Smt. K. Bharathi vs Kotak Mahindra Bank Ltd. & 4 Ors

Company Appeal (AT)(Ins) No. 17 of 2019 [ arising out of Order dated 19th December, 2018 by NCLT, Chennai in MA /639/2018 in CP/709/IB/2018 ]

IN THE MATTER OF:

Smt. K. Bharathi Residing at HO-3, 47-01-08/19 4th Floor, Pavan Heights Apartments, Danvaipeta, Rajahmundry - 533 103 ... Appellant

Versus

1. Kotak Mahindra Bank Limited No. 39. I Floor, Ceebros Center Montieth Road, Egmore, Chennai - 600 008

2. Green Gardens Private Limited Having its registered office at No. 60, Mount Road, Chennai - 600 006

3. Gemini Arts Private Limited Having its registered office at No. 60, Mount Road, Chennai - 600 006

4. Nurani Subramanian Suryanarayanan Resolution Professional Reg. No. (IBBI/IPA-002/IP-N00379/2017- 2018/11122), Flat V II, Silver Palm Apartments, 340/1 Bajanakoil Street, Padi, Chennai- 600 050

5. A. Manohar Prasad Represented by the Official Assignee Promoter-Green Gardens Private Limited I Floor, Family Court Building, High Court Complex, Madras High Court, Chennai- 600 104 ...Respondents

Company Appeal (AT)(Ins) No. 18 of 2019

[ arising out of Order dated 19th December, 2018 by NCLT, Chennai in MA /667/2018 in CP/710/IB/2018 ] 2

IN THE MATTER OF:

Smt. K. Bharathi ...Appellant Versus Kotak Mahindra Bank Ltd. & 4 Ors. ...Respondents

Present:

For Appellant: Mr. Debal Kumar Bannerji, Senior Advocate with Mr. Raghav Mehrotra, Mr. Gautam Singh and Mr. Samur Ali Khan, Advocates

For Respondent: Mr. E. Om Prakash, Senior Advocate with Mr. Sanjay Bhatt, Ms. D. Sreenivas, Mr. Akashit Kapoor and Ms. Srishti Kapoor, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In both the appeals as common question is involved and verbatim

similar orders both dated 19th December, 2018 have been passed by the

Adjudicating Authority (National Company Law Tribunal), Division Bench,

Chennai are under challenge, they were heard together and being disposed of

by this common judgment.

2. Two 'Corporate Insolvency Resolution Process' were initiated, one

against 'M/s. Green Gardens Private Limited' (Corporate Debtor No. 1) and

another against 'M/s. Gemini Arts Private Limited' (Corporate Debtor No. 2)

in which 'Mr. Nurani Subramanian Suryanarayanan', a common 'Resolution

Professional' was appointed. In both the 'Corporate Insolvency Resolution

Process', 'Kotak Mahindra Bank' (Financial Creditor) and 'Smt. K. Bharathi'

(another 'Financial Creditor') proceeded simultaneously.

3. In one of the 'Corporate Insolvency Resolution Process' -

'CP/709/IB/2018' the respondent - 'Kotak Mahindra Bank' filed a

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019 3

Miscellaneous Application 639/2018 stating that the 'Resolution Professional'

wrongly included the family members of the erstwhile Managing Director as

member of the 'Committee of Creditors' who has no voting rights being the

mother-in-law of the Managing Director of the 'Corporate Debtor' i.e. Smt. K.

Bharathi (Appellant in both the appeals).

4. Similar Miscellaneous Application 667/2018 was filed by 'Kotak

Mahindra Bank' (Financial Creditor) in other 'Corporate Insolvency Resolution

Process' CP/710(IB)/2017 raising similar objections with regard to Smt. K.

Bharathi (Appellant in both the appeals).

5. The Adjudicating Authority by two separate verbatim similar orders

both dated 19th December, 2018, referring to Section 5(24A) of the 'Insolvency

and Bankruptcy Code, 2016 (for short, 'the I&B Code') and the explanation

below Section 5(24A) held that the Appellant being the mother of the

Managing Director's wife, comes within the meaning of "related party".

6. Learned counsel for the Appellant submitted that the matter was heard

by the Adjudicating Authority on the date when nobody appeared on behalf of

the Appellant. Only the 'Resolution Professional' was present, who raised the

objections.

7. According to the learned counsel for the Appellant, the mother-in-law

of the erstwhile Managing Director cannot be held to be a 'related party' nor

she can be held to be relative of the erstwhile Managing Director as per the

provisions of the Companies Act, 2013.

8. It was submitted that the Appellant comes within the meaning of

'Financial Creditor' by reason of shares owned by her in the respective

companies, which were provided as security for loan obtained from 'M/s. India

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019 4

Bulls Financial Services Ltd.' by the 'Corporate Debtor(s), and were sold by

'M/s. Indiabulls' for recovery of the loan payable by the 'Corporate Debtor'

resulting adjustment of such amount payable to the Appellant. It was further

submitted that the appellant's claim has been confirmed by the Arbitral

Tribunal/Court, which is due and payable by the 'Corporate Debtor(s)'.

Therefore, the appellant being a 'Financial Creditors' in terms of Section 5(7),

she was rightly included as members of the 'Committee of Creditors'.

9. Learned counsel for the Appellant submitted that the relationship of the

Appellant with that of the 'Corporate Debtor' is to be ascertained based on

the provisions of Section 5(24) of the I&B Code. According to him, the

definition of the word 'relative' is to be drawn from the Companies Act, 2013

in view of Section 3(37) of the 'I&B Code' which provides that where no

definition has been provided in the 'I&B Code' meaning can be derived from

the 'Companies Act, 2013.

