Sanjay Pandurang Kalate vs Vistra Itcl (India) Limited

[Arising out of order dated 19.05.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench-V in CP (IB) No.283 of 2023.]

IN THE MATTER OF:

Sanjay Pandurang Kalate, Suspended Director of Evirant Developers Pvt. Ltd. 403, Mont Vert Tropez, Wakad, Taluka-Mulshi, Pune - 411 057 ...Appellant

Versus

Vistra ITCL (India) Ltd. IL&FS Financial Centre, Plot C-22, G Block, 6th Floor, Bandra-Kurla Complex, Bandra East, Mumbai - 400 051 ...Respondent No.1

Jaynat Vallabhdas Kaneria, A/34, Abhimanshree Society, Pashan Baner Link Road, Pashan, Pune - 411 008 ...Respondent No.2

Dhirajlal Gordhandas Hansalia Nirmal Plot No.12, Pallod Farms-II, Street No.03, Behind Bharat Petrol Pump, Baner Road, Baner, Pune - 411 045 ...Respondent No.3

Mohan Pandurang Kalate Pandurang Niwas, S. No.-277, Wakad Chowk, Wakad, Pune - 411 057 ...Respondent No.4

Jayesh Natvarlal Sanghrajka Insolvency Professional 405-407, Hind Rajasthan Building, Dadar, Mumbai, Maharashtra - 400 014 ...Respondent No.5

Company Appeal (AT) (Ins.) No. 742 of 2023 1 Present:

Appellant: Mr. Abhinav Vashisht, Sr. Advocate with Mr. Kushal Bansal, Ms. Nidhi Yadav and Ms. Sonal Sarda, Advocates.

For Respondents: Mr. Arvind Nayyar, Sr. Advocate with Mr. Mohd. Shahan Ulla, Mr. Akshay Joshi, Mr. Shubham Pandey, Advocates for R-1 Mr. Dhaval Deshpande and Mr. Amir Arsiwala, Advocates for R-5.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of the Order dated

19.05.2023 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-V)

in CP (IB) No.283 of 2023. By the impugned order, the Adjudicating Authority

has admitted the application under Section 7 of the IBC filed by Vistra ITCL

(India) Ltd.- present Respondent No.1 and initiated Corporate Insolvency

Resolution Process ("CIRP" in short) of the Corporate Debtor - Evirant

Developers Pvt. Ltd. ("EDPL" in short). Aggrieved by this impugned order, the

present appeal has been filed by Shri Sanjay Pandurang Kalate, suspended

Director of the Corporate Debtor.

2. The brief facts of the case which are necessary for deciding this appeal

are as outlined below: -

 The Appellant along with his father and brothers teamed up with

Respondents No.2 and 3 to undertake development and construction of

residential and commercial projects in Pune.

Company Appeal (AT) (Ins.) No. 742 of 2023 2  Subsequently, on 09.10.2018, EDPL-Corporate Debtor was

incorporated by them to develop Project Panorama and Project Vedanta

on plot 277 and 195 at Wakad, Pune.

 The Corporate Debtor authorized the issuance of 5790 fully secured,

redeemable, non-convertible debentures ("NCD" in short) having par

value of Rs.1 lakh each by way of private placement and Respondent

No.1- Vistra ITCL was appointed as the Debenture Trustee as per the

Debenture Trust Deed of 26.11.2018.

 Debenture holders, namely, India Realty Excellence Fund III and India

Realty Excellence Fund IV managed by Motilal Oswal Financial Services

Ltd. as Fund Manager agreed to invest in the project by subscribing to

3441 NCDs.

 Subsequent to the subscription of NCDs, the debenture holders

invested Rs.34,41,00,000/-. On 27.09.2019, the First Supplemental

and Amendment Deed to the Debenture Trust Deed came to be

executed.

 The Corporate Debtor started committing payment defaults besides not

complying to obligations set out in the Debenture Trust Deed. The

Debenture holders and the Fund Manager issued notices / emails to

the Corporate Debtor seeking payment of outstanding amounts.

