Sajeve Bhushan Deora Vs. Axis Bank Ltd. & Ors. - The assets of the company, liquid or fixed should not be dissipated and shall be taken into consideration at the liquidation stage. The CIR costs should be met by the COC.

 NCLAT (14.11.2019) in Sajeve Bhushan Deora Vs. Axis Bank Ltd. & Ors. [Company Appeal (AT)(Ins.) No.741 of 2019] held that;

• The assets of the company, liquid or fixed should not be dissipated and shall be taken into consideration at the liquidation stage. The CIR costs should be met by the COC.

• As per Section 25 of Insolvency and Bankruptcy Code, 2016, Resolution Professional has duty to preserve and protect the assets of Corporate Debtor including the continued business operations and for the purpose, interim finance can be raised subject to approval of COC. 

• Adjudicating Authority directed that CIR costs should be met by COC. There is nothing wrong in this. 

Excerpts of the order;

14.11.2019 Heard the learned Resolution Professional who is present in person and is the Appellant. This Appeal has been filed by the Resolution Professional claiming that for keeping the Corporate Debtor – Noslar International Limited a going concern, he had filed CA 622/2019 before the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench) asking for directions to the Respondents 1 and 2 to release the margin money held as Fixed Deposits against letters of credits established by Axis Bank on behalf of the Corporate Debtor. When Application on this count came up before the Adjudicating Authority. The Adjudicating Authority passed the following Order:- 

• “ORDER 

• CA 622/2019 has been filed by the RP praying for directions to the Axis Bank to release the money kept as security. The same is required to meet the CIR costs. 

• The assets of the company, liquid or fixed should not be dissipated and shall be taken into consideration at the liquidation stage. The CIR costs should be met by the COC. At this stage we do not consider that the prayer of the RP should be allowed. 

• This petition is therefore being dismissed.” 

In view of directions given on 6th November, 2019, the Appellant has filed Affidavit giving particulars of the funds and resources available with the Corporate Debtor. The Appellant states that the Corporate Debtor was not in production when CIRP process was initiated and he has tried to make part of the Corporate Debtor functional but that did not yield much. It is stated that it was thus, necessary to utilize the resources available and thus, the Application was filed with the Adjudicating Authority but the Adjudicating Authority did not agree to give directions to the Axis Bank. 

The Appellant states that today is the last date for this CIRP process even if the 90 days’ window given by an amendment made to Section 12 in 3rd Proviso is considered. It is stated that no Resolution Plan has been approved as yet. The learned Resolution Professional fairly states that in the circumstances as now appearing, liquidation is appearing to be unavoidable. 

Having gone through the submissions made and the Impugned Order and the developments as appearing where the Company is likely to go in liquidation, we do not think that at the stage, we should interfere with the Impugned Order where the Adjudicating Authority took a conscious decision not to dissipate the assets of the Company. As per Section 25 of Insolvency and Bankruptcy Code, 2016, Resolution Professional has duty to preserve and protect the assets of Corporate Debtor including the continued business operations and for the purpose, interim finance can be raised subject to approval of COC. Adjudicating Authority directed that CIR costs should be met by COC. There is nothing wrong in this. 

In the circumstances, we dispose of this Appeal and the Appellant may take further steps in the process before the Adjudicating Authority in terms of the provisions of the IBC. As directed by Adjudicating Authority, it can consider the question of conversion of security in Liquidation stage, if that stage arrives. Appeal is disposed with directions as above. 

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Agarwal Coal Corporation Pvt Ltd. Vs. Sun Paper Mill Ltd.& Anr. - The ‘’Power of Review’’ is a creature of Statute and it is not an ‘inherent power’ as per decision of the Hon’ble Supreme Court in Lily Thomas V. Union of India.

NCLAT (25.10.2021) in Agarwal Coal Corporation Pvt Ltd. Vs. Sun Paper Mill Ltd.& Anr. [Company Appeal (AT)(Ins.) No.412/2019] held that;

• The ‘’Power of Review’’ is a creature of Statute and it is not an ‘inherent power’ as per decision of the Hon’ble Supreme Court in Lily Thomas V. Union of India. 

• “Review” is not an ‘Appeal’ in disguise. In “Review” re-appraisal of materials is impermissible as per decision in Jiura Oraon V. The State of Jharkhand,

• No wonder, a re-appraisal of evidence on record for unearthing an error will amount to an exercise of ‘Appellate Jurisdiction” which is not permitted in Law. A ‘’Review’’ is not to be sought for a ‘Fresh Hearing’ or ‘Arguments’ or ‘Correction of an erroneous view’ taken earlier. 

