Ratna Singh & Anr vs Theme Export Pvt Ltd

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 917 of 2020 (Arising out of Impugned Order Dated 29.07.2020 passed by Hon'ble National Company Law Tribunal, Court -V, New Delhi in C.A 121/ND/2019 in Company Petition No. (IB) 323(ND)/2019)

In the matter of: 1.Ms. Ratna Singh J-601, Som Vihar, R.K.Puram Sector 10, South West Delhi - 110022 ...Appellant No.1

2.Mr. Brijinder Singh J-601, Som Vihar, R.K.Puram Sector 10, South West Delhi - 110022 ...Appellant No.2

Vs. 1.M/s.Theme Export Pvt. Ltd Through Mr.Vikram Bajaj Resolution Professional For Theme Exports Pvt. Ltd. ...Respondent No.1

2.Ms. Nandini Singh F-105, Som Vihar, R.K.Puram Sector 10, South West Delhi - 110022 ...Respondent No.2

Present: For Appellant: Mr.Sagar Rajiv Agnihotri, Advocate. For Respondent: Mr. Abhishek Anand, Advocate.

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

Company Appeal (AT) (Insolvency) No. 917 of 2020 2

1. The Appellants - Ms. Ratna Singh w/o Mr. Brijinder Singh and Mr.

Brijinder Singh both Ex-Directors of M/s.Theme Export Pvt. Ltd., have

filed this Appeal under Section 61 read with Section 33(2) of the

Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code, 2016')

against the Impugned order dated 29.07.2020 passed by the

Adjudicating Authority ('National Company Law Tribunal, New Delhi') in

CA.121/ND/2019 in Company Petition No.(IB) 323(ND)/2019. The

Adjudicating Authority has allowed the Petition and ordered the

liquidation of the Corporate Debtor - and appointed 'Liquidator'

Mr.Vikram Bajaj, Ex- Interim Resolution Professional (for short IRP) of

the same company having registration No.IBBI/IPA-002/IP-N-

00003/2016-17/10003.

2. The Adjudication Authority has passed the liquidation order primarily on

the basis of the recommendation of Committee of Creditors (for short

'CoC') and the CoC has recommended liquidation with the strength of

98.5% voting shares. While passing liquidation order, the Adjudicating

Authority has taken a conscious decision not to challenge the

commercial wisdom of the Financial Creditor and has relied upon certain

Hon'ble Apex Court judgments like Committee of Creditors of Essar Steel

India Limited Through Authorized Signatory vs. Satish Kumar Gupta &

Ors in Civil Appeal No. 8766-67 OF 2019 & K.Shashidhar Vs. Indian

Overseas Bank and ors in Civil Appeal No. 10673/2018 etc. The

Company Appeal (AT) (Insolvency) No. 917 of 2020 3

Adjudicating Authority has also observed that one Mr. Ratan Singh-

Operational Creditor filed an application under Section 9 of the I&B

Code, 2016 and the Adjudicating Authority has admitted the said

application on 29.08.2019 initiating 'Corporate Insolvency Resolution

Process' (for short CIRP) against the corporate debtor and appointed Mr.

Vikram Bajaj as IRP. the First meeting of CoC was held on 28.09.2019

and the second meeting of CoC was held on 04.11.2019 confirming IRP

as Resolution Professional (for short RP) and also deciding to liquidate

the corporate debtor company.

3. Aggrieved by the order both Ex-Directors have filed the present Appeal

for staying the liquidation proceedings and quashing the impugned

liquidation order dated 29.07.2020 passed by the Adjudicating Authority;

Apart from directing the IRP to continue CIRP and also to bring back the

money belonging to the corporate debtor etc.

4. The Appellants submission reflects the following issues:-

a. The Respondent - Ms. Nandani Singh, a Director of Corporate Debtor

(CD) has committed cheating and fraud and has diverted/syphoned

off money elsewhere belonging to M/s. Theme Export Pvt. Ltd,

Corporate Debtor and she has opened foreign bank accounts in the

name of her daughters Ms. Nitya Vaishnavi Singh and Ms. Vanya

Vaishnavi Singh in HSBC Bank and National Westminster bank,

London United Kingdom. Material were supplied by the Corporate

Company Appeal (AT) (Insolvency) No. 917 of 2020 4

Debtor and some payments were collected in the daughters foreign

bank account and have furnished certain emails and certain other

invoices., commercial export invoices etc., substantiating the same,

which are available from page no. 201 to 210, page 239 to 286 in the

Appeal Paper Book.