 As the Corporate Debtor continued to remain in default, the

Respondent No.1 issued a Put-Option Notice dated 12.01.2023 to the

Corporate Debtor calling upon it to redeem or purchase the NCDs from

the debenture holders.

 The Corporate Debtor failed to redeem the NCDs and repay the due

amount of Rs.65,08,05,433/- following which the Financial Creditor -

Company Appeal (AT) (Ins.) No. 742 of 2023 3 Respondent No.1 filed the Section 7 application vide

CP(IB)/283(MB)2023 before the Adjudicating Authority.

 An IA No. 2002/MB/2023 had also been filed in the main company

petition by the present Appellant in which it was stated that there were

disputes amongst the Directors of the Corporate Debtor; that the

Respondent No.2 acted in collusion with the Financial Creditor to

defraud the Corporate Debtor and the Respondent No.2 had

represented the Corporate Debtor in the main company petition without

authorization.

 The main CP(IB) petition was heard by the Adjudicating Authority on

11.05.2023 and was reserved for order. Before pronouncement of the

orders in the main company petition, IA 2002/2023 was heard by the

Adjudicating Authority on 17.05.2023 and dismissed.

 The orders reserved by the Adjudicating Authority in the main company

petition was pronounced on 19.05.2023 whereby it admitted the

Section 7 application.

 Aggrieved by the impugned order, the present appeal has been

preferred.

3. The Learned Senior Counsel for the Appellant submitted that Section 7

application has been mischievously filed in collusion between the Financial

Creditor and Respondents No.2 to 4. It was vehemently contended that

though the insolvency petition was filed by Respondent No.1 with fraudulent

and malicious intent, the same was ignored by the Adjudicating Authority. It

was further stated that though IA No.2002/MB/2023 had been filed by the

Appellant to show the unhealthy collusion amongst Respondents Nos. 1 to 4,

yet the Adjudicating Authority passed the impugned order without

Company Appeal (AT) (Ins.) No. 742 of 2023 4 adjudicating upon the above IA. The impugned order was assailed on the

ground that it did not even in the passing make a mention about the IA which

had been filed by them regarding these serious allegations of fraud,

misrepresentation and collusion.

4. It was further submitted that the Respondents No.2 and 3 took

unilateral decisions on behalf of the Corporate Debtor while keeping the

Appellant uninformed. Further, the Respondents refused to provide statutory

records and audited financial statements of the Corporate Debtor to the

Appellant. Besides a Civil Suit bearing No.2182/2022 which was filed against

the Respondents in District Court, Pune, multiple criminal complaints and

related FIRs were filed against them. However, the Adjudicating Authority

failed to take cognizance of these factors and in unearthing the collusion

amongst Respondents No.1-4.

5. Advancing their arguments further, it was stated that the present

Section 7 application has been filed with the help of fabricated and

manufactured documents as well as by suppression of material facts. It was

reiterated that the Adjudicating Authority should have taken due cognizance

of the interim application filed by the Appellant and hearing of the main

company petition while the interim application was pending cannot be

justified. Rather than admitting the Section 7 application, the Adjudicating

Authority could have considered passing orders under Section 65 of the IBC.

6. Refuting the above submissions made by the Appellant, the Learned

Senior Counsel for the Respondent submitted that the Corporate Debtor in

their reply before the Adjudicating Authority having clearly admitted that

there was a financial debt owed to the Financial Creditor and that there was

Company Appeal (AT) (Ins.) No. 742 of 2023 5 a default committed thereto, the Adjudicating Authority committed no error

in admitting the Section 7 application. Rebutting the contention of the

Appellant that the Adjudicating Authority had passed the impugned order in

the main company petition without adjudicating on the IA No. 2002/2023, it

was pointed out that the said IA was duly considered on 17.05.2023 by the

Adjudicating Authority before passing of the impugned order on 19.05.2023.

Moreover, while dismissing the said IA, the Adjudicating Authority had duly

recorded the reasons for doing so.

7. We have duly considered the arguments advanced by the Learned

Counsel for the parties and perused the records carefully.