• To put it precisely, the contentions raised and determined in main proceedings are not to be reopened/re-agitated under the garb of ‘’Review Petition’’ as per decision Sharada Bai V. Padamlal,

• It is the well laid down proposition of law that ‘in the absence of any power of ‘Review’ or ‘Recall’ vested with the ‘Adjudicating Authority’ – ‘Appellate Authority’, an order/ judgment passed by it cannot be either  Reviewed or Recall as opined by this Tribunal.

Excerpts of the order;

The ‘Applicant/Appellant’’ has preferred the instant ‘I.A. No.265/ 2019’ in ‘Comp. App. (AT)(Ins) No.412/2019’ seeking to place on record the submissions relating to the ‘’fraudulent acts’’ of the ‘’Respondents’’ and pray for an exercise of an ‘’inherent power’’ by this Tribunal in allowing the ‘’Application’’.

# 2. Earlier, this Tribunal, in its Judgement dated 16.10.2019 in Comp. App. (AT)(Ins) No.412/2019 (filed by the Appellant/Operational Creditor) at paragraph 10 and 11 had observed the following:-

• “10. The only question arises for consideration is as to how Section 9 application was admitted if the amount is found to be Rs.2173 which is much less than Rupees One Lakh.

• 11. In this regard we may only mention that at the stage of admission of application under Section 9, the Adjudicating Authority is required to notice whether the record is complete and there is a ‘debt’ and ‘default’ as per decision of the Hon’ble Supreme Court in ‘Innoventive Industries Ltd. v. ICICI Bank; (2018) 1 SCC 407). Even if the claim amount is disputed and is more than Rupees One Lakh, it is to be admitted, the Adjudicating Authority is not required to go into the details of verification of the claim which is required to be made by the ‘Resolution Professional’ and therefore, even if some record shows that claim amount is Rupees One Lakh, it is always open to the ‘Resolution Professional’ to collate the claim.” and had not interfered with the impugned order dated 14.03.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench, Chennai) and dismissed the ‘Appeal’ without costs. Applicant/Appellant’s submissions:

# 3. According to the Learned Counsel for the Applicant/Appellant the Respondents had submitted before this Tribunal that the claim amount of the Applicant was verified by the 2nd Respondent, based on the ‘Report’ of one independent Chartered Accountant and on record, the said ‘’Report’’ was also placed. In fact, the said Report provides that all the invoices relating to the year 2013-2014 were paid and a sum of Rs. 2173/- was outstanding. Besides this, the said ‘Report’ mentioned that the 1st Respondent had withheld the payment for the invoices of the year 2012-2013 and for which alleged three ‘Debit Notes’ No.126, 127 and 128 were issued. However, the independent ‘Chartered Accountant’ had not examined the validity of the aforesaid three ‘Debit Notes’ and the purported letter dated 06.07.2013.

# 4. The stand of the Applicant/Appellant is that in order to play ‘Fraud’ for securing favourable order had submitted the cooked up, frivolous ‘Debit Notes’. As a matter of fact, the Applicant at all forum had explained the fraud played by the 1st Respondent (including to the 2nd Respondent). But the 2nd Respondent had not listened to the submissions of the ‘Applicant’, but accepted the erroneous ‘Report’ of the ‘Chartered Accountant’.

# 5. The Learned Counsel for the Applicant points out that the 1st Respondent was engaged in manipulation of ‘Books of Accounts’ by means of fraudulent practices. Apart from this, the alleged custom duty obligation based on which alleged ‘’Debit Notes’’ were purportedly issued was never reported even as the contingent liability in the ‘Audited Financial Accounts’ of the 1st Respondent furnished to the ‘’Ministry of Corporate Affairs’’ for the year 2013-2014 or even thereafter till the last ‘Annual Report’ available on ‘MCA Portal’.

# 6. It is represented on behalf of the Applicant that the independent ‘Chartered Accountant’ and the 2nd Respondent had ignored the aforesaid ‘Annual Financial Statements’ of the 1st Respondent available with Ministry of Corporate Affairs. Apart from this, the Applicant/Appellant has suspicion that the ‘’CIRP’’ in the matter was never conducted in actual and the 2nd Respondent had only attempted to create an illusion, thereby playing fraud. Added further, notwithstanding the moratorium imposed by the Adjudicating Authority on 15.11.2017 under the I&B Code, the Suspended Board had mortgaged the Assets of the 1st Respondent/Company and created ‘’Charge’’ in favour of the ‘’Consortium of Banks’’ consisting of one Bank of Maharashtra (2) Allahabad Bank and (3) Union Bank of India (Charge ID No.100191948) created on 26.8.2018 (coming under the strict moratorium period and during ‘CIRP’) in order to obtain the loan of Rs.1,01,05,00,000/-.

