Shri M.G. Mohan Kumar vs M/s. American Road Technology & Solutions Private Limited

Per: Ashutosh Chandra, Member (Technical)

This Petition has been filed by Shri M.G. Mohan Kumar (hereinafter referred to as 'Applicant/Operational Creditor') U/s 9 of the I&B Code, 2016 R/w Rule 6 of the I&B (Application to Adjudicating Authority) Rules, 2016 by inter alia seeking to initiate Corporate Insolvency Resolution Process (CIRP) in respect of M/s. American Road Technology & Solutions Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor') on the ground that it has committed default for a total amount of Rs.1,29,00,000/- (Rupees One Crore Twenty Nine Lakh only) including interest @ 18% per annum till August 2017.

Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows:

Mr. M.G. Mohan Kumar (hereinafter referred to as 'Petitioner/ Operational Creditor') has Aadhar Number 8665 5905 3919 and his address is No.27, Sri Nilaya, II Floor, Margosa Road, Malleswaram Bangalore-560003. M/s. American Road Technology & Solutions Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor') is a Private Limited Company incorporated on 07.05.2012 under the provisions of Companies Act, 1956. The Respondent is engaged into the business of road repairs and maintenance using state-of-the-art equipment namely Python 5000 manufactured in Canada.

It is stated that along with Mr. B.K. Purushothama, Financial Creditor 1, Mr M.G. Mohan Kumar were named as Directors of the Company and Subscriber to the Memorandum of Association. It is stated that the Operational Creditor, Mr M.G. Mohan Kumar supported the Corporate Debtor during the setup stage of the business as the Promoter and Director, Mrs. Bhanu Prabha Krishna Hebbar was residing in New York except some visits during the period from 07.05.2012 (Being the Corporate Debtors incorporation date) till first week of March 2015 and she assumed charge to manage the Company in the second week of April 2015.

The Operational Creditor, being a Director of the Company supported the Corporate Debtor to set up its business and Mr. G.V. Sudhindra was appointed as Vice President (Operations) to manage the day to day affairs of the Corporate Debtor. Several meetings were held with PWD, BBMP, Task Force for Quality Assurance in Public Works etc. to promote the new technology for road maintenance particularly pothole repairs. He persuaded Karnataka Bank Ltd (KBL) to finance the first equipment which was costing approx. Rs. 2,70,00,000/- and also persuaded Canara Bank to provide the Working Capital limits. On 21.09.2012 Karnataka Bank Ltd. Overseas Branch, St. Marks Road, Bangalore, sanctioned a term loan of Rs. 2,00,00,000/- to fund the first equipment of Python 5000.

(4) Due to his efforts with BBMP the Corporate Debtor was successful in obtaining the contract at a value of Rs. 17,37,82,500/-. Further this contract was divided into 6 packages, namely A to F. The Bill of Entry with Chennai Customs House was filed in respect of the first equipment of Python 5000 on 11.02.2013. In respect of Package C of the Contract valuing Rs.1,94,25,000/-, work order by BBMP was issued on 20.03.2013 and in respect of Packages A, B, D, E, and F of the Contract, the work orders by BBMP were issued on 20.05.2013. The Assistant Commissioner of Customs, Chennai Customs House, passed order imposing a Customs duty of approximately Rs.80 lakh on the assessable value of Rs. 2,67,47,325 of the first Equipment of Python 5000. With his efforts, the Commissioner of Customs (Appeals) set aside the order of the Assistant Commissioner of Customs and conferred the benefit of Nil Duty. Further on 26.09.2013 Canara Bank sanctioned facilities comprising of Operating Cash Credit of Rs. 50 Lakh and Bank Guarantee limit of Rs. 2,50,00,000/-.

(5) The Operational Creditor came under severe pressure to make certain pressing payments otherwise operations would have stopped. There was continuous follow up by Officers of BBMP like, Engineering Staff, his Worshipful Mayor, Commissioner of BBMP, etc. Further the promoters failed to infuse necessary capital. In this situation, the Financial Creditor 1, raised an amount of Rs.20,54,000/- from Bajaj Finserve Ltd. in his personal name and transferred to the Corporate Debtor. This amount was repayable in 36 instalments of Rs.72,213 but out of this first 10 instalments has been reimbursed.

(6) It is stated that the Corporate Debtor approached Canara Bank, Cantonment Branch, Bangalore for a term loan of Rs. 3,00,00,000/- for funding two more equipment of Python 5000 and this sanction was done on 25.07.2014. Further, the Corporate Debtor raised temporary fund from BRINDAVAN BEVERAGES PRIVATE LIMITED (BBPL) to bridge the margin funding of two more equipment. This Company financed an amount of Rs. 1,00,00,000/- @ an interest rate of 21% p.a. which was mainly utilized for funding the said margin and also some of the pressing payments and even overdue amount to the Bank, etc.