8. It is trite law that under the IBC once a debt becomes due or payable,

in law and in fact, and there is incidence of non-payment of the said debt in

full or part thereof, CIRP may be triggered by the Financial Creditor as long

as the amount in default is above the threshold limit. It is also well accepted

that debt means the liability in respect of a claim and claim means a right to

payment even if it is disputed.

9. Given this settled position of law, at this juncture we may now glance

through the facts of the present case. We find that at no point of time, the

Corporate Debtor had contested before the Adjudicating Authority the fact

that the Financial Creditor had disbursed credit facilities to the Corporate

Debtor by issuance of NCDs. It has also been admitted by the Corporate

Debtor that in terms of Debenture Trust Deed dated 26.11.2018, the Financial

Creditor was entitled to redemption of the NCDs. The Corporate Debtor did

not deny or dispute the claim made by the Respondent No.1 amounting

Rs.65,08,05,433/- which had become due and payable on 11.01.2023.

Company Appeal (AT) (Ins.) No. 742 of 2023 6 Admittedly, the Corporate Debtor failed to redeem these NCDs and remit the

requisite amount to the Financial Creditor. We also notice that the Corporate

Debtor while explaining as to how and why they had defaulted in repayment

of the debt, several reasons were attributed but none of them assigned any

fault on the part of the Financial Creditor. We find that the Corporate Debtor

on their own volition admitted before the Adjudicating Authority that various

macro-market and micro-market factors propelled by the economic downturn

caused by the Covid pandemic led to decline in their sales, revenue and cash

flow. This had prevented them from paying back the amount due to Financial

Creditor on time. The only reprieve which had been sought by the Corporate

Debtor was that they be given one chance to revive themselves as they were

seriously endeavouring to settle the matter by getting in some investors. This

testifies that they admitted that they were financially incapacitated in

repaying the outstanding debt on their own steam and were trying to mobilize

resources to liquidate their debt.

10. Now coming to the impugned order, we find that all these facts have

been appropriately captured therein by the Adjudicating Authority in arriving

at their findings. The relevant portions of the impugned order is as reproduced

below:

"18. On the other hand, in the reply filed by the Corporate Debtor no solid defence has been raised. It has simply been stated that due to circumstances beyond its control, the Corporate Debtor could not pay the amount due and payable to the Financial Creditor. It has also been stated in the reply that the Real Estate industry was going through a lean patch and there was overall slowdown in the Real Estate Industry at the national level and owing to low demand and slow convertibility, the projects of the Company could not take off. Besides, the business was hit hard by COVID lockdowns. The Corporate Debtor has further stated in the reply that he was trying to settle the matter by getting some investors and, therefore, the Corporate Debtor ought not be admitted into CIRP. Company Appeal (AT) (Ins.) No. 742 of 2023 7

19. Considering the fact that no substantive defence has been raised in the reply filed by the Corporate Debtor and the factum of disbursement of loan by way of issuance of NCDs and the subsequent default committed by the Corporate Debtor has also not been disputed, it stands established that there has been a Financial Debt in respect of which a default has been committed. The loan was disbursed between 31.12.2020 and 31.12.2022 and the default was committed on 11.02.2023 after the payment was not made even after issuance of put option notice dated 12.01.2023. Therefore, the present Petition is well within the period of limitation.

20. As a corollary to the above discussion, we hold that the Petitioner/Financial Creditor has been able to establish the existence of Financial Debt and the default committed by the Corporate Debtor. Therefore, a clear cut of admission of Section 7 of the Code is made out."

(Emphasis supplied)

11. In this factual backdrop, when financial debt is undisputedly

established and default in payment is also crystal clear, we are of the

considered opinion that the Adjudicating Authority did not commit any error

in admitting the Section 7 application.

12. This now brings us to the primary contention of the present Appellant

that the Adjudicating Authority committed an error for having passed the

impugned order in the main company petition without adjudicating on the IA

No. 2002/2023. It has been the case of the Appellant that the Adjudicating

Authority failed to appreciate various judgments of the Hon'ble Supreme

Court which have emphasized that Adjudicating Authority have an important

role in preventing any blatant effort made by any party to bring a Corporate

Debtor under the rigours of CIRP by taking recourse of malicious and/or

collusive filing of insolvency petition. The Learned Senior Counsel for the

Appellant referred to the judgment of this Tribunal in Company Appeal (AT)

Company Appeal (AT) (Ins.) No. 742 of 2023 8 (Ins.) No.258 of 2021 in the Hytone Merchants Private Limited v.

