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Judgment
ORDER
The captioned petition has been filed under the provision of Section 7 of the IBC, 2016 r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Orbis Trusteeship Services Private Limited (hereinafter, “Applicant/ Debenture Trustee”) to initiate corporate insolvency resolution process against Nobal Buildtech Private Limited (hereinafter, “Respondent/ Corporate Debtor”). Stating succinctly, the Applicant was appointed as a Debenture Trustee to act for the benefit of and on behalf of the Asia Pragati Strategic Investment Fund (hereinafter, “Debenture Holder”) which had extended financial facilities to Kindle Infraheights Private Limited (hereinafter, “Principal Borrower”) for development of certain real estate projects.
The Applicant has stated that the Principal Borrower had availed financial facility of an amount of Rs. 130 crores from the Debenture Holders by way of issuance and allotment of Non- Convertible Debentures (NCD 1) and the terms and conditions for the said debt were recorded in the Debenture Trust Deed dated 28.06.2019, which was amended and reiterated on 30.09.2020. The Applicant further stated that for the purposes of additional funding, an additional amount of Rs. 6 crore was given by the Debenture Holder to the Principal Borrower as consideration for another tranche of (NCD 2) which fact was recorded in the Debenture Trust Deed dated 25.02.2021 entered into between the Applicant, the Principal Borrower and the Guarantors, including the Respondent herein which was amended and reiterated on 01.10.2020. The Applicant has contended that by way of the aforesaid Debenture Trust Deeds, the Respondent had irrevocably and unconditionally guaranteed the discharge of all debts owed to the Debenture Holders in the event of default in repayment.
The Applicant has stated that after the failure of the Principal Borrower in repaying the outstanding debt liabilities, the Personal and Corporate Guarantors, including the Respondent, were called upon to repay the aforementioned debt by way of demand notice dated 01.11.2021.
As per Part-IV of the application, the amount claimed to be in default stands at Rs. 255,07,26,925/-. Further, the Applicant has stated that the default occurred when the Respondent failed to repay the debt amount within 3 months of the invocation of guarantee viz 01.11.2021. Relevant excerpt of Part- IV of the application reads thus: -
The corporate guarantee deed dated 28.06.2019 regarding the first tranche of NCD issued by the Principal Borrower with respect to which the CD had given a corporate guarantee has been annexed with the application and relevant excerpt of the same reads thus:
Further, the Applicant has stated that the aforementioned Corporate Guarantee Deed, owing to certain restructuring i.e. merger of Orbis Capital Limited with Orbis Financial Corporation Limited, was amended and restated on 01.10.2020 wherein the name of “Orbis Capital Limited” stood replaced by “Orbis Trusteeship Services Private Limited”. A perusal of the amended deed shows that the parties to the original guarantee deed acknowledged and affirmed that the abovementioned amendment did not result in novation of the original debenture trust deed.
Further, the relevant excerpt of the Corporate Guarantee Deed dated 25.02.2021 regarding the second tranche of NCD issued to the Principal Borrower with respect to which the CD had given a corporate guarantee has been annexed with the application and relevant excerpt of the same reads thus:
The Applicant has also placed on record the demand notices dated 01.11.2021 whereby the Applicant invoked both the abovementioned corporate guarantee deeds executed by the guarantors, including the CD, in favour of the Applicant with respect to both the tranches of NCDs issued by the Principal Borrower and called upon the CD to make the payment of the defaulted amount within a period of 3 days from the date of the demand notices.
Initially, the Respondent represented by Mr. Gaurav Mitra, Advocate opposed the present application on the following grounds:
The Applicant has already preferred an application against the Principal Borrower i.e. CP(IB) No. 541/ND/2022 titled Orbis Trusteeship Service Private Limited vs. Kindle Infraheights Private Limited and therefore, the Applicant cannot trigger another CIRP against another Corporate Debtor for the same claim/ debt.
The Applicant does not fall within the ambit of financial creditor for the reason that no amount was disbursed to it by the Applicant and that rather, the amount was disbursed by the Debenture Holders.
The Application has been filed by the Applicant without proper authorization from the Debenture Holder to initiate CIRP against the Respondent.
The Debenture Holders were having complete control over the bank accounts of the Principal Borrower and since the beginning, the Debenture Holder and the Applicant were exclusively managing the funds, finance, project and affairs of the Principal Borrower. Further, it was due to the mismanagement on the part of the Debenture Holder and the Applicant that the Principal Borrower was saddled with financial stress.
There are already ongoing legal disputes between the parties and that the Applicant has filed the present application to arm-twist the Respondent and the Principal Borrower to leverage bargaining position in negotiations with a view to recover more monies.
Subsequently, Mr. Deepak Khosla, Advocate, summarized the objection on behalf of Corporate Debtor to the following points: -
The Trustee cannot be applicant in the present proceedings;
The Deponent/ Individual who signed the application/ affidavit had no authority to do so.
Even if the Deponent could be authorized to file the application, his affidavit is not as per law.
The vakalatnama filed on behalf of the Applicant is not in order.
To buttress the first plea i.e. the Trustee cannot be Applicant, Mr. Deepak Khosla, Ld. Counsel for the Applicant submitted that when the interest of any person/ party/ individual is represented by other, the representative need to indicate and specify his position by expressing, “on behalf of” or “in the name of” or “for”. In all the eventualities/ situations, the representative need to disclose the particulars and details of the party/ persons/ individual represented by him. In his submission in the present case, in the application filed by Debenture Trustee, the name of Debenture Holder/ Creditor on whose behalf the proceedings are instituted is not disclosed. Having made reference to the notification dated 27.02.2019 issued by the Ministry of Corporate Affairs, Mr. Khosla submitted that might be the Central Government notified certain persons who may file an application for initiating CIRP against a Corporate Debtor before this Authority, on behalf of the Financial Creditors, but the notification cannot substitute the statute. According to him, irrespective of the statute, the Trustee can act for Financial Creditor, but he is required to disclose in the application that he is acting in representative capacity and the application is preferred on behalf of the financial creditor, which is not disclosed in the present application. According to Mr. Khosla, the deficiency in the application is that Orbit Trusteeship Services Private Limited which is only a Trustee could not have preferred the captioned application by projecting itself as Trustee.
Having referred to order dated 19.02.2024 in CP(IB) No. 143/ND/2022, Mr. Khosla espoused that the Applicant had preferred IA No. 6165/ND/2023 under Section 7(5)(b) of IBC, 2016 r/w Rule 11 of NCLT Rules, 2016, seeking rectification of Form- 1 (the petition) preferred under Section 7(1) and (2) of the Code i.e. CP(IB) 143/ND/2022 but subsequently, it could withdraw the same. In his submission, from the development of filing IA 6165/ND/2023 by the Applicant, it is apparent that the Applicant itself is conscious of the fact that even when a Trustee can prefer an application under Section 7 (1) & (2) of IBC, 2016 on behalf of the Financial Creditor, it should be amplified in the application and the Trustee cannot project itself as Financial Creditor. To highlight that the Orbis Trusteeship Services Pvt. Ltd is acting for the benefit of Asia Pragati Strategic Investment Fund, Mr. Khosla made reference to Pg. 8 of the application. The text contained in the application referred to by Mr. Khosla reads thus:
“Orbis Trusteeship Services Private Limited (acting for the benefit of the Debenture Holders, i.e. Asia Pragati Strategic Investment Fund), hereby submits this application to initiate a corporate insolvency resolution process in the matter of Nobal Buikdtech Private Limited, being the corporate guarantor for secured financial debt advanced to Kindle Infraheights Pvt. Ltd. The Applicant is the Debenture Trustee and acts on behalf of an for the benefit of the Debenture Holder, Asia Pragati Strategic Investment Fund.”
It is emphasized by Mr. Khosla that it is FC alone who can file an application under Section 7 (1) & (2) of IBC, 2016 and even when the FC delegate his power to Trustee, the delegate should act as per law. He contended that the Trustee is not an assignee but is only a power of attorney holder. Having made reference to Form- 2 (prescribed under sub-rule (1) of Rule 9 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, Mr. Khosla argued that the consent was given by FC qua Orbis Trusteeship Services Pvt Ltd, by defining it as financial creditor, thus even the consent is also defective.
