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Judgment
The Company Venus Star Chit Private Limited, the Petitioner / Corporate Applicant has filed this petition under Section 10 of IBC, 2016 r/w Rule 7 of IBBI (Application to Adjudicating Authority) Rules, 2016 for initiating insolvency proceedings against the Corporate Applicant i.e. Venus Star Chit Private Limited.
Part –I of the petition sets out the details of the Petitioner / Corporate Applicant, Venus Star Chit Private Limited having CIN: U74900TN2013PTC092521. It has its registered office at No. 20, First Floor, Oosur Amman Koil Street, Big Natham Chengalpet, Kancheepuram, Tamil Nadu – 603 002 within the jurisdiction of this Tribunal. It has two Directors namely Muthiah Sethuraman and Sivakumar Chandrasekaran. It was incorporated on 14.08.2013 with an authorized share capital of Rs. 1,00,000/- and paid up capital of Rs. 40,000/-. In Part-II of the petition, the Petitioner has proposed the name of Interim Resolution Professional namely Ms. Rongali Sridevi having IBBI Registration No: IBBI/IPA-003/IP-N00172/2018-2019/12105. In Part-III of the petition, it has given the details of the Financial / Operational Creditors (293 Nos). It has annexed a statement showing details of loans including dates of debts. The debt amount as disclosed in the petition is Rs. 2,80,86,784/-. It has also annexed a document containing details of the securities held, date of their creation and their estimated value, copy of ledger statement of the outstanding financial debt as on 15.02.2020 and copy of Form AOC -4 filed with the MCA. It has also filed the financial statements upto the year ended 31.03.2019.
It is stated that on 03.05.2024, a meeting of Board of Directors of the Petitioner Company was held whereby it was resolved to file a petition under Section 10 of IBC for initiating Corporate Insolvency Resolution Process for the Company. Mr. M. Sethuraman, Managing Director was authorized to file the petition.
This Tribunal vide and order dated 11.07.2024 directed the Petitioner to file audited balance sheet upto March, 2024 and serve the copy of the petition on all the Creditors. Pursuant to the order, the Petitioner filed a memo that 110 Creditors have been served. The Tribunal vide an order dated 30.08.2024 directed the Petitioner to effect publication in respect of unserved Creditors in the newspapers Business Standard (English) and Makkal Kural (Tamil).
Despite publication and service, none of the Creditors filed any reply / objection. Nevertheless, the Petitioner filed the financials upto 31.03.2024. During the hearing on 14.11.2024, the Petitioner was directed to explain the recovery measures initiated for recovering of the amounts lent by the Petitioner. The Petitioner was also directed to serve copy on the sole Financial Creditor Tamil Nadu Mercantile Bank Limited.
In compliance of the order dated 06.01.2025, the Petitioner filed a memo vide Sr. No. 65 dated 03.01.2025 stating that the Petitioner has settled the debts of Tamil Nadu Mercantile Bank. It also filed a letter issued by the Bank. It was explained that the Petitioner could not pursue the cases against the Debtors because of constraints of funds. This Tribunal vide an order dated 06.01.2025 also directed to issue notice to the Registrar of Chits. Despite service, none appeared for the Registrar of Chits.
Ld. Counsel for the Petitioner submits that the petition furnishes all the requisite and relevant particulars. There is no document to indicate that the Petitioner is disqualified under Section 11 of IBC. Ld. Counsel submits that if there is a debt and default has occurred and there is no ineligibility under Section 11, the petition under Section 10 of IBC is required to be admitted. In the present case, the petition is complete in terms of Section 10(2) and Section 10(3) of IBC. None of the Creditors have filed any objection nor any application under Section 65 of IBC against the Petitioner / Corporate Applicant.
We have heard Ld. Counsel for the Petitioner and perused the records.
Section 10 of IBC, 2016 provides as under:
“Section 10. Initiation of corporate insolvency resolution process by corporate applicant.
(1)Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority.
(2)The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed.
