S.No.

11
IN THE NATIONAL COMPANY LAW TRIBUNAL
HYDERABAD BENCH – 1
VC AND PHYSCIAL (HYBRID) MODE
ATTENDANCE CUM ORDER SHEET OF THE HEARING HELD ON
07-06-2024 AT 10:30 AM

CP (IB) No.1/7/HDB/2023
AND
IA(IBC) 40/2024 & IA(IBC) 1861/2023 in CP (IB) No.1/7/HDB/2023
u/s. 7 of IBC, 2016

IN THE MATTER OF:

M/s. Enact Technologies Pvt Ltd …Financial Creditor

AND

Sreeven Infocom Ltd …Corporate Debtor

C O R A M:-
DR. VENKATA RAMAKRISHNA BADARINATH NANDULA, HON’BLE MEMBER (JUDICIAL)
SH. CHARAN SINGH, HON’BLE MEMBER (TECHNICAL)

ORDER

IA(IBC) 1861/2023
Orders pronounced. In the result, this application is allowed. The 3rd respondent
is directed to pay the penalty of Rs. 25 Lakhs to the Prime Minister Relief Fund
within one month and file compliance. For compliance, call on 08.07.2024.
IA(IBC) 40/2024
In the light of the orders passed in IA No 1861/2023, no orders are required in
this application. Accordingly, this application is disposed of.

Sd/- Sd/-
MEMBER (T) MEMBER (J)
 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

THE NATIONAL COMPANY LAW TRIBUNAL,

HYDERABAD BENCH - I, HYDERABAD

I.A. (IBC) No. 1861 of 2023

IN
CP (IB) No.1/7/HDB/2023

Under Section 60(5) of the Insolvency and Bankruptcy Code,

2016 read with Rule 11 of The National Company Law
Tribunal Rules, 2016

BETWEEN
Mphasis Limited
Bagmane World Technology Centre,
Mararthalli Outer Ring Road,
Doddannakhundhi Village,
Maha Devapurana, Bangalore-560048.
...APPLICANT
Versus

1. Shri Krishna Mohanlal Gollamudi

Resolution Professional.
F 26, Raghava Ratna Towers,
Chirag Ali Lane, Abids, Hyderabad-500001
…RESPONDENT NO.1
2. Sreeven Infocom Limited
Door No. 1-98/7/B/38, Plot No.102,
Sri Laxmi Sai Dhamam,
Patrika Nagar, Madhapur,

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

Hyderabad-500081
RESPONDENT NO.2/CORPORATE DEBTOR
3. Enact Technologies Private Limited
Plot No. 21, Sy. No.47/T,
Rao and Raju Colony,
Road No.2, Banjara Hills,
Hyderabad-500034
RESPONDENT NO.3/FINANCIAL CREDITOR
Date of Order: 07.06.2024
Coram:
DR. VENKATA RAMAKRISHNA BADARINATH NANDULA
HON’BLE MEMBER (JUDICIAL)
SHRI CHARAN SINGH, HON’BLE MEMBER (TECHNICAL)

Parties/Counsels present:

For Applicant : Mr.Vivek Reddy, Sr.Counsel along with Mr.Suman,

Counsel
For Respondent No.1&2: Mr.Krishna Mohan Gollamudi, R.P
For Respondent No.3: Mr.Krishna Grandhi, Sr.Counsel along with Mr.Amir
Bavani, Counsel

PER BENCH
ORDER
1. This is an Application filed by Mphasis Limited under Section 60(5) of

‘The Insolvency and Bankruptcy Code, 2016’ (hereinafter referred as

‘IBC’) against the Respondents herein seeking the following reliefs:

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 I.A. (IBC) No. 1861 of 2023
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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

a) To revoke this Tribunal’s order dated 31.03.2023 admitting

Corporate Debtor in CIRP;

b) Impose a penalty prescribed under Section 65 of IBC on 3 rd

Respondent/Financial Creditor.

2. The Corporate Debtor herein was admitted into Corporate Insolvency

Resolution Process (hereinafter referred as ‘CIRP’) by this Tribunal vide

order dated 31.03.2023 in C.P. (IB). No. 1/7/HDB/2023 on a Petition filed

by the Respondent No.3/Financial Creditor under Section 7 of IBC.

Subsequently, the Respondent No.1 was appointed as the Resolution

Professional of the Corporate Debtor.

3. The Applicant, through this Application submits that the said initiation of

CIRP of the Corporate Debtor was with fraudulent and malicious intent so

as to defeat the legitimate claims/dues of the creditors of the Corporate

Debtor including the Applicant.

FACTS LEADING TO THE PRESENT APPLICATION

4. It was submitted that ‘National Institute of Electronics and Information

Technology’ (NIELIT) invited bids for providing managed data

digitization services (hereinafter referred as ‘Project’) vide RFQ

No.0009/2011, RFQ No.0005/2011 and RFQ No.0006/2011. It was

submitted that the Applicant was having substantial experience in

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

providing the services required for the Project and that the Corporate

Debtor with an intent to participate in this bid approached the Applicant so

that the Corporate Debtor.

5. It was submitted that a Memorandum of Understanding (MOU) dated

03.11.2011 was entered into between the Corporate Debtor and the

Applicant thereby enabling the Corporate Debtor to participate in the bid

of NIELIT and the Applicant was to provide the services as required by the

Corporate Debtor in furtherance of the requirements of the project. It was

further submitted that as per the terms of the MOU, the Applicant was to

bear the Tender Fee, Earnest Money Deposit, other costs of the bid,

Performance Bank Guarantee (PBG) and also to provide equipment,

manpower and technical support for the completion of the Project. It was

submitted that in the bid, NIELIT selected the Corporate Debtor as the

Managed Service Provider for the Project.

6. In lieu of the above-mentioned relationship between the Corporate Debtor

and the Applicant, there took place certain transactions, agreements

between the Applicant and the Corporate Debtor which were explained in

detail by the Applicant, but the same were not extracted herein as this

Tribunal finds it not relevant for the adjudication of the case at hand. It was

submitted that while the Applicant was prosecuting a case against the

Corporate Debtor before The Hon’ble High Court of Karnataka in respect

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

of an Arbitral Award which was in favour of the Applicant and against the

Corporate Debtor, a Memorandum dated 20.07.2023 was filed by the

Corporate Debtor stating that this Tribunal admitted the Corporate Debtor

into CIRP and moratorium is under force.

CASE OF THE APPLICANT

7. It was submitted that the Financial Creditor and the Corporate Debtor are

related parties within the meaning of Section 2(76) of ‘The Companies Act,

2013’ (hereinafter referred as ‘The Act’) and that the Petition under Section

7 of IBC filed by the Financial Creditor is a collusive action and was done

fraudulently to prevent the Applicant from recovering the lawful dues from

the Corporate Debtor.

8. It was submitted that the Corporate Detor was financially sound and the act

of the Corporate Debtor in borrowing through an Inter-Corporate Loan

dated 30.09.2021 from the Financial Creditor is a fictitious one done with

a fraudulent and malicious intent to undermine the interests of the creditors

of the Corporate Debtor.

9. It was submitted that the Financial Creditor holds 5.29% of the issued and

paid-up share capital (7,50,000 shares) of the Corporate Debtor as per the

last Audited Financial Statements of the Financial Creditor and the

Corporate Debtor.

