Forbes Technosys Limited

Per: Madhu Sinha, Member (Technical)

The present company petition is filed on 20.02.2024 by Forbes Technosys Limited (hereinafter referred to as the Corporate Applicant) having under section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code") seeking to initiate Corporate Insolvency Resolution Process (CIRP) as the Corporate Applicant has committed default in paying financial debt of Rs. 1,65,33,33,413.74/- and operational debt of Rs. 16,04,02,675.76/-. The due dates vary as the debts fell due on varied and different dates.

The averments made by the Corporate Applicant are summarized as under:-

a. The Corporate Applicant bearing CIN: U29290MH1991PLC062425, having registered office at Ground Floor, Torana Apartment Sahar Road, Andheri (East) Airport Mumbai, Maharashtra India 400 099, was incorporated on 9th July, 1991.

b. On the above stated date, it was incorporated with the name "Wandel & Goltermann & Forbes Limited". However, on 28th July, 2004 a fresh certificate of incorporation consequent on change of name was issued. The new name borne by the corporate applicant is its present name, i.e. "Forbes Technosys Limited". The corporate applicant is in the business of manufacturing payment processing and transaction automation (kiosks) machines such as Automated Teller Machines (ATMs) and Automatic Ticket Vending Machines (AVMs). Its main source of revenue came from manufacture and sale of kiosks. The business operations of the corporate applicant were severely interrupted due to onset of Covid-19 pandemic.

c. The corporate applicant has defaulted in paying Rs. financial debt of Rs. 1,65,33,33,413.74/- and operational debt of Rs. 16,04,02,675.76/-. The names of the financial creditors along with the corresponding outstanding financial debt as on 07.02.2024 are as follows-

d. The operational debt of Rs. 160,402,675.76/- is due to more than 200 operational creditors as on 07.02.2024. The details of every operational creditor along with the corresponding amount due to it is placed on record of this Hon'ble Tribunal.

e. Additionally, vide an additional affidavit placed on record, the corporate applicant further submitted that as on (31^{\mathrm{st}}) march, 2024 it has outstanding liabilities to the tune of Rs. 179.07 crores out of which a sum of Rs. 161.92 crores is owed to group companies and rest to its operational creditors. As against this, the corporate applicant has generated a revenue of only Rs. 1.10 crores in the Financial Year 2023-2024.

f. The Board of Directors in its meeting held on (31^{\mathrm{st}}) January, 2024 resolved to initiate CIRP against the corporate applicant vide section 10 and further resolved that any Director/Managing Director/Chief Financial Officer of the corporate applicant to represent the corporate applicant and to all acts in relation to the section 10 legal proceedings and all matters connected there with and incidental there to.

g. The Corporate Applicant has placed on record the Special Resolution passed by the members of the corporate applicant in the General Meeting held on (12^{\text{th}}) February, 2024 to file an application under section 10 of the Code.

h. The corporate applicant has placed on record Audited Balance Sheet for the financial years 2021-2022 and 2022-2023. Copy of provisional Balance Sheet of the Corporate Debtor up to 31st December, 2023 is also placed on record of this Hon'ble Tribunal.

j. It is further submitted that, on additional affidavit, by the corporate applicant, that no amount of money is due to any bank/financial institutions and consequently there are no pending proceedings and/or notices issues under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The corporate applicant also submitted that the present petition is not filed to defraud any creditors or defeat provisions of any law and that it is not disqualified under section 11 of the code from filing/maintaining the present petition.

We have heard the counsel appearing for the Corporate Applicant and perused the documents placed on record of this Hon'ble Tribunal.

This Bench vide order dated 08.07.2024, directed the Corporate Applicant to serve notice to the creditors with respect to the present petition through paper publication in 2 newspapers i.e. one vernacular language and one in English language within a period of 10 days. The Corporate Applicant has complied with the same and has filed Compliance Affidavit thereby enclosing there with proof of service. Intervention Petition IB/50/2024 has been filed by an operational creditor named Panache Digilife Ltd., who has objections to the present petition being admitted, which has been separately dealt with by this Hon'ble Tribunal in detail and has ultimately being rejected.

