Santoshi Finlease Private Limited vs Mothers Pride Dairy India Private Limited

PER: SH. L. N. GUPTA, MEMBER (T)

The IA No. 1695 of 2023 has been filed by the State Bank of India (hereinafter referred to as “Applicant Bank”) against the Respondents M/s Santoshi Finlease Private Limited (R-1) and M/s Mothers Pride Dairy India Private Limited (R-2) under Section 65 of IBC 2016, read with Rule 11 of NCLT Rules, 2016 seeking the following reliefs:

The (IB) Petition No. 662(ND)/2022 is filed by M/s Santoshi Finlease Private Limited (R-1 in the IA-1695/2023) under Section 7 of IBC, 2016 for initiating the CIR process against the Corporate Debtor namely, M/s Mothers Pride Dairy India Private Limited (R-2 in the IA-1695/2023).

As the facts of both IA No. 1695 of 2023 (hereinafter, “Application”) and (IB) Petition No. 662(ND)/2022 (hereinafter, “Petition”) are overlapping, for the sake of convenience, they are taken up together for adjudication.

The Applicant Bank/SBI has filed the IA No. 1695 of 2023 to seek dismissal of the Section 7 petition filed by M/s Santoshi Finlease Private Limited against M/s Mothers Pride Dairy India Private Limited (hereinafter, “Corporate Debtor”) on the ground that the said petition has been filed with malicious and fraudulent intent. In support of its contention, the Applicant Bank has stated the following:

The promoters of the Corporate Debtor Sh. Anant Kumar Chaudhary and Smt. Shalini Chaudhary, holding - 90% of the shares resigned from the Board and transferred their entire shareholding to one Mr. Navneet Jain. Further, Sh. Anant Kumar Chaudhary and Smt. Shalini Chaudhary left the country and changed their residential status to NRI and started living in Hong Kong.

The Corporate Debtor has changed its management without obtaining prior permission/NOC from the Applicant Bank. As per MCA Master Data, Sh. Navneet Jain and Sh. Sushil Kumar Singh are the present Directors of the Corporate Debtor.

In order to revive the Corporate Debtor, Director Shri Navneet Jain approached companies having good credentials like Mother Dairy, Amul, Paras ITC, etc. to get vending jobs. A Memorandum of Understanding was executed on the 14th of March 2018 between Mothers Dairy Fruit & Vegetable Private Limited and the Corporate Debtor, wherein the former agreed to start its poly-pack milk operations in its brand on a Sales and Purchase Agreement model and principal-to-principal basis.

In 2019, the then Directors of the Corporate Debtor entered into an investment arrangement with a group of individuals (family members) namely: Ms. Seema Mittal, Mr. Kaushal Mittal, Mr. Yug Mittal and Mr. Rishik Mittal (“Mittal Family Members”) and all of them were Directors of the Corporate Debtor from 01.07.2019 to 23/24.09.2019.

During the said period of 01.07.2019 to 23/24.09.2019, the Mittal Family Members constituted the majority on the Board of the Corporate Debtor, and during the same period, the alleged Board resolution of the Corporate Debtor dated 30.07.2019 (as referred to in the Section 7 petition) was passed and alleged Loan Agreement dated 17.08.2019 (as referred to in the Section 7 petition) was executed between the Petitioner and the Corporate Debtor. One Mr. Kaushal Mittal passed the alleged Board Resolution dated 30.07.2019 on behalf of the Corporate Debtor, who is also the Director of Respondent No. 1 (i.e., the Petitioner of Section 7 Petition) from 02.08.2005 till today.

While Mr. Yug Mittal (the then Director of the Corporate Debtor and an existing Director of the Petitioner i.e., Santoshi Finlease Pvt. Ltd.) executed the alleged Loan Agreement on behalf of the Corporate Debtor, one Ms. Kriti Mittal executed the alleged loan agreement on behalf of the Petitioner Company i.e., Santoshi Finlease Pvt. Ltd.

Based on an application filed by the Ex-Director, Smt. Shalini Chaudhury, CD Mothers Pride Dairy India Private Limited was admitted into CIRP by way of the order dated 13.11.2019 passed by this Adjudicating Authority and the CIR process (hereinafter, “Earlier CIRP”) was commenced.

