Sanjeeb Kumar Jha vs Yogesh Gupta

(Arising out of the Order dated 19.01.2024 passed by the National Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I. A. (IB) No. 1645/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/20 19.)

IN THE MATTER OF:

Sanjeeb Kumar Jha Address: B-12 Birla Colony, Near Shiv Mandir, P.O. Phulwarisharif, P.S. Phulwari, District-Patna, (Bihar) 801505 Email:newindiaauto@gmail.com ...Appellant

Versus

1. Yogesh Gupta IRP Shraddha Health & Fitness Private Limited, 12 Ho Chi Min Sarani, 2nd Floor, Suit 2D & 2E, Kolkata 70007 Email: yogeshgupta31@rediffmail.com ...Respondent No. 1

2. Committee Of Creditors of the Corporate Debtor, namely, Shraddha Health & Fitness Private Limited constituting and holding 98.04% voting right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No. 2D & 2E, Kolkata - 700 071 ...Respondent No. 2 Email: yogeshgupta31@rediffmail.com

Present For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh Jain & Mr. Prayag Jain, Advocates.

For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena, Mr. Vatsala Kak & Mr. Shaurya Shyam, for R- 1. Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for -2- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

R-2. Mr. Kumar Anurag Singh, Mr. Zain A Khna, Mr. Shwetank Singh, for Intervenor.

With Comp. App. (AT) (Ins) No. 296 of 2024 & I.A No. 997, 998, 2134 of 2024

(Arising out of the Order dated 19.01.2024 passed by the National Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I.A. (IB) No. 1646/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/2019)

IN THE MATTER OF:

Rohit Kumar Address: Chari (63), PO Mehla P.S. Mehla, Chamba, Himachal Pradesh-176311 Email: dibuthakur9@gmail.com ...Appellant

Versus

1. Yogesh Gupta IRP Shraddha Health & Fitness Private Limited, 12 Ho Chi Min Sarani, 2nd Floor, Suit 2D & 2E, Kolkata 70007 Email: yogeshgupta31@rediffmail.com ...Respondent No. 1

2. Committee Of Creditors of the Corporate Debtor, namely, Shraddha Health & Fitness Private Limited constituting and holding 98.04% voting right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No. 2D & 2E, Kolkata - 700 071 ...Respondent No. 2 Email: yogeshgupta31@rediffmail.com

Present For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh Jain & Mr. Prayag Jain, Advocates.

For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena, Mr. Vatsala Kak & Mr. Shaurya Shyam, for R- 1. -3- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for R-2. With

Comp. App. (AT) (Ins) No. 298 of 2024 & I.A No. 1004, 1005, 2135 of 2024

(Arising out of the Order dated 19.01.2024 passed by the National Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I.A. (IB) No. 1647/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/2019)

IN THE MATTER OF:

Arun Kumar Bag Address : N00005 Baghpara Po Baghpara PS Nowadihi, District - Bankura West Bengal - 722136 Email: arun.bagbag@rediffmail.com ...Appellant

Versus

1. Yogesh Gupta IRP Shraddha Health & Fitness Private Limited, 12 Ho Chi Min Sarani, 2nd Floor, Suit 2D & 2E, Kolkata 70007 Email: yogeshgupta31@rediffmail.com ...Respondent No. 1

2. Committee Of Creditors of the Corporate Debtor, namely, Shraddha Health & Fitness Private Limited constituting and holding 98.04% voting right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No. 2D & 2E, Kolkata - 700 071 ...Respondent No. 2 Email: yogeshgupta31@rediffmail.com

Present For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh Jain & Mr. Prayag Jain, Advocates.

For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena, Mr. Vatsala Kak & Mr. Shaurya Shyam, for R- 1. -4- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for R-2. JUDGEMENT

(18.12.2024)

NARESH SALECHA, MEMBER (TECHNICAL)

1. There are three appeals before us arising out of common Impugned Order

dated 19.01.2024 under 61 of the Insolvency & Bankruptcy Code, 2016 (in short

'Code') passed by National Company Law Tribunal, Kolkata Bench, Court-I,

Kolkata (in short 'Adjudicating Authority') in I. A. No's. 1645, 1646, 1647 of

2022 in Company Petition No. (IB)- 1067 (KB)/2019.

2. These three appeals have been filed against a common Impugned Order

dated 19.01.2024 and have been tagged together, heard together and hence, we

shall deal all these three appeals in the following discussion.