Further, as per Section 10(4) of the Code, the Adjudicating Authority can admit the Petition under Section 10 of the Code if the same is complete and no disciplinary proceedings are pending against the proposed Resolution Professional. Further, in the matter of M/s Unigreen Global Private Limited Vs. Punjab National Bank & Ors. In Company Appeal (AT) (Insolvency) No. 81 of 2017 dated 01.12.2017 Hon'ble NCLAT has observed that :

The Petition shows that the Corporate Applicant is in default of debt as is also evidenced by the Books of account. It is also seen from the Audited Financial Statements for the year ended 2022-2023 and copy of provisional Balance Sheet upto 31st December 2023. There are a more than 10 cases of civil, criminal and insolvency nature filed by and against the corporate applicant which are currently sub-judice.

We have perused the financial statements, the list of Creditors. We have also perused various demand notices placed on record by the operational creditors which are attached from pages 115 to 221 of the present petition. One demand notice dated 22.06.2021 particularly mentions Rs. 4,86,73,111/- as the amount of default meaning thereby that the corporate applicant has defaulted on payment of more than Rs. 1 crore qua individual operational creditor as well as all of them combined together. We have also perused the special resolution passed by the members wherein it was resolved that the Corporate Applicant is not in a position to repay the debts and therefore the Corporate Insolvency Resolution Process under Section 10 of the IBC needs to be initiated. We are satisfied that the Corporate Applicant has made a case for initiation of the CIRP under Section 10 of the IBC.

In view of the above facts and circumstances of the case, and the settled position of law and by exercising the powers conferred on this Adjudicating Authority under Section 10(4) (a) of the Code, we hereby Admit CP 269 of 2024 by initiating Corporate Insolvency Resolution Process (CIRP) against Forbes Technosys Limited.

It is ordered in following terms:

a. The above Company Petition No. (IB) 269 (MB)/2024 is hereby admitted and initiation of Corporate Insolvency Resolution Process (CIRP) is ordered against Forbes Technosys Limited.

b. This Bench hereby appoints Mr. Rakesh Kumar Jindal, Registration No: IBBI/IPA-002/IP-N01148/2021-22/13963 as the Interim Resolution Professional to carry out the functions as mentioned under the Insolvency & Bankruptcy Code, 2016.

c. The Corporate Applicant shall deposit an amount of Rs. 2 Lakhs towards the initial CIRP cost by way of a Demand Draft drawn in favour of the Interim Resolution Professional appointed herein, immediately upon communication of this Order.

d. That this Bench hereby prohibits the institution of suits or continuation of pending suits or proceedings against the Corporate Applicant including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover enforce any security interest created by the Corporate Applicant in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Applicant.

e. That the supply of essential goods or services to the Corporate Applicant, if continuing, shall not be terminated or suspended or interrupted during moratorium period.

f. That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

g. That the order of moratorium shall have effect from the date of pronouncement of this order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under subsection (1) of section 31 or passes an order for liquidation of corporate applicant under section 33, as the case may be.

h. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.

j. Registry shall send a copy of this order to the concerned Registrar of Companies for updating the Master Data of the Corporate Applicant. Accordingly, this Petition is admitted. The Registry is hereby directed to communicate this order to both the parties and to IRP immediately.

Per: Madhu Sinha, Member (Technical)

The Applicant has sought the following reliefs from this Hon'ble Tribunal:

It is the case of the intervener that the respondent has filed the section 10 petition to defraud the present intervener who is the operational creditor of the corporate debtor/respondent. The corporate debtor and its officers are thus liable to punishment under section 65 of the Code along with its other relevant provisions.

In order to bring to light how the section 10 petition filed by the corporate debtor is a mere sham it is essential to understand the factual matrix of the case. The corporate debtor had purchased computer systems, kiosks, related incidental accessories from the operational creditor from time to time. Never did the corporate debtor raise any objection regarding quality, quantity or merchantability of goods either orally or in writing. The final invoices raised and sent were duly received by the corporate debtor. One of the terms and conditions as stipulated on the invoices was that the payment would be made within 90 days from the date of the invoice failing which interest @ 18% p.a. would be levied.