There were many compliances to be done by the Corporate Debtor to obtain the release of the sanctioned Term Loan. There was temporary Overdraft which was to be regularized, NoC and No Overdue Certificate from Karnataka Bank Limited who had funded the first equipment. As the money from customer, namely BBMP was not received and there was enormous delays in release of funds for the Work done by BBMP, the Corporate Debtor's financial position was in jeopardy. Further, BBMP was also quoting the reason that there is a delay on the part of Corporate Debtor in execution of the Work Orders and single machine was not sufficient. Therefore, it was difficult for the Corporate Debtor to press for the payments from BBMP to avoid precipitation of the matter.

In this circumstances, BBPL was requested to support with temporary funding during this month: BBPL paid the following amounts: 02.09.2014 – Rs. 40,00,000/-; 26.09.2014 – Rs. 20,00,000/-; BBPL, was repaid by the Corporate Debtor the following amounts: 08.09.2014 – Rs.20,00,000/-; 23.09.2014 – Rs. 20,00,000/-; Further, the Corporate Debtor, paid BBPL an interest of Rs. 36,000/- on 23.09.2014 and Rs.1,57,500/- on 25.09.2014 after deducting tax at source of Rs. 21,500. Thus, aggregate of interest received is Rs.2,15,000/-. The Net amount of Principal outstanding including the August 2014 month transaction is Rs.1,20,00,000/-

It is stated that the Corporate Debtor approached Canara Bank to enhance and renew the working capital limits of Rs. 50 Lakh (Fund based) and Rs. 250 Lakh (non-fund based) to Rs. 150 lakh (fund based) and Rs. 150 lakh (non-fund based). Barring some interest over dues there was no serious default in both the Banks due to the support extended by the BBPL, Canara Bank was willing to process the application. It is stated that during the last week of December 2014, the interest due to Karnataka Bank Ltd exceeding more than 3 months and therefore there was pressure to regularize this to avoid account becoming NPA. Further, to avail the enhanced OCC limit of Canara bank it was necessary to keep the Account with Karnataka Bank regular. At this juncture, Operational Creditor, who was supporting the Corporate Debtor's operation was constrained to provide a financial assistance of Rs. 9,85,000/- on 26.12.2014 directly to the Account of Canara Bank by RTGS from his SBI, Malleswaram Account. This amount is repayable with an interest of 18% p.a. from the date of payment.

Due to non-receipt of fund from the Customer, the financial position of Corporate Debtor continued to be in bad shape. Again the Bank account was overdrawn. At this juncture, Corporate Debtor approached the Financial Creditor 2 to provide a funding of Rs. 45 Lakh with a promise to repay once when the enhanced Bank facilities are made available. BBPL issued two payments on 02.01.2015 aggregating to Rs.45,00,000/-. On 27.01.2015, the Corporate Debtor repaid Rs.20,00,000/- to the Financial Creditor 2. With this the aggregate of principal outstanding amounts to Rs.1,45,00,000/- and the interest of 21% p.a. Since then, the Financial Creditor 2 is pursuing to recover without any success.

It is stated that Mrs. Bhanu Prabha, the promoter Director of the Corporate Debtor, had returned to India and started handling the Operations from March 2015. Further, as per the Board Resolution dated 22nd April, 2015 the cheque signing authorities were modified giving authority to Mrs. Bhanu Prabha and Operational Creditor – Mr. Mohan Kumar was released. Till October 2015, Operational Creditor, Mr. Mohan Kumar continued to hand hold the Operations and was performing an advisory role and liasoning with BBMP (the major customer of Corporate Debtor). On 16th October, 2015 the Operational Creditor, Mr. Mohan Kumar resigned and his resignation was accepted the same day. The same day Operational Creditor, Mr. Mohan Kumar executed the share transfer form in relation to the 999 shares of Rs. 100/- each that were held by him. As per the Annual Return (date of AGM 29th September, 2016) that was filed on the MCA the share transfer was registered on 19th October, 2015.

It is stated that the Operational Creditor for all his services was not paid any remuneration since inception. After Smt. Bhanu Prabha Krishna Hebbar, Promoter and Director returned to India in March 2015 as mentioned above, the Operational Creditor, insisted that he should be paid Director's Remuneration by the Corporate Debtor. Though promoter agreed to pay an amount of Rs. 2.50 Lakh per month w.e.f. 01.04.2014, no letter was issued to that effect despite the Operational Creditor's continuous follow up of the matter. However, in Private Placement Offer document approved by the Board on 31.03.2015 and which has been filed with Registrar of Companies, in Form GNL-2, the remuneration payable to the Financial Year 2014-15 to the Operational Creditor, Mr. M.G. Mohan Kumar has been mentioned as Rs. 30,00,000/-. At the same monthly rate the remuneration is payable till October 2015.

The Respondent has filed the Statement of Objections and further submissions wherein it has been contended, inter alia, as under:

It is submitted that as a petition for winding up (under Sections 434(1)(a) and 439 of the Companies Act 1956) against the Company is pending adjudication before the High Court of Karnataka. The petition has been filed by A.V. Balasubramanya (who is stated to be set up by the Petitioner to make false claims) on 18 November 2015 in CoP 215/2015 on the ground of alleged default of an alleged debt owed to him by the Company. Hence, these proceedings are not maintainable in this Tribunal.

