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Judgment
HYBRID MODE
07.03.2025: Two applications have been moved, one by applicant M/s DS Chewing Products LLP viz IA No.1509/2025 with the following prayer:
Pass necessary orders clarifying that even after the order dated 7th December, 2023, the Interim Resolution Professional/Respondent No.2 will continue to manage the day-to-day operations of the Corporate Debtor/BIIPL and its Suspended Board of Directors will cease to have control over the affairs of the Corporate Debtor/BIIPL, effective immediately;
Pass such further order(s), direction(s) or relief(s) as deemed fit and proper by this Hon’ble Appellate Tribunal in the facts of the present case and in the interest of justice.
Another IA No.1557 of 2025 is moved by the appellants with following prayer:
Pass necessary orders clarifying that the CIRP initiated against Bhasin Infotech and Infrastructure Pvt Ltd vide the order dated 04.12.2023 does not bar the management of Bhasin Infotech and Infrastructure Pvt Ltd from filing Writ Petition (Civil) No.26964 of 2024 before the Hon’ble Allahabad High Court and/or taking any decision for the purposes of keeping Bhasin Infotech and Infrastructure Pvt Ltd as a going concern, in light of the order dated 07.12.2023 passed by this Tribunal; and/or
Pass such other order(s) as this Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the present case.
Evidently both these applications are for seeking clarification of the order dated 7.12.2023 passed by this Tribunal. The relevant extract of the order dated 07.12.2023 is as under:-
“5.In the facts of the present case, we are of the view in the ends of justice be served in directing the Appellant to implead UPSIDC as one of the Respondents to the appeal and notice be also issued to UPSIDC to elucidate its stand regarding tripartite lease deed as well as the completion of the commercial units which are sought to be handed over to the allottees by the Appellant.
6.After considering the submissions of the Counsel for the parties, we are of the view that the major issue between the parties is tripartite lease deed and due to reason that certain unit holders have not taken possession and have been contending that there is default on the part of the Appellant. In view of the materials which have been placed by the Appellant, the present was not a case for initiation of the CIRP since according to the Appellant all constructions are complete and units are ready to occupy. We are of the view that in the ends of justice be served by finding ways and means to protect the interest of the allottees by execution of the lease deed and by handing over the possession We issue notice in both the Appeals.
7.Let Reply be filed by the allottees as well as UPSIDC within three weeks. Rejoinder, if any, be filed within two weeks thereafter.
8.List both the appeals on 15.01.2024 In the meantime, in pursuance of the impugned order, no further steps shall be taken. We make it clear that the Appellant shall not create any third party interest in respect of the units of the Respondents.”
This application IA No.1509/2025 is moved by the applicants who purportedly hold 69% shares approx.. in the shareholding of Corporate Debtor. They are seeking clarification of the order dated 07.12.2023 on the ground the order simply stops the IRP to take further steps in the Corporate Debtor but in no way it says the CIRP has come to an end or the order dated 04.12.2023 of the Ld. NCLT initiating the CIRP is quashed.
Before proceeding further let us examine the order dated 04.12.2023 of the Ld. NCLT. The relevant portion of the said order is extracted as below:-:-
In the light of the above facts and circumstances, and in terms of Section 7(5)(a) of the Code, the instant petition COMPANY PETITION IB (IBC)/646/(PB)/2021 filed by Col. Gautam Mullick & Ors. the Financial Creditors, under section 7 of the Code read with Rule 4(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating CIRP against M/s Grand Venezia Commercial Towers Private Limited (Corporate Debtor 1) and M/s Bhasin Infotech and Infrastructure Private Limited (Corporate Debtor 2) stands admitted and this Adjudicating Authority initiates consolidated CIRP against M/s Grand Venezia Commercial Towers Private Limited and M/s Bhasin Infotech and Infrastructure Private Limited.
The petitioner in part-III of the petition has proposed the name of Mr. Mukesh Gupta as the Interim Resolution Professional. Therefore, Mr. Mukesh Gupta, having registration number IBBI/IPA-001/IP-P01494/2018-19/12254 and email – id [email protected] is hereby appointed as an Interim Resolution Professional (IRP) for both the Corporate Debtor 1 and Corporate Debtor
The consent of the proposed interim resolution professional in Form-2 is taken on record. It is pertinent to mention that IRP has a valid AFA.
