The Commissioner of Central Taxes Goods & Service Tax Vs. C.S. Ashish Singh & Ors. - 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.

NCLAT (10.11.2021) In The Commissioner of Central Taxes Goods & Service Tax Vs. C.S. Ashish Singh & Ors. [Company Appeal (AT) (Ins) No. 854 of 2021] held that; - 

• 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. 

Excerpts of the order;

# 2. This appeal which has been filed under Section 61(3) (i) to (iii) of the Insolvency and Bankruptcy Code, 2016 (in short IBC) challenges the Impugned Order dated 25.09.2020 of the National Company Law Tribunal, New Delhi Bench II (hereinafter called the Adjudicating Authority) in I.A. No. 2159/ND/2020 in Company Petition No. (IB) 1232 (ND)/2019 in the matter of Fourth Dimension Solutions Limited. By the Impugned Order, the Adjudicating Authority approved a resolution plan submitted by Respondents No.2 and 3 with respect to Fourth Dimension Solutions Limited (Corporate Debtor) under Section 31 of IBC.

 

# 3. The Learned Counsel for Appellant has submitted that the pending dues relating to Goods and Service Tax appeared in the balance sheet of the Corporate Debtor (attached at page 92 of Appeal Paper-book). He has referred to Section 17 (2)(d) of IBC which authorizes the Resolution Professional “to access all books of accounts, records and other relevant documents of Corporate Debtor available with Government authorities, statutory auditors, accountants and such other persons as may be specified.‟ He has further adverted to Section 18(1)(a) of the IBC, 2016 wherein the Interim Resolution Professional is enjoined with the duties to collect information relating to assets, finance and operations of the Corporate Debtor for determining the financial position of the Corporate Debtor, including information relating to business operations, financial and operational payments, assets and liabilities and such other matter as may be specified. He has also pointed out to the provision under section 29 (1) of IBC wherein the Resolution Professional has been given the duty of preparing the Information Memorandum containing such relevant information as may be specified by the Insolvency and Bankruptcy Board of India.

 

# 4. Furthermore, the Learned Counsel for Appellant has referred   to Regulation 36 (2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, wherein it is stated that “details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities” has to be included in the Information Memorandum.

 

# 5. The Learned Counsel for Successful Resolution Applicant (Respondent No. 2), who has appeared on advance notice, has argued that the Resolution Plan was approved by the Adjudicating Authority on 25.9.2020. Thereafter, the Successful Resolution Applicant has stepped into the shoes of the Corporate Debtor and the approved Resolution Plan has been implemented. He has referred to section 31 of the IBC to claim that once the Resolution Plan is approved by the Adjudicating Authority, it is binding on all the stakeholders including the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law is owned. The Learned Counsel for Successful Resolution Applicant has referred to the judgment of Hon‟ble Supreme Court in the matter of Ghanshyam Mishra and Sons Private Limited through the Authorised Signatory Vs. Edelweiss Asset Reconstruction Company Limited through the Director & Ors (2021 SCC Online SC 313)  in support of his contention.

 

# 6. On perusal of the appeal memo, we do not find that the Appellant had filed any claim before the Resolution Professional regarding his dues. The Appellant, in averments in the appeal memo, has stated that his claim of GST dues arises from a Show Cause Notice issued on 19.6.2019, which was available in the record of the Corporate Debtor, which was taken over by the Interim Resolution Professional. Hence the statutory dues of the Department of Central Taxes automatically considered by the Resolution Professional in the Information Memorandum, and should have been accounted for in the Resolution Plan, which was approved by the Adjudicating Authority vide the Impugned Order dated 25.9.2020.

 

# 7. According to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, financial and operational creditors have to file claims in accordance with Regulations 7 and 8 respectively of the aforementioned Regulations (supra) in a specified format and stipulated time period. In the records submitted by the Appellant and in the arguments presented by the Learned Counsel for Appellant, it is nowhere pointed out as to when and in what form, the claim of pending dues of GST was filed by the Appellant.

 

# 8. The Hon‟ble Apex Court has held in the matter of Ghanshyam Mishra and Sons Private Limited through the Authorised Signatory Vs. Edelweiss Asset Reconstruction Company Limited (supra) that once the Resolution Plan has been approved and implemented, no further claims will lie or can be considered. The relevant extract is reproduced hereunder:-

• “62. This aspect has been aptly explained by this Court in the case of Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra). “107. For the same reason, the impugned NCLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC Online NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as 65 this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would 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. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgment must also be set aside on this count.”

 

# 9. In the light of the aforesaid discussion, we are quite clear that the claim of the Appellant cannot be considered at this stage. We do not find any reason to interfere with the Impugned Order dated 25.9.2020. The appeal is, therefore, dismissed at the stage of admission. No orders as to costs.

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Invent Assets Securitisation & Reconstruction Pvt. Ltd. Vs. Rajmal Labhchand Mogra - Fees of IRP replaced U/s 22 read with Regulation 17 of CIRP Regulations.