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 I.A. (IBC) No. 1861 of 2023
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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

10. It was submitted that the Corporate Debtor and the Financial Creditor are

related parties as both the Directors of the Financial Creditor are the

relatives of the Suspended Director of the Corporate Debtor (the Directors

of the Financial Creditor are wife and son of the suspended Director of the

Corporate Debtor Mr. Satyanarayana Raju Kalidindi). It was further

submitted that the Financial Creditor is controlled by Mr. Satyanarayana

Raju (Suspended Director of Corporate Debtor) and that the ownership of

the Financial Creditor lies with the family of Suspended Director of

Corporate Debtor.

11. It was submitted that Mr. Satyanarayana Raju transferred his shareholding

of 90% in the Financial Creditor to his wife during the Financial Year 2021-

22 and that the purported transaction of Inter-Corporate Loan took place in

this Financial Year on 30.09.2021. Through this statement, the Applicant

puts forth the contention that Mr. Satyanarayana Raju could have been

holding this 90% of shares in the Financial Creditor while the Inter-

Corporate Loan transaction took place and that even if Mr. Satyanarayana

Raju was not holding any shares on the date of this transaction, the control

over the Financial Creditor was exercised by him through his wife and son,

being the shareholders and Directors of the Financial Creditor, thereby

enabling the transaction of the Inter-Corporate Loan between the Financial

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

Creditor and the Corporate Debtor resulting in a fraudulent initiation of

CIRP of the Corporate Debtor.

12. It was submitted that the Financial Creditor is a small company under

Section 2(50) of The Act with Rs.50,00,000/- (Rupees Fifty Lakhs Only)

as the paid-up share capital and that the net worth of the Financial Creditor

was in negative since the Financial Year 2019-20 and presented the

following table:

Financial Year Turnover Net Worth

2016-17 Zero Rs.1,38,427
2017-18 Zero Rs.1,20,727
2018-19 Zero Rs.95,127
2019-20 Rs.20,00,000 Negative Rs.69,21,201
2020-21 Zero Negative Rs.69,65,687
2021-22 Zero Negative Rs.66,44,969

13. It was further submitted that there was no mention of the Inter-Corporate

Loan in the Audited Financial Statements of the Financial Creditor for the

Financial Year ended on 31.03.2022 and this is a violation of Section

186(4) of The Act. That the report of the Board of Directors of Financial

Creditor for the Financial Year ended on 31.03.2022 states under the head

Loan, Guarantees and Investments that Financial Creditor has not made any

investments. It was further submitted that there is no proof of the debit of

the Inter-Corporate Loan in the Audited Financial Statement of the

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

Financial Creditor but there is a mention of credit in this regard in the

Financial Statement of the Corporate Debtor.

14. It was submitted that Note 2 of the Financial Statement of the Corporate

Debtor for the Financial Year ended on 31.03.2022 shows that Rs.9 out of

Rs.10 for each share remains unpaid for the 14,00,000 subscribed and fully

paid-up shares. That as per the Auditor Report of the Corporate Debtor for

the Financial Year ended on 31.03.2020, the Corporate Debtor was

classified as Non-Performing Asset by ICICI Bank and also that the

Corporate Debtor defaulted in payment of statutory dues. That as per the

Auditor Report, the Corporate Debtor reported a cash loss of Rs.32,69,119/-

for the Financial Year ended in 2022.

15. It was submitted that the Inter-Corporate Loan amount exceeds the 60%

paid-up share capital of the Financial Creditor and that there was no general

meeting of the Financial Creditor in terms of Section 186(3) of The Act

prior to 30.09.2021 (the date of Inter-Corporate Loan) approving the

transaction by way of a special resolution.

16. It was submitted that the Corporate Debtor have not convened the Annual

General Meeting since 30.09.2019 and no filed Annual Returns since

31.03.2019. That there were non-compliances in the Annual Return filed

on 30.09.2019 as Non-filing of Board Resolutions for Adoption of

Accounts and Form MBP-T, Acceptance of unsecured loans from others,

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

non-appointment of key managerial Personnel, Independent Directors,

Audit Committee, Nomination Committee and pendency of allotment of

share application money. It was submitted that the non-appointment of

Independent Director and Audit Committee by the Corporate Debtor

resulted in failure to review the Inter-Corporate Lon received by the

Corporate Debtor.

Reply of Respondent No.1

17. It was submitted by Respondent No.1 that though the Resolution

Professional is privy to the dispute and the transaction between the

Applicant and the Corporate Debtor, certain facts were necessary to bring

to the notice of this Tribunal based on the records of the Corporate Debtor

available with the Respondent No.1.

18. It was submitted that there was a One Time Settlement for an amount of

Rs.5.50 crores made by the Corporate Debtor with ICICI Bank in respect

of a loan. That this loan of ICICI Bank was cleared by the Corporate Debtor

by raising funds from three Financial Creditors in the form of loans viz.,

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

a. Inter-Corporate Loan Agreement dated 30.09.2021 with the

Respondent No.3/Financial Creditor herein for an amount of Rs.1.85
crores.
b. Inter-Corporate Loan Agreement dated 30.09.2021 with one Mr.
Janakiram Prasad for an amount of Rs.1.60 crores (Annexure I).
c. Inter-Corporate Loan dated 30.0.2021 with one Mr. Arigapudi Purna
Kumar for an amount of Rs.1.50 crores (Annexure II).
19. It was further submitted that these amounts were directly remitted into the

loan account of the Corporate Debtor maintained with the ICICI Bank

(Annexure III). That the Corporate Debtor further made a payment of

Rs.55 lakhs to ICICI Bank from its own sources and that a No Due Letter

dated 27.06.2022 was issued by the ICICI Bank to the Corporate Debtor

(Annexure V).

Reply of Respondent No.3

20. It was submitted that the present Application was misconceived and devoid

of any merits and is liable to be dismissed. It was further submitted that the

Applicant does not have a locus standi to bring the present Application as

the Applicant is not even a creditor of the Corporate Debtor as on the date

of filing the present Application. It was submitted that the present

Application is in the form of an Appeal of the order of this Tribunal

admitting the Corporate Debtor into CIRP and is liable to be dismissed.

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

21. It was submitted that the Respondent No.3/Financial Creditor is not a

related party to the Corporate Debtor under The Act. That even if the

Respondent No.3 is a related party, the same would not prevent the

Respondent No.3 from bringing a Petition under Section 7 of IBC seeking

initiation of CIRP of the Corporate Debtor.

22. It was submitted that the ICICI Bank declared the loan account of

Corporate Debtor as Non-Performing Asset (NPA) during the year 2020-

21 and the Bank was about to enforce the security offered by the personal

guarantors of Corporate Debtor. That in lieu of the same, the Corporate

Debtor approached the Respondent No.3 for an amount of Rs.1.85 crores

to clear the dues of ICICI Bank. That in furtherance of the same, the Inter-

Corporate Loan Agreement dated 30.09.2021 was entered into between the

Corporate Debtor and Respondent No.3.

