Zoom Coomunications Ltd vs M/S Par Excellence Real Estate Private ...

Zoom Communications Pvt. Ltd. ....Appellant Vs.

M/s. Par Excellence Real Estate Pvt. Ltd. ...Respondent For Appellant: Mr. Mohit Sethi, Mr. Nikhil Singhvi, Advocates.

For Respondent: Mr. Vikas Mehta, Ms. Akanksha Vigyan, Mr. Jishnu Bhardwaj, Advocates.

ORDER

(Through Virtual Mode)

27.07.2022: Heard Learned Counsel for the Appellant.

2. This Appeal has been filed against the order passed by the Adjudicating

Authority (National Company Law Tribunal), New Delhi Bench (Court-II) dated

17.05.2022 by which the Application filed under Section 9 of the IBC by the

Appellant, an Operational Creditor, has been dismissed and the Adjudicating

Authority has also directed by the same order to issue show-cause notice

under Section 65(1) to the parties for appropriate action. The brief facts of the

case which are necessary to be noticed are:

A loan of Rs.7 Crores was obtained from IndiaBulls in favour of the

Corporate Debtor which document has now been screen shared by the Learned

Counsel appearing for the Corporate Debtor before us and he pointed out that

the loan was applied by the Corporate Debtor and co-applicant was Mr.

Gulshan Jhurani, the Director of the Operational Creditor. Section 9 2

Application was filed claiming that a debt of Rs.57,25,000/- is due which was

process fee for procuring the loan for the Corporate Debtor. The Adjudicating

Authority after hearing the parties took the view that transaction which took

place between two related companies in the year 2015 appears to be sham

transaction and which could not be basis for initiating any CIRP. Challenging

the said order, this Appeal has been filed.

3. Learned Counsel for the Appellant submits that the present

management who has filed Section 9 Application was not aware about Mr.

Jhurani who was Director being related party. It is further submitted that the

aforesaid fact was not in the knowledge of the present management of the

Corporate Debtor. Further show-cause notice issued under Section 65(1) is

mere formality since findings and observations have already been made in the

impugned order. Hence, the show-cause notice shall not serve any purpose.

4. Shri Vikas Mehta, Learned Counsel for the Respondent referring to

paragraph 11 of the impugned order submits that the balance sheet of the

Corporate Debtor for the year 2017-18 which has been extracted in the said

paragraph clearly mentions that Mr. Jhurani was Director of both the

Corporate Debtor as well as the Operational Creditor.

5. Learned Counsel for the Appellant also submitted that the Balance

Sheet has been filed by the Operational Creditor of the year 2015-16 where

there was no related party shown.

6. We have considered the submissions of the Learned Counsel for the

parties and perused the record. Paragraphs 19, 20 & 21 of the impugned order

Comp. App. (AT) (Ins.) No. 619 of 2022 3

contains the relevant discussion by the Adjudicating Authority which are to

the following effect:-

"19. Hence, it is clear from the aforesaid analysis that

both the Applicant Company, which has claimed the

operational debt based on an invoice for a loan

procured for the Corporate Debtor and the Corporate

Debtor against whom the Applicant is seeking to

initiate CIR Process were having common Director

namely, Mr. Gulshan Kumar Jhurani (DIN:

00209894). By way of visiting the records at the MCA

Website and on piercing the corporate veil, it is clear

that not only both the Applicant Company as well as

the Corporate Debtor were 'related party' due to

common Directorship on the date of the invoice but

also here is a case, where Director of the Corporate

Debtor (in the capacity of Director of the Applicant

Company) has procured a loan for his own company

and is charging procurement fee therefor. In view of

the aforesaid finding, we are of the considered view

that the aforesaid transaction, which had taken place

between the two related Companies in the year 2015

is sham and the CIR Process cannot be initiated on

the basis of such a sham transaction.

