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Judgment
[Per.: Dr. Alok Srivastava, Member (Technical)]
The Present Appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (in short “IBC”) by the Appellant who is aggrieved by the Order dated 23.07.2021 (in short “Impugned Order”) passed by the Adjudicating Authority (NCLT, New Delhi) in IA No. 739(ND)/2021 in CP (IB) No. 2356(ND)/2019, filed by the appellant under section 65 read with section 60(5) of the IBC.
The Appellant has assailed the Impugned Order on the ground that the Adjudicating Authority has refused to allow the Appellant to intervene and participate in the proceedings of CP (IB) No. 2356(ND)/2019 wherein the Appellant had contended that since the section 9 application for initiating Corporate Insolvency Resolution Process (in short “CIRP”) against the M/s Ascot Projects Private Limited (in short “Ascot”) was filed fraudulently and with malicious intention to defeat the ongoing CIRP of M/s Intellicity Business Park Ltd. whose resolution plan was approved by the Committee of Creditors (in short “CoC”) in July 2020 and is pending approval before the Adjudicating Authority.
The Appellant is a society of unit buyers in the project of M/s Intellicity Business Park Ltd. (in short “Intellicity Business Park”). The Appellant has submitted that the Respondent No.1 in the Appeal, which is the Corporate Debtor M/s Ascot Projects Pvt. Ltd., is a wholly owned subsidiary of the Respondent No.3 – M/s Intellicity Business Park Ltd., which is holding 99.94% shares of M/s Ascot Projects Pvt. Ltd. and the land on which the project of M/s Intellicity Business Park Ltd. is being developed has been given on lease to M/s Ascot Projects Pvt. Ltd. by Greater Noida Industrial Development Authority (in short “GNIDA”). He has further submitted that M/s Intellicity Business Park Ltd. as corporate debtor in another case, is undergoing a separate CIRP since 27.05.2019 pursuant to admission of an application under section 7 of the IBC, being CP No. IB-17(ND)/2019, and wherein Respondent No. 4 - M/s SSR Townships Private Limited, the resolution applicant has submitted a resolution plan which has been approved by the CoC and is pending approval of the Adjudicating Authority. The Appellant has further submitted that it is a society of unit buyers of M/s Intellicity Business Park Ltd. and the successful resolution of M/s Intellicity Business Park Ltd. is intricately connected with the land which is held in lease by M/s Ascot Projects Pvt. Ltd., and therefore a separate CIRP of M/s Ascot Projects Pvt. Ltd. will cause unnecessary complication in the successful resolution of M/s Intellicity Business Park Ltd. and would be detrimental to the interest of the Appellant whose members have been allotted units in the M/s Intellicity Business Park Ltd.
The Appellant has further submitted that an application under section 7 of the IBC was filed fraudulently and with malicious intent to put spanner in the successful resolution of the corporate debtor M/s Intellicity Business Park Ltd. by the Respondent No.2 - M/s Airwil Infra Ltd. (in short “Airwil Infra”) which is an entity belonging to the same group to which M/s Intellicity Business Park Ltd. and M/s Ascot Projects Pvt. Ltd. also belong.
The Appellant has further submitted that the Directors of Ascot were appointed by the ex-directors of Intellicity Business Park and they have in collusion entered a sham settlement on account of some alleged financial loan, leading of issuing of post-dated cheques in favour of Airwil Infra, and the filing section 7 application against Ascot Projects after these cheques were dishonoured. The Appellant has thus contended that the action of the Directors of Airwil Infra falls squarely within the ambit of section 65 of IBC. He has stated that the Appellant had requested the Resolution Professional of Intellicity Business Park to apprise the aforesaid facts to the Learned Adjudicating Authority who is considering the Section 7 Application CP (IB) No. 2356(ND)/2019 relating to Ascot Projects Pvt. Ltd. but the Resolution Professional of Intellicity Business Park did not take any step regarding the same, and therefore the Appellant by filing Intervention Application No. 739(ND)/2021 has sought to intervene in the matter in order to bring to the knowledge of the Adjudicating Authority the fraud being played by Ascot Projects and Airwil Infra in collusion to defeat the successful resolution of Intellicity Business Park, in which the members of the Appellant have intimate interest.
The Appellant has further stated that despite considering the facts and allegations made in IA No. 739(ND)/2021 by which it had sought permission to intervene in Section 7 application against Ascot Projects, the Adjudicating Authority has, merely on the ground that a “third person” is not a necessary party in Section 7 proceedings, rejected the application and dismissed IA No. 739(ND)/2021.
We have heard the arguments advanced by the learned counsels for the rival parties and also perused the record with able assistance from the learned counsels.
It is noted that Respondents No. 5, 6 and 7, namely Mr. Sanjay Kumar, Mr. Manoj Kumar Chaudhary and Mr. Kamal Aggarwal, who are ex-directors of Intellicity Business Park have not appeared to argue their case before the Bench, and therefore, the hearing took place ex-parte against these respondents.