The intervener sent a Demand Notice under section 8 of the Code, dated 11^th July, 2023, to the corporate debtor demanding payment of principal amount of debt to the tune of Rs. 2,46,21,094.47/-. The corporate debtor sent a reply to the above stated notice dated 21^st July, 2023 in which unsubstantiated allegations were raised with mala fide intention of denying payment to the intervener. Additionally, the corporate debtor also claimed that it was a victim of fraud by certain vendors of the corporate debtor along with its employees. Therefore, transactions entered into between such vendors and the corporate debtor since 2015 aggregating to a value of more than Rs. 25 crores were under scrutiny and investigation. Further based on E&Y's report dated 23^rd October, 2019, it had come to the knowledge of the corporate debtor that on account of this fraud fabricated invoices were raised against which no goods were actually received by the corporate debtor. Consequently, a criminal complaint was filed on 12^th October, 2019 against the fraudulent employees (namely, Ex Chief Financial Officer, Mr. Vijay Lahoti and Ex Purchase Manager Mr Anant Chaudhruri. It is pertinent to note that no other employee has been subjected to any kind of action.) and vendors by the corporate debtor.

Thereafter, the intervener registered the debt on NeSL and the corporate debtor vide its reply dated 18^th December, 2023 raised the same baseless allegations to the demand notice raised on 8^th December, 2023 through NeSL. Thereafter, the intervener filed a section 9 petition against the corporate debtor however due to certain defects the same could not be registered.

Thereafter, the corporate debtor filed a section 10 petition before this Hon'ble Tribunal and by the order dated 10^th July, 2024, on intervention, this Hon'ble Tribunal directed the corporate debtor to serve copy of section 10 petition to the intervener.

The intervener, in the backdrop of the above mentioned factual matrix claims that the section 10 petition filed by the corporate debtor is a sham as material information has been suppressed and distorted which amounts to defrauding this Hon’ble Tribunal and should tantamount to dismissal of the section 10 petition with heavy costs. Some of which are as follows:

- The debt of intervener has been shown at diminished value of Rs. 2 crores when actually the total principal and interest pending is more than Rs. 5 crores, without any evidence, prima facie showing manipulation of the accounts of the corporate debtor.. - About Rs. 4,61,97,449/- out of total operational debt of Rs. 16,04,02,675.76/- is owed to related parties raising serious questions as to authenticity of the list of operational creditors especially when investigation regarding evaluation of operational debts is underway. This ratio would also seriously affect the voting rights of the unrelated operational creditors, who would form part of the Committee of Creditors as the financial creditors are all intercorporate loan from related parties. This figure also contradicts the statement of the operational creditor that the amount of fraud is more than Rs. 25 crores. - The corporate debtor is guilty of suppressing material fact that a fraud investigation was undertaken by E & Y to investigate the authenticity of liabilities outstanding against the corporate debtor. Report of E & Y is a material fact and its non-disclosure is a material suppression. The Applicant further substantiates its contention through the judgement of the Hon’ble Supreme Court in S.P. Chengalvaray Naidu v. Jagannath (1994 AIR 853) in which it was held:

- Out of 181,37,36,089/- liability amount of corporate debtor, Rs. 165,33,33,413 is inter-corporate deposits belonging to related parties of the corporate debtor.

- The corporate debtor has not clearly provided the its list of assets save as the financial statements to show the solvency or insolvency of the corporate debtor especially when the corporate debtor itself had claimed one month prior to filing the petition that investigation was ongoing to determine the extent of fraud and amount recoverable from various parties. It is pertinent to note that the major ground for non-payment of the amount due to the intervener was the ongoing investigation rather than the incapacity of the corporate debtor from making a payment. Therefore, it is unfathomable that the corporate debtor is insolvent especially when most of the loans shown by the corporate debtor are related party transactions.

- As per index of charges in the latest master data of the corporate debtor, it has an outstanding open charge of Rs. 55,40,151/- and Rs. 64,24,791/- created on 18th August, 2023 in favour of DCB Bank Limited and Axis Bank Limited respectively, this position is contrary to what is stated in the section 10 petition. In the said petition, the corporate debtor states no amount is due to any bank or financial institution.

- The section 10 petition is actually a means to terminate the various pending litigations by and against the corporate debtor.

- The order of 16/09/2022 qua which the corporate debtor entered into a composite scheme of amalgamation with Forbes Campbell Services Limited. Although annexed to the section 10 petition, no reference regarding the same is made in the said petition or index of documents so that attention of this Hon'ble Tribunal is not drawn towards to the manner in which this present petition has come to be filed.

