V.K. Abdul Rahim vs Jasin Jose & Anr.

NARESH SALECHA, MEMBER (TECHNICAL)

The present `Appeal’ is filed against the ‘impugned order’ dated 20.09.2021 passed in MA/207/KOB/2020 in IA/101/KOB/2020 in TIBA/07/KOB/2019 by the ‘Adjudicating Authority’ (`National Company Law Tribunal’, Kochi Bench, Kerala), whereby, the ‘Adjudicating Authority’ rejected the said `Petition’ under the Insolvency & Bankruptcy Code, 2016 (in short ‘I & B Code, 2016’).

The `Appeal’ has been filed by ‘Mr. V.K. Abdul Rahim- Suspended Managing Director’ of ‘M/s Sargam Builders (P) Ltd.’ (‘Corporate Debtor’) who claims to have 64.48% of `Shares’ of the ‘Corporate Debtor’ at the time of commencement of ‘Corporate Insolvency Resolution Process’ and also claiming to be one of the `Unsecured Creditor’ of the ‘Corporate Debtor’ for Rs.2.22 Crore.

The ‘Respondent No. 1’/‘Mr. Jasin Jose, earlier ‘Interim Resolution Professional’/‘Resolution Professional’ and now the `Liquidator’ and the ‘Respondent No. 2’ is ‘The Federal Bank Limited’, who is a ‘Financial Creditor’ of the ‘Corporate Debtor’.

It has been alleged by the Appellant that the `Respondent Nos. 1 & 2’ fraudulently and in collusion admitted wrong `Claims’ of the `Respondent No. 2’ and assign wrong `Voting Rights’ to the `Respondent No. 2’ along with `permitting the unauthorised persons to participate’ in the ‘Committee of Creditors’. This led to the `Liquidation Order’ by the ‘Adjudicating Authority’ under Section 33(2) of I & B Code, 2016. Alleging entire ‘Corporate Insolvency Resolution Process’ as fraud, the `Appellant’ had filed M.A. No. 207/KOB/2020, before the ‘Adjudicating Authority’ with prayers including `recall order of Liquidation’ and to `declare composition and proceedings’ of the ‘Committee of Creditors’, as void. The `Appellant’ had also filed IA/101/KOB/2020 to amend MA/207/KOB/2020. The ‘Adjudicating Authority’ however, dismissed both the `Applications’, as per common ‘impugned order’ dated 20.09.2021.

This `Tribunal’ has noted the following observations of the ‘Adjudicating Authority’ in the ‘impugned order’ dated 20.09.2021.

Hence, the `Appellant’ has preferred present `Appeal’ before this `Tribunal’.

The Learned Counsel for the Appellant stated that before becoming the ‘Managing Director’ of the ‘Corporate Debtor’, the ‘Appellant’ used to work in ‘The Federal Bank Limited’ who is a ‘Financial Creditor’ of the ‘Corporate Debtor’ and is the ‘Respondent No. 2’. The Learned Counsel for the Appellant briefed that while working with the Bank, the `Appellant’ in pursuance to the direction of the ‘Reserve Bank of India’, the Appellant had submitted a “Staff Accountability Report dated 15.09.1999” against one ‘Mr. T. S. Jagadeesan’, who was the then ‘DGM’ of the Federal Bank. Later, ‘Mr. T. S. Jagadeesan’ became the ‘Chief General Manager’ (“CGM”) of the Bank at the relevant time. In the same connection, the `Appellant’ was called as ‘Management Witness’ during the enquiry against ‘Mr. T. S. Jagadeesan’. This led to a personal animosity against the `Appellant’ by ‘Mr.T. S. Jagadeesan’.