It is submitted that in terms of Clause (11) of Part I of First Schedule to the Chartered Accountants Act, 1949 a CA in practice is not permitted to engage himself in any business or occupation other than the profession of Chartered Accountants. But the Petitioner has been the full time director of the Company, while also being a Chartered Accountant in practice between 2012-2015. Further, Section 23 of the Indian Contract Act, 1872 declares the consideration or object of an agreement to be unlawful if it is, inter alia, forbidden by law and all such agreements to be void. Hence the Petitioner's appointment was forbidden by law, and any alleged debt claimed by him by way of this petition are also unlawful.

As per Section 9(5)(2)(d) of the Code, this Hon'ble Tribunal must reject an application filed under Section 9 if the operational creditor has received notice of the 'existence of a dispute' between the parties as to the operational debt. Reference has been made to the decision of the Hon'ble Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited 2017 SCC OnLine SC 1154.

It is stated that there is a clear existence of a dispute that predates the issuance of the Form 3 notice in the instant case, which the Company has brought to the notice of the Petitioner in its reply to the Form 3 Notice, which has been produced by the Petitioner along with the petition. The Petitioner has also suppressed a notice that was issued by him, through his counsel, dated 10 April 2017 to which the Company replied vide reply notice dated 02 June 2017.

As regards the dispute, it is stated that the Company was incorporated on 7 May 2012 and the Petitioner at this point, held 999 shares in the Company while Mr. Kalachari held 1 share in the Company. The two were appointed as promoters and Directors with a view to running the operations of the Company on behalf of Ms. Hebbar, who lived in the United States. Ms. Hebbar was thereafter appointed as Director of the Company on 12 May 2012 and allotted 2,03,000 shares in the Company (vide two tranches – 4,000 shares on 28 August 2012 and 1,99,000 shares on 31 October 2012). Petitioner was needed to provide operational and management support to the Company.

However, upon her return to India, she found that the Petitioner had embezzled all funds from the Company, had failed to repay loans, maintain company books and had defaulted on several statutory requirements, not held board meetings or maintained the minutes. He had hired several close acquaintances as key employees of the Company (one Sudhindhra was illegally appointed even prior to the Company being incorporated) to head various departments, who reported directly to the Petitioner. Not one of the financial decisions were taken with board or shareholder approval and none of the transactions were recorded and approved via resolutions. She then took immediate steps to rectify this situation. The very first course of action was to revoke the cheque signing authority of the Petitioner which was communicated to the Company's bankers as well, vide letter dated 22 April 2015. Despite this, the Petitioner issued cheques, purportedly on behalf of the Company, with respect to which separate proceedings are pending. As per records of the Company, he is yet to surrender the original share certificates to the office of the Company.

As the Company faced a severe liquidity crunch Ms. Hebbar ordered the conduct of a forensic investigation of the Company by an independent entity, V. Raghavan and Co., Chartered Accountants, which revealed the following:

Records and documentation of the Company had not been maintained properly. In substantial heads of expenditures, payments were made in cash and not through verifiable bank payment. In a large number of transactions, the Bills/Vouchers/Invoices and Receipts were missing. The raw materials stock/inventory register was not maintained during the period between 12 May 2012 and 31 December 2014; Standard accounting policies had not been adhered to. The Company had therefore failed to compute accurate revenue figures. The sales/revenue invoices are not recognized and accounted for on a monthly basis as per the terms of the contract, but were recognized and accounted on a yearly basis at the year-end; There was huge working capital mis-management on account of not following up on the payments from BBMP and also the incurring of additional interest on term loans taken out by the Company due to delay in procuring of machinery to implement the works that the Company had been contracted for; There had been statutory non-compliances with the Income Tax Act, State Labour Laws, and Karnataka State Commercial Tax etc.; Unsecured loans had appeared to have been availed from various individuals, HUF and Corporate entities in the form of cash and cheques and in direct contravention of the Companies Act, 2013; and there had been misappropriation of funds from the Company by the Petitioner whereby the Company had lost a minimum of INR 3,76,18,983/- (i.e., over Rupees 3.7 crores) on account of various fraudulent actions undertaken by the Petitioner and his accomplices. A true copy of the investigation report prepared by V Raghavan and Co, Chartered Accountants has been produced. Several vouchers were found evidencing unauthorized withdrawals of cash by the Petitioner for the Company for unauthorized uses. The said vouchers also evidence blatant violation of the Income Tax Act by the Petitioner – whereby cash transactions over Rs.20,000 are prohibited. The full extent of fraud and misappropriation is yet to be determined. It is evident that the Petitioner had, therefore, grossly abused his statutory and fiduciary responsibilities as Director.