NCLAT (26.11.2021) In Invent Assets Securitisation & Reconstruction Pvt. Ltd. Vs. Rajmal Labhchand Mogra [Company Appeal (AT) (Insolvency) No. 709 of 2019] held that; - 

• In view of the above, after 10 days of sending the name of Resolution Professional to Board by the Adjudicating Authority, there being no order of the Adjudicating Authority to continue the Interim Resolution Professional as Resolution Professional, the Interim Resolution Professional has no right to continue to function as the Resolution Professional after such date.

Excerpts of the order;

# 4. Learned Counsel for the Appellant in support of the Appeal contends that in very first meeting of the CoC dated 16.07.2018, it was resolved not to approve the appointment of Respondent as Resolution Professional and he was asked not to carry any further process. It is submitted that Application for replacement of Interim Resolution Professional was filed before the Adjudicating Authority on 31.07.2018 hence, there is no entitlement of the Respondent to continue with CIRP or for payment of any emoluments. In the second CoC meeting dated 10.08.2018, specific Resolution was passed for adjourning the CoC meeting ‘sine die’ and Respondent was clearly indicated that he should not carry with the CIRP. It is submitted that the mere fact that Application which was filed on 31.07.2018 remained pending till 09.10.2018, the Respondent is not entitled to claim any emoluments till 09.10.2018. At best, the Respondent could claim emoluments only till first meeting of the CoC i.e. on 16.07.2018 and thereafter there is no entitlement to receive any emoluments by the Respondent.

 

# 5. Learned Counsel for the Respondent refuting the submissions of the Appellant contends that the CoC in its meeting dated 16.07.2018 has specifically approved the fee of Rupees Five Lakh per month as fee of the Interim Resolution Professional. Hence, the Respondent is entitled to claim the fee with the said rate till 09.10.2018 when Adjudicating Authority decided to replace the Interim Resolution Professional. The Respondent was willing to carry on the work and he has also filed an Application but due to the fact that he was obstructed in his working by the Appellant, it cannot be reason for denying his fee. It was submitted that as per Regulation 17(3) of the CIRP Regulations, 2016, where the appointment of Resolution Professional is delayed, the Interim Resolution Professional is entitled to perform the functions of the Resolution Professional from the fortieth day of the insolvency commencement date till a Resolution Professional is appointed under Section 22. The Resolution Professional having been appointed under Section 22 only on 09.10.2018, the appointment of Interim Resolution Professional was to continue till 09.10.2018 with entitlement of his fees also.

 

# 7. The Adjudicating Authority by impugned order has directed calculation of fee of the Interim Resolution Professional upto 09.10.2018 when the Interim Resolution Professional was changed. The question for consideration in this Appeal is as to in the facts of the present case Respondent was entitle for his fee upto which date. Whether when CoC decided to replace the Interim Resolution professional he ceased to entitle to any fee?

 

# 10. The present is not a case where CoC in first meeting resolved to appoint the Interim Resolution Professional as Resolution Professional rather they in the first meeting resolved to replace the Interim Resolution Professional by another Resolution Professional. The present case is covered by Section 22 (3) (b) where CoC decided to replace the Interim Resolution Professional and it had filed an Application before the Adjudicating Authority for appointment of proposed Resolution Professional on 31.07.2018. Sub-section (4) of Section 22 requires that the Adjudicating Authority shall forward the name of the Resolution Professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. The most relevant provision is sub-section (5) of Section 22 which empowers the Adjudicating Authority to pass an order for the Interim Resolution Professional to continue to function as the Resolution Professional where the Board does not confirm the name of the proposed Resolution Professional within 10 days. The present case is not a case where Adjudicating Authority has passed any order after 31.07.2018 to continue the Interim Resolution Professional till the confirmation of the Board is received. Sub-section (5) of Section 22 requires an order by the Adjudicating Authority to  continue Interim Resolution Professional as the Resolution Professional. When Resolution is passed by the CoC to replace the Interim Resolution Professional, requirement of order to continue Interim Resolution Professional in such cases is a statutory scheme delineated by the provisions. Conversely when no order is passed by the Adjudicating Authority to continue Interim Resolution Professional under Section 22(5), he cannot claim continuance of the Interim Resolution Professional his claim of continuance will be contrary to the statutory scheme.

 

# 12. Sub-regulation (3) of Regulation 17 provides that when appointment of the Interim Resolution Professional is delayed, the Interim Resolution Professional shall perform the functions of the Resolution Professional from the fortieth day of the insolvency commencement date till a Resolution Professional is appointed under Section 22. Regulation 17(3) cannot be read in a manner which may have effect of defeating the purpose and object of Section 22(5) by allowing the Interim Resolution Professional to continue without there being any order of the Adjudicating Authority in a case where decision has been taken to replace the Interim Resolution Professional. The provision of sub-section (5) of Section 22 requiring an order of the Adjudicating Authority to continue the Interim Resolution Professional to continue to function will become redundant and otiose if it is held that even without an order under Section 22(5), he can continue by virtue of Regulation 17(3). Regulation 17(3) being sub servient to provisions of the Code cannot be interpreted in a manner to defeat the scheme as delineated by sub-section (5) of Section 22. Regulation 17 may cover other situation but not a case covered by Section 22 (3)(b) read with Section 22 (5).

