Sanjay Pandurang Kalate vs Vistra Itcl (India) Limited

[Arising out of order dated 17.05.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-V in IA/2002/2023 in C.P. (IB) No.283(MB)2023]

IN THE MATTER OF:

Sanjay Pandurang Kalate, Suspended director of Evirant Developers Private Limited I-403, Mont Vert Tropez, Wakad, Taluka - Mulshi, Pune 411057 Email: sanjaykalate2020@gmail.com ...Appellant

Versus

1. Vistra ITCL (India) Limited IL & FS Financial Centre, Plot C-22, G-Block, 6th Floor, Bandra - Kurla Complex, Bandra East, Mumbai-400051 Email: itclcompianceofficer@vistra.com

2. Jayant Vallabhdas Kaneria A/34, Abhimanshree Society. Pashan Baner Link Road. Pashan, Pune-411008 Email: jkaneria@montverthomes.com

3. Dhirajlal Gordhandas Hansalia Nirmal plot no 12, Pallod farms II, Street No 03, Behind Bharat petrol Pump, Baner Road, Baner, Pune 411045 Email: dghansalia@gmail.com

4. Mohan Pandurang Kalate Pandurang Niwas, S.No-277, Wakad Chowk, Wakad, Pune-411057 Email: Mohan kalate@yahoo.com

5. Jayesh Natvarlal Sanghrajka Insolvency Professional 405-407, Hind Rajasthan Building, Dadar, Mumbai, Maharashtra - 400014 Email: jayesh@jsandco.in ...Respondents

Cont'd.../ -2-

Present: For Appellant: Mr. Kaushal Bansal and Mr. Kiran Shinde, Advocates.

For Respondents: Mr. Arvind Nayar, Sr. Advocate with Mr. Varun Kalra, Mr. Anand Sengar, Mr. Akshay Joshi, Mr. Samir Malik and Ms. Mehreen Garg, Advocates for R-1.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Suspended Director of the Corporate Debtor has been filed

challenging the order dated 17.05.2023 passed by the Adjudicating

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

IA/2002/2023 filed by the Appellant in C.P. (IB) No.283(MB)2023. By the

impugned order IA filed by the Appellant has been dismissed. Aggrieved

by which order this Appeal has been filed. Notices were issued in the

appeal by order dated 14.02.2024. On 14.02.2024 following order was

passed:

"O R D E R (Hybrid Mode)

14.02.2024: Learned counsel for the Appellant submits that application filed by the Appellant before the Adjudicating Authority has been rejected by the impugned order observing that Applicant is not authorised by the Corporate Debtor. The Adjudicating

Company Appeal (AT) (Insolvency) No.1209 of 2023 -3-

Authority has further observed that application is Vexatious. Learned counsel for the Appellant submits that in the application Appellant has brought relevant facts and was questioning the authority of Mr. Kaneria who has filed reply in the Section 7 petition there being no authorisation by the Board of Directors of the Corporate Debtor. It is submitted that against the order an appeal was filed, which was dismissed by this Tribunal on 05.10.2023 on the ground of limitation, which order was challenged and was set aside by the Hon'ble Supreme Court. Subsequently, by order of this Tribunal dated 11.01.2024 delay has been condoned and appeal is now listed for admission. It is submitted that during pendency of the proceedings before the Hon'ble Supreme Court and this Tribunal, in the CIRP, Resolution Plan was received and approved by the CoC on 24.01.2024 and an application has been filed before the Adjudicating Authority for approval of the Resolution Plan. Submission raised by the Appellant needs consideration.

Issue notice. Shri Nayar accepts notice on behalf of Respondent No.1. Learned counsel appearing for Respondent No.5 accepts notice. Issue notice to other Respondents.

Let Reply be filed within two weeks. Rejoinder be filed within one week thereafter.

List this Appeal on 11.03.2024.

Learned counsel for the Resolution Professional submits that he shall seek adjournment before the

Company Appeal (AT) (Insolvency) No.1209 of 2023 -4-

Adjudicating Authority on the application filed for approval of the Resolution Plan, till the next date."

2. A reply has been filed by the Respondent No.1 to which rejoinder has

also been filed by the Appellant. Before we notice the contentions raised

by learned counsel for the parties in this appeal, it is relevant to notice

certain background facts giving rise to this appeal.

(i) The Appellant along with Respondent No. 2 - Jayant

Vallabhdas Kaneria, Respondent No.3 - Dhirajlal Gordhandas

Hansalia and Respondent No.4 - Mohan Pandurang Kalate

were appointed as Directors of the Corporate Debtor - Envirant

Developers Private Limited, which was incorporated for

carrying out construction activity on 09.10.2018.

(ii) Prior to 09.10.2018, Appellant with Respondent Nos. 2, 3, 4

and Mr. Mayur Kalate (Brother of Appellant) formed a

partnership firm 'Montvert Associates' for carrying out

business of construction in Wakad, Pune.

(iii) Corporate Debtor availed credit facility form Motilal Oswal. A

Debenture Trust Deed was executed on 26.11.2018 to avail

India Reality Fund Series III and IV managed by Motilal Oswal

Financial Services Limited acting through its Debenture

Trustee, Vistra ITCL (India) Ltd.

(iv) The Financial Creditor agreed to invest in the Corporate Debtor

under the agreement, Company authorizing execution of deed

in respect of issuance of 5,790 fully secured, unlisted,

Company Appeal (AT) (Insolvency) No.1209 of 2023 -5-

redeemable, cumulative, non-convertible Series-A debentures

of par value Rs.1,00,000/- each for the purpose of inter alia

meeting costs for obtaining approvals for Project Vedanta and

Project Panorama.