Coming to the second proposition espoused by him, the Ld. Counsel for the CD contended that the authorization in favour of Mr. Rejoy Basu could be executed only by one of the Directors qua Orbis Trusteeship Services Pvt. Ltd. viz. Mr. Vineet Parekh and not by Orbis Trusteeship Services Pvt. Ltd., thus there being no proper authorization in favour of Mr. Rejoy Basu, the captioned application preferred by him is non-est and deserves to be rejected on this ground alone. To take the issue further, the Ld. Counsel for CD made reference to Order 29 (Rule 1) of CPC. Having referred to the provision, he contended that in suits by or against a corporation, any pleading may be signed and verified on behalf of the corporation by the Secretary or by any Director or other principal officer of the Corporation who is able to depose the facts of the case. In terms of the submission made by the Ld. Counsel, Mr. Rejoy Basu being not the Secretary or the Director or other principal officer qua the Applicant had no statutory authority or empowerment or locus to file the present application. Reliance is placed on the judgment of the Hon’ble Supreme Court in Uday Shankar Triyar vs Ram Kalewar Prasad Singh & Anr. [2006 (1) SCC 75] to contend that; the vakalatnama, species of power of attorney is an important document which enables and authorizes the pleader appearing for a litigant to do several acts as an agent which are binding on the litigants who is the principal; it is a document which creates special relationship between the lawyer and the client, which regulates and governs the extent of delegation of authority to the pleader and the terms and conditions governing such delegation; the vakalatnama should be properly filled/ attested/ accepted with care and caution; obtaining the signature of the litigant on blank vakalatnama and filing them subsequently should be avoided. In the judgment relied upon on behalf of the CD, Hon’ble Supreme Court could take judicial notice of the defects routinely found in vakalatnamas filed in courts. Para 21 of the judgment reads thus: -
“21.We may at this juncture digress and express our concern in regard to the manner in which defective vakalatnamas are routinely filed in courts. Vakalatnama, a species of power of attorney, is an important document, which enables and authorises the pleader appearing for a litigant to do several acts as an agent, which are binding on the litigant who is the principal. It is a document which creates the special relationship between the lawyer and the client. It regulates and governs the extent of delegation of authority to the pleader and the terms and conditions governing such delegation. It should, therefore, be properly filled/attested/accepted with care and caution. Obtaining the signature of the litigant on blank vakalatnamas and filling them subsequently should be avoided. We may take judicial notice of the following defects routinely found in vakalatnamas filed in courts:
(a)Failure to mention the name(s) of the person(s) executing the vakalatnama and leaving the relevant column blank.
(b)Failure to disclose the name, designation or authority of the person executing the vakalatnama on behalf of the grantor (where the vakalatnama is signed on behalf of a company, society or body) by either affixing a seal or by mentioning the name and designation below the signature of the executant (and failure to annex a copy of such authority with the vakalatnama).
(c)Failure on the part of the pleader in whose favour the vakalatnama is executed, to sign it in token of its acceptance.
(d)Failure to identify the person executing the vakalatnama or failure to certify that the pleader has satisfied himself about the due execution of the vakalatnama.
(e)Failure to mention the address of the pleader for purpose of service (in particular in cases of outstation counsel).
(f)Where the vakalatnama is executed by someone for self and on behalf of someone else, failure to mention the fact that it is being so executed. For example, when a father and the minor children are parties, invariably there is a single signature of the father alone in the vakalatnama without any endorsement/statement that the signature is for “self and as guardian of his minor children”. Similarly, where a firm and its partner, or a company and its director, or a trust and its trustee, or an organisation and its office-bearer, execute a vakalatnama, invariably there will be only one signature without even an endorsement that the signature is both in his/her personal capacity and as the person authorised to sign on behalf of the corporate body/firm/society/organisation.
(g)Where the vakalatnama is executed by a power-of-attorney holder of a party, failure to disclose that it is being executed by an attorney-holder and failure to annex a copy of the power of attorney.
(h)Where several persons sign a single vakalatnama, failure to affix the signatures seriatim, without mentioning their serial numbers or names in brackets. (Many a time it is not possible to know who have signed the vakalatnama where the signatures are illegible scrawls.)
(i)Pleaders engaged by a client, in turn, executing vakalatnamas in favour of other pleaders for appearing in the same matter or for filing an appeal or revision. (It is not uncommon in some areas for mofussil lawyers to obtain signature of a litigant on a vakalatnama and come to the seat of the High Court and engage a pleader for appearance in a higher court and execute a vakalatnama in favour of such pleader.) We have referred to the above routine defects, as Registries/offices do not verify the vakalatnamas with the care and caution they deserve. Such failure many a time leads to avoidable complications at later stages, as in the present case. The need to issue appropriate instructions to the Registries/offices to properly check and verify the vakalatnamas filed requires emphasis. Be that as it may.”
The contention on behalf of the CD with reference to the aforementioned judgment is that when the vakalatnama is executed by a power of attorney holder of a party, the failure to disclose that it is being executed by an attorney holder and failure to annex a copy of power of attorney render the vakalatnama as defective. With reference to vakalatnama available at pg. 887 of the paperbook, it is submitted that it does not contain the name of the person who signed the vakalatnama. The further pleas regarding vakalatnama are: signature on the vakalatnama is not correct as not Vineet Parekh but Orbis Trusteeship Services Private Limited has signed the vakalatnama; there is no authority in favour of Mr. Rejoy Basu to file the application.
In the process of taking his plea that the captioned application could not be preferred by an authorized person or the person who preferred the application is not authorized for the purpose, Mr. Khosla also made reference to the judgment of the Hon’ble Delhi High Court in Nibro Ltd. v. National Insurance Co. Ltd. [1990 SCC OnLine Del 65] to espouse that the question of authority to institute a suit on behalf of the company is not a technical matter and has far reaching effects. It often effects policy and finances of the company. Thus, unless a power to initiate a suit is specifically conferred on a particular Director, he has no authority to institute the suit on behalf of the company. Paras 22 to 25 of the judgment reads thus: -
“22.On the analysis of the judgments, it is clear that Order, 29, Rule 1 of the Code of Civil Procedure does not authorise persons mentioned therein to institute suits on behalf of the Corporation. It only authorises them to sign and verify the pleadings on behalf of the Corporation.
23.In my view, the provisions of Companies Act, 1956 and particularly Sections 14, 26, 28 Schedule I, Table A and Section 291 are very clear.
24.It is well-settled that under Section 291 of the Companies Act except where express provision is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meeting—in all others cases the Board of Directors are entitled to exercise all its powers. Individual directors have such powers only as are vested in them by the Memorandum and Articles. It is true that ordinarily the court will not unsuit a person on account of technicalities. However, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. It often affects policy and finances of the company. Thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Needless to say that such a power can be conferred by the Board of Directors only by passing a resolution in that regard.
25.Chapter IV of the Delhi High Court (Original Side) Rules deal with the question of presentation of suits. Under this Rule, suit can be presented by a duly authorised agent or by an advocate duly appointed by him for the purpose. This authorization, in my view, in the case of a company can be given only after a decision to institute a suit is taken by the Board of Directors of the company. The Board of Directors may in turn authorise a particular director, principal officer or the secretary to institute a suit.”
As the aforementioned judgment is with reference to O29.R1 of CPC, Mr. Khosla emphasized that the procedure before this Tribunal is guided by CPC and the Code of Civil Procedure is binding on this Tribunal. Qua the plea of lack of authorization in favour of Mr. Basu, Mr. Khosla made quick reference to the judgment of the Hon’ble Delhi High Court in Prem Kumar Gupta v. Bank of India [2015 SCC OnLine Del 8232] and the judgment of Hon’ble Supreme Court in State of Bombay v. Purushottam Jog Naik [(1952) 2 SCC 14]. The reference to the judgment in Prem Kumar Gupta (ibid) is made to espouse that only such authority which is conferred upon a person or institution can be exercised and any exercise of such authority which is not vested in someone cannot be held tenable. What is espoused on the basis of the judgment of the Hon’ble Supreme Court in State of Bombay v. Purushottam Jog Naik (supra) is that slipshod verification of the assertions made on affidavit may lead to rejection of the same and the verification should invariably be modelled on the lines of O19.R3 of the CPC, whether the Code applies in terms of not. Para 18 of the judgment reads thus: -
“18.We wish, however, to observe that the verification of the affidavits produced here is defective. The body of the affidavit discloses that certain matters were known to the Secretary who made the affidavit personally. The verification however states that everything was true to the best of his information and belief. We point this out as slipshod verifications of this type might well in a given case lead to a rejection of the affidavit. Verifications should invariably be modelled on the lines of Order 19 Rule 3 of the Civil Procedure Code, whether the Code applies in terms or not. And when the matter deposed to is not based on personal knowledge the sources of information should be clearly disclosed. We draw attention to the remarks of Jenkins, C.J. and Woodroffe, J. in Padmabati Dasi v. Rasik Lal Dhar [Padmabati Dasi v. Rasik Lal Dhar, ILR (1910) 37 Cal 259 : 1909 SCC OnLine Cal 104] and endorse the learned Judges' observations.”