We also declare moratorium in terms of Section 14 of the Code…….
In pursuance of Section 13 (2) of the Code, we direct that public announcement shall be made by the Interim Resolution Professional immediately (within 3 days) as prescribed by Explanation to Regulation 6(1) of the IBBI Regulations, 2016) with regard to admission of this application under Section 7 of the Insolvency & Bankruptcy Code, 2016.
The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtors’ as a part of his obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations…….
Accordingly, the instant application filed under Section 7 of the Code, 2016 bearing I.B./646 (PB)/2021 stands admitted.
This order dated 04.03.2025 is challenged before the Ld. NCLAT in this Company Appeal (AT)(Ins) No.1594/2023 wherein the order dated 07.12.2023 (supra) was passed.
Admittedly the order dated 07.12.2023 says no further steps shall be taken in the CIRP. Admittedly the order dated 07.12.2023 did not quash the impugned order dated 04.12.2023. Thus to understand the import of order dated 07.12.2023 one need to refer to relevant sections of IBC, 2016 as below:-
Declaration of moratorium and public announcement.
The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order—
declare a moratorium for the purposes referred to in section 14;
xxx
appoint an interim resolution professional in the manner as laid down in section 16.
Moratorium (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—
xxx
transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
Appointment and tenure of interim resolution professional (1) The Adjudicating Authority shall appoint an interim resolution professional within fourteen days from the insolvency commencement date.
Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.
Management of affairs of corporate debtor by interim resolution professional.
From the date of appointment of the interim resolution professional,—
the management of the affairs of the corporate debtor shall vest in the interim resolution professional;
the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;
the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;
the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate debtor shall—
act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;
take such actions, in the manner and subject to such restrictions, as may be specified by the Board;
have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;
have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified.
Duties of interim resolution professional.
The interim resolution professional shall perform the following duties, namely:—
xxx (i) xxx (ii) xxx (iii) xxx (iv) xxx
xxx
xxx
monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
xxx
take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including—
assets over which the corporate debtor has ownership rights which may be located in a foreign country;
assets that may or may not be in possession of the corporate debtor;
tangible assets, whether movable or immovable;
intangible assets including intellectual property;
securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
assets subject to the determination of ownership by a court or authority;
to perform such other duties as may be specified by the Board.
Explanation.—For the purposes of this sub-section, the term "assets" shall not include the following, namely:—
assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
assets of any Indian or foreign subsidiary of the corporate debtor; and
such other assets as may be notified by the Central Government in consultation with any financial sector regulator.
Personnel to extend cooperation to interim resolution professional (1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.
Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.
The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.
Management of operations of corporate debtor as going concern.
The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.
Admittedly upon initiation of CIRP, the moratorium is to be declared which in fact was declared by the impugned order 04.12.2023. Admittedly vide such order, the IRP was appointed and admittedly per Section 17 of IBC, from the date of the appointment of the IRP, the management of the affairs of the Corporate Debtor stood vested with the IRP on 04.12.2023 itself.
A bare perusal of the order dated 07.12.2023 passed by this Tribunal shows the Tribunal only granted a stay on further steps to be taken by the IRP. Thus we cannot read the order dated 07.12.2023 as granting status quo ante or disturbing the fiction of law so created by the Sections above of the IBC, 2016.
In Mukesh Kumar Jain V Navin Kumar Upadhyay, 2023 SCC OnLine NCLAT 2359 where there was a stay of CIRP process of the Corporate Debtor, it was held the management of the affairs of CD vests with IRP/RP. The following para of the judgement are relevant:
The Adjudicating Authority by the impugned order has issued direction to the Resolution Professional to immediately handover the management of the Corporate Debtor to the CEO/Management of the Corporate Debtor. In the order impugned, the only issue which was noted by the Adjudicating Authority for consideration was the issue as noted in paragraph 11 of the order, which reads as follows:- “11. From the above facts, the only issue which emanates for consideration and determination by this Tribunal is as to whether the Resolution Professional ought to have handed over the affairs of the Corporate Debtor to the directors in view of the stay order passed by the Hon'ble Supreme Court of India on 25 February 2022.”
