Entegra Limited vs Shree Maheshwar Hydel Power Corporation Limited & Ors.

The case is fixed for pronouncement of order. The order is pronounced in open Court vide separate sheet. List the main matter TP 258 of 2019 [CP(IB) 111 of 2018] on 20.10.2023.

The present Interlocutory Application No. 9/2023 is filed under Section 60(5) of Insolvency and Bankruptcy Code, 2016 (‘Code’) read with Rule 11 of NCLT Rules 2016 by Entegra Limited through its authorized representative Mr. Punit Jain seeking the direction to remove the respondent No. 2 Mr. Apoorv Sarvaria as Resolution Professional of respondent No. 1 Company Shri Maheshwar Hydel Power Corporation Limited and to re-constitute the Committee of Creditors (CoC) of respondent No. 1 Company by inclusion of the claim of the applicant i.e. Entegra Limited and by removal of the respondent Nos. 4 to 7 i.e. Power Finance Corporation Limited (PFC), Rural Electrification Corporation Limited (RECL), IFCI Limited (IFCI), Housing and Urban Corporation Development Limited (HUDCO) having voting share of 44.62%, 14.81%, 1.17% & 18.86% respectively from the CoC. The other prayers are for declaring that all resolutions passed by the illegally and wrongly constituted CoC stands non-est in law and also for issuing notices of meeting of CoC to all participants including the applicant etc.

The matter relates to the CIRP proceedings initiated on admission of Section 7 petition filed by the respondent No. 4 Power Finance Corporation Limited (PFC) against the respondent No. 1 Company Shri Maheshwar Hydel Power Corporation Limited (SMHPCL) which was admitted into CIRP by the Adjudicating Authority vide order dated 27.09.2022. The respondent No. 2 Mr. Apoorv Sarvaria was appointed then as Interim Resolution Professional (IRP) by this Adjudicating Authority vide order dated 30.09.2022.

On perusal of the record, it is noted that the issue raised in the application was considered by the Adjudicating Authority during the course of hearing on 03.03.2023 and following that vide order dated 17.03.2023 the matter was listed for further consideration on 11.05.2023 while directing the RP to keep on hold the CIRP of the Corporate Debtor till then. The relevant part of the said order is reproduced here as under:-

The said order dated 17.03.2023 was however, appealed by the CoC (through PFC) and others before the National Company Law Appellate Tribunal in Company Appeal (AT) (INS) No. 480 of 2023. The Hon’ble NCLAT vide its order dated 17.07.2023 quashed that order only to the extent the direction issued to RP to keep on hold the CIRP of the Corporate Debtor till next date and further directed the Adjudicating Authority to decide the application on 20.07.2023, the date on which the matter was already listed for hearing. It was also mentioned in that order, that in case it was found difficult to decide the same on that date due to some reasons, then it shall decide the same within a period of one week thereafter. For ready reference the content of the said order dated 17.07.2023 is reproduced hereunder:-

He has also referred to Ground GGG of the grounds of appeal, which read as under:

He has then referred to the application for stay which is filed along with main appeal against the order of admission and has referred to para 8 (a) which read as under:

He has also referred to prayer made in the application for stay which is contained in para 14(c). The said prayer is as under:

Counsel for the Appellant has then referred to his reply filed to the Application bearing IA No. 9 of 2023 before the Adjudicating Authority, the averment made in para 5 of the said reply, which read as under:

It is submitted by Counsel for the Appellant that despite the fact that this Tribunal is already seized of the issue involved in regard to applicability of Section 21 of the Code which has been highlighted in the grounds of appeal and in the reply to the application, the Appellant categorically averred that not only the appeal against the admission order is pending before this Tribunal but also stay prayed for with the application, has not been categorically granted rather it has been ordered that “Any action in pursuance of the Impugned Order dated 27.09.2022 shall abide by the result of the Appeal” but despite that the Adjudicating Authority did not refer to the said order in the impugned order and decided to deliberate on the issue of the applicability of Section 21(1) & 21(2) of the Code and directed the RP to keep on hold the CIRP of the Corporate Debtor till then, which is stated to be against the tenets of judicial discipline on the part of the Adjudicating Authority. He has, thus, prayed that the impugned order much less the order by which the RP has been directed to keep on hold the CIRP proceedings may be set aside.