Reliance is also placed on the judgment of the Hon’ble Supreme Court in Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal [1961 SCC OnLine SC 17] again to buttress the plea that Mr. Basu who was not duly authorized by the Applicant could not have filed the captioned application. Having referred to pg. 253 of the rejoinder i.e. the resolution 31.12.2021, the Ld. Counsel for the CD questioned the veracity of the same and espoused that this Authority/ Tribunal should ask for production of the minutes book of the Applicant to prove the genuity of the resolution. With reference to the resolution, Mr. Khosla also questioned the connotation of the word ‘severally’. According to him, there is no such word like ‘severally’, which can be used to indicate the severable authority of Mayank Narang, CEO, Purvesh Pandit, Assistant Manager and Rejoy Basu, Executive. In his submission if the authority executed in favour of the three persons (ibid) could be exercised by them independently and individually, then the expression, ‘severally’ could be used in the resolution.
Although while making a submission in respect of Point No. II, Mr. Khosla also raised such submissions which could support his plea regarding the affidavit and vakalatnama being defective, but then again, he pressed the plea regarding defective affidavit as Point No. III. While espousing the plea, he could draw our attention to the affidavit dated 2nd February 2022 and pleaded: - (i) The affidavit does not contain the residential address of Mr. Rejoy Basu;
In the affidavit, the Applicant is referred to as financial creditor, while it is only a Trustee of the financial creditor; (iii) The contents are declared as true on the basis of personal knowledge and belief; (iv) the deponent is Hindu, so he should not have used the expression “solemnly” and should have in fact “sworn” the affidavit. Mr. Khosla further submitted that the deponent i.e. Mr. Rejoy Basu was working in Orbis Trusteeship Services Private Limited and not with the financial creditor which is the Debenture Holder and thus, could not be deemed to be authorised by the financial creditor to file the present application.
He placed reliance on the judgment of the Hon’ble Supreme Court in Janki Vashdeo Bhojwani & Ors. vs. IndusInd Bank & Ors. [Civil Appeal No. 6790 of 2003] wherein the Hon’ble Supreme Court held that a power of attorney holder has rendered some acts in pursuance of his power of attorney, he may depose for the principal in respect of such acts. However, such power of attorney holder cannot depose for the principal in respect of the matter which only the principal could have a personal knowledge of for which he was entitled to be cross- examined.
Mr. Khosla further submitted that the affidavit sworn by Mr. Rejoy Basu which is enclosed with the petition is defective as the same does not conform to the rules and laws laid down for swearing affidavits. He submitted that a deponent of an affidavit should depose from his knowledge and to buttress such plea, he drew attention of this Court to Chapter 12- “Oaths, Affirmations and Affidavits” of the Delhi High Court Rules, particularly to Rules 9, 10 and 11 thereof which reads thus: -
“9. Contents of affidavits—
(i)Every affidavit containing any statement of facts shall be divided into paragraphs, and every paragraph shall be numbered consecutively, and, as nearly as may be, shall be confined to a distinct portion of the subject.
(ii)Every person, other than a plaintiff or defendant in a suit in which the application is made, making any affidavit, shall be described in such manner as will serve to identify him clearly: that is to say, by the statement of his full name, the name of his father, his profession or trade, and the place of his residence.
(iii)When the declarant in any affidavit speaks to any facts within his own knowledge, he must do so directly and positively, using the words ‘I affirm’ or ‘I make oath any say’.
(iv)When the particular fact is not within the declarant’s own knowledge, but is stated from information obtained from others, the declarant must use the expression ‘I am informed’,—and, if such be the case, should add ‘and verily believe it to be true’—or he may state the source from which he received such information. When the statement rests on facts disclosed in documents, or copies of documents procured from any Court of Justice or other source, the declarant shall specify the source from which they were procured, and state his information or belief as to the truth of the facts disclosed in such documents.”
“10. Affidavits generally to be confined to facts which are within defendant’s knowledge—
(i)Attention is drawn to Order XIX, Rule 3, which lays down that affidavits shall be confined to such facts, as the deponent is able of his own knowledge to prove, except interlocutory applications (See Order XXXIX, Rules 6 to 10), on which statements of his belief may be admitted : provided that the grounds thereof are stated.
(ii)All interlineations, alterations or erasures in an affidavit shall be initialled by the person swearing it and the person before whom it is sworn. Such interlineations, alterations or erasures shall be made in such manner as not to obliterate or render it impossible or difficult to read the original matter. In case such matter has been obliterated so as to make it impossible or difficult to read it, it shall be re-written on the margin and initialled by the person before whom the affidavit is sworn.”
“11.Identification of deponent—Every person making an affidavit shall, if not personally known to the Court, Magistrate or other officer appointed to administer the oath or affirmation, be identified to such Court, Magistrate or officer by some person known to him; and such Court, Magistrate or officer shall specify, at the foot at the affidavit, the name and description of the person by whom the identification is made, as well as the time and place of the identification and of the making of the affidavit.”
Mr. Khosla further placed reliance on the judgment dated 03.11.1983 of the Hon’ble Punjab and Haryana High Court in the matter of Mool Chand Wahi vs. National Paints P. Ltd. & Ors. [Company Petition No. 49 of 1981] whereby the Hon’ble High Court emphasized on the need for filing a duly sworn affidavit and further observed that if an affidavit is not in proper form, no value can be attached to it. Relevant paragraphs of the aforesaid judgment read thus: -
“9.Rule 18 says that every affidavit shall be signed by the deponent and sworn to in the manner prescribed by the Code or by the rules and practice of the Court. Order 19, Rule 3 of the Code of Civil Procedure says that affidavits shall be confined to such facts as the deponent is able to prove from his own knowledge except on interlocutory applications, on which statements of his belief may be admitted. From the aforesaid rules, it is evident that the petition for winding up is required to be accompanied by an affidavit in due form. It is well-settled that if an affidavit is not in due form, no value can be attached to it. In the above view, I am fortified by the observations in Bhupinder Singh's case (supra), wherein Tek Chand. J., after noticing Order 19, Rule 3(1), of the Code, observed as follows:—
“The words that the contents of the affidavit are true and correct to the best of my knowledge and belief carry no sanctity, and such a verification cannot be accepted. It has been held over and over again that affidavits must be either affirmed as true to knowledge or from information received provided the source of information is disclosed, or as to what the deponent believes to be true provided that the grounds for such belief were stated. Such affidavits where the verification lacks the essential requirements, are valueless.”
“10.In Padmabati Dasi v. Rasik Lal Dhar, (1910) ILR 37 Cal. 259, Jenkins C.J. and Woodroffee, J., observed:—
“We desire to impress on those who propose to rely on affidavits that, in future, the provisions of Order 19, Rule 3, must be strictly observed, and every affidavit should clearly express how much is a statement of the deponent's knowledge and how much is a statement of his belief, and the grounds of belief must be stated with sufficient particularity to enable the Court to Judge whether it would be safe to act on the deponent's belief.”
“11.This enunciation of the principle was endorsed by the Supreme Court in State of Bombay v. Puruthottam Jog Naik, (1952) 2 SCC 14 : AIR 1952 SC 317. There is a catena of decided cases supporting this proposition and among others, reference may be made to Durga Das v. Nalin Chandra NandanAIR 1934 Cal 694, Bisakha Rani Ghose v. Satish Chandra Roy, AIR 1956 Cal 496, and Dipendra Nath Sarkar v. State of Bihar, AIR 1962 Pat 101”.
“12.The learned Judge, in view of the fact that the verification of the affidavit was not proper, ignored the affidavit filed by the petitioner in that case. In a petition for winding up it is mandatory to file an affidavit along with the petition. The purpose of the affidavit is that the allegations in the affidavit read with the petition are treated as substantive evidence. In case the petition is not accompanied by an affidavit, in view of the Rules mentioned above, it is no petition in the eye of law and consequently it is liable to be dismissed on this ground alone […]”
According to the Ld. Counsel for the CD, the aforementioned judgment of the Single Judge Bench of the Hon’ble Punjab & Haryana High Court was upheld by the Division Bench of the Hon’ble High Court vide judgment dated 07.05.1986.