During the “Earlier CIRP” of the Corporate Debtor, claims were invited and collated by the RP and accordingly, the constitution of the CoC varied over the period of the CIRP. During the CIRP, the claims of the Respondents (Santoshi Finlease Private Limited) and its sister concern (Santoshi Hyvolt Electricals Private Limited) were filed as Financial Debt. Accordingly, they were in the list of financial creditors, without having a right to vote, being a related party to the Corporate Debtor. During the first few meetings, the Mittal Family Members attended the CoC meetings, as part of “Suspended Management/ Suspended Directors”.

On an appeal filed by one of the Directors of the CD, Sh. Sushil Kumar Singh, the Hon'ble NCLAT vide its order dated 05.08.2022 set aside the order dated 13.11.2019 passed by the Adjudicating Authority, and accordingly, the Corporate Debtor was out of the CIRP.

Thereafter, the SBI, the sole secured financial creditor re-initiated SARFAESI action and arranged for a fresh valuation of the properties of the CD, and for redirection of CMM/DM orders which were issued 03 years back. Reserve Price for e-auction under SARFAESI was approved at Rs.28.68 crore on 08.02.2023. SBI took the physical possession of the plant on 22.02.2023, upon obtaining orders of CMM/DM, and also revived the OA-1039 of 2019 before the Hon'ble DRT, Delhi.

The Section 7 petition filed by the Petitioner is nothing but an attempt to stall the recovery proceedings under SARFAESI Act 2002. As such the Applicant (SBI) has already lost 03 years’ time since the Corporate Debtor was under the CIR process in November 2019.

The Petitioner of Section 7 Petition/R-1 in the present IA i.e., Santoshi Finlease Pvt. Ltd. has filed its reply and stated the following:

Applicant Bank has failed to show any collusion between the parties. It is a bald allegation without any documentary evidence. It is alleged by the Applicant that the Loan Agreement dated 17.08.2019 was signed by Mr. Yug Mittal in the capacity of Additional Director (who was not the Director of Petitioner at the time of signing of the said Agreement) on behalf of the Corporate Debtor/R-2 in the present IA, under the Board Resolution signed by Mr. Kaushal Mittal, who was Additional Director in the CD company and also the Director in the Petitioner company during the relevant time.

It is also submitted that at the time of default, Mr. Kaushal Mittal and Mr. Yug Mittal along with all other Directors of the Mittal family had resigned and had no control over R-2/CD, and the agreement continued without any amendments by the incoming Director after 26th of September 2019 and upon incoming Director’s request to release the money from the Corporate Debtor.

The Applicant Bank wants to get its own house in order and for it would not like the present CIRP to be triggered as Applicant had committed several financial irregularities/delinquencies and the same were brought before this Hon'ble Tribunal in IAs No. 3340/2020, IA/4296/2020 filed in the CP (IB)/2122/2019 by the then IRP but could not be adjudicated, as those IAs became infructuous due to the effect of order dated 05.08.2022 of the Hon’ble NCLAT.

The Applicant herein has wrongfully alleged that during the first few meetings of the CoC, the Mittal family members attended the meetings as part of Suspended Management/Suspended Directors. It is submitted that Mittals never attended any COC meeting as Suspended Management/Suspended Directors.

The R-2/Corporate Debtor - Mothers Pride Dairy India Pvt. Ltd. has filed its reply and written synopsis in the main petition IB-662(ND)/2022 and has stated that -

The Mittals have claimed in their petition and affidavits that they were not shareholders of the Corporate Debtor i.e., Mothers Pride Dairy India Pvt. Ltd. (hereinafter referred to as “Mothers Pride”) However, Mittals allegedly have shareholding certificates, which were mailed to the then IRP in CP IB No. 2122/2019.

The Corporate Debtor/Mothers Pride Dairy India Pvt. Ltd. was under the complete control of Mittals. The only non-Mittal Director i.e., Shri Navneet Jain was never called for any board meeting and everything was decided by Mittals. All the records of Mothers Pride were with Mittals. Even the registered office of Mothers Pride was under the control of Mittals and the same is also reflected in the alleged loan agreement dated 17.08.2019 too, as the registered offices of both the borrower and lender are the same. Mr. Yogesh Mittal also admits that he was in possession of Mothers Pride in his email dated 26.08.2019 [Annexure R4, Page 45 of Reply to IA 1695/2023 by Mothers Pride].

