Rishim~ Sa Investments Llc {Mauritius) vs Sarga Hotel Private Limited & Ors

[Arising out of order dated 04.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Court No. II, Kolkata in IA (IB) No.1271/KB/2022 in CP (IB) No.302(KB) of 2021]

IN THE MATTER OF:

Rishima SA Investments LCC (Mauritius) 1st Floor, Wing A, Cyber Towers 1, Ebene Cybercity, Mauritius Email:vamsi@lapisindiacapital.com ...Appellant

Versus

1. Sarga Hotels Pvt. Ltd, Through its Resolution Professional, Mr. Avishek Gupta, CK 104, Sector 2, Salt Lake, Kolkata-700091, West Bengal Email: cirp.sargahotel@gmail.com

2. Yes Bank Limited, YES Bank House, Off Western Express Highway, Santacruz (East), Mumbai-400055

3. J. C. Flowers Asset Reconstruction Private Limited (Assignee of YBL) 12th Floor, Crompton Greaves House, Dr. Annie Besant Road, Worli, Mumbai-400030 Email: teamjcarc@jcfarc.com saptarshi.saha@augustuslaw.com ...Respondents

Cont'd.../ -2-

Present:

For Appellant: Ms. Malvika Trivedi, Sr. Advocate with Ms. Bani Dikshit, Mr. Uddhav Khanna, Mr. Shalendra Slania, Ms. Sujal Gupta, Advocates

For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Ms. Pooja Mahajan, Ms. Mahima Singh, Ms. Shreya Mahalwan, Ms. Shruti Pandey, Ms. Namrata Sarogani, Mr. Kartik Pandey, Advocates for R-1 (RP).

Dr. Abhishek Manu Singhvi, Sr. Advocate with Mr. Raunak Dhillon, Ms. Madhavi Khanna, Mr. Nihaad Dewan, Advocates for R-3.

Mr. Joy Saha, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana, Ms. Shalini Basu, Advocates for SRA.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a creditor of the Corporate Debtor has been filed challenging

the order dated 04.01.2024 passed by the Adjudicating Authority (National

Company Law Tribunal), Division Bench, Court No. II, Kolkata in IA (IB)

No.1271/KB/2022 filed by the Appellant. By the impugned order the

application filed by the Appellant IA (IB) No.1271/KB/2022 has been

rejected. Aggrieved by which order this Appeal has been filed. Brief facts

necessary to be noticed for deciding the appeal are:

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(i) The Corporate Debtor - Sarga Hotel Pvt. Ltd. was established as

a Special Purpose Vehicle in the year 2004. On 22.03.2007, West

Bengal Housing Infrastructure Development Corporation Limited

leased a land of 8 acres to Shristi Infrastructure Development

Corporate Ltd.

(ii) On 31.03.2007, Shristi Infrastructure Development Corporate

Ltd. executed a lease deed for 3.5 acres of land to the Corporate

Debtor. On 07.08.2008, a Share Subscription and Shareholders'

Agreement was executed between the Appellant - Rishima SA

Investments LLC (Mauritius), Shristi Infrastructure Development

Corporate Ltd. and the Corporate Debtor, wherein the Appellant

and Shristi acquired 35% and 65% shareholding in the Corporate

Debtor, respectively. Under the Share Subscription and

Shareholders' Agreement, the investments made by the Appellant

were to be utilized for the construction and development of a

branded five-star hotel at Rajarhat in Kolkata.

(iii) On account of breaches by Shristi and the Corporate Debtor, on

11.02.2016, a Singapore-seated Arbitration was commenced by

the Appellant.

(iv) On 16.03.2016, Yes Bank Ltd. issued a Facility letter in favour of

the Corporate Debtor to obtain a financial assistance of Rs.325

Crores. The facility letter was brought to the notice of the Board

of Directors of the Corporate Debtor, on 23.05.2016 a resolution

Company Appeal (AT) (Insolvency) No.142 of 2024 -4-

was passed to obtain facility from the Yes Bank by resolution

dated 26.05.2016, which minutes of the meeting dated

25.06.2016 were shared with the Appellant on 15.09.2016. The

Yes Bank disbursed loan amount to the Corporate debtor in

December, 2016.

