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Judgment
O R D E R
Per: Bidisha Banerjee, Member (Judicial)
This Court congregated through a hybrid mode.
This instant Petition is filed under Section 10 of the Insolvency and Bankruptcy Code, 2016 read with Regulation 7 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 by one Shresth Detective and Securities Private Limited, hereinafter referred as Corporate Applicant, seeking initiation Corporate Insolvency Resolution Process, hereinafter referred as CIRP.
The Corporate Debtor is a private limited company, incorporated on August 19, 2004, having Authorized Capital Rs. 35,00,000/-(Rupees Thirty-Five Lakh Only) and Paid-up capital Rs. 25,00,000/- (Rupees Twenty-Five Lakh Only).
Particulars of the Debts:
The financial debt towards the financial creditors will be Rs. 1,07,12,540/-.
The operational debts as per the books of accounts of the company are Rs. 12,62,88,605/-.
Total Outstanding dues as on May 31, 2022, is 13,70,01,145/-.
Corporate Applicant has relied on the following documents in support of its claims:
The Copy of the Notice of the board meeting dated May 02, 2022 along with the board resolution dated May 06, 2022 is annexed to the Petition being Annexure A, at page 25-26;
The Copy of Notice, Attendance sheet, and minutes of the meeting of EOGM of the corporate applicant held on May 11, 2022 is annexed to the Petition, being Annexure B, at Page 27-28;
The working sheet showing the details of financial creditors and operational creditors annexed to the Petition being Annexure C, at Page 29-32;
The Copy of the statement of claim filed by the company in arbitration against FIS Payment Solutions Private Limited annexed to the Petition being Annexure E, at Page 42-76;
The Documents substantiating the default of loan amount by the corporate applicant annexed to the Petition being Annexure F, at Page 77-269;
The Copy of the writ petition filed before the Hon’ble High Court at Calcutta annexed to the Petition being Annexure G, at page 270-488;
The Copy of the audited financial statements of the corporate applicant for last two financial years i.e., March 31, 2020 and March 31, 2021 and provisional unaudited financial statement as on May 31, 2022 annexed to the Petition being Annexure H, Page 489-564;
The Copy of the Memorandum and Article of Association of the corporate applicant annexed to the Petition being Annexure J at Page 567-588
The Copy of the Written communication in Form 2, Certificate of Registration along with Authorization for assignment issued by IBBI of the proposed interim Resolution Professional annexed to the Petition being Annexure L at Page 590-593.
Submission by the Ld. Counsel appearing on behalf of the Corporate Applicant:
The Ld. Counsel for the Corporate Applicant submits that the Corporate Applicant is an entity primarily engaged in the business of providing security service to various customers. The company has been doing business for more than eighteen years having eight Directors presently.
The Ld. Counsel for the Corporate Applicant further submits that the company has provided services to multifarious big concerns and FIS Payment Solutions Pvt Ltd (hereinafter referred to as FIS) is one of them. The agreement with FIS was entered between the parties on April 01, 2019 for providing security services. According to the terms of the agreement; the company had to invest a huge sum of money for the engagement of substantial manpower for taking care of the operations of FIS. FIS illegally terminated the agreement vide letter dated April 24, 2019 with effect from May 31, 2019. By this letter the Schedule I of such agreement was terminated. The Schedule II of the agreement was terminated by letter dated May 28, 2019 with effect from June 30, 2019. Due to sudden termination of agreement by the FIS, Corporate applicant has incurred huge loss and resulting thereon the company has started facing financial crunch which led to the default in the payment of the creditors.
Further, it is submitted that there is a default on the part of the company in repaying its credit facilities availed leading to the financial debt. The financial debt towards the financial creditor will be Rs. 1,07,12,510/-.
Further, it is submitted that the company during its course of business incurred multifarious operational debts towards salaries, wages, director’s remuneration, GST, Service Tax, EPFO, ESIC, Employees due of FIS, Site Electricity charges towards FIS, Advance received from Customers, other legal charges and also debts towards FIS various creditors arising during its course of business involving transactions with various companies. The operational debts as per the books of accounts of the company are Rs. 12,62,88,605/-.
Further, it is submitted that the business of the corporate applicant was affected gravely by the lethal wave of COVID-19 pandemic as a result of which the demand of the business carried on by the company reduces to a great extent. The situation was such that the employees and workmen could not be paid wages, no dividend were declared. This resulted in GST dues also, but in spite of making a series of representation the GST authority cancelled the registration of the company on June 4, 2021. As a result of such cancellation, the company could not operate, and the clients refused to do business with the company and detached all ties.