A reference is also made to the judgment dated 25.05.1966 of the Hon’ble Calcutta High Court in re: Gaya Textiles Private Limited & Ors [Company Petition No. 4 of 1996 reported in MANU/WB/0079/1968] wherein the Hon’ble High Court held that a defect in the verification of the affidavit cannot be cured by way of re- verification at a later stage and had thus, dismissed the petition therein due to defect in the verification.
The Ld. Counsel also made reference to the order passed by the Hon’ble High Court of Sind in the matter of Osborne Garrett & Co. Ltd vs. Raisi Jothabhoy & Ors. [MANU/SN/0017/1926] wherein the Hon’ble High Court was of the view that a plaint filed on behalf of a limited company which was signed by the attorney instead of the plaintiff company’s secretary/ director cannot be considered as properly signed or verified and granted leave to the plaintiff to file an amended and properly signed and verified plaint, and further directed the plaintiff to bear the cost of defendants for the hearing already held.
The next proposition evolved and espoused by Mr. Khosla, Ld. Counsel for the CD, was that the vakalatnama filed by the Ld. Counsel for the Petitioner is not in order on the ground that it has been executed by a person who was not authorized to do so by the financial creditor. He further espoused that in the vakalatnama given on behalf of Orbis Trusteeship Services Private Limited i.e., the Petitioner, neither the name of the person giving the signature nor his designation is mentioned. Mr. Khosla contended that when a vakalatnama is given on behalf of a body corporate, it should be executed by a Director, Secretary or such managerial personnel and their name and designation should be clearly mentioned. He referred to the judgment dated 08.10.2009 passed by the Hon’ble Delhi High Court in the matter of Deepak Khosla vs. Union of India [WPC No. 7651/2009] wherein the Hon’ble High Court in dealing with the issue of irregularities in filing of vakalatnamas issued directions to the High Court’s registry for compliance of directions given by the Hon’ble Supreme Court in Uday Shankar Triyar vs. Ram Kalewar Prasad Singh (supra). Relevant excerpt of the aforementioned judgment of the Hon’ble Delhi High Court reads thus:
“12.Pertaining to Vakalatnamas executed not by the Principal himself but by some person claiming to appoint or give authority on this behalf, Rule 1, Part-A of Chapter 16 of the Delhi High Court Rules, inter alia, stipulates— (1) Proof of attorney to act to be executed by the principal—Every appointment of a pleader to act shall contain in full the name of the person, or, where there are more than one, of every person who thereby appoints the pleader to act on his behalf, and shall be executed by every such person. (2) Proof required “when power of attorney not executed by the principal—When such appointment or power is not executed by the principal himself, but by some person claiming to appoint or give authority on his behalf, the pleader will not be recognized by the Court without proof that such person was duly authorized by the principal to execute such appointment or power”
13.We direct that henceforth while scrutinizing the Vakalatnamas filed, be it in the Registry of this Court, the Subordinate Courts in Delhi or the Tribunals, Authorities and Foras in Delhi, failure/defect in the Vakalatnamas, noted in sub-paras ‘a’ to ‘e’ of Para 21 of the decision of the Supreme Court in Uday Shankar's case (supra), shall be treated as a deficiency in the execution of the Vakalatnamas making liable the said Vakalatnama to be returned. Further, in the situation contemplated by sub paras ‘f’ to ‘i’ of Para 21 of the decision in Uday Shankar's case (supra), Vakalatnamas not executed in the manner indicated in the said sub-paras shall also be treated as a deficiency in the execution of the Vakalatnama, making liable said Vakalatnama to be returned.”
Mr. Khosla further drew our attention to the Circular No. 13/Rules/DHC dated 26.10.2009 issued by the Hon’ble Delhi High Court which was issued pursuant to the aforesaid judgment in Deepak Khosla vs. Union of India (supra). In the said circular, it was inter alia directed that the name of the person executing the vakalatnama should be clearly mentioned and that in case of vakalatnama has been signed on behalf of a body corporate, the name designation or authority of the person executing the vakalatnama on behalf of the grantor should be disclosed by either affixing a seal or mentioning the name and designation below the signature of the executant, and that further in such cases, a true copy of the resolution/ minutes of the meeting authorizing such a person to represent the company/ body corporate should be affixed with the vakalatnama.
On behalf of the Applicant, Mr. Dhawan opposed the plea taken by the Ld. Counsel for the CD that the application filed by the Debenture Trustee was defective and placed reliance on the notification dated 27.02.2019 issued by Ministry of Corporate Affairs whereby it was stated that a Debenture Trustee could file an application as financial creditor on behalf of the Debenture Holder. To buttress his plea, he also placed reliance on the order dated 27.03.2023 passed by the Hon’ble NCLAT in Company Appeal (AT) (Insolvency) No. 1071 of 2022 titled Orbis Trusteeship Private Limited vs. Nobal Buildtech Private Limited.
ANALYSIS:
With regard to the contention raised by the Respondent that the Applicant was not a financial creditor for the purposes of the Code since the defaulted amount was given by the Debenture Holder to the Principal Borrower and that the Applicant was only a Debenture Trustee in the said transaction, at the outset a reference need to be made to Section 71(5) of the Companies Act, 2013, in terms of which no company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding 500 for the subscription of its debentures, unless the company has before such issue or offer appointed one or more debenture trustee and the conditions governing the appointment of such trustee shall be such that as may be prescribed. In terms of the provisions of sub-section (6) of Section 71 of the Act, a debenture trustee shall take steps to protect the interests of debenture holders and redress their grievances in accordance with such rules as may be prescribed. Thus, apparently in terms of the aforementioned statutory provisions, the debenture trustee has an independent right and obligation to take steps in respect of the interest of the debenture holders and redress their grievance. The Section 71(5) & (6) of the Companies Act, 2013 reads thus: -
“71. Debentures.—
[…]
(5)No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed.
(6)A debenture trustee shall take steps to protect the interests of the debenture-holders and redress their grievances in accordance with such rules as may be prescribed.”
The provision akin to aforementioned sub-section is also contained in clause (n) of sub-rule (3) of Rule 18 of Companies (Share Capital & Debentures) Rules, 2014. The rule 18(3) reads thus: -
“18. Debentures-
[…]
(3)It shall be the duty of every debenture trustee to—
(a)satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the issue of debentures or with the trust deed;
(b)satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders;
(c)call for periodical status or performance reports from the company;
(d)communicate promptly to the debenture holders defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee therefor;
(e)appoint a nominee director on the Board of the company in the event of— (i) two consecutive defaults in payment of interest to the debenture holders; or (ii) default in creation of security for debentures; or (iii) default in redemption of debentures.
(f)ensure that the company does not commit any breach of the terms of issue of debentures or covenants of the trust deed and take such reasonable steps as may be necessary to remedy any such breach;
(g)inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of the trust deed;
(h)ensure the implementation of the conditions regarding creation of security for the debentures, if any, and debenture redemption reserve;
(i)ensure that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to discharge the interest and principal amount at all times and that such assets are free from any other encumbrances except those which are specifically agreed to by the debenture holders;
(j)do such acts as are necessary in the event the security becomes enforceable;
(k)call for reports on the utilization of funds raised by the issue of debentures;
(l)take steps to convene a meeting of the holders of debentures as and when such meeting is required to be held;
(m)ensure that the debentures have been converted or redeemed in accordance with the terms of the issue of debentures;
(n)perform such acts as are necessary for the protection of the interest of the debenture holders and do all other acts as are necessary in order to resolve the grievances of the debenture holders”
(Emphasis Supplied)
Furthermore, under Section 21(6A) of the Code, a provision has been made for appointment of a trustee or agent to act as authorized representative for all the financial creditors in the CoC and that such trustee/ agent shall act on behalf of all the financial creditors. The said provision reads thus: -
“21. Committee of creditors.—
[…]
(6A) Where a financial debt—
(a)is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors”
[…]
and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.” Thus, the Code itself contains provisions for appointment of a trustee with respect to a financial debt who shall act on behalf of the concerned financial creditors.