10. Learned counsel appearing on behalf of the Respondent 'Kotak

Mahindra Bank Ltd.' has taken a similar plea as was taken before the

Adjudicating Authority.

11. It was submitted that 'Mrs. K. Bharathi' is the mother of 'Mrs. Padma

Manohar', wife of the 'promoter' of the 'Corporate Debtor' - 'Mr. A. Manohar

Prasad, and hence she is his mother-in-law. It was further submitted that

the 'Committee of Creditors was reconstituted in consequence of order dated

19th December, 2018 as impugned in these appeals and the 'Committee of

Creditors' by its meeting held on 24th January, 2019 replaced the erstwhile

'Resolution Professional' and a new 'Resolution Professional' was appointed

by order dated 13th February, 2019 passed by the Adjudicating Authority.

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019 5

12. As the doubt was raised about the shares of 'Mrs. K. Bharathi' in the

Company (Corporate Debtor) and, therefore, this Appellate Tribunal by order

dated 12th March, 2019 asked the Appellant 'Mrs. K. Bharathi' to provide the

status of the Appellant and state whether she is a 'shareholder' of the

'Corporate Debtor' or any of its subsidiary or holding any post in the

'Corporate Debtor' or its subsidiary or holding any advisory post. It was

mentioned that if she is a shareholder, then she may state as to what is the

total percentage of her share in the company.

13. Learned counsel appearing on behalf of the respondent 'Kotak

Mahindra Bank' submitted that after the aforesaid order, more details were

unearthed in the matter when 1st Respondent obtained a certified copy from

the Adjudicating Authority (NCLT, Chennai) wherein the audited balance-

sheet of the 'Corporate Debtor' (M/s. Green Gardens Pvt. Ltd.') was attached

and forming part of the petition. The documents show that the daughter of

the Appellant, one 'Mrs. Padma Manohar' was indicated as a 'shareholder',

'Director' and 'key Managerial Personnel' in the financial statements.

14. The Respondents filed an additional affidavit on 2nd May, 2019 and

highlighting the significant aspects of the 'Audited Financial Statements' as

on 31st March, 2017 of the 'Corporate Debtor' to suggest that the Appellant is

a 'related party' of the 'Corporate Debtor(s)' as her daughter is connected with

the 'Corporate Debtor' in 'Company Appeal (AT) (Insolvency) No. 17 of 2018' in

respect of 'M/s. Green Gardens Pvt. Ltd.' It shows that 'Mrs. Padma Manohar'

is a 'shareholder' holding 28.5% of the shares of the 'Corporate Debtor' and

'Mrs. Padma Manohar' was a 'key managerial personnel' of the 'Corporate

Debtor' (Company).

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019 6

15. Both the 'Corporate Debtors' also filed two different 'financial

statements' as on 31st March, 2017 before two different authorities namely

NCLT, Chennai and 'Registrar of Companies', which was presented as a

factual matrix. According to the learned counsel for the 1st Respondent the

fact shown therein represents a fraudulent alteration of financial statement

disclosures and an attempt to create two different financial statements to

mislead the statutory authorities as under:

Audited Financial Audited Financial Statements for period Statements for period ended March 31, 2017 ended March 31, 2017 before NCLT as filed on before RoC as filed on May 30, 2018 November 17, 2018 Shareholder of Mrs. Padma Manohar Revised to one, Ms. 28.5% Anjali Krishnamani

Director Mrs. Padma Manohar Revised to one, Mr. A. Balakrishnan

Key Managerial Mrs. Padma Manohar Revised to one, Mr. A. Personnel Balakrishnan

16. The Company has also filed two different financial statements as on 31st

March, 2017 before two different authorities namely NCLT Chennai and

Registrar of Companies which was occasioned only because of the objections

raised by the 1st Respondent to the inclusion of the Appellant in the

'Committee of Creditors' of the entity. It was further submitted that the

alteration was done after such objections were raised by 1st Respondent.

17. The loan to the Appellant 'Mrs. K. Bharathi' purported to have been

disbursed in June, 2009 which forms the very basis of the 'corporate

Insolvency Resolution Process' under Section 7 of the 'I&B Code' was never

reflected in the 'Audited Financial Statements' of the entity from the period

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019 7

2009-10 and was disclosed for the first time in the 'financial year' 2016-17'.

Further based on the correspondence with the present 'Resolution

Professional, it is stated that it should have been brought to the notice of the

1st Respondent that the original loan agreement of 'Mrs. K. Bharathi' has also

never been produced before the previous 'Resolution Professional' or the

present 'Resolution Professional'.

18. Having heard the learned counsel for the parties and taking into

consideration the aforesaid facts, while we are not deliberating the issue

whether the Appellant is a 'Financial Creditor' of the 'Corporate Debtor' or not,

we are of the view that the 'Kotak Mahindra Bank Ltd.' having more than 65%

voting share, it makes no difference whether Appellant should be made a

member of the 'Committee of Creditors'. Further in view of the disputed

question of facts as brought to our notice and referred to above, we are not

inclined to grant relief. Both the appeals are accordingly dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Balvinder Singh] Member (Technical)

[ Kanthi Narahari ] Member (Technical) New Delhi 2nd September, 2019

/ns/

Company Appeal (AT)(Ins) Nos. 17 & 18 of 2019