(v) On 21.12.2016, Appellant addressed a letter to Yes Bank

objecting to any agreement executed and encumbrances created

on the assets of the Company which were stated to be void, illegal

and ultra vires to the articles of association. Appellant also sent

a letter to Registrar of Companies on 21.02.2017.

(vi) A partial award dated 30.04.2019 was made in favour of the

Appellant. Challenge to partial award was dismissed by the

Singapore International Commercial Court on 03.03.2020. A final

award dated 12.07.2020 was passed directing payment of

Rs.132.39 Crores towards costs, interest, damages for breach of

SHA.

(vii) An Enforcement Petition before the Hon'ble High Court of Delhi

was filed by the Appellant in which an order was passed on

30.05.2019 by the Delhi High Court restraining the Shrishti and

the Corporate Debtor from creating any third party interest or

parting with the possession of Westin Hotel, Rajarhat, Kolkata,

which order was also affirmed by the Hon'ble Supreme Court on

19.07.2019.

Company Appeal (AT) (Insolvency) No.142 of 2024 -5-

(viii) Yes Bank filed an application under Section 7 against the

Corporate Debtor on which CIRP commenced by order dated

11.02.2022. Yes Bank filed its claim in the capacity of Financial

Creditor to the tune of Rs.370,36,10,306/- which was admitted

by the Resolution Professional. Appellant also filed its claim in

Form C on 25.02.2022 followed by Form F, which was rejected by

the Resolution Professional.

(ix) Due to claim of Yes Bank having been admitted by the Resolution

Professional, Appellant filed IA (IB) No. 1271/KB/2022 under

Section 60(5) of the Code seeking directions to the Resolution

Professional to reject the claim made by the Yes Bank.

(x) I.A. (IB) No.1131/KB/2022 filed by the Appellant was partly

allowed setting aside the action of the Resolution Professional

rejecting entire claim of the Appellant of Rs.132 Crores.

(xi) On 04.01.2024, the Adjudicating Authority allowed the

application of the Resolution Professional seeking the approval of

Resolution Plan in I.A. (IB) No.1054(KB)/2023. Vide impugned

order dated 04.01.2024, Adjudicating Authority dismissed the

Appellant's application IA (IB) No.1271/KB/2022, against which

this appeal has been filed.

2. We have heard Ms. Malvika Trivedi, learned senior counsel for the

Appellant, Shri Ramji Srinivasan, learned senior counsel along with Ms.

Pooja Mahajan, Advocate appearing for Resolution Professional, Dr.

Company Appeal (AT) (Insolvency) No.142 of 2024 -6-

Abhishek Manu Singhvi, learned senior counsel for the Committee of

Creditors and Mr. Joy Saha, learned senior counsel for the Successful

Resolution Applicant.