# 7. The Learned Counsel for the Applicant/Appellant submits that the Suspended Board of Directors of the 1st Respondent/Company in violation of law held a Board Meeting on 15.06.2018 at the Registered Office of the 1st Respondent/Company and resolved for mortgaging the land of Respondent No.1 admeasuring 10.10 acres situated at Aralvaimozi, Nagercoil on NH- 4TB (Chennai Nagercoil Highway), Kanyakumari Registration District, Thovalai Taluk, Thovalai Sub-registrar’s Saragam, Aralvaimozhi Village, Tamil Nadu. Indeed, the 2nd Respondent had not objected to the conduct of ‘’Suspended Board of Directors’ and passing of such ‘Resolution’.

# 8. The plea of the Applicant is that one of the Directors of the ‘’Suspended Board of Directors’’ of the 1st Respondent/Company pursuant to the aforesaid Resolution dated 15.06.2018 of the ‘’Suspended Board of Directors’’ had executed the Mortgage Deed dated 28.06.2018 for mortgaging the said land of 1st Respondent.

# 9. The core contention advanced on behalf of the Applicant/Appellant is that the Suspended Board of Directors of 1st Respondent/Company had continued to hold the Management of the affairs of the Company and carried out its functions and decision making process, during the course of CIRP and illegally took each and every decision during CIRP in regard to the 1st Respondent/Company and executed them.

# 10. Further, on behalf of the Applicant, it is brought to the notice of this ‘Tribunal’ that Mr. Pratik Mahendra Mewada, Company Secretary of the 1st Respondent/Company had addressed his resignation letter dated 30.04.2018 to the Suspended Board of Directors of the 1st Respondent/Company, and pursuant to that, the Suspended Board of Directors had conducted an illegal Board Meeting dated 30.04.2018 had considered and allowed the same. Moreover, Mr. Chandrahas Moolya, Member of the Suspended Board of Directors had signed the appointment letter dated 01.06.2018, for the appointment of Ms Kalpana Jhalani as Company Secretary of the 1st Respondent/Company in pursuance to the illegal Board Resolution passed by the Suspended Board of Directors in their illegal Meeting held on 28.05.2018.

# 11. The Learned Counsel for the Applicant proceeds to point out that Ms. Kalpana Jhalani had addressed the resignation letter dated 30.08.2018 to the Suspended Board of Directors of the 1st Respondent/Company and pursuant to this, the Suspended Board of Directors held an illegal Board Meeting on 30.08.2018, considered and allowed the same. Apart from that, Mr. Vaithyalingam Anbalagan, Member, of the Suspended Board of Directors of 1st Respondent/Company filed Form No.DIR-11 at the MCA Portal on 03.08.2018 together with his resignation letter dated 28.07.2018 addressed to the Suspended Board of Directors of 1st Respondent/Company. 

# 12. The pivotal submission made on behalf of the Applicant/Appellant is that ‘Fraud’ vitiates the ‘entire judicial proceedings’ and that if such fraudulent acts of the Respondents are permitted and the order dated 16.10.2019 passed by this Appellate Tribunal is not recalled and if the ‘Appeal’ is not set for ‘Hearing’ it will cause a huge irreparable loss not only to the Applicant but also to the whole structure established through the I&B Code.

# 13. The Learned Counsel for the Applicant/Appellant while rounding up prays for allowing of IA No.265/2019 in Comp App (AT)(Ins) No.412/2019, by this Appellate Tribunal, in exercise of its inherent power, to recall the judgment dated 16.10.2019 passed by this ‘Tribunal’ in Comp App (AT)(Ins) No.412/2019 and to set down the ‘Appeal’ for fair ‘Hearing’ on merits.

First Respondent’s Contentions:

# 14. The Learned Counsel for the 1st Respondent submits that the main Comp App (AT)(Ins) No.412/2019 on the file of National Company Law Appellate Tribunal, New Delhi was disposed of on 16.10.2019 whereby and where under the ‘Appeal’ was dismissed and the same had attained finality, without there being no further proceedings against the order dated 16.10.2019.

# 15. The Learned Counsel for the 1st Respondent contends that the Appellant/Applicant’s original claim before the Resolution Professional was allowed only to an extent of Rs.2173/-, as against the false claim of Rs.2,39,33,935/-. In reality, the Applicant/Appellant had preferred an MA No. 677/2018 on the file of the National Company Law Tribunal, Chennai against the said rejection of its claim and the said MA No.677/2018 was dismissed on 14.03.2019, against which Comp App (AT)(Ins) No.412/2019 was filed by the Appellant/Applicant and the same came to be dismissed on 16.10.2019, resting on the reason that the Applicant’s claim of Rs.2,39,33,935/- was not related to the period of transaction between November, 2013 to February, 2014, and on other grounds, affirmed after going through the ‘Auditors’ Report that Rs. 2173/- was alone payable to the Applicant/Appellant.