b. The Corporate Debtor has availed Financial Credit facility from Bank

of Baroda to the tune of Rs. 25 Crores mortgaging its plant,

machinery and assets including accessories stock and fabric as

primary security and the factory at Okhla along with

personal/corporate guarantees of the three Directors and the same

was getting renewed by the bank since 2005. The Corporate Debtor

performance has stared deteriorating from the Financial Year 2015-16

from Rs. 100 Crore approx. to Rs. 30 Crores approx. in the year 2018-

19 on account of various frauds leading to operation and

mismanagement by Mrs. Nandani Singh, Director of Corporate Debtor

alongwith certain other related parties and employees. All these

failures laid to nonpayment of statutory dues and also the Appellants

perforce resigning from the Corporate Debtor from 12.03.2019. The

Corporate Debtor's Bank was Bank of Baroda (BOB) 55 Madhuvan,

Nehru Place Branch, New Delhi - 110020.

c. Mr. Ravinder Rai- Ex-Accountant of the corporate debtor has provided

to the IRP all the data of the illegal acts committed by Mrs. Nandani

Company Appeal (AT) (Insolvency) No. 917 of 2020 5

Singh - a Director of the corporate debtor on 18.11.2019 prior to filing

of liquidation proceedings by IRP.

d. The Appellants have also written to Mrs. Nandani Singh demanding

for explanation for the theft and the criminal breach of trust

amounting to Oppression and Mismanagement apart from visiting

Bank of Baroda and informing the Chief Manager Mr. Lalit Kumar

Luthra about the theft etc., and demanded for stock statements and

fixed assets register alongwith the list of machinery placed to the

bank on 31.12.2018. As per the Appellant the official has not

entertained them and asked to refrain from dealing such issues. The

IRP and the Director- Mrs. Nanadani Singh Corporate Debtor visited

Okhla Plant and it was observed that the available plant and

machinery was lying completely dismantled and difficult to verify so

was the case with the accessories stock and fabric also. IRP has

neither conducted any physical verification of Accessories stock nor

fabric and machinery lying dismantled in the factory premise of

Corporate Debtor.

5. The Respondents have not filed the counter/objections, though the case

was first heard on 20.10.2020 and thereafter was posted for admission

on 28.10.2020. However, the Liquidator has submitted the Written

Submission vide diary number 23082 dated 02.11.2020. As per the

written submission and also oral submission made by the Respondent

Company Appeal (AT) (Insolvency) No. 917 of 2020 6

counsel, it is hoving around section 61(4) of the I&B Code, 2016 which

clearly states that an appeal against the liquidation order can be

challenged only the ground of material irregularities or fraud committed

in relation to such liquidation order. He has also stated that the

Appellants are not challenging the liquidation order per se but their

grievance is against the act of Oppression and Mismanagement by other

director of the Corporate Debtor. It is also stated that the various

financial fraud was committed by the Director of the corporate debtor

namely, Mrs. Nandani Singh in collusion with several accused person

which lead to mismanagement and oppression. The IRP has failed to take

steps with regard to the fraud committed by the ex-management of the

Company prior to initiation of CIRP and has challenged the impugned

order dated 29.07.2020 passed by Adjudicating Authority based on said

allegations. However, the appellants have failed to initiate filing of

petition under section 241-242 of the Companies Act, 2013 which deals

with oppression and mismanagement. The Appellants have failed to file

such application at appropriate stage and hence the Appellants cannot

challenge the issue of Oppression and Mismanagement under section

61(4) of the Code and hence the Application needs to be dismissed.

6. The Counsel of the Liquidator has also stated that the documents are

being reviewed by the Forensic Auditor M/s. K.R.A and Company

Chartered Accountants to certain transactions under section 43, 45 and

Company Appeal (AT) (Insolvency) No. 917 of 2020 7

66 of I&B Code 2016 and an appropriate application shall be filed by the

liquidator based on findings. It is also submitted that no infirmity in the

impugned order dated 29.07.2020 passed by the Adjudicating Authority.

He is stretching the issue of commercial wisdom of the Committee of

Creditors (CoC) who decided with over 98% voting to liquidate the

Company and cited certain Hon'ble Apex Court Judgment like Committee

of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors.

Civil Appeal No. 8766-67/2019 and K.Sashidhar Vs. Indian Overseas

Bank & Ors., Civil Appeal No. 10673 of 2018. After considering the fact

that there are no chances of revival of the corporate Debtor and has

resolved the liquidation of the Corporate Debtor and hence this

Application needs to be dismissed.

7. We have carefully considered the pleadings of the parties and gone

through certain documents and it observed the followings:

a. The CoC comprises of three financial creditors with voting shares as

stated below:

SL No. Name of Financial Creditor Vote shares 1. Bank of Baroda 98.10% 2. IDFC First Bank Ltd. 1.48% 3. Equitas Small Finance Bank Ltd 0.42% Total 100.00%

b. The IRP has charged a fees @ of Rs. 2.50 lakhs per month + GST and

other expenditure total amounting to Rs. 7,03,520/-.