In response, Counsel for the Respondent No.1/Applicant has admitted

Counsel for Respondent No.1/Applicant has also argued that it is not an absolute order passed by the Adjudicating Authority on 17.03.2023 because the said order was further diluted on 19.05.2023 to the extent that the RP may make the payment of security of the Corporate Debtor. He has further argued that issue of Section 21 of the Code could not have been an issue in the Appeal which has been filed against the order of admission and could have been raised by way of separate application which has rightly been done by the Respondent. He has further argued that in any case, the main application is listed on 20.07.2023 before the Adjudicating Authority 'for argument’ and therefore, instead of passing any order at this stage in respect of the impugned order, it can be deferred till the decision is taken by the Adjudicating Authority, who may be directed to decide the application on same day which has already been fixed for hearing.

We have heard counsel for the parties and perused the record with their able assistance.

The issue involved in this case travels in a narrow compass (i) as to whether the Adjudicating Authority has committed an act of Judicial Indiscipline in not taking into consideration the order passed by this Tribunal while passing the order of stay in the impugned order? (ii) as to whether the Respondent/Applicant is guilty of concealment of facts in respect of pendency of appeal against the order of admission and the order passed by this Tribunal on 21.10.2022 by which the proceedings in respect of CIRP has specifically been not stayed and brought to the notice to the Tribunal while pursuing the application in question?

Since both the issues are inter-connected, therefore, we will decide both the issues together. The facts narrated hereinabove are not in dispute because the facts are borne out from the record itself. Therefore, we are only required to look into the fact as to whether there is a concealment on the part of the Respondent/Applicant in not bringing to the notice of the Adjudicating Authority, in the application bearing IA No. 9 of 2023, about pendency of the appeal against the order of admission as well as the order passed therein by this Tribunal on 21.10.2022. In our considered opinion, keeping in view the decision of Hon’ble Supreme Court rendered in the case of ‘Amar Singh Vs. Union of India’ (2011) 7 SCC 69 decided on 11.05.2011, it is an act of concealment of fact on the part of the Respondent because the Hon’ble Supreme Court has time and again held that a Litigant, when comes to the court has to bring all the facts to the notice of the Court and if some facts which are relevant, are concealed then the Litigant is guilty of concealment of facts.

Having said so, the next question is about the validity of the impugned order in respect of the stay granted by the Adjudicating Authority directing the RP to keep on hold the CIRP of the Corporate Debtor till the next date of hearing despite the fact that this Tribunal did not grant any stay in the appeal which has been filed against the order of admission and had passed categoric order that “Any action in pursuance of the Impugned Order dated 27.09.2022 shall abide by the result of the Appeal”.

In our considered opinion, the word used by this Tribunal that “Any Action” has a wide connotation as it includes any order to be passed in future either by this Tribunal or by the Adjudicating Authority to take into consideration the order passed by this Tribunal otherwise the order dated 21.10.2022 would become otiose.

In view of the aforesaid discussions, having observed that both the ‘Applicant’ and the ‘Adjudicating Authority’ have committed an error at the time when the impugned order was passed, firstly at the instance of the Respondent, concealment of the order passed by this Tribunal on 21.10.2022 and secondly on the part of the Adjudicating Authority while not referring to that order at all in its impugned order though it has been brought to its notice in the reply to the application and only mentioned that an appeal against the order of admission is pending in this Tribunal. Therefore, in such circumstances, the present appeal succeeds and the order passed by the Adjudicating Authority 17.03.2023 is hereby quashed only to the extent that “directed the RP to keep on hold the CIRP of the Corporate Debtor till then”. Since we have been told that the application bearing IA No. 9 of 2023 is now listed for hearing before the Adjudicating Authority on 20.07.2023, therefore, we direct the Adjudicating Authority to decide the same on the date already fixed and in case it is found difficult to decide the same on that date due to some reasons, it shall decide the same within a period of one week thereafter. No order as to costs.”