3. In Company Appeal (AT) (Ins.) No. 295 of 2024 Mr. Sanjeeb Kumar Jha

is the Appellant herein and alleged Financial Creditor of the Corporate Debtor

namely, Shraddha Health & Fitness Private Limited against whom the Corporate

Insolvency Resolution Process ('CIRP') was initiated.

After the public announcement of the CIRP on 10.11.2022 inviting claims

against the Corporate Debtor, the Appellants herein filed the claim of

Rs. 2 Lakh in Form C as a financial creditor. The Appellant's claims were duly

acknowledged and verified by the Respondent and accordingly, the Appellants -5- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

were admitted as a Financial Creditor who was holding 25.53%. voting rights in

the constitution of the Committee of Creditors ('CoC').

3(ii) In Company Appeal (AT) (Ins) No. 296 of 2024, Mr. Rohit Kumar is the

Appellant herein and alleged Financial Creditor of the Corporate Debtor.

After the public announcement of the CIRP on 10.11.2022 to invite

claims against the Corporate Debtor, the Appellant herein filed its claim of Rs. 2

Lakh in Form C as a financial creditor. The Appellant's claims were duly

acknowledged and verified by the Respondent and accordingly, the Appellant

was admitted as a Financial Creditor and was holding 25.53%. voting rights in

the constitution of the CoC.

3(iii) In Company Appeal (AT) (Ins.) No. 298 of 2024 Mr. Arun Kumar Bag is

the Appellant herein and alleged Financial Creditor of the Corporate Debtor,

who filed claim of Rs. 3,84,540/-in Form C holding 48.92% voting rights in the

constitution of the CoC.

4. Mr. Yogesh Gupta is the Respondent herein who is resolution

professional of the Corporate Debtor namely, Shraddha Health & Fitness Private

Limited and J.N. Hotels Private Limited who is the Operational Creditor has

been impleaded as Respondent No. 2 vide this Appellate Tribunal order dated

24.07.2024 -6- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

Common Pleadings of the Appellants

5. The Appellants stated that following the initiation of the Corporate

Insolvency Resolution Process ('CIRP'), the IRP published a notice in

newspapers inviting claims from all creditors of the Corporate Debtor. In

response to this public announcement, the Appellants submitted their claims in

Form C as Financial Creditor.

6. The Appellants further submitted that on 17.11.2022, they received an

email from the respondent seeking few clarifications and rectifications of the

claims form. In this communication to Mr. Sanjeeb Kumar Jha & Mr. Rohit

Kumar, the Respondent referred to cash transactions (of ₹2 Lakhs) each which

were claimed to be in violation of the provisions of the Income Tax Act. The

Appellants complied with this request by clarifying and rectifying their claims

and subsequently submitted the amended Form C to the Respondent.

7. The Appellants submitted that the Respondent subsequently admitted the

Appellant's claim as a Financial Creditors. The Appellant stated that the

Respondent also uploaded these facts on the MCA website in accordance with

clause (ca) of sub-regulation (2) of Regulation 13 of the IBBI (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016.

8. The Appellants stated that the Respondent sent an email on 23.11.2022,

informing the Appellants of proposed first CoC meeting. Additionally, on

25.11.2022, the Respondent provided further communication sharing the agenda -7- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

for the upcoming CoC meeting scheduled for 27.11.2022. The Appellants noted

that by classifying their claims as those of a Financial Creditors, the Respondent

has conferred voting rights upon them to participate in this meeting.

9. The Appellants submitted that on 26.11.2022, one of the Appellants i.e.,

Mr. Arun Kumar Bag, communicated via email to the respondent a proposal to

substitute the respondent as the IRP for the Corporate Debtor and proposed

name of Mr. Umesh Kumar as new proposed IRP. The other two Appellants i.e.,

Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar in their capacity as Financial

Creditors, accepted this proposal of Mr. Arun Kumar Bag and conveyed their

agreement to the respondent, requesting that this agenda be included in the

upcoming first CoC meeting for the members to cast their votes.

10. The Appellants further stated that on 26.11.2022, the Respondent No. 1,

with ulterior motives, informed the Appellants that their claim require more

clarification, thereby withholding their right to exercise any voting rights in the

upcoming CoC meeting. The Appellants submitted that in response to this

erroneous decision by the Respondent, the Appellants requested the Respondent

to reconsider however, despite their request, the Respondent No. 1 did not

review the decision, thereby not allowed the Appellants for participating of the

said CoC meeting.

