Gloster Limited vs Mcleod Russel India Limited & Anr.

The Applicant herein is a financial creditor which had extended an inter-corporate loan (“ICD”) of Rs. 20 crore to the Respondent No.1 in August, 2018 with a condition for repayment within 32 days. However, on request of the Respondent No.1, the tenure of the said ICD was extended from time to time for further 03 months each, last extension being made on June 30th, 2019. Upon each extension request, the Respondent No.1 assured the Applicant of repayment of principal amount along with interest, however failed to service the commitments each time. In September, 2019, wary of the constant failing of commitments by the Respondent No. 1, the Applicant decided not to renew the ICDE anymore and informed the Respondent No.1 of encashing the PDCs. However, on presentation of the cheque, the same was dishonoured with remarks “exceeds arrangement”. Accordingly, the Applicant initiated action u/s 138 of Negotiable Instruments Act, 1881.

Further on taking legal consultancy on the matter, the Applicant herein was made aware about the CP (IB) No. 1071/KB/2019 wherein Respondent No.2 has filed application u/s 7 of IBC with NCLT Kolkata Bench. On further investigation, and particularly by examining the documents pertaining to charge created by on Seajuli Developers and Finance Limited in favour of Techno, it is found that the financial facility to McLeod was given by some company by the name of Techno Electric & Engineering Company Limited bearing CIN-U40108UP2005PLC094368. However, it is also apparent from the website of the Registrar of Companies that a company by that CIN No. is no longer in existence. Also, it is clearly visible that there is a collusion between the said Seajuli and Techno, since the person who has been authorized by Seajuli to execute the charge documents is the son of the directors of the lender company. It is, thus, quite obvious that a substantial security interest was created by Seajuli to secure a financial facility obtained by the Mcleod, merely as a preferential transaction, to give undue preference to Techno to the exclusion of other lenders and creditors of Mcleod. Section 43 of the Code provides that preferential transfers are voidable transactions, and it will defeat the whole purpose of the Code, if a preferential transfer, which is completely voidable under Section 43 becomes the basis of initiation of insolvency proceedings. It is apparent that a person who is beneficiary under a preferential transfer is a party acting hands-in-glove with the lender, and therefore, Techno and Mcleod are acting in collusion.

On making further inquiries, from the records available with the Ministry of Corporate Affairs, the Applicant came to know that one of the alleged group companies of Mcleod viz Seajuli Developers and Finance Limited (hereinafter referred to as “Seajuli”) has mortgaged its property in favour of Techno in respect of the loan granted by Techno to Mcleod. There are several lapses on granting of the said secured loan which are evident from the documents filed by Seajuli in e-form CHG-I with the MCA.

It is to be noted that, as per the records available on the MCA, there are two companies with identical name viz. TECHNO ELECTRIC & ENGINEERING COMPANY LIMITED having CIN -L40108UP2005PLC094304 and TECHNO ELECTRIC & ENGG CO LTD having CIN L45309WB1963PLC025898. The status of both the companies shows “amalgamated” as on date. In any case, as per the e-Form CHG-1 the charge was created in favour of a third company with same name but different CIN being U40108UP2005PLC094368, data of which is not available on the MCA site. On further introspection, it is found that there is a fourth company with almost the same CING as the third one but listed L40108UP2005PLC094368.However, this fourth company was not the lender company. In such case the fourth company, only existing company with such name, has no locus standi to initiate the section 7 application. A copy of the screenshot of MCA showing three companies in the name of Techno Electric, the master data of forst two companies showing “amalgamated”, the screenshot of no data available of the third company, master data of the fourth company is attached herewith and marked as J&K.

It is clearly visible that there is a collusion between the said Seajuli and Techno, since the person who has been authorized by Seajuli to execute the charge documents is the son of the directors of the lender company. It is, thus, quite obvious that a substantial security interest was created by Seajuli to secure a financial facility obtained by the Mcleod, merely as a preferential transaction, to given undue preference to Techno to the exclusion of other lender and creditors of Mcleod. Section 43 of the Code provides that preferential transfers are voidable transactions, and it will defeat the whole purpose of the Code, if a preferential transfer, which is completely voidable under Section 43 becomes the basis of initiation of insolvency proceedings. It is apparent that a person who is beneficiary under preferential transfer is a party acting hands-in-glove with the lender, and therefore, Techno and Mcleod are acting in collusion.

In view of the facts stated herein, CP (13) No.1071/KB/2019 be declared as malafide, and a clear case of collusion between the Techno and Mcleod, and therefore, is an abuse of the process of insolvency under the Code as per section 65 of the IBC, 2016, and therefore, be dismissed.