The Learned Counsel for the Appellant has submitted that Intellicity Business Park, Ascot Projects and Airwil Infra are companies that are part of the same group of companies. He has further submitted that after admission of an application under section 7, CIRP was initiated with respect to the corporate debtor Intellicity Business Park and a resolution plan proposed by Respondent No.4 - M/s SSR Townships Private Limited was approved by the CoC which is pending before the Learned Adjudicating Authority for approval. He has further submitted that M/s Ascot Projects Pvt. Ltd. is a wholly owned subsidiary of M/s Intellicity Business Park Ltd. which owns 99.94% shares of M/s Ascot Projects Pvt. Ltd.
The Learned Counsel for Appellant has brought to our attention the fact that the project Intellicity Business Park is being developed by Respondent No.3 company on land which is held in lease given by GNIDA to M/s Ascot Projects Pvt. Ltd. and therefore the success of the proposed resolution plan with respect to Intellicity Business Park is very intricately linked with the company M/s Ascot Projects Pvt. Ltd. He has further argued that in the resolution plan of Intellicity Business Park submitted by Respondent No.4, the merger of M/s Ascot Projects Pvt. Ltd. and M/s Intellicity Business Park Ltd. has been proposed, whereby the land held in lease by Ascot Projects shall be transferred to Intellicity Business Park to ensure smooth construction and completion of the project, thereby protecting the interest of all the homebuyers / financial creditors.
The Learned Counsel for the Appellant has further brought to our attention that the ex-directors of M/s Intellicity Business Park Ltd. have appointed the directors of M/s Ascot Projects Pvt. Ltd., and these ex-directors have been arrayed as Respondents No. 5, 6 and 7 in the present Appeal have chosen not appear and argue their case in appeal. He has further contended that as directors of M/s Ascot Projects Pvt. Ltd. were appointed by the ex-directors of Intellicity Business Park, they were well aware of the proposed resolution plan for Intellicity Business Park. He has further claimed that the directors of M/s Ascot Projects Pvt. Ltd. have entered into a sham settlement with another group company M/s Airwil Infra Ltd. and as a consequence of the settlement, Ascot Projects had issued post-dated cheques in favour of M/s Airwil Infra Ltd. with the knowledge that the cheques will get dishonoured, thereby petition under section 7 application against Ascot Projects was revived and thus a fraud has been played the financial creditors and homebuyers of company Intellicity Business Park. He has claimed that such an action by Airwil Infra of filing a section 7 application against Ascot Projects has been done with intention to defraud the unit buyers and creditors of Intellicity Business Park, which fact was communicated to the Resolution Professional of Intellicity Business Park to bring it to the knowledge of the Adjudicating Authority considering the section 7 application regarding M/s Ascot Projects Pvt. Ltd., which unfortunately was not done by the Resolution Professional and therefore, the Appellant was forced to file intervention application being IA No. 739(ND)/2021, wherein the impugned order came to be passed rejecting the prayer in the said application.
The Learned Counsel for the Appellant has cited the judgment dated 18.02.2020 of Hon’ble Supreme Court in the matter of Beacon Trusteeship Limited Vs. Earthcon Infracon Private Limited & Anr. (Civil Appeal No.7641 of 2019), wherein it was held that in case an allegation regarding fraud is raised in a proceeding before the NCLT, then in view of the provision of section 65 of the IBC the Adjudicating Authority has to deal with the said application in accordance with law. The Learned Counsel for Appellant has contended that in view of this order of Hon’ble Supreme Court, the Appellant should have been allowed to intervene and participate in the proceedings relating to the application under Section 7 filed with regard to the corporate debtor M/s Ascot Projects Pvt. Ltd.
In reply, the Learned Counsels for the Respondents No. 1, 3 and 4 while supporting the stand of the appellant, have submitted that it would be fit and proper for the appeal to be allowed and the appellant permitted to intervene and participate in the Section 7 application under consideration of the Adjudicating Authority.
It is noted that the CIRP of Intellicity Business Park as corporate debtor was initiated on 27.05.2019 after admission of a section 7 application of the IBC. It is also noted that the proposed resolution plan in respect of Intellicity Business Park has been filed by Respondent No.4 - M/s SSR Townships Private Limited, which is pending approval of the Adjudicating Authority after being approved by the CoC. It is also noted that the land obtained on lease by M/s Ascot Projects Pvt. Ltd. from GNIDA is the land on which the project Intellicity Business Park is being developed and which is included in the proposed resolution plan filed by Respondent No.4 for insolvency resolution of M/s Intellicity Business Park Ltd. It is also noted that the proposed resolution plan of Intellicity Business Park includes merger of Ascot Projects Pvt. Ltd. with its holding company Intellicity Business Park.
It, therefore, stands to reason that admission of Section 7 application against M/s Ascot Projects Pvt. Ltd. and initiation of a separate CIRP would create hurdle in the full and proper implementation of the proposed resolution plan of Intellicity Business Park filed by the Respondent No.4 once it is approved by the Adjudicating Authority. It also cannot be denied that the interest of the unit buyers and creditors of Intellicity Business Park is intricately and closely linked with the land which is held in lease by company M/s Ascot Projects Pvt. Ltd. Therefore the continuation of Ascot Projects Pvt. Ltd. as a financially healthy and viable company is a necessity for successful insolvency resolution of Intellicity Business Park.