However, following that on 20.07.2023 and thereafter on 28.07.2023, the matter could not be taken up due to paucity of time. The Indore Bench runs for two days only in a week. Thereafter, detailed hearings were made for 4 days on 03.08.2023, 04.08.2023, 11.08.2023 and 17.08.2023. The learned Senior Counsel Mr. Ramji Srinivasan alongwith learned advocate Mr. Deepak Khurana appeared for respondent No. 3 (CoC) and respondent No. 4 (RFC) whereas learned advocate Mr. Abhishek Puri appeared for the applicant (Entegra Limited). The learned Senior Counsel Mr. Ramji Srinivasan referred the order dated 17.07.2023 of the Hon’ble NCLAT and read the various paras in the order as a whole and took the plea that keeping in view the observation made by the Hon’ble NCLAT in that order, the Adjudicating Authority cannot proceed with in deciding the present application as the issues under challenge, particularly on removal of R-4 to R-7 from the CoC, based on the same ground on which an appeal is filed by the applicant before the Hon’ble NCLAT challenging the admission of Section 7 petition as well as seeking for interim relief for staying the constitution of the CoC on the ground of R-4 to R-7 being related party. The stay was not granted and the appeal is still pending for adjudication. The learned Senior Counsel also repeatedly emphasised the content of Para 15 to 19 of the said order wherein the Hon’ble NCLAT had observed that both the “Applicant” and “Adjudicating Authority” have committed an error at the time when the impugned order dated 17.03.2023 was passed, firstly at the instance of the respondent having concealed the order passed by the Hon’ble NCLAT on 21.10.2022 and secondly on the part of the Adjudicating Authority while not referring to that order at all in the said impugned order though that was brought to its notice in the reply to the application and thereby took the plea that any attempt to hear the mater on merit would mean that the “Adjudicating Authority” would be again violating the direction of the Hon’ble NCLAT.

The learned Senior Counsel Mr. Ramji Srinivasan repeatedly emphasised that the applicant has concealed vital facts while filing the present application. In the context, he submitted that the applicant has failed to disclose the fact of challenging the admission order dated 27.09.2022 wherein one of the ground taken (GGG) is based on the allegation that respondent No. 4 (PFC) is a related party. The learned Senior Counsel also emphasised that in the context of that appeal before the Hon’ble NCLAT, the applicant had also filed an application seeking for stay of the constitution of the CoC, however, no such stay has been given and this fact has also not been mentioned in the application. The learned Senior Counsel has also pointed out that copy of appeal filed by applicant against the admission order alongwith the application for stay before the Hon’ble NCLAT and the order dated 21.10.2022 passed in the said appeal has been enclosed as Annexure A to the reply filed by the respondent No. 3 (CoC) and respondent No. 4 (PFC) to this present application. The learned Senior Counsel also referred to the decision of Hon’ble Supreme Court in the case of “Amar Singh Vs. Union of India & Others” (2011) 7 SCC 69 decided on 11.05.2011 in support of his plea that the application deserves to be dismissed for the reasons of concealment of vital facts alone.

The learned counsel for the applicant, however, submitted that vide aforesaid order dated 17.07.2023, the Hon’ble NCLAT had quashed the NCLT’s order dated 17.03.2023 to the extent of direction given to RP to keep on hold the CIRP till next date only, and had further directed this Adjudicating Authority to decide the application on the date already fixed (20.07.2023) and thereby pleaded for hearing the entire matter on merit. In the context, he referred certain facts of the case. The relevant facts, as highlighted by the learned counsel and/or noted from the records are summarised hereunder:

Following that respondent No. 4 had filed a company petition under Section 241-242 of the Companies Act, 2013 and in that context the NCLT vide its order dated 15.06.2017 (CP No. 15 of 2007) had held that respondent No. 4 was in control of the respondent company. The finding was also confirmed by the Hon’ble NCLAT vide its judgment dated 12.03.2018 [In Company Appeal (AT) 237 of 2017]. The order of the NCLAT was also confirmed by the Hon’ble Supreme Court in its order dated 18.05.2018 (Civil Appeal No. 5028/2018).