Ld. Counsel for the Corporate Applicant further mentions that almost all the big clients of the corporate applicant terminated the contract with the Corporate Applicant leading to a more acute financial distress. Resultantly, there was no inflow of funds into the company which further resulted in inability to pay dues of its various creditors in course of trade which includes the operational creditors and the financial creditors as provided by way of a chart. The company always had the intention to pay the GST dues and thus somehow managed to pay a sum of Rs. 1.37 crores in the miserable times to GST authorities on September 24, 2021, and has in total paid Rs. 22,04,66,621/- as GST from the time it has come into force. The Joint Commissioner, appeals did pass an order on November 24, 2021, directing the Superintendent to revoke the alleged suspension and to restore the GSTIN. The said order was communicated to the Assistant Commissioner on November 26, 2021, and December 1, 2021 to abide by the order. The order was not abided by the Assistant Commissioner and his sub-ordinates and on December 6, 2021, the Superintendent instead raised an allegation and did not choose to abide by the order of the Joint Commissioner. Even at the time of acute financial crunch, the company managed to pay the following for the restoration of the GST:
| Date of Payment | Amount |
|---|---|
| 03/09/2021 | Rs. 60,00,000/- |
| 10/09/2021 | Rs. 4,00,000/- |
| 22/09/2021 | Rs. 21,00,000/- |
| 24/09/2021 | Rs. 6,19,694/- |
As on date, the Company has an outstanding balance of Rs. 3,75,12,279/- which cannot be recovered due to the suspension of GST. The Company has filed a writ petition before the Hon’ble High Court at Calcutta challenging the illegalities of GST Authorities being WPA of 20747 of 2021 (annexed at Annexure “G” at Pages 270-488).
It is further contended that the Corporate Applicant has over Rs. 2.85 Crores receivables from its sundry debtors which it is being unable to recover due to the alleged suspension of the GST and its subsequent events.
The Ld. Counsel of the for the Corporate Applicant proposed the name of the Interim Resolution Professional such as: Mr. Seikh Abdul Salam, of 64J, Linton Street, Entally, Beniapukur, Kolkata – 700014, West Bengal, Registration no.: IBBI/IPA-003/IPA-ICAI-N-00250/2019-2020/12966, Email ID: ipsalamkol2019@gmail.com.
Vide an Order dated October 14, 2022, the Bench directed the Petitioner to file a typed copy of pages 40 to 76 and onwards many pages of the Petition as those pages are not legible. Pursuant to the order dated October 14, 2022 the Corporate Applicant filed a Supplementary Affidavit dated November 04, 2022 where the Corporate Applicant annexes certain documents substantiating the default as:
Notice dated July 25, 2022 by the Office of CGST & CX Demanding Rs. 1,46,03,020/- along with appropriate interest and penalty from the Corporate Applicant, annexed as Annexure “B” at Pages 44-47 of the Supplementary Affidavit.
Copies of Form GST DRC-13 sent by the GST Department directly to the client of the Corporate Applicant, annexed as Annexure “D” Pages 56-58 of the Supplementary Affidavit.
Orders dated July 28, 2022 and July 29, 2022 passed by Ld. Arbitral Tribunal comprising of Justice M. B. Lokur (Retired), Justice Shiavax Vazifdar (Retired) and Shri Gautam Ankhad in matter of arbitration between Shresth Detective and Securities Private Limited versus FIS Payments Solutions and Services Private Limited, annexed as Annexure “F” Pages 83-87 of the Supplementary Affidavit and Letter of Demand of fees by the Ld. Arbitrators from the Corporate Debtor which has been due from Corporate Applicant, i.e., Rs. 97,65,000/-, annexed as Annexure “G” Pages 88-91 of the Supplementary Affidavit.
Copy of the Balance Sheet for the Financial Year 2021-2022, Auditors Report along with declaration of loss suffered by the Corporate Applicant for the Financial Year ended March 31, 2021 and March 31, 2022, annexed as Annexure “H” Pages 92-121 of the Supplementary Affidavit.
Notices dated August 30, 2022, September 06, 2022 and September 13, 2022 from various financial institutions which availed financial accommodation to the Corporate Applicant, annexed as Annexure “I” Pages 122-133 of the Supplementary Affidavit.
Vide an Order dated November 07, 2022, the Corporate Applicant was directed as under:
“2.Post this matter on 23/12/2022. In the meantime, applicant to publish notice in two prominent newspapers – one in “Financial Express” (English) and one in “Ajkal” (Bengali) – regarding pendency of the petition before this Adjudicating Authority. This publication shall be made within two weeks from today indicating the details of this petition and the next date of hearing and inviting objection, if any, from general public.”