# 16. The Learned Counsel for the First Respondent points out that the ‘IBC proceedings’ had culminated in an ‘Approval of the Resolution Plan’ and the same was complied with. Further, throughout the proceedings, the Corporate Debtor was maintained as a ‘going concern’ and the acts as a ‘going concern’ are alleged as fraudulent by way of re-agitation.

# 17. The Learned Counsel for the 1st Respondent refers to the decision of the Hon’ble Supreme Court in K.N. Rajkumar Vs V. Nagarajan and Ors (15.09.2021) reported in MANU/SC/0648/2021 wherein the applicability of the ‘Doctrine of Functus Officio’ to the IBC proceedings was upheld.

# 18. The Learned Counsel for the 1st Respondent points out that after the claim of the Applicant/Appellant was admitted to an extent of Rs.2173/-, MA No.677/2018 and Comp/1/2019 in CP/616/IB/CB/2018 (under Section 425 of the Companies Act, 2013) were filed. In fact, Comp/1/2019 was preferred by the Applicant as regards the purported fraud/contempt which was dismissed by the Adjudicating Authority on 14.3.2019, which had become final.

# 19. The Learned Counsel for the 1st Respondent submits that IA No. 265/2021 in Comp App (AT)((Ins) No.412/2019 filed by the Applicant/Appellant is not maintainable either in ‘Law’ or on ‘Facts’ and’ that the Applicant/Appellant falls back upon the ‘inherent powers’ of the ‘Appellate Tribunal’. Second Respondent’s Pleas

# 20. The Learned Counsel for the 2nd Respondent contends that IA No.265/2019 filed by the Applicant/Appellant is indeed a ‘’Review Applicant’’ which is not maintainable ex facie before this ‘Tribunal’. Also that, the allegations projected in the Application against the 2nd Respondent were earlier dismissed by IBBI.

# 21. The Learned Counsel for the 2nd Respondent submits that the Applicant/Appellant has not preferred any Appeal before the Hon’ble Supreme Court of India as against the order dated 16.10.2019 passed by this Tribunal in Comp App (AT)(Ins) No.412/2019 whereby, the Appeal was dismissed and that the Applicant is indulging in ‘Forum Shopping’ and litigating with an ‘ulterior motive’ and prays for the dismissal of the Application with exemplary costs.

Assessment

# 22. The Applicant/Appellant in IA No.265/2019 in Comp App (AT)(Ins) No.412/2019, has prayed for an exercise of inherent powers by this ‘Tribunal’ and to recall (Simpliciter) of the order dated 16.10.2019 pass by this Tribunal in Comp App (AT)(Ins) No.412/2019, on the ground of ‘Fraud’ played by the Respondents. Apart from this, a relief is sought for by the ‘’Applicant’’ for setting down the Appeal for ‘Hearing’ on its merits, after allowing of the ‘’Application’’.

# 23. It comes to be known that the Applicant/Appellant in IA No. 265/2019 Comp App (AT)(Ins) No.412/2019 on the file of this ‘Tribunal’ has sought (a) the relief to place on record the submissions pertaining to the fraudulent acts of the Respondents, besides other reliefs as mentioned Supra. 

# 24. The Applicant/Appellant has preferred IA No.265/2019 in Comp App (AT)(Ins) No.412/2019 seeking necessary reliefs as referred to earlier obviously under Rule 11 ‘’Inherent Powers’’ of National Company Law Appellate Rules, 2016 (although the relevant Rule was not mentioned by the Applicant/Appellant at the time of filing of the Application). In this connection, it is useful to refer to Rule 11 of NCLAT Rules which runs to the following effect:-

• “11. Inherent powers- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary in meeting the ends of justice or to prevent above of the process of the Appellate Tribunal.”

Ambit of Review:

# 25. It is to be noted, the dictionary meaning of the term ‘Review’ is the act of looking, offer something again with a view to correction or improvement as the case may be. It must be borne in mind that the ‘’Power of Review’’ is a creature of Statute and it is not an ‘inherent power’ as per decision of the Hon’ble Supreme Court in Lily Thomas V. Union of India reported in AIR 2000 Supreme Court Page 1650 at Special Page 1652. In fact, “Review” is not an ‘Appeal’ in disguise. In “Review” re-appraisal of materials is impermissible as per decision in Jiura Oraon V. The State of Jharkhand, 2014 (3)JCR 100 (Jhar).