At the time, when the aforementioned Mr. Jagadeesan assumed the office of the CGM, the ‘Corporate Debtor’ had availed a term loan of Rs. 70 Lakhs from the Bank and the then re-payments were being effected without default. In the meanwhile, the ‘Respondent No. 2’ (Bank) had also sanctioned a term loan of Rs. 27.5 Lakh and another term loan of Rs.5.7 Crore. The Housing Project of the ‘Corporate Debtor’ was also approved by the Bank for the purpose of providing `Housing Loan’ to the `Clients’ of the ‘Corporate Debtor’. However, later, at the instance of the said Chief General Manager of the ‘Respondent No. 2’ (Bank) and his men, the bank retracted from all these Term Loans and Project Approval, while construction of the Project was in progress. This was done with the purpose of creating an `NPA’ on the ‘Corporate Debtor’. One expired Bank Guarantee of Rs. 82.50 lakh in favour of ‘KSFE’ was also permitted to be encashed. The Learned Counsel for the Appellant further assailed that all such illegal activities of the ‘Respondent No. 2’ led to stoppage of the Project and the ‘Corporate Debtor’ was compelled to return the amounts to a large number of allotees of the apartments, incurring huge losses to it.

The Learned Counsel for the Appellant mentioned that the ‘Corporate Debtor’ started Housing Project named ‘Pearl Kochi’ for which the ‘Corporate Debtor’ availed Term Loan from the ‘Respondent No. 2’. The Learned Counsel for the Appellant alleged that, despite Project running smoothly, due to the interventions and the influence of ‘Mr. T. S. Jagadeesan’, Respondent No. 2 refused to disburse further instalments and illegally withdrew approval of the Project. This led to the crisis and caused huge financial losses to the ‘Corporate Debtor’, which finally led to the `Liquidation’ of the ‘Corporate Debtor’. Further, the `Respondent No. 2’ even initiated the proceedings under SARFAESI Act, which was disposed by the `Debts Recovery Tribunal’, Kochi, in S.A. No 423/2013 by `Order’ dated 30.05.2013 in favour of the Respondent No. 2. Thereafter, the Respondent No. 2 filed O.A No. 258/2013 before `DRT’ for realization of the amount, making the `Appellant’ as one of the Defendants therein, as the `Appellant’ also stood as `Guarantor’. The `Appellant’ while filing the `Written statement’ in the O.A., filed a `Counter Claim’, claiming `Damages / Compensation’ to the tune of Rs. 17,14,19,648.02, which was numbered as Counter Claim No. 2/2014. The Respondent No.2 never filed any Written Statement to the Counter Claim of the Appellant, before the `DRT’ and the matter is still pending even after seven years.

The Learned Counsel for the Appellant brought out that inspite of pendency of OA before the `DRT’, `Respondent No. 2’ initiated ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Debtor’ and proposed the name of `Mr. Jasin Jose’ as `Interim Resolution Professional’. ‘Corporate Insolvency Resolution Process’ was admitted by the ‘Adjudicating Authority’ vide `Order’ dated 20.09.2019 in TIBA/07/KOB/2019 which was challenged by the `Appellant’ and filed Company Appeal (AT) (Insolvency) No. 1297/2019 which was dismissed by this `Tribunal’, as per `Order’ dated 27.01.2020. The `Appeal’ filed by the `Appellant’ against the same was also dismissed by the Hon’ble Supreme Court of India on 12.10.2020.

It has been alleged by the ‘Appellant’ that Mr. Jasin Jose after assuming office as the ‘Interim Resolution Professional’, who was confirmed by the ‘Adjudicating Authority’ as ‘Resolution Professional’ (Respondent No. 1) did not do anything to keep the ‘Corporate Debtor’ as a going concern.

The Learned Counsel for the Appellant complained about the conduct of ‘Respondent No. 1’ (Liquidator) who did not constitute `Committee of Creditor’ properly in the `First Committee of Creditor Meeting’ and included only `Respondent No. 2’ as ‘Financial Creditor’ ignoring other `Creditors’ in the Committee of Creditor, thereby assigning 100% `Voting Share to Respondent No. 2’. The ‘Interim Resolution Professional’ prepared an incorrect ‘Memorandum of Information’ regarding the `Assets and Liabilities’ of the ‘Corporate Debtor’ for determining its financial position on the date of commencement of ‘Corporate Insolvency Resolution Process’.