On a query as to while filing of an appeal against the admission order, the applicant has directly or indirectly raised the issue of exclusion of R-4 to R-7 from the CoC on the ground of they being related party, the learned counsel for the applicant submitted that the appeal has been filed before the Hon’ble NCLAT primarily challenging the admission order for CIRP under Section 7 of IBC on various grounds including the ground of their being a related party. In the context he referred to the provisions of Section 5 (24), clause (h), (j) & (l). He also fairly conceded that the fact of filing the appeal against the admission order, and stay petition thereon as well as the order dated 21.10.2022 was not mentioned in the present application while seeking for removal of R-4 to R-7 from the CoC, but nevertheless that was inadvertent and also under the bona fide belief that the issue has arisen after subsequent action when the IRP constituted the Committee of Creditors. He also submitted that the issue before the Hon’ble NCLAT was for quashing the admission order and the application for seeking ad-interim ex-parte stay was filed in that context only seeking stay of the operation of the admission order dated 27.09.2022 as well as stay of the constitution of the Committee of Creditors.

We have taken note of the submissions made by the learned counsel from both the sides we have also referred to the relevant records of the present application. We have also taken note of the order dated 21.10.2022 of the Hon’ble NCLAT in respect of the appeal filed by the applicant against the admission order whereby the Hon’ble NCLAT in that matter had ordered for issue of notice and directed to file the reply/affidavit and rejoinder thereon by the respondent parties. We have also taken note of the direction of the Hon’ble NCLAT in that order saying that “Any action in pursuance of the impugned order dated 27.09.2022 shall abide by the result of the appeal”. We have also taken note that the Hon’ble NCLAT have not granted any stay of the admission order dated 27.09.2022 and have also not stayed the formation of CoC. We have also taken note that the stay of constitution of Committee of Creditors under Section 21 was sought on an anticipation that R-4 to R-7 may enter into the CoC. However, the fact remains that at the time of filing the appeal as well as the stay petition before Hon’ble NCLAT, the CoC was not constituted by the IRP. As per Section 21 of the IBC, the IRP is under obligation to collate all the claims received against the Corporate Debtor and to constitute the Committee of Creditors which comprise of all Financial Creditors of the Corporate Debtor. The RP is also expected to examine the applicability of first and second proviso of sub-section 2 of Section 21 as regards exclusion/ inclusion of any related party of the Corporate Debtor. The second proviso thereof spelts out categorically that if a Financial Creditor regulated by a financial sector regulator is found to be a related party of the Corporate Debtor solely on account of conversion or substitution of debt into equity shares then such Financial Creditor shall not be excluded from the CoC. The CIRP is a time bound process. It cannot be kept on suspension on the ground that the applicant has filed any appeal against the admission order. The Hon’ble NCLAT, in any case has made it clear that any action in pursuance of the impugned order dated 27.09.2022 shall abide by the result of the appeal. This means that in a situation where the admission order is reversed then all actions in the CIRP process shall become null & void but if that does not happen then the CIRP is to be conducted in the manner as provided under the Code. The various actions such as collation of claims, constitution of CoC, calling for publication of Form-G calling for expression of interest, obtaining resolution plan, consideration and approval of the resolution plan by the CoC, submission of the application by the RP for approval of the Resolution Plan before the Adjudicating Authority etc. all has to happen as a consequence of initiation of the CIRP. In the process in case of any grievance, the concern party can also approach to the Adjudicating Authority under the provision of Section 60(5) of the IBC. In the present application, the applicant/promoter has filed the application against the decision of the RP as regards constitution of the Committee. The challenge is on the ground that some of the lenders/financial institutions i.e. R-4 to R-7 are related party of the Corporate Debtor and, therefore, cannot be the Member as per the first proviso to sub-section 2 of Section 21 of the IBC.