 

# 13. In view of the above, after 10 days of sending the name of Resolution Professional to Board by the Adjudicating Authority, there being no order of the Adjudicating Authority to continue the Interim Resolution Professional as Resolution Professional, the Interim Resolution Professional has no right to continue to function as the Resolution Professional after such date. Obviously, the claim of the Respondent to continue to function as Resolution Professional till 09.10.2018 cannot be accepted.

 

# 14. The Adjudicating Authority have erred in allowing the claim of fee of Resolution Professional till 09.10.2018. The effect of Resolution of CoC to replace the Interim Resolution Professional as well as the effect of filing of the Application before the Adjudicating Authority had not been considered by the Adjudicating Authority at all. The Adjudicating Authority proceeded to mechanically direct for payment of professional fee till 09.10.2018 without taking into consideration what was effect of the above scheme of the statutory provision and as to what actual work conducted by the Interim Resolution Professional. From the material on record, it does appear that after first meeting of the CoC dated 16.07.2018 when a decision was taken to replace the Interim Resolution Professional, no substantial work has been done. The second meeting was convened by the Interim Resolution Professional on 10.08.2018 which too was objected and no business was transacted in the said meeting also. Thus, effectively the Interim Resolution Professional could function only till 16.07.2018 and, as noted above, legally he could not have continued after 10 days from sending the proposal of new Resolution Professional by Adjudicating Authority as per Section 22 of the Code.

 

# 15. This Tribunal passed an interim order on 12.07.2019 subject to condition of payment of Rs. 10 lakh to Respondent No.2 which has been accepted by Respondent. Looking to the sequence of events, as noted above, and actual work conducted by the Respondent, the amount of Rs. 10 lakh is sufficient to cover the fee payable to the Interim Resolution Professional including the cost for Insolvency Resolution Process. We are of the view that the amount paid to Respondent under interim orders sufficiently cover the Insolvency Resolution Process costs and no further payment is required to be made.

 

# 16. The Appeal is allowed. The order passed by the Adjudicating Authority dated 26.06.2019 is set aside to the above extent.

 

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Jitender Arora RP M/s. Premia Projects Ltd. Vs. Tek Chand - A joint CIRP would be possible only if there is an application for admission of CIRP under the IBC against the landowning entity and there is a strong case for undertaking joint CIRP.

NCLAT (18.11.2021) In Jitender Arora RP M/s. Premia Projects Ltd. Vs. Tek Chand [Company Appeal (AT) (Ins) No. 1069 of 2020] held that; - 

• In the instant appeal the initiation of CIRP has been ordered only against the Corporate Debtor (developer) but at this stage there is neither any application for initiation of CIRP against the landowner/ landholder nor there is any order regarding initiation of the CIRP against the landowning company M/s Solitaire Infomedia Pvt. Ltd.

• A joint CIRP would be possible only if there is an application for admission of CIRP under the IBC against the landowning entity and there is a strong case for undertaking joint CIRP.

• There is no provision in the IBC for a joint CIRP. In State Bank of India and Anr. versus Videocon Industries Limited and Others (supra), a consolidated CIRP has been ordered in view of the fact that there are admission orders for insolvency resolution against 15 companies that has already been given, and prayer was made for undertaking consolidated CIRP since the assets of all the 15 companies were inter-linked and interwoven.

• In the instant case, the shares of the Corporate Debtor in the Respondent No. 2 company are not shown as pledged or secured with any creditor. But the basic point is that the shares of the Corporate Debtor in Respondent No.2 company should be considered as part of total assets of Corporate Debtor in the Resolution Plan.

• The landowning company M/s Solitaire Infomedia Pvt. Ltd. is not under CIRP, hence it would not be possible to include in the CIRP of the Corporate Debtor the asset of land on which the Corporate Debtor is developing the housing project but which is owned by the Respondent No. 2 company without following the due procedure as enumerated in law.

Excerpts of the order;

This Judgment relates to the appeal filed by Jitender Arora, Resolution Professional (RP) of the Corporate Debtor (CD) M/s Premia Projects Limited, who is aggrieved by the impugned order in I.A. No. 4132 of 2020 in CP (IB) No. 104/PB/2018, passed by the Adjudicating Authority (NCLT, Delhi) on 29.10.2020 (hereinafter called Impugned Order).

