Sm Milkose Ltd & Anr vs M/S Onyx Components And System Pvt. Ltd

[Arising out of order dated 16.08.2021 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-II) in (IB) 334(ND)/2017, IA/3927/2020 & 1356/2021]

IN THE MATTER OF: 1. SM Milkose Limited, 5-Morar Enclave, Gola Ka Mandir, Gwalior, Madhya Pradesh 474006. ...... Appellant No. 1. (Resolution Applicant) 2. M/s Applied Electro magnetics Pvt. Ltd. Through its Authorized Representative 504, Cinema Complex, Greater Kailash-II, New Delhi-110048 ...... Appellant No. 2. (Corporate Debtor)

Versus

1. M/s Onyx Components and Systems Pvt. Ltd. Through Managing Director/Director/Company Secretary 6-1-85/4, First and Second Floors, Opposite to Telephone Bhavan, Saifabad, Hyderabad-500004. Also at: 413-A, 1st Floor, Sant Nagar, East of Kailash, New Delhi-110065. 2. Mr. Divakar Atluri, Director 3. Mr. Pokala Srinaivas 4. Mr. Ramadevi Dronavalli 5. Mr. Srinivasa Chakravarthy Bellamkonda 2

Also at: 6-1-85/4, First and Second Floors, Opposite to Telephone Bhavan, Saifabad, Hyderabad-500004. Also at: 413-A, 1st Floor, Sant Nagar, East of Kailash, New Delhi-110065.

....... Respondents.

Present: For Appellant: Mr. Manish Kaushik, Advocate. For Respondent:- Mr. Vishal Ganda, Ms. Siddhi Khambayat, Sreemantini Mukherjee, Advocates.

JUDGMENT

(06th December, 2022)

Justice Anant Bijay Singh;

The Appellants have preferred the instant Appeal being aggrieved and

dissatisfied by the order dated 16.08.2021 passed by the Adjudicating Authority

(National Company Law Tribunal, New Delhi Bench-II) in (IB) 334(ND)/2017 in

IA/3927/2020 & 1356/2021 whereby and whereunder Corporate Debtor filed

applications i.e. I.A. No. 3927/2020 with a following prayer which are hereunder

and I.A. No. 1345/2021 for seeking consideration of IA 3927/2020.

"a. Direct the Respondents to refund Rs. 12,30,457/- to the Corporate Debtor with interest @18% p.a. being the amounts illegally retained by them and which amounts were given during moratorium period for supply of goods/components.

Company Appeal (AT) (Insolvency) No. 833 of 2021 3

b. Direct that the Respondent is liable to be punished for contravention of Section 14, 31 and Section 74 of IBC for siphoning off proceeds of Corporate Debtor in contravention of Moratorium imposed by this Hon'ble Tribunal.

c. Pass such other or further orders as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the matter and in the interest of justice."

After hearing the parties, the Tribunal dismissed the aforesaid I.As holding

that there is no violation by RP of any of the provisions contained under Section

14, 31 & 74 of IBC and the Respondents are not required to refund the amount

i.e. Rs. 12,30,457/- to the Corporate Debtor.

2. The facts giving rise to this Appeal are as follows:

i) The Appellants herein being the Corporate Debtor and the Resolution

Applicant in the proceedings before the Tribunal had preferred the aforesaid I.As

as a joint application. The said application had been being filed in extreme

exigency and urgency situation as the conduct of Respondents became

completely dishonest, unfair, illegal and contemptuous in so far the Respondents

is seeking to wrongfully and fraudulently usurp monies of the Corporate Debtor

handed over to them by the IRP post imposition of moratorium but during the

CIRP proceedings for supply of components/goods which were not supplied so

that even during the moratorium period and during the CIRP proceedings the

Corporate Debtor remains a going and operating concern.

ii) Further case is that post imposition of moratorium, the IRP during CIRP

proceedings made payments to the Respondents on the following dates being

02.11.2017, 09.01.2018, 09.02.2018, 22.02.2018, 10.04.2018, 26.04.2018,

Company Appeal (AT) (Insolvency) No. 833 of 2021 4

22.05.2018 and 30.06.2018 by bank transfers as advances for the supply of

goods/components in the interest of the Corporate Debtor and to keep the

Corporate Debtor as going concern. The Resolution Plan that had been submitted

by the Resolution Applicant was approved under Section 31 of the IBC on

02.04.2019 which was binding on the other shareholders confirming SM Milkose

Limited as the successful Resolution Applicant. The Corporate Debtor seeks Rs.