11. The Appellants submitted that they participated in the meeting held on

27.11.2022, however, they were subsequently removed by the Respondent No. 1 -8- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

from the meeting and denied them the opportunity to present their agenda

regarding the replacement of the IRP. It is the case of the Appellants that

following this incident, the Appellants sent an email to the Respondent on

27.11.2022, requesting that their attendance be formally recorded, which was

not conceded to.

12. The Appellants stated that they filed the IA's to the Adjudicating

Authority against the auction of the Respondent No. 1, however, the

Adjudicating Authority, in the Impugned Order dated 19.01.2024, has wrongly

directed the Respondent No. 1 to re-examine the Appellant's claims without

addressing the merits of the case. The Appellants stated that the Respondent No.

1 acknowledged that the claims of the Appellants were initially admitted for the

purpose of collation and therefore the Respondent No. 1 was not empowered to

adjudicate on it. The Appellants emphasized that once a claim has been

admitted, the Respondent No. 1 does not possess any jurisdiction to reconsider

and such decisions are exclusively within the purview of the Adjudicating

Authority.

13. The Appellants submitted that, in compliance with the Impugned Order,

the Respondent No. 1 sent an email dated 29.01.2024, which included the letter

dated 25.01.2024 and arbitrarily disallowed the Appellant's claims and

terminated their participation in the CoC without providing any opportunity for -9- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

the Appellants to present their case. The Appellants stated this action is illegal

which contravenes legal principles and the relevant provisions of law.

14. The Appellants submitted that they are Financial Creditors who provided

loans to the Corporate Debtor, which qualifies as "financial debt" under Section

5(8) of the Code. The Appellants submitted that prior to their claim's admission,

the Financial Creditors submitted all necessary documents in accordance with

Regulation 8 of the IBBI Regulations, 2016 and when requested by the

Respondent No. 1 for clarifications, the Appellants promptly rectified and

resubmitted the claim form.

15. The Appellants assailed the conduct of the Respondent No. 1, who in

connivance of the Operational Creditor, on being under threat of getting

replaced, made the ulterior plot to oust the Appellants as Financial Creditors.

The Appellants stated that even the Adjudicating Authority failed to protect

their rights.

16. The Appellants denied averment of the Respondent No. 1 w.r.t. to cash

transactions as loans. The Appellants stated that there is no statutory prohibition

against cash loans to the Corporate Debtor. It is the case of the Appellants that

while the Income Tax Act imposes penalties for non-compliance with cash

transaction limits, it does not invalidate such transactions under the Code. The

Appellants cited judgment of the Hon'ble Madras High Court in the case of -10- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

K.T.S. Sarma vs. Subramanian, [(2001) 4 CTC 486] that penalties do not

nullify contracts.

17. The Appellant also denied the applicability of alleged Jharkhand Private

Money Lending (Prohibition) Act, 2016 and the Bihar Money Lenders Act,

1974 stated that such acts do not apply in case of application made under

Section 7 of the Code.

18. Concluding their arguments, the Appellants requested this Appellate

Tribunal to dismiss the Impugned Order and allow them to be member of the

CoC.

Submissions Of Respondent No.1

19. Per contra, the Respondent No. 1 denied all averments of the Appellate

Tribunal and also denied grounds of challenge to the Impugned Order by the

Appellants treated these as baseless and mischievous.

20. The Respondent No. 1 stated that the appellant's claim cannot be

considered "financial debt" under Section 5(8) of the Code, as the Appellants

fail to establish any disbursal against consideration for time value of money.

The Respondent No.1 submitted that the Appellants have not provided sufficient

evidence, such as bank statements, book of accounts, etc., to demonstrate that

any claimed sum was disbursed to the Corporate Debtor.

21. The Respondent No. 1 stated that the sums claimed were purportedly

advanced as cash transactions without proper documentation, which violates -11- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

applicable tax laws. The Respondent No. 1 argued that the transaction in

question are preferential and fraudulent transactions intended to defraud

creditors and obstruct the CIRP and the loan agreements were allegedly made

on 30.09.2022, after an application under Section 9, which was filed by the

Operational Creditors way back in 2019 and for which after hearing the order

was reserved on 02.08.2022. The Respondent No. 1 argued that the timing

clearly demonstrate wrong intentions of the Appellants to circumvent legal

provisions. The Respondent No. 1 highlighted that the transaction violates the

Bihar Money Lenders Act, 1974, due to lack of registration by the lenders,

rendering the agreements void under Section 2(g) of the Indian Contract Act,

1872.