(v) In the Corporate Debtor, the Appellant along with his two

brothers held 50% shares and Respondent No.2 and 3 jointly

had 50% shares. There being some dispute between the

Appellant and his brothers, Family Settlement Deed was

executed between the Appellant and his brothers.

(vi) A Mortgage Deed dated 07.09.2019 was executed by

Respondent No.2 and 3 on behalf of the Corporate Debtor in

favour of the Financial Creditor for immovable assets of the

Corporate Debtor.

(vii) There was dispute between the Appellant and Respondent

Nos.2 and 3 and other members with regard to business

carried on by the Corporate Debtor as well as business carried

by Respondent Nos. 2, 3 and other members of Montvert

Group.

(viii) A Memorandum of Understanding was executed on

29.01.2022 between Appellant, Respondent Nos. 2, 3 and

other members of the group under which Respondent No.2, 3

and other members agreed to retire from all companies and

firm and transfer their shareholding and rights in favour of the

Company Appeal (AT) (Insolvency) No.1209 of 2023 -6-

Appellant in lieu of payment as envisaged in the Memorandum

of Understanding.

(ix) After Memorandum of Understanding, Respondent No.2 and 3

continued to act as Directors of the Corporate Debtor and take

decisions.

(x) Appellant came to know a Term Sheet dated 11.09.2018 was

executed by Respondent No.2 and 3 with Motilal Oswal even

before formation of Corporate Debtor to take credit from Motilal

Oswal. Appellant sent various letters to Respondent No.2 and

3 to comply the terms of Memorandum of Understanding.

(xi) Respondent No.2 and 3 provided copy of conditional NOC

issued by Motilal Oswal. Various correspondences were

exchanged between the parties. Financial Creditor also

acknowledged the settlement between the parties vide letter

dated 04.05.2022.

(xii) Appellant sent a letter to Respondent No.2 and 3 to provide

accounts of the Corporate Debtor and details of the Return,

which was not replied.

(xiii) Appellant filed Civil Suit being Special Civil Suit No.2182/2022

praying for decree of injunction as well as specific performance

of Memorandum of Understanding. In the Civil Suit interim

injunction was granted on 14.10.2022 restricting Montvert

Group from dealing with properties mentioned in the schedule

including plots of the Corporate Debtor.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -7-

(xiv) Appellant has previously filed written complaint dated

07.07.2022 at Wakad Police Station addressing various illegal

activities, fraudulent actions and forgery of documents

allegedly committed by Respondent Nos. 2 and 3 in collusion

with Respondent No.1, Motilal Oswal and others. Complaint

was investigated, however, FIR was not registered.

(xv) Appellant filed an application under Section 156(3) of Cr.PC,

before Judicial Magistrate First Class, Pune praying for

direction for registration of FIR. By order dated 10.03.2023,

Judicial Magistrate First Class, Pune directed Police Inspector,

Wakad Police Station to make investigation after registration of

offence. FIR No.253 of 2023 has been registered under Section

403, 409, 408, 120-B, 420, 464, 467, 468, 471, 34 of IPC and

Section 447 and 448 of Companies Act, 2013 in which

Respondent No.1 to 4 and Motilal Oswal has been named as

accused.

(xvi) A Company Petition No. (IB) No.283 (MB) 2023 was filed by

Respondent No.1 before the Adjudicating Authority for

initiating Corporate Insolvency Resolution Process against the

Corporate Debtor claiming a default of Principal Amount of

Rs.34,41,00,000/- and claiming an amount of

Rs.65,08,05,433/- and date of default mentioned as

11.02.2023 consequent to Put-Option Notice issued on

12.01.2023.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -8-

(xvii) In the Company Petition, notice was issued by the Adjudicating

Authority on 11.04.2023. On 09.05.2023, Respondent No.2 on

behalf of the Corporate Debtor filed reply. On 11.05.2023, the

Company Petition under Section 7 filed by Respondent No.1

was heard and reserved.

(xviii) Appellant when came to know about the notice issued in the

Company Petition filed application I.A. No.2002 of 2023 on

14.05.2023 pleading that the reply filed on behalf of Corporate

Debtor by Respondent No.2 has concealed various important

facts. It was prayed that reply filed by Respondent No.2 be

rejected and Appellant be permitted to engage any counsel to

defend the Corporate Debtor.

(xix) Adjudicating Authority passed an order on 17.05.2023 by

which I.A. No.2002/2023 filed by the Appellant has been

rejected.

(xx) By a subsequent order dated 19.05.2023, the Adjudicating

Authority admitted Section 7 application filed by Respondent

No.1. The Appellant has filed an appeal against order dated

19.05.2023 being Company Appeal (AT) (Ins.) No. 742 of 2023

which has been dismissed by this Tribunal by order dated

05.10.2023 which order has already been challenged by the

Appellant before the Hon'ble Supreme Court, which is pending

consideration before Hon'ble Supreme Court.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -9-

3. We have heard Shri Kushal Bansal, learned counsel appearing for

the Appellant and Shri Arvind Nayyar, learned senior counsel appearing for

Respondent No.1.

4. Learned counsel for the Appellant challenging the order impugned

passed by the Adjudicating Authority submits that the Adjudicating

Authority has committed error in rejecting I.A. No.2002/2023 filed by the

Appellant. It is submitted that in the Application the Appellant has pleaded

that Section 7 application filed by Respondent No.1 has been filed in

collusion with Respondent No.2 and 3. Respondent No.2 has been falsely

claiming to be authorized person of the Company and filed reply on

09.05.2023 without there being any authorization. There is a collusion

between Respondent No.2 and Financial Creditor and the Appellant has

come to know about various malafide acts committed by Respondent No.2

and 3 seriously jeopardizing the Appellant and other shareholders.

