Raj Hari Eswaran vs M/S. Cmi India Pvt. Ltd. & Anr

Raj Hari Eswaran ...Appellant

Vs.

M/s. CMI India Pvt. Ltd. & Anr. ...Respondents

Present: For Appellant: - Mr. Amit Sibal, Senior Advocate with Mr. Aditya Verma, Mr. Aditya Gupta, Mr. Avinash Amarnath, Mr. Vinay Tripathi and Mr. Ambar Doshan, Advocates.

For Respondents:- Tasneem Ahmadi, Mr. Sudhir Kumar Gupta, Mr. R.k.Gupta, Ms. Shubhi Khare and Mr. Abhinav Gupta, Advocates.

ORDER

28.11.2017- The Appellant, who is a Shareholder and the promoter

of 2nd Respondent ('Corporate Debtor') has challenged the order dated 12th

October, 2017 passed by the Adjudicating Authority (National Company

Law Tribunal), Chennai, whereby and whereunder the application

preferred by the 1st Respondent- M/s. CMI India Pvt. Ltd. ('Operational

Creditor') under Sections 433 and 434 of the Companies Act, 1956 has

been treated to be an application under Section 9 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") read with

Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 (hereinafter referred to as "Adjudicating Authority

Company Appeal (AT) (Insolvency) No. 248 of 2017 2

Rules, 2016"), the application has been admitted, order of Moratorium has

been passed and name of 'Interim Resolution Professional' has been called

for from the 'Insolvency and Bankruptcy Board of India' (hereinafter

referred to as "Board") with further prohibitory orders in terms of 'I&B

Code'.

2. The main plea taken by the learned counsel for the

Appellant/shareholder that the 1st Respondent has not complied with the

provisions of the 'I&B Code' before treating the application under Section

9. No notice under sub-section (1) of Section 8 was issued in Form-3 or 4

and the application has been admitted though there is an existence of

dispute.

3. The brief facts of the case are that the 2nd Respondent-'Corporate

Debtor' placed various purchase orders during the years 2012-13 and

2013-14 with the 1st Respondent 'Operational Creditor' for the supply of

cables. The 1st Respondent was then known as 'General Cable Energy

(India) Ltd'. The Appellant is a Shareholder and Managing Director of the

'Corporate Debtor'. According to the Appellant, as per the purchase orders

the 1st Respondent 'Operational Creditor' was required to provide a

warranty for 36 months, and that during 2015, the 'Corporate Debtor'

came to know that it was not going to be possible for the Respondent

'Operational Creditor' to provide the warranty. According to Appellant, the

'Corporate Debtor' clearly indicated the 1st respondent that in case

Company Appeal (AT) (Insolvency) No. 248 of 2017 3

warranty was not possible, so the 1st Respondent 'Operational Creditor'

was free to take away the cables. However, in spite of that the 1st

Respondent 'Operational Creditor' issued a legal notice on 15th September,

2016 through a lawyer calling upon the 'Corporate Debtor' to pay the

outstanding sum of Rs. 7,88,54,073/-, to which the 'Corporate Debtor'

replied by letter dated 17th October, 2016 denying any liability. Thereafter,

the 1st Respondent 'Operational Creditor' filed a Company Petition under

Sections 433 & 434 of the Companies Act, 1956 before the Hon'ble High

Court of Madras bearing S.R No. 46897 of 2016 claiming a sum of Rs.

7,88,54,073/- (plus interest) from the 'Corporate Debtor'.

4. After constitution of the Tribunal, pursuant to the Notification No.

G.S.R. 1119(E) dated 7th December, 2016, issued by Central Government

under sub-section (1) and (2) of Section 434 of the Companies Act, 2013

read with sub-section (1) of Section 239 of the 'I&B Code', the case was

transferred to Adjudicating Authority, Chennai Bench and re-numbered

as TCP/4/(IB)/CB/2017.

5. On notice, the 'Corporate Debtor' appeared on 13th June, 2017 and

disputed the liability. On 31st July, 2017, the 'Corporate Debtor' filed reply.

The transferred application was treated to be an application under Section

9 of the 'I&B Code' and was admitted by impugned order dated 12th

October, 2017 giving rise to the present appeal.