12,30,457/- which were wrongfully misappropriated by the Respondent who

despite receiving the said amounts as advance for supply of goods/components,

neither supplied goods/components nor refunded the amounts. The Corporate

Debtor sent a legal notice to the Respondents dated 10.10.2019. The Respondent

instead of refunding the Rs. 12,30,457/- rather sought Rs. 34,07,390/- from the

Corporate Debtor vide legal notice dated 21.10.2019. Thereafter, the Appellant

preferred the I.A. No. 3927 of 2020 in CP No. (IB) 334 (ND) of 2017 before the

Tribunal and after hearing the parties, the Tribunal passed the impugned order

which led to filing of this Appeal.

Submissions on behalf of the Appellant

3. The Ld. Counsel for the Appellant during the course of argument and in

his memo of Appeal submitted that while passing the impugned order the

Adjudicating Authority failed to consider that the acts of the Respondents to

usurp the money received by the Corporate Debtor, Applied Electro Magnetic Pvt.

Ltd. during the period of moratorium imposed by the Tribunal under Section 14

of the Code and the Respondents cannot retain any amounts given to them under

trust during the CIRP proceedings during the moratorium period. The

Company Appeal (AT) (Insolvency) No. 833 of 2021 5

Respondents are violating the mandate of law claiming dues from Corporate

Debtor when the Appellant Corporate Debtor cannot be made liable to pay any

dues for the period prior to imposition of moratorium period when the claims

have been not filed/ not admitted under the approved resolution plan as per

Section 14 & 31 of the Code.

4. It is further submitted that the Appellants relying on judgment passed by

the Hon'ble Supreme Court in the case of 'Ghanashyam Mishra and Sons

Private Limited through Authorized Signatory Vs. Edelweiss Asset

Reconstruction Company Limited through the Director & Ors.' reported in

(2021) 9 SCC 657 held that:

".............

86. As discussed hereinabove, one of the principal objects of I&B Code is, providing for revival of the Corporate Debtor and to make it a going concern. I&B Code is a complete Code in itself. Upon admission of petition under Section 7, there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is

Company Appeal (AT) (Insolvency) No. 833 of 2021 6

revived and is made an on-going concern, After CoC approves the plan, the Adjudicating Authority is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the Adjudicating Authority can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable.

95. It the result, we answer the questions framed by us as under:

(i) That once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan."

5. It is further submitted that the Tribunal while passing the impugned order

failed to consider the law laid down by the Hon'ble Supreme Court in the case of

Company Appeal (AT) (Insolvency) No. 833 of 2021 7

'Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar

Gupta & Ors. reported in (2020) 8 SCC 531' wherein it has held that:

"67. ............. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor."

6. It is further submitted that it is evident from the fact that the Respondent

has violated the clear mandate of Section 14 of the Code by retaining amounts

of the Corporate Debtor given in trust to them during the moratorium period and

by not returning them even after approval of the final resolution plan. Based on

these submissions the impugned order is fit to be set aside and the Appeal be

allowed.

Submissions on behalf of the Respondent

7. The Ld. Counsel for the Respondent during the course of argument and in

his reply affidavit along with written submissions submitted that the Appellant

No. 1 filed an application bearing I.A. No. 3927 of 2020 before the Adjudicating

Authority. However, the same did not contain any specific provisions under

which the prayers were being sought. Therefore, the Appellant filed another

application bearing IA No. 1356 of 2020 seeking an amendment in its prayer.

Company Appeal (AT) (Insolvency) No. 833 of 2021 8

Even the amendment prayer did not specify the provisions, under which they

prayers are being sought in the application. Section 60(5) of the Code has an

extensive scope under which the Adjudicating Authority has ample powers. A

bare perusal of Section 60(5) indicate that the Appellant No. 1 could not have

initiated the proceedings under Section 60(5)(a) and (b), as the same can only be

filed by or against the Corporate Debtor as Sections 20, 25 or 35 of the Code

gives power to IRP, RP or the Liquidator, as the case may be to act or represent

the Corporate Debtor vis-à-vis third parties, exercise rights for the benefit of the

Corporate Debtor in judicial, quasi-judicial or arbitration proceedings. It is fact

that on approval of the Resolution Plan, the Successful Resolution Applicant

steps into the shoes of the Corporate Debtor, but does not inherit the power and

duties of the IRP, RP or the Liquidator under the Code. Accordingly, Section

60(5)(a) and (b) shall not be available for the Successful Resolution

Applicant/Corporate Debtor at this juncture which is 18 months after the

approval of resolution plan by the Adjudicating Authority.