Memorandum of Understanding dated 29.01.2022 has not been complied

as per which Respondent No.2, 3 and other members have agreed to retire

from the shareholding of the Corporate Debtor and other companies but

instead of retiring from the shareholding they continued to act as Directors

of the Corporate Debtor. It was agreed that Respondent No.2 and 3 shall

transfer their respective shareholding in favour of the Appellant after

obtaining consent of the lenders. By the application, it is submitted that

Respondent No.2 and 3 have executed a Mortgage Deed on assets of the

Corporate Debtor. Mortgage Deed dated 07.09.2019 and 21.12.23019 have

been executed without any knowledge or information to the Appellant.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -10-

Amendment to Debenture Trust Deed, First Supplemental dated

27.09.2019 was executed by Respondent No.2 and 3, in which the

Appellant was not party nor he has signed the said deed. It is submitted

that the Appellant has filed a Civil Suit No.2182 of 2022 for decree of

injunction, in which Respondent No.2, 3, and others are party and in which

interim injunction was also granted. A written complaint alleging fraud

and forgery against Respondent No.2, 3 and 1 was also filed at Police

Station, Wakad, in which investigation was conducted by Economic

Offences Wing, Pimpri Chinchwad. By order passed by Judicial Magistrate

First Class, Pune, FIR has also been registered against Respondent Nos. 2

and 3 as well as the Financial Creditor, who all are accused in the said

criminal proceeding. Respondent No.2 in reply filed in the Company

Petition did not bring relevant facts on the record and reply has been filed

to facilitate admission of the Section 7 application. The Adjudicating

Authority has proceeded to reject the application observing that application

has not been filed on the basis of board resolution hence the application

need not be entertained. It is submitted that the Appellant in his applicant

has not claimed that the application has been filed on the basis of board

resolution rather the application has been filed by the Appellant in his

capacity as Director. The Adjudicating Authority by rejecting the

application of the Appellant has deprived the Appellant to bring relevant

materials on record to indicate the illegalities committed by Respondent

No.2 and 3 in collusion with the Financial Creditor. Learned counsel for

the Appellant in support of his submission has relied on various judgments

Company Appeal (AT) (Insolvency) No.1209 of 2023 -11-

of Hon'ble Supreme Court and this Tribunal, which shall be considered

while noticing the submissions in detail.

5. Shri Arvind Nayar, learned counsel appearing for Respondent No.1

refuting the submissions of learned counsel for the Appellant submits that

no error has been committed by the Adjudicating Authority in rejecting I.A.