Company Appeal (AT) (Insolvency) No. 248 of 2017 4

6. Learned counsel for the Appellant submitted that no notice under

sub-section (1) of Section 8 was issued in Form-3 or 4 prior to treating the

application as under Section 9 of the 'I&B Code' or before the admission of

the application. It is also submitted that the application was also not filed

in Form 5, as required under Section 9 of the 'I&B Code' read with Rule 6

of the Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 as per which records of dues and default were required to be

provided.

7. The aforesaid stand taken by the Appellant has not been disputed

by the 1st Respondent ('Operational Creditor').

8. Learned counsel for the Appellant has brought to our notice the

Central Government's notification dated 7th December, 2016 issued from

the Ministry of Corporate Affairs. By the said notification, in exercise of the

powers conferred under sub-sections (1) and (2) of Section 434 of the

Companies Act, 2013 read with sub-section (1) of Section 239 of the 'I&B

Code', the Central Government framed "The Companies (Transfer of

Pending Proceedings) Rules, 2016".

9. Rule 5 relates to transfer of pending proceedings of winding up on

the ground of inability to pay debts which are to be transferred from the

Hon'ble High Court's to the respective Tribunal and reads as follows: -

Company Appeal (AT) (Insolvency) No. 248 of 2017 5

"5. Transfer of pending proceedings of Winding

up on the ground of inability to pay debts.- (1) All

petitions relating to winding up under clause (e)

of section 433 of the Act on the ground of inability

to pay its debts pending before a High Court, and

where the petition has not been served on the

respondent as required under rule 26 of the

Companies (Court) Rules, 1959 shall be

transferred to the Bench of the Tribunal

established under sub-section (4) of section 419

of the Act, exercising territorial jurisdiction and

such petitions shall be treated as applications

under sections 7, 8 or 9 of the Code, as the case

may be, and dealt with in accordance with Part

II of the Code:

Provided that the petitioner shall submit all

information, other than information forming part

of the records transferred in accordance with

Rule 7, required for admission of the petition

under sections 7, 8 or 9 of the Code, as the case

may be, including details of the proposed

insolvency professional to the Tribunal within

Company Appeal (AT) (Insolvency) No. 248 of 2017 6

sixty days from date of this notification, failing

which the petition shall abate.

2. All cases where opinion has been

forwarded by Board for Industrial and Financial

Reconstruction, for winding up of a company to a

High Court and where no appeal is pending, the

proceedings for winding up initiated under the

Act, pursuant to section 20 of the Sick Industrial

Companies (Special Provisions) Act, 1985 shall

continue to be dealt with by such High Court in

accordance with the provisions of the Act."

10. From the aforesaid Rule 5, it is clear after transfer of the case the

Applicant (Respondent herein) was required to submit all information,

other than in formation forming part of the records transferred from the

High Court, for admission of the petition under Sections 7, 8 or 9 of the

'I&B Code', including details of the proposed 'Insolvency Professional'

within sixty days, failing which, the petition shall stand abated.

11. As per Section 9 of the 'I&B Code', before admission of application

and its filing, a demand notice under sub-section (1) of Section 8 is

required to be issued on the 'Corporate Debtor', as quoted below: -

Company Appeal (AT) (Insolvency) No. 248 of 2017 7

"8. Insolvency resolution by operational creditor.

─ (1) An operational creditor may, on the occurrence of

a default, deliver a demand notice of unpaid

operational debtor copy of an invoice demanding

payment of the amount involved in the default to the

corporate debtor in such form and manner as may be

prescribed."

12. It is only on receipt of such notice under sub-section (1) of Section

8 of the 'I& B Code', the 'Corporate Debtor' may either pay the amount or

may dispute the claim in terms of sub-section (2) of Section 8 of the 'I&B

Code'.