3. Ms. Malvika Trivedi, learned counsel for the Appellant submits that

the Resolution Professional committed error in accepting the illegal and

untenable claim of Yes Bank. It is submitted that as per the Share

Subscription and Shareholders' Agreement dated 07.08.2008, the

Appellant is 35% shareholder of the Corporate Debtor. There being

breaches by Shristi Infrastructure Development Corporate Ltd. (SIDCL)and

the Corporate Debtor, in Singapore-seated arbitration partial and final

award were passed in favour of the Appellant. For enforcement of which

award, Enforcement Proceedings were initiated by the Appellant before the

Delhi High Court. It is submitted that the financial assistance obtained by

the Corporate Debtor from the Yes Bank was void ab initio being ultra vires

and contrary to Companies Act, 2013 and Articles of Association of the

Corporate Debtor. There was inherent illegality in the Facility Agreement

entered between the Yes Bank and the Corporate Debtor. It is submitted

that in addition to execution Share Subscription and Shareholding

Agreement, Article of Association was also amended by including Articles

101, 111.11, 112.1 and 112.3.7. Under the Article of Association, the

Appellant has various affirmative voting rights in relation to the affairs of

the Corporate Debtor. Without affirmative vote rights various actions could

not have been taken by the Corporate Debtor. It is submitted that the

resolution passed by the Board of the Corporate Debtor in meeting dated

Company Appeal (AT) (Insolvency) No.142 of 2024 -7-

26.05.2016 was without any affirmative vote of Nominee Director of the

Appellant in the Board. There being no affirmative vote, the decision to

take facility to the extent of Rs.325 Crores was void and illegal. Appellant

has also communicated to the Yes Bank on 21.12.2016 about the illegality

in the proposal which was approved by the Board, however, no heed was

paid by the Yes Bank. It is submitted that no loan could have obtained by

the Corporate Debtor from Yes Bank without there being affirmative vote

of the Appellant, hence, extension of entire facility by the Yes Bank is

illegal, ultra vires to the Articles of Association and ought to have been

rejected by the Resolution Professional. It is further submitted that the

Adjudicating Authority without considering the objection raised by the

Appellant to the admission of claim of Yes Bank has rejected the application

of the Appellant on the ground that Appellant has filed the application with

delay of six years and the claim of the Appellant held to be belated and

rejected without entering into merits of the objections raised.

4. Learned counsel for the Resolution Professional opposing the

submission of learned counsel for the Appellant submits that the

Resolution Professional has duly vetted and verified the claim of Yes Bank.

It is submitted that the Facility Letter dated 16.03.2016 read with Facility

Agreement dated 13.12.2013 was vetted and verified. The disbursal of loan

was reflected in the Audited Balance Sheets of the Corporate Debtor and

Statement of Account also shows disbursement made by Yes Bank. There

being disbursement against the time value of money, the claim of the

Financial Creditor was admitted in which there is no illegality. It is

Company Appeal (AT) (Insolvency) No.142 of 2024 -8-

submitted that the Appellant, according to its own case, was aware of the

resolution passed by the Board of Directors including receiving the loan

from Yes Bank in December, 2016 itself. It has not taken any challenge to

the resolution of the Corporate Debtor and it cannot be allowed to challenge

the resolution of the Corporate Debtor after six years. It is further

submitted that the Nominee Director of the Appellant was present in the

meeting dated 26.05.2016 in which Board passed resolution to accept the

financial facility by Yes Bank. It is further submitted that without

prejudice, that corporate actions and authorization by Corporate Debtor

was matter of indoor management of the company which could not be

allowed to be questioned by the Appellant. The loan was sanctioned in

2016 and disbursed in 2016 itself, whereas no remedy was taken by the

Appellant during said period. The loan extended by the Yes Bank to the

Corporate Debtor was neither fraudulent nor illegal. The CIRP admission

order has not been challenged by the Appellant. The Adjudicating

Authority has rightly rejected the application filed by the Appellant. There

is no illegality in admission of claim of the Yes Bank by the Resolution

Professional.

5. Learned counsel for the Committee of Creditors also opposed the

submissions of learned counsel for the Appellant and submits that facility

was duly sanctioned and disbursed by the Yes Bank to the Corporate

Debtor after having necessary due diligence and could not questioned by

the Appellant in these proceedings. It is submitted that the Facility Letter

was issued on 16.03.2016 by the Yes Bank, resolution was passed by the

Company Appeal (AT) (Insolvency) No.142 of 2024 -9-

Corporate Debtor on 26.05.2016 providing authorization for acceptance of

the terms of the Facility Letters and to sign and execute all agreements,

documents and other writings to its Director. Authorized person of the

Corporate Debtor entered into agreement and executed all necessary

documents including security document. Disbursement was made by the

Financial Creditor to the Corporate Debtor which is not matter of issue. It

is submitted that Investor Director was present during the Board meeting

dated 26.05.2016 where the Board gave consent and resolution was passed

to avail financial facility from Yes Bank. Facility Agreement dated

13.12.2016 clearly evidences that the Corporate Debtor has given

representation that it has the necessary power and authority to execute

and consummate the transaction and perform obligations under the

Facility Agreement. Under the doctrine of indoor management, it is a

settled principle that though strangers to the company have constructive

notice of the Memorandum of Association and Articles of Association, they

are entitled to presume that the provisions therein contained have been

complied with by the officers of the company. The Appellant despite having

knowledge of the facility extended and disbursed to the Corporate Debtor

has not taken any action against the same. The letter dated 21.12.2016

was written by the Appellant subsequent to disbursement by the Yes Bank.