23. It was submitted that the Respondent No.3 disbursed an amount of

Rs.1,85,00,000/- to the Corporate Debtor as per the Inter-Corporate Loan
Agreement dated 30.09.2021 in the following manner (Annexure 1):
a. Rs.40,00,000/- through Demand Draft No. 500355 on 24.09.2021
b. Rs.60,00,000/- through Demand Draft No. 504355 on 29.09.2021
c. Rs.50,00,000/- through RTGS vide UTR No. 000832 on 30.09.2021
d. Rs.20,00,000/- through RTGS vide UTR No. 000833 on 30.09.2021
e. Rs.15,00,000/- through RTGS vide UTR No. 000834 on 30.09.2021
24. It was submitted that there was an Extraordinary General Meeting (EGM)

conducted on 01.08.2021 and a special resolution was passed by the

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

Respondent No.3 approving the Inter-Corporate Loan (Annexure 2) and in

furtherance of the same, the transaction of Inter-Corporate Loan Dated

30.09.2021 took place with the Corporate Debtor. That the relevant form

MGT-14 was not filed with the Registrar of Companies (RoC)

inadvertently and the same was filed with the RoC on 22.01.2024

(Annexure 3) with a penalty (Annexure 4).

25. It was submitted that on the date of Inter-Corporate Loan Agreement i.e.

on 30.09.2021and on the date of passing a special resolution dated

01.08.2021, the Respondent No.3 and the Corporate Debtor did not have

any common Directors and that the Director of the Corporate Debtor was

not holding any shares in Respondent No.3. It was further submitted that as

on 30.09.2021, the Director of Corporate Debor Mr. Satyanarayana Raju is

a minority shareholder and that not a primary beneficiary of the Inter-

Corporate Loan Agreement. It was also submitted that the personnel of the

Corporate Debtor are not accustomed to act in accordance with the advice

of the personnel of the Respondent No.3.

26. Denying the allegation of the Applicant pertaining to the sound financial

position of the Corporate Debtor, the Respondent No.3 submitted that as a

Financial Creditor, the existence of debt and default on part of Corporate

Debtor were effectively demonstrated in the Petition filed under Section 7

of IBC.

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 I.A. (IBC) No. 1861 of 2023
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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

27. It was submitted that the Audited Financial Statements of the Respondent

No.3 for the year ended on 31.03.2022 (Annexure 5) reflect the disbursal

of short-term loans and advances to the tune of Rs.2,06,00,000/- and that

this amount includes the loan amount of Rs.1,85,00,000/- advanced to the

Corporate Debtor under the Inter-Corporate Loan Agreement. It was

further submitted that these issues fall under the purview of RoC and not

relevant to the present proceedings.

Rejoinder of the Applicant to the Reply of Respondent No.1

28. It was submitted by the Applicant that after ICICIC Bank gave no dues

certificate dated 27.06.2022, the Respondent No.3/Financial Creditor filed

the Petition under Section 7 of IBC before this Tribunal seeking CIRP of

the Corporate Debtor. It was submitted that the Inter-Corporate Loan was

given to the Corporate Debtor by the Personal Guarantors of the Corporate

Debtor and that thereby these personal guarantors became the Financial

Creditors of the Corporate Debtor.

29. It was submitted that Mrs. K. Sunitha (Director of Respondent

No.3/Financial Creditor), who is a personal guarantor of Corporate Debtor

could have directly paid the amount to ICICI Bank in the capacity of

Personal Guarantor to the loan owed by the Corporate Debtor. But that

instead, she opted to use the Corporate Personality of Respondent

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 I.A. (IBC) No. 1861 of 2023
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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

No.3/Financial Creditor to transfer the amounts to the Corporate Debtor

under the Inter-Corporate Loan and thereby to initiate CIRP of Corporate

Debtor and also to protect the personal assets of the guarantors of the

Corporate Debtor. It was submitted that all the three inter-corporate loans

were provided by the personal guarantors of the Corporate Debtor with a

fraudulent intent to put the Corporate Debtor into CIRP and to ensure that

the properties of the personal guarantors were released from guarantees.

Rejoinder of the Applicant to the Reply of Respondent No.3

30. Reiterating the contentions put forth in the Application, the contentions put

forth in the Rejoinder to Reply of Respondent No.1 and denying the

averments of Respondent No.3, it was submitted by the Applicant that the

Applicant has the locus standi to bring the present Application and that the

Applicant is a creditor of the Corporate Debtor.

31. It was submitted that Section 186(4) of The Act requires the Company to

disclose the full particulars of the Inter-Corporate Loan in the Financial

Statements to its members and that a mere reference to short-term loans and

advances in the Balance sheet of Respondent No.3 would not amount to

full disclosure of the Inter-Corporate Loan when the very existence of the

same is denied by the Financial Creditors. Denying the authenticity of Form

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 I.A. (IBC) No. 1861 of 2023
IN
CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

MGT-14 dated 22.01.2024 of the Respondent No.3, it was submitted that

the same was hastily filed by Respondent No.3.

32. It was submitted that from a perusal of the Annual Return of Respondent

No.3 for the Financial Year 2021-22, the following facts are revealed:

• There is only one general meeting held on 28.10.2021 after

the impugned date of the Inter-Corporate Loan Agreement;

• Two Board Meetings on 04.09.2021 and 05.03.2022

• No Board Meeting or Special Resolution on 01.08.2021 as

stated by Respondent no.3.

33. It was submitted that only after filing the present Application, the

Respondent No.3 passed the impugned special resolution and that the same

is contradictory to the disclosures made by Respondent No.3 in the Annual

Returns. It was further submitted that vide the Board Resolution dated

01.08.2021, Respondent No.3 authorized one Mr. Hemanth Varma, the

Director of Respondent No.3 to sign the Inter-Corporate Loan Agreement

whereas the Inter-Corporate Loan Agreement was signed by one Mr.

D.R.K. Raju, DGM of Respondent No.3. Through this, the Applicant tries

to establish that the said Board Resolution dated 01.08.2021 is fabricated

and concocted.

34. The Respondent No.3 vide I.A. No.640/2024 dated 28.03.2024, filed the

Board Resolution dated 04.09.2021 wherein Mr. DRK Raju was authorised
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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

by Respondent No.3 to act on behalf of Respondent No.3 with respect to

the Inter-Corporate Loan with the Corporate Debtor. Both the parties filed

written submissions reiterating the contentions put forth by them and also

relied on the rulings of various Judicial Authorities in respect of the

contentions raised.

35. In the light of the contest put forth by both the parties herein, the points

that emerges for the consideration of this Tribunal are:

(i). Whether the Applicant herein has no locus standi, to file the present
Application under Section 65 of IB Code?

(ii). Whether the proceeding’s in CP (IB) No.1/7/HDB/2023 initiated by the

3rd respondent against the Corporate Debtor are fraudulent or with
malicious intent for purposes other than the insolvency resolution of the
Corporate Debtor? If so, whether the admission order dated 31.03.2023
against the Corporate Debtor can be revoked and penalty be imposed on
the 3rd respondent?

36. We have heard Mr. Vivek Reddy the Ld. Senior Counsel for the Applicant
and Mr. Krishna Grandhi Ld. Senior Counsel for the 3rd Respondent.
Perused the record and the written submissions.

POINT.1.
Whether the Applicant herein has no locus standi, to file the present
Application?

