Srei Equipment Finance Limited vs Roadwings International Pvt. Ltd.

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 21.11.2024 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench-II) in C.P. (IB) No. 224(KB)/2023. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by the Appellant- Srei Equipment Finance Ltd. for initiation of insolvency resolution proceedings against Roadwings International Pvt. Ltd.-Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant.

Coming to the chronological sequence of events and the factual matrix of the case at hand which are relevant to be noticed for consideration of the issues raised by rival parties, we notice that the Reserve Bank of India (“RBI” in short) issued a Press Release on 04.10.2021 by which the RBI had superseded the Board of Directors of the Financial Service Provider/Appellant-Srei Equipment Finance Ltd. (“SEFL” in short) and appointed Shri Rajneesh Sharma as the Administrator of SEFL. Soon thereafter on 08.10.2021, RBI filed an application vide CP (IB) No. 295 of 2021 before the Adjudicating Authority seeking initiation of Corporate Insolvency Resolution Process (“CIRP” in short) of the Appellant-SEFL. The above application was admitted by the Adjudicating Authority on 08.10.2021 and the management of the Appellant was vested in the Administrator and the said order appointed Shri Rajneesh Sharma as the Administrator of SEFL to carry out the functions as contemplated under the IBC. The Administrator of SEFL issued a Power of Attorney (“POA” in short) in favour of an officer of the Appellant by the name of Shri Sohan Kumar Jha (“Sohan Jha” in short) on 28.03.2023 for initiating and defending legal proceedings under the provisions of IBC for and on behalf of the Appellant-SEFL. Thereafter, on 11.08.2023, the Adjudicating Authority approved the resolution plan submitted by National Asset Reconstruction Company Ltd. (“NARCL” in short). In terms of this plan approval order, the Administrator was to stand discharged from his duties with effect from the date of this order i.e. 11.08.2023. The plan of NARCL provided for the constitution of an Implementation and Monitoring Committee (“IMC” in short) to manage the affairs of SEFL as a going concern. In the second meeting of the IMC held on 17.08.2023, the POA of 28.03.2023 issued by the Administrator in favour of Sohan Jha was ratified and confirmed. Thereafter, on 04.11.2023, a Section 7 petition vide CP(IB) No. 224 of 2023 was filed by Sohan Jha on behalf of the Appellant which was then under the management of IMC. This Section 7 application was filed for initiation of CIRP against the Corporate Debtor-Roadwings International Pvt. Ltd. (“RIPL” in short) which had availed certain loan facilities from SEFL for which four Financial Agreements had been signed between the period 15.04.2017 to 15.07.2019. Subsequently, on 26.02.2024, the IMC was dissolved and a new Board of Directors of the Appellant was constituted. On appointment of the new Board of Directors, the said Board in its meeting held on very date of its appointment i.e. 26.02.2024 passed a resolution ratifying and accepting all the acts of the IMC and also ratified the POA issued in favour of Sohan Jha. The new Board of Directors also passed a resolution on 28.03.2024 authorising the Chief Executive Officer (“CEO” in short) to take all action relating to the legal and regulatory matters of the company and the newly authorised CEO issued a fresh POA on 16.04.2024 to Sohan Jha. The appointment of the fresh Board of Directors and passing of the Board Resolution dated 26.02.2024 by it was also brought to the knowledge of the Adjudicating Authority by way of a supplementary affidavit on 18.05.2024. On 21.11.2024, the Adjudicating Authority dismissed the Section 7 petition vide CP No. 224 of 2023 filed by the Appellant on the ground that the application had been filed without a subsisting valid authorization by the POA holder. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant.