3)The corporate applicant shall, along with the application furnish the Information relating to-
(a)its books of account and such other documents relating to such period as may be specified; and
(b)the resolution professional proposed to be appointed as an interim resolution professional.
(c)the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, approving filing of the application.
(4)The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order—
(a)admit the application, if it is complete; 2[and no disciplinary proceeding is pending against the proposed resolution professional]; or
(b)reject the application, if it is incomplete: 2[or any disciplinary proceeding is pending against the proposed resolution professional:]
Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.
(5)The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section.”
A perusal of documents reveals that the Petitioner was a chit fund Company incorporated on 14.08.2013. Its financial shows that it had taken overdraft limit from Tamil Nadu Mercantile Bank Limited which it cleared as is reflected from the statement of accounts from 01.11.2019 to 07.12.2019. It stopped its operations in 2019. The Petitioner has placed the list of Creditors showing the debt amount of Rs. 2,80,86,784/-. It has placed copy of the ledger statement of the outstanding financial debt from the books of accounts as on 15.02.2020. The Petitioner has placed the list of the cases filed / pending against it before various Courts / Forums. The financials show that it has no assets but has liabilities. The receivables by the Corporate Applicant have become time barred. The Petitioner has also placed a Board Resolution dated 03.05.2024 where a decision was taken to make an application to the Tribunal under Section 10 of IBC for initiating CIRP for the Corporate Applicant. Shri. M. Sethuraman, Managing Director of the Company was authorized to make the application before the Tribunal. The Corporate Applicant has filed notice of 2024-25 Annual General Meeting to be convened on 03.05.2024 to transact the business i.e. to make an application to the Tribunal under Section 10 of IBC for initiating CIRP. It has also filed the attendance slip of the AGM where the above decision was taken.
Hon’ble National Company Law Appellate Tribunal (hereinafter, Hon’ble NCLAT), New Delhi in M/s. Unigreen Global Private Limited vs. Punjab National Bank and others (Company Appeal (AT) (Insolvency) 81/2017) has held that if an application under Section 10 is complete and in absence of any ineligibility of Corporate Applicant, the Adjudicating Authority is bound to admit the application. The relevant portion of the judgement is reproduced hereunder,
“22.Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the informations as required to be submitted in Form 6 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 subject to ineligibility prescribed under Section 11. If all informations are provided by an applicant as required under Section 10 and Form 6and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is bound to admit the application and cannot reject the application on any other ground”
In the case of “Go Airlines (India) Limited, CP/IB-264(PB)/2023, which was affirmed by the Hon'ble NCLAT in Company Appeal (AT) [Insolvency] No. 593 of 2023, it was held as under:
34.Further, we are conscious of the fact that hearing each and every Creditor, under Section 10 of IBC 2016, can cause an inordinate delay in the conclusion of the proceeding, which may result in the erosion of the value of the assets and defeat the very purpose of value maximization and ultimately, the revival of the Corporate Applicant, which is not the objective of the IBC. As we have seen above, in the Application to Adjudicating Authority Rules, 2016, even the right to serve a copy of a Section 10 Application is not conferred to the Creditor(s). Hence, in view of the above, we conclude that in Section 10 proceedings, though there is no mandatory requirement of issuing notice to the Creditor(s) at the pre-admission stage, rather giving notice to the Creditor(s) is a matter of discretion to be exercised on a case-to-case basis on valid grounds. Wherever there is a clear apprehension of deterioration of assets of the Corporate Applicant/Debtor and larger public interest is involved, issuance of notice at the pre-admission stage cannot be claimed as a matter of right.
43.We observe that Section 65 only uses the word “initiates”, and does not make any distinction like the stage of pre-admission or post admission of CIRP, and from the reading of Sub-section (1), it transpires that the provision is applicable not only on the date on which a financial creditor / operational creditor or corporate applicant, as the case may be, makes an application to the Adjudicating Authority for initiating corporate insolvency resolution process but certainly, not limited to and may extend to the period of Liquidation, as the case may be. Needless to say, that fraud vitiates all acts. There could be instances where the fraudulent act is detected much after the commencement of CIRP. If a narrow interpretation of Section 65 of IBC 2016 is taken i.e., limiting its applicability to the pre-admission stage, then Section 65 will have no relevance. Therefore, Section 65 of IBC can be resorted by an aggrieved party at any stage, be it preadmission or post admission. Accordingly, we conclude that there is no bar in entertaining/considering/adjudicating a Section 65 Application after the initiation of the CIR Process.
