[2023] 151 taxmann.

com 176 (NCLAT - Chennai)[27-02-2023]

IBC : There is no specific law, which allows any shareholder of corporate debtor to
challenge admission of Corporate Insolvency Resolution Process of corporate
debtor, once debt due and default is established by Adjudicating Authority, in an
application made by financial creditor filed under section 7 before Adjudicating
Authority

■■■

[2023] 151 taxmann.com 176 (NCLAT - Chennai)

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI
Nirej Vadakkedathu Paul
v.
Sunstar Hotels and Estates (P.) Ltd.
M. VENUGOPAL, JUDICIAL MEMBER
AND NARESH SALECHA, TECHNICAL MEMBER
COMPANY APPEAL (AT) (CH) (INS.) NO. 142 & 174 OF 2022
I.A. NOS. 328, 329, 517 AND 518 OF 2022†
FEBRUARY 27, 2023

Section 5(7), read with sections 7 and 61, of the Insolvency and Bankruptcy Code, 2016 -
Corporate insolvency resolution process - Financial Creditor - Whether there is no specific
law which allows any shareholder of corporate debtor to challenge admission of CIRP of
corporate debtor once debt and default is established by NCLT - Held, yes - Respondent No.
2-corporate debtor had availed financial facility in form of inter corporate deposit (ICD)
from ZACL and in order to facilitate a timely repayment of outstanding sums of ICD,
corporate debtor entered into a settlement agreement with ZACL and MCFL, wherein
repayment of borrowing was to be completed within 18 months - However, despite
extended timeline, corporate debtor failed to comply with terms of said agreement -
Thereafter, respondent No. 1-financial creditor entered into a formal agreement with ZACL
and discharged entire liability of corporate debtor and acquired rights to impose recovery
from corporate debtor - However, corporate debtor defaulted in making outstanding
payment and, consequently, financial creditor filed an application under section 7 before
NCLT - Simultaneously, appellants-shareholders of corporate debtor filed an intervention
application before NCLT on ground that application filed by financial creditor was
fraudulent and malicious and requested NCLT not to admit said application filed by
financial creditor - NCLT by impugned order dismissed application filed by appellants and
admitted application filed by financial creditor - Whether appellants even as a shareholders
could not be aggrieved merely by an admission of CIRP of corporate debtor - Held, yes -
Whether appellants had no locus to file instant appeal and, therefore, impugned order
passed by NCLT was free from legal infirmity - Held, yes [Paras 88 and 89]
FACTS

■ The respondent No. 2-corporate debtor had availed inter corporate deposit (ICD) from ZACL.

■ In order to facilitate a timely repayment of the outstanding sum of ICD, the corporate debtor
entered into a settlement agreement with ZACL and the MCFL.

■ However, despite extended timeline, the corporate debtor had failed to comply with the
terms of the said agreement.

■ Meanwhile, the Respondent No. 1-financial creditor entered into a formal agreement with
ZACL and agreed to discharge the entire liability of the corporate debtor.

■ The financial creditor paid all outstanding sums of the corporate debtor to ZACL and acquired
rights to impose recovery from the corporate debtor, the financial creditor further advanced
1.5 crores as an ICD to the corporate debtor.

■ However, the corporate debtor could not make any payment to the financial creditor which
led financial creditor to issue a demand notice and filed an application under section 7 before
the NCLT.

■ Simultaneously, appellants-two groups of shareholders filed an "Intervention Application"

requesting the NCLT not to admit section 7 application.

■ The NCLT dismissed said application filed by the appellants and admitted the section 7
application against the corporate debtor and appointed the IRP.

■ On appeal, the appellant submitted that the section 7 application filed by the financial
creditor was in collusion with the corporate debtor.

HELD

■ In view of section 5 (7), financial creditor, means any person to whom the financial debt is
owed and includes a person to whom such a debt is legally assigned or transferred. Where an
assignment agreement legally assigns the impugned debt to a person, such a person
becomes a financial creditor within a meaning of section 5(7). In such case, the assignee steps
into the shoes of the financial creditor and as such he is entitled to the reliefs as available in
the I & B Code, 2016.

■ In the instant case, undisputedly, the respondent No. 1 became financial creditor, since the
assignment was created with all the requisite formalities and, the corporate debtor has not
denied the financial transaction. In such case, the Adjudicating Authority is supposed to admit
section 7 application.
■ It is the case of the appellant that section 7 application was filed by the financial creditor in
collusion with the corporate debtor.

■ After reading section 61(1), it becomes clear that any person aggrieved by the order of the
Adjudicating Authority may prefer an appeal to NCLAT.