Pursuant to the order, the Ld. Counsel has filed an Affidavit of Compliance dated December 16, 2022 submitted that publication of the notice has been done in Form no. ‘NCLT 3A’ on November 24, 2022 in the said newspapers. Copies of the original newspaper publication are annexed to the Affidavit being “Annexure A” (Colly).
It is evident that on the next hearing date on December 23, 2022, there were no objectors to the instant petition and after that, by an Order dated January 17, 2023 this petition was reserved for order.
10. Analysis and Findings:
We have heard and perused the submission made by the Ld. Counsel appearing on behalf of the Corporate Applicant.
It is evident that there are eight directors of the Corporate Debtor and Corporate Debtor is the Corporate Applicant under Section 5(a) of the I&B Code, 2016 authorizing Ms. Sonal Bhattacharya, Mr. Abhijit Ghosh, Mr. Partha Pratim Ghosh and Mr. Samrat Banerjee to file this Petition. (The Copy of the Notice of the board meeting dated May 02, 2022 along with the board resolution dated May 06, 2022 is annexed to the Petition being Annexure A, at page 25-26).
Fig. 1: Notice of the board meeting dated May 02, 2022
Fig: 2: Board Resolution dated May 06, 2022
It is evident from the Minutes of the Board of Directors Meeting dated May 06, 2022 at Kolkata – 700017 that it is unanimously decided that to get rid of the critical financial position and economic hardship of the company as reflected in Audited Balance Sheet and PL account for the period ending on March 31, 2022 and Provisional accounts for the period ending on May 31, 2022, the company have resolved to file an application under Section 10 of the I&B Code, 2016 before the Tribunal. Further, the Corporate Applicant has appended the name and details of the financial creditors and corporate creditors along with the default amount through a separate working sheet for proving its financial and corporate debt, annexed to this Petition being Annexure “C” at Page 29-32. They were served adequately but no objection to the admissibility of the petition has been raised. In addition, the Corporate Applicant has relied upon the documents of various bank statements sustaining the default loan amount by the corporate applicant, annexed to the Petition being Annexure “F” at Page 77-269. Further, the Corporate Applicant has catered to the Copy of the audit financial statements of the corporate applicant for last two financial years i.e., March 31, 2020, and March 31, 2021 and provisional unaudited financial statement as May 31, 2022 annexed to the Petition being Annexure H, at Page 489-564 for providing the information relating to its books of accounts and such other documents.
Further, it is evident from the Financial Statement for the Financial year 2021-2022, Auditors Report dated 07/06/2022 along with the declaration of loss dated 07/07/2022 suffered by the Corporate Applicant for the Financial Year ended March 31, 2021 and March 31, 2022 that company is under loss of Rs. 35,401,767/- and Rs. 83,628,216/- for the financial year ended March 31, 201 and March 31, 2022.
The scanned copy of the Auditors Report dated 07/06/2022 and the declaration of loss dated 07/07/2022 suffered by the Corporate Applicant for the Financial Year ending on March 31, 2021 and March 31, 2022 is reproduced here as: -
Fig: 3: Auditors Report dated 07/06/2022
Fig: 4: Declaration of Loss dated 07/07/2022
The Scanned Copy of the Balance Sheet for the year ending on March 31, 2022 is as under:
Copy of the Balance Sheet for the Financial Year 2021-2022, Auditors Report along with declaration of loss suffered by the Corporate Applicant for the Financial Year ended March 31, 2021 and March 31, 2022, annexed as Annexure “H” Pages 92-121 of the Supplementary Affidavit.
We rely on the judgement of the Hon’ble NCLAT in Unigreen Global Private Limited vs. Punjab National Bank and Ors reported in 2017 SCC Online NCLAT 566: MANU/NL/0192/2017
“20.Under both Section 7 and Section 10, the two factors are common i.e., the debt is due and there is a default. Sub-section (4) of Section 7 is similar to that of sub-section (4) of Section 10. Therefore we, hold that the law laid down by the Hon'ble Supreme Court in Innoventive Industries Ltd. (Supra) is applicable for Section 10 also, wherein the Hon'ble Supreme Court observed as “The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority”.