In view of the criminal actions of the Petitioner, Ms. Hebbar filed two criminal complaints against the Petitioner and his accomplices with respect to the various crimes committed by them against the Company. The first criminal complaint was filed with the Malleswaram Police Station on 14 October 2016 against Petitioner and Mr. A.V Balasubramanyam for offences under Sections 420, 419, 465 and 120(B) of the Indian Penal Code ('IPC'). An FIR was registered and was numbered as Crime No. 207/2016. The Petitioner was arrested and remanded to judicial custody and is now on bail. A charge sheet implicating the Petitioner for offences under Section 419, 420, 465 and 120(B) read with Section 34 of the IPC was filed. The second criminal complaint was filed with the High Grounds Police Station vide written complaint dated 2 June 2017 against the Petitioner, G.V Sudhindra (Vice President of the Company) and K Rajendra, Manager Finance and Administration of the Company for offences under Sections 406, 402, 465, 468, 477A and 120(B) of the IPC for misappropriation of Company funds to the tune of INR 3,76,18,983/- (Rupees Three Crores Seventy Six Lakhs Eighteen Thousand Nine Hundred and Eighty Three only). The High Grounds Police registered an FIR on the same day which was numbered as Crime No. 87/2017. As is evident, these criminal complaints were filed much prior to the present petition which leads us to the inescapable conclusion that the present petition is merely created as an attempted distraction from the pending criminal investigations. It is submitted the Petitioner is in fact absconding and avoiding the police authorities who have not been able to trace him for the purposes of investigation. The Petitioner and the other Accused moved the Hon'ble City Civil and Sessions Court, Bengaluru under Section 438 of the Code of Criminal Procedure, 1972 seeking anticipatory bail in the event of their arrest in connection with Crime No. 87/2017. The anticipatory bail petition was filed on 7 October 2017 and was numbered as Crl. Misc. 8005/2017. The Hon'ble Sessions Court was pleased to pass an order dated 19 October 2017 rejecting the petition for anticipatory bail filed by the Petitioner and his co-accused. The Hon'ble Sessions Judge has found that there exist incontrovertible circumstances that make out prima facie that the 1st Petitioner and his co-accused were guilty of offences alleged in the criminal complaint in Crime No. 87/2017. He concluded, at Para 13, that:

It is submitted that the above-mentioned investigations, based on the report of an independent auditor, constitute sufficient evidence of facts which constitute a dispute in terms of Section 9 of the Code. It is pertinent to note that the amounts alleged to be embezzled far exceed the amounts of operational debt being claimed by the Petitioner. The notice of existence of this dispute was clearly brought to the attention of the Petitioner prior to lapse of 10 days from the Company receiving the Form 3 Demand Notice. Therefore, in view of the provisions of Section 9(5)(2)(d) of the Code, the instant application deserves to be dismissed in limine.

It is submitted that under Section 9(5)(ii)(c) of the Code, the Hon'ble Tribunal must dismiss an application under Section 9 when there has been 'non-delivery of notice under Section 8 of the Code' to the operational debtor. In the Section 8 Notice issued by the Petitioner to the Company (produced along with the Petition), the Petitioner has claimed that the Company was in default of a total amount of Rs. 76,74,499. The Petitioner had also attached a working sheet showing this computation along with the notice. The amount claimed is allegedly in respect of unpaid Directors' remuneration of Rs. 2,50,000 (Rupees Two Lakhs Fifty Thousand only) per month for several months from 2014 to 2017.

In the instant application, the Petitioner has claimed that the Company is in default of Rs. 2,52,62,901. The amount claimed is allegedly in respect of unpaid Directors' remuneration of Rs. 3,00,000 (Rupees Three Lakhs only) per month for several months from 2012 to 2017. Hence, major discrepancies arise, namely: a. The alleged monthly remuneration is different. This is highly unusual since the Petitioner claims this was his salary and he was in charge of the Company from the time of incorporation till almost the time he resigned. b. The period for which the remuneration is different. The notice alleges non-payment of remuneration (and interest) only from 2014 to 2017 whereas the instant application alleges non-payment of remuneration (and interest) from 2012 to 2017 (an additional two years have been added). These discrepancies have resulted in a huge difference in claim of Rs. 1,75,88,402 /- between the amounts claimed in the instant application and the amounts claimed in the Section 8 Notice. This is even more so since the Petitioner has deemed himself entitled to a compound interest of 18% over these alleged dues. A perusal of both Section 8 and Section 9 make it explicitly clear that the application under Section 9 can only be in respect of amounts claimed in the prior Section 8 notice. Therefore, no notice under Section 8 has been received by the Respondent Company of a debt of Rs.2,52,62,901, and this petition ought to be dismissed on this ground alone. The gross discrepancies are evidence of the fact that no operational dues are owed by the Company to the Petitioner and that the instant claims have been concocted by the Petitioner with a mala fide view to harassing the Company and subverting the criminal investigations against him. Such a discrepancy also constitutes evidence of malicious filing of insolvency proceedings as per Section 65 of the Code.

As the Hon'ble National Company Law Appellate Tribunal has held on multiple occasions, it is mandatory for any application under Section 9 of the Code to be accompanied by a copy of a certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. The Petitioner has failed to provide such a certificate with the instant petition. There is therefore non-compliance with the mandatory requirement of certificate stipulated under Section 9(3)(c) of the Code.

The Petitioner claims that the alleged arrears of salary are due to him for the years 2013-2015. At the outset, these claims are barred by limitation and also hit by delay and laches. No explanation has been provided for the delay in making these alleged claims. The timing of the petition, right around the time when the police are investigating them makes it clear that these have been filed as a counterblast to the criminal actions raised by the Company.