■ The definition of person has been given in section 3(23), which includes an individual. This
does not specifically mention shareholder. However, individual is wider term and can include
shareholder.

■ Section 6, prescribes as to who may initiate CIRP. It includes a financial creditor or an

operational creditor or the corporate debtor itself. This definition is restrictive and includes
only creditors both financial creditors & operational creditors and the corporate debtor who
may wilful.

■ The financial creditor either by itself or jointly with others may file an application for CIRP. In
the instant case, the financial creditors had filed the application under section 7 before the
Adjudicating Authority which was admitted and CIRP was initiated.

■ The appellants filed two intervention applications, before the Adjudicating Authority claiming
to be aggrieved persons seeking to intervene in Petition filed under section 7 with a prayer to
declare that the petition amounts to fraudulent and malicious initiation of proceedings under
I & B Code, 2016 and to dismiss said petition.

■ It is the case of the appellants that being shareholders, if CIRP is allowed to continue their
financial interest will be adversely affected and, therefore, they are aggrieved by the
impugned order.

■ The appellants have further argued that the interest of financial creditor is to recover his
money and to put corporate debtor into CIRP or Liquidation.

■ To protect the financial interest of a company having assets in form of shares in the other
companies of more than Rs. 1000 crores, the appellants as shareholders are willing to pay the
entire outstanding debt including interest.

■ In response to a pointed query by the instant Appellate Tribunal to the appellants, whether
the proposition of shareholders to settle the outstanding dues of the corporate debtor by
shareholders, is permitted by any law especially under the I & B Code, 2016 or the Companies
Act, 2013, it transpires that there is no such direct and specific provision allowing the same.

■ It infers that the appellants even as shareholders cannot be aggrieved merely by the
admission of the corporate debtor into CIRP. Such objection may render the object of I & B
Code, 2016 illusory since any shareholder of any corporate debtor against which Insolvency
proceedings have been initiated can then seek to maintain a derivative action and sabotage a
valid CIRP initiated by the Adjudicating Authority.

■ The appellants have prayed for setting aside the impugned order in their C.A (AT) (Ins.) No.
174 of 2022 whereas in C.A (AT) (Ins.) No. 142 of 2022 the prayer has been made to stay
operation of the impugned order.
■ Although, the appellants have not asked in their prayers before instant Appellate Tribunal for
any liberty to seek permission to pay all outstanding dues of the respondent No. 1 financial
creditor, it has been made in written submissions as well as in the main application seeking
intervention before the Adjudicating Authority whereas such requests/averments were made
by the Appellants.

■ As there is no specific law which allows any shareholder of the corporate debtor to challenge
the admission of CIRP of the corporate debtor, once the debt due and default is established
by the 'Adjudicating Authority', in an application made by the financial creditor filed under
section 7 before the Adjudicating Authority.

■ Moreover, there is no law which allows a third-party to settle the claims of the financial
creditor on behalf of the corporate debtor, more so without any consent of the corporate
debtor and in the teeth of opposition by the financial creditor. The appellants could not
produce any precedents in this regard.

■ Theoretically, even a person aggrieved by the impugned order challenges admission of CIRP,
it is not going to resolve the issues under any relevant law and the whole exercise with such
appeal become futile, purposeless and will only cause delay in resolution, for which the
resolution plan has already been approved by the CoC and is under consideration of the
Adjudicating Authority.

■ The term investor has not been defined in the I & B Code, 2016 as well as in the Companies
Act, 2013. A reference, therefore, has been made to Investopedia where investor has been
defined.

■ Therefore, a shareholder is also technically speaking an 'investor'/'owner', who owns limited

investment in the company to the extent of share capital subscribed by him. Therefore, the
judgment of Anant Kajare v. Eknath Aher [2018] 89 taxmann.com 453 (NCLT- New Delhi) is
applicable in the present appeal.

■ After considered all the averments made by the appellants as well as the respondents,
including various written submissions made available to instant Appellate Tribunal and, after
careful consideration of various judicial pronouncements of the Supreme Court of India as
well as instant appellate Tribunal, comes to concrete conclusion without any hesitation that in
the instant Appeals, the appellants do not have any Locus, and, therefore, the instant appeals,
are not maintainable. Instant Appellate Tribunal, therefore, does not find any `Error'/`Legal
Infirmity', in the impugned order, on this issue.