The gist of the Submissions

37. Mr. Vivek Reddy Ld. Sr. Counsel, for petitioner, at the outset, submitted

that Section 65 IBC, does not say who can file an application under Section

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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

65 of IB Code, as such the same can be triggered by any person who is

“affected” by the order, admitting the Corporate Debtor in to CIRP.

Learned counsel further submitted that until the Corporate Debtor herein,

has filed a memo before Hon’ble High Court of Karnataka, where the

Appeal filed under section 37 of the Arbitration and Conciliation Act, 1996,

by the applicant is pending, whereby the order of admission of the corporate

debtor into CIRP was informed the applicant was unaware of the

proceedings or the CIRP order in this company petition.

38.Ld. Sr. Counsel submits that, consequent to the filing of the said Memo, the

proceedings before Hon’ble High Court, have come to a standstill because

of the order of moratorium ordered against Corporate Debtor under section

14 of IB Code. Ld. Sr. Counsel submits that initiating of proceedings under

Section 7 of IBC by the 3rd Respondent against the 2nd Respondent is

fraudulent and for the purposes other than insolvency resolution of the

corporate debtor and the applicant is the affected party of this collusive

initiation. Hence, the applicant is fully entitled to maintain the prayer to

terminate admission order dated 31.03.2023.

39.Mr. Krishna Grandhi, the Ld. Senior Counsel submits that the Applicant

herein does not have the locus, to file the present Application before this

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Date of Order:07.06.2024

Tribunal, as the Arbitral Award which passed in favour of the Applicant

has been set aside by the Ld. City Civil and Sessions Judge, Bangalore and

the Appeal, preferred by the applicant against the said order, is pending

before Hon’ble High Court of Karnataka, without any order of stay.

According to the Ld. Sr. Counsel, the Applicant therefore is not a creditor

as on the date of filing the present Petition, and in fact has not filed any

claim before the Resolution Professional so as to consider as a creditor of

the Corporate Debtor and hence, the applicant has no locus to bring the

present application under Section 65 of IBC.

Our analysis & Findings

40. A bare perusal of section 65 of IB Code, which is as below,
65. (1) If, any person initiates the insolvency resolution process or liquidation
proceedings fraudulently or with malicious intent for any purpose other than for
the resolution of insolvency, or liquidation, as the case may be, the Adjudicating
Authority may impose upon such person a penalty which shall not be less than one
lakh rupees, but may extend to one crore rupees.

(2) If, any person initiates voluntary liquidation proceedings with the intent to
defraud any person, the Adjudicating Authority may impose upon such person
a penalty which shall not be less than one lakh rupees but may extend to one
crore rupees.

1
[(3) If any person initiates the pre-packaged insolvency resolution process—

(a) fraudulently or with malicious intent for any purpose other than for the
resolution of insolvency; or

(b) with the intent to defraud any person,

the Adjudicating Authority may impose upon such person a penalty which shall
not be less than one lakh rupees, but may extend to one crore rupees.]

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Date of Order:07.06.2024

discloses that, Section 65 IBC, is silent on who can/should file the

application under the said provision. So much so, any person who is

affected/aggrieved by the fraudulent initiation of the CIRP can trigger the

process under section 65 IBC, before this Tribunal. Moreover, the locus of

a person to file a case is decided basing on the provisions under which the

case was brought and also the reliefs sought in the case. The Applicant

herein filed the present Application under Section 60(5) and sought relief

under Section 65 of IBC. Section 60(5) is considered to be a residuary

provision under IBC which takes under its sweeps all types of cases of the

Corporate Debtor, provided the same arise out of the CIRP or Liquidation

of the Corporate Debtor.

41.The applicant specifically pleaded the initiation of the proceeding under

section 7 IBC by the 3rd respondent against the 2nd respondent is fraudulent

and malicious and for purpose other than insolvency resolution of the

corporate debtor. That apart, the Appeal filed by the applicant before High

Court, Karnataka, challenging the order of setting aside the Award passed

by the City Civil Court, has affected/stalled the hearing of the said Appeal

by High Court on account of “moratorium” imposed under section 14 IBC

by this Tribunal, while admitting the Petition filed under Section 7 of IBC.

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CP (IB) No.1/7/HDB/2023
Date of Order:07.06.2024

Therefore, under these circumstances, we are of the firm view that the locus

of the Applicant is un questionable.

The point is decided accordingly.

POINT (2)
Whether the proceeding’s in CP (IB) No.1/7/HDB/2023, initiated by
rd
the 3 respondent against the Corporate Debtor are fraudulent or with
malicious intent for purposes other than the insolvency resolution of the
Corporate Debtor? If so, the admission order dated 31.03.2023 against the
Corporate Debtor can be revoked and penalty be imposed on the 3rd
respondent?

42. The Ld. Senior Counsel for the Applicant submitted that the Petition under

Section 7 of IBC was filed by the 3rd Respondent on the strength of an Inter-

Corporate Loan Agreement dated 30.09.2021 for an amount of Rs.1.85

crores. It was further submitted that 3rd Respondent / financial creditor is a

related party to the Corporate Debtor as the wife and son of the suspended

Director of Corporate Debtor/Mr. K. Satyanarayana Raju are the Directors

and shareholders of the 3rd Respondent/Financial Creditor. According to

the Ld. Senior Counsel the suspended Director of Corporate Debtor himself

was holding 90% of shareholding and was a MD/ Director of the 3rd

Respondent /Financial Creditor till the Financial Year 2021-22 and as a part

of strategy to start collusive petition under section 7 against the corporate

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debtor, transferred these shares from his name to his wife/Mrs. K. Sunitha,

who subsequently became the shareholder and director of 3rd Respondent.

43. Ld. Senior Counsel further submitted that Mrs. K. Sunitha, along with

two other persons, stood as the Personal Guarantor to the facilities granted

to the Corporate Debtor by ICICI Bank. That, as part of One-Time

Settlement, the Corporate Debtor was to pay an amount of Rs.5.5 crores to

ICICI Bank and that as a strategy, Mrs. Sunitha, through Respondent No.3

advanced an amount of Rs.1.85 crores to Corporate Detor and the other two

guarantors also advanced an amount of Rs. 1.6 crores and Rs.1.5 crores by

way of Inter-Corporate Loans to corporate debtor to make the payment to

ICICI Bank under OTS. The Ld. Senior Counsel further submitted that Mrs.

K. Sunitha first advanced an amount of Rs.1.85 crores to Respondent No.3

and subsequently, Respondent No.3/ financial creditor disbursed the Inter-

Corporate loans to the Corporate Debtor and on the basis of this Inter

corporate loan , the Petition under Section 7 was filed against the Corporate

Debtor and consequently the other two guarantors and financial creditor/

respondent no 3 who were guarantors to the corporate debtor and in that

capacity were liable to pay jointly and severally the debt owed by corporate

debtor now became financial creditors and part of COC to complete CIRP

process of corporate debtor . The Ld. Senior Counsel further submitted

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that thus a web of transactions was created by the family members of

suspended director/ Mr. K. Satyanarayana Raju and his wife to file this

collusive section -7 petition in a fraudulent manner with purposes other

than resolution of the corporate debtor with intention to avoid legitimate

claim of the applicant. The Ld. Senior Counsel submitted that from these

facts, it is clear that both Respondent No.3 and the Corporate Debtor are

the companies belonging to same family and are related parties.