Rs.220 Crore were disbursed on 9.12.2016 and an amount of Rs.55 Crore

was disbursed on 14.12.2016. There is no infirmity in the order of the

Adjudicating Authority dismissing I.A. (IB) No.1271/KB/2022.

Company Appeal (AT) (Insolvency) No.142 of 2024 -10-

6. Learned counsel for the Successful Resolution Applicant also

opposing the submissions of learned counsel for the Appellant submits that

order dated 10.11.2023 holding that Appellant is not a financial creditor

has not been challenged and the Appellant's claim has been admitted only

as 'other creditor'. It is further submitted that the Corporate Debtor has

availed the financial assistance from Yes Bank for which appropriate

agreement were executed and amounts were disbursed to the Corporate

Debtor. There being disbursal of the amount to the Corporate Debtor,

Resolution Professional did not commit any error in accepting the Yes Bank

as Financial Creditor and admitting its claim.

7. We have considered the submissions of learned counsel for the

parties and perused the record.

8. The order impugned has been passed in I.A. (IB) No.1271/KB/2022.

In I.A. (IB) No.1271/KB/2022 following were the prayers made by the

Appellant:

"A. Allow the present Application preferred by the Applicant and thereby direct the Resolution Professional to reject the claim of the Petitioner/ Yes Bank Limited, amounting to Rs.370,36,10,306.00/- (Rupees Three Hundred Seventy Crores, Thirty Six Lakhs, Ten Thousand, and Three Hundred and Six only);

B. During the pendency of the present application, stay the operation of the order dated 11.02.2022 in C.

Company Appeal (AT) (Insolvency) No.142 of 2024 -11-

P. (IB) NO. 302(KB) 2021 and the Corporate Insolvency Resolution Process of the Corporate Debtor;

C. Pass any other order(s) as this Hon'ble Tribunal deems fit in the interest of justice."

9. The Financial Creditor has filed a reply to I.A. (IB) No.1271/KB/2022

justifying admission of its claim by the Resolution Professional. In the reply

filed on behalf of the Financial Creditor namely J.C. Flowers Asset

Reconstruction Pvt. Ltd. (Assignee of Yes Bank) reliance was placed on the

Facility Agreement dated 13.12.2016. In Para 6, details the Facility Letter

and Facility Agreement have been given, which are as follows:

"6. Pursuant to a facility letter dated March 16, 2016 (as amended vide addendums dated March 28, 2016, April 26, 2016, May 26, 2017 and April 8, 2019) (collectively, "Facility Letters"), the YES Bank sanctioned rupee facility for an amount of INR 300 Crores and non-fund based facility for an aggregate principal amount of upto INR 25 Crores (collectively referred to as the "Facilities"). It is submitted that the terms of the Facility Letters categorically stated that, the availability of the Facilities was subject to the Corporate Debtor furnishing the corporate approvals (including Board Resolutions) under the Companies Act, 2013 ("Companies Act"). In furtherance of the Facility Letters, YES Bank, Axis Trustee Services Limited ("Security Trustee") and the Corporate Debtor executed a facility agreement dated December 13, 2016 ("Facility Agreement"). A copy of the Facility Agreement is annexed herewith and marked as

Company Appeal (AT) (Insolvency) No.142 of 2024 -12-

Annexure~3. The Respondent craves leave to produce the Facility Letters at the time of hearing, if required."

