the document would relate back to the date of

execution if Section 47 of the Registration Act is kept in view. The Learned

Page | 9 Company Appeal (AT) (Insolvency) No. 809 of 2020 Counsel for the Appellant criticized Impugned Order where it has proceeded on

the basis that it was unregistered Assignment Agreement.

The Adjudicating Authority observed in Paragraph 15 of the Impugned

Order as under:

"The question is whether claim can be admitted basing on the un-registered document when it was filed before the Resolution Professional. The unregistered documents cannot be taken into account for admission of the claim. The document must have been registered on the date on which the claim is made. No doubt for registration, four months are available under Section 23 of the Registration Act. The question is whether Assignment Agreement was registered on the date on which claim was made before the Resolution Professional. The documents must have been registered by the date the claim was made before the Resolution Professional. So when claim was made, the documents was not registered. Therefore, the document cannot be looked into. The Resolution Professional had not committed any error by not relying on the unregistered Assignment Agreement because it was not registered and claim could not be admitted."

19. Undisputedly, when the claim was made before the Resolution

Professional, at that point of time the Assignment Deed dated 18th May, 2020

was not yet registered and the Resolution Professional mentioned this in his

letter dated 11th June, 2020 as one of the reasons why he was not acting upon

the same. At the time of arguments, we had asked specifically asked the

Counsel for Appellant if the Appellant again made a claim before the Resolution

Professional after registering the document on 18th May, 2020. The Learned Page | 10 Company Appeal (AT) (Insolvency) No. 809 of 2020 Counsel stated that the Appellant was pursuing dispute before the

Adjudicating Authority and did not again make a claim with the Resolution

Professional after Registering the document. We do not find fault with the

Adjudicating Authority for the observations that when the claim was made

before the Resolution Professional the document being unregistered, the

Resolution Professional rightly ignored the same.

20. The Learned Counsel for Appellant claimed that the Appellant is also an

NBFC as can be seen from copy of document at Page 92 (Annexure A2) and

submitted that the observations of the Adjudicating Authority in Paragraph 12

of the Impugned Order that the Appellant is non-financial institution and non-

ARC is erroneous. What appears from Paragraph 12 of the Impugned Order is

that the Resolution Professional claimed before the Adjudicating Authority that

the Applicant is a non-financial institution. Learned Counsel for the Appellant

claimed that along with written-submissions filed on 23rd July, 2020 before the

Adjudicating Authority vide Annexure A9 Page 300. The Appellant had filed

copy of the NBFC Certificate as has now been filed in the Appeal at Page 92.

Considering the document of Appellant being NBFC, the observations of the

Adjudicating Authority in this regard may have to be ignored where it accepted

submission made by the Resolution Professional that the Appellant is non-

financial institution and non-ARC. The Resolution Professional is now no more

claiming that Appellant is non-financial institution.

21. In paragraph 12 of the Impugned Order the Adjudicating Authority

accepted the argument of the Appellant that inadequacy of consideration was Page | 11 Company Appeal (AT) (Insolvency) No. 809 of 2020 by itself not a ground to entertain a doubt about the transaction. The Appellant

is relying on Judgment in the matter of "ICICI Bank Ltd. Vs. APS Star Industries

Ltd." (2010 10 SCC 1) which has been referred supra. In a summary proceeding

like the present one, it would be difficult to go into the details as regard the

motive of executing of the Assignment Agreement. However, the fact remains

that the Appellant and Respondent NO. 2 did not satisfy and even now on

record there are no Bank-Accounts shown of receipt of consideration by

Respondent No. 2 under the said Assignment Agreement.

22. The Learned Counsel for the Appellant tried to make attempt to show

defect in the Order dated 20.11.2019 passed in I.A. No. 677 of 2019 vide which

the Respondent No. 2 was held as related party. We are unable to go into those

particulars as the said order was not challenged and has become final. This

being so, even if the Respondent No. 2 kept back the shares and assigned the

receivables, the position would remain that, in the facts of the matter,

Appellant must be treated to have stepped into the shoes of Respondent No. 2.

If Appellant and Respondent No. 2 can place evidence with regard to the

passing of consideration before the Resolution Professional, the Resolution

Professional may treat the Appellant as having stepped into the shoes of

Respondent No. 2 as "Financial Creditor Related Party" to the extent of claim

admitted/non-admitted pending reconciliation, as was done by Interim

Resolution Professional. The Resolution Professional has stated that the stage

of CIRP is that three Resolution Plans are pending for decision to be taken by

CoC.

Page | 12 Company Appeal (AT) (Insolvency) No. 809 of 2020 For reasons recorded above, we decline to interfere with the Impugned

Order. The Appeal is dismissed, accordingly.

[Justice A.I.S. Cheema] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

New Delhi 08th March, 2021 Basant B. Page | 13 Company Appeal (AT) (Insolvency) No. 809 of 2020