The present petition is collusive between Mittals and Petitioner/ alleged FC/Petitioner. The alleged Loan Agreement dated 17.08.2019 was signed by Shri Yug Mittal on behalf of Mothers Pride and by Ms. Kriti Mittal on behalf of Petitioner/Santoshi Finlease. Effectively, Mittals gave the alleged loan to Mittals. It is pertinent to note that the same Mr. Yug Mittal has filed the present petition on behalf of the Petitioner.

The alleged loan documents annexed by the Applicant are Forged, as the alleged loan agreement never existed in the records of Mothers Pride. Even after the Order dated 05.08.2022 passed by the Hon’ble NCLAT in Company Appeal (AT) (Ins) 135/2020, when Mothers Pride got revived from insolvency in CP IB 2122/2019, the present Directors took records from the RP, wherein the alleged loan agreement was non-existent.

The sole intention of Mittals is to take over Mothers Pride by hook or crook. They tried to do so immediately after signing the term sheet. At that time, Mothers Pride was in financial distress, and Mittals took complete control without complying with the terms of the Term Sheet dated 19.06.2019.

Again, during Mothers Pride’s CIRP in CP IB 2122/2019, at first instance, the then IRP denied admitting Mittals’ claim, however, the same was later admitted for the best reason known to IRP and Mittals. Moreover, Mittals through the petitioner’s sister concern Santoshi Hyvolt Pvt. Ltd. attempted to take over Mothers Pride by filing a resolution plan, which also failed. This is the third attempt to achieve indirectly what could not be achieved directly so far.

The Applicant Bank/SBI has also filed its Written Submissions stating the following:

Apparently, disputes arose over some issues between the Mittal Family Members and the Other Group on account of the alleged concealment of material facts. It is stated by the Petitioner [Refer page 6 and para 9 of the Additional Affidavit dated 03.03.2023 filed by the Petitioner] that owing to the dispute concerning misrepresentation, Mr. Yogesh Mittal was forced to file a police complaint in the month of August 2019 against Mr. Anant Choudhary, Mrs. Shalini Choudhary, Mr. Vikas Yadav and Mr. Navneet Jain. The CD claims that disputes arose because the Mittal Family did not invest the agreed amount.

The case of the Petitioner is that CD/Mothers Pride borrowed a sum of Rs.5,00,00,000/- from the Petitioner/Santoshi Finlease under the loan agreement dated 17.08.2019, which CD failed to repay, hence the Section 7 Petition is filed. It is pertinent to note that the loan agreement dated 17.08.2019 was executed between the Petitioner and the CD during the period from 01.07.2019 till 23/24.09.2019 when the Mittal Family was in control of CD. In other words, Mittal Family, being in control of CD, decided to borrow from Petitioner Company (in control of the Mittal Family). Mr. Yug Mittal, who has filed the present Petition on behalf of the Petitioner signed the said loan agreement on behalf of CD, and his sister Ms. Kriti Mittal (it was admitted by Petitioner’s counsel during the hearing that Ms. Kriti Mittal is the sister of Mr. Yug Mittal) signed the loan agreement on behalf of the Petitioner Company. The CD has denied the existence of any such loan agreement in its record. The alleged Board Resolution of the CD dated 30.07.2019 [Refer pages 39 and 40 of the Company Petition C.P. (IB) No. 662/ND OF 2022 filed by the Petitioner] certified by Mr. Kaushal Mittal of Mittal Family. Mr. Kaushal Mittal has been the Director of the Petitioner (M/s. Santoshi Finlease) since 02.08.2005.

The “Earlier CIRP” was initiated against CD vide order dated 13.11.2019 passed by this Adjudicating Authority in C.P. No. IB 2122(ND)/2019. The Petitioner attempted to take over the CD through its sister concern, Santoshi Hyvolt Electricals Private Limited, which submitted a resolution plan for the CD. [Refer to the minutes of the 9th Meeting of the CoC, @Annexure A6 (Colly) of the IA 1695 of 2023 (Page 124)]. The Applicant Bank/SBI did not accept any resolution plan. The CIRP was eventually terminated as the CIRP order was set aside by Hon’ble NCLAT vide its order dated 05.08.2022.

We have gone through the documents placed in IA No. 1695/2023 and petition IB-662(ND)/2022 and heard the submissions of the Applicant Bank (SBI), the Petitioner of the Section 7 Application (Santoshi Finlease Pvt. Ltd./R-1), and the Corporate Debtor (Mothers Pride India Pvt. Ltd./R-2).