Making submissions on behalf of the Appellant, Shri Arun Kathpalia, Ld. Sr. Counsel submitted that in terms of the resolution plan submitted by NARCL which had been approved by the Adjudicating Authority, the IMC was responsible for overseeing the management and control of the affairs of SEFL as a going concern until the closure of the implementation of the plan. Thus, the IMC was deemed to have all the powers vested with the Resolution Professional (‘RP’ in short) to initiate and conclude litigation proceedings under the IBC on behalf of the Appellant. The IMC in its second meeting held on 17.08.2023 had confirmed and ratified the appointment of Sohan Jha through POA by the former Administrator to pursue the Section 7 proceeding on behalf of the Financial Creditor company. It was further submitted that once the IMC stood dissolved and the management of the resolved Financial Creditor Company was handed over to a fresh Board of Directors, this fresh Board also ratified and accepted all the acts of the IMC by passing a resolution to that effect, thus validating all actions taken by the IMC including the confirmation and ratification of the appointment of Sohan Jha as POA holder. Thereafter, the fresh Board of Directors authorised its new CEO to pursue all legal and regulatory matters on behalf of the resolved Financial Creditor company and the new CEO had issued a fresh POA on 16.04.2024 authorising Sohan Jha as the attorney holder. The fresh Board of Directors of SEFL had not only ratified the POA but also ratified the filing of Section 7 application. Assailing the impugned order, it was contended that the Adjudicating Authority had erroneously failed to appreciate that there was a valid authorisation held by Sohan Jha in his favour to function like an authorised representative by virtue of being a POA holder. Submission was pressed that the statutory provisions of IBC clearly authorises the RP to appoint other professionals as may be necessary to keep the Corporate Debtor running as a going concern including taking assistance and cooperation of the officers and employees of the Corporate Debtor for institution and continuation of legal proceedings on behalf of the Corporate Debtor. In the present case too, Sohan Jha as an attorney holder was an employee of the Corporate Debtor company. The POA holder merely acted as an agent of the principal and was clearly entitled to file a Section 7 application on the strength of the POA.

Refuting the submissions made by the Appellant, the Ld. Counsel for the Respondent, Ms Swati Dalmia contended that the Section 7 petition had been filed by Sohan Jha as a POA holder of the Appellant-Financial Creditor on 04.11.2023 by which time the validity of his POA had expired. It was emphatically asserted that once the Administrator stood discharged on 11.08.2023, the powers exercised by him granting POA to Sohan Jha on 28.03.2023 did not subsist anymore. Since the Adjudicating Authority while approving the resolution plan of SEFL on 11.08.2023 had discharged the Administrator of his responsibilities, Sohan Jha as POA holder did not have a valid authorisation and hence did not have the locus or authority to file the Section 7 petition. It has been further contended that though a Board Resolution had been passed by the IMC of the Appellant-Financial Creditor ratifying and confirming the POA authorising Sh. Rajneesh Sharma, the former Administrator to authorise any person to act on his behalf to initiate or defend any litigation pertaining to the business of the Financial Creditor, this was not a valid authorisation as the IMC at best was only an agency set-up to oversee the monitoring of the implementation of the resolution plan. The IMC not being a part of the Financial Creditor company could not have authorised any person to file a Section 7 petition on their behalf. It was vehemently contended that the role of the IMC cannot be expanded to treat it as part of the Financial Creditor company which was under resolution.

We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully.

The moot point of consideration before us is whether there was proper and valid authorisation vested with Sohan Jha the POA holder to file the Section 7 petition before the Adjudicating Authority for initiation of CIRP against the Respondent-RIPL.

It is the case of the Appellant that the resolution plan of SEFL had duly authorised the IMC to exercise all duties, functions and responsibilities of a RP. In exercise of its responsibility, the IMC had adopted, ratified and confirmed the authority of Sohan Jha to file the Section 7 petition on behalf of the Appellant in his capacity as POA holder. While acknowledging that it was an undisputed fact that the Section 7 petition had been filed on 04.11.2023 by Sohan Jha by which time the Administrator had been discharged, submission was pressed that Sohan Jha was competent to sign and verify the Section 7 petition since the POA dated 28.03.2023 was valid until 31.03.2024. Since the said POA agency was neither revoked nor terminated, there was no defect in the authorisation enjoyed by Sohan Jha as on 04.11.2023 to file the Section 7 petition on behalf of the Appellant. Thus, the Section 7 application was filed by a competent person who was validly authorised to do so.