44.Further, as we have noted earlier, as of the date of the hearing, there was no Section 65 Application filed/pending/listed before this Adjudicating Authority. Keeping in mind the urgency of the instant case, to protect and maximize the value of the Assets in line with the objectives of IBC, employment involved, and the larger public interest, the judicial propriety demands it will not be apt to wait for the filing of the Section 65 Application. Hence, we would like to proceed ahead with the examination of the Section 10 Application on merits.
This Tribunal is satisfied that there is a default in the repayment of debt and the petition filed under Section 10 is complete with all the necessary information. Further, the Corporate Applicant is not ineligible to make petition as per Section 11 of IBC, 2016. Therefore, we are of the view that this Company petition is required to be admitted u/s 10 of the Code. We order accordingly.
The Corporate Applicant has proposed the name of Ms. Rongali Sridevi having Reg. No. IBBI/IPA-003/IP-N00172/2018-2019/12105 as the Interim Resolution Professional (IRP). We therefore appoint Ms. Rongali Sridevi having Reg. No. IBBI/IPA-003/IP-N00172/2018-2019/12105 (E-mail ID: [email protected]) whose AFA is valid till 30.06.2026.
The IRP shall take forward the process of Corporate Insolvency Resolution of the Corporate Debtor. The IRP shall take such other and further steps as are required under the Statute, more specifically in terms of Section 15,17,18 of the Code and file her report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Applicant in terms of the provisions of IBC, 2016.
As a consequence of the petition being admitted in terms of Section 10 of the Code, moratorium as envisaged under provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Applicant;
a. The institution of suits or continuation of pending suits or proceedings against the Petitioner including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
b. Transferring, encumbering, alienating or disposing of by the Petitioner any of its assets or any legal right or beneficial interest therein;
c. Any action to foreclose, recover or enforce any security interest created by the Petitioner in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
d. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Petitioner.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;
However during the pendency of moratorium period in terms of Section 14(2) and 14(3) as extracted hereunder;
(2)The supply of essential goods or services to the Corporate Applicant as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Applicant as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Applicant has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3)The provisions of sub-section (1) shall not apply to
(a)such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
(b)a surety in a contract of guarantee to a Corporate Applicant.
The duration of period of moratorium shall be as provided in Section 14(4) of the Code which is reproduced below for ready reference;
(4)The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process:
Provided that where at any time during the Corporate Insolvency Resolution Process period, if the Adjudicating Authority approves the Resolution Plan under sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Applicant under Section 33, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.