The Learned Counsel for the Appellant pointed out that under Section 18 (1) (c), the Respondent was required to constitute a `Committee of Creditor’, as contemplated under Section 21 of I&B Code, 2016. Section 21 (2) specifically mandates that, all the `Financial Creditors’ of the `Corporate Debtor’ shall be in the `Committee of Creditor’. The Learned Counsel for the `Appellant’ mentioned that as per Section 5(28) of the I & B Code, 2016, `Voting Share’ is based on the proportion of `Financial Debt’ owed to such `Financial Creditors’ in relation to the Financial Debt. The Financial Debt as defined under Section 5 (8) is the total `Debt’ of the ‘Corporate Debtor’, which shall necessarily include the all `Financial Creditors’ of the ‘Corporate Debtor’, including `Home Allottees’, especially, in view of the specific provision under Sec.5(8)(f)(i) of I & B Code, 2016.

The Learned Counsel for the Appellant assailed the ‘Respondent No. 1’ for violating the ‘Rules & Regulations’. The Learned Counsel for the `Appellant’ maintained that the liability of the ‘Corporate Debtor’ towards the ‘Respondent No.2’ was only Rs.28,31,709.81, whereas the outstanding due to the `Home Allottees’ was Rs.2,52,65,453/- along with the `Unsecured Loan’ of Rs.40,49,470/- and `Short Term Borrowing’ of Rs.2,21,95,889.43, making the total liability of the ‘Corporate Debtor’ to Rs. 5,43,42,522.24/-. It has been alleged that the `Voting Share’ of the `Bank’ should have been only limited and instead of the same, the Respondent No. 1 allotted the entire 100% `Voting Shares’ to the Respondent No. 2.

The Learned Counsel for the Appellant explained that dues to this fraudulent `Voting Share’, the Respondents got the approval of the necessary `66% of Voting Shares’ in the subsequent proceedings under Section 33 (2) of I & B Code, 2016 to `Liquidate’ the ‘Corporate Debtor’. `Liquidation order’ was obtained even without a `Notice’ to any person connected with the ‘Corporate Debtor’. This was a fraud practiced by the ‘Respondent No. 1’, who wanted to continue as ‘Resolution Professional’ and then as `Liquidator’ for fee, etc.

The Learned Counsel for the Appellant mentioned that in the `1<sup>st</sup> Committee of Creditor’, as against the `Actual Debt’ of Rs.28,31,709/- due to the Bank, the `Resolution Professional’ admitted the illegal `Claim’ of Rs.4,39,60,553.25 (Rs.1,10,25,692.86 towards Principal and Rs.3,29,34,860.39 towards Interest), without any proper proof.

The Learned Counsel for the Appellant emphasised that the `Committee of Creditor Meetings’ were `illegal and void’ and the persons who represented the ‘Respondent No. 2’/`Bank’ were not authorized.

As per the Learned Counsel for the Appellant, Regulations 21(2), 23(3)(e), 24(2)(f) stipulate that, only one person specifically authorized by the `Financial Creditor’ can participate in the `Committee of Creditor Meetings’. The Learned Counsel for the Appellant stated that the `Constitution of Committee of Creditor’ and its `Meetings’ are `void’, `illegal’ and `fraudulent’ and is `vitiated’ in all respects.

The Learned Counsel for the Appellant assailed the `conduct of Respondent Nos. 1 & 2’ who tried to ensure that no `Resolution Applicant’ came forwarded in the ‘Corporate Insolvency Resolution Process’ by stating that the ‘Corporate Debtor’ as an `Entity’, incurring huge losses. Further, to damage the ‘Corporate Debtor’, the `Form G’ was published in newspapers having very lower circulation as a camouflage, in violation of Regulation of 36A(2)(i), when the Covid-19 was at its peak in Kerala with short notice time of only 15 days time for the `Prospective Resolution Applicants’ to submit their `Expression of Interest’. The reason projected in the `Liquidation Application’ that there is no `Expression of Interest’, even after publishing `Form-G’ was created by the Respondent No. 1, with an ulterior motive and did not make a second attempt to invite `Expression of Interest’ to test the market.