22. The Respondent No. 1 stated that show cause notices were issued to the

Appellants regarding this loan transactions, which remains unanswered. The

failure to disclose material facts further undermines the Appellant's position.

The Respondent No. 1 stated that these transactions are fraudulent and should

not be recognized as a valid claim under the Code.

23. The Respondent No. 1 asserted that the Appellants were not considered

as confirmed Financial Creditors of the Corporate Debtor and no voting rights

were conferred upon the Appellants. The Respondent No. 1 denied that he acted

with any ulterior motive or that the proposal from the Appellants to replace the

Respondent No. 1 as the insolvency professional had any bearing on the matter. -12-

Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

The Respondent No. 1 disputed claims of erroneous decision-making and denies

obstructing the appellant's participation in the CoC meeting, asserting that the

Appellants had no lawful right to participate in such meetings.

24. The Respondent No. 1 denied that the appellant's claims were already

verified and contended that the Resolution Professional can revisit claims which

were considered in laws on provisional basis based on Form C of the Appellants

and that the Respondent No. 1 has obligation to determine the credential of the

Appellants as Financial Creditor before participation in the CoC. The

Respondent No. 1 clarified that the alleged claims of the Appellants were

provisional verified and same were clearly reflected when such information of

claims were uploaded on relevant website.

25. The Respondent No. 1 emphasised that the Appellant's alleged claims

arise from illegal and sham transaction, created solely to gain positions in the

CoC. The Respondent No. 1 elaborated that the loan agreements are

characterized as backdated and intended to undermine the objectives of the

Code and defeat legal CIRP process. The Respondent No. 1 pleaded that

allowing the Appellants into the CoC would contravene provisions of the Code,

as the loans were purportedly given in cash after critical order about admission

of the CIRP was reserved on 02.08.2022 by the Adjudicating Authority.

26. The Respondent No. 1 disputed allegations regarding violations of the

Code and stated that all actions taken by the Respondent No. 1 were lawful. The -13- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

Respondent No. 1 emphasized that the Appellants failed to submit adequate

documentation as required under Regulation 8 and the claims of the Appellants

could not be substantiated as Financial Creditors. The Respondent No. 1 denied

the contention of the Appellants that provisions of the Income Tax Act or Bihar

Money Lenders Act are inapplicable to present appeals and submitted that the

Respondent No. 1 acted as IRP within its jurisdiction in verifying and

determining the validity of the appellant's claims, which were deemed invalid

based on established legal principles.

27. The Respondent No. 1 contended that the Appellants committed fraud

upon the Adjudicating Authority by relying on sham and illegal agreements

created around just the time of the commencement of the CIRP and emphasized

that there were no financial debts involved, as the appellant's claims were based

on cash disbursals which were not reflected in the Corporate Debtor's books.

28. The Respondent No. 1 submitted that the alleged loan agreements are

fundamentally flawed due to several legal deficiencies. These alleged

agreements were executed in Ranchi and Patna by individuals claiming to be

lenders, which contravenes the provisions of the Jharkhand Private Money

Lending (Prohibition) Act, 2016 and the Bihar Money Lenders Act, 1974. The

Respondent No. 1 also asserted that there is no verifiable evidence of actual

loans disbursement, as required documentations such as bank statements etc., -14- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

have not been presented to substantiate the claims of disbursement by the

Appellants

29. The Respondent No. 1 refuted allegations of the Appellants made during

hearing these appeals before us that the Respondent No. 1 has misused funds

including his fee and has already spent huge money. The Respondent No. 1

submitted that his remuneration of Rs. 1.5 lakhs per month as the Resolution

Professional was carefully evaluated and approved by the CoC after considering

several factors. The Respondent No. 1 justified CIRP cost incurred for the

management of assets of the Corporate Debtor, including gym equipments, a

temperature-controlled swimming pool, and overall fitness centre operations.

The Respondent No. 1 stated that the CIRP cost included salary payments to the

Corporate Debtor's workforce comprises 28 skilled staff members, compliance

with various regulatory frameworks, including GST, PF, and ESI regulations

and for maintaining operational integrity.

30. Concluding his pleadings, the Respondent No. 1 requested to dismiss all

three appeals with exemplary cost.