# 3. It is stated by the Appellant that a plot of land was allotted by Greater Noida Industrial Development Authority(GNIDA in short) by allotment letter dated 11.3.2009 to the landowning company M/s Solitaire Infomedia Pvt. Ltd.(Respondent No.2). Thereafter, a Collaboration Agreement was entered into on 1.10.2012 by the Corporate Debtor Premia Projects Limited with Respondent No. 2, the landowning company. At this time Mr. Tarun Sheinh was the Director and major shareholder of the Corporate Debtor Company. Mr. Tarun Sheinh became a director in the Respondent No.2 company too, soon after executing the aforementioned Collaboration Agreement. In the landowning company (Respondent No. 2), Tarun Sheinh and his wife Rekha Sheinh held a total of 98,000 equity shares of Rs. 10 each and, which accounted for 49% of the total share capital of Respondent No.2 company (refer Additional Affidavit of the Appellant filed vide diary No. 26753 dated 12.4.2021), and the Corporate Debtor Premia Projects Limited held 1,02,000 number of shares of Rs. 10 each accounting for 51% of the total share capital of Respondent No.2 landowning company. The transaction audit report dated 28.9.2019 submitted by the Appellant (pg. 279 of the Appeal Paperbook Vol II) mentions that the Corporate Debtor Premia Projects Limited purchased all the shares held by Tarun Sheinh and his wife Rekha Sheinh in R-2 company on 5.10.2015 and only 100 equity shares were retained by the Tarun Sheinh..Thus from 5.10.2015, Corporate Debtor M/s Premia Projects Limited started to hold 1,99,900 shares in Respondent No.2 company and only 100 shares were held by Tarun Sheinh. Thus, the Corporate Debtor Premia Projects Limited had almost total control over the Respondent No. 2 landowning company. Simultaneously, on 31.3.2015, Tarun Sheinh held 47,500 equity shares out of 50,000  shares in the Corporate Debtor Premia Projects Limited. Thus, he effectively controlled both the corporate debtor as well as Respondent No. 2 landowning company and he was director in both the companies.

# 4. The RP filed I.A. No. 4132 of 2020 before the Adjudicating Authority claiming that Tarun Sheinh, director in both the companies has, through the Collaboration Agreement dated 1.10.2012 entered into between the CD and the Respondent No. 2 landowning company and Memoranda of Understanding entered into with home-buyers for booking and sale of flats constructed on it, defrauded and cheated the home buyers who had booked flats in the project being developed by the Corporate Debtor. Through this IA No. 4132 of 2020, the RP sought the following directions from the Adjudicating Authority: –

• (i) Allow RP to take charge of assets of the subsidiary company M/s. Solitaire Infomedia Private Limited, or

• (ii) Allow RP of the Corporate Debtor to initiate joint CIRP of both the holding company and its subsidiary (i.e. the Corporate Debtor and its subsidiary Respondent No.2).

By the impugned order dated 29.10.2020 (attached at page 55 of the Appeal Paperbook) the Adjudicating Authority denied the prayed relief holding that there was no provision in the IBC to grant such relief.

# 5. The Collaboration Agreement provided that the Respondent No. 2 will hand over the possession of land to developer after receiving a valuable consideration, and the CD will develop the project and have exclusive right of sales and marketing of 90% of the constructed area and the owner of the land (Respondent No.2) will be entitled to ownership and right to sell 10% of the constructed area apart from receiving Rs. 4.5 Crores as cash both being part of consideration as contained in the Collaboration Agreement.

# 10. The main issue in this appeal is whether the corporate debtor M/s. Premia Projects Limited and Respondent No.2 M/s. Solitaire Infomedia Limited should either be considered for joint CIRP so that the land can be considered as an asset in the joint CIRP of the Corporate Debtor and Respondent No. 2. This issue is significant because while the Corporate Debtor received the booking amounts from the home buyers, it is the allegation of the RP and home buyers that the ex-director of the CD Tarun Sheinh siphoned off the amounts so received in other companies controlled by Tarun Sheinh and hence no significant monies are available with the CD for its meaningful insolvency resolution. The issue assumes significance since the land on which the project was to be developed is an integral constituent of the project through which the flats were being constructed and this asset of land could be instrumental in insolvency resolution of CD if a joint CIRP for the CD and Respondent No. 2 is undertaken.

# 25. When we read the definitions of ‘property’, ‘transaction’, ‘transfer’ along with the provisions of section 29 (regarding provision of Information Memorandum) in a constructive manner and consider meaning along with the spirit and letter of the IBC as contained in the preamble of IBC, it becomes clear that such assets, which are transferred to or from the Corporate Debtor, and which are germane to the insolvency resolution of the Corporate Debtor and are part of the assets of the Corporate Debtor, even if held by another company, such assets should be included in the Information Memorandum das well as insolvency resolution. It is only with such consideration and meaning of assets/property that the creditors of the Corporate Debtor can get their rightful dues as is required and provided under the IBC. Moreover, the Collaboration Agreement between the Corporate Debtor and its partly or statutory, the land owing company Respondent No. 2 transfers assets of land to the Corporate Debtor, whereby the Corporate Debtor on the strength of this asset is able to enter into MoUs with home buyers. Therefore, the Collaboration Agreement is very organic to the entire process of insolvency resolution of the Corporate Debtor, and the asset of land which is transferred and given in possession by the land owner company Respondent No. 2 also becomes an ‘asset’ of the Corporate Debtor.