13. Clause (a) and (b) of sub-rule (1) of Rule 5 of the 'Adjudicating

Authority Rules' provides the format in which the demand notice/invoice

demanding payment in respect of unpaid 'Operational Debt' is to be

issued by 'Operational Creditor'. As per Rule 5(1) (a) & (b), the following

person (s) are authorised to act on behalf of operational creditor, as

apparent from the last portion of Form-3 and 4 which reads as follows: -

"6. The undersigned request you to unconditionally repay the unpaid operational debt (in default) in full within ten days from the receipt of this letter failing which we shall initiate a corporate insolvency resolution process in respect of [name of corporate debtor].

Yours sincerely,

Company Appeal (AT) (Insolvency) No. 248 of 2017 8

Signature of person authorised to act on behalf of the operational creditor

Name in block letters

Position with or in relation to the operational creditor

Address of person signing

"

14. Form-5 is the format for filing application under section 9, as per

which the following details are to be provided: -

"Part I- particulars of applicant

Part II- particulars of corporate debtor

Part III- particulars of the proposed interim resolution

professional (if proposed)

Part IV- particulars of operational debt

Part V- particulars of operational debt [documents,

records and evidence of default]

15. As per the instructions, the following documents are required to be

attached:

Annex I Copy of the invoice/demand notice as in

Form 3 of the Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016 served on the

Corporate debtor.

Annex II Copies of all documents referred to in this

application.

Company Appeal (AT) (Insolvency) No. 248 of 2017 9

Annex III Copy of the relevant accounts from the

banks/financial institutions maintaining accounts of

the operational creditor confirming that there is no

payment of the relevant unpaid operational debt by

the operational debtor, if available.

Annex IV Affidavit in support of the application in

accordance with the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016.

Annex VI Written communication by the proposed

interim resolution professional as set out in Form 2 of

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016.

Annex VI Proof that the specified application fee

has been paid."

16. Admittedly, no notice was issued under sub-section (1) of Section

8 of the 'I&B Code'. In terms with Rule 5, other informations were also

not placed before the Adjudicating Authority.

17. The 1st Respondent ('Operational Creditor') having failed to provide

all the details as required under Form-5 as noticed above, the application

under sections 433 and 434 of the Companies Act, 1956 cannot be

treated to be an application under section 9 of the 'I&B Code' in terms of

Rule 5 of Transfer Rules, 2016. For such failure to provide the

Company Appeal (AT) (Insolvency) No. 248 of 2017 10

information, in view of proviso to Rule 5 of the Transfer Rules, the

application under Sections 433 and 434 of the Companies Act, 1956 filed

by 1st Respondent stands abated.

18. For the reasons aforesaid, while we set aside the impugned order

dated 12th October, 2017 passed by the Adjudicating Authority, Chennai

in T.C.P No. 4/(IB)/CB/2017, also declare that the application preferred

by the 1st Respondent under Sections 433 and 434 of the Companies Act,

1956 stood abated.

19. However, liberty is given to the 1st Respondent to issue fresh notice

under sub-section (1) of Section 8 of the 'I&B Code' and on service of such

notice if there is a debt and default or no dispute is raised, it will be open

to the 1st Respondent to file fresh application under Section 9 of the 'I&B

Code' after ten days of service of such notice. In such case, the

Adjudicating Authority may decide the application uninfluenced by the

impugned Order dated 12th October, 2017 and the judgment passed by

this Appellate Tribunal.

20. In effect, order (s) passed by the Adjudicating Authority appointing

'Resolution Professional', declaring moratorium, freezing of account and

all other order (s) passed by the Adjudicating Authority pursuant to

impugned order and action, if any, taken by the 'Resolution Professional',

Company Appeal (AT) (Insolvency) No. 248 of 2017 11

including the advertisement, if any, published in the newspaper calling

for applications and all such orders and actions are declared illegal and

are set aside. The application preferred by the 1st Respondent is

dismissed as abated. Learned Adjudicating Authority will now close the

proceeding. The 2nd Respondent company ('Corporate Debtor') is released

from all the rigour of law and is allowed to function independently

through its Board of Directors from immediate effect.

21. The Adjudicating Authority will fix the fee of 'Resolution

Professional', and the Appellant will pay the fees for the period he has

functioned. The appeal is allowed with aforesaid observation and

direction. However, in the facts and circumstances of the case, there

shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/uk

Company Appeal (AT) (Insolvency) No. 248 of 2017