NCLAT(31.01.2023) In Nileshbhai Shantilal Patel Vs. Westin Resins and Ploymers Pvt. Ltd. & Anr. [Comp. App. (AT) (Ins) No. 627 of 2022 & IA No.4706 of 2022] held that;
A close scrutiny of the aforesaid provision would show, firstly, that it relates to the Corporate Debtor and not to the Operational Creditor and secondly the Appellant was to lead evidence that the Director, Partner or Manager was accustomed to act on the directions or instructions of the said IP. Therefore, in our considered opinion, Section 5(24)(h) of the Code is not at all applicable to the facts and circumstances of the present case and thus the arguments raised in this regard, is hereby rejected.
Excerpts of the order;
31.01.2023: This appeal is directed against the order dated 11.05.2022, passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Ahmedabad Bench, Court -I), by which an application bearing No. CP(IB) 249 of 2020 filed by ‘Westin Resins and Polymers Pvt. Ltd.’ (Operational Creditor), under Section 9 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’), has been allowed and ‘Corporate Insolvency Resolution Process’ (CIRP) proceedings against ‘Balaji Fiber Reinforce Pvt. Ltd.’ (Corporate Debtor), has been admitted.
# 2. The facts in brief are that the Respondent initiated proceedings in terms of Section 8 of the Code by issuance of a ‘Demand Notice’ upon the Appellant of an amount of Rs.2,92,54,415/- towards the principal and interest. The said ‘Demand Notice’ was served through Jignesh Ajit Ganatra an ‘Insolvency Professional’. It was followed by the Application filed under section 9 of the Code which was admitted on 11.05.2022.
# 3. Counsel for the Appellant has submitted that the ‘Demand Notice’ was defective because it was sent by Jignesh Ajit Ganatra, who was subsequently appointed as IRP by the impugned order and the said IRP was a related party in terms of Section 5(24)(h) of the Code. It is also submitted that the principal amount has already been paid in May, 2022 to the tune of Rs. 1,95, 98,791/- and only the interest component is remaining for which the application filed under Section 9 of the Code cannot be maintained and in this regard he has referred to the followings decisions:-Steel India V. Thems Developers (P) Ltd., 2020 SCC Online NCLAT 200, Krishna Enterprises Vs. Gammon India Ltd. 2018 SCC OnLine NCLAT 360 & Wanbury Ltd. V. Panacea Biotech Ltd., 2017 SCC OnLine NCLAT 475
# 4. It is further submitted that at the time of preliminary hearing, this Tribunal had stayed the constitution of ‘Committee of Creditors’ (CoC), if not already constituted, on the premise that the Appellant is ready willing to pay the remaining amount of interest for which the Appellant had been making all efforts and had also in talks with the Union of Bank of India.
# 5. On the other hand, in para 5 of the reply, the Respondent has categorically denied its relationship with the IRP who had served the notice. However, admittedly the amount of interest is still due which is yet to be paid by the Appellant. The issue which has been raised for our consideration in this appeal as to whether the IRP who had served the notice under Section 8 of the Code is a related party in terms of Section 5(24)(h) of the Code? In order to answer this question, it would be relevant to refer to Section 5(24)(h) of the Code which read thus:
“Section 5(24(h) – any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act”
# 6. A close scrutiny of the aforesaid provision would show, firstly, that it relates to the Corporate Debtor and not to the Operational Creditor and secondly the Appellant was to lead evidence that the Director, Partner or Manager was accustomed to act on the directions or instructions of the said IP. Therefore, in our considered opinion, Section 5(24)(h) of the Code is not at all applicable to the facts and circumstances of the present case and thus the arguments raised in this regard, is hereby rejected. Since, we are dictating the order in the court, Sr. counsel for the Appellant has then referred to Section 5(24-A)(h) of the Code to submit that the related party in relation to an individual should also be looked into in regard to Section 5(24-A)(h). We have also referred to that provision but the same is not applicable because the dispute is between two corporate entities and not in respect of the individuals.
# 7. The second argument of Counsel for the Appellant is that the application under section 9 of the Code cannot proceed in view of fact that the principal amount has already been paid and only the component of interest is remaining and, therefore, in view of decisions in Steel India, Krishna Enterprises & Wanbury Ltd (supra), the application cannot proceed.
# 8. In our considered opinion, this argument is totally misconceived because it is to be seen at the time of the threshold when the application is filed under Section 9 of the Code as to whether it is pertaining only to the component of interest. The decision relied upon by the Counsel for the Appellant are not applicable and, therefore, the second contention is also hereby rejected.
# 9. The last contention of the Appellant which was noticed by this Court at the time of preliminary hearing, is reproduced as under:
“02.06.2022: Learned Counsel for the Appellant submits that after the passing of the Order on 11th May, 2022 admitting the Section 9 Application, the Appellant has made payment of Rs. 1,95,98,791/- in the month of May, 2022 itself. Learned Counsel for the Appellant submits that the principal has been paid only little amount regarding the Interest is due and Appellant is hopeful that the issues shall be settled with the Operational Creditor in a short period.
2. Learned Counsel for the Respondent is also present. He may obtain instructions. Let the Reply be filed by the Respondents within three weeks. Rejoinder, if any, may be filed within two weeks, thereafter.
3. List this Appeal on 19th July, 2022. In the meantime, in pursuance of the Impugned Order passed by the Adjudicating Authority dated 11th May, 2022, ‘Committee of Creditors’ shall not be constituted, if not already constituted.”
# 10. It is pertinent to mention that this court was of the view that in order to help the Corporate Debtor to remain a going concern, some time be provided to the Corporate Debtor for the purpose of settling its ‘debts’ before the CoC is constituted but despite taking so many dates and even on 06.01.2023, a specific order was passed but the Appellant has failed to consolidate funds for the purpose of discharging his liability not only towards the Respondent who is the Operational Creditor but also towards various Interveners who had filed applications during the pendency of this Appeal.
# 11. Counsel appearing on behalf of ‘Union Bank of India’ has categorically stated before us that as per her instructions, there is no likelihood of raising of funds by the Appellant at the behest of Union Bank of India, therefore, we are of the considered opinion that the Appellant has failed even to pay the remaining debt of the Respondent as also the Interveners and is only prolonging this litigation for availing time.
# 12. No other point has been raised.
# 13. In view of the aforesaid facts and circumstances of the case, we do not find any merit in the present appeal and the same is hereby dismissed. All applications, filed during the pendency of this appeal, are hereby disposed of. No order as to costs.
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