No.2002/2023 filed by the Appellant. Appellant is only a Director of the

Corporate Debtor having only 16.66% shareholding whereas Respondent

No.2 has 27.50% shareholding and Respondent No.3 has 22.50%

shareholding. The internal dispute between Appellant and Respondent

No.3 cannot be made subject matter of adjudication in proceeding under

Section 7 initiated by the Financial Creditor. It is further submitted that

this Tribunal while dismissing Company Appeal (AT) (Ins.) No.742 of 2023

filed by the Appellant challenging the order dated 19.05.2023 admitting

Section 7 application has observed that rejection of the application of the

Appellant was in accordance with law. In view of the order passed by this

Tribunal dated 05.10.2023 dismissing Company Appeal (AT) (Ins.) No.742

of 2023 where the rejection of the application has also been upheld, this

appeal need to be dismissed. It is submitted that the Appellant in his

application being I.A. No.2002/2023 has nowhere pleaded that there is no

debt and default by the Corporate Debtor. Appellant being party to the

Debenture Trust Deed dated 29.04.2018, in which Corporate Debtor had

undertaken to make the payment along with interest and payment having

not been made. The Adjudicating Authority rightly admitted Section 7

application and the issues relating to inter se dispute between the Directors

Company Appeal (AT) (Insolvency) No.1209 of 2023 -12-

of the Corporate Debtor has rightly been ignored by the Adjudicating

Authority which cannot be made subject matter of adjudication in Section

7 application. It is submitted that on the principles as contained in Order

XXIX Rule 1 of the Code of Civil Procedure, 1908 which provides that any

pleading in a suit by or against a corporation can be signed and verified by

the corporation's secretary, director, or other principal officer, the

Respondent No.2 who was Director of the Company had every authority to

file Reply in Section 7 application and Respondent No.2 was fully

competent to file reply on behalf of the Corporate Debtor. It is submitted

that in application under Section 7, Adjudicating Authority has limited

jurisdiction to ascertain existence of debt and default. Since the Corporate

Debtor in it reply dated 09.05.2023 did not contest debt and default, the

Adjudicating Authority did not commit error in admitting Section 7

application. In any view of the matter, the application filed by the

Appellant, I.A. No. 2002/2023 having not disputed the debt and default,

no purpose would be served in giving opportunity to the Appellant and the

Adjudicating Authority has rightly dismissed his application. Learned

counsel for the Respondent has referred to Para 17 of the judgment dated

05.10.2023 passed by this Tribunal in Company Appeal (AT) (Ins.) No.742

of 2023. Debenture holders having subscribed the EDPL Series A non-

convertible debentures as per Debenture Trust Deed, which was amended

by First Supplemental and Amendment Deed dated 27.09.2019, Debenture

holders were entitled to a coupon rate of 12.5% per annum compounded

quarterly. Debentures were to be redeemed in 8 quarterly instalments

Company Appeal (AT) (Insolvency) No.1209 of 2023 -13-

commencing from 31.03.2022. Put-Option Notice was issued to the

Corporate Debtor on 12.01.2023 calling upon to redeem 3441 EDPL Series

A non-convertible debentures. The Corporate Debtor having failed to make

payment, Section 7 application was filed by the Financial Creditor in which

notices were issued on 11.04.2023 and arguments were heard on

11.05.2023. It is stated that application I.A. No.2002/2023 was belatedly

on 14.05.2023 filed by the Appellant after orders were reserved on

11.05.2023. Shri Nayar further submits that FIR filed by the Appellant on

which much reliance has been placed has already been stayed by Bombay

High Court vide order dated 28.08.2023 in Writ Petition No.1725 of 2023

which fact has not been mentioned on behalf of the Appellant. It is

submitted that in so far as resolution passed by the Corporate Debtor is

concerned, the creditor is entitled to rely on doctrine of indoor management

which entitle an outsider to presume that all actions by the company are

being done in accordance with the Articles of Association and

Memorandum. Shri Nayar has relied on CP Satisfaction Notice dated

01.11.2019 which was signed by the Appellant where the Company has

confirmed fulfilment of conditions as per Clause 4 of the Debenture Trust

Deed dated 26.11.2018, hence, the Appellant cannot deny the facility

extended by Debenture Trust Deed. Learned counsel for the Respondent

No.1 has relied on judgments of Hon'ble Supreme Court and High Court

which shall be referred to while considering submissions in detail.

6. Learned counsel for the Appellant in his rejoinder submits that

dispute is not merely between the shareholders. In the first information

Company Appeal (AT) (Insolvency) No.1209 of 2023 -14-

report (FIR) filed by the Appellant, the Appellant has challenged the

signature on various documents including mortgage document which were

forged and fabricated.

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

parties and perused the record.

8. We need to first consider the submission of learned counsel for the

Respondent that application I.A. No.2002/2023 was belatedly filed by the

Appellant, hence, was not required to be considered.

9. We have noted the sequence of events and fact which indicate that

on 11.04.2023 notices were issued by the Adjudicating Authority.

Appellant came to know on 24.04.2023 about the notices. After hearing of

the application on 11.05.2023, Appellant learnt that Respondent No.2 has

unilaterally appointed a lawyer and filed Reply. On 14.05.2023, an

application was filed by the Appellant. 11.05.2023 was the first date for

hearing in the company petition. Immediately after coming to know about

the proceeding on 11.05.2023, when application was filed by the Appellant

on 14.05.2023, it cannot be said that there was any delay caused by the

Appellant in filing application which was filed within three days from the

date of hearing. The Application I.A. No.2002/2023 was filed by the

Appellant on 14.05.2023 on which date the Section 7 application was still

pending consideration since order were reserved on 11.05.2023. Thus, it

cannot be said that application was belatedly filed.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -15-

10. We need to notice certain pleadings which was made by the Appellant

in the application to find out the nature of allegations which were made by

the Appellant in the application. In Para 5 of the application Appellant

stated:

"5. The Applicant states that, the actual understanding between the Financial Creditor and the said Company, basis which the Applicant herein is disputing the maintainability of the captioned petition, has not been brought before the Hon'ble Tribunal. Therefore, Applicant is seeking the leave of this Hon'ble Tribunal, to file a detailed reply in response to the petition filed by the Financial Creditor."

11. In Para 6 of the Application, Appellant has pleaded certain

facts. Sub-para (a) to (f) are as follows:

"6. Brief facts leading to the present application:

a. The said Company was incorporated on 9th October 2018 wherein the Applicant along with Mr.Dhirajlal Goradhandas Hansalia, Mr.Jayant Vallabhdas Kaneria, Mr.Mohan Pandurang Kalate were appointed as Directors therein. At the time of incorporation the share holding pattern of the said Company was:

Mr. Sanjay Pandurang Kalate - 16.66%

Mr. Mohan Pandurang Kalate - 16.67%

Mr. Mayur Pandurang Kalate - 16.67%

Company Appeal (AT) (Insolvency) No.1209 of 2023 -16-

Mr. Jayant Vallabhdas Kaneria - 27.50%

Mr. Dhirajlal Goradhandas Hansalia - 22.50%

b. The Applicants states that, said Mr. Kaneria is habitual to behave in an arbitrary and illegal manner and has time and again prejudiced the interests of the said Company. It is the specific case and contentions of the Applicant that there is collusion between said Mr. Kaneria and Financial Creditor.

c. The Applicant learnt about various malafide acts committed by said Mr. Kaneria and Mr. Hansalia in the said Company, severely jeopardising the interests of the said Company, the Applicant and the other shareholders.

d. Thereafter disputes arose between the Directors of the said Company leading to execution of a family settlement deed dated 31 October 2019 read along with MOU dated 05th November 2019 and 29th January 2022.

e. Under the aforesaid agreements, Mr. Kaneria, Mr. Hansalia and Mr. Mohan Kalate ("the said other Directors") agreed to retire as directors of the said Company and transfer their respective shareholding in favour of the Applicant herein subject to Mr. Kaneria obtaining the consent of the lenders.

f. The Applicant states that, Motilal Oswal Real Estate Investment Advisor Private Limited (Debenture Holders) and the Financial Creditor are both aware of aforesaid agreements executed

Company Appeal (AT) (Insolvency) No.1209 of 2023 -17-

between the Directors of the said Company. Infact, the said Motilal Oswal issued letters dated 23rd March 2022 and 4th May 2022, acknowledging the aforesaid settlement. Further in view of the doctrine of novation of contract between the Parties, the said Motilal Oswal offered and was open to altering the repayment schedule in view of the aforesaid settlement. However, this fact is suppressed by Financial Creditor and said Mr. Kaneria before this Hon'ble Tribunal. Therefore, it is evident that the said Mr. Kaneria is not interested in continuing the business and safeguarding the interests of the said Company."