It is relevant to refer to the order dated 27.03.2023 passed by the Hon’ble NCLAT in Company Appeal (AT) (Insolvency) No. 1071 of 2022 titled Orbis Trusteeship Private Limited vs. Nobal Buildtech Private Limited. The Hon’ble NCLAT while dealing with the same issue mentioned above had taken into consideration a notification dated 27.02.2019 issued by the Ministry of Corporate Affairs whereby it was stated that a Debenture Trustee could file an application on behalf of the financial creditor. Relevant excerpt of the aforesaid order of Hon’ble NCLAT is extracted herein below:
“This appeal is directed against the order dated 02.06.2022 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, New Delhi Bench) in (I.B.) 143 (ND)/2022 by which an application filed under Section 7 by the Appellant (Orbis Trusteeship Service Pvt. Ltd.) as a Debenture Trustee on behalf of the Debenture Holders, for the Resolution of a debt of Rs. 255,07,26,925/- as on 02.02.2020 against Nobal Buildtech Private Ltd. (Corporate Debtor) has been dismissed on the ground that the application filed at the instance of the Appellant was not maintainable as the amount was not disbursed by the Appellant but by the Debenture Holders.
3.Since the issue involved in this case is in a very narrow compass that is as to whether the application under Section 7, preferred at the instance of the Appellant being the Debenture Trustee is maintainable or not, Counsel for the Appellant has drawn our attention to a notification dated 27.02.2019 issued by the Ministry of Corporate Affairs as per which the Trustee (including Debenture Trustee) can file an application on behalf of the Financial Creditor. The said notification is reproduced as under: -
4.Counsel for the Respondent has been fair enough to concede about the existence of the aforesaid notification.
5.Thus, in view of the aforesaid facts and circumstances, the issue is no more res-integra because of the notification dated 27.02.2019.
6.In view of the aforesaid facts and circumstances the present appeal is thus allowed. The ‘impugned order’ is set aside. The matter is remanded back to the ‘Adjudicating Authority’ to decide the case on merits. The parties are directed to appear before the ‘Tribunal’ on 1st May, 2023.”
Further, it is also relevant to refer to the letter of authorization dated 22.10.2021 given by the Debenture Holder in favour of the Applicant/ Debenture Trustee which includes the authority to make submissions/ applications before relevant regulatory/ statutory/ governmental authorities and to invoke guarantees given to the Debenture Holder under IBC, 2016 as well as other applicable laws. The extract of the aforementioned authorization letter is reproduced here below: -
Therefore, in view of the aforesaid notification of the Ministry of Corporate Affairs, reproduced in the order of the Hon’ble NCLAT, the plea raised on behalf of the Corporate Debtor that the present proceedings initiated by Debenture Trustee are not maintainable cannot be countenanced. Furthermore, the aforementioned authorization letter issued by the Debenture Holder in favour of the Debenture Trustee clearly shows that the Debenture Trustee was competent to file the present application under Section 7 of the Code before this Tribunal.
It could also be one of the contentions raised on behalf of the Respondent that the Debenture Holder and the Applicant were in control and management of the finances as well as affairs of the Principal Borrower and that such control led to mismanagement of the Principal Borrower’s finances. In this regard, it is relevant to refer to the order dated 11.09.2024 passed by this court in IB-541/ND/2022 where the application filed under Section 7 of the Code against the Principal Borrower was admitted. In passing the said order, this court had rejected the plea raised by the Principal Borrower that the default in debt could not be attributed to it since it was the Applicant/ Debenture Trustee which operated the escrow account. Relevant excerpt of the order dated 11.09.2024 reads thus: -
“17.Having drawn our attention to Exhibit-34 to Rejoinder i.e Escrow Account Agreement, the Ld. Counsel for the Corporate Debtor submitted that since in terms of Clause 3.2 of the Agreement, it was the Applicant i.e. Debenture Trustee who was operating the escrow account, the default occurred in redeeming non-convertible debentures cannot be attributed to the Respondent/CD. The Clause 3.2 relied upon by him reads thus:-
“3.2 Operation of the Escrow Accounts
(a)Each of KIPL, GPPL, and NBPL hereby unconditionally and irrevocably delegates to the Escrow Agent the authority to operate the Escrow Accounts in accordance with the terms of this Agreement, Applicable Law, and in accordance with the instructions of the Debenture Trustee (acting at all times in accordance with the Transaction Documents). It is hereby clarified that each of the RERA Designated Accounts shall be operated in accordance with the terms of this Agreement and the RERA Act. Save as provided .for in this Agreement and in the RERA Act no Person shall be entitled to issue instructions in relation to any of the RERA Designated Accounts.
(b)All transfers from the Escrow Accounts shall be made by the Escrow Agent in India only and the Escrow Agent is not permitted to make any transfers from the Escrow Account in any other jurisdiction, unless such transfer to another jurisdiction is permitted by Applicable Law. Nothwithstanding anything contained in this Agreement, in the event any instruction or directions received by the Escrow Agent from the Uttar Pradesh Real Estate Regulatory Authority pertaining to any of the RERA Designated Accounts, such instruction or direction issued by the Uttar Pradesh Real Estate Regulatory Authority shall prevail over any conflicting instructions provided by the Promoter. The Escrow Agent shall promptly, a having received any such instruction or direction from the Uttar Pradesh Real Estate Regulatory Authority, inform the Debenture Trustee and the Promoter of such instruction or direction.
(c)The Promoters shall only be entitled to issue instructions to the Escrow Agent in relation to the RERA Designated Accounts and for the limited purpose of transferring any and all sums of money from the RERA Designated Accounts to the corresponding Debenture Trustee Escrow Account. Any such. instruction issued by any Promoter shall be in the format as set out in Schedule III hereto and shall mandatorily be accompanied by (i) a certificate in the format as prescribed under the RERA Act from the project engineer of the specific RERA Project: (ii) a certificate in the format as prescribed under the RERA Act from the project architect of the specific RERA Project; and (iii) a certificate in the format as prescribed under the RERA Act from the chartered account of the specific RERA Project. It is clarified that any sum of money withdrawn from any RERA Designated Account shall mandatorily be transferred to the corresponding Debenture Trustee Escrow Account only.
(d)It is clarified that neither the Promoters nor any of their Affiliates will be permitted to issue any instructions or operate in any manner whatsoever the Debenture Trustee Escrow Accounts or the Collection Escrow Accounts. Any transfer of sums from the Collection Escrow Accounts to the corresponding RERA Designated Account and the corresponding Debenture Trustee Escrow Account will strictly be in accordance with this Agreement and Schedule II hereto. Any transfer of sums from the Debenture Trustee Escrow Accounts will strictly be in accordance with the instructions issued solely by the Debenture Trustee (acting at all times in accordance with the Transaction Documents) to the Escrow Agent.
(e)Prior to the occurrence of an Event of Default, the names of the authorised signatories of each of KIPL, GPPL, and NBPL for the sole purpose of issuing instructions in relation to withdrawal of sums from the RERA Designated Accounts to the corresponding Debenture Trustee Escrow Account and their specimen signatures for the purpose of standing instructions, notices and other related instructions to the Account Bank or to the Escrow Agent for this limited purpose shall be in accordance with the resolutions passed by the board of directors of each of the Promoters and annexed to this Agreement hereto.
Notwithstanding anything to the contrary stated in this Agreement, upon the occurrence of an Event of Default under the Debenture Trust Deed, in case of each of the RERA Designated Accounts, the Account Bank shall, immediately upon being informed of the occurrence of any such Event of Default by the Debenture Trustee (acting at all times in accordance with the terms of the Transaction Documents) and after having received a board resolution passed by the respective Promoter in this regard, revoke the authority granted to the existing signatories of each of KIPL, GPPL, and NBPL under Clause 3.2(e) above. On and from the occurrence of an Event of Default, each of the RERA Designated Accounts shall be operated solely by such director or key managerial personnel of the Promoter that is in accordance with the Transaction Documents, and each Promoter undertakes to submit a board resolution to the Account Bank and to the Escrow Agent in this regard. The signatory of each of the Promoters authorised to operate the RERA Designated Accounts upon the occurrence of an event of default and thereafter shall issue instructions substantially in the form set out in Schedule III hereto. On and from the occurrence of an Event of Default, the Escrow Agent and the Account Bank shall act on the sole instruction of only the authorised signatory of the Promoters so specified in the board resolutions passed by the Promoters upon the occurrence of an Event of Default, and the Escrow Agent and the Account Bank , shall in no way be bound by or act as per any other instructions received from any other Person, including any other signatory of KIPL, GPPL or NBPL, their Affiliates or their authorised representatives.