Without prejudice, it is submitted that as per the provisions of Section 9, the following conditions must necessarily be met for admission of an application for initiation of insolvency resolution process:

a. There must be an existence of an operational debt owed by the corporate debtor to the operational creditor; b. There must be a default of the operational debt; c. The operational creditor must have served on the corporate debtor a demand notice or invoice demanding payment under Section 8 of the Code at least 10 days prior to making the application under Section 9; d. The operational creditor making an application must, along with the application, furnish: i) A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; ii) An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; iii) A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and iv) Any such other information as may be specified. The Petitioner has failed to furnish adequate record or evidence to prove the existence of a valid operational debt or any default thereof.

It is humbly submitted that all the alleged operational debts are of the years, 2012-13, 2013-14 and 2014-15 – during which time the Petitioner was in-charge of the day to day affairs of the Company and was responsible for signing off on the Company's accounts. However, the Petitioner has deliberately suppressed all relevant financial statements of the Company with a view to playing a fraud on this Tribunal.

In the interests of transparency and to show the falsity of the claims made by the Petitioner, the Company is producing the relevant public documents herewith as follows: a. Auditors' report of the Company for the year 2012-13 along with accompanying financial statements at Annexure R20; b. Auditors' report of the Company for the year 2013-14 along with accompanying financial statements at Annexure R21; c. Auditors' report of the Company for the year 2014-15 along with accompanying financial statements at Annexure R22.

A perusal of the above documents would reveal that they do not disclose any payments due by the Company to the Petitioner herein. As per the above documents: a. In the Auditor's report for FY 2012-13, net Director Remuneration Payable as on the end of the year is disclosed as only Rs. 2,50,000 (Rupees Two Lakhs Fifty Thousand only) as per Clause 23.05(b)(ii); b. In the Auditor's report for FY 2013-14, net Director Remuneration Payable as on the end of the year is disclosed as only Rs. 2,50,000 (Rupees Two Lakhs Fifty Thousand only) as per Clause 23.05(b)(ii); c. In the Auditor's report for FY 2014-15, there are no disclosures in any of the financial statements or auditor's comments that disclose the existence of any Directors' remuneration payable.

This is directly contradictory to the document produced by the Petitioner where he has alleged that Director's remuneration was Rs. 5,00,000/- per month in total (his and Ms. Hebbar's). Given that the above reports and financial statements, with the reports for 2012-2014 being prepared under the custody and supervision of the Petitioner himself, along with his attestation to the same (during his tenure as Managing Director) it is evident that the claims in the instant application are concocted and devoid of any factual merit.

The Petitioner has relied upon the following documents to prove existence of unpaid Director Remuneration to him: a. Form No. PAS-4 (Private Placement Offer Letter/Invitation to Subscribe) attached to Form GNL-2 for FY 2014-15 along with other attachments pertaining to private placement of shares; and b. Statement of Account of the Petitioner's HDFC Bank Account for 09/09/2017 to 22/09/2017. It is submitted that the Form No. PAS-4 produced by the Petitioner states, at clause 3(c) that the Petitioner is due to be paid Rs. 30 Lakhs for FY 2014-15. Form No. PAS-4 (Private Placement Offer Letter/Invitation to Subscribe) attached to Form GNL-2 for FY 2014-15 along with other attachments pertaining to private placement of shares. Article 16 of the Articles of Association ('the Articles') of the Company (produced herewith as Annexure R23 stipulates that Director Remuneration would be fixed by the 'Board of Directors' from time to time. Therefore, any fixation of remuneration would necessarily need to be recorded in a Board Resolution passed in a Board Meeting for it to have any binding validity on the Company. The document – Form No. PAS-4 does not amount to a Board Resolution in compliance with Article 16 of the Company and no such Board Resolution has been filed along with it approving any remuneration payable to the Petitioner. In view of the same, it is evident that the stipulation as to remuneration found on Form No. PAS-4 is concocted by the Petitioner, as it was drafted and filed by the Petitioner himself and it appears he has clandestinely inserted this false information to create documentation. This form cannot amount to an employment contract or acknowledgment of salary due. Interestingly, the same clause refers to a monthly salary to Ms. Bhanu Prabha which was never made since no resolutions had been passed to approve any such salary. This directly contradicts the audited balance sheets of the Company. The said document pertains solely to FY 2014-15 while the total claim made in the instant application pertains to alleged operational dues due for FY 2012-13, 2013-14 and 2014-15. Therefore, the said document does not prove that any payments were due to the Petitioner for FY 2012-13 or FY 2013-14. Further, even if it were argued (without conceding) that the said document proves the existence of a default, it only pertains to FY 2014-15, it still does not disclose any default for FY 2012-13 or 2013-14, both years in which the Petitioner has alleged part of the total claim in the instant application arises.

As regards his resignation the Petitioner has cleverly suppressed his resignation letter dated 16 October 2015, which is produced here as Annexure R24. This document does not record any default in payments by the Company or any pending dues to the Petitioner.