The intervener further relies on the judgement of the Hon’ble NCLAT, in M/s Agroha Paper Industries Private Limited vs. Bank of Maharashtra, Company Appeal (AT) (Insolvency) No. 1342 of 2023 of 2023 wherein it has been held that:

The Hon’ble Supreme Court has also emphasized on the fact that it is the duty of the corporate debtor to come with clean hands in the matter of Ramjas Foundation v. Union of India, (2010) 14 SCC 38 :

The section 10 petition is thus collusive, fraudulent in nature and is intended to cause prejudice to legitimate claims of various creditors, therefore, deserves to be dismissed.

It is the case of the respondent that creditors do not have a right to be heard at the stage of pre-admission of a Section 10 petition. The intervener can raise its concern during the resolution process by participating in the CoC or may choose to file an application under section 65 of the code. The respondent places reliance on the judgement of the Hon’ble NCLAT in SMBC Aviation Capital Ltd. vs. Interim Resolution Professional of Go Airlines India Ltd. Abhilash Lal Company Appeal (AT) Insolvency No. 593 Of 2023

The above judgment of this Tribunal does make it clear that in facts of each case, it is for the Adjudicating Authority to take a decision as to whether time is to be granted to any objector or intervenor in a proceeding and the above judgment does not hold in any manner that as and when any objector comes before the Adjudicating Authority in a proceeding, as a Company Appeal (AT) (Insolvency) Nos.593, 603, 604 & 615 of 2023 matter of right, he has to be given opportunity to file his objection to the proceeding. The Adjudicating Authority has to take a decision on case to case basis.

The present is a case where Application under Section 10 was filed on 02.05.2022 and on 04.05.2022 it came for hearing. The learned Counsel for the Appellant had appeared and was head by the Adjudicating Authority. The Adjudicating Authority however took a view that it was open for the objector to file an Application under Section 65 even after admission of Section 10 Application.

As noted above, since the statutory Scheme does not contain any obligation of issuing notice to the creditors by the Corporate Applicant, any objector appearing at the time of hearing has to be heard and the objection may be noted by the Adjudicating Authority and thereafter the appropriate decision can be taken. We, thus, conclude that the mere fact that no notice was issued to the creditors or any opportunity was given to the objectors before proceeding to hear, the Corporate Applicant, cannot be held to vitiate any procedure or violating the principles of natural justice, more so when objectors were heard by the Adjudicating Authority.

It is absurd that the intervener himself had filed a section 9 petition for CIRP of the corporate debtor (which could not be registered due to non-clearance of defects) which was not registered and now is opposing the same when the same end would be achieved through the means of section 10 petition. CIRP is a process in rem not in personam and it thus not matter as to who drags the corporate debtor into it especially when it is conducted by an independent Resolution Professional under the supervision of this Hon'ble Tribunal. The section 10 petition is not an attempt to stall the measure taken by operational creditor for recovery of its debt but is in furtherance of the same.

It is also the case of the respondent that contrary to settled position of law, the intervener is alleging that CIRP is desired to initiated with an intent to defraud creditors however, the intervener has not substantiated its allegation. The respondent further states that although the name of IRP has been proposed by it, his appointment as the RP will solely be finalised by the CoC and further the respondent has no objection to this Hon'ble Tribunal appointing an IRP for the respondent.

The respondent refutes the unsubstantiated allegation of the intervener that the section 10 petition has been filed to escape liability due to the operational creditor. Since there are no financial creditors of the corporate debtor other than financial debt owed to group companies therefore the CoC to be constituted in future would comprise only of operational creditors who would ultimately decide on which resolution plan would be approved, therefore the intervener's interests are not prejudiced against at all.

It is further the case of the respondent that its accounts have been duly audited and the Audited Financial Report for the year 2023-2024 has also been placed on record. Thus there cannot be any doubt regarding the authenticity of the same. However, if the applicant can still justify that his claim is rightfully more than double than that of what is reflected in the audited financial statements, nothing prevents it from filing such claim before the IRP/RP appointed by this Hon'ble Tribunal.