Company Appeal (AT) (Insolvency) No. 917 of 2020 8

c. It also reflects that the Audited Financial Statement were available

upto 31.03.2017.

d. The Corporate Debtor was comprising of three directors - two

appellants were the directors and other Director was Ms. Nandani

Singh whereas shareholding in the Corporate debtor of Ms. Nandani

Singh was 92% and of the Appellants were 8%.

e. From the 2nd minutes of the CoC held on 04.11.2019 at 3:00 PM at

Bank of Baroda building 14th Floor, 16 Sansad marg New Delhi as at

page no.114 of the Appeal paper book, it is stated as follows:

"The IRP briefed the CoC members that the CoC in its last

meeting decided that measures for revival of operations of

TEPL may be discussed in the next CoC meeting. The

representative of the BOB submitted that during the joint

visit it was revealed by Ms. Nandini Singh that significant

plant & machinery was shifted to NOIDA unit and since

sold/adjusted against lease rentals, details of which have

neither been provided to the Bank nor to the IRP. 'Further

Ms. Nandani Singh had informed the available plant and

machinery is also lying in completely dismantled form

thus difficult to verify. Further the company was not

carrying any stock and the directors have not provided

any updated financial statements from which financial

Company Appeal (AT) (Insolvency) No. 917 of 2020 9

position of the company and other asset could be verified.

In the background, the bank was of the view that since

the business operations are lying closed and its difficult to

revive operations with limited plant and machinery (which

is also dismantled), the company should be liquidated in

accordance with the provisions of the IBC, 2016 supported

in view of the BOB".

f. Chapter -III of Part -II of IBC, 2016 has mechanism even during

liquidation process to initiate action for various wrong doings from

Section 43 to Section 51 and Section 66, these are all related to

undervalued transactions, avoidable transactions, defrauding

creditor, fraudulent trading or wrongful trading etc. The Liquidator,

who is also erstwhile IRP, is required to take necessary action and the

Bank of Baroda is to provide appropriate assistance. Bank of Baroda

was supposed to check flow of inventory, cash to cash cycle etc. as

they have lent Rs. 25 Crores.

g. The Appellants have cited the Hon'ble Apex court judgment

S.P.Chengalvaraya Naiduvs Jagannath, 1994 SCC (1) 1/1994 AIR

853, it was held that "fraud avoids all judicial acts, ecclesiastical or

temporal. It is a settled proposition of law that a judgment or decree

obtained by playing fraud on the court is a nullity and non-est in the

eyes of law.

Company Appeal (AT) (Insolvency) No. 917 of 2020 10

8. We have also gone through Hon'ble Supreme court judgments in the

case of K.Shasidhar Vs. Indian Overseas Bank in Civil Appeal No. 10673

of 2018 (at para 33 & 42) and in the case of CoC of Essar Steel Vs.

Satish Kumar Gupta and ors. Civil Appeal No. 8766 -67 of 2019 (para

31). These citation confirms that commercial wisdom of the CoC cannot

be looked into by either Adjudicating Authority or Appellate Authority.

9. Section 61 I&B Code, which reads as under:

"61. (1) Notwithstanding anything to the contrary contained under the

Companies Act 2013, any person aggrieved by the order of the

Adjudicating Authority under this part may prefer an appeal to the

National Company Law Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirty days

before the National Company Law Appellate Tribunal: Provided that the

National Company Law Appellate Tribunal may allow an appeal to be filed

after the expiry of the said period of thirty days if it is satisfied that there

was sufficient cause for not filing the appeal but such period shall not

exceed fifteen days.

(3) An appeal against an order approving a resolution plan under section

31 may be filed on the following grounds, namely:--

(i) the approved resolution plan is in contravention of the provisions of any

law for the time being in force;

Company Appeal (AT) (Insolvency) No. 917 of 2020 11

(ii) there has been material irregularity in exercise of the powers by the

resolution professional during the corporate insolvency resolution period;

(iii) the debts owed to operational creditors of the corporate debtor have not

been provided for in the resolution plan in the manner specified by the

Board;

(iv) the insolvency resolution process costs have not been provided for

repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteria specified by

the Board.

(4) An appeal against a liquidation order passed under section 33 may be

filed on grounds of material irregularity or fraud committed in relation to

such a liquidation order.

10. An appeal against a liquidation order passed under Section 33 may

be filed on the grounds of material irregularity or fraud committed in

relation to liquidation order. We find no material irregularity or fraud

committed in relation to impugned order.

11. The I&B Code, 2016 is not meant for initiating proceedings for

prevention of oppression and mismanagement but is armed with

provisions under part -II Chapter - III for initiation of actions against

wrong doers/illegal transactions etc.

12. As stated supra, we find no reason to interfere with the liquidation

order passed by the Adjudicating Authority dated 29.07.2020. We uphold

Company Appeal (AT) (Insolvency) No. 917 of 2020 12

the order passed by the Adjudicating Authority dated 29.07.2020 with

above observations. A copy of this order may be provided by Registry to

the Chairman of Insolvency and Bankruptcy Board of India and Bank of

Baroda.

13. The Appeal is dismissed. However, no order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

New Delhi

18th November, 2020

RK

Company Appeal (AT) (Insolvency) No. 917 of 2020