The Learned Counsel for the Appellant further stated that the ‘Respondent No. 1’ later admitted the `Claims’ of three `Home Allottees’, who support the ‘Respondent No. 2’ in order to support the ‘Respondent No. 2’. Accordingly, in the `4<sup>th</sup> Committee of Creditor’, the ‘Respondent No. 1’ wrongly claimed that, they obtained more than 66% `Voting Shares’ for `Liquidation’ and it was decided to go for `Liquidation’.

The Learned Counsel for the Appellant unfolded that the construction was in progress, but the `Respondent No. 2’ failed to disburse the amounts covered by the Term Loans and failed to meet its obligations and therefore the construction stopped. There were originally 50 Allotees. Under such adverse circumstances, some of the `Allottees’ backed out and the `Corporate Debtor’ had to pay them back. The counter `Claim’ of the ‘Corporate Debtor’ of Rs. 17,14,19,648/- is, inter alia, with respect to such loss sustained by the ‘Corporate Debtor’.

The Learned Counsel for the Appellant brought out that only two of the Allottees have filed cases and obtained Decree from the ‘National Consumer Disputes Redressal Commission’, and may result into a small portion of the entire debt of the Corporate Debtor. However, the ‘Respondent No. 1’ suppressing the `Counter Claim’ of the ‘Appellant’ attempted to magnify the two Decrees obtained from ‘National Consumer Disputes Redressal Commission’

The Learned Counsel for the Appellant emphasised that the ‘Respondent No. 1’, as Liquidator created an impression that the `Suspended Directors’ of the `Corporate Debtor’ including the `Appellant’ is not co-operating with the ‘Corporate Insolvency Resolution Process’ proceedings while the facts are different. There has not been a single instance of the `Corporate Debtor’ or any of its `Suspended Directors’, including the Appellant or Staff causing any obstructions to the conduct of ‘Corporate Insolvency Resolution Process’.

The Learned Counsel for the Appellant amplified that on 01.07.2020, when the COVID-19 restrictions were in peak in Kerala, the Respondent No. 1 sent a letter to the staff of the `Corporate Debtor’, with a copy to the Appellant, asking for certain documents and due to the COVID-19 restrictions, these could not be furnished. Further, the sole Office Staff, who was residing in "Containment Zone" was not available in the Office and therefore, the `Corporate Debtor’ could not immediately provide those documents to the ‘Respondent No. 1’. To make an impression that the `Suspended Directors’ are opposing the process of ‘Corporate Insolvency Resolution Process’, the ‘Respondent No.1’ incorporated such statements in IA No129/KOB/2020 and obtained the `ex-parte Liquidation Order’ and the `Police Protection Order’, against the `Appellant’.

The Learned Counsel for the Appellant assailed the ‘Adjudicating Authority’ order of `Liquidation’. An `Appeal’ was filed by the ‘Appellant’ as C.A. (AT) (Insolvency) No.1037/2020 which was withdrawn to pursue with the ‘Adjudicating Authority’. The M.A. No. 207/KOB/2020 proceeded with before the ‘Adjudicating Authority’ and the `Appellant’, inter alia, sought to recall `Liquidation Order’ and to `declare the Constitution of the Committee of Creditor’ and its `Meeting’ void. Though, a detailed hearing of the matter was sought for, before the ‘Adjudicating Authority’, however only after short hearing, both M.A and I.A. were `dismissed’ by the ‘Adjudicating Authority’.

The Learned Counsel for the Appellant alleged that the `illegal and collusive role of Respondent No. 2’ along with `Respondent No. 1’ was only with an intent to harm the ‘Appellant’ and the ‘Corporate Debtor’. `Respondent No. 1’ misled the ‘Adjudicating Authority’ who issued the ‘impugned order’ which was not in accordance with the law.

The Learned Counsel for the Appellant urged to allow the `Appeal’ and dismiss the ‘impugned order’ of the ‘Adjudicating Authority’.