12...in “Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association- [1992 (3) SCC 1]”. In ‘Ashok Kumar Tyagi’ (supra), in paragraph 18, following proposition has been laid down:-
“18.The difference between stay of an Order and quashing of any Order are well settled as noticed above. In event on the stay of the admission of Section 7 Application, the Corporate Debtor is allowed to function and position as was existing prior to 28.10.2022 is restored, there shall be no difference in staying an Order and quashing of an Order. What the Appellants are asking/praying is restoration of the position as was prior to admission of Section 7 Application. We can not accept such request made by the Appellant. The Admission Order of Section 7 Application has only been stayed and not quashed thus the Corporate Debtor can not be permitted to function as it was functioning prior to 28.10.2022.”
13.The judgment of ‘Ashok Kumar Tyagi’ (supra) of this Tribunal does not support the order of the Adjudicating Authority that in view of the stay of CIRP, Resolution Professional has to handover charge of the Corporate Debtor. Any such result of stay of the CIRP shall be disastrous since if the management against whom the CIRP has been initiated is handed over the charge, it is prone to misuse the assets and the assets shall be diminished, which may adversely affect the creditors of the Corporate Debtor. In view of the stay of the CIRP, it is true that the Resolution Professional cannot take any further steps in the CIRP of the Corporate Debtor and has to stay his hand from proceeding any further in the CIRP and await the order of the Appellate Court. The direction to the Resolution Professional in the impugned order to handover the Corporate Debtor to the ex-management is wholly unjustified and has to be set aside.
14.Much emphasis has been given by the Learned Counsel for the Respondent No.1 that one of the directions issued by the Adjudicating Authority’s impugned order was to declare all actions taken by the Resolution Professional after the order dated 25.02.2022 as null and void. It is submitted that since the Respondent No.1 was not permitted to function w.e.f. 01.02.2023 by the Resolution Professional, the said order also has to go and Respondent No.1 should be allowed to function as Executive Editor. We have already noticed that a separate IA being IA No.4138-4139 of 2023 has been filed by the Respondent No.1 praying the relief of reinstatement of the Respondent No.1 as Executive Editor which prayer has already been refused by detailed order of this Tribunal dated 06.11.2023. We see no reason to issue any direction to permit Respondent No.1 to work as Executive Editor. We have already noticed that the Appeal filed by Mr. Navin Kumar UpadhyayRespondent No.1 before the Hon’ble Supreme Court challenging the order dated 16.12.2021 of this Tribunal is already pending. It is open for the Respondent No.1 herein who is Appellant before the Hon’ble Supreme Court to pray such order as may be advised. We have also noticed that after the order of the Hon’ble Supreme Court dated 25.02.2022 staying the CIRP, Resolution Professional has also filed an application before the Hon’ble Supreme Court seeking certain directions and clarifications which application was directed by the Hon’ble Supreme Court to be heard along with the hearing of the appeal which application is still pending and no order has been passed by the Hon’ble Supreme Court. When the Appeal before the Hon’ble Supreme Court filed by the Respondent No.1 is still pending, the Adjudicating Authority ought to have stayed his hands to issue any direction to hand over the management of the Corporate Debtor to the ex-management and the Adjudicating Authority ought to have relegated to parties to approach the Hon’ble Supreme Court for any further order or direction. It is further to be noticed that the Resolution Professional has not been discharged from the CIRP and even though Resolution Professional cannot take any steps in the CIRP, day-to-day affairs of the Corporate Debtor has to be looked after by the Resolution Professional, ex-management being not in place. Not allowing the Resolution Professional to look after day-to-day affairs of the Corporate Debtor will create a situation where all chances to revive the Corporate Debtor shall be diminished it being not a functioning unit.