44. The Ld. Senior Counsel further contended that this Inter-Corporate Loan

is a non-enforceable debt as it is violative of various sections of Companies

Act, 2013 and Ld. Senior Counsel submitted details of these violations as

under:

i. Section 180(1)(c) of Companies Act, 2013: Ld Counsel

submits that this section restricts powers of the Board for any
borrowing by the Company exceeding the aggregate of its
paid-up capital, free reserves and securities premium and
requires consent of members by way of a special resolution
as per Section 180(1)(c) of the Companies Act. 2013. That
Respondent No.3 did not obtain the consent of the
shareholders for the loan obtained from Mrs. K. Sunitha for
an amount of Rs.1.85 crores.

ii. Section 186(3) of The Companies Act, 2013, Loans and

Investment by Company: That the impugned Inter-

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Corporate Loan of Rs.1.85 crores is 3oo percent of the paid-

up share capital, free reserves and securities premium account
of the financial creditor but no approval of the shareholders
of Respondent No.3 by way of a special resolution in a
general meeting in accordance with Section 186(3) of
Companies Act. 2013 was obtained by the financial creditor.
Ld Counsel submits that, Section 186 (2) of the Companies
Act. 2013, clearly restricts that no company shall directly or
indirectly give any loan to any person or other body corporate
exceeding 60% of its paid-up share capital, free reserves and
securities premium account.

iii. Section 186(5) of The Companies Act, 2013: That

Respondent No.3 did not obtain the consent of Directors in
the meeting of the Board for entering into impugned Inter-
Corporate Loan Agreement dated 30.09.2021and the same is
a violation of Section 186(5) of the Companies Act. 2013.

iv. Section 186(4) of The Companies Act, 2013: That, as per

Section 186(4), Respondent No.3 was to disclose in the
Financial Statement the full particulars of Inter-Corporate
Loan given and the purpose of the same, but that the
Respondent No.3 did not disclose the same and violated
Section 186(4) of The Act.

v. Section 134(3)(g) of the Companies Act. 2013 :That the

Report addressed by the Board of Respondent No.3 to its
members which were annexed to the Audited Financial

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Statement for the Financial Year ended on 31.03.2022 did not

present the true picture, as under the head of loans, guarantees
and investments, it was stated that the Company (Respondent
No.3) has not made any investment, given any guarantee and
securities during the year under review, therefore, no need to
comply provisions of Section 186 of Companies Act. 2013.
Thus, this report is violative of Section 134(3)(g) of the
Companies Act. 2013 as it did not disclose the impugned
transaction of inter corporate loans attracting section 186 of
the companies act, 2013. Section 134(3)(g) of the Companies
Act. 2013 states that report by the Board Directors shall
include particulars of loans, guarantees or investments under
section 186.
vi. Section 134(3)(h) of Companies Act. 2013: That, the above
said report addressed by the Board of Directors Respondent
No.3 to its members is also violative of Section 134(3)(h) of
Companies Act. 2013 because under the head “related party
transactions” it is stated that the Company has not made any
material related party transactions.

45. Ld. Senior Counsel further contended that the Board Resolution and

special resolution dated 01.08.2021 filed by respondent no 3 in his counter,

speaks of Inter Corporate Deposit but whereas the transaction was an Inter

Corporate Loan and therefore, this impugned board resolution has no

validity as far as granting of Inter Corporate Loan is concerned as Inter

Corporate deposits are not covered by Section 186 of The Act.

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46. Ld. Senior Counsel further contended that the Inter-Corporate Loan on

behalf of Respondent No.3 was also not executed through proper

authorization and thus is not a valid transaction. It was further submitted

that vide the Board Resolution dated 01.08.2021, Respondent No.3

authorized one Mr. Hemanth Varma, the Director of Respondent No.3 to

sign the Inter-Corporate Loan Agreement whereas the Inter-Corporate

Loan Agreement was signed by one Mr. D.R.K. Raju, DGM of Respondent

No.3. Ld. Counsel further submitted that only after raising this contention,

the Respondent No.3 produced a Board Resolution dated 04.09.2021

through I.A. No. 640/2024 dated 28.03.2024 at a belated stage showing that

Mr. DRK Raju was authorized to execute the Inter Corporate Loan

Agreement. It was submitted that this Board Resolution is clearly an

afterthought of Respondent No.3.

47. The Ld. Senior Counsel further submitted that as per the Audited Financial

Statements of Respondent No.3 for the Financial Year ended on

31.03.2022, the share capital was Rs.50 lakhs, and its reserves and surplus

is in a negative balance of Rs.71.44 lakhs. That, the revenue from the

operations for the years 2021-22 and 2020-21 was NIL and the profit for

the Financial Years 2021-22 and 2020-21 were Rs.3.2 lakhs and NIL

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respectively. Learned Counsel submitted that though the financial capacity

of Respondent No.3 was so weak as explained above, even then an Inter

Corporate Loan Agreement dated 30.09.2021 was entered into by

Respondent No.3 with the Corporate Debtor granting a loan of Rs.1.85

crores to the Corporate Debtor knowing well that Corporate Debtor’s

account with ICICI bank has been classified as NPA and there are no

chances of recovery of the Inter Corporate Loans.

48. The Ld. Senior Counsel further submitted that there was no separate

account head or corresponding entries to substantiate the disbursal of Inter-

Corporate Loan in the Balance Sheet of Respondent No.3 for the Financial

Year ended on 31.03.2022. In support this contention, learned Sr. Counsel

placed reliance on the following rulings.

UKG Steel Private Limited vs. Erotic Buildcon Private Limited, 2021
SCC Online NCLT 434, wherein it was held that,

“ an Intercorporate Loan that is neither disclosed in the balance sheet nor

resolved through a special resolution passed in the General Meeting of
shareholders is ultra-vires of the Companies Act, 2013 and not a legally
enforceable debt”
Jammudwip Exports and Imports Limited vs. UP Bone Mills Private
Limited, MANU/NC/2573/2022, wherein it was held that,

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“ a Petition under Section 7 of the Code was dismissed as the Company

has granted a loan exceeding the limits specified under Section 186(2).

49. The Ld. Senior Counsel submitted that the 3rd Respondent , only after filing

the present Application, fraudulently produced a special resolution dated

01.08.2021 and Board Resolution dated 01.08.2021 pertaining to the Inter-

Corporate Loan Agreement dated 30.09.2021. That this Special Resolution

and Board Resolution dated 01.08.2021 were not disclosed in the Annual

Return of the Respondent No.3 for the Financial Year 2021-22 and that the

same are concocted, fabricated and manufactured. Ld. Counsel contended

that as per the Annual Return of Respondent No.3, the shareholders

meeting was held on 28.10.2021 and Board Meetings were held on

04.09.2021 and 05.03.2022 during FY 2021-22 and that no Board meeting

and/ or General Meeting of members is reported to be held by the

Respondent No.3 on 01.08.2021 in relation to the Inter Corporate Loan

Agreement and the approval of the same. Thus, it clearly proves that no

board meeting or General Body Meeting of members was held on

01.08.2021 and Respondent no 3 has produced these documents

fraudulently to validate the illegal transaction of Inter Corporate Loans.