10. The facility was also secured by way of Hypothecation Deed dated

13.12.2016, Indenture of Mortgage dated 04.05.2017, Corporate

Guarantee dated 13.12.2016, which fact has been also pleaded in Para 7

is to the following effect:

"7. In terms of the Facility Agreement, the Facilities were secured, inter alia, by way of:

(a) exclusive charge by way of hypothecation created by the Corporate Debtor in favour of the Security Trustee (acting for the benefit of the Respondent No. 2) over certain movable assets, receivables and accounts of the Corporate Debtor, as more particularly described in the deed of hypothecation dated December 13, 2016 ("Deed of Hypothecation");

(b) exclusive charge by way of mortgage over all the leasehold rights and interests of the Corporate Debtor over a divided and demarcated portion of the land containing an area of 3.5 acres out of the total land admeasuring 8 acres along with the entire building of the hotel project constructed thereon being Premises No. CBE/2 in Street No. MAR situated within Mouza Jatragachhi in New Town within Police Station Rajarhat in the District 24 Parganas (North), as more particularly detailed m registered indenture of mortgage dated May 4, 2017 ("Indenture"). The charge created pursuant

Company Appeal (AT) (Insolvency) No.142 of 2024 -13-

to the Deed of Hypothecation and the Indenture are also duly registered with the Registrar of Companies, which is a matter of record;

(c) an irrevocable and unconditional corporate guarantee from Shristi Infrastructure Development Corporation Limited ("SIDCL"), which holds 65% shareholding (along with its nominees) in the Corporate Debtor, vide Deed of Guarantee dated December 13, 2016 ("Deed of Guarantee"). Pursuant thereto, SIDCL also executed a parent undertaking dated December 13, 2016 ("Parent Undertaking", together with the Deed of Hypothecation, Indenture and the Deed of Guarantee referred to as the "Security Documents")."

It was further pleaded that the facility was sanctioned and disbursed

to the Corporate Debtor.

12. There is no dispute between the parties that disbursement was made

in pursuance of the Facility Agreement dated 13.12.2016 which

disbursement is reflected in the financial documents of the Corporate

Debtor, as noticed and verified by the Resolution Professional. The thrust

of submission of learned counsel for the Appellant challenging the extension

of facility by Yes Bank is that there was no appropriate resolution by the

Corporate Debtor for accepting the Facility Letter. It is submitted that as

per the Articles of Association, various decisions as referred to in the Articles

of Association can be taken by the Board of Corporate Debtor only after

affirmative vote is received from the Investor Director who has been given

Company Appeal (AT) (Insolvency) No.142 of 2024 -14-

affirmative vote right. It is submitted that there being no affirmative vote

given by the Investor Director for accepting the Facility Letter extended by

Yes Bank, the entire process of execution of Facility Agreement and

disbursement is void, contrary to Articles of Association and deserves to be

rejected. It is submitted the Resolution Professional ought to have looked

into the above aspect and refused to admit the claim. Learned counsel for

the Appellant in this context has referred to letter dated 21.12.2016 which

was written to the Yes Bank. The subject of the letter clearly mention

"Lending transaction with Shristi Hotel Private Limited and/or Shristi

Infrastructure Development Corporation Limited". The aforesaid letter

clearly indicate that the Appellant was aware of Facility Agreement dated

13.12.2016 and referring to the Articles of Association it was stated that the

Company shall not take any action or cause any subsidiary or any joint

venture to take any action at any General Meeting or at any Board Meeting

without the affirmative vote of Investor Director. It is useful to extract Para

6 and 7 of the letter, which is as follows:

"6. During the board meeting of the Company on May 26, 2016, a proposal was made to the board to avail a fresh term loan of INR 325 crore from YES Bank in terms of the YBL Facility Letter. During the said board meeting which was attended by 3 of the Promoter's directors and 1 of the Investor's nominee directors, the Investor's nominee director noted that there were certain proposed changes to the YSL Facility Letter, and the proposal to avail a fresh term loan in any event had not been

Company Appeal (AT) (Insolvency) No.142 of 2024 -15-

accorded requisite approval by the Investor's nominee director. The Investor's nominee director, did not approve the proposed resolution, which as stated above in para 4 is an affirmative vote item under the Articles.

7. On September 15,2016, the Company Secretary Mr. Navin Kr. Agarwal, has shared the agenda and board pack for a proposed board meeting of the Company to be held on September 21, 2016.