Comp. App. (AT) (Ins.) No. 619 of 2022 4

20. That we are conscious of the provision

contained in Proviso to Section 21 (2) of IBC, 2016,

whereby no right of representation, participation or to

vote has been granted to a 'Related Party' on initiation

of CIRP of the Corporate Debtor. Hence, in our

considered view, the related party is having no control

in the CIR Process. Therefore, the intention of a related

party of initiating the CIR Process shall always raise

eyebrows.

21. The aforesaid sequence of events shows that

the Application for initiating the CIR Process has been

filed by concealing a material fact that the Applicant

and the Corporate Debtor were related Parties at the

time of transaction basing on which operational debt

has been claimed. Since, the said transaction has

turned out to be a sham transaction, we are of the

considered view that both the parties are in collusion

and the present Application has not been filed for the

resolution of Insolvency rather, the parties have

attempted to kickstart the CIR Process with a

malicious intent for a purpose other than the

resolution of insolvency of the Corporate Debtor,

which is not permissible under the IBC 2016. As per

the Code, if any person [as defined under Section

3(23) of IBC] initiates the Insolvency Resolution

Comp. App. (AT) (Ins.) No. 619 of 2022 5

Process fraudulently or with malicious intent for any

purpose other than for the resolution of the insolvency,

or liquidation and such an act is punishable under

Section 65 (I) of IBC 2016. Hence, before taking any

action under Section 65(1) IBC 2016, we think it

proper to issue a show cause notice, under Rule 59 of

the National Company Law Tribunal Rules 2016, to

M/S. Zoom Communications Pvt. Ltd. through its

Directors and M/S Par Excellence Real Estate Pvt. Ltd.

through its Directors and to Mr. Gulshan Kumar

Jhurani as to why the penalty as stipulated under

Section 65(1) of IBC, 2016 shall not be imposed on

them. Ld. Registrar NCLT is directed to issue the show

cause notice under Section 65(1) of IBC 2016 read

with Rule 59 of the National Company Law Tribunal

Rules, 2016 by giving them fifteen days' time to

explain and submit in writing as to why the penalty

as stipulated under Section 65(1) of IBC, 2016 shall

not be imposed on them. The Registry is directed to

allot a Case No. for the proceedings for which the

Show Cause Notice is being issued to the concerned

parties under Section 65(1) of IBC, 2016. Registry/

Court Officer to list this matter on 03.06.2022."

Comp. App. (AT) (Ins.) No. 619 of 2022 6

7. The loan sanction order which has been placed before us indicates that

along with the Corporate Debtor who was Applicant for the loan, the Director

of the Operational Creditor Mr. Jhurani was also co-applicant. Thus, when

both the Operational Creditor and the Corporate Debtor were Applicants, we

fail to see that how the Operational Creditor can claim payment of fee for

procuring the loan.

8. Shri Vikas Mehta, Learned Counsel for the Respondent submits that

under Section 188 of the Companies Act such transaction was permissible.

9. We in the present case are considering the initiation of the CIRP, the

Adjudicating Authority had sufficient reason to believe that debt itself is

doubtful. No error has been committed by the Adjudicating Authority in

refusing to initiate the CIRP on such suspicious debt. Thus, the order of the

Adjudicating Authority refusing to initiate CIRP cannot be faulted and we

affirm the said order passed by the Adjudicating Authority.

10. Now, we come to the submission of the Counsel for the Appellant

regarding show-cause notice under Section 65(1) of the IBC. The notice has

been issued consequent to the impugned order passed, to which the parties

were entitled to file reply. Learned Counsel for the Appellant submits that the

Appellant has already filed a Reply to show-cause notice and Learned Counsel

for the Respondent submits that he has also filed a Reply to the show-cause

notice. Order under Section 65 after considering the show-cause notice are yet

to be passed by the Adjudicating Authority. We only observe that while passing

the order under Section 65, the Adjudicating Authority shall consider the

Comp. App. (AT) (Ins.) No. 619 of 2022 7

Reply given by the Respondent and shall not be influenced by any observation

made in the impugned order.

11. Subject to the above observations, the Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Barun Mitra] Member (Technical) Anjali/nn

Comp. App. (AT) (Ins.) No. 619 of 2022