We also note that the admission order dated 27.09.2022 has been challenged on various grounds. On perusal of the appeal memo filed by the applicant, before the Hon’ble NCLAT (copies placed on record in the reply of the respondent in the present petition), it is noted that the admission order has been challenged on number of grounds as detailed in para 9 clauses A, B…..Z, AA, BB, CC…..ZZ, AAA, BBB…..WWW. In one of the grounds in clause GGG it has challenged the admission order saying that the Hon’ble NCLT and Hon’ble NCLAT in the proceedings under Section 241-242 & 243 of the Companies Act, 2013, that was filed by the respondent No. 4(PFC), have observed that the respondent No. 4 (PFC) was in control of respondent No. 1 company and thereby would fall under the definition of the related party under Section 5(24) of the IBC and thereby, it has taken a plea that respondent No. 4 (PFC) being a related party of the Corporate Debtor was not eligible to file Section 7 petition. On the very same ground that they have also challenged that the respondent No. 4 (PFC) would rather be a corporate applicant within the meaning of Section 5 (5) (d) of the IBC and, therefore, the insolvency application could have been filed by them under the provision of Section 10 of the IBC only and not under Section 7.

Thus, it is the matter of fact that applicant has also challenged the admission order on the ground of R-4 (PFC) being a related party also but then there are a number of other grounds on which the admission order has been challenged. As regards filing of application under Section 7 by any related party Financial Creditor is concerned, we find that there is no such bar in IBC and a related Financial Creditor as well can file the section 7 application. While saying so, we are not deciding this issue in the context on the ground taken by the applicant in its appeal, rather we are simply making an observation on the provisions of law. Therefore, whether the respondent No. 4(PFC) is related party or not, that would have no impact onto the initiation of CIRP. However, if they are found to be related party then the Committee of Creditors as constituted by the RP would not be in accordance with the provisions of Section 21 and, therefore, when such an application has been filed by the applicant, the issue requires consideration. We also note that in the order dated 17.03.2023 this Adjudicating Authority in para 5&6 thereof have categorically mentioned that the applicant had alleged that R-4 to R-7 i.e. (PFC, HUDCO, RECL & IFCI) etc. are related parties of the Corporate Debtor and in view of the complex facts as was presented by both the sides, the Adjudicating Authority have to decide whether provisions of first proviso to Section 21 (2) of the Code would apply or second proviso to Section 21(2) of the Code would apply in the facts of the case. The relevant para-No. 6 is reproduced hereunder with ready reference:-

The order dated 17.03.2023 has been quashed by the Hon’ble NCLAT vide its order dated 17.07.2023 to the extent of the direction given in para 7 of the order dated 17.03.2023 to the RP to keep on hold the CIRP of the Corporate debtor till then (next date of hearing i.e. 11.05.2023). Moreover, while quashing that part of the order, the Hon’ble NCLAT has also directed the Adjudicating Authority to decide the application i.e. present IA No. 9 of 2023 on the date that was already fixed for hearing and/or within a period of one week thereafter. As such it is very clear that the observation as given in para no 6 of the order dated 17.03.2023 has not been interfered/ quashed. Relevant part of the Hon’ble NCLAT Order is once again reproduced:

In view of the abovementioned direction of the Hon’ble NCLAT, we are not inclined to accept the submission made by the Learned Senior Counsel Mr. Ramji Srinivasan that this Adjudicating Authority should not proceed in the mater to decide the issue on merit.

In view of the aforesaid, the Registry is directed to list the matter for hearing on merit on earliest possible date after two weeks. Since the constitution of the Bench has changed, therefore the matter is now to be listed before the Regular Bench.