(f)The name of the authorised signatory of the Debenture Trustee for the purpose Debenture of issuing instructions in relation to withdrawal of sums from each of the Debenture Trustee Escrow Accounts and his specimen signature for the purpose of standing instructions, notices and other related instructions to the Account Bank or to the Escrow Agent shall be in accordance with the resolution passed by the Debenture Trustee and annexed to this Agreement hereto.
(g)The Debenture Trustee and the Promoters undertake to give the Escrow Agent. 5 (five) clear Business Days' notice in writing of any change to their authorised signatories.
(h)Amounts shall only be withdrawn from the Escrow Accounts to the extent such withdrawal does not cause any of the Escrow Accounts to have a negative balance and the Account Bank shall not have any obligation to monitor any of the Escrow Accounts for this purpose or incur any liability whatsoever from any non-distribution in such circumstances. Notwithstanding the above, the Account Bank shall be liable in an event of wilful default, gross negligence. and fraud.
(i)Upon the receipt of an occupancy certificate in relation to the Sikkd Kaamna Project, the Account Bank shall. and the Escrow Agent shall procure that the Account Bank does, transfer all funds lying, from time to time, to the credit of the KIPL RERA Designated Account and the KIPL Collection Escrow Account to the KIPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement. It is hereby clarified that required instruction shall be provided by the Debenture Trustee to the Account Bank for activating such auto-sweep. The Account Bank and the Escrow Agent.shall not take instructions from any other Person or entity in this regard. Upon the transfer of all funds from the KIPL RERA Designated Account and the KIPL Collection Escrow Account to the KIPL Debenture Trustee Escrow Account, the Debenture Trustee, upon receiving such request from KIPL and subject to clause 7.6 below, shall be entitled to (but not obliged to) issue a confirmation to the Account Bank to close the KIPL RERA Designated Account only. It is hereby clarified that upon the closure of the KIPL RERA Designated Account. all amounts lying, from time to time, to the credit of the KIPL Collection Escrow Account shall be transferred only to the KIPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement.
(j)Upon the receipt of an occupancy certificate in relation to the Sikka Karmic Project, the Account Bank shall, and the Escrow Agent shall procure that the Bank does, transfer all funds lying, from time to time, to the credit of the GGPL RERA Designated Account and the GPPL Collection Escrow Account to the GPPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement. It is hereby clarified that required instruction shall be provided by the Debenture Trustee to the Account Bank for activating such auto-sweep. The Account Bonk and the Escrow Agent shall not take instructions from any other Person or entity in this regard. Upon the transfer of all funds from the GPPL RERA Designated Account and the GPPL Collection Escrow Account to the GPPL Debenture Trustee Escrow Account, the Debenture Trustee, upon receiving such request from GPPL, and subject to clause 7.6 below, shall be entitled to (but not obliged to) issue a confirmation to the Account Bank to close the GPPL RERA Designated Account only. It is hereby clarified that upon the closure of the GPPL RERA Designated Account, all amounts lying, from time to time, to the credit of the GPPL Collection Escrow Account shall be transferred only to the GPPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement.
(k)Upon the receipt of an occupancy certificate in relation to the Sikka Kirat Project, the Account Bank shall, and the Escrow Agent shall procure that the Account Bank does, transfer all funds lying, from time to time, to the credit of the NBPL RERA Designated Account and the NBPL Collection Escrow Account to the NBPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement. It is hereby clarified that required instruction shall be provided by the Debenture Trustee to the Account Bank for activating such auto-sweep. The Account Bank and the Escrow Agent shall not take instructions from any other Person or entity in this regard. Upon the transfer of all funds from the NBPL RERA Designated Account and the NBPL Collection Escrow Account to the NBPL Debenture Trustee Escrow Account, the Debenture Trustee, upon receiving such request from NBPL, and subject to clause 7.6 below, shall be entitled to (but not obliged to) issue a confirmation to the Account Bank to close the NBPL RERA Designated Account only. It is hereby clarified that upon the closure of the NBPL RERA Designated Account, all amounts lying, from time to time, to the credit of the NBPL Collection Escrow Account shall be transferred only to the NBPL Debenture Trustee Escrow Account on a daily auto-sweep basis at the close of each Business Day during the term of this Agreement.”
“18.In terms of the aforementioned clause, the power to operate escrow account was given to some agent nominated by the Applicant, but merely because certain person nominated by the bankruptcy trustee is authorised to operate the account, it cannot be said that there is no default on behalf of the Corporate Debtor as it is not the case of the Corporate Debtor that there was sufficient amount available in the account to redeem the debentures on due dates. Thus, we do not find any force in the plea on behalf of the Corporate Debtor that merely because the Applicant was allowed to nominate a person to operate the escrow account, the present application is not maintainable for the reasons that the operator of account could not make the payment.”
In terms of the aforesaid order of this court, the contention raised by the CD that the default in repayment occurred to mismanagement on the part of the Applicant in managing the finances of the Principal Borrower is not tenable.
The Ld. Counsel for the CD vehemently contended that there were irregularities/ defects in the affidavit enclosed with the application as well as in the execution of vakalatnama on behalf of the Applicant. The Ld. Counsel emphasised that such irregularities/ defects violate the provisions of the CPC thus, the petition is liable to be dismissed. In this regard, it need to be noted as to whether the proceedings before this Authority/ Tribunal is strictly governed by the Code of Civil Procedure, 1908. As per Section 424(1) of the Companies Act, 2013, this Tribunal is not bound by CPC but shall be guided by principles of natural justice. The said provision reads thus: -
“Section 424. Procedure before Tribunal and Appellate
Tribunal.— (1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act or of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)] and of any rules made hereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.”
(Emphasis Supplied)
It is also relevant here to refer to the order passed by Hon’ble NCLAT in G. Rajendran v. Naargo Industries (P) Ltd. [2023 SCC OnLine NCLAT 622], wherein the Hon’ble Appellate Tribunal made the following observations on the applicability of CPC in proceedings before NCLT: -
“54.To be noted, that when a ‘civil suit’, is filed, all the provisions of the ‘Civil Procedure Code’, 1908 will apply, pertaining to the ‘conduct of the proceedings before Court’. However, in respect of proceedings filed under the ‘Companies Act, 2013’, the procedure, to be followed, shall be as ‘specified in the Rules’.
55.As a matter of fact, any order, passed by the Tribunal/Appellate Tribunal, shall be enforced as a ‘Decree’, passed by the ‘Court’. The fetters of ‘Civil Procedure Code’, are not binding on the ‘Tribunal’, and the ‘Appellate Tribunal’, but they are guided by the ‘Principles of Natural Justice’.
56.Rule 20 of ‘NCLT’ Rules, 2016, specified the ‘procedure’, to be followed, for ‘institution of proceedings’, ‘petition’, Appeals etc. Rule 23 of ‘NCLT’ Rules, 2016, deals with the ‘presentation of petition or Appeal’.
57.It must be borne in mind, that ‘Orders’ and ‘Rules’ of ‘Civil Procedure Code’, shall not be made, in matters under the Companies Act, 2013. No wonder, that ‘Tribunal’, and the ‘Appellate Tribunal’, being ‘creatures of statutes’, are required, to adhere to the ‘Principle of Natural Justice’, ‘in proceedings’, before it.”
Regarding the contention raised by Mr. Khosla that in the vakalatnama filed on behalf of the Petitioner, there is no mention of name and designation of the signatory on behalf of Orbis Trusteeship Services Private Limited, it is noted that the signature affixed on the affidavit annexed with the petition i.e., that of Mr. Rejoy Basu are same as affixed on the vakalatnama and apparently the affidavit contains the particulars of Mr. Rejoy Basu. Although, the contention raised by Mr. Khosla about the infirmities in vakalatnama is not without basis and we appreciate the pain taken by him in collecting the material to buttress the plea, but once this Tribunal is able to ascertain the identity of the person executing the document, it need not go into the issue of whether the absence of the name and designation of the signatory would make a document invalid or not. At this stage, we may also take note of explanation below third proviso to Section 7(1) of IBC, 2016, which in terms of the judgment of the Hon’ble Supreme Court in Pioneer Urban Land & Infrastructure vs. Union of India [AIR 2019 SC 4055] has statutory flavour and need to be read as part of the statute. In terms of the explanation, for the purpose of Section 7(1) (ibid), a default includes a default in respect of a financial debt owed not only to the Applicant/ FC, but to any Financial Creditor of the Corporate Debtor. The said explanation reads thus:
“Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish— (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board.”