I say that the applicant who claims to be a creditor of the corporate debtor is a friendly creditor who has been set up to delay the hearing of main section 7 application. I say that if the applicant claims itself to be a creditor of the corporate debtor, the applicant ought to have taken steps in accordance with law for realizing its claim and/or debts which according to the applicant is payable by the corporate debtor. However, it appears from the stand taken by the applicant that the applicant has not taken any steps for recovery of its alleged dues from the corporate debtor.

I say that the corporate debtor and the applicant are acting in collusion and conspiracy with each other and both are acting hand in glove to mislead the Hon’ble Adjudicating Authority and to defeat the bona fide claim of the financial creditor/respondent no.2.

I say that Mr. Ankit Saraiya who is the authorized representative of the financial creditor was mentioned in the board resolution of Seajuli dated September 27,2018 along with Mr. Aditya Khaitan of the corporate debtor because such joint authorization was given to one of the officer of the corporate debtor and the financial creditor for the execution of the Deed of Mortgage and its registration before the ARA only to ensure that in the event the corporate debtor or Seajuli is unable to take any step or refuse to take steps for registration of the mortgage deed before the ARA then the interest of the financial creditor will still remain protected because one of the officers of the financial creditor will then be authorized to take steps for registration of the Deed of Mortgage before the ARA on behalf of Seajuli. This was a safety measure which was inserted in the board resolution on September 27, 2018 to protect the interest of the financial creditor/ respondent no.2. However, the board resolution of September 27, 2018 was not acted upon or given effect to because ultimately and equitable mortgage was created by deposit of title deeds by Seajuli on behalf of the corporate debtor which does not require registration and hence reference on the part of the applicant to the board resolution of Seajuli dated September 27, 2018 is not at all relevant. From the shareholding pattern of the corporate debtor as downloaded from the Stock Exchange, it will appear that one Bishnauth Investments Limited (BIL) is the promoter of the corporate debtor whereas Seajuli (Seajuli Developers & Finance Ltd.) is a wholly owned subsidiary of BIL. Hence, Seajuli and the corporate debtor are the sister concern and group companies which are controlled and managed by Aditya Khaitan (son of late Brij Mohan Khaitan).

It is denied and disputed that any security interest was created by Seajuli as a preferential transaction or to give undue preference to the financial creditor to the exclusion of other lenders and creditors of the corporate debtor.

Similarly, from the financial statements of the applicant for the financial year 2018-19, it does not appear that the applicant had given any ICD loan to the corporate debtor. Even if it is assumed, there is a loan transaction between the applicant and the corporate debtor, still such loan transaction cannot disrupt the independent section 7 application filed by the financial creditor against the corporate debtor. There is no provision in law whereby one creditor can obstruct the legal action initiated by another creditor who has taken steps for protecting its interest and/or for recovery of its dues.

The allegations of collusion do not pass muster of the test laid down under section 65 of the code as no fraudulent/malicious intent on the ground of collusion can be made out.

The Non-Applicant 2 has sought enforcement of security by initiating a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996, before the Kolkata High Court seeking appointment of receiver over secured properties. Non-Applicant 2 has successfully received an interim relief in the form of an injunction (which in turn is a step towards enforcement of security ), which is sufficient ini order to discharge the alleged amount claimed by the Non-Applicant 2. Thus, the present proceeding cannot be initiated (See Annexure A12, Section 7 application, page 149-153). Further, in the presence of an arbitration clause in the loan agreement (See Clause 25, Annexure N of IA 494, pages 82,83) all disputes relating to the transaction, including the one raised in IA 494, are subject matter of an arbitration.

Additionally, the Non-Applicant 2 cannot be allowed to unjustly enrich itself at the cost of pushing the Non-Applicant 1 into the rigours of corporate insolvency resolution process. Initiation of the corporate insolvency resolution process at the behest of the Non-Applicant 2, whose contractual obligation is to relize the value of its security having least stake in the Non-Applicant 1's growth, rejuvenation, revival would defeat the object of the Code. As a matter of fact, the intention is to coerce out money and such intention of Non-Applicant 2 also pushes it out of the meaning of ‘financial creditor’ under the Code.

He has also denied that both the financial creditor and the corporate debtor are related parties within the meaning of Section 5(24) of the Code.

The fact that the Corporate Debtor has authorised both Shri Aditya Khaitan and Shri Ankit Sariya, as their Authorised Representations and it is contended by the Applicant that Shri Ankit Sariya has signed the documents on behalf of the Financial Creditor. He has questioned the motive of the Corporate Debtor in authorizing a person of the Lender Company which leads to the complaint of collusion.

The CIN No. of the Techno Electric and Engineering Company Limited, as mentioned in the charge- related documents filed by the said Seajuli Developers and Finance Limited does not exist in the Records of the Registrar of Companies and as such it has no locus standi to initiate the Section 7 application.

The security interest created by M/s Seajuli with the Lender Company is a preferential transaction.