21.In an application under Section 10, the 'financial creditor' or 'operational creditor', may dispute that there is no default or that debt is not due and is not payable in law or in fact. They may also oppose admission on the ground that the Corporate Applicant is not eligible to make application in view of ineligibility under Section 11 of the I & B Code. The Adjudicating Authority on hearing the parties and on perusal of record, if satisfied that there is a debt and default has occurred and the Corporate Applicant is not ineligible under Section 11, the Adjudicating Authority has no option but to admit the application, unless it is incomplete, in which case the Corporate Applicant is to be granted time to rectify the defects.” (Emphasis Added)
We have so far not come across any objections to the admissions of the applicant company. In the light of the facts stated in the application and the evidence placed on record, we have no hesitation in admitting the petition and ordering initiation of CIRP in respect of the corporate applicant by the following Orders:
The Application filed by the Corporate Applicant under Section 10 of the Insolvency & Bankruptcy Code, 2016, is hereby, admitted for initiating the Corporate Insolvency Resolution Process in respect of Shresth Detective and Securities Private Limited. Moratorium Order is passed for a public announcement as stated in Section 13 of the Insolvency & Bankruptcy Code, 2016.
As a consequence of this Application being admitted in terms of Section 10 of the I&B Code, moratorium as envisaged under the provisions of Section 14(1) of the Code, shall follow in relation to the Respondent/(CD) as per clauses (a) to (d) of Section 14(1) of the Code. However, during the pendency of the moratorium period, terms of Section 14(2) to 14(3) of the Code shall come into force.
Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016, prohibits the following, as:
a)The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment decree or order in any court of law, Tribunal, arbitration panel or other authority;
b)Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its asset or any legal right or beneficial interest therein;
c)Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
d)The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.
[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]
The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
The provisions of sub-section (1) of the Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
The Applicant has proposed the name of Mr. Seikh Abdul Salam, 64J, Linton Street, Entally, Beniapukur, Kolkata – 700014, West Bengal, Registration no.: IBBI/IPA-003/IPA-ICAI-N-00250/2019-2020/12966, Email ID: ipsalamkol2019@gmail.com as the Interim Resolution Professional (IRP). We have perused that there is a written communication and consent of IRP in Form 2 with Affidavit, as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, annexed as Annexure “L” at Pages 590-591 to this application. There is a declaration made by him that there are no disciplinary proceedings pending against him with the Board or IPA of ICAI. In addition, further necessary disclosures have been made by “Mr. Seikh Abdul Salam” as per the requirement of the IBBI Regulations. Hence, we appoint “Mr. Seikh Abdul Salam” as the Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the I&B Code subject to submission of a valid Authorisation of Assignment in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016. The fee payable to IRP or the RP, as the case may be, shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the I&B Code.
In pursuance of Section 13 (2) of the Code, we direct the IRP or the RP, as the case shall cause a public announcement immediately with regard to the admission of this application and call for the submission of claims under Section 15 of the Code. The public announcement referred to in Clause (b) of sub-section (1) of Section 15 of Insolvency & Bankruptcy Code, 2016, shall be made immediately. The expression immediately means within three days as clarified by Explanation to Regulation 6 (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
During the CIRP period, the management of affairs of the Corporate Debtor shall vest in the IRP or the RP, as the case may be, in terms of Section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this Order, in default of which coercive steps will follow. There shall be no future opportunities in this regard.
The Interim Resolution Professional is also free to take police assistance to take full charge of the Corporate Debtor, its assets and its documents without any delay, and this Court hereby directs the concerned Police Authorities and/or the Officer-in-Charge of Local Police Station(s) to render all assistance as may be required by the Interim Resolution Professional in this regard.
The IRP or the RP, shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.
The Financial Creditors/ Operational Creditors in absence of the Financial Creditors shall be liable to pay to IRP a sum of Rs. 3,00,000/- (Rupees Three Lakh Only) as payment of his fees as advance, as per Regulation 33(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which amount shall be adjusted at the time of final payment. The expenses relating to the CIRP are subject to the approval of the Committee of Creditors (CoC).
The Registry of this Adjudicating Authority is hereby directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional by Speed Post and through email immediately, and in any case, not later than two days from the date of this Order.
Additionally, the Registry of this Adjudicating Authority shall serve a copy of this Order upon the Insolvency and Bankruptcy Board of India (IBBI) for their record and also upon the Registrar of Companies (ROC), West Bengal, Kolkata by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.
The Resolution Professional shall conduct CIRP in time-bound manner as per Regulation 40A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.
The IRP/RP shall be liable to submit the periodical report including the minutes of the CoC of the Corporate Debtor, with regard to the progress of the CIRP in respect of the Corporate Debtor to this Adjudicating Authority time to time.
The order of moratorium shall cease to have effect as per Section 14(4) of the I&B Code.
The Registry is hereby directed to communicate the Order to the Corporate Applicant, and to the Interim Resolution Professional by Speed Post and also by e-mail.
List the matter on 02/07/2025 for hearing the progress report.
Urgent certified copy of this order, if applied or be supplied to the parties, subject to compliance with all requisite formalities.