# 26. Resting upon ‘Review’ the ‘’Tribunal’’ would not rehear the parties on ‘Facts’ and ‘Law. No wonder, a re-appraisal of evidence on record for unearthing an error will amount to an exercise of ‘Appellate Jurisdiction” which is not permitted in Law. A ‘’Review’’ is not to be sought for a ‘Fresh Hearing’ or ‘Arguments’ or ‘Correction of an erroneous view’ taken earlier. To put it precisely, the contentions raised and determined in main proceedings are not to be reopened/re-agitated under the garb of ‘’Review Petition’’ as per decision Sharada Bai V. Padamlal, 2003 All India High Court Cases 1756 (1757) (Andhra Pradesh). Also for correcting an erroneous decision, “Review” will not lie, as opined by this “’Tribunal’’. Further, the Hon’ble Supreme Court in Patel Narshi Thakershi vs. Pradyumansinghji Arjunsinghji reported in AIR 1970 Supreme Court 1273 had observed and held that ‘power of Review’ is not an ‘inherent power’.

Power to Recall

# 27. It is the well laid down proposition of law that ‘in the absence of any power of ‘Review’ or ‘Recall’ vested with the ‘Adjudicating Authority’ – ‘Appellate Authority’, an order/ judgment passed by it cannot be either  Reviewed or Recall as opined by this Tribunal.

# 28. As far as the present case is concerned, it is to be pointed out pertinently that the Applicant/Appellant filed MA No.677/2018 on the file of the National Company Law Tribunal, Chennai against the rejection of its claim. As a matter of fact, before the Resolution Professional the Appellant/Applicant’s claim was permitted to a sum of Rs.2173/- as against the claim of Rs.2,39,33,935/- and that the said MA No.677/2018 came to be dismissed on 14.03.2019, as against the said dismissal order, Comp App (AT)(Ins) No.412/2019 was preferred by the Appellant before this Tribunal, which resulted in dismissal on 16.10.2019.

# 29. It is not in dispute that as against the judgment dated 16.10.2019 in Comp App (AT)(Ins) No.412/2019 (in the matter of Agarwal Coal Corporation Pvt Ltd V Sun Paper Ltd & Anr) passed by this ‘’Appellate Tribunal’’ dismissing the Appeal, the Applicant/Appellant has not preferred an ‘’Appeal’’ to the  Hon’ble Supreme Court of India as per Section 62 of the I&B Code, 2016. Therefore, it is crystalline and clear that the judgment dated 16.10.2019 passed by this Tribunal in Comp. Appl. (AT)(Ins) No.412/2019 between the parties inter se has become ‘conclusive’, ‘final’ and ‘binding’. 

# 30. A mere reading of the contents of IA No.265/2021 in Comp App. (AT)(Ins) 412/2019 indicates latently and patently that although in the preamble it is mentioned as ‘’Recall Application’’ yet it is only an ‘’Application’’ praying for ‘’Review’’ of the Order dated 16.10.2019 passed in Comp App (AT)(Ins) No.412/2019 by this Tribunal, in strict sense of the term.

# 31. It cannot be gainsaid that there is no express provision for ‘’Review’’ under the National Company Law Appellate Tribunal Rules, 2016. Moreover, the Applicant/Appellant cannot fall back upon Rule 11 of the NCLAT Rules, 2016 which provides for “inherent powers’’. In fact, Rule 11 of NCLAT Rules, 2016 is not a substantive Rule which showers any power or jurisdiction upon the ‘’Tribunal’’. Undoubtedly, the ‘Tribunal’’ has no power to perform an act which is prohibited by Law.

# 32. In view of the upshot, this Tribunal taking note of the prime fact that the Applicant/Appellant has sought for “recalling” the judgement dated 16.10.2019 passed by this Appellate Tribunal in Comp App (AT)(Ins) No.412/2019 etc., which is impermissible in Law and that this ‘Tribunal’ is of the earnest opinion that the appropriate course of action open to the Applicant / Appellant is to approach the Hon’ble Supreme Court of India as against the judgement in Comp App (AT)(Ins) No.412/2019 dated 16.10.2019 passed by this “Tribunal” if it so desires/advised. Looking at from that perspective, the I.A. No.265/2019 in Comp App (AT)(Ins) No.412/2019 is devoid of merits and it fails. 

Conclusion:

In fine, the IA No.265/2019 in Comp App (AT)(Ins) No.412/2019 is dismissed. No order as to costs.

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Pawan Putra Securities Pvt. Ltd. Vs. Wearit Global Ltd. - The present I.A. has not been filed to initiate CIRP proceedings against the Corporate Debtor but only to restore the Company Petition. The Company Petition will be dealt with on its merits but at this stage we find it prudent to restore the Company Petition and allow the I.A.