Response of Respondent No. 2

31. During the hearing held on 24.07.2024, three I.A. No. 1987, 1988 and

1989 of 2024 were filed by the Applicant / Operational Creditor with a request

to be impleaded as a Respondent in the present appeals. We heard the parties -15- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

and noted that the Applicant was the person who has filed the original Section 9

application under the Code for Rs. 1.22 Crores on 11.07.2019 and if he would

have been in the original CoC, his shares should have been 97.02% of the voting

shares of CoC. After hearing all the parties, we allowed to implead Applicant.

32. We note that Section 9 application was considered by the Adjudicating

Authority and the order was reserved on 02.08.2022. The Respondent No. 2

submitted that the Appellants in connivance with the Promoters of the Corporate

Debtor, tried to fabricate the three purported loan agreements only to oust the

Operational Creditor (new Respondent No. 2 herein) from the CoC and to

sabotage the CIRP process. In this connection, the Respondent No. 2 mentioned

that two loan agreements dated 30.09.2022 by Mr. Sanjeeb Kumar Jha and Mr.

Rohit Kumar for Rs. 2 Lakhs each paid in cash were entered into between the

Corporate Debtor immediately after order was reserved under Section 9 of the

Code on 02.08.2022.

33. The Respondent No. 2 submitted that third alleged Financial Creditor

Mr. Arun Kumar Bag also claimed of Rs. 3.83 Lakhs (approximately) for

residual operational debt dues pending against the supply contract executed on

22.08.2022 without any proof of disbursal of such money and the same is also

fraud being played by Mr. Arun Kumar Bag.

34. The Respondent No. 2 stated that the IRP, who collated claims based in

Form C submission by the three Appellants, later came to know that fraud was -16- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

being played by the Appellants and therefore, subsequently the IRP has gone

into details of the claims and came to conclusion that the claims of the

Appellants need to be further investigated and established after verification of

documents to be called from the Appellants.

35. The Respondent No. 2 submitted that the claims of the Appellants cannot

be treated as financial debts since there were no disbursal of money to the

Corporate Debtor as no documentary evidence have been submitted by the

Appellant.

36. The Respondent No. 2 also submitted that the cash transaction are

violation of law of the land and need to be rejected. In this connect, the

Respondent No. 2 pointed out two judgments passed by the Hon'ble Supreme

Court of India in the matter of Anuj Jain, Interim Resolution Professional of

Jaypee Infratech Limited v. Axis Bank Limited & Ors. [(2020) 8 SCC 401] and

New Okhla Industrial Development Authority v. Anand Sonbhadra [(2023) 1

SCC 724].

37. Another point raised by the Respondent No. 2 is that verification of

claims and substantiation of claims with proof is a prerequisite under the

Regulation before the CoC is constituted and in this connection, the Respondent

No. 2 defended the action taken by the Respondent No. 1/IRP to exclude the

Appellant from the CoC and cited few judgments i.e., Greater Noida Industrial

Development Authority v. Prabhjit Singh Soni & Anr. [(2024) SCC OnLine SC -17- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

122] and NRC Limited v. State of Maharashtra & Anr. (Write Petition No.

8449 of 2022).

38. Concluding his arguments, the Respondent No. 2 requested to dismiss all

three appeals with cost.

Finding

39. We note that Form C were filed by two Appellants, namely, Mr. Sanjeeb

Kumar Jha and Mr. Rohit Kumar claiming financial debt of Rs. 2 Lakhs each

having security interest of Rs. 3.08 Lakhs. In the respect, we note that the loan

agreements do not contain any details of such security interest.

40. We note that two separate loan agreements have been entered into by both

the Appellants Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar dated 28.09.2022

with almost identical contents in which the amount of Rs. 2 Lakhs is supposed

to have been given in two instalments i.e., Rs. 50,000/- in cash on 25.09.2022

and Rs. 1.5 Lakh on 28.09.2022 in cash the Corporate Debtor. The loan

agreements also mentioned that borrower being director of the Corporate Debtor

is known to the lenders as a business person. We note that no prima-facie

documents including affidavits has proved any bonafide business relationship

between the borrower and the lenders. It is significant to note that both the loan

agreements were entered with Corporate Debtor on 28.09.2022 after the order of

Section 9 application of Respondent No. 2 was reserved on 02.08.2022 which

raise doubts of genuineness of the purpose of such alleged loan agreements. -18-

Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

The loan agreements also do not includes adequate details. Be that as it may,

since the matter is pending before the Adjudicating Authority, we will not go

into details further on these issues.