12. In Para 7 of the Application, Appellant has pleaded that reply filed by

Mr. Kaneria - Respondent No.2 on behalf of the Company was without

authority and by keeping other directors including the Appellant in dark.

In Para 7 Sub-para (b), Appellant has pleaded regarding illegalities caused

in the loan documents not brought to the notice of the Tribunal. Para 7(b)

(i) to (ix) is as follows:

"b. Illegalities caused in the loan documents not brought to the notice of this Hon'ble Tribunal:

i. The Applicant states that, there are fatal illegalities in the documents allegedly executed between the Financial Creditor and the said Company. However, the said reply filed by Mr. Kaneria in the captioned petition is surprisingly silent about such illegalities. This gives rise to a reasonable apprehension in the mind of the

Company Appeal (AT) (Insolvency) No.1209 of 2023 -18-

Applicant that, the said Mr. Kaneria is acting hand on glove with the Financial Creditor, only to defraud the said Company and usurp the properties.

ii. The Applicant has recently learnt about a Mortgage Deed dated 7th September 2019 and 21 December 2019 allegedly executed between the Financial Creditor and the said Company.

erroneously mortgaging the assets of the said Company (being Plot Nos.195 and Plot Nos.277), without valid and requisite approvals.

iii. The said Mortgage Deed was illegally signed Mr.Kaneria and Mr.Hansalai on behalf of the said Company, without a valid board resolution and without informing Applicant. Infact, all this while the Applicant was deliberately kept uninformed about the existence of such mortgage deed.

iv. No due diligence appears to have been carried out by the Financial Creditor prior to executing the alleged Deed of Mortgage and the due diligence report was not supplied despite of demand made by the Applicant.

v. Further, upon procuring a copy of the said Mortgage Deed, the Applicant has learnt about a Term sheet dated 11th September 2018 annexed thereto, allegedly executed by Mr.Kaneria and Mr.Hansalia, on alleged behalf

Company Appeal (AT) (Insolvency) No.1209 of 2023 -19-

of the said Company, agreeing to avail credit facility from Motilal Oswal.

vi. Upon perusal, it appears that the said Term sheet was executed even before the incorporation of the said Company and prior to obtaining rights over the allegedly mortgaged properties and the same was never disclosed to the Applicant.

vii. Further Applicant has also come across an alleged board resolution dated 9th January 2019 annexed to the said Mortgage Deed, allegedly passed by the said Company. The said board resolution erroneously approves the Company to avail a credit facility and security interest for an amount not exceeding Rs.75 Crores.

viii. Firstly, no such board meeting was ever conducted and if so, the Applicant was deliberately not informed about the same.

Moreover, the said resolution is signed only by said Mr. Kaneria on behalf of the said Company. Further, the alleged limit of 75 Crores was also exceeded while granting the basket finance. All this was done behind the back of the Applicant.

ix. Therefore, the said resolution is nothing but a bogus, manipulated and illegal document created by the said Mr. Kaneria in collusion with the Financial Creditor to support their interest."

Company Appeal (AT) (Insolvency) No.1209 of 2023 -20-

13. In Para 7(c), Appellant pleads collusion between the Financial

Creditor and Mr. Kaneria. In Para 7(c) (i) and (ii) following has been stated:

"c. Suspected collusion between the Financial Creditor and Mr.Kaneria

i. It is pertinent to note that, the Financial Creditor was clearly aware that the aforesaid documents were executed by the said Mr.Kaneria and Mr. Hansalia without sufficient authority from the Company. Despite the same, the Financial Creditor has acted hand in glove with the said Mr.Kaneria and have executed these bogus documents, with an intention to defraud the said Company and grab its properties.

ii. Further it appears as though, the said Mr. Kaneria is assisting the Financial Creditor so as to protect his interest with respect to his other projects wherein financial assistance has been availed from the financial creditor. It is a matter of record that, Financial Creditor advanced a credit facility in the nature of a basket to the said Company and other Obligors.

Such basket finance necessarily involves multiple securities being created in favour of the Financial Creditor. In spite of the same, the Financial Creditor and said Mr.Kaneria have conspired to sell only the property of said Company over which Applicant has individual interests."

Company Appeal (AT) (Insolvency) No.1209 of 2023 -21-

14. In the application, the Appellant has also given in Para 7(f) details of

written complaint and FIR registered against Respondent No.2 and 3. In

Para 12 of the application following prayers have been made:

"a) This Hon'ble Tribunal be pleased to discard or reject or ignored the alleged reply dated 9th May 2023 filed by Mr.Jayant Vallabhdas Kaneria on the alleged behalf of the said Company in the captioned matter.

b) This Hon'ble Tribunal be pleased grant an opportunity to the said Company to appoint a new advocate to represent the said Company and file a fresh reply in the captioned petition dealing with the merits of the matter.

c) Pending hearing and final disposal of the present application, this Hon'ble Tribunal be pleased stay the effect and implementation of order dated 11th May 2023 and de-reserve the captioned petition for orders."