 NCLT Kolkata (24.02.2022) in Pawan Putra Securities Pvt. Ltd. Vs. Wearit Global Ltd.. [I.A. (IB) No. 271/KB/2021 in C.P. (IB) No. 1039/KB/2019] held that;

• The withdrawal had been allowed pursuant to a settlement agreement between the Applicant and the Respondent and in terms of the settlement agreement and not a withdrawal simpliciter. 

• The present I.A. has not been filed to initiate CIRP proceedings against the Corporate Debtor but only to restore the Company Petition. The Company Petition will be dealt with on its merits but at this stage we find it prudent to restore the Company Petition and allow the I.A.

Excerpts of the order;

# 1. This Court convened through video conferencing today.

# 2. The Interlocutory Application i.e. I.A. (IB) No. 271/KB/2021 has been filed by Pawan Putra Securities Private Limited against Wearit Global Limited seeking for the following reliefs:

• a. allow the present application and pass an order reviving/restoration of the Application being CP (IB) No.1039/KB/2019 filed under section 7 of the Insolvency and Bankruptcy Code, 2016 by the Financial Creditor by recalling the order dated 31st January 2020;

• b. pass an order directing the Corporate Debtor to comply with the settlement terms in the interest of justice. Submissions of the learned Authorised Representative of the Applicant

# 3. CP (IB) No.1309/KB/2019 was filed by the Applicant/Financial Creditor under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) against Wearit Global Limited (“Corporate Debtor”) for initiation of Corporate Insolvency Resolution Process (“CIRP”).

# 4. The Financial Creditor and the Corporate Debtor entered into a settlement agreement on 31.01.20201  wherein the Corporate Debtor agreed to pay a sum of ₹1,25,00,000/- (Rupees one crore twenty-five lakh only) to the Financial Creditor by way of RTGS fund transfer in regular instalments from time to  time.

# 5. Pursuant to the settlement agreement, the Company Petition was dismissed on account of settlement terms agreed between the Financial Creditor and Corporate Debtor vide order dated 31.01.2020.

# 6. The Corporate Debtor failed to repay the principal amount of Rs.95,00,0000/- (Rupees ninety-five lakh only) which is outstanding as on 31.12.2019 along with interest amounting to Rs.46,90,830/- (Rupees forty-six lakh ninety thousand eight hundred and thirty only). The Financial Creditor sent a demand letter to the Corporate Debtor on 31.12.2020 demanding the Corporate Debtor to make the payment but no payment was received from the Corporate Debtor.

# 7. In terms of the settlement agreement, the Corporate Debtor had made a payment of ₹30 lakh out of ₹1.25 Crore. The Corporate Debtor still has a due of ₹95 lakh to be paid to the Financial Creditor.

# 8. Clause 6 of the Settlement Agreement states that if the Corporate Debtor fails to repay the loan amount within the scheduled time frame as given in the settlement agreement, then the Applicant would be free to initiate legal proceedings and also claim interest on the loan till the repayment of the full amount.

# 9. The Applicant is entitled to revive the Petition which was dismissed as not pressed in terms of a settlement agreement.

# 10. The learned Authorised Representative placed reliance on the judgment of Hon’ble NCLAT in Ruchita Modi v. Kanchan Ostwan and Ors.2 to support his contention. 

Submissions of Mr Joy Saha, learned Senior Counsel for theRespondent/Corporate Debtor

# 11. No liberty was granted to the Applicant to restore or revive the Company Petition or for filing a fresh application on the same cause of action in the order dated 31.01.2020, wherein CP (IB) No.1039/KB/2019 was disposed as withdrawn on the grounds of settlement. The Company Petition was unconditionally withdrawn and hence the present I.A. is not maintainable.

# 12. Reliance has been placed on Halsbury’s Laws of England, Volume 37, 4th Edition at Page 287 which provides that the settlement or compromise constitutes a new and independent agreement between them made for good consideration. Its effects are to put an end to the proceedings, to preclude the parties from taking any further steps in the action, except where they have provided for liberty to apply to enforce the agreed terms and to supersede the original cause of action altogether.

# 13. Further reliance has been placed on Sarguja Transport Service v. State Transport Appellate Tribunal [(1987) 1 SCC 5 dated 12 November, 1986] ,  in support of his contention that where a petitioner withdraws a petition without permission to institute fresh petition, the remedy under law is deemed to be abandoned by the petitioner. It would not be open to the Petitioner to file a fresh petition under the same cause of action. The law confers upon a man no right or benefit which he does not desire. Whoever waives, abandons, or disclaims a right, will lose it. In order to prevent a litigant from abusing the process of Court by instituting lis on the same cause of action again and again without any good reason leave ought to be sought at the time of withdrawing for filing a petition on the self-same cause of action.