Satabadi Investment Consultants Pvt. Ltd. ("Hytone" in short) in which it

had been held that if a Section 7 application is filed collusively and with mala-

fide intention, the application can be rejected by relying on Section 65 of the

IBC.

13. In support of their contention, averment has been made that in IA

2002/23 that certain disputes had arisen between the Appellant and his

brother, Respondent No. 4 following which a Family Settlement Deed dated

31.10.2019 was executed along with a Memorandum of Understanding dated

05.11.2019 (hereinafter referred to as "MoU-1"). By virtue of this MoU, the

brothers of the Appellant were to transfer their respective shareholdings to

him for which he paid certain amounts to his brothers but after partially

acting upon the settlement agreement, they had later backtracked.

14. It was also submitted that the said I.A. pointed out that Respondents

No. 2 and 3 had executed two mortgage deeds on 07.09.2019 and 21.12.2019

by which the property of the Corporate Debtor was mortgaged to the Fund

Manager for Rs.114 crore though mortgage rights were given only for about

Rs.12 crores. The mortgage deed was illegally executed on the basis of a Board

Resolution dated 09.01.2019. This Board Resolution had been passed

illegally in violation of the provisions of the Companies Act, 2013 by keeping

the Appellant in the dark. Elaborating further, it was submitted that once the

Appellant started investigating into the fabrication of documents leading to

illegal utilization of the monies by Respondents No.2 and 3, the latter had

executed a Memorandum of Understanding on 29.01.2022 (hereinafter

referred to as "MoU-2"). By this MoU-2, Respondents No.2 and 3 had agreed

Company Appeal (AT) (Ins.) No. 742 of 2023 9 to retire from the Corporate Debtor but subsequently failed to perform their

obligations particularly in obtaining an unconditional NoC from the Fund

Manager. It was further added that the said IA pointed out a Civil Suit and

criminal complaints had been filed by the Appellant against the Respondents

for forgery of documents and fraud committed by them but the Adjudicating

Authority passed the impugned order without deliberating on the facts placed

before it. In the given circumstances, it was unjustified on part of the

Adjudicating Authority to have heard the main company petition while

keeping the IA pending though serious questions relating to both facts and

law were raised therein and deserved to have been adjudicated upon in the

first instance. Submission has been pressed that the impugned order being

bereft of any reference to the IA shows that the Adjudicating Authority wrongly

glossed over the fact that the main company petition was fraudulent, collusive

and malicious in intent.

15. This was strongly countered by the Learned Senior Counsel of

Respondent No. 1 by stating that the contention of the Appellant lacked

credence since the IA was considered on 17.05.2023 by the Adjudicating

Authority before passing of the impugned order on 19.05.2023. It was

asserted that while dismissing the IA, proper reasons were also duly recorded

in holding that the IA was frivolously filed by the Appellant and sans the

approval and authorization of the Board of Directors of the Company.

16. From material facts on record, we find substance in the contention of

Respondent No.1 that the IA was not only heard by the Adjudicating Authority

but was heard before pronouncing the order in the main company petition. It

is also borne out from the orders that both parties were present and had

Company Appeal (AT) (Ins.) No. 742 of 2023 10 placed their respective contentions / arguments before the Adjudicating

Authority in the matter of the IA. Hence, we are not in a position to accept

the submission of the present Appellant that the IA has not been properly

adjudicated upon by the Adjudicating Authority. It may now be useful to take

note of the orders passed by the Adjudicating Authority in I.A. 2002/2023

which is to the effect:

"Adv. Sarosh E. Bharucha appeared for the applicant.

Adv. Ryan D'Souza a/w. Adv. Zaid Mansuri i/b. DSK Legal appeared for the Financial Creditor. The present application is filed by Mr. Sanjay Pandurang Kalate who is Director and Shareholder of the Corporate Debtor under Rule 11 of NCLT Rules, 2016.

