Rajiv Kumar Agarwalla vs Anadya Properties Pvt. Ltd. & Ors

Rajiv Kumar Agarwalla ...Appellant

Versus

Mr. Rajesh Kumar Kejriwal & Ors. ...Respondents

Company Appeal (AT) (Insolvency) No. 589 of 2018

IN THE MATTER OF:

Rajiv Kumar Agarwalla ...Appellant

Versus

Anadya Properties Pvt. Ltd. & Ors. ...Respondents

Present:

For Appellant : Mr. Ashish Dholakia, Mr. Bharat Sood and Dr. Dhanpat Ram Agarwal, Advocates.

For Respondents: Mr. Abhijeet Sinha and Mr. Aditya Shukla, Advocates. Mr. Jitendra Lohia for R.P.

SUDHANSU JYOTI MUKHOPADHAYA, J.

Pursuant to an application filed under Section 7 of the Insolvency

and Bankruptcy Code, 2016 ("I&B Code" for short) by 'Olympia Credits &

Mercantile Private Limited'- ('Financial Creditor'), the Adjudicating 2

Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, by

impugned order dated 24th August, 2018 initiated the 'Corporate

Insolvency Resolution Process' against 'Prithvi Finvest Company Pvt.

Ltd.'- ('Corporate Debtor').

2. The Adjudicating Authority while admitting the application also

passed order of Moratorium under Section 14 of the 'I&B Code'. The

'Resolution Professional' and the suspended Board of Directors were

directed to co-operate with the 'Resolution Professional'.

3. However, the Directors/ Promoters (suspended Board of Directors)

of the 'Corporate Debtor' did not comply with the direction of the

Adjudicating Authority nor handed over the assets and records of the

'Corporate Debtor'.

4. It was in this background, the 'Resolution Professional' filed two

Interlocutory Application Nos. 430 & 605/KB/2018 for violation of

Section 17 of the 'I&B Code' and Moratorium declared under Section 14

of the 'I&B Code' by the 'Resolution Professional' and the Directors of the

'Corporate Debtor' and for issuing direction to the 'Corporate Debtor' to

recall the funds allegedly diverted by the Directors during the period of

Moratorium.

5. The Adjudicating Authority on hearing the parties including the

Appellant- Mr. Rajiv Kumar Agarwalla, Director/ Promoter allowed the

interim relief and passed the following orders:

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 3

"24. The above said discussions leads to a

conclusion that the RP has no power to permit the

directors to operate the corporate debtor

independently and that the fund transfer by the

corporate debtor subsequent to the declaration of

moratorium i.e. from 15.01.2018 is illegal and in

violation of the section 14 and 17 of the Code. Being

found that the fund transfer to the creditors

referred to in Annexure R-6 is found in violation of

the Moratorium declared in the case in hand those

funds to the tune of Rs. 25,78,23,428/- is to be

recalled, otherwise the entire CIRP process could

be mockery.

However, on going through the list of transfer or

fund in the name of the creditors it is understood

that certain transfers are related to payment of

professional fees to one of its employees of the

corporate debtor to whom allegations also leveled

by the financial creditors and the audit fee payable

to the auditor. So the creditors who have received

the amount from the corporate debtor between

15.01.2018 and till the management of the affairs

of the corporate debtor has been taken over by the

present Resolution Professional is liable to be

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 4

refunded to the account of the corporate debtor.

Being satisfied that transfer of fund by the

corporate debtor is illegal the interim relief as

sought for is to be allowed in the case in hand.

Accordingly, interim relief as prayed for is allowed

upon the following among orders:

(i) Creditors named in the Annexure R-6 list

(except employees and auditor) are hereby directed

to refund the money to the account of the corporate

debtor which have been received by them within 15

days of receipt of the order, failing which the

Resolution Professional is directed to take

immediate steps to get it refunded from them so as

to continue with the CIRP process without any

interruption.

(ii) The RP is hereby directed to demand back

the fund from the creditors by issuing individual

demand with immediate effect.

List CAs' along with main C.P. for further

consideration on 05/09/2018.

Certified copy of the order may be issued to

all the concerned parties, if applied for, upon

compliance with all requisite formalities."

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 5

6. The aforesaid combined order in Interlocutory Applications passed

on 24th August, 2018 has been challenged by the Appellant- Director/

Promoter in these appeals.

7. Learned counsel appearing on behalf of the Appellant submitted

that the 'Corporate Person' as defined under Section 3(7) of the 'I&B Code'

excludes any 'financial service provider'.

8. It was submitted that the alleged 'Corporate Debtor' is engaged in

providing 'financial service' and is thus, excluded from the definition of

the term 'Corporate Person'.

9. The 'Corporate Debtor' being a 'Financial Institution' as defined

under Section 3(14)(a) and 3(14)(b) of the 'I&B Code' and it has obtained

a Certificate of Registration under Section 45-IA of the Reserve Bank of

India Act, 1934 and is a Non-Banking Financial Company 'not authorised

to accept public deposit' come within the meaning of 'Financial Service

Provider'.

10. Reliance has been placed on Memorandum of Association of the

alleged 'Corporate Debtor' to show that the main object of it provides 'to

lend and advance money with or without security to such person firms or

companies' and as one of its incidental or ancillary objects provides 'to

borrow or raise or secure the payment of money from any Bank or Banks

or any financial institution or any other persons for the purpose of the

Company's main business'.

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 6

11. It was submitted that the transaction on the basis of which the

'Corporate Insolvency Resolution Process' has been initiated against the

'Corporate Debtor' is a loan taken by it from 'Olympia Credits &

Mercantile Private Limited'.