In consequence to the appointment of RP;
The term of appointment of Ms. Rongali Sirdevi shall be in accordance with the provisions of Section 16(5) of the Code;
ii) In terms of Section 17 of the Code, from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs shall vest with the Interim Resolution Professional and the officers and the managers of the Corporate Applicant shall report to the Interim Resolution Professional, who shall be enjoined to exercise all the powers as are vested with Interim Resolution Professional and strictly perform all the duties as are enjoined on the Interim Resolution Professional under Section 18 and other relevant provisions of the Code, including taking control and custody of the assets over which the Corporate Applicant has ownership rights recorded in the balance sheet of the Corporate Debtor, etc. as provided in Section 18 (1) (f) of the Code. The Interim Resolution Professional is directed to prepare a complete list of the inventory of assets of the Corporate Debtor;
iii) The Interim Resolution Professional shall strictly act in accordance with the Code, all the rules framed thereunder by the Board or the Central Government and in accordance with the Code of Conduct governing her profession and as an Insolvency Professional with high standards of ethics and moral;
iv) The Interim Resolution Professional shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the Corporate Insolvency Resolution Process in terms of Section 13 (1) (b) of the Code read with Section 15 calling for the submission of claims against Corporate Debtor;
It is hereby directed that the Corporate Applicant, its Directors, personnel and the persons associated with the management shall extend all cooperation to the Interim Resolution Professional in managing the affairs of the Corporate Applicant as a going concern and extend all cooperation in accessing books and records as well as assets of the Corporate Applicant;
vi) The Suspended Board Of Directors is directed to give complete access to the Books of Accounts of the Corporate Applicant maintained under section 128 of the Companies Act. In case the books are maintained in the electronic mode, the Suspended Board of Directors are to share with the Resolution Professional all the information regarding Maintaining the Backup and regarding Service Provider kept under Rule 3(5) and Rule 3(6) of the Companies Accounts Rules, 2014 respectively as effective from 11.08.2022, especially the name of the service provider, the internet protocol of the Service Provider and its location, and also address of the location of the Books of Accounts maintained in the cloud. In case accounting software for maintaining the books of accounts is used by the Corporate Applicant, then IRP/RP is to check that the audit trail in the same is not disabled as required under the notification dated 24.03.2021 of the Ministry of Corporate Affairs. A reference is made to the provisions of Section 128(5) of the Companies Act 2013, whereby every company should maintain its books of accounts for not less than 8 financial years immediately preceding a financial year. Minutes and statutory records are the principal documents of the company that should be maintained and preserved since inception.
"As per Rule 7 (f) of Companies (Registered Valuers and Valuation) Rules, 2017, Registered Valuer shall maintain records of each assignment undertaken by him for at least three years from the completion of such assignment;" As per the Standard of Auditor (SA-230)
"The retention period for audit engagements is ordinarily no shorter than seven years from the date of auditor's report, or, if later, the date of the group auditor's report." In view of the above mandatory provisions, the suspended directors of the board will ensure that the books of accounts for the eight previous financial years preceding the date of this order be made available to the IRP/RP within 15 days of the initiation of the CIRP order. The statutory auditor is also directed to share the records maintained by him in the course of the audit of the accounts of the Corporate Applicant for the period of three years prior to the date of initiation of this CIRP order within the same period of 15 days.
vii) In case of any non-cooperation by the Suspended Board of Directors or the statutory auditors, she may take the help of the police authorities to enforce this order. The concerned police authorities are directed to extend help to the IRP/RP in implementing this order for retrieval of relevant information from the systems of the corporate debtor, the IRP/RP may take the assistance of Digital Forensic Experts empanelled with this Bench for this purpose. The Suspended Board of Directors is also directed to hand over all user IDs and passwords relating to the corporate debtor, particularly for government portals, for various compliances. The Interim Resolution Professional is also directed to make a specific mention of non-compliance, if any, in this regard in his status report filed before this Adjudicating Authority immediately after a month of the initiation of the CIRP.
viii) The Resolution Professional is directed to approach the Government Departments, Banks, Corporate Bodies and other entities with request for information/documents available with those authorities/institutions/others pertaining to the Corporate Applicant which would be relevant in the CIR proceedings. The Government Departments, Banks, Corporate Bodies and other entities are directed to render the necessary information and cooperation to the Resolution Professional to enable him to conduct the CIRP proceedings as per law.
The Corporate Applicant is directed to pay a sum of Rs. 5,00,000/-(Rupees Five Lakh Only) to the Interim Resolution Professional to meet out the expenses and to perform the functions assigned to her in accordance to Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Based on the above terms, the Petition stands admitted in terms of Section 10 of the Code. The Moratorium shall come into effect as of this date.
Copy of the Order be communicated to the Corporate Debtor above named by the Registry. In addition, a copy of the Order be forwarded to IBBI for its records. The Interim Resolution Professional above named be also furnished with copy of this Order forthwith by the Registry, who will communicate the initiation of the CIRP in relation to the Corporate Applicant to the Registrar of Companies concerned.