(Emphasis supplied)
Further in Chandra Prakash Vs Naveen Chaudhri, Company Appeal (AT)(Ins) No.440/2022 the Court held as under:
12.As per the scheme of the Code, the Adjudicating Authority, after admission of the application, filed under Section 7, 9 or 10, by an order declare moratorium for the purpose which is referred to in Section 14. Section 14 lays down certain prohibitions which includes the transferring of the assets of the Corporate Debtor. Section 17 says that the management of affairs of Corporate Debtor shall vest immediately with the IRP on his appointment and the powers of board of directors are suspended. Section 18 provides for the duties of IRP which includes taking of control and custody of the assets of the Corporate Debtor. Thus, from the aforesaid provisions, it is apparent that with the passing of the order of admission, initiation of CIRP of the Corporate Debtor, appointment of IRP and declaration of moratorium, the powers of the board of directors of the Corporate Debtor are suspended and are vested with the IRP. Hence, the suspended board of directors of the Corporate Debtor looses their competence and jurisdiction to deal with the assets of the Corporate Debtor in any manner much less for the purpose of transferring its assets which is clearly prohibited under Section 17(1)(b) of the Code.
13.In the present case, the RP has not raised any issue with regard to incurring of expenses of Rs. 25,32,534/- by the Corporate Debtor for the purpose of running of the hospital but has raised the dispute about the transfer of Rs. 41,70,000/- by the Corporate Debtor to Rancan Impex Pvt. Ltd. which is otherwise allegedly a related party. The view taken by the Adjudicating Authority in this regard is totally erroneous that the CIRP was initiated on 27.05.2020 but control of the Corporate Debtor was taken by the IRP in the first week of July, 2020. In this regard, various communications have been mentioned and are there on record between the IRP and the Respondent in which they have been asked to desist from doing any such thing which is against the interest of the Corporate Debtor. Moreover, the decision in the earlier I.A. No. 1125 of 2021 has no bearing on the decision of the present application because of the reasons recorded herein before by us that the initiation of CIRP and appointment of IRP coupled with the declaration of moratorium would be enough to prohibit the transfer of all assets at the instance of the erstwhile board of directors of the Corporate Debtor as the entire control and management of the affairs of the Corporate Debtor vested with the IRP and there is a clear prohibition provided under Section 17 of the Code. The argument of the Respondent that the transfer of Rs. 41,70,000/- by it to Rancan Impex Pvt. Ltd. was routinely done cannot be accepted because of the moratorium and prohibition provided therein.
(Emphasis supplied)
An issue is raised by the Learned senior counsel for the appellant herein qua locus of applicant of IA No.1509/2025. In this regard the submission of the learned senior counsel for the applicant is the applicant is the holder of 69% shares in the Corporate Debtor and vide this application has also levelled allegations of transfer of Rs.16 crores approx. alongwith some properties of the CD , by its Suspended Directors to their related companies, hence it is argued the applicant is a necessary and proper party and needs to be heard
In Ashish Gupta Vs Delagua Health India Pvt Ltd, Company Appeal (AT)(Ins) No.17/2021 this Tribunal held:-
13.The Learned Counsel for the Appellant submitted that intervention on the part of shareholders of the Corporate Debtor company is not permissible while adjudicating a matter under Section 9 of the IBC. Further, it was submitted that since the shareholders and the Corporate Debtor had status of separate legal entities, hence, Respondent No.2 and 3 being shareholders, did not enjoy locus to participate in the Section 9 proceedings taken up by the Appellant against the Corporate Debtor company. In support of this contention, reliance has been placed by the Learned Counsel for the Appellant on the judgement delivered by the Hon’ble Supreme Court in Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Ltd., (2021) 10 SCC 623 and E S Krishnamurthy and Ors. v. Bharath High Tech Builders Pvt. Ltd. Civil Appeal No. 3325 of 2020 (2022) 3 SCC 161 to state that the IBC does not provide for equity jurisdiction. This however cannot come to the aid of the Appellant since the facts of the present case are clearly distinguishable. In view of the peculiar circumstances of the present case where the Section 8 Demand Notice could not be responded to by the Corporate Debtor company for reasons beyond their control and a collusive petition having been filed, Respondents No.2 and 3 being majority shareholders of the Corporate Debtor Company deserve to be heard. It is a well settled canon of natural justice that anything which eludes or frustrates the recipient of justice should be avoided and reasonable opportunity of hearing be allowed to advance the cause of justice. We are of the view that Respondents No.2 and 3 being majority shareholders holding 98.98% share of the Corporate Debtor company, they deserve a chance to safeguard the rights and interests of the Corporate Debtor and their respective stakeholders given that the Appellant and KKV had in collusion foisted an abnormal situation by their resignation from the Corporate Debtor company causing a void and leaving none on the Board of Directors to defend the interests of Respondent No.1/Corporate Debtor company. To add to this, KKV was unauthorisedly representing the Corporate Debtor company before the Adjudicating Authority even after having submitted his resignation thus causing serious miscarriage of justice for the Respondent No.1. Hence, in the interest of justice, we are of the view that the present appeal filed before this Tribunal by Respondents No.2 and 3 deserves to be considered on merit.