■ Having decided the non-maintainability of the appeals itself, instant Appellate Tribunal, has
not traversed on any other issues, touching upon the appeal, as it is unnecessary to go into
the same and as such, they have not been discussed. [Para 88]

■ The appeals fail and same is dismissed. [Para 89]

CASE REVIEW
Sunstar Hotels & Estates (P.) Ltd. v. McDowell Holdings Ltd. [2023] 151 taxmann.com 175 (NCLT -
Beng.) (para 88) affirmed.[See Annex]

Anant Kajare v. Eknath Aher [2018] 89 taxmann.com 453 (NCLAT - New Delhi) (para 88) followed.
P. Naveen Chakravarthy v. Punjab National Bank [W.P. No. 2778 of 2019, dated 1-2-2021] (para 88)
and Dr. Periasamy Palani Gounder v. Radhakrishan Dharmarajan RP Appu Hotels Ltd. [2022] 135
taxmann.com 319 (SC) (para 88) distinguished.
CASES REFERRED TO

P. Naveen Chakravarthy v. Punjab National Bank [W. P. No. 27780 of 2019, dated 1-2-2021] (para 39),
Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84 taxmann.com 320/143 SCL 625 (SC) (para 39),
Dr. Periasamy Palani Gounder v. Radhakrishnan Dharmarajan, RP Appu Hotels Ltd. [2022] 135
taxmann.com 319 (NCLT - Chenni) (para 39), Reliance Commercial Finance Ltd. v. Darode Jog Builder
(P.) Ltd. [CA (AT) (Ins.) No. 1005 of 2022, dated 19-9-2022] (para 41), Vidharbha Industries Power Ltd.
v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355 (SC) (para 42), Axis Bank Ltd. v. Lotus
Three Developments Ltd. [2018] 97 taxmann.com 96 (NCLAT - Chennai) (para 56), Manish Kumar v.
Union of India [2021] 123 taxmann.com 343 (SC) (para 74), ICP Investments (Mauritius) Ltd. v. Uppal
Housing (P.) Ltd. 2019 SCC Online Del 12371 (para 88), Punit Garg, Satish Seth, Suresh Madihally
Rangachar v. Ericsson India (P.) Ltd. [Company Appeal (AT) (Ins.) Nos. 255-256 of 2018, dated 30-4-
2019] (para 88) and Anant Kajare v. Eknath Aher [2018] 89 taxmann.com 453 (NCLAT - New Delhi)
(para 88).

P.H. Arvindh Pandian, Sr. Adv. and Athiban Vijay, Adv. for the Appellant. P.S. Raman, Sr. Adv.,
Parthasarathy, Rahul Balaji and Rishi Srinivas, Advs. for the Respondent.
JUDGMENT

Naresh Salecha, Technical Member. - The Present Appeals are filed against the 'impugned
order' dated 8-4-2022 passed by the 'Adjudicating Authority' [National Company Law Tribunal,
Bengaluru Bench] in CP. (IB) No. 11/BB/2022, whereby, the 'Adjudicating Authority' dismissed two
applications i.e. I.A. No. 86 & 87 of 2022 which were filed under the 'Insolvency & Bankruptcy
Code, 2016' (in short 'I & B Code, 2016).

Brief Facts:

2. There are two appeals i.e CA (AT) (Ins.) No. 142 of 2022 in CP. (IB) No. 11/BB/2022 and CA (AT)
(Ins.) No. 174 of 2022 in CP. (IB) No. 11/BB/2022. The common 'impugned order' was issued by the
'Adjudicating Authority' on 8-4-2022 and therefore, both the Appeals are connected and
accordingly dealt with during pleadings. This 'Appellate Tribunal' shall also examine these two
Appeals in combined manner in following discussions.

3. In the Appeal No. CA (AT) (Ins.) No. 142 of 2022 in CP. (IB) No. 11/BB/2022, there are nine
Appellants and two Respondents. Whereas, appeals i.e CA (AT) (Ins.) No. 174 of 2022 in CP (IB) No.
11/BB/2022, there is one Appellant, namely, Padrone Marketing Pvt. with same two Respondents.

4. The original applications were filed before the 'Adjudicating Authority' under section 7 of the I
& B Code, 2016 by M/s Sunstar Hotels and Estates Pvt. Ltd. (the 'Financial Creditor')
therein/Respondent No. 1 herein against M/s McDowell Holdings Limited - Respondent No. 1
therein/Respondent No. 2 herein, who is a 'Corporate Debtor'.

5. M/s McDowell Holdings Limited - Respondent No. 1 therein/Respondent No. 2 herein, is a

'Corporate Debtor' incorporated on 1-3-2004 with nominal capital of Rs. 15,00,00,000/- and paid-
up share capital of Rs. 13,99,99,22,580/-.