The Learned Counsel for the Respondent gave an overall view and facts of the case. `Sargam Builders Pvt. Ltd.’ (‘Corporate Debtor’) entered into housing and tourism sector in the year 1997 and completed one `Project’, named `PERIYARBANKS’, on the banks of river `Periyar’ in `Aluva’. The second Project was `Pearl Kochi’ at `Vallarpadam’ which never took off and the Project is stalled since 2010-11. The Learned Counsel for the Respondent also highlighted that since the beginning, the ‘Corporate Debtor’ faced litigations on various fronts in addition to `Civil Disputes’ in respect of the Project property and finally due to financial constraints, the accounts of ‘Corporate Debtor’ became `NPA’ and the Project stopped.

The Learned Counsel for the Respondents stated that, at present no Business activities are carried out by the ‘Corporate Debtor’. The `Corporate Office’ of the ‘Corporate Debtor’ is just one room which is actually a portion of the residential House of the Director and only one personal staff is employed as per the Attendance Record that takes care of the ‘Corporate Debtor’ administrative matters. The Project remains stalled since 17.09.2011, due to various reasons and the building permits also stood expired on 29.03.2012.

The Learned Counsel for the Respondents pointed out that initially, there were 53 Home Buyers and now only 13 Home Buyers are remaining in the Project. The claims received from 9 have been admitted and further 3 Claims received recently and waiting to be admitted, subject to the approval of the ‘Adjudicating Authority’.

The Learned Counsel for the Respondent (Liquidator) had also filed ‘Status Report’ and pointed out the `List of Events’ after admission of the case by the ‘Adjudicating Authority’:

The Learned Counsel for the Respondent (Liquidator) had further relied upon the ‘Status Report’ and pointed out the events post `Liquidation Order’, which are as herein under:

Learned Counsel for the Respondent gave Citations of the Case, B.K Educational Services (P) Ltd. vs. Parag Gupta Associates- AIR 2018 SC 5601, Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. 2020 SCC1, Budraja vs. Chairman Orissa Mining Corporation Ltd. & Anr. 2008(2) SCC 444 and Swiss Ribbons Pvt. Ltd. vs. Union of India 2019 (4) SCC 17 to support his case against the `Appeal’.

The Learned Counsel for the Respondent emphasized that the `Suspended Directors’ are not at all co-operating in the ‘Corporate Insolvency Resolution Process’ and they were only finding ways for creating hurdle. The ‘Appellant’ is making wrong allegations against the conduct of the `Committee of Creditor Meetings’. Their challenge to the MA/207/KOB/2020 & IA (IBC) 101/KOB/2021 order of admission of the TIBA/07/KOB/2019, before this `Tribunal’ and the `Appeal’ against the order, before the Hon'ble Supreme Court al s o failed. Thus, the `Appellant’ lost at all judicial forum i.e. DRT, NCLT, NCLAT and finally at Hon’ble Supreme Court of India.

The Learned Counsel for the Respondent stated that on the one side, the Petitioner has been litigating to stop the ‘Corporate Insolvency Resolution Process’ proceeding and on the other side, claiming that the `Resolution Professional’ has not adjudicated the `Counter Claim’ pending in `DRT’.

The Learned Counsel for the Respondent stated that filing of `Counter Claim’, is only a technical remedy in `DRT’ and the outcome may not be favoring the ‘Appellant’, as such the ‘Appellant’ never pursued the matter during the ‘Corporate Insolvency Resolution Process’ period and he has never shared any of the details of the case files to the IRP/IRP, rather went on challenging the admission of the ‘Corporate Insolvency Resolution Process’.

The Learned Counsel for the Respondent assailed the conduct of the ‘Appellant’ and that ‘Appellant’ has deliberately suppressed the fact that he is the `Suspended Managing Director’ of the company and purposefully opted to file an `Application’ in the capacity of `Shareholder’ of the `Company’.