It is submitted that the Company enjoys a good reputation in the market and is seeing an upswing of its business. The Company has now ensured that all its statutory filings and obligations (both past and present) are fulfilled and has maintained all its records accurately. Thus, while, for example Canara Bank, issued a SARFAESI Notice to the Company in July 2016 (the said notice is produced herewith as Annexure R25 the same Canara Bank proceeded to renew the terms of the loan arrangement it had with the Company vide loan extension letter produced herewith as Annexure R26. This establishes the viability of the Company as a going concern and the confidence in the Company's solvency. Work Orders placed on the Company by BBMP are produced herewith as Annexure R27 series to show that the Company's business is booming and that it is a more than viable going concern.

Further, the Company was able to repay the loan of Rs. 2,00,00,000 (Rupees Two Crores only) sanctioned by Karnataka Bank Ltd. to its full and final satisfaction. The letter from Karnataka Bank Ltd. dated 10.11.2017 evidencing the full and final repayment of the aforesaid loan is produced herewith as Annexure R28. It is submitted that the aforesaid letter mistakenly reflects the loan as being for Rs. 2,00,000, the Company has applied for a corrected copy of the loan. Its primary source of revenue is through government contracts for road works.

This is therefore a fit case for invocation of Section 65 (Fraudulent or malicious initiation of proceedings) of the Code which empowers this Tribunal penalize any person who initiates insolvency resolution process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency. The cases decided by the Principal Bench of this Hon'ble Tribunal in Company Petition No. IB-39 (PB)/2017 in the matter of Unigreen Global Private Limited has, by an order dated 8 May 2017, and by the Hyderabad Bench of this Hon'ble Tribunal in CP IB No. 96/7/HDB/2017 in the matter of Asset Advisory Services India Private Limited v. VSS Projects Private Limited has, by an order dated 8 September 2017, have been cited in support.

Heard Shri Archishman Chaudhury, learned Counsel for the Petitioner and Shri M.M. Swamy, learned Counsel for the Respondent. We have carefully perused the pleadings of the parties and the extant provisions of Code and Rules made thereunder. We have also carefully perused the material brought on record.

First and foremost it is seen that the Petitioner had sent a Demand Notice in Form 3 under the Code of 2016 to the Respondent on 08.09.2017, wherein demand has been made towards Director's Remuneration for the period from April 2014 to October 2015, for a sum of Rs 47,50,000 plus interest of Rs 29,24,499, which adds up to Rs 76,74,499. However, from the Petition filed u/s 9 of the Code by the Petitioner/Operational Creditor in Form 5 on 25.10.2017 shows at Part IV column 1, the total amount due as Rs 1,29,00,000 plus interest of Rs 1,23,62,901, totalling to Rs 2,52,62,901. It is seen also that while in the Demand Notice the debt has been shown as relating to the FY 2014-15 to 2017-18, in the Petition filed u/s 9 the debt is shown as pertaining to the period 01.04.2012 till August 2017. Thus both the amounts of debt and default as appearing in the Demand Notice issued to the Corporate Debtor, as also the period of default are different from those mentioned in the Petition. On the face of it, therefore, the Petition filed u/s 9 of the Code is defective and has to be rejected for that reason alone. Alternatively, if the notice issued to the Respondent was defective, as the amount mentioned therein is different from the petition before us, it has to be taken that there was no valid notice of demand or default. Under Section 9(5)(ii)(c) of the Code, a petition when there has been 'non-delivery of notice under Section 8 of the Code', has to be dismissed.

We may make it clear that proceedings under the Code are summary proceedings, where even if there was an operational debt, the same should be undisputed and the default, as defined under section 3(12) of the Code should be clearly established. There is no scope for investigation under the Code, and evidences brought on record have to be relied upon as such. Further, it is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited^{11.(2018) 1 SCC 353}, has inter alia, held that I&B Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. The Hon'ble Supreme Court in the case of K. Kishan Vs. Vijay Nirman Company Pvt. Ltd. clarified that the Petitioners cannot use IBC either prematurely or for extraneous considerations or as substitute for debt enforcement procedures. In Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd.,^{22.(CA No.9597 of 2018) dated 23rd October, 2018, (2018) 147 CLA 112 (SC)} Hon'ble Supreme Court of India has inter alia held that existence of undisputed debt is sine qua non of initiating CIRP. The facts of the case as obtaining in the present petition and the legal position on the issue have, therefore, to be understood in the light of the above discussion. Unless a case is made out that there is a clear and undisputed debt, there is a default, and also that the respondent is insolvent and has lost its ability to pay its debts, the proceedings become mere recovery proceedings which is not the intent of legislature in introducing the IBC.

The amounts claimed by the Operational Creditor in the present petition are stated to be on account of remuneration payable by the Corporate Debtor, and that constitutes a 'debt' owed to him by the Respondent/Corporate Debtor. Debt, as defined under the Code in section 3(11) means a liability or obligation in respect of a claim which is due from any person, and includes a financial debt or an operational debt. Such a debt would arise from a claim, as also defined in Section 3(6), i.e. from a right to payment in the hands of the Creditor. Such a right could arise from some prior terms and conditions agreed to by the concerned opposite parties, in the shape of a Contract or an Agreement or some Resolution, prior to the transaction, if any, taking place, so that the same could be enforced.