12. One of the other Objects of the 'Memorandum of Association of the

alleged 'Corporate Debtor' states 'to provide financial service, advisory

and counselling services and facilities of every description capable of being

provided by share and stock brokers, share and stock jobbers, share

dealers, investment fund managers and to arrange and sponsor public and

private issues or placement of shares and loan capital and to negotiate and

underwrite such issues'.

13. Reliance has been placed on the decision of this Appellate Tribunal

in "Randhiraj Thakur v. M/s. Jindal Saxena Financial Services

Private Limited & Anr.─ Company Appeal (AT) (Insolvency) Nos. 32

& 50 of 2018" to suggest that a Non-Banking Financial Company is

excluded from the ambit of the 'I&B Code'.

14. The Respondents in their reply have disputed that the 'Corporate

Debtor'- 'Prithvi Finvest Company Pvt. Ltd.' is a 'financial service

provider'.

15. Respondent Nos. 1, 2, 4 to 12, 18 & 19 have appeared and opposed

the claim.

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 7

16. It was stated that the common order dated 24th August, 2018

passed in C.A. No. 605/KB/2018 has already been challenged by three

parties who are Promoters namely Mr. Bijay Kumar Garodia, Mr. Nishant

Garodia and Mr. Ramgopal Garodia and Sons HUF and filed appeal before

this Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 569 of

2018. The said appeal was dismissed by this Appellate Tribunal by an

order dated 20th September, 2018 in absence of any illegality in the order

passed by the Adjudicating Authority.

17. It was submitted that the Appellants by suppressing the aforesaid

fact filed the present appeal with a malafide intention for modification of

the earlier order passed by this Appellate Tribunal. The Respondents

have disputed the claim made by the Appellant that the 'Corporate

Debtor' is a 'financial service provider'.

18. The Appellant has not filed copy of the order of admission dated

15th January, 2018 by which the application under Section 7 was

admitted. The Adjudicating Authority passed the said order of admission

after hearing the parties including the 'Corporate Debtor'- 'Prithvi Finvest

Company Pvt. Ltd.'.

19. Before the Adjudicating Authority, at the time of admission, no

such plea was taken by the 'Corporate Debtor'.

20. The Appellant has not filed 'Certificate of Registration' issued by

the 'Reserve Bank of India', Department of Non-Banking Supervision',

Kolkata Regional Office under Section 45 TA of the Reserve Bank of India

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 8

Act, 1934. The Respondents have filed 'Certificate of Registration' which

shows that the 'Corporate Debtor' is not authorised to accept public

deposits to carry on the business of non-banking financial institution.

21. Learned counsel for the Respondents filed a copy of the Directors'

Report for the financial year ended on 31st March, 2017 to suggest that

though the 'Corporate Debtor' was in the business of Non-Banking

Financial Company, but presently engaged in the business of investing

in shares and financing of loans.

22. In the Board Meeting of the 'Corporate Debtor' held earlier, the

interest, unpaid or unclaimed deposit remained unpaid or unclaimed or

outstanding was shown by placing the Balance Sheet.

23. The Respondents have also enclosed the statement ending 31st

March, 2017 to suggest that it is merely an accrued interest on unsecured

loans but actually not doing any business of 'financial service provider'.

24. Section 3(7) which defines 'Corporate Person' excludes any

'financial service provider'. The said provision does not talk of any non-

banking financial institution, in general, as evident from Section 3(7), as

under:

"3. Definitions ....... (7) "corporate person" means

a company as defined in clause (20) of section 2 of

the Companies Act, 2013 (18 of 2013), a limited

liability partnership, as defined in clause (n) of sub-

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 9

section (1) of section 2 of the Limited Liability

Partnership Act, 2008 (6 of 2009), or any other

person incorporated with limited liability under any

law for the time being in force but shall not include

any financial service provider."

25. 'Financial Institution' as defined under Section 3(14) (a) & (b) of the

'I&B Code', as quoted below:

"3. Definitions ....... (14) "financial institution"

means─

(a) a scheduled bank;

(b) financial institution as defined in section 45-I

of the Reserve Bank of India Act, 1934 (2 of

1934)....."

26. From the aforesaid provisions, it is evident that all 'non-banking

financial institution' has been excluded from the definition of the

'Corporate Person', except those which are 'financial service provider'.

The Appellant has failed to show any document that it is actually

performing the business of 'financial service provider', as defined under

the 'I&B Code'. On the other hand, the Respondents have shown that it

is not actually performing the business of 'financial service provider' and

thereby does not come within the meaning of 'financial service provider'.

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018 10

27. However, the aforesaid issue is not being determined in these,

appeals as the Appellant has not challenged the order of admission dated

15th January, 2018, whereby the 'Corporate Insolvency Resolution

Process' was initiated against the 'Corporate Debtor'- 'Prithvi Finvest

Company Pvt. Ltd.'.

28. For the reasons aforesaid, for violating the provisions of the 'I&B

Code' including Section 14, if the Appellant is liable for punishment

under Chapter VII of the 'I&B Code', particularly Sections 70, 74 etc. of

the 'I&B Code', they cannot divert the issue of punishment or their alleged

violation of the order of the Adjudicating Authority/ Tribunal by raising

a separate issue which is not required for determination in this appeal in

absence of any challenge of order of admission.

29. For the reasons aforesaid, we dismiss both the appeals with liberty

to the Adjudicating Authority to initiate Contempt Proceeding against the

Appellant- Promoters/ Directors etc. for alleged violation and/or to ask

for proceeding in terms of Chapter VII of the 'I&B Code', apart from the

direction which has already been given. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 18th November, 2019 AR

Company Appeal (AT) (Insolvency) Nos. 588 & 589 of 2018