# 28. The Insolvency and Bankruptcy Code, 2016 provides for the resolution of insolvent companies for the revival of those companies and for the benefit of financial and operational creditors. The preamble of the IBC states that the reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons is the prime objective of this legislation. Taking a cue from such an objective and the detailed framework provided under IBC, there is no gainsaying the fact that the interests of creditors which doing an effective resolution of an insolvent company are the primary objectives of the IBC. Therefore, if a Corporate Debtor has intricate financial relationship with another company which is controlled in an overwhelming manner by the same set of directors, as the corporate debtor and their businesses are inter-related, intertwined and interwoven, it stands to reason that such companies should be looked at jointly, for matters related to insolvency resolution, as the financial revival of one company will be closely linked to the financial health of the other company.

 

# 29. There is no provision in the IBC for a joint CIRP. In State Bank of India and Anr. versus Videocon Industries Limited and Others (supra), a consolidated CIRP has been ordered in view of the fact that there are admission orders for insolvency resolution against 15 companies that has already been given, and prayer was made for undertaking consolidated CIRP since the assets of all the 15 companies were inter-linked and interwoven. The Adjudicating Authority has given a 14 point test in para 80 of this judgment for deciding whether consolidation of individual CIRPs should be done to yield maximum benefits to stakeholders. Para 80 of State Bank of India and Anr. versus Videocon Industries Limited and Ors (supra) gives the essential ingredients of the 14 point test which is reproduced hereunder:- . . . . . . . .

 

We find that in the instant appeal, the two companies – Corporate Debtor Premia Projects Ltd. and the Respondent No. 2 landowning company M/s Solitaire Infomedia Private Limited broadly satisfy the points enumerated in the 14-point test.

 

# 30. In the matter of Mrs. Mamatha versus AMB Infrabuild Private Limited and Ors. (supra), the NCLAT has held that the developer and the land owner should be treated jointly for the purpose of initiation of CIRP against them. Hence, the Appellant remitted to the Adjudicating Authority for admission of the case after notice to the parties. The important point to note in this matter is that an application for initiation of CIRP jointly against ‘developer’ and the ‘landowners’ was filed, which was rejected by the Adjudicating Authority. In the instant appeal the initiation of CIRP has been ordered only against the Corporate Debtor (developer) but at this stage there is neither any application for initiation of CIRP against the landowner/ landholder nor there is any order regarding initiation of the CIRP against the landowning company M/s Solitaire Infomedia Pvt. Ltd.

 

# 31. In the situation as obtains in the matter related to the present appeal, a joint CIRP would be possible only if there is an application for admission of CIRP under the IBC against the landowning entity and there is a strong case for undertaking joint CIRP. We have found, upon piercing of corporate veil, that both the Corporate Debtor and Respondent No.2 have common Director Tarun Sheinh and their assets are intricately interwoven in their business operations. In addition, we have also seen that the corporate debtor. M/s. Premia Projects Limited has controlling shares in the landowning company (Respondent no.2). Thus, it is quite clear that their assets have been taken together for the development of the housing project. Therefore, there appears to be a strong case for considering the assets of both the companies jointly.

 

# 32. The Hon’ble Supreme Court, in the matter of Jaypee Kensington Boulevard Apartments Welfare Association and Ors. versus NBCC (India) Limited and Ors (2021 SCC Online SC 253) has among other issues looked at the assets of a 100% subsidiary Jaypee Healthcare Limited (JHL) of the corporate debtor Jaypee Infratech Limited (JIL) for a proper resolution and taking care of resolution of the Corporate Debtor in order to take care of the interests of the creditors of the Corporate Debtor, who are among others homebuyers allotted flats by the Corporate Debtor. The relevant portion of this judgment is reproduced below –

• “137. Indisputably, the corporate debtor JIL owns 100% equity shareholding in JHL which is having three operational hospitals in the State of Uttar Pradesh………

• Xxxxxxxx

• 142. In view of the above, we do not consider it necessary to render any other finding in this point for determination except the observation that the resolution plan essentially deals with the assets of the corporate debtor JIL and not that of its subsidiary JHL. Differently put, what the resolution plan deals with are the shares in JHL, which are regarded as assets of the corporate debtor JIL. As observed, no further comments are required and we leave this aspect of the matter at that only.”

 

Viewed from the angle clarified in the above mentioned paragraph, the shareholding of the Corporate debtor in the Respondent No. 2 Company, is over 97% in the asset of the Corporate Debtor and should therefore be part of Information Memorandum. Thus there exists a cogent case of undertaking joint CIRP.