# 14. Reliance is placed on the following in support of the aforementioned contention:

• (1) Jacob Cherian v. K N Cherian  (para 100)[(1973) 43 Comp cases 235 dated 19 August, 1971]

• (2) Rajinder & Ors. v. Harsh Vohra (para 8) [2011 SCC OnLine Del 852 dated 17 February, 2011]

• (3) Kalabati Debi v. Pratapi Debi [MANU/WB/1061/2010 dated 30 June, 2009]

# 15. Proceedings under section 7 and 9 of the Code are not maintainable in respect of a claim arising out of a settlement agreement, as it does not fall within the meaning of section 5(7) and section 5(20) of the Code. Reliance has been placed in:

• (1) Brand Realty Services Ltd. v. Sir John Bakeries India Pvt. Ltd. (para10-14) [C.P. (IB) No. 1677(ND)/2019 dated 22 July, 2020]

• (2) Delhi Control Devices Pvt. Ltd. v. Fedders Electric Engineering Ltd. (para 9,12) [2019 SCC OnLine NCLT 8030 dated 15 May, 2019]

• (3) Nitin Gupta v. International Land Developers Private Limited  (para 9-12)[ C.P. (IB) No. 507/ND/2020 dated 25 June 2020]

• (4) Trafigura India Private Limited v. TDT Copper Limited (para 10-15) [C.P.(IB) No. 2817/ND/2019 dated 15 July 2020]

• (5) Amrit Kumar Agarwal v. Tempo Appliances Pvt. Ltd.  (para 4) [C.A. (AT) (Ins.) No. 1005 of 2020 dated 25 November 2020] wherein the Hon’ble NCLAT held that a mere obligation to pay does not bring the liability within the ambit of “financial debt”. The debt, along with interest, if any, should be disbursed against the consideration for the time value of money, breach of terms of an agreement including a settlement agreement whereunder payment would be due may not fall within the ambit of section 5(8) of the Code.

• (6) The Hon’ble NCLAT in Ashok Agarwal v. Amitex Polymers (paras 2, 25 and 26)[ C.A. (AT) (Ins.) No. 608 of 2020 dated 05 February 2021] repeatedly held that a claim arising out of a settlement or agreement does not fall within the definition of Financial Creditor or Operational Creditor.

# 16. The Applicant has come before this Adjudicating Authority for recovery of money and not for revival of the Corporate Debtor and the Code has been enacted to revive the Corporate Debtor by protecting it and not a recovery mechanism as held in Swiss Ribbons Private Limited v. Union of India [(2019) 4 SCC 17 dated 25 January 2019]  bythe Hon’ble Supreme Court.

Reply to the submissions of the Respondent

# 17. The Authorised Representative relied on Jai Balaji Industries Limited v. BST Infratech Limited [C.P. (IB) No. 911/KB/2020 dated 03.11.2021] wherein this Adjudicating Authority has restored the Company Petition which was withdrawn without leave to file again.

Analysis and Findings

# 18. The main contention raised by the learned Senior Counsel appearing on behalf of the Respondent is whether a proceeding that has been withdrawn without leave to revive the proceeding, can be restored.

# 19. On perusal of the order dated 31 January, 2020, liberty was not sought to restore the Petition in case the settlement failed on the day the withdrawal was prayed for. The withdrawal had been allowed pursuant to a settlement agreement between the Applicant and the Respondent and in terms of the settlement agreement and not a withdrawal simpliciter. Allowing such a contention that a petition cannot be revived if no liberty/leave of the Court has been sought, would cause injustice to a creditor who has diligently exercised his rights and filed the Company Petition and thereafter this restoration petition.

# 20. The second issue raised is whether a settlement agreement can constitute a financial debt or an operational debt.

# 21. Mr. Joy Saha, learned Senior Counsel has relied on several judgments in support of his contention that settlement agreement is not a financial debt or an operational debt. It is a well settled proposition but the main criteria which is to be considered is: “whether the section 7 or section 9 petition is being filed on the basis of the settlement agreement or with respect to loan or services provided.”

# 22. But the proposition has to be considered along with the facts of the each case in which the proposition was given. In Brand Realty Services supra the Operational Creditor had filed the section 9 petition for default in payment with respect to the settlement agreement and not invoices. Similarly, Delhi Control Devices supra, the Operational Creditor therein had withdrawn the notice sent under section 8 of the Code in terms of the settlement agreement and had later filed a petition under section 9 of the Code without sending a demand notice under section 8 of the Code.

# 23. The fact in the present I.A. is for restoration of the main Company Petition that was originally filed for default in payment of Inter Corporate Deposit and not for default in a settlement agreement. The present I.A. has not been filed to initiate CIRP proceedings against the Corporate Debtor but only to restore the Company Petition. The Company Petition will be dealt with on its merits but at this stage we find it prudent to restore the Company Petition and allow the I.A.