Per contra, it is the case of the Respondent that though IMC had similar powers as that of the RP in the conduct of CIRP process, that does not mitigate or obviate the legal requirement of a duly authorised individual to affirm the Section 7 petition as provided for in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In the present case, the action taken by Sohan Jha to file the Section 7 application as POA holder was not based on a proper and valid authorisation since Shri Rajneesh Sharma who had issued the POA in favour of Sohan Jha had been discharged from acting as an Administrator with effect from 11.08.2023. It was contended that once a person who has issued a POA ceases to hold the same capacity basis which the POA had been issued, the authority delegated by him to the POA holder also comes to an end. It was contended that the powers and responsibilities of the IMC in terms of the resolution plan also does not indicate any right or obligation accorded to the IMC for filing any fresh application or initiating of CIRP against any third party. Thus, when the IMC itself was not authorised to initiate CIRP on behalf of Appellant-Financial Creditor, the question of further delegation to POA holder does not arise. Buttressing their argument further, it was canvassed that because Sohan Jha had not taken steps based on valid authorisation, this had necessitated the fresh Board of Directors to ratify the authorisation by passing a resolution to this effect on 26.02.2024.

For making our analysis, it may be useful to advert our attention to the POA document of 28.03.2023. When we look at the POA document which has been placed at page 142 of the APB, we find that the management of SEFL has been vested with the Rajneesh Sharma, Administrator and that the Administrator in turn authorised Sohan Jha, an employee of the SEFL to take action on legal matters. A reading of the POA of 28.03.2023 shows that it entrusted Sohan Jha as the POA holder to:

(Emphasis supplied)

The above POA document of 28.03.2023 when perused shows that the Administrator authorized Sohan Jha who happened to be an officer of the Appellant to execute and perform all acts, deeds and things for the company in any court of law, judicial or quasi-judicial authorities until 31.03.2024 or for as long as he remained in its employment.

Next we turn towards the relevant portions of the resolution plan of SEFL which focuses on the constitution, responsibilities and operational functioning of the IMC which came into play with the approval of resolution plan submitted by NARCL as approved by the Adjudicating Authority. The relevant excerpts of the resolution plan which has been placed at page 27-34 of Appeal Paper Book (“APB” in short) is as reproduced below:

(Emphasis supplied)

When we look at the above terms of the resolution plan, it becomes clear that in terms of Clause 6.1.1 and 6.1.5 the IMC was to inter alia comprise of the Administrator and that the powers of the erstwhile Board of the Corporate Debtor was to be exercised by the IMC in accordance with the resolution plan till the closing date. Clause 7.1 also clearly sets out that the IMC shall be deemed to have all the powers vested with the RP under the IBC and also authorized to exercise all such powers of the RP. Clause 7.3 further elaborating on the responsibilities of the IMC also clearly provided that the IMC was to oversee the management of the affairs of the Corporate Debtor and maintain it as a going concern besides taking all necessary steps to ensure that the value of the assets of the Corporate Debtor does not undergo any deterioration and sign any definitive documents to accomplish the purpose of the resolution plan.

We next advert our attention to the decision taken by the IMC in its second meeting held on 17.08.2023 and the resolution passed which is as reproduced below:

(Emphasis supplied)

The above minutes of the second meeting of the IMC makes it amply clear that the IMC was fully aware of the authorisation made by the former Administrator by issuing POA in favour of Sohan Jha and desired to maintain continuity in respect of the POA. The adoption by the IMC of the authorization given by the former Administrator further validated the authority of Mr. Sohan Kumar Jha as POA holder. Thus, when we look at the above Resolution No.4 approved by the IMC, Sohan Jha who had been duly authorised by former Administrator to file and initiate legal proceedings on behalf of the Appellant also continued to enjoy the same power of authorisation conferred upon by the IMC.