The Operational Creditor has made out a case that prior to the arrival of the Promoter Director in India he was deeply involved in the matters of the Company since its inception, was arranging funds through various banks and companies, obtaining business from BBMP and taking full care of the operations, and sorting out issues with government agencies. Mention has been made of funds arranged by other Financial Creditors, with whom however, we are not concerned in these proceedings. But the issue is whether the Operational Creditor was entitled to the remuneration claimed by him and the interest claimed thereupon. It has been contended that in spite of his insistence he was not paid the Director's remuneration from the very beginning, even though it was agreed to pay him Rs 2.50 lakh pm w.e.f. 01.04.2014. However, it is admitted by the Operational Creditor that no letter was issued by the Corporate Debtor. In support, however, reliance has been placed on the Private Placement Offer document approved by the Board on 31.03.2015, as filed with the ROC.

Form GNL2 filed at Annexure A at page 29 of the Petition and relied upon by the Petitioner, encloses with it the Private Placement offer only, as seen from page 1. In the Form PAS4 attached to the above form, a mention of remuneration is seen in "Disclosure with regard to Interest of the Directors, Litigation etc." This however, does not give rise to a claim or right to payment as envisaged under the Code, especially as no resolution of the Board of Directors has been produced in support of any such insertion in PAS4 or decision with regard to the remuneration. A Form filed with the ROC in connection with a Private Placement Offer cannot be the basis for claiming or acquiring a right to receive an amount as remuneration, when the same is not even meant to be for that purpose. Such a mention cannot give rise to a debt as conceived in the Code. In fact the mention of the remuneration in this column of the PAS4 is in itself peculiar and out of context.

The claim of the Operational Creditor for the Director's remuneration, also does not appear to be valid as he was not entitled to engage in any other business or profession since he was a practising Chartered Accountant, as this is barred by the Chartered Accountants Act, 1949. It is seen from the same Form No. PAS 4, page 2 para h. that the Occupation of the Petitioner has been shown as "Practicing Chartered Accountant". He could not have therefore entered into any agreement for Director's remuneration, and which would have been void anyway, and could not have given rise to a right to payment or any claim or debt.

As regards the dispute between the Operational Creditor and the Corporate Debtor, headed by Ms. Bhanu Prabha Hebbar after her return from the USA in 2015, it is stated by the Corporate Debtor that Ms Hebbar noticed that Mr.MG Mohan Kumar (Petitioner in C.P. (IB) No.116/BB/2017) had indulged in embezzlement of funds, not repaid loans, defaulted in statutory payments, not held Board meetings etc., thus saddling the Company with huge liabilities and losses. She ordered a forensic audit by an Independent Auditor, V Raghavan & Co., Chartered Accountants. The detailed report has been placed on record and are summarised in the Respondent's objection at para 3(7) above, wherein in conclusion it is mentioned that the Company had lost a minimum of Rs.3,76,18,983/- on account of various fraudulent actions undertaken by Mr. M.G. Mohan Kumar, the Petitioner and their associates. In fact, as mentioned by the Corporate Debtor, on the basis of the Auditor's Report it had in turn raised a demand of Rs.13,34,43,808/- on the Petitioner on account of losses caused to the Company. It appears to us that if this loss was to be recovered from the Petitioner the remuneration claimed as payable would not exist.

Pursuant to these findings of the Independent Auditor the Corporate Debtor, filed Criminal cases against the Petitioner and another. The Petitioner, as an accused, moved the Hon'ble City Civil and Sessions Court, Bengaluru under Section 438 of the Code of Criminal Procedure, 1972 seeking anticipatory bail in the event of their arrest in connection with Crl. No.87/2017. The anticipatory bail petition was filed on 07.10.2017 being Criminal Misc. 8005/2017. The Hon'ble Sessions Court passed an Order dated 19.10.2017 rejecting the petition for anticipatory bail filed by the Petitioner and his co-accused. The Hon'ble Sessions Judge found that there existed incontrovertible circumstances that make out prima facie case that the Petitioner and his co-accused were guilty of offences alleged in the criminal complaint in Crime No. 87/2017. He concluded, at Para 13, that:

The Petition filed by Petitioner was thus rejected. These events clearly indicate that there were pre-existing disputes which were too grave to be ignored for the purpose of these proceedings, especially when the Audit report has been considered in coming to that decision. They are substantial and not a feeble legal ruse by the Corporate Debtor to evade repayment of debts, if any.

We may also mention that admittedly the Petitioner was continuing to be in the Board and actively engaged in its operations till his resignation on 16th October 2015. Nothing prevented him from claiming or paying to himself his remuneration at that time rather than waiting for 2 years till the filing of this petition. We also find it very peculiar that on his resignation the Operational Creditor surrendered his equity holding of 999 shares and the transfer was registered by the MCA on 19.10.2015. If amounts were due to him from the Corporate Debtor, as claimed in the petition, the Petitioner would not have surrendered his shares in the company. His resignation letter also does not mention any such dues.