Apparently, the strict rules applicable to the pleadings/ procedure before civil courts may not be applied to the proceedings before this Adjudicating Authority under the IBC and here in these proceedings, a person can initiate the CIRP even qua the default in respect of financial debt owed to any other financial creditor of the Corporate Debtor. The reason is simple i.e. the objective of the IBC is not to provide redressal or remedial measure qua the grievance of the creditor against the debtor in the matter of non-repayment of the amount of debt but is to nourish wider public interest in resolving corporate insolvencies. It is misconception that the object of the Code is recovery of monies/ dues outstanding. In a way, the IBC is beneficial legislation. Thus, when a person, individual or otherwise, is associated with the process of initiation of CIRP, does not pursue his individual cause or remedy and only nourish the public interest in resolving the corporate insolvencies, the principles applicable to non-suit a plaintiff/ petitioner on technicalities may not be applied to Applicant/ Petitioner associated with the proceedings under the IBC.
The proposition regarding requirement of examination of the documents like vakalatnama by this Tribunal in detail is fortified by the view taken in a catena of judgments wherein it has been held that this Tribunal is not required to check the veracity of all the documents presented before it in summary proceedings and that any view on the contrary would defeat an important objective of this Code i.e., speedy disposal of cases. This principle was enunciated by the Hon’ble NCLAT in the matter of Gokul Exim Pvt. Ltd. v. Grid India Power Cable Pvt. Ltd. [MANU/NL/1259/2022] wherein the Hon’ble Appellate Tribunal held that: -
“9.The Respondent has alleged that invoices have been forged by the Applicant to extort money from the Respondent and the Respondent has placed on record certain document which shows that vehicles that used to carry the goods does not have the capacity to carry such quantity of goods which was denied by the applicant and stated that the Corporate Debtor has its own transportation carrier. The amount of debt due, if any, cannot be ascertained as long as the authenticity of invoices is proved. The dispute with respect to forgery of invoices cannot be decided by this Adjudicating Authority. It is settled law that proceedings before NCLT are summary in nature and adversarial evidence cannot be led and appraised by this Tribunal. This Adjudicating Authority is not expected to ascertain the veracity of invoices raised in a summary proceeding, if the Tribunal starts adjudicating these types of issues, then the purpose of enacting the statute for speedy disposal by the mechanism will be defeated, therefore, the Applicant may explore other legal remedies.”
(Emphasis Supplied)
Further, the Hon’ble NCLAT in Rakesh Kumar vs. Flourish Paper & Chemicals Ltd. [Company Appeal (AT)(Insolvency) No. 1161 of 2022] held that the Adjudicating Authority cannot adjudicate upon disputes surrounding claims and counter- claims in their summary jurisdiction. Relevant extract of the said order reads thus: -
“It has also been rightly observed that disputes surrounding claims and counter-claims cannot be adjudicated or determined by the Adjudicating Authority given their summary jurisdiction.”
In the present case, once this Tribunal has formed a view that the Debenture Trustee was competent to file an application as a financial creditor under Section 7 of the Code on behalf of the Debenture Holder, any plea that a person working with the Debenture Trustee could not be said to be a person authorized by the financial creditor to file the applicant is not tenable.
Here, it would not be out of context to note that as far as this Tribunal is concerned, not only a lawyer alone but even a Chartered Accountants or Company Secretaries or Cost Accountants or any other person may be authorized by party to any proceeding before this Tribunal or Appellate Tribunal. The provisions contained in Section 432 of the Companies Act, 2013 in this regard reads thus: -
“432.Right to legal representation.— A party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the case may be, may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to present his case before the Tribunal or the Appellate Tribunal, as the case may be.”
The term ‘vakalatnama’ is derived from two words: ‘vakalat’ which means authority or power of attorney and ‘nama’ which means a document. It is a legal document in India that authorizes an advocate to represent a party in the court. The meaning of vakalatnama is defined in the Advocates Welfare Fund Act, 2001 under which the vakalatnama includes a memorandum of appearance or any other document which an advocate is empowered to appear or plead before any court. Thus, the vakalatnama denote relationship between an advocate and the person authorizing him. The contents of vakalatnama and the mention of particulars thereon properly may be an issue to be examined in depth, but as far as the representation of party before this Tribunal is concerned, besides Section 432 of Companies Act, 2013, also Rule 45 and 119 of NCLT Rules, 2016 deal with the same. In terms of Rule 45(1), every party may appear before this Tribunal in person or through an authorized representative duly authorized in writing in this behalf. Thus, the representative before this Tribunal, including the lawyer, only need to have an authorization in writing to appear before this Tribunal. The Rules 45 and 119 of the NCLT Rules, 2016 read thus:
“45.Rights of a party to appear before the Tribunal.- (1) Every party may appear before a Tribunal in person or through an authorised representative, duly authorised in writing in this behalf.
(2)The authorised representative shall make an appearance through the filing of Vakalatnama or Memorandum of Appearance in Form No. NCLT. 12 representing the respective parties to the proceedings.
(3)The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorise an officer or an Advocate to represent in the proceedings before the Tribunal.
(4)The officer authorised by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor.
(5)During any proceedings before the Tribunal, it may for the purpose of its knowledge, call upon the Registrar of Companies to submit information on the affairs of the company on the basis of information available in the MCA21 portal. Reasons for such directions shall be recorded in writing.
(6)There shall be no audio or video recording of the Bench proceedings by the parties or their authorised representatives.”
XXX
“119.Appearance of authorised representative.- Subject to as hereinafter provided, no legal practitioner or authorised representative shall be entitled to appear and act, in any proceeding before the Tribunal unless he files into Tribunal vakalatnama or Memorandum of Appearance as the case may, duly executed by or on behalf of the party for whom he appears.”
It is seen from the above that the contents of the affidavit referred to in Delhi High Court Rules relied upon by Mr. Khosla, Ld. Counsel for the CD, the same are applicable to the deponent other than the plaintiff/ applicant. In the present case, Mr. Basu could swear the affidavit in the capacity of the Applicant/ Petitioner only. Only the details of the deponent other than Plaintiff need to be such as indicated in the rules, for the reasons that his particulars are not supposed to be available in the record. As far as the person who is authorized by the Plaintiff/ Applicant to institute the proceedings and who act as Applicant, his details are there in the proceedings, thus mere omission to mention his extensive details in the affidavit would not vitiate the same.
As far as swearing of affidavit is concerned, as can be seen from Article 25-28 of the Constitution, every citizen of this country has freedom to practice religion of his choice. Article 25-28 of the Constitution reads thus:
“25.Freedom of conscience and free profession, practice and propagation of religion.
(1)Subject to public order, morality and health and to the other provisions of this Part, all persons are equally entitled to freedom of conscience and the right freely to profess, practise and propagate religion.
(2)Nothing in this article shall affect the operation of any existing law or prevent the State from making any law— (a) regulating or restricting any economic, financial, political or other secular activity which may be associated with religious practice; (b) providing for social welfare and reform or the throwing open of Hindu religious institutions of a public character to all classes and sections of Hindus.
Explanation I.—The wearing and carrying of kirpans shall be deemed to be included in the profession of the Sikh religion.
Explanation II.—In sub-clause (b) of clause (2), the reference to Hindus shall be construed as including a reference to persons professing the Sikh, Jaina or Buddhist religion, and the reference to Hindu religious institutions shall be construed accordingly.
26. Freedom to manage religious affairs-
Subject to public order, morality and health, every religious denomination or any section thereof shall have the right—
(a)to establish and maintain institutions for religious and charitable purposes;
(b)to manage its own affairs in matters of religion;
(c)to own and acquire movable and immovable property; and
(d)to administer such property in accordance with law.
27. Freedom as to payment of taxes for promotion of any
particular religion- No person shall be compelled to pay any taxes, the proceeds of which are specifically appropriated in payment of expenses for the promotion or maintenance of any particular religion or religious denomination.
28. Freedom as to attendance at religious instruction or religious worship in certain educational institutions-
(1)No religious instruction shall be provided in any educational institution wholly maintained out of State funds.
(2)Nothing in clause (1) shall apply to an educational institution which is administered by the State but has been established under any endowment or trust which requires that religious instruction shall be imparted in such institution.