 

# 33. As is evident from the above referred portions of the Jaypee Kensington (supra) judgment the asset of the Corporate Debtor JIL were considered in the resolution plan. Inter- alia the 100% shares held by the corporate debtor JIL in JHL were also considered, wherein a lender of JHL Yes Bank raised objection about its interests being harmed in case the shareholding of the Corporate Debtor JIL is considered as an asset in the overall corporate insolvency resolution of JIL. The Hon’ble Supreme Court has taken note of the objection and held that the shares of JIL and JHL, which are regarded as assets of the Corporate Debtor JIL would be considered in the resolution plan, of course after giving due consideration to the lenders of JHL, to whom the share of JIL have been pledged. In the instant case, the shares of the Corporate Debtor in the Respondent No. 2 company are not shown as pledged or secured with any creditor. But the basic point is that the shares of the Corporate Debtor in Respondent No.2 company should be considered as part of total assets of Corporate Debtor in the Resolution Plan.

 

# 34. The basis for considering land as a necessary asset in the insolvency resolution of the corporate debtor is evident from the manner of costing of a flat in an apartment complex. Since IBC does not provide any indication about costing of flats in a housing project, we turn our attention to the Real Estate (Regulations and Development) Act, 2016 which relates to real estate projects and connected matters. As the project is located in Uttar Pradesh we consider the Uttar Pradesh Real Estate Regulatory Authority (General) Regulations, 2019 (hereinafter called ‘Regulations’). The costing of the flat is covered in the Section 4(l)(D) of the Real Estate (Regulation and Development) Act, 2016, whereby the developer is required to submit in Form 3 provided in the Regulations through a Chartered Account.

 

# 35. As is evident from the Form 3 extracted above, the cost of the project includes cost of land and cost of development. This total cost of the project forms the basis of the cost of each flat. Each home buyer pays for the proportionate share of land along with the cost of development and construction. Therefore, in considering their rightful interest in the resolution of the corporate debtor company, it is reasonable and logical to factor in the connected land parcel in the total assets base.

 

# 36. In view of the aforementioned discussion, we consider it just, fair and proper that the land held by Respondent No.2 M/s. Solitaire Infomedia Pvt. Ltd., is an integral part of the housing development project, and should be considered as a part of the total asset base for the insolvency resolution of the Corporate Debtor M/s. Premia Projects Limited. The inter-woven nature of the assets of the two companies is amply clear from the provisions of the ‘Collaboration Agreement’ and the ‘MOU’ respectively. The Corporate Debtor has provided valuable consideration to Respondent No.2 and also taken possession of the land in question for developing the housing project through the Corporate Debtor. Hence, the asset of land is effectively transferred to the Corporate Debtor, on whose strength it has entered into Memoranda of Understanding with various homebuyers. On the basis of these MOUs the CD has collected monies from the home buyers. Moreover, in the costing of flats offered to homebuyers, the cost of land that proportionately is attached with each flat is a part of the total cost of each flat. In such a situation, it would not be fair and just to the creditors of the Corporate Debtor, which include the homebuyers, if the land in question is considered as part of the overall CIRP process and included in the information memorandum. In such a situation, a meaningful resolution plan could be proposed by an applicant.

 

# 37. In the instant matter the CIRP of the corporate debtor M/s Premia Projects Ltd. is under consideration. The landowning company M/s Solitaire Infomedia Pvt. Ltd. is not under CIRP, hence it would not be possible to include in the CIRP of the Corporate Debtor the asset of land on which the Corporate Debtor is developing the housing project but which is owned by the Respondent No. 2 company without following the due procedure as enumerated in law. We, therefore, direct that the matter be remanded to the Adjudicating Authority with further direction that an admission application for the landowning company M/s. Solitaire Infomedia Pvt. Ltd. be considered by the Adjudicating Authority, and a consolidation of CIRP be thereafter considered so that the combined assets of land and flats may be considered together to provide fair, just and proper relief to the creditors of the Corporate Debtor Premia Projects Limited.

 

# 38. With these directions, the matter is remanded to the Adjudicating Authority to complete the process as directed above at an early date, preferably within two months, and pass appropriate orders. No order as to costs.

 

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ATE Projects Pvt. Ltd. V. Rajasthan Drugs and Pharmaceuticals Ltd. - Adjudicating Authority allowed section 9 application against a PSU, which has not been carrying out any functions since 2017.

NCLT Jaipur (11.11.2021) In ATE Projects Pvt. Ltd. V. Rajasthan Drugs and Pharmaceuticals Ltd. [(IB)-324/9/JPR/2019] held that; - 

• The above-mentioned facts indicate that the Corporate Debtor has not been carrying out any functions since 2017. Therefore, it can be safely inferred that no Government or sovereign functions of the State have been performed by the Corporate Debtor since 17.01.2017 onwards.

Excerpts of the order;

M/s. ATE Projects Pvt. Ltd. (for brevity ‘Applicant/ Operational Creditor’) has filed the present Petition through its Authorized Representative Mr. Yogesh Sharma under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC, 2016’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s. Rajasthan Drugs and Pharmaceuticals Ltd. (for brevity ‘Respondent/ Corporate Debtor’).