(Emphasis supplied)
Thus admittedly the applicant being the majority shareholders of the Corporate Debtor and in the wake of allegations it makes; including admission by the appellant that some portion of property of Corporate Debtor has been mortgaged after the CIRP is initiated; the applicant needs to be heard and it cannot be said it has no locus. Even otherwise we need not dwell upon this issue as even the appellant’s application is also for clarification of order dated 07.12.2023.
Thus considering the Statute and the law discussed above we find the natural consequence of order dated 04.12.2023 would be the entire management of the affairs of the Corporate Debtor, including preservation and protection of its assets, shall vest with IRP by the legal fiction so created.
We are of the considered view that no further steps to be taken would not mean the Board of Directors of the Corporate Debtor shall continue to manage the affairs of the company. At this stage the Ld counsel for the appellant has referred to Quinn Logistics India Pvt Ltd Vs Mack Soft Tech Pvt Ltd, Company Appeal (AT)(Ins) No. 185/2018 wherein vide order dated 08.05.2018 it was held if no RP is functioning then such period shall be excluded from counting of the period of CIRP. We have gone through the judgement. The main issue in it was qua exclusion of some period for counting of the time limits for completion of CIRP, hence would not be relevant for the issue involved herein. The learned senior counsel also referred to Rajendra Bhutia Vs Suri Rahul Erstwhile Director of the Corporate Debtor and Another 2021 SCC OnLine NCLT 37504 wherein the facts were the RP did not take possession of the assets during a particular period and the Board of Directors of Corporate Debtor were incharge of its affairs and it was held there cannot be a vacuum in the management of company. However, in this case too the amount so withdrawn by the erstwhile Directors was directed to be refunded alongwith fine to the IRP, hence also is not relevant.
Thus we are not in doubt that on 04.12.2023 viz. the day when the IRP was appointed, the control and management of the affairs of the Corporate Debtor stood vested in the hands of the IRP, per legal fiction so created by sections 13 to 20 (supra). The issue is answered accordingly.
Now we come to another issue raised before us. A writ petition No;.26964/2024 is filed by an erstwhile Director of the CD against the State of UP and three others for quashing of a demand raised by the UPSIDC and the same is now listed on 10th March, 2025 for final arguments. We find the said writ petition furthers the cause of allottees as is noted in paras No.5 and 6 of this tribunal’s order dated 7.12.2023 (supra), hence we direct the RP to accord his presence in the said writ petition, as a co-petitioner, in the peculiar circumstances as are explained and would act in accordance with law.
We make it clear this order does not recall the earlier order dated 07.12.2023 but only narrates the position of law and its effect upon the Corporate Debtor upon admission of CIRP on 04.12.2023. This position apparently is also agreed to by the appellant as he himself has filed this appeal as a suspended Director of Corporate Debtor. Admittedly after 07.12.2023 the RP is precluded from taking steps qua inviting claims; constituting of Committee of Creditors etc. etc, but this would not mean the Suspended Board shall be incharge of assets of the Corporate Debtor.
In view of legal position explained above, both the IAs No.1509/2025 and 1557 of 2025 are disposed of.