At the time when Sohan Jha filed the Section 7 petition, the Administrator was not in place and the IMC was responsible for the management of the Corporate Debtor company. Be that as it may, IMC had authorised Sohan Jha to act on behalf of the Appellant vide its resolution dated 17.08.2023. This conferment of authorisation by the IMC gave validity to the filing of the Section 7 petition on behalf of the Appellant by Sohan Jha. Further the said agency was neither expressly revoked nor terminated in terms of Section 201 of the Indian Contract Act, 1872. Hence, the subsisting authorization was adequate and the observation of the Adjudicating Authority that the Section 7 petition suffered from lack of valid authorization cannot be sustained.

It is pertinent to note that when the IMC was subsequently dissolved on 26.02.2024 and a fresh Board of Directors of the Appellant was reconstituted, the said Board of Directors on the very same day ratified and accepted all the acts of the IMC by way of Board Resolution including the POA issued in favour of Sohan Jha. That the new Board of Directors had consciously approved the POA issued in favour of Sohan Jha is further established by the fact that the Board had also cancelled certain other authorisations given by the IMC.

For better clarity, it may be constructive to notice the relevant minutes of the meeting of the Board of Directors held on 26.02.2024 and the resolution passed as appearing at page 459-460 of the APB which is as reproduced below:

(Emphasis supplied)

A perusal of the above resolution shows that after a fresh Board of Directors had been constituted on 26.02.2024, the said Board had ratified and accepted all the acts of the IMC with regard to POA/Authorisation issued by it. It therefore becomes clear that the fresh Board of Directors had ratified the POA in favour of Sohan Jha and also ratified the action of filing of Section 7 application by the POA holder.

In this context, reliance has been placed by the Appellant on the judgment of the Hon’ble Supreme Court of India in National Institute of Technology Vs Pannalal Choudhury, (2015) 11 SCC 669 wherein the principal of ratification has been enunciated as under:

It is the case of the Appellant that the ratio of the above judgment correctly supports their case that the ratification of the POA initially issued by the Administrator in favour of Sohan Jha by the IMC on 17.08.2023 and subsequently by the fresh Board of Directors on 26.02.2024 tantamount to valid authorisation of Sohan Jha for filing the Section 7 petition. This fact was also brought to the knowledge of Adjudicating Authority by the Appellant through a Supplementary Affidavit on 18.05.2024 as can be seen placed at page 452 of APB.

In view of the judgment in National Institute of Technology supra, it becomes clear that the word “ratification” by its definition means the making valid of an act already done. Furthermore, “ratification” relates back to the date of the original act so ratified and hence once any action is ratified it implies that the action stands retrospectively validated. In the present case, it therefore follows that the Administrator having issued POA to Sohan Jha and the POA having been ratified both by the IMC and the fresh Board of Directors, actions taken by the POA holder cannot be said be suffer from irregularities on grounds of lack of valid authorisation.

This brings us to the second limb of the argument canvassed by the Respondent that the Adjudicating Authority had rightly noticed that neither the RP nor the IMC could have delegated their powers to a third party to file the Section 7 petition in the absence of any express provision of law allowing them to do so. It was also contended that the Adjudicating Authority had correctly relied on the legal maxim of “delegatus non potus delegare”. It was also contended that the role of the IMC was limited to implementing the plan and could not have transcended to give authorisation to any other person for initiation of CIRP by filing a Section 7 petition against a third person.

It is the contention of the Appellant that the Adjudicating Authority failed to notice that the statutory framework of the IBC makes the RP responsible for the conduct of the entire CIRP; manage the continued business operations of the Corporate Debtor during CIRP; preserve and protect the assets of the Corporate Debtor and for achieving this purpose, the RP is required to represent and act on behalf of the Corporate Debtor with third parties besides exercising rights for the benefit of the Corporate Debtor in judicial, quasi-judicial or arbitration proceedings.