50. The Ld. Senior Counsel for applicant further submitted that learned

counsel for respondent no 3 has explained that the non-filing of special

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resolution dated 01.08.2021 was rectified by filing Form MGT-14 with

RoC on 22.01.2024 intimating the special resolution dated 01.08.2021 but

as per Section 117(1) of The Companies Act, Form MGT-14 is to be filed

within 30 days of passing the special resolution and that the same was filed

in the present case after 3 years. Hence, the violation of Section 186 in this

regard cannot be rectified by Respondent No.3.

51. It was further submitted by Ld. Senior Counsel, that all the above-

mentioned acts reveal that the CIRP of the Corporate Debtor was initiated

with fraudulent and malicious intent and also for the purposes other than

the resolution of Corporate Debtor. In support of this contention, reliance

was placed on Venture Global Engineering vs Satyam Computer Services

Limited, 2010 8 SCC 660 wherein it was observed as follows:

“But fraud is infinite in variety; sometimes it is audacious and

unblushing; sometimes it pays a sort of homage to virtue, and then it is
modest and retiring; it would be honesty itself if it could only afford it.
But fraud is fraud all the same; and it is the fraud, not the manner of it,
which calls for the interposition of the Court.”
52.However, the Ld. Senior Counsel for 3rd Respondent submitted that the

Corporate Debtor and the 3rd Respondent are not related parties and that the

suspended Director of Corporate Debtor i.e., Mr. K. Satyanarayana Raju is

not a shareholder nor a Director of Respondent No.3 at the time of Inter-

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Corporate Loan Agreement dated 30.09.2021 which formed the basis for

Section 7 Petition filed by Respondent No.3 against Corporate Debtor.

53.The Ld. Senior Counsel further submitted that the present proceedings

pertain to IBC and the parties cannot be termed as related parties under the

provisions of The Companies Act. That the Corporate Debtor and

Respondent No.3 are not related parties as per Section 5(24) of IBC and

Mr. K. Satyanarayana Raju do not exercise any control over Respondent

No.3. It was further submitted that even, there is no bar on the related party

to seek initiation of CIRP under IBC.

54. With respect to the Inter Corporate Loans, it was submitted by the Ld.

Senior Counsel that the loans were advanced through legitimate banking

channels. That the loans received by the Corporate Debtor from

Respondent No.3 and others were utilised to clear the outstanding dues

under the One Time Settlement with the ICICI Bank and that there is no

collusive or fraudulent or malicious intent on behalf of Respondent No.3 in

carrying out the Inter Corporate Loan transaction. In support of this

contention, reliance was placed on Para 39 of Mrs. Renuka Devi

Rangaswamy vs M/s. Regen Powertech Pvt Ltd, Comp (AT)(CH)(Ins)

No.357/2022, Hon’ble NCLAT, Chennai Bench.

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“39. Be that as it may, in the light of detailed upshot, this ‘Tribunal’,

on going through the ‘impugned order’ in IA(IBC)/591(CHE)/2021
in IBA/1424/2019, passed by the ‘Adjudicating Authority’
(`National Company Law Tribunal’, Division Bench – II, Chennai)
dated 01.07.2022, keeping in mind the facts and circumstances of
the case and the stand taken by the respective parties, comes to a
‘Resultant Conclusion’ that the ‘Transfer of Assets’ among the
‘Group Companies’ ex-facie is not a ‘Fraudulent Trading’, as per
Section 66 (1) of the Insolvency & Bankruptcy Code, 2016.
Moreover, because of the fact that all ‘Transactions’ between the
Companies as well as the ‘Asset’ details were maintained in a
‘Transparent Manner’ on an `SAP System’ (including the `Fixed
Assets Register’) and further the ‘Transactions’ of the ‘Corporate
Debtor’ and the ‘1st Respondent’ were `Audited’, every year, the
‘Plea’ of ‘Fraudulent Trading’ as projected by the ‘Appellant’ /
‘Applicant’ is not proved, to the subjective satisfaction of this
‘Tribunal’, in a ‘convincing manner’. Apart from that, mere
‘Averments’ / ‘Allegations’ made in IA(IBC)/591(CHE)/2021 in
IBA/1424/2019, before the Adjudicating Authority’ (`National
Company Law Tribunal’, Division Bench – II, Chennai) are not
good enough to exhibit that the ‘business’ of the ‘Corporate Debtor’
was carried out by the ‘Respondents’ either with a ‘mala-fide intent’
for achieving a ‘Fraudulent Purpose’ or with a ‘dishonest intent’ to
‘Defraud’ the ‘Creditors’.”

55. The Ld. Senior Counsel further submitted that the alleged acts of non-

compliance of the provisions of The Act cannot per se be deemed to be

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fraudulent and that the same cannot form the subject matter of adjudication

in an application seeking reliefs under Section 65 of IBC. That the

violations of the provisions of The Act have different consequences as

provided in The Companies Act, 2013 and the same cannot be impugned

in the proceedings under Section 65 of IBC. In support of this contention,

reliance was placed on Para 10 of Kalpesh Ramniklal Shah vs Mundara

Estate Developers Ltd & Anr., CA (AT) (Ins) 71/2023 dated 14.07.2023,

Hon’ble NCLAT, Principal Bench.

“10. The submission of the Appellant regarding key managerial

personnel of Financial Creditor, holding majority shareholding in
the Corporate Debtor and is a ‘related party’ and exercises
substantial control in the Corporate Debtor is vehemently denied by
the Respondent submitting that no transaction was entered between
the Corporate Debtor and the related party. The control by the
Financial Creditor is also denied by the Respondent. It is submitted
that had Financial Creditor really been in control of the Corporate
Debtor, situation of non-payment of loan would not have arisen. The
Corporate Debtor is under control of Girish Shah, who has 25%
shareholding in the Corporate Debtor and who is a Guarantor as well
as Pledgor under the Loan Agreement. With regard to control
through M/s. Kava Impex Pvt. Ltd., it has been submitted that more
than Rs.15 crores out of Rs.24 crores has been transferred to M/s.
Mundara Estate Developers Ltd. even before M/s. Kava Impex Pvt.
Ltd. became a partner therein. Further the submission of learned

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Counsel for the Appellant that loan transaction was in violation of

Section 295 of the Companies Act, 1956, does not help the
Appellant to deny the loan transaction and the disbursement of the
amount. Even if, the allegation of violation of Section 295 of the
Companies Act, 1956 may be there, that does not in any manner
inhibit filing of Section 7 Application and take appropriate
proceedings under the IBC. The purpose and object of the IBC is
entirely different. The violation of provisions of Companies Act,
1956, for example Section 295 has different consequences, which
consequences in law can take effect and remedial measures can be
taken under Section 295, when the ingredients of Section 295 are
proved, but that itself cannot be a ground to reject Section 7
Application filed by the Financial Creditor, where debt and default
is proved.”

56. The Ld. Senior Counsel further contended that in compliance of Section

186(3) of The Act, there was a special resolution passed in the

Extraordinary General Meeting of Respondent No.3 held on 01.08.2021

with respect to the Inter Corporate Loan Agreement with the Corporate

Debtor and that the same was inadvertently not filed with the Registrar of

Companies (RoC) and was not mentioned in the Annual Report of 3rd

Respondent.