The Learned Counsel for the Respondent emphasized that the `Corporate Debtor’ is only a company hanging in the `eye of law’ whose Registered Office is part of the house of the `Suspended Managing Director’, with no proper Rent Agreement, no Electricity or Water connection in the name of the company. Only one employee is employed. Right from the beginning, the `Resolution Professional’ requested for the relevant details for conducting the ‘Corporate Insolvency Resolution Process’ but the `Suspended Director’ as well as his employee, never allowed the `Insolvency Resolution Professional’ to enter the Office premises (Part of the house) stating they prefer to go for an `Appeal’ and no ‘Corporate Insolvency Resolution Process’ to be proceeded with, until the `Appeal’ gets disposed of.

The Learned Counsel for the Respondent assailed the behaviour of the ‘Appellant’ and said that the `Insolvency Resolution Professional’ has multiple times sought the Adjudicating Authority’s direction for the cooperation from the `Petitioners’ and `IRP/RP’ had to take Police assistance and even with that `IRP/RP’ failed to take possession of the company and only after taking the personal appearance of the Suspended Directors’, before the ‘Adjudicating Authority’ and direction of the ‘Adjudicating Authority’ at `Liquidation’ stage, Possession could be completed.

The Learned Counsel for the Respondent mentioned that the Suspended Director was projecting the company with high net worth by revaluing the land which cannot be considered as `Inventory’.

The Learned Counsel for the Respondent pleaded that the ‘Corporate Debtor’ in its Balance Sheet never accounted the Accrued Interest on Loan after the account turned `NPA’ and was just carrying forward the long last Bank Ledger amounting to Rs.28,31,704.81/-.

The Learned Counsel for the Respondent mentioned that admittedly the four officials representing the `Financial Creditor’ (Federal Bank) attended the `Committee of Creditor Meeting’, right from the `1<sup>st</sup> Committee of Creditor Meeting’ to the last `Committee of Creditor Meeting’ and even under `Liquidation’ in `Stakeholders’ meeting. However, looking into I & B Code, 2016, overall perspectives in general and for all Banking matters, most of the meetings are attended by more than one official of the Bank.

The Learned Counsel for the Respondent No. 1 mentioned that it is irrelevant as how many representative of the Bank attended the ‘Committee of Creditors’ meeting as the `Voting Share’ of the Bank remains the same. Hence, allegation of the ‘Appellant’ is baseless and created only to confuse the matter and derail the ‘Liquidation Process’.

The Learned Counsel for the Respondent emphasized that in the present scenario, where Real Estate Sector is not in demand and considering the large number of unsold unit of finished Projects, unfinished Units, pending Projects, Projects of various completion stage, `Committee of Creditor’ felt that obtaining a fresh `Resolution Plan’ would be difficult and meaningless and therefore recommended for `Liquidation’ of the ‘Corporate Debtor’ to maximize the value for the `Stakeholders’.

The Learned Counsel for the Respondent finally concluded his arguments and submitted that the `Appeal’ is without any merit and need to be set aside with `exemplary costs’ as ‘Appellant’ has been misusing provision of the I & B Code, 2016 to derail `Liquidation Process’, even after losing his cases in this `Appellate Tribunal’ as well as in `Hon’ble Supreme Court of India’.

Heard the Learned Counsel for the Parties and also perused various record made available to us. Several issues have been raised in the `Appeal’ which are required to be deliberated upon before coming to final conclusion.

Based on the abovesaid detailed deliberations and reasons, this `Tribunal’, bearing in mind the surrounding facts and circumstances of the case in a conspectus manner, comes to a consequent conclusion that no case is made out by the `Appellant’, necessitating any interference by this `Tribunal’ in the instant `Company Appeal’ filed by the `Appellant’. Accordingly, the `Appeal’ fails.

In fine, the Comp. App (AT) (CH) (Ins.) No. 264 of 2021 is dismissed. No costs. The connected pending `Interlocutory Applications’, if any, are Closed. Before parting with the case, this `Tribunal’ directs the `Appellant’/`Applicant’ to pay the deficit Court Fee of Rs.5,000/-, before the `Office of the Registry’ of the NCLAT, Chennai Bench, within four weeks from the date of this Judgment and to produce the `Receipt’ for the said payment, before the Dy. Registrar of NCLAT, Chennai Bench, without fail.