Heard IA No. 2002/2023. Applicant claims that certain fraud has been committed by one Mr. Kaneria. It has been stated that C.P.(IB)/283/2023 has already been Reserved for Order by this Bench. In the C.P.(IB)/283/2023 which has been filed under Section 7 of Insolvency & Bankruptcy Code, 2016, one Mr. Kaneria is stated to file reply without any authorization of Board of Directors. It has further been pointed out that there is some dispute inter se between the Directors of the Company and some settlement agreement was executed whereby, Mr. Kaneria agreed to step down from his Directorship. It is further been pointed out that the reply filed by the Mr. Kaneria in the C.P.(IB)/283/2023 should not be taken into consideration as the same has been filed without any authorization of the Board of Directors of the Company.

During the course of the arguments when the Counsel for the applicant asked as to whether the instant application has been filed with the approval and authorization of the Board of the Directors of the company. It was stated by the Counsel for the applicant that there is no such authorization on behalf of the Board of the Directors of the company to file the instant application. That being so, on the basis on this the instant application which appears to be frivolous application and seems to have been filed with the view to delay the proceedings of C.P.(IB)/283/2023 the proceedings of C.P.(IB)/283/2023 cannot be derailed. Therefore, we find the IA No. 2002/2023 has been filed without any merit and the same is hereby dismissed being vexatious in nature."

(Emphasis supplied) Company Appeal (AT) (Ins.) No. 742 of 2023 11

17. We are inclined to agree with the reasoning of the Adjudicating

Authority in dismissing the IA. It is a settled proposition of law that to prove

any transaction to be collusive and fraudulent in nature, the degree of proof

and evidence required should be of unimpeachable nature and beyond

reasonable doubt. In a matter as serious as this where an imputation of fraud

is being made by the Appellant on behalf of the Corporate Debtor against the

Respondents, the Adjudicating Authority has rightly held that allowing such

an application, without approval of the Board would suffer from impropriety

and hence dismissed it as a frivolous and vexatious. While we prima-facie

agree that a collusive Section 7 petition can be rejected as has been laid down

in the Hytone (supra) ratio, we must hasten to add the inapplicability of that

judgment since in that case the Corporate Debtor was trying to escape its

liability as a corporate guarantor in collusion with the Financial Creditor,

thereby making the facts distinguishable. We do not countenance this

approach of the Appellant of attempting to take undue benefit of the mercies

of law by seeking invocation of Section 65 of the IBC. We are also cognizant

that given the statutory construct of IBC, the scope and jurisdiction of the

Adjudicating Authority being summary in nature, it is distinctly not as

extensive as that of a civil court to enquire into disputes arising out of MoUs

and related specific performance which have been agitated in the IA. Allowing

such meritless and unscrupulous litigation would logically entail derailing the

insolvency resolution process which goes against the twin objectives of the

IBC of maximization of the value of assets and time-bound insolvency

resolution.

Company Appeal (AT) (Ins.) No. 742 of 2023 12

18. We have already observed in the preceding paragraphs that it is an

undisputed fact that there was disbursal of funds by the Financial Creditor

to the Corporate Debtor. Receipt of this amount by the Corporate Debtor has

not been controverted by the Appellant. Neither has any claim been made that

this entire sum was repaid by the Corporate Debtor. That being the case there

arises no doubt in our mind that there was a debt on the part of the Corporate

Debtor qua the Financial Creditor which remained unpaid. There is no

infirmity in the findings of the Adjudicating Authority that the Financial

Creditor having successfully proved the financial debt and default on the part

of the Corporate Debtor, Section 7 application has been admitted. Even if for

arguments sake we accept the contention raised by the Appellant that there

were serious internal disputes amongst the Respondents that cannot be a

cogent and reasonable ground for denying the Financial Creditor their right

to claim payment towards the debt owed to them by the Corporate Debtor.

19. In fine, we do not find any error in the order impugned passed by the

Adjudicating Authority admitting the Section 7 application. There is no merit

in the Appeal. The Appeal is dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 05.10.2023

PKM

Company Appeal (AT) (Ins.) No. 742 of 2023 13