In BSFC Distributors Pvt Ltd vs Pilot Mines and Minerals Pvt

Ltd, CP(IB) No. 237(PB)/2022 dated 28.02.2023, the NCLT Principal Bench
directed the Financial Creditor therein to show the compliance of Section 186(3)

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of The Companies Act and that the Financial Creditor filed Form MGT-14 on
19.09.2022 and the Ld. NCLT accepted the belated filing of Form MGT-14 and
admitted the Petition under Section 7 of IBC.

57.The Ld. Senior Counsel submitted that the reference to the Inter-Corporate

Loan as Inter-Corporate Deposit does not affect the validity or legality of

the said transaction. That the nomenclature of a document/transaction is

irrelevant to the underlying transaction and that the Inter Corporate Loan is

to be treated as a loan or a financial debt and not as a deposit.

58.The Ld. Senior Counsel submitted that as per the Resolution dated

01.08.2021 passed by Respondent No.3, Mr. Hemant Varma was

authorised to do all acts as mentioned in the resolution in respect of the

Inter-Corporate Loan Agreement with the Corporate Debtor and the Board

of Respondent No.3 passed another Resolution dated 04.09.2021

authorising Mr. DRK Raju to execute the Inter Corporate Loan Agreement

on behalf of Respondent No.3. That both Mr. Hemant Varma and Mr. DRK

Raju were validly authorised by the Board of Respondent No.3 to give

effect to the Inter Corporate Loan Agreement.

59. The Ld. Senior Counsel further submitted that the Applicant herein cannot

dictate terms pertaining to the repayment of loan by the Corporate Debtor

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to ICICI Bank and that it is the sole prerogative of the parties involved.

That the Board of Respondent No.3 consented to accept an interest free

loan of Rs.1.85 crores from Mrs. K. Sunitha but that the same was not

materialized. That the amounts disbursed by Respondent No.3 to Corporate

Debtor were not the amounts received by Respondent No.3 but that they

were solely gathered by Respondent No.3.

Our analysis and findings.

60. Indisputably, the Inter-Corporate Loan Agreement dated 30.09.2021

between the Corporate Debtor and the 3rd Respondent is the basis for

initiation of proceedings under Section 7 of IBC . In the reply filed by the

3rd Respondent it is stated that the Loan Account of Corporate Debtor was

declared as NPA by ICICI Bank and to clear the said dues the 3rd

Respondent advanced Rs.1.85 crores to the Corporate Debtor. This

Tribunal finds it surprising as to how a Company could advance loan

comprising of about 300% of its own paid-up share capital to another

Company whose loan account was already declared as NPA. In our view,

no financial creditor/ Company having a prudent Board and prudent

shareholders, will approve such a transaction. Further, it is unbelievable,

that how giving Inter Corporate Loan of Rs1.85 Crores to a company whose

accounts were in NPA, can be a bona fide, transaction for a Company which

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is having a negative net worth and whose revenue from operations for the

years 2021-22 and 2020-21 is NIL and which has earned meagre profit of

Rs.3.2 lakhs and NIL for the Financial Years 2021-22 and 2020-21

respectively.

61. Even if we accept the contention of 3rd respondent that valid Board

Meeting and Extraordinary General Meeting of 3rd Respondent held on

01.08.2021, approved this transaction of Inter Corporate Loan, in spite of

the fact that the Annual Returns of the Company filed with ROC do not

show any such details, the only irresistible conclusion that any one can

arrive at is that the transaction of Inter Corporate Loan has been entered

is bereft of any bona fides and with ulterior motives. Thus, we find that the

decision of lending the subject Inter Corporate Loan by the Board of

financial creditor was with a clear and pre- decided fraudulent intention of

initiating proceedings under Section 7 IBC against the Corporate Debtor

because of the probability of ‘default’ by Corporate Debtor was staring

hundred percent at the corporate debtor, even on the day of lending itself.

62. Moreover, we are also fully convinced that that impugned Inter-Corporate

Loan is violative of the various Sections of the Companies Act, 2013 and

the effect of some of them renders the said transaction as ‘non-enforceable

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debt’. We do not accept, the contention of the Ld. Senior Counsel for 3rd

respondent that the acts of ‘non-compliance’ of the provisions of the Act

cannot per se, be deemed to be fraudulent and that the same cannot form

the subject matter of adjudication in an application seeking reliefs under

Section 65 of IBC. In this context, while it may be said that, the violations

of the provisions of the Companies Act, may have different consequences

as provided in the Companies Act, 2013 but at the same time if any

violation or violations having the effect of ‘invalidating’ the debt

transaction itself exists or pleaded, the same can certainly be dealt under

Section 65 of IBC, notwithstanding the repercussion’s under the provisions

of the Companies Act, 2013. In this regard, reliance can be placed on the

ruling in, Jammudwip Exports and Imports Limited vs. UP Bone Mills

Private Limited, MANU/NC/2573/2022, wherein it was held that,

“a Petition under Section 7 of the Code was dismissed as the Company

has granted a loan exceeding the limits specified under Section 186(2)”.

In UKG Steel Private Limited vs. Erotic Buildcon Private Limited, 2021
SCC Online NCLT 434, it was held that.
“an Intercorporate Loan that is neither disclosed in the balance sheet
nor resolved through a special resolution passed in the General Meeting of
shareholders is ultra-vires of the Companies Act, 2013 and not a legally
enforceable debt”.

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63. In the present case also, the Inter Corporate loan is not disclosed in the

balance sheet and as per Annual Report for the year 2021-22, no General

Meeting of shareholders was held on impugned date i.e. on 01.08.2021. The

contention of the 3rd respondent, that a revised MGT-14 form has been filed

on 22.01.2024, with ROC, Telangana, intimating the ‘special resolution’

dated 01.08.2021, is unacceptable to as the revised MGT -14 as contended,

has been filed during the pendency of this application, without taking any

leave from this Tribunal, for filing the same with ROC.

The ruling in, BSFC Distributors Pvt Ltd vs Pilot Mines and Minerals
Pvt Ltd, relied on, in our considered view, on facts is not applicable to the
case on hand, as unlike in the case on hand there was no amendment of
MGT 14 and it was a case of ‘late filing’, to comply with clarificatory order
of NCLT Principal Bench.

Moreover, we have already held that the decision of lending the subject
Inter Corporate Loan by the Board of financial creditor was with a clear
and pre- decided fraudulent intention of initiating proceedings under
Section 7 IBC against the Corporate Debtor because of the probability of
‘default’ by Corporate Debtor was staring hundred percent at the corporate
debtor, even on the day of lending itself.

64. Therefore, we hold that case law, UKG Steel Private Limited vs. Erotic

Buildcon Private Limited, 2021 SCC Online NCLT 434, squarely applies

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to the present case and therefore we have no hesitation in holding that the

subject ‘Intercorporate Loan’ which is neither disclosed in the balance

sheet nor resolved through a special resolution passed in the General

Meeting of shareholders, is ultra-vires of the Companies Act, 2013 besides

not a legally enforceable debt.

65. It is strange that the pleas that we have discussed as above are the pleas

which are expected to be raised normally by or on behalf of a corporate

debtor in a petition filed under Section 7 IBC, by a financial creditor. The

conspicuous absence of even a whisper of these valuable pleas in the

pleadings of the parties herein, speaks volumes about the acts of ‘collusion’

between the parties, in invoking Section 7 IBC. We therefore, firmly hold

that the present petition filed under section 7 IBC, by the financial creditor

is a collusive petition filed, in collusion with the corporate debtor with a

fraudulent intention and ulterior motives and not with the intention of

resolution of corporate debtor.