We also note that issue of alleged fraud in the filing of Section 7 application against Ascot Projects was brought to the notice of the Adjudicating Authority through IA No. 739(ND)/2021 (attached at pp 42-56 of appeal paper book), which was filed under Sections 60(5) and 65 of the IBC. A perusal of the application makes it clear that the Appellant Airwil Intellicity Social Welfare Society had pleaded the matter relating to alleged fraud being played by Airwil Infra Ltd. on the unit holders and creditors of M/s Intellicity Business Park Ltd. and also the collusion of its ex-directors Mr. Sanjay Kumar, Mr. Manoj Kumar Chaudhary and Mr. Kamal Aggarwal (who are the current directors of M/s Airwil Infra Ltd.) in this regard.
We note and follow the judgment of Hon’ble Supreme Court in the matter of Beacon Trusteeship Limited (supra), cited by the Learned Counsel for the Appellant, wherein the following is observed:
“5.Mr. Gopal Jain, learned senior counsel appearing on behalf of the appellant raised manifold submissions that as per agreement it was necessary to give notice to the appellant before initiating the proceedings before the NCLT which was not given. The three invoices on the basis of which the proceedings have been initiated are vague and prima facie proceedings have been initiated in collusive manner by Respondent Nos. 1 and 2. Reliance has been placed on the provisions contained in Section 65 of the IBC and a decision of this Court in Embassy Property Development Pvt. Ltd. v. State of Karnataka and Others, (2019) SCC Online SC 1542 (C.A. No.9170/2019 etc. decided on 03.12.2019), in which this Court has observed as under:-
“52.Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors. Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently “for any purpose other than for the resolution of insolvency or liquidation”.”
6.We have also heard learned counsel for the IRP and Respondent No.2. It was submitted by the learned counsel appearing for Respondent No.2 that allegation of collusion is unfounded and has no merit. Learned counsel appearing for the IRP has stated that this aspect has to be considered by the IRP, whether the proceedings have been initiated in collusion or not while submitting a report to the Adjudicating Authority. The provisions contained in Section 65 of the IBC are extracted hereunder:-
“65.Fraudulent or malicious initiation of proceedings. - (1) if, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees.”
7.Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority.
8.In case, a proper application is filed, aspect whether the proceedings have been initiated in collusive manner will be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case. We have made it clear that we have not commented on the merit of the case. We set aside the impugned order passed by the NCLAT and dispose of the appeal in accordance with the aforesaid direction.”
We also note that the Hon’ble Supreme Court in the matter of State of A.P. and Anr. Vs. T. Suryachandra Rao (2005 (6) SCC 149) has held as follows regarding fraud:
““Fraud" as is well known vitiates every solemn act. Fraud and justice never dwell together. Fraud is a conduct either by letter or words, which includes the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter. It is also well settled that misrepresentation itself amounts to fraud. Indeed, innocent misrepresentation may also give reason to claim relief against fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by willfully or recklessly causing him to believe and act on falsehood. It is a fraud in law if a party makes representations, which he knows to be false, and injury enures therefrom although the motive from which the representations proceeded may not have been bad. An act of fraud on court is always viewed seriously. A collusion or conspiracy with a view to deprive the rights of the others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous……”
In the light of the above, we are of the considered view that when an allegation of fraud being played on the financial creditors and unit buyers of Intellicity Business Park was brought to the notice of the Adjudicating Authority through IA No. 739(ND)/2021 when it was considering section 7 application CP (IB) No. 2356(ND)/2019 with regard to corporate debtor Ascot Projects it ought to have been taken note of by the Adjudicating Authority and the Appellant should have been provided an opportunity to present its case in the Section 7 proceedings of M/s Ascot Projects Pvt. Ltd. in view of the requirement of natural justice and to avoid miscarriage of justice to the Appellant who could have been adversely affected by the admission of section 7 application. We are conscious of the fact that a CIRP initiated through fraud and malicious intent would be a nullity before law.
Hence we are therefore of the clear opinion that the Adjudicating Authority should have allowed IA No. 739(ND)/2021 and permitted the Appellant to intervene and participate in the Section 7 proceedings with relation to the corporate debtor M/s Ascot Projects Pvt. Ltd. This was necessary to avoid miscarriage of justice and would have allowed the Appellant to substantiate its allegation regarding ground as pleaded in IA No. 739(ND)/2021.
In view of the above discussion, we find that the impugned order is erroneous and we therefore set aside the impugned order and allow the Appeal, thereby permitting the Appellant to intervene and participate in the proceedings relating to CP (IB) No. 2356(ND)/2019 under consideration of the Adjudicating Authority.
In the facts and circumstances of the case, there is no order regarding costs.