# 5. It is stated by the Applicant that the Corporate Debtor is a Central Public Sector Enterprise having its Manufacturing Unit & Registered office in VKI Area, Jaipur (Rajasthan). It has been added that the Corporate Debtor is a Government of India enterprise under the administrative control of the Ministry of Chemicals & Fertilizers, Department of Pharmaceuticals, Government of India.

# 9. It is further stated that the Applicant received a letter dated 17.01.2017, wherein it was mentioned that the Government of India vide letter file no. 54014/1/2016-PSU dated 09.01.2017 has ordered the shutting down of the Corporate Debtor and therefore, the Corporate Debtor directed the Applicant to stop the work at site and further informed that the outstanding liabilities, whatsoever, shall be cleared in accordance with the decision of the authority concerned. Copy of the letter dated 17.01.2017 is annexed as Annexure E of the application. Further since the work was stopped at site, the Applicant resubmitted the running bills, which were duly accepted by the Corporate Debtor on 09.03.2017.

# 10. The Applicant has stated that vide letter dated 22.03.2017, the Corporate Debtor asked the Applicant to send the certified copy of total outstanding dues along with proposal for a one-time settlement within 3 days and in response thereto, the Applicant submitted the details of the total principal amount outstanding of Rs.1,80,36,531/- as on 26.03.2017 against all the three agreements, which was due since October 2016 and demanded payment of the same at the earliest. The Applicant further stated that through various email communications, it demanded the payment due and payable from the Corporate Debtor, however, no action was been taken by the Corporate Debtor.

# 11. The Applicant has added that since it was left with no remedies, it sent a legal notice dated 11.01.2019 demanding the outstanding payment. However, no payment was made. It is pertinent to mention here that the sales tax department started demanding C-Form, qua the material supplied and since the Corporate Debtor neither issued the C-Form nor made the payment, therefore the Applicant filed an Application before the Commercial Court, Jaipur under Section 9 of the Arbitration and Conciliation Act, 1996 seeking direction qua the

Corporate Debtor to handover the C-Form for the material supplied. However, the Commercial Court vide order dated 26.08.2019 rejected the Application on technical ground holding that mandatory injunction cannot be granted.

# 12. That it is submitted by the Operational Creditor that since the Corporate Debtor did not make the due payment of its operational debt, it had issued a Demand Notice dated 13.11.2019 under Section 8 of IBC, 2016 at the Registered office of the Corporate Debtor. The Operational Creditor has also annexed the notice of dispute dated 04.12.2019 sent by the Corporate Debtor through Advocate Mr. Tarun Kumar Mishra. The Applicant has filed the Affidavits under Section 9(3)(b) and 9(3)(c) of IBC 2016.

# 13. That the Applicant has claimed an outstanding amount of Rs.2,98,79,294.12/- as operational debt in the Part IV of the Application.

# 15. It is stated by the Corporate Debtor that the Present Application filed under Section 9 is not maintainable in view of the existence of the Arbitration clause in all the Agreements executed between the parties. One of such clause relied by the Corporate Debtor is at page no. 43 of the Application.

# 16. That the Corporate Debtor has further placed emphasis on Section 5 of the Arbitration and Conciliation Act 1996 in order to support its submission that the present petition is not maintainable. The contents of the Section 5 of the Arbitration and Conciliation Act 1996 are reproduced overleaf –

• 5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.

# 17. It is further stated by the Corporate Debtor that the Application filed under Section 9 of IBC, 2016 is based on some disputed sums. Therefore, the same does not warrant any action by this Adjudicating Authority unless the disputes are converted into actionable claim by way of an award issued by the Arbitrator.

# 19. Further in the notice of dispute dated 04.12.2019, the objections which is taken by the Corporate Debtor is that it informed the Operational Creditor vide letter dated 17.01.2017 that the Government of India has taken the decision for closure of the Corporate Debtor and the outstanding liability will be cleared/ regularized in accordance with the decision of the authority concerned. Therefore, there was a notice for closure of the agreement of the work. It has added that no work was carried out at the site beyond 17.01.2017.

# 21. After going through the averments made in the Application, Reply of the Corporate Debtor, documents placed on record and hearing submissions, this Bench is of the view that before examining the present Application on merits, it is necessary to examine whether an application to initiate CIR process is maintainable against the Corporate Debtor herein, which is a Government Company.

# 22. That as per the submissions of the Applicant, 51% of the share capital of the Corporate Debtor is held by Central Government and rest 49% is held by State Government of Rajasthan. The same has also been admitted by the Corporate Debtor in its reply.

# 25. From perusal of the letter dated 17.01.2017 of the Corporate Debtor, it is observed that the Corporate Debtor has closed its functions and objects. Further from the Master Data of the Corporate Debtor, it is reflected that the Corporate Debtor has not filed its balance sheets post-31.03.2016 and defaulted in filing its statutory returns for the year 2016-17 and 2017-18. Furthermore, the present filing status of the Corporate Debtor is also reflected as ‘inactive’.