When we look at the statutory construct of IBC, the RP is authorized under Section 25(2)(b) of the IBC to “represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings” for the over-arching purpose of preserving and protecting the assets of the Corporate Debtor, including the continued business operations of the Corporate Debtor. The RP cannot be expected to practically perform its duties enshrined under Section 25(2)(b) of the IBC on a stand-alone basis and hence for reasons of practical necessity, the RP is required to take the assistance and cooperation of the officers and employees of the Corporate Debtor for institution and continuation of legal proceedings on behalf of the Corporate Debtors and represent the Corporate Debtor before various forum. The IBC framework acknowledges this practical necessity as is evident from the scheme of Section 19(1) of the IBC which provides that “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.” Further, Section 17(b) of the IBC provides that “the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall be suspended and be exercised by the interim resolution professional.” Section 20(2)(d) of the IBC allows the RP to “issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern”. Section 25(2)(d) of the IBC is yet another enabler which allows the RP “to appoint accountants, legal or other professionals” which is further reinforced by Section 23(2) read with Section 20(2)(a) of the IBC which also authorizes the RP to “appoint accountants, legal or other professionals as may be necessary.”

Attention has been adverted to certain judicial precedents by the Appellant wherein it has been held that the Interim Resolution Professional can delegate his duties and functions to the personnel of the Corporate Debtor as may be required by him in managing affairs of the Corporate Debtor. The relevant extracts of the judgment of the High Court of Hyderabad in M/s Golden Jubilee Hotels Ltd. Vs M/s EIH Ltd. 2018 SCC Online Hyd 315 which has been relied upon by the Appellant is as reproduced below:

That the statutory provisions of IBC do not place any bar on the RP to have petition filed through any authorised person has also been affirmed by the Hon’ble Supreme Court in Rajendra Narottamdas Sheth and Another Vs Chandra Prakash Jain (2022) 5 SCC 600 after taking into account the judgment of this Tribunal in Palogix Infrastructure Pvt. Ltd. Vs ICICI Bank in CA(AT)(Ins) No. 30 of 2017. The Hon’ble Apex Court has laid down that if a general authorisation to file any legal proceeding is granted by way of a POA, it suffices for an attorney holder to file a Section 7 application under the IBC. This judgment is as reproduced below:

Keeping in view the complexity and multifarious nature of tasks which are to be undertaken by the RP so as to successfully conclude the insolvency resolution within tight time-lines set out under IBC, the exigencies of the situation requires the RP to delegate tasks if the situation so requires and the statutory framework of IBC not only recognises this eventuality but also provides for meeting such eventualities. Such delegation does not diminish the powers of the delegating authority. Such delegation cannot be misconstrued to be read as renunciation or abdication of powers by the delegator. The POA document of 28.03.2023 had authorized Sohan Jha who happened to be an officer of the Appellant to execute and perform all acts, deeds and things for the company in any court of law, judicial or quasi-judicial authorities until 31.03.2024 or for as long as he remained in its employment. The POA holder merely acts as an agent of the principal. Hence, when power is exercised by the POA holder, which in the present case is Sohan Jha who happens to be an employee of the company, his actions do not suffer from any infirmity.

The Adjudicating Authority in the impugned order has returned the finding that debt and default stood clearly established on the part of the Corporate Debtor. The existence of debt and default as adjudicated by the Adjudicating Authority has also not been assailed by the Respondent. The Adjudicating Authority has also held that the Section 7 petition filed by the Appellant was not barred by limitation which has also not been challenged by the Respondent. The only ground on which Adjudicating Authority has dismissed the Section 7 petition is improper filing of the Section 7 application on account of there being no valid and proper authorisation for the POA holder to have filed the same which for reasons discussed above cannot be sustained.

In result, we are of the view that ground for rejection of the application under Section 7 of IBC was erroneous. Appeal is allowed. We set aside the impugned order dated 21.11.2024 and direct the Adjudicating Authority to pass an order of admission of Section 7 application under IBC within a period of one month from the date when the copy of this order is produced and to take further steps in accordance with the law. No order as to costs.