By filing the present application, the Applicant Bank has sought dismissal of the Section 7 petition filed by M/s Santoshi Finlease Private Limited against M/s Mothers Pride Dairy India Private Limited on the ground that the said petition is filed with malicious and fraudulent intent. In order to examine the intent of filing the Section 7 Petition, we first refer to the transaction alleged to have taken place between the parties vide the Agreement dated 17.08.2019. The relevant extracts of the said Agreement read thus:

On perusal of the Loan Agreement (ibid), it is observed that Mr. Yug Mittal signed the Loan Agreement on behalf of Mothers Pride Dairy Private Limited (i.e., the Corporate Debtor), while Ms. Kriti Mittal signed the loan agreement on behalf of Santoshi Fin lease Private Limited (i.e., the Petitioner). During the course of hearing, Ld. Counsel appearing for M/s Santoshi Finlease Pvt. Ltd. fairly admitted that Ms. Kriti Mittal is the sister of Mr. Yug Mittal.

It is further contended by the Applicant Bank/SBI that Mr. Yug Mittal, who signed the loan agreement dated 17.08.2019, was Director in both Companies (i.e., the Petitioner as well as the Corporate Debtor). In order to substantiate its contention, the Applicant Bank/SBI has annexed the Master data of both Companies. The Master data of Mothers Pride Dairy India Private Limited is given below:

The Master data of Santoshi Finlease Private Limited is as given below:

On perusal of the Master Data of both Companies (ibid), it is observed that both Mr. Kaushal Mittal and Yug Mittal are Directors in both Companies namely, M/s. Santoshi Finlease Private Limited (Petitioner of the Section 7 Petition) and M/s. Mother Pride Dairy India Private Limited (CD/Respondent of the said petition), on the following dates:

From the Master Data of both the Companies, it is further observed that the Books of Accounts of both the Companies are kept at the same address i.e., D-190 Sector 63 Gautam Budhha Nagar, U.P - 201301. 12. As noted earlier, the Loan Agreement was reportedly signed by and between the Section 7 Petition parties on 17.08.2019 and on that date, we notice that Mr. Kaushal Mittal was Director concurrently in both the Petitioner Santoshi Finlease Private Limited as well as the Corporate Debtor Mothers Pride Dairy India Private Limited. Sh. Yug Mittal had signed the loan agreement on behalf of the Corporate Debtor Mothers Pride Dairy India Private Limited. Thus, it is observed that one family member (Kriti Mittal/Sister) on the Petitioner’s side and the other (Mr. Yug Mittal/Brother) on the Respondent’s side signed the said loan agreement dated 17.08.2019, based on which the Petitioner has been claiming its Financial Debt in CP (IB) No.662/ND/2022. Thus, it is seen that there is merit in the submission made by the Applicant Bank and the Corporate Debtor that it was a Mittal-to-Mittal Transaction.

At this stage, we would further like to refer to Schedule 1 of the Agreement (ibid) to ascertain the Tenure of the loan. The Schedule 1 of the Agreement is reproduced below, for the sake of convenience:

On perusal of the above, it is seen that the original tenure of the Loan was for a short period from 08.07.2019 to 31.10.2019, which was extendable up to 31.12.2019 subject to additional penal interest @4% per annum. We further notice that though the Tenure of Loan from 08.07.2019 to 31.10.2019, the Agreement was signed on 17.08.2019, which depicts that the Loan was given back-dated effect.

We further observe that if Mr. Kaushal Mittal (who was the Director on the Board of both the Companies during the tenure of the loan) and Mr. Yug Mittal (who was the Director on the Board of the Corporate Debtor during the tenure of the loan) were serious about the recovery of their loan amount, (since the members of Mittal family were in management on both sides) they could have either made the payment or alternatively terminated the said Loan Agreement. Rather, both Mr. Kaushal Mittal and Mr. Yug Mittal along with two other Mittals chose to resign from their respective Directorship of the Corporate Debtor. The relevant resignation letters of Mr. Kaushal Mittal and Mr. Yug Mittal are reproduced thus:

The resignation letters (ibid) reflect that Mr. Yug Mittal resigned from the Directorship of CD/Mothers Pride Dairy India Private Limited on 23.09.2019 and Mr. Kaushal Mittal resigned from the Directorship of CD/Mothers Pride Dairy India Private Limited on 24.09.2019, noticeably within one month of the filing of Section 7 petition bearing C.P. (IB)-2122/2019 on 30.08.2019 in the matter of “M/s Shalini Choudhary Vs. Mothers Pride Dairy India Private Limited”, which was admitted by this Authority on 13.11.2019.