The intervener has made various allegations of suppression and dishonesty which again have no merit. They are enumerated below:-

- Firstly, it has alleged that the corporate debtor has failed to highlight that out of Rs. 181,37,36,089/- liabilities on the Corporate debtor about Rs. 163.33.33.413 (Rupees One Hundred and Sixty-Five Crore Thirty-Three Lakh Thirty-Three Thousand Four Hundred and Thirteen only) are inter-corporate deposits belonging to related parties of the Corporate Debtor. But in the same paragraph, the Intervenor acknowledges that in the List of Financial Creditors, the said inter-corporate deposits have been shown to have been received from related parties. In fact, it has been time and again highlighted that the only financial creditors of FTL are its group companies.

- Secondly, the Intervenor has alleged FTL has failed to disclose (i) certain internal investigations which had been ongoing pertaining to their employees and their transactions with the vendors (including the Intervenor; and (ii) a Scheme of amalgamation that it entered into with one of its group companies, Forbes Campbell Services Limited. However, the Intervenor has failed to highlight how either of these two will have any bearing on the present Section 10 Petition or upon the ability of FTL to pay its debts. FTL's duty to disclose all material facts to this Hon'ble Tribunal does not encompass a duty to highlight each and every event/occurrence in relation to the company.

- Lastly, the Intervenor has alleged that FTL continues to owe monies to banks and financial institutions, and has made a dishonest statement that it does not. In support, it relies upon the MCA Master Data which shows that it has an outstanding open charge in favour of DCB Bank Limited and Axis bank Limited. The intervener is well aware that the information available on the portal is often outdated. In support thereof, the respondent places on record copies of letters issued by the 2 above stated banks confirming that no amounts are due to either of them.

Hence in view of the fact that the corporate debtor is genuinely not able to pay its debts, it prays to this Hon'ble Tribunal to dismiss this Intervention Petition and kindly admit the corporate debtor into CIRP by allowing its section 10 petition.

We have heard the counsels representing both the parties and closely perused all the documents placed on record of this Hon'ble Tribunal.

The main prayer of the intervener is that the section 10 petition numbered CP(IB) 269 (MB) of 2024 filed by the corporate be rejected on ab-initio basis, due to the reasons cited by the intervener in the intervention petition. However, the case of the respondent/corporate debtor is that all the reasons cited by the intervener are either unsubstantiated or immaterial and thus have no bearing on this Hon'ble Tribunal adjudicating upon whether the corporate debtor is fit to be entitled into insolvency resolution process or not.

We pertinently take note of the fact the intervener itself had filed a section 9 petition against the corporate debtor for getting it admitted into CIRP, however this petition could not be registered due to non-clearance of defects by the intervener. Thus, the intervener wanted to achieve the same end through a different means. Now, when the corporate debtor has proceeded through to achieve the same end which the applicant wanted to achieve, through a different means, i.e. a section 10 petition the applicant is opposing the same and hence the case of the applicant loses strength on this ground.

Furthermore, the allegations of the intervener regarding the hidden intent of the corporate debtor to escape liability towards the intervener and its intent to defraud its creditors are absolutely unsubstantiated and are merely speculative. Additionally, whatever is rightfully due to the intervener can be claimed by it by filing its claim to the IRP who is an independent professional in case the corporate debtor admitted into CIRP and any legal/factual issues at that stage will definitely be adjudicated upon by this Hon'ble Tribunal.

The corporate debtor clearly and expressly mentions that in the event of its admission into CIRP the CoC will only comprise of operational creditors as its remaining financial creditors are its group companies. The financial debt owed by it to DCB Bank and Axis Bank have duly ben cleared and that is evident from the No Dues Certificate dated 08.08.2024 and 20.09.2024 respectively, placed on record of this Hon'ble Tribunal by the corporate debtor.

We also deem it apt to mention that at this pre admission stage, we do not consider that the non-submission of any document including the E&Y Report or suppression of any facts will prejudicially affect our decision to hear the corporate debtor's case for admission. The absence of any material document/fact and its related consequences will be looked into by this Hon'ble Tribunal while deciding the section 10 petition CP(IB) 269 (MB) of 2024 on merit.

In conclusion, this Hon'ble Tribunal comes to the conclusion that there is no merit in this Intervention Petition. Hence, IVN.P No. 50/2024 is rejected.