41. We note that the third Appellant i.e., Arun Kumar Bag has stated that he

has entered into supplying material to the Corporate Debtor and the Corporate

Debtor placed the purchase order of Rs. 6,48,540/- and the Appellant claimed

that Rs. 2.65 Lakh was paid as advance, however, remaining amount was not

paid i.e., outstanding balance of Rs. 3,84,540/-. It is the case of the third

Appellant i.e., Arun Kumar Bag since money was not paid, he converted this

outstanding operational due into financial loan and entered into an agreement

with the Corporate debtor on 22.08.2022 and subsequently filed his Form C for

same amount of Rs. 3,83, 540 /-. We wonder as to how the outstanding

operational debt could have been converted into financial debt. Be that as it

may, since the matter is pending before the Adjudicating Authority for final

adjudication, we will not go further in the merit of the same.

42. We reiterate that Section 9 of the Code was initiated by M/s J.N Hotel

Pvt. Ltd./ the Operational Creditor/Respondent No. 2 for amount of Rs. 1.22

Crores (approx..) on 11.07.2019 which was heard and order was reserved on

02.08.2022 by the Adjudicating Authority. The application filed under Section

9 was allowed and CIRP against the Corporate Debtor was initiated vide order

dated 28.10.2022 and subsequent to which a public announcement was issued -19- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

inviting claims. The Appellants submitted their claims in Form C as Financial

Creditors and based on the claims, the IRP constituted the CoC on 20.11.2022

and the report of constitution of CoC was filed before the Adjudicating

Authority on 23.11.2022.

43. We have noted from the pleadings that after collation of the claims and

after tentative verification of the claims, the Respondent No. 1 sought further

clarification from the Appellants since the Respondent No. 1 as IRP was not

sure about the Appellants status as Financial Creditors. The main reason for

such decision were based on the nature of such purported loan agreements

which were given in cash. The Respondent No. 1 also observed that such

perpetrated cash transactions/ loan agreement were in violation of Jharkhand

Private Money Lending (Prohibition) Act, 2016 and the Bihar Money Lenders

Act, 1974.

44. The Respondent No. 1 also noted that the provisions of Companies Act,

2013 were also not met. The Respondent No. 1 categorically stated that the

Appellants could not be entitled for any voting rights in the CoC Meeting to be

held on 22.11.2022 since the Appellants status as Financial Creditors were not

established.

45. We note that during hearing on 24.07.2024 we enquired from the

Appellants Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar about their nature of

business, their relationship with Corporate Debtor and asked them to file the -20- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

Affidavits stating the nature of business, PAN No and attaching tax returns

along with Financial Statements for the relevant year when the loan agreement

was entered into on 30.09.2022.

46. We were also curious to note that the address of both the Appellant is

exactly same and shown as Chari, Mehla, Chamba, Himachal Pradesh which is

almost about 1650 km far away from Patna. Evidentally, there is no business

relationship of the Appellants with the Corporate Debtor who was involved in

gym at Patna.

47. In this connection, we note that the Affidavit was filed by Mr. Sanjeeb

Kumar Jha and Mr. Rohit Kumar and noted that Mr. Sanjeeb Kumar Jha

disclosed his income tax returns for the year 2023 in which his gross income

was only Rs. 7.37 Lakhs and similarly Mr. Rohit Kumar disclosed his income

tax returns for the year 2023 in which his gross income tax was stated to be only

Rs. 5.8 Lakhs. The other details were not fully furnished. Be that as it may, it

is suffice to note that the nature of their so-called business do not indicate any

business relationship of these two Appellants with the Corporate Debtor and

similarly financial position of these two Appellants also not justify their

financial need to lend the meagre money of Rs. 2 Lakhs that too in cash to the

Corporate Debtor situated in Patna which is almost 1650 km. As such we are not

satisfied with the Affidavit filed by both the parties. Since, the matter is pending

with the Adjudicating Authority, we will not express our definitive views and -21- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

leave it open to the Adjudicating Authority to decide status of the Appellants in

accordance with law.