Nevertheless, we would still like to examine, who was responsible for the default of the alleged loan amount of the Petitioner Company. In this context, when we refer to Part IV of the CP (IB)-662/ND/2022, we notice that the Petitioner has relied on 15.11.2019 as the “date of default”. Further, the justification/intent for choosing this date of default is mentioned by the Petitioner in its Written Submissions, which reads thus:

For examination of this contention, we refer to the term “Default” as defined under Section 3(12) of IBC 2016, which reads thus:

As already noted above, the earlier (i.e., the first) Section 7 petition bearing C.P. (IB)-2122/2019 - “Shalini Choudhary vs. Mothers Pride Dairy India Private Limited” was filed on 30.08.2019, which was admitted by this Adjudicating Authority on 13.11.2019 and a Moratorium under Section 14 of IBC 2016 was enforced. During the period of the Moratorium, no payment could have been made by the Corporate Debtor to the Petitioner. Since the default is said to be committed when the debt becomes “due and payable”, even if the debt was “due” on 15.11.2019, it was “not legally payable” on 15.11.2019 on account of the Moratorium enforced under Section 14(1) of IBC, 2016. Hence, for the purpose of Section 7 Petition, the date of 15.11.2019 cannot be accepted as the date of default.

As already noted in para 13, the Loan Agreement was valid for tenure from 08.07.2019 to 31.10.2019, and we have also seen in para 11 that Mr. Yug Mittal and Mr. Kaushal Mittal were Directors in the Corporate Debtor during that period. Therefore, it won’t be wrong to conclude that the “default” took place during the Directorship Tenures of Mr. Yug Mittal and Mr. Kaushal Mittal themselves.

Since the alleged loan was disbursed and defaulted during the Directorships of Mr. Kaushal Mittal and Mr. Yug Mittal in the Corporate Debtor, who are the “Current Directors” in the Petitioner Company M/s Santoshi Finlease Pvt. Ltd., and at whose behest the Petition (IB)-662(ND)/2022 under Section 7 has been filed, it is evident that the petition is not filed with an intent of seeking resolution of the Corporate Debtor rather it is for causing injury to the Corporate Debtor M/s Mothers Pride Dairy India Private Limited by its own Ex-Directors. At this juncture, we refer to the Judgement of the Hon’ble Supreme Court dated 24.11.2006 passed in the matter of “West Bengal State Electricity Board Vs Dilip Kumar Ray” in Civil Appeal 5188 of 2006, wherein the term “malicious” has been discussed. The relevant extract of the Judgement is reproduced below: –

In terms of the Judgement (supra), we are of the considered view that both the essential conditions required under Malice i.e., an intentional act and an act with wrongful motive are present in the instant case. Hence, it is concluded that the Section 7 petition (IB) Petition No. 662(ND)/2022 is filed with malicious intent.

At this stage, we also refer to the Judgement of Hon’ble NCLAT dated 05.01.2023 passed in the matter of “Wave Megacity Centre Private Limited vs. Rakesh Taneja & Ors.” in Company Appeal (AT) (Insolvency) No. 918 of 2022, wherein the following was held:

In our considered view, the aforesaid observations are squarely applicable to a petition filed under Section 7 with malicious and fraudulent intent. As it is already concluded in Para 20 above that the present Section 7 petition (IB) Petition No. 662(ND)/2022 is filed with malicious intent, we allow the IA. No. 1695/2023 filed under Section 65 of IBC 2016 and dismiss the (IB)-662/2022.

Further, in terms of the provision under Section 65 of IBC 2016, we impose a penalty of Rs.10,00,000/- (Ten Lakhs) only on the Respondent No.1 M/s Santoshi Finlease Private Limited, which shall be deposited in the Prime Minister’s Relief Fund within 15 days from today and receipt to that effect shall be filed/uploaded on the DMS of this Tribunal.

A copy of this order be supplied to the parties. A copy be also sent by the Registry/Court Officer to IBBI for records.