15. Now we come to the order which was passed by the Adjudicating

Authority rejecting the application. The Adjudicating Authority in the

impugned order has although noted certain submission of the Appellant

made in the application but held that there being no authorization of the

Board of Directors to file the application, application appears to be frivolous

and seem to have been filed with the view to delay the proceeding.

Appellant in the application has not claimed the application is being filed

by any authorization of the Board. In the reply which was filed by

Company Appeal (AT) (Insolvency) No.1209 of 2023 -22-

Respondent No.2, which is also on the record, does not indicate that

Respondent No.2 claimed any board resolution for filing reply on behalf of

the Corporate Debtor. When reply filed by Respondent No.2 dated

09.05.2023 did not claim any board resolution for filing reply, we fail to see

that how the application filed by the Appellant can be rejected on the

ground that there is no board resolution supporting filing of the

application. Appellant has filed the application as Director of the Corporate

Debtor to bring various facts which according to the Appellant indicate that

there is collusion between Respondent No.2, 3 and the Financial Creditor

and several relevant facts have not been brought before the Adjudicating

Authority by Respondent No.2 in his reply. The facts and material brought

on the record does indicate that there has been serious dispute between

the Directors inter se and a Memorandum of Understanding was also

executed on 2901.2022, in which Memorandum of Understanding both the

Appellant as well as Respondent No.2 and 3 with other persons were

parties. Memorandum of Understanding notices the agreement that

Respondent No.2, 3 and other Directors shall retire from the shareholding

in the Corporate Debtor and other companies and transfer their

shareholding to the Appellant. There are dispute between the parties

regarding implementation of the Memorandum of Understanding.

According to the Appellant, the Memorandum of Understanding was not

implemented and Respondent No.2 and 3 continued to act as Directors

without there being any authority. It is submitted that certain documents

including mortgage of the properties of the Corporate Debtor was executed

Company Appeal (AT) (Insolvency) No.1209 of 2023 -23-

by Respondent No.2 and 3 which does not contain any signature or consent

of the Appellant.

16. The observations of the Adjudicating Authority that application has

been filed to delay the proceeding also does not commend us. 11.05.2023

was the first date of hearing on which order was reserved. The application

was filed within three days i.e. on 14.5.2023, hence, conclusion drawn by

the Adjudicating Authority that application has been filed to delay the

proceeding is without any basis.

17. The submission which has been pressed by Shri Nayar on behalf of

the Respondent is that the Debenture Trust Deed which was executed

between the parties dated 26.11.2018 is not disputed. The debenture

holders Having subscribed to the debentures, the obligation of the Obligors

to make repayment is undisputed. It is submitted that even in the

application filed by the Appellant, I.A. No.2002/2023, there is no averment

disputing the debt and default. As noted above, Appellant although does

not dispute the Debenture Trust Deed dated 26.11.2022 but has disputed

the Mortgage Deed and First Supplemental and Amendment Deed.

Allegations has also been made against Respondent No.2 and 3 with regard

to finances of the Corporate Debtor. The application also pleaded that there

was collusion between Respondent No.2, 3 and the Financial Creditor. It

is true that allegation regarding collusion or malafide is easy to allege but

difficult to prove. The Adjudicating Authority had no occasion to examine

the allegation any further since he proceeded to reject the application on

Company Appeal (AT) (Insolvency) No.1209 of 2023 -24-

the ground that it is not supported by resolution of the board of the

Corporate Debtor.

18. We may notice certain judgments which has been relied by learned

counsel for the Appellant. Appellant has placed reliance on judgment of

this Tribunal in "Company Appeal (AT) (Ins.) No.24 of 2022, CFM Asset

Reconstruction Pvt. Ltd. vs. Swatantra Kumar & Anr." where in Para 11 and

13 following has been laid down:

"11. The application by the Appellant was competent application filed under Section 60(5) of the Code r/w Rule 11 of NCLT Rules, 2016 and under Section 65 of the Code and the Adjudicating Authority was obliged to look into the allegations to find out if there is any ground to grant any of the prayers made in the application. The finding of the Adjudicating Authority that the Appellant has no locus cannot be sustained. When the Appellant claims to be the Financial Creditor who is assignee of the Financial Creditor and the application records sequence of events and various proceedings prior to the application under Section 7, the allegations ought to have been looked into and could not have been brushed aside by observing that the applicant has no locus.

13. Now, we come to the order dated 01.11.2021 by which the Adjudicating Authority admitted the Section 7 application. The Adjudicating Authority in the impugned order has noticed the submission made by the Respondent No.1 - Financial Creditor.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -25-

The Corporate Debtor in its reply dated 07.11.2020 has accepted the loan and its liability to pay to the Financial Creditor. The order indicates that the order was passed with no contest. As observed above, the Adjudicating Authority committed error in rejecting the application of the Appellant, who vide application I.A. 572 of 2021 has brought materials for consideration under Section 7 application. We, thus, are of the view that order dated 01.11.2021 cannot be sustained and is set aside. In result, I.A. No. 572 of 2021 is allowed, the Appellant is allowed to intervene in the matter. I.A. No. 572 of 2021 as well as C.P. No. 395/IBC/NCLT/MAH/2021 are revived before the Adjudicating Authority which need to be considered afresh after hearing the parties. Both the Appeals are allowed accordingly."

19. Learned counsel for the Appellant relying on the said judgment

submits that when allegations were made in his application, the

Adjudicating Authority was obliged to look into the allegations if there were

any grounds in the prayers made in the application.