(3)No person attending any educational institution recognised by the State or receiving aid out of State funds shall be required to take part in any religious instruction that may be imparted in such institution or to attend any religious worship that may be conducted in such institution or in any premises attached thereto unless such person or, if such person is a minor, his guardian has given his consent thereto.”
Further, the Preamble to the Constitution of India declares that India has been constituted into a sovereign, socialist, secular, democratic republic. The Hon’ble Supreme Court in Re: Berubari Union (I) [1960 SCC OnLine SC 23] had held that the declaration made by the people of India in exercise of their sovereign will in the preamble to the Constitution is, “a key to open the mind of the makers” which may show the general purposes for which they made the several provisions in the Constitution. Thus, the expression ‘secular’ in the preamble emphasizes the objective for which Articles 25-28 of the Constitution were enacted i.e., to constitute the independent India into a secular country where the citizens would have the freedom to practice religion of his choice.
On this issue, we have also perused the Background Paper titled ‘Oaths of Allegiance and the Canadian House of Commons’ bearing no. BP-241E, authored by Michael Bedard and James R. Robertson, which was placed on record by the Ld. Counsel for the CD. The Ld. Counsel for the CD placed reliance on this paper, particularly on page 4 and 5, wherein the consequence of omission in taking oath by a member of House of Commons was discussed. After perusal of the same, we see that the same deals with the issue of taking of an oath by an atheist and that certain objections were raised in the British Parliament that neither an oath by an atheist could be allowed to be taken nor an affirmation could be allowed in lieu of an oath. We further note that eventually in 1888, the law was changed so as to enable anyone to make an affirmation in lieu of an oath. In this regard, we note that cases pertaining to oaths and affirmations by a legislator of a foreign country are not applicable to the facts of the present case where the deponent has signed an affidavit on behalf of a body corporate in relation to a legal proceeding.
Furthermore, it is also relevant to refer to Rule 16 of Chapter 12-“Oaths, Affirmations and Affidavits” of the Delhi High Court Rules which provides the freedom to a deponent qua an affidavit to swear an oath or to affirm before the court, magistrate or other officers appointed in this behalf. Relevant excerpt of Rule 16 reads thus: -
“16.Manner of administering oath to deponent—In administering an oath or affirmation to the declarant in the case of any affidavit under the Code of Civil Procedure, the Court, Magistrate or other officer appointed in that behalf shall be guided by the rules under the Indian Oaths Act, 1873, printed in Part A of this Chapter and shall follow the form of verification by oath or affirmation hereto appended.
I—Form of Verification of Oath or Affirmation
(Vide Paragraph 15 Above)
Oath
I solemnly swear that this my delcaration is true, that it conceals nothing, and that no part of it is false—so help me God !
Affirmation
I solemnly affirm that this my declaration is true, that it conceals nothing, and that no part of it is false.”
Thus, the conclusion derived after considering the plea made on behalf of the Ld. Counsel for the CD as well as the constitutional articles pertaining to freedom of religion is that it is a person’s choice to choose the manner in which he prefers to take oath. Except in the matters relating to their respective personal laws, any objection to the affidavit filed by a person on ground that the oath/affirmation given by such person does not conform to his religion cannot be entertained. The material adduced by Mr. Khosla before this Tribunal just indicate the method and manner adopted by the people practicing different religions to take oath.
It is also contended on behalf of the CD that there is no proper authorization in favour of Mr. Basu, who has signed the affidavit. As can be seen from the compilation of documents produced by Mr. Khosla himself, the debenture trustee has authorized Mr. Rejoy Basu to sign and submit the applications/ plaints/ petitions/ counter-claims or documents required to be filed in courts/ NCLT or any other authorities on its behalf. The authorization available on record at page 886 (Exhibit 31 of the paperbook) reads thus:
From the affidavit available on record at page 27 of the petition (page 22 of the compilation of documents produced on behalf of the Corporate Debtor) it is seen that Mr. Rejoy Basu is working as an executive at Orbis Trusteeship Services Private Limited. Thus, he is an officer in terms of the provisions of the Companies Act, 2013.
As far as the plea espoused by Mr. Khosla regarding filing of Application directly by Orbis Trusteeship Services Private Limited and not on behalf of debenture holder is concerned, a reference has already been made to Section 71 of the Companies Act, 2013 which amplify the role of debenture trustee. Nevertheless, it can also be seen from the contents of the application that at page 8 and also Part IV of the application, it has been amplified that the debenture trustee is acting for the benefit and on behalf of debenture holders. Relevant excerpts of the application read thus: -
“Madam/ Sir, Orbis Trusteeship Services Private Limited (acting for the benefit of the Debenture Holders, i.e. Asia Pragati Strategic Investment Fund), hereby submits this application to initiate a corporate insolvency resolution process in the matter of Nobal Buidtech Private Limited, being the corporate guarantor for secured financial debt advanced to Kindle Infraheights Pvt. Ltd. The Applicant is the Debenture Trustee and acts on behalf of and for the benefit of the Debenture Holder, Asia Pragati Strategic Investment Fund.”
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After dealing with the aforementioned pleas raised on behalf of the Ld. Counsels for both the parties, this Tribunal is to see whether the financial facility in the facts of the present case constitutes a financial debt for the purposes of Section 5(8) of the Code. This issue has already been answered in the affirmative in the order dated 11.09.2024 passed by this court in IB-541/ND/2022. At the cost of repetition, the relevant excerpt of the said order is reproduced herein below: -
“19.To keep the legal process straight, we may make a reference to provisions of Section 5(8)(c) of IBC, 2016 which provides that any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument would constitute financial debt. The Clause reads thus:-
“5.Definitions.— …..
(8)financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes— ….. (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;”
20.The Section 5(8) provides that the financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money. We find that in the present case, the trust deed provided for interest payable on the amount of consideration of non-convertible debentures.
21.Here it would not be out of context to mention that there are multiple financial transactions between the Debenture Holders and the Corporate Debtor and anything observed by us hereinabove would not reflect on the exact amount of NCD. What we are concerned about in the present proceedings is the threshold limit of amount of default which is mentioned at Rs. 1 crore in Section 4 of IBC, 2016 […]”
Further, in terms of the provision of Section 7(5) of IBC, 2016, while considering the application for admission, this Tribunal would satisfy itself as to whether the default has occurred, the application is complete and that no legal proceedings are pending against the proposed Resolution Professional. Section 7(5) of the Code reads thus: -
“7. Initiation of corporate insolvency resolution process by financial creditor.
[…]
(5)Where the Adjudicating Authority is satisfied that – (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application;
(b)default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.” In the present case, the Respondent has not disputed the debt and the default in repayment of the same. Indubitably, the financial facility was extended and there is default in redemption of the debentures.
In Part- III of the application, the Applicant has proposed the name of Mr. Hemant Sethi to act as the Interim Resolution Professional. Relevant excerpt of the same reads thus: -
It is also pertinent to mention that the aforementioned proposed IRP has submitted a declaration under Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by way of Form 2 to indicate that no legal proceedings are pending against him. The relevant excerpt of the same reads thus: -
In the facts and circumstances of the case, as noted above we are left with no option but to admit the present application. Ordered accordingly.
In the wake, moratorium as provided under Section 14 of IBC, 2016 is declared qua the CD and as a necessary consequence thereof the following prohibitions are imposed, which must be followed by all and sundry:
The institution of suits or continuation of pending suits or proceedings against the Respondent 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 Respondent any of its assets or any legal right or beneficial interest therein;
Any action to foreclose, recover or enforce any security interest created by the Respondent 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 Respondent.
As proposed by the Petitioner, Mr. Hemant Sethi, having Registration No. IBBI/IPA-002/IP-01107/2021-2022/13628, is hereby appointed as IRP. It is further ordered that Mr. Hemant Sethi, shall take charge of the CIRP of the Corporate Debtor with immediate effect and would take steps as mandated under the IBC specifically under Section 15, 17, 18, 20 and 21 of IBC, 2016 read with extend provisions of IBBI (Insolvency Resolution of Corporate Persons) Regulations, 2016.
The Petitioner is directed to deposit Rs. 2,00,000/- with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as accounted for by Interim Resolution Professional and shall be paid back to the Financial Creditor.
A copy of this Order shall immediately be communicated by the Registry/Court Officer of this Tribunal to the Petitioner /Financial Creditor, the Respondent/Corporate Debtor and the IRP mentioned above.
In addition, a copy of this Order shall also be forwarded by the Registry/Court Officer of this Tribunal to the IBBI for its record.