The board pack contained draft minutes of the board meeting held on May 26, 2016 which incorrectly record that the Board passed the resolution accepting availing of financial assistance from Yes Bank ("Purported Resolution"). This is not correct as the Investor's nominee director has not granted his affirmative vote during the said board meeting held on May 26, 2016. Recently, it has come to our notice that the Company has filed form MGT-14 with the Ministry of Corporate Affairs attaching the copy of the signed Purported Resolution."

13. The aforesaid contents of the letter of the Appellant itself indicate that

the Board meeting was held on 26.05.2016 in which one Investor's Nominee

Director was present. The letter further states that minutes of the meeting

held on 26.05.2016 were also circulated which incorrectly record that the

Board passed the resolution accepting availing of financial assistance from

Yes Bank. Above averments of the Appellant clearly indicate that the

minutes of the meeting mentions passing of resolution for accepting the

Company Appeal (AT) (Insolvency) No.142 of 2024 -16-

Facility. In reply filed in this Appeal, the Financial Creditor has brought on

the record the resolution dated 26.05.2016, which resolution records as

follows:

"RESOLVED FURTHER THAT the Company do accept from Yes Bank Limited, credit facilities of Rs. 325 crores as conveyed vide their facility Letter No.YBL/DEL/FL/1669/2015-16 dated 16th March 2016 and any further addendum thereto and the Board hereby ratifies and approves all actions taken in this regard."

14. Thus, according to its own letter sent by Appellant dated 21.12.2016,

as referred above, it is clear that resolution was passed on 26.05.2016 by

the Board accepting the Facility extended by Yes Bank. It is clear that no

proceedings were taken by the Appellant from December, 2016 till date

challenging the resolution of the Board dated 26.05.2016. On the record

there is ample material to indicate that the Facility Agreement and other

relevant documents were executed between the Yes Bank and the Corporate

Debtor for creation of security, Deed of Hypothecation, Indenture and the

Deed of Guarantee were executed, veracity of which documents are not

questioned. The amount has been disbursed by the Financial Creditor to

the Corporate Debtor in which there is no dispute. The Resolution

Professional under the CIRP Regulations has to verify the claim of the

Financial Creditor on the basis of materials submitted before it. The

Resolution Professional after considering the Financial Statements of the

Corporate Debtor and other financial documents including statement of

Company Appeal (AT) (Insolvency) No.142 of 2024 -17-

accounts, satisfied that there is disbursement by the Financial Creditor

against time value of money. The Resolution Professional thereafter rightly

admitted the claim of the Financial Creditor and we do not find any error in

the order of the Adjudicating Authority rejecting I.A. (IB) No.1271/KB/2022

by which the Appellant has prayed for rejection of admission of claim of the

Yes Bank to the tune of Rs.370,36,10,306/-.

15. Learned counsel for the Appellant has also contended that the

Adjudicating Authority has rejected the application only on the ground of

delay and observed that the application is hopelessly belated one. In Para

158 of the judgment, the Adjudicating Authority has made following

observation:

"158. In view of above, this application being I.A. (IB) 1271/KB/2022 filed by Rishima SA Investments LLC (Mauritius), Applicant, asking for nullifying the effect of a meeting held at least six years back, is dismissed. The Applicant ought to have pursued its remedies diligently and timely."

16. We have already observed that the Appellant was very well aware of

the meeting dated 26.05.2016 in which meeting Board has resolved to

accept the Facility. When the Appellant took no steps to challenge the

Board Resolution, its plea in its application that sanction of Loan Facility

by Yes Bank to the Corporate Debtor should be rejected as void and contrary

to the Articles of Association, cannot be accepted.

Company Appeal (AT) (Insolvency) No.142 of 2024 -18-

17. In view of the foregoing discussion, there are no grounds made out to

interfere with the impugned order rejecting IA (IB) No.1271/KB/2022 filed

by the Appellant. There is no merit in the Appeal. Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

4th April, 2024

Archana

Company Appeal (AT) (Insolvency) No.142 of 2024