Apart from the above, it is seen from the objections filed by the Corporate Debtor that the dispute over these payments and various issues were very much in existence much prior to the issue of Demand notice by the Operational Creditor, such as the notice dated 10.04.2017 issued by the Petitioner and replied to by the Operational Debtor on 02.06.2017, copies of which have been filed. The Operational Debtor had disputed the payments claimed and stated that the Petitioner was not entitled to any payments from the Company; that the Petitioner while discharging his responsibility had colluded with other employees of the Company to fraudulently siphon off huge sums of money as revealed by an independent audit report, details of which were mentioned; and also alluded to the various proceedings initiated against the Petitioner, including a criminal case. It is also seen that the Petitioner's claim relates to FY 2012-13 onwards. The Code came into effect in 2016 and this Petition was filed on 25.10.2017. As per our findings above, the debt does not exist, and in any case the same is disputed and the same are also not borne out of the Accounts maintained by the Petitioner. In this situation there is no case of continuing default. Defaults arising 3 years prior to the filing of the Petition are therefore barred by limitation. Part of the alleged debt was barred by limitation even prior to the commencement of the Code, and it is well settled that the Code cannot be used for reviving a time barred debt. Also, the long delay in filing a petition u/s 9 of the Code itself leads us to believe that the intent is to defend his position in the other cases rather than recovery of any genuine debt.

Further, the complaints have also been filed against the Operational Creditor with the ICAI on 26 June 2017 alleging Conspiracy to cheat with dishonesty, criminal breach of trust, criminal conspiracy, forgery for purpose of cheating, forging of documents and falsification of accounts. That process is on and indicates the dispute between the Operational Creditor and the Corporate Debtor.

The Corporate Debtor has filed financial statements for the FYs 2012-13, 2013-14 and 2014-15. A perusal of the same does not show any payments due to the Petitioner, accept net Director Remuneration Payable at Rs.2,50,000 each for the first two years. This does not match the claim of Rs.2,50,000 pm made by the Petitioner on the basis of the Form PAS4. Even as per PAS4, the claim could have been made only for the FY 2014-15, and not for earlier years, as made in the Petition. His resignation letter also does not mention any due payments from the Corporate Debtor. Further in his reply to the ICAI dated 31.03.2018, the Petitioner admits that there were no activities in the Company till 2014, and also that he was only a Non-Executive Director till his resignation on 16.10.2015. Further that he had only demanded from the Company only Director's sitting fees for the FY 2014-15.

We also find that the mandatory requirement of Sec.9(3)(c) has not been met in that the Petition is not accompanied by a certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor.

At this point we may mention that in C.P. No.43/BB/2018 we dealt with a petition filed under section 131 of the Companies Act 2013, wherein the Corporate Debtor had sought revision of its Financial Statements and Board Reports for the FYs 2012-2013 to 2014-15. The revision was sought on the basis of the same Independent Auditor's report as is mentioned in the preceding paras, and which brought out issues of misappropriation, siphoning off of Company funds, statutory non-compliances etc., apart from several accounting deficiencies, and which had led to the filing of Criminal cases against the Petitioner and other co-accused. Taking cognisance of the Independent Auditor's Report, and the subsequent events, this Bench allowed the Petition permitting the revision of accounts for the FYs 2012-13 to 2014-15. Apart from the legal issues in the matter, detailed reference was also made to the criminal cases filed by the Corporate Debtor against Mr. MG Mohan Kumar, as referred to in the preceding paras. Mr. MG Mohan Kumar had impleaded himself in that matter, and had objected to the revision of accounts, but his plea was not accepted. We may also emphasise that in the Petition u/s 131, since the issue was merely revision of accounts for certain years in which misappropriation etc. was reported, emphasis was laid on the accounting discrepancies in the Financial Statements. However, in the present proceedings the grave nature of the criminal proceedings cannot be overlooked, even if only a prima facie case is made out, as they have a bearing on the very existence of the dispute regarding the debt claimed by the Operational Creditor and the dispute surrounding the same.

We also find that the Petitioner has attempted to treat these proceedings as a recovery proceeding. No case has been made out in the petition that the Corporate Debtor is insolvent and is incapable of paying its debts. It is submitted that the Company enjoys a good reputation in the market and is seeing an upswing of its business. The Company has now ensured that all its statutory filings and obligations (both past and present) are fulfilled and has maintained all its records accurately. Earlier, Canara Bank had issued a SARFAESI Notice to the Company in July 2016 but later the same Canara Bank renewed the terms of the loan arrangement. This establishes the viability of the Company as a going concern. Work Orders placed on the Company by BBMP show that the Company's business is booming and that it is a more than viable going concern. Further, the Company was able to fully repay the loan of Rs.2,00,00,000/- sanctioned by Karnataka Bank Ltd. Its primary source of revenue is through government contracts for road works. Thus the Corporate Debtor is fully solvent and is therefore not a fit case for initiation of CIRP for this reason as well.

In view of and for the reasons discussed above, we are of the considered view that there was no debt, and/or in any case the same was substantially disputed by the Corporate Debtor with the Petitioner/Operational Creditor, before different forums, as well as per its own records, much prior to the Demand Notice. The Company Petition in C.P. (IB) No.116/BB/2017 is accordingly dismissed along with pending IAs, if any. No order as to costs.