48. We note that the Adjudicating Authority has also castigated the

Respondent No. 1 for hastily farming the CoC when establishing the financial

credential of the Appellant. In this connection, we would like to take into

consideration the relevant paragraph of the Impugned Order which reads as

under :-

"11. It has been contended by the RP that the loans have been advanced by the purported financial creditors at a time when the prospect of CIRP was looming large over the company so as to get a seat on the CoC so as to drive the CIRP. However, under the present frame work the acknowledgment of a financial creditor in the context of insolvency and bankruptcy proceedings typically focuses on the creditor's status as a financial creditor and does not take care of other sundry circumstances or concurrent conditions etc. as seen from the above definitions of the financial debt and the Financial Creditors.

12. Thus, the claims of the creditor to be included in the CoC shall have to pass through the above rigor before they can be given a place in the CoC. However, it appears that in the present case, the IRP has hastily formed the CoC without proper verification of the claims just on a "preliminary examination", which finds no place either in the act or in the Regulations. The IRP should have followed -22- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

the stipulations of the statute including the regulations before forming of the CoC.

13. We restrain ourselves at this stage from passing any orders against the Financial Creditors but we direct the RP to re-examine the entire process of formation of the CoC and ensure that the Statute including relevant rules and regulations are properly complied with and then proceed to reconstitute the COC if required."

(Emphasis Supplied)

49. We note that the Adjudicating Authority has only directed the Respondent

No. 1 to re-examine the constitution of the CoC in accordance with the Code

and Regulations.

50. We do not find any illegality of this action of the Adjudicating Authority

in the Impugned Order. We also do not find the merit of the Appellants in their

Appeals for their alleged rights to be member of the CoC. We feel that it has to

be done after satisfaction of the Resolution Professional, the Respondent No.

1herein as well as the Adjudicating Authority.

51. We note that vide the Impugned Order dated 19.01.2024, the

Adjudicating Authority directed the Respondent N. 1 to reconstitute the CoC, if

required, in accordance with law after holding that CoC was constituted on

28.11.2022.

52. It has been brought to our notice that pursuant the Impugned Order, the

Respondent No. 1 issue letter dated 25.01.2024 to the Appellants cancelling the

provisional membership of the Appellants in the CoC of the Corporate Debtor. -23-

Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

It has also been brought to our notice that subsequently, the Respondent No. 1

has also reconstituted the CoC of the Corporate Debtor comprises of

Operational Creditor and Respondent No. 2, the J.N Hotels Pvt. Ltd. who has

been inducted as member of the CoC having 97.02% of the voting shares along

with other employees of the Corporate Debtor in terms of Regulation 16 of the

IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

53. Since, the Impugned Order only talks about re-examination and

reconstitution of the CoC by the Respondent No. 1 and has to take final decision

in this regard. we will not examine the merit of such actions. We are not

expressing any opinion on this and leave it to the Adjudicating Authority to

decide the same in accordance with law.

54. We note that during haring on 13.08.2024, the Appellants alleged that the

Resolution Professional has claimed CIRP cost of Rs. 1,57,52,440/- and the

Appellants tried to give a picture as if the money has been largely spent as legal

fee and for ulterior motives of the Resolution Professional. In this connection,

we asked the Resolution Professional to file an affidavit regarding utilisation of

the said money, which was filed by Yogesh Gupta, the Respondent No. 1 (IRP)

on 19.08.2024, where he gave details of the CIRP cost of Rs. 1.57 Crores

(approx.) for the period from 31.10.2022 to 31.12.2023 (14 months) and

submitted that such cost was incurred for the Corporate Debtor to keep the

Corporate Debtor as a going concern which was operating gym. The money was -24- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024

spent in payment of salary to all 28 employees including the payment towards

PF, ESI, payment of electricity charges, payment of advocates fee, payment of

security services, royalty to Gold Gym from whom franchise has been taken by

the Corporate Debtor fuel expenses, etc. The Resolution Professional has also

submitted that he charge fee of Rs. 1.5 Lakh per month plus GST, which was

duly approved by the CoC. We will not go further in the merit of the CIRP cost

incurred by the Respondent No. 1 and we leave it to the CoC to decide the same.

55. In fine, all three appeals devoid of any merit fail, stand rejected. No

costs. I.A. if any, are closed. The original petition i.e., I. A. No's. 1645, 1646,

1647 of 2022 in Company Petition No. (IB)- 1067 (KB)/2019 are remanded

back to the Adjudicating Authority. We direct all the concerned parties to

appear before the Adjudicating Authority for further necessary action on

08.01.2025 (Wednesday).

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

Sim