# 24. It is also to be noted that we are allowing only prayer “a” that has been sought for in the I.A. and not prayer “b”. This Adjudicating Authority is not a recovery Court and should not be treated as one either.

# 25. Hence, the I.A. 271/KB/2021 is allowed to the extent of prayer “a” alone, and C.P. (IB) No. 1039/KB/2019 is restored to the stage at which it was withdrawn.

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Syndicate Bank vs Channaveerappa Beleri & Ors. - Continuing Guarantee & Co-extensive Liability

The question here is whether the guarantor is liable for the actions of the principal borrower after the invocation of the continuing guarantee. On invocation of guarantee, the contract of guarantee attains the finality and the liabilities and obligations of the guarantor stands defined & fixed, as on the date of invocation of the continuing guarantee & the aspect of limitation to sue the principal borrower and / or the guarantor gets delinked & thus have to be viewed separately.

Supreme Court of India (10.04.2006) in Syndicate Bank vs Channaveerappa Beleri & Ors. [Appeal (civil) 6894 of 1997] held that;

# 9. A guarantor's liability depends upon the terms of his contract. A 'continuing guarantee' is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.

 

# 11. But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.

 

# 13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank 'on demand'. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is 'broken'. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor.

 

# 14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful :

• Let us say that a creditor makes some advances to a borrower between 10.4.1991 and 1.6.1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1.4.1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1.3.1993. Though the limitation against the principal debtor may expire on 1.6.1994, as the demand was made on 1.3.1993 when the claim was 'live' against the principal debtor, the limitation as against the guarantor would be 3 years from 1.3.1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1.6.1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15.9.1994 would not be valid or enforceable.

• Be that as it may.

 

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Mr. Aashish Kadam & Anr. Vs. Nagpur Nagarik Sahakari Bank Ltd. & Anr. - Even if the facility agreement was not stamped, there was other materials on the record which clearly prove the financial debt which was owed by the Appellant, hence, we do not find any error in the order of the Adjudicating Authority admitting the Application under Section 7.

NCLAT (21.04.2022) in Mr. Aashish Kadam & Anr. Vs. Nagpur Nagarik Sahakari Bank Ltd. & Anr. [Comp. App. (AT) (Ins.) No. 355 of 2022] held that;

• Even if the facility agreement was not stamped, there was other materials on the record which clearly prove the financial debt which was owed by the Appellant, hence, we do not find any error in the order of the Adjudicating Authority admitting the Application under Section 7.

Excerpts of the order;

21.04.2022: This Appeal has been filed against the order dated 15.03.2022 passed in C.P No.73/(IB)-MB-V/2021 by which order the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, has admitted the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code” for short) filed by the Financial Creditor-‘Nagpur Nagarik Sahakari Bank Ltd.’.

 

# 2. When this Appeal was taken on 01.04.2022, Learned Counsel for the Appellant stated that he is ready and willing to make the payment of Rs.7,66,00,000/- by Monday and further adjournment was taken on 06.04.2022 to endeavor the Appellant to make the payment.

 

# 3. Today, when the matter was taken, Learned Counsel for the Appellant submits that he was not able to make the payment as noted in the orders passed by this Tribunal.

 

# 4. Learned Counsel for the Appellant proceeded to argue the Appeal on merits. The submission which has been raised by Shri Shikhil Suri is that the document by which Secured Cash Credit Facility was extended to the Corporate Debtor is not a stamped and on account of document having not been stamped, the said document could not have been relied on in passing of the order in Application under Section 7.

 

# 5. We have perused the impugned order. In para 7 of the impugned order, document executed by the Corporate Debtor has been noticed. One of the facts which has been noticed is that present is a case of mortgage by deposit of title deed. Even if the facility agreement was not stamped, there was other materials on the record which clearly prove the financial debt which was owed by the Appellant, hence, we do not find any error in the order of the Adjudicating Authority admitting the Application under Section 7. We, thus, are of the view that there is no merit in the Appeal and Appeal deserves to be dismissed.

 

# 6. Learned Counsel for the Appellant lastly contended that an opportunity of two weeks’ more be granted to enable the Appellant to make the payment of Rs. Rs.7,66,00,000/- as was noticed in the order dated 01.04.2022.

 

# 7. We are of the view that in event, the Appellant is able to make the payment within two weeks from today, it will be open for the Appellant to make an Application before the Adjudicating Authority who shall pass appropriate order on the said Application, if settlement, if any takes place. We further observe that in the event the payment is not made as directed, after two weeks the Committee of Creditors shall be constituted. If settlement is made, the Application submitted by the Appellant shall be considered by the Adjudicating Authority in accordance with the law.

 

# 8. With these observations, the Appeal is dismissed.

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