Manoj Kumar Agarwal vs M/s. Mehndipur Balaji Infra Developers Pvt. Ltd

Dr. Ashok Kumar Mishra, Technical Member

The present appeal has been filed by the 'Appellant' - 'Manoj Kumar Agarwal,'/ Financial Creditor, under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short 'Code') against the impugned order dated 05.04.2018 passed by the 'Adjudicating Authority' (National Company Law Tribunal),   Allahabad   Bench   in   CP(IB)   88/ALD/2018,   wherein   the Adjudicating Authority has rejected the Petition for initiation of 'Corporate Insolvency Resolution Process' (CIRP) against the Respondent / Corporate Debtor(CD) - Mehndipur Balaji Infra Developers Pvt. Ltd on the ground that the Appellant is not able to justify that there is an existence of "default" as also when the amount become due and payable as also no evidence to substantiate that the date of the repayment was fixed when the amount will become payable.

The Appellant is a 'Director' of the CD/ Respondent and has submitted that he has advanced loan to the CD on various occasions from September, 2014 till April, 2016 amounting to Rs.4,69,66,293/-. The Appellant has issued 'Demand Notice' dated 04.01.2018 to the Corporate Debtor and on failure of repayment of loan by the CD has filed the present petition under Section 7 of the Code. As per the submission of the Appellant, there was no written agreement for the loan agreement. He has corroborated by the 'Balance Sheet' of the CD as on 31.03.2016 that accumulated loan exits in the 'Books of CD'. He has cited the judgment of this Tribunal in 'Mack Soft Tech v Quinn Logistics Company Appeal (AT)(Insolvency) No. 143 of 2017' to supplement his case that the amount will become due as soon as 'Demand Notice' issued even there is no written agreement. The CD has also admitted the liability through 'Settlement Agreement' dated 06.02.2019 and had submitted that the business of CD has already been closed. Accordingly, the Appellant has filed the present application for setting aside the impugned order of the Adjudicating Authority and to initiate the CIRP under Section 7 of the Code etc.

The Respondent has submitted that the Appellant is a 'Promoter'/'Director' of the Corporate Debtor and the debt is not due and payable. The Appellant was managing the CD till the year 2017. There are no bank borrowing in the CD. The Appellant was required to infuse additional funds to pay of inter corporate loans and to provide exit of equity investors. However, the Appellant has back tracked from providing the additional funds but also demanded its unsecured loan which was deposited in the Company alongwith other promoters loan to purchase the 'immovable property' for business purpose, particular, for development of the property and the funds were provided from time to time for the project work for undefined period. The repayment was to happen only upon sale of property after construction and development. As far as the unsecured loan of the Appellant is concerned, it is not due and payable at this stage as per the internal understanding of the internal Promoters/Directors. The Appellant promoter wants to withdraw from the business of the CD in breach of internal understanding among the 'Promoters'/'Directors' because of the inaction of this 'Promoter' / 'Director', the CD is facing hardship.

As far as the 'Settlement Agreement' is concerned, he himself is creating hindrances in the 'Board Meeting' and is derailing the process of generating fund through 'sale of assets'. The Respondent has also stated that the object and purpose of the Code is not closure of the CD, when the 'Promoters' / 'Directors'/ 'Investors' have invested in the Company to develop properties, the Appellant is creating unnecessary problems and wants to liquidate the CD and is misusing the law of insolvency which is meant for bonafide creditors but certainly not for disgruntled 'Director' / 'Promoter' like the Appellant and accordingly, the Adjudicating Authority has rejected the Petition filed under Section 7 of the Code holding in para 14 of the order dated 05.04.2018 "..... he is not able to justify that there is existence of default when the amount in question become due and payable. There no evidence to substantiate that the date of repayment was fixed, when the amount will become payable....",

We have gone through the submissions made by the learned counsels for the parties and are observing as follows:

a. It is observed that both the Appellant and 'Mr. Jai Prakash Sharma', the other 'Promoters'/Promoter-Directors' incorporated the CD with the broad understanding to engage in the 'real estate business' and both promoters infused funds (5,000 equity shares each) to invest and develop 'real estate projects' in Kanpur / Lucknow. These funds were internal loan to the CD. There was no bank loan, both the Promoters/Directors subscribe 50% of the capital of the CD which was incorporated on 23.09.2010. In January, 2012, Mr. Virendra Sharma was inducted as third partner and subscribed 15,000 equity shares and he was appointed on the Board.

b. The Respondent Company purchase 'real estate property'' in the Financial Year 2011-12 in Kanpur /Lucknow to pursue its business of development of real estate projects and the Appellant himself took the lead and applied for a group housing plot in Lucknow from 'Uttar Pradesh Housing and Development Corporation' (UPHDC) which allotted a plot in 2011 on an application fee of Rs.76,80,000/-. The CD has so far made the payment of Rs.6.55 Crore to 'UPHDC' and balance payment has yet to be made to UPHDC so that UPHDC can executed the sale deed in favour of CD. The Appellant Promoter/Director is creating problems for the CD as also between the members of this CD. He has created a deadlock in the Company.

c. This appears to be a case of 'Section 241 & 242 of the Companies Act', 2013 of 'Oppression' and 'Mismanagement' between the 'Members' / 'Shareholders of the Company' and requires resolution under 'Chapter XVI of the 'Companies Act, 2013'. However, taking clue from provision of the Code vide Section 7 of the Code has filed the Petition before the Adjudicating Authority. The fact of the case 'Mack Soft Tech vs. Quinn Logistics' as stated supra is totally different as that was a case of a 'Group of Companies' controlled by an 'Irish Businessman' who acquired the entirety /majority of the shareholding of the CD and wanted to grant loan and to get benefit of development. There was a clarity in the above case on the terms of 'Debt' and 'Default'. While in the present case the Appellant is unable to substantiate the existence of 'Default' when the amount in question become due and payable. Simply, a 'Demand Notice' cannot build a term for 'Default'. If it is so admitted, there will be no end to such vexatious application and putting lot of companies into unwanted operational difficulties. Hence, there is a need to go by the 'Object of the Code' relating to genuine cases of reorganization and insolvency resolution of corporate persons for maximation of value of assets in a time bound manner and to promote entrepreneurship and balance the interest of stakeholders. The 'Object of the Code' is not going into 'Oppression and Mismanagement' which are to be dealt with under the Companies Act, 2013 vide Section 241 & 242 of the Companies Act, 2013.

d. The 'Adjudicating Authority' and this 'Appellate Tribunal' is unable to find the 'existence of default' when the amount in question claimed by the Appellant became due and payable and no evidence to substantiate the due date of repayment. This does not comply with the requirements of Section 7 of the Code for initiation of CIRP as far as "default" is concerned.

e. Hence, we do not find any merit in the appeal. We are unable to disagree with the Adjudicating Authority. The Appeal deserves to be dismissed and is dismissed. No order as to costs.

Interim order, if any, passed by this Tribunal, stands vacated. Pending application, if any, stands disposed of.