20. Another judgment relied by the Appellant is "SMBC Aviation

Capital Ltd. and Ors. Vs. Interim Resolution Professional of Go

Airlines (India) Ltd. and Ors., Company Appeal (AT) (Ins.) Nos. 593,

603, 604 and 615 of 2023" where in Para 21 of judgment following has

been laid down:

"21. There cannot be any quarrel to the proposition laid down by the Tribunal in the above case. In

Company Appeal (AT) (Insolvency) No.1209 of 2023 -26-

appropriate case where there is an Application under Section 65 of the Code before the Adjudicating Authority, the Adjudicating Authority after initiation of proceedings under Section 10 and before passing any order on Section 10 Application notices that initiation is fraudulent and malicious, the Adjudicating Authority is well within its jurisdiction to consider the Application and if it is held and found that initiation is fraudulent and malicious, the Adjudicating Authority is fully entitled to reject the said Application."

21. Learned counsel for the Appellant has also relied on judgment of

Hon'ble Supreme Court in "Beacon Trusteeship Limited vs. Earthcon

Infracon Private Limited and Another, Civil Appeal No.7641 of 2019,

decided on 18.02.2020", where in Para 7 and 8 Hon'ble Supreme Court

observed:

"7. Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. The plea of collusion could not have been raised for the first time in the appeal before the NCLAT of before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority.

8. In case, a proper application is filed, aspect whether the proceedings have been Initiated in

Company Appeal (AT) (Insolvency) No.1209 of 2023 -27-

collusive manner will be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case. We have made it clear that we have not commented on the merit of the case. We set aside the impugned order passed by the NCLAT and dispose of the appeal in accordance with the aforesaid direction."

22. Learned counsel for the Appellant has also referred to judgment of

Hon'ble Supreme Court in "A. V. Papayya Sasty & Ors. Vs. Govt. of A.P.

and Others, (2007) 4 SCC 221" for the purpose that if any judgment or

order is obtained by fraud said judgment is in nullity. There is no dispute

to the above proposition of law, however, in the present case we are only

concerned with the order passed by the Adjudicating Authority rejecting

the I.A. filed by the Appellant. Order passed by the Adjudicating Authority

under Section 7 admitting the application has been separately challenged

which was upheld by this Tribunal and the matter is pending in the Hon'ble

Supreme Court. Hence, we in this appeal are not concerned with order

passed by the Adjudicating Authority admitting Section 7 application.

23. Learned counsel for the Appellant has also referred to the judgment

of this Tribunal in "Hytone Merchants Pvt. Ltd. vs. Satabadi Investment

Consultants Pvt. Ltd., Company Appeal (AT) (Ins.) No.258 of 2021",

where in Para 31 and 32 following has been held:

"31. We have heard argument of the Learned Counsel for the parties and perused the record.

Company Appeal (AT) (Insolvency) No.1209 of 2023 -28-

Based on the pleadings of the parties, the question that arises for our consideration is as under;

Whether the petition complying with all requirements of Section 7(5) of the Insolvency and Bankruptcy Code, 2016, but if it appears that the Application is filed collusively, not with the intention of Resolution of Insolvency, and so with malicious intent, or malafides, then whether the Application can be rejected relying on Section 65 of the Code?

32. Undisputedly the petition filed under Section 7 of the Code meets all the requirements under the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority has also observed that "the Application is complete in all respects as required by law and the Application clearly showed that the Corporate Debtor is in default of a debt due and payable and that the default amount is more than the minimum threshold stipulated in Section 4 (1) of the Code"."

24. Shri Nayar has placed reliance on judgment of the Division Bench of

Allahabad High Court in the matter of "Lakshmi Ratan Cotton Mills Co.

Ltd., Kanpur vs. J. K. Jute Mills Co. Ltd., Kapur, AIR 1957 AII 311".

It is submitted that doctrine of indoor management has been accepted and

reiterated in the above case. Reliance has been placed on Para 24, which

is as follows:

"24. In view of the above provisions, there can be no doubt that Sri Gulab Chand Jain who was the

Company Appeal (AT) (Insolvency) No.1209 of 2023 -29-

director of the defendant company, the director of the managing agency and also a delegate of the managing agency could be authorised to enter into this transaction. Under the above circumstances, even supposing that there was no actual resolution authorising him to enter into this transaction on behalf of the defendant company either by the Board of Directors or by the Board of Managing Agents the claim of the plaintiff who was a creditor cannot be affected. A creditor dealing with a trading company is required by law to be conversant with the terms of its Memorandum and Articles of Association and no more. If it is found that the transaction of loan into which the creditor is entering is not barred by the charter of the Company or its Articles of Association, and could be entered into on behalf of the Company by the person negotiating it, then he is entitled to presume that all the formalities required in connection therewith have been complied with. If the transaction in question could be authorised by the passing of a resolution, such an act is a mere formality. A bona fide creditor, in the absence of any suspicious circumstances, is entitled to presume its existence. A transaction entered into by the borrowing company under such circumstances cannot be defeated merely on the ground that no such resolution was in fact passed. The passing of such a resolution is a mere matter of indoor or internal management and its absence, under such circumstances, cannot be used to defeat the just claim of a bona fide creditor. A creditor being an outsider or a third party and an innocent stranger is

Company Appeal (AT) (Insolvency) No.1209 of 2023 -30-

entitled to proceed on the assumption of its existence; and is not expected to know what happens within the doors that are closed to him. Where the act is not ultra vires the statute or the company such a creditor would be entitled to assume the apparent or ostensible authority of the agent to be a real or genuine one. He could assume that such a person had the power to represent the company, and if he in fact advanced the money on such assumption, he would be protected by the doctrine of internal management."