# 26. The above-mentioned facts indicate that the Corporate Debtor has not been carrying out any functions since 2017. Therefore, it can be safely inferred that no Government or sovereign functions of the State have been performed by the Corporate Debtor since 17.01.2017 onwards.

# 27. Here, it is worthwhile to refer to the Judgment of the Hon’ble Supreme Court passed in the matter of Hindustan Construction Company Limited and Anr. vs. Union of India, Writ Petition (Civil) No. 1074 of 2019) dated 27.11.2019 :

• “57. As correctly argued by the learned Solicitor General, Shri Tushar Mehta, the first part of ‘corporate person’, as defined in Section 3(7) of the Insolvency Code, means a company as defined in Clause 20 of Section 2 of the Companies Act 2013. Sections 2 (20) and 2(45) of the Companies Act, 2013, which define ‘company’ and ‘Government company’ respectively, are set out herein below:

- “2(20). “company” means a company incorporated under this Act or under any previous company law;”

-  “2(45). “Government company” means any company in which not less than fifty one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.”

• 58. From a reading of the aforesaid definition, Shri Tushar Mehta is clearly right in stating that the three entities who owe monies under arbitral awards to the Petitioner No. 1, being Government companies, would be subsumed within the first part of the definition. However, so far as NHAI is concerned, Dr. Singhvi's argument of either deleting certain words in Section 3(7) of the Insolvency Code, or adding certain words in Section 3(23)(g) of the Insolvency Code into Section 3(7) cannot be accepted.”

• …..

• “63. From a conspectus of the above provisions, what is clear is that NHAI is a statutory body which functions as an extended limb of the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to accede to Dr. Singhvi’s argument to either read in, or read down, the definition of ‘corporate person’ in Section 3(7) of the Insolvency Code.”

# 28. From the Judgment of the Hon’ble Supreme Court (Supra), it is observed that a “Government Company” as defined under Section 2(45) of the Companies Act, 2013 is covered under the definition of a “Company” as defined under Section 2(20) of Companies Act 2013. 

# 29. Since the Corporate Debtor, has not been performing any Governmental Functions or the Functions of State, the Corporate Debtor cannot be immune from the IBC proceedings merely on the basis of being a Government Company. Therefore, we find that the present Application is maintainable and worth considering on merits.

# 30. That the objection taken by the Corporate Debtor that the present Application is not maintainable in view of the Arbitration clause in the Agreements between the Parties and Section 5 of Arbitration and Conciliation Act 1996 bars this Adjudicating Authority from hearing this Application, does not merit consideration since Section 238 of IBC, 2016 is having overriding effect over the Arbitration and Conciliation Act, 1996. The contents of Section 238 of IBC, 2016 are reproduced below -

• “238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

# 31. That the Corporate Debtor nowhere in its reply has mentioned that there was any deficiency in the works performed by the Operational Creditor nor it had brought any communication of any date prior to the issuance of demand notice, which could depict that there is a pre-existing dispute between the parties.

32. That vide letter dated 17.01.2017 to the Applicant/Operational Creditor, which states that “…..the outstanding liabilities whatsoever shall be cleared/regularized in accordance with the decision of the authority concerned. You are requested to kindly bear with us till then”, the Corporate Debtor had shown its intention to clear its liability. And we observe that the aforesaid letter has been issued after raising of all the invoices by the Corporate Debtor. Therefore, the contention of the Corporate Debtor regarding no attachment of measurement sheets along with the invoices cannot be a ground for non-payment of dues the Applicant/Operational Creditor.

# 33. That the Corporate Debtor has not been able to give any cogent reason as to why the CIR Process shall not be initiated against it. 

# 34. That on perusal of the Affidavit filed by the Operational Creditor under Section 9(3)(b) of IBC 2016, it is observed that it has been averred by the Applicant that no notice of dispute has been given by the Respondent/Corporate Debtor. However, during the course of hearing, Ld. Counsel for the Operational Creditor confirmed that the notice of dispute was received, which is enclosed on Pages from 290 to 295 of the Application. Therefore, we are of the view that since the notice of dispute has been annexed by the Applicant with the Application, no prejudice shall be caused to anyone. 

# 35. In sequel to the facts, circumstances and analysis above, we observe that the Operational Creditor has been able to establish the default on the part of Corporate Debtor in payment of the operational debt. Therefore, the petition is admitted in terms of Section 9(5) of the IBC, 2016. Accordingly, the CIRP is initiated and moratorium is declared in terms of Section 14 of the IBC, 2016. .

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Blogger’s Comments; The basic premise of “Insolvency Resolution Process” is to look into the reasons of insolvency & to remove the same, so that company is taken out of insolvency. In case the company can not be taken out of insolvency, the same is liquidated so that the assets of the company are put to productive use for the society.

In the present case a sovereign decision has been taken to stop the working of the company. In the present circumstances, what can be the objective of the insolvency process ? In my opinion AA could have ordered for direct liquidation of the company, so that the assets of the company could be put to productive use for the society as early as possible.

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