66. Chief Justice Edward Coke of England, who about three centuries ago
observed that, fraud avoids all judicial acts, ecclesiastical or temporal.

Hon’ble Supreme Court of India, in Swiss Ribbons (P) Ltd. v. Union of

India, (2019) 4 SCC 17, held that,

“What is also of relevance is that in order to protect the corporate debtor from being
dragged into the corporate insolvency resolution process mala fide, the Code prescribes
penalties”.

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In Phoenix Arc Private Limited V. Spade Financial Services

Limited & Ors.,- AIR 2021 SC 776, it was held that,

“This is a landmark Judgement where Hon’ble SC has given an in-depth study about
Collusive transactions and Related parties. The Supreme Court of India dismissed
the appeal filed by AAA Landmark Private Land and Spade Financial Services
Limited. The court emphasized that transactions characterized as collusive and sham
do not qualify as "Financial Debt" under the Insolvency and Bankruptcy Code, 2016.
The Supreme Court stated that such transactions, carried out with dishonest intent,
negatively impact genuine creditors of the corporate debtor (CD). Therefore, the
court held that no party should be permitted to gain unwarranted advantages from
such transactions.
In Hytone Merchants Pvt Ltd V. Satabadi Investments Consultants Pvt.
Ltd. - Company Appeal (AT) (Insolvency) No. 258 Of 2021, it was held that,

The NCLAT noted that, the Hon’ble SC in the case of Swiss Ribbons Private Limited v.
Union of India [(2019) 4 SCC 17] had observed that, “What is also of relevance is that
in order to protect the Corporate Debtor from being dragged into the Corporate
Insolvency Resolution Process mala fide, the Code prescribes penalties.” The NCLAT
observed that, therefore, it was clear that even if the Application filed under Section 7
of the IBC met all the requirements, then also the NCLT could exercise discretion, to
prevent and protect the Respondent from being dragged into CIRP mala fide.

In SLB Welfare Association Vs. M/S PSA IMPEX Pvt Ltd, M/S Rudra
Buildwell Constructions Pvt. Ltd - Company Appeal (AT) (Insolvency)
No.642 Of 2022, it was held that,
The Appellate Tribunal held that the entire case of the Operational Creditor to
supply materials, goods and services appears to be false and concocted only for the
purpose of filing Section 9 Application and thus penalty is liable to be imposed on the
Operational Creditor under Section 65 of the Code. The initiation of CIRP itself being
vitiated in law, all subsequent orders passed in the proceedings have to be automatically
set aside.

In Amit Katyal v. Meera Ahuja, 2020 SCC Online748, Hon’ble NCLAT, it was

held that,
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“No penalty can be saddled either under Section 65(1) or (2) of the Code
without recording an opinion that a prima facie case is established to suggest that a
person ‘fraudulently’ or with malicious intent for the purpose other than the resolution
of Insolvency or Liquidation or with an intent to defraud any person has filed the
Application”.

67. Thus, formation of “prima facie” opinion, by the Adjudicating Authority

on the basis of the record produced before Adjudicating Authority, as to

whether or not the Financial Creditor/Corporate Applicant or the

Operational Creditor has triggered corporate insolvency resolution process,

"fraudulently" or "with malicious intent", for the purpose other than the

resolution of the insolvency or liquidation or that voluntary liquidation

proceedings has been filed with the intent to defraud any person is, sine qua

non, for imposition of penalty under Section 65 of I&B Code.

68. In our discussion, supra, we have categorically held that the present petition

filed under section 7 IBC, by the financial creditor is a collusive petition

filed, in collusion with the corporate debtor with a fraudulent intention and

ulterior motives and not with the intention of resolution of corporate debtor.

Hon’ble Supreme Court of India, in S.P Chengalvaraya Naidu vs

Jagannath, AIR 1994 P853, wherein, His Lordship, Hon’ble Justice Kuldip
Singh, categorically held that,

“The courts of law are meant for imparting justice between the parties. One who comes
to the court, must come with clean hands. We are constrained to say that more often than
not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-
dodgers and other unscrupulous persons from all walks of life find the court-process a
convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that

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a person, who's case is based on falsehood, has no right to approach the court. He can be
summarily thrown out at any stage of the litigation”. (Emphasis is ours).

69. This ruling in our view is applicable to the case on hand with all its force,
as one of the intentions of the 3rd respondent has been found to be to
facilitate the 2nd respondent/corporate debtor is to take the ‘un due
advantage’ of the order of ‘moratorium’ imposed by this Tribunal on
admission of the company petition filed by the 3rd respondent against the
2nd respondent.

70.The Legislature, in our view, keeping the instances of this nature, has

incorporated Section 65 of I&B Code, enabling the Adjudicating Authority

to impose a penalty which shall not be less than one lakh rupees, but may

extend to one crore rupees on any person who initiates the insolvency

resolution process or liquidation proceedings fraudulently or with malicious

intent for any purpose other than for the resolution of insolvency, or

liquidation, as the case may be. Therefore, this matter being one of the

‘classic’ cases of fraudulent and malicious initiation of proceedings under

section 7 IBC, in collusion with the Corporate Debtor, for the purpose other

than for the resolution of insolvency of the 2nd respondent/corporate debtor.

we are of the firm view that the 3rd respondent shall be directed to pay

penalty, which we fix at Rs. 25,00,000.00

The point is answered accordingly.

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71.Therefore, in view of our discussion on the points supra, and on careful

consideration of the submissions made by the respective Ld. Sr. Counsels,

on perusal of the record, written submission and the case law, we have no

hesitation in holding that financial creditor has invoked the provisions of

IBC against the corporate debtor with fraudulent, mala fide, intention and

for the purpose other than the insolvency resolution of the 2nd respondent

/corporate debtor.

72. Therefore, the petition deserves to be allowed. Accordingly, the same is

allowed as below:

(i). The order dated 31.03.2023 in CP (IB) No.1/7/HDB/2023 directing

initiation of CIRP against the 2nd respondent/corporate debtor, on the

Petition filed under section 7 of IB Code, is here by recalled and is set

aside. Hence, the in CP (IB) No.1/7/HDB/2023 stands dismissed.

(ii). Consequently, the moratorium imposed under section 14, of IBC, 2016

comes to an end and the appointment of resolution professional and all the

actions taken by resolution professional consequent to his/ her

appointment are brought to nullity.

(iii). The resolution professional is directed to hand over the management

of the affairs of the corporate debtor to the suspended management.

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(iv) The financial creditor is hereby directed to pay all CIRP costs, fees

and expenses of resolution professional within a week and resolution

professional to file memo of compliance in this regard to the Tribunal

within a week from the date of this order.

(v). We impose penalty of Rs 25,00,000.00 (Rupees twenty five lakhs

Only) on the 3rd respondent / financial creditor herein, and the same shall

be deposited in Prime Minister Relief Fund, within a period of one month

from the date of this order, and file compliance memo to this effect.

73. The application is allowed as above and disposed of.

SD SD

Charan Singh Dr. Venkata Ramakrishna Badarinath Nandula

Member Technical Member Judicial

Anil/Pavani

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