8. It is further submitted that the proceedings were initiated under Section

60(5)(c), which has a very broad scope that it speaks amount any question of law

or fact, arising out of or in relation to the corporate insolvency resolution process

or liquidation proceeding of a Corporate Debtor. Accordingly, the Adjudicating

Authority has jurisdiction only over ongoing CIRP or liquidation proceeding. In

this regard, Section 5(140 of the Code defines the CIRP period as the period of

one hundred and eight days beginning from the insolvency commencement date

and ending on one hundred and eight days. The period of 180 days of CIRP may

Company Appeal (AT) (Insolvency) No. 833 of 2021 9

be extended to a maximum of 330 days under Section 12 of the Code, which is

the maximum period for CIRP or when the Resolution Plan gets approved by the

Adjudicating Authority. In the present case the Resolution plan was approved by

the Adjudicating Authority on 02.04.2019. As such, the Adjudicating Authority

became functus officio on 02.04.2019. Therefore, in this case, at the time of filing

of the application bearing IA No. 3927 of 2020 on 14.09.2020, there was on

insolvency petition, which was pending before the Adjudicating Authority and as

such, the Adjudicating Authority did not have jurisdiction to entertain the same.

The aspect has also been duly dealt by the Adjudicating Authority in its

impugned order at paragraphs no. 30, 31 and 32.

9. It is further submitted that the Adjudicating Authority is not even a Civil

Court which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure

to try all suits of a civil nature. The Tribunal can exercise only such powers

within the contours of jurisdiction as prescribed by the statute that it is required

to administer. The Code clearly defines the circumstances in which the

jurisdiction of the Adjudicating Authority can be invoked and who can invoke

the same. In this case, the facts and circumstances do not fall under the scope

of the Code and the issue involved herein requires trail and examination of fats

and circumstances which can only be adjudicated upon by a civil court. The Ld.

Counsel for the Respondent in support of his submissions reliance is placed

upon the following judgments:

• M/s Embassy Property Developments Pvt. Ltd. V. State of Karnataka

& Ors.; (2020) 13 SCC 308; paragraph No. 11.

Company Appeal (AT) (Insolvency) No. 833 of 2021 10

• Ebix Singapore Pvt. Ltd. V. Committee of Creditors of Educomp

Solutions Ltd. & Anr.; (2022) 2 SCC 401, paragraph No. 101.

• Ghanashyam Mishra and Sons V. Edelweiss Asset Reconstruction

Company Limited & Ors.; (2021) 9 SCC 657; Paragraph Nos. 69, 74;

10. It is further submitted that upon approval of the Resolution Plan, no claim,

payable or receivable can be raised against the Corporate Debtor. After approval

of the Resolution Plan, the Corporate Debtor is a clean slate and all undecided

claims of Corporate Debtor stand extinguished. The objective and purpose of the

Code, of a resolution and fresh start, will be defeated if such endless historical

claims are raised before the Adjudicating Authority. Based on these submissions,

it is submitted that the Adjudicating Authority has rightly passed the impugned

order, therefore, there is no merit in the present Appeal, the Appeal is fit to be

dismissed.

11. After hearing the parties and going through the pleadings made on behalf

of the parties, it is an admitted case that the Resolution Plan was approved by

the Adjudicating Authority on 02.04.2019 and thereafter, I.A. No. 3927 of 2020

was filed on 14.09.2020 before the Adjudicating Authority approximately after

18 months of approval of the Resolution Plan. Keeping in view of the aforenoted

facts, we agree with the reasons given by the Adjudicating Authority, therefore,

the impugned order dated 16.08.2021 passed by the Adjudicating Authority

(National Company Law Tribunal, New Delhi Bench-II) in (IB) 334(ND)/2017 in

IA/3927/2020 & 1356/2021 is hereby affirmed. The instant Appeal is hereby

dismissed. No order as to costs.

Company Appeal (AT) (Insolvency) No. 833 of 2021 11

12. Registry to upload the Judgment on the website of this Appellate Tribunal

and send the copy of this Judgment to the Adjudicating Authority (National

Company Law Tribunal, New Delhi Bench-II), forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

New Delhi 06th December, 2022 R. Nath.

Company Appeal (AT) (Insolvency) No. 833 of 2021