25. Learned counsel for the Respondent has also relied on judgment of

Hon'ble Supreme Court reported in "(1996) 6 SCC 660, United Bank of

India vs. Naresh Kumar and Others" where considering Order VI Rule

14 of Civil Procedure Code, the Hon'ble Supreme Court has observed that

in a suit by or against a corporation the Secretary or any Director or other

Principal Officer of the corporation who is able to depose to the facts of the

case might sign and verify on behalf of the company. There can be no

dispute to the proposition laid down by the Hon'ble Supreme Court in the

above case. In the present case, dispute between the Respondent No.2 and

the Appellant is authority to file reply on behalf of the Corporate Debtor. It

is not the case of the Respondent No.2 that there is resolution passed by

the Board authorizing Respondent No.2 neither the Appellant has claimed

resolution of the Board for filing application.

26. Shri Nayar has also submitted that judgment of this Tribunal dated

05.10.2023 in Company Appeal (AT) (Ins.) No.742 of 2023 filed by the

Company Appeal (AT) (Insolvency) No.1209 of 2023 -31-

Appellant challenging the order dated 19.05.2023 admitting Section 7

application has already upheld the rejection of I.A. No.2002/2023, which

contention has been noticed. Learned counsel for the Respondent has

referred to Para 17 of the judgment, which is as follows:

"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

Company Appeal (AT) (Insolvency) No.1209 of 2023 -32-

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."

27. It is true that this Tribunal while deciding the Company Appeal (AT)

(Ins.) No.742 of 2023 filed by the Appellant by order dated 05.10.2023 has

also noticed the I.A. No.2002/2023 and made certain observations. The

observations made in the order dated 05.10.2023 were in reference to

consideration of challenge to the order dated 19.05.2023 admitting Section

7 application. Order passed on 17.05.2023 was not under challenge in

Company Appeal (AT) (Ins.) No.742 of 2023, hence, the observation made

by this Tribunal in said judgment at best can be treated as an observation

in reference to challenge to the order dated 19.05.2023 and cannot be read

as finding in reference to the appeal filed by the Appellant challenging the

order dated 17.05.2023 rejecting I.A. No.2002/2023.

28. We, thus, are of the view that Appellant is entitled to raise relevant

grounds and facts in his appeal which challenges order dated 17.05.2023

passed in I.A. No.2002/2023, which challenge raised in this appeal cannot

be repelled relying on order dated 05.10.2023 passed by this Tribunal in

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

Company Appeal (AT) (Insolvency) No.1209 of 2023 -33-

29. Shri Nayar has further submitted that Appellant has not disclosed

the order of the Bombay High Court by which the Bombay High Court has

stayed the investigation in the FIR lodged by the Appellant. The copy of

the order dated 28.08.2023 passed by the Bombay High Court in Writ

Petition No.1725 of 2023 has been brought on record by the Respondent,

which order is as follows:

"DATE : 28th August, 2023.

P. C.:

1. Mr. Kadam, learned counsel for Respondent No.2 seeks time to file a brief reply, annexing the documents on which Respondent No.2 places reliance.

2. At his request, stand over to 20th September 2023.

3. Till the next date, ad-interim relief in terms of prayer clause (g)."

30. The ad-interim relief was granted by the Bombay High Court in

prayer 'g' of the Writ Petition. Prayer 'g' as claimed in the Writ Petition is

as follows:

"g. That pending the hearing and final disposal of this Petition, this Hon'ble Court be pleased to stay the further investigation in the Impugned FIR bearing No. 0253 dated March 14, 2023 registered by Wakad Police Station, Pune;"

Company Appeal (AT) (Insolvency) No.1209 of 2023 -34-

31. The order staying the further investigation was passed on

28.08.2023 whereas the impugned order against which this appeal has

been filed was passed on 17.05.2023 by which date there was no stay on

the investigation. Further, the appeal has been filed by the Appellant in

this Tribunal on 10.07.2023 by which date also order of stay was not

passed by the Bombay High Court. We, thus, are of the view that in the

appeal there was no occasion to disclose the order dated 28.08.2023 which

was passed subsequent to filing of the Appeal. The pleading in the

application I.A. No.2002/2023 by the Appellant that FIR has been

registered against the Respondent Nos.1 to 4 under different sections of

IPC, as noted above, was relevant fact to be noticed by the Adjudicating

Authority on the date when order was passed i.e. on 17.05.2023.

32. In view of the foregoing discussion and conclusions, we are of the

view that the Adjudicating Authority committed error in rejecting I.A.

No.2002/2023 filed by the Appellant. The order passed by the Adjudicating

Authority dated 17.05.2023 cannot be upheld and is set aside.

33. We make it clear that application I.A. No.2002/2023 having rejected

at very threshold without entering into allegations made in the application

and without giving opportunity to the contesting parties, our observations

in this order are not any expression of opinion on the merits of the

allegations.

34. In result, we allow the appeal and set aside impugned order dated

17.05.2023. Application under Section 7 having already been admitted by

Company Appeal (AT) (Insolvency) No.1209 of 2023 -35-

order dated 19.05.2023, which order having also been upheld by this

Tribunal, against which appeal is pending in the Hon'ble Supreme Court,

we only observe that it shall be open for the Appellant to file appropriate

application before the Adjudicating Authority for such prayers as may be

advised. Appeal is allowed as above.

[Justice Ashok Bhushan] Chairperson

[Arun Baroka] Member (Technical)

NEW DELHI

19th April, 2024

Archana

Company Appeal (AT) (Insolvency) No.1209 of 2023