6. M/s Sunstar Hotels and Estates Pvt. Ltd. (the 'Financial Creditor') therein/Respondent No. 1
herein, filed an Application under section 7 against M/s McDowell Holdings Limited - Respondent
No. 1 therein/Respondent No. 2 herein, in respect of default amount of Rs. 16,80,66,348/-on 30-
11-2021. The 'Corporate Debtor' had availed Inter Corporate Deposit ('ICD') from Zuari Fertilisers
and Chemicals Limited ('ZFCL') which was later merged with Zurai Agro Chemical Limited ('ZACL')
and the 'Corporate Debtor' entered into a settlement agreement on 17-6-2019 with 'ZACL' and
Mangalore Chemicals and Fertilizers Limited ('MCFL') according to which, a sum of Rs.
10,60,56,810/- along with interest being outstanding 'ICD' was to be repaid in two tranches: (i) By
way of sale and transfer to 'ZACL, 11,85,151 shares of 'MHL' in 'MCFL'; and (ii) By procuring release
of shares of United Breweries Limited and amounts realized from the sale of shares of United
Breweries Limited. Rs. 8,36,59,986/- was interest outstanding on the date of settlement
agreement and the repayment of borrowing was to be completed within 18 months i.e. 16-12-
2020. This timeline further extended twice and the payment was to be made by 16-9-2021.
However, despite extended timeline, the 'Corporate Debtor' was unable to meet repayment
obligations towards 'ZACL'.

7. M/s Sunstar Hotels and Estates Pvt. Ltd. (the 'Financial Creditor') therein/ Respondent No. 1
herein, entered into a formal agreement on 19-11-2021 with ZACL and agreed to discharge the
entire liability of the 'Corporate Debtor' which entitled 1st Respondent to enter into shoes of
ZACL by way of right of subrogation for Recovery of Dues from the Corporate Debtor. M/s
Sunstar Hotels and Estates Pvt. Ltd. (the 'Financial Creditor') therein/Respondent No. 1 herein
paid all sums outstanding of the 'Corporate Debtor' to ZACL on 20-11-2021 and acquired rights to
impose recovery from the 'Corporate Debtor'. M/s Sunstar Hotels and Estates Pvt. Ltd. (the
'Financial Creditor') therein/Respondent No. 1 herein, further advanced Rs. 1,50,00,000/- as an
'ICD' on 20-10-2021 @ 18% interest p.a to be paid back within four weeks. The 'Corporate Debtor'
however, could not make any repayment. This led M/s Sunstar Hotels and Estates Pvt. Ltd. (the
'Financial Creditor') therein/Respondent No. 1 herein to issue 'Demand Notice' on 10-12-2021
and in response, the 'Corporate Debtor' vide reply dated 15-12-2021 sought additional time to
pay.

8. Mr. Nirej Vadakkedathu Paul, the 1st Appellant herein along with 8 others filed I.A. No. 86 of
2022 seeking permission to intervene in CP. (IB) 11/BB/2022 and similarly one I.A. No. 87 of 2022
also sought intervention filed by the M/s Kushal Sen Gupta and others .

9. After hearing the original CP. (IB) 11/BB/2022 along with I.A. No. 86 of 2022 and I.A. No. 87 of
2022, the 'Adjudicating Authority' admitted section 7 Application vide 'impugned order' dated 8-4-
2022 and dismissed both I.A. No. 86 of 2022 and I.A. No. 87 of 2022, thereby rejecting claims of the
'Appellants' in both petitions.
10. Both the 'Appellants' and the 'Respondents' have alleged that they have become
Shareholder/Financial Creditors respectively for a paltry sum of few crores and trying to grab the
'Corporate Debtor' whose investment in form of shares in other companies have been valued
more than Rs. 1000 crores. In addition, both the 'Appellants' and the 'Respondents' have alleged
each other that they are acting on behalf of the Ex-Promoter Mr. Vijay Mallya is group companies
and trying to take over the company at the behest of Ex-Promoter.

11. Aggrieved by above against the common 'impugned order' dated 8-4-2022, two appeals have
been preferred before this 'Appellate Tribunal' and are being discussed in following paragraphs.
Since, both the appeals are aggrieved by the same 'common impugned order' and are connected
cases herein, these are being examined in combined manner as requested by Learned Counsel
for the Appellants and Respondents. The following discussions on issues, legal provisions and
findings are dealt accordingly for both the appeals, namely, Company Appeal (AT) (Ins.) No. 142 of
2022 & Company Appeal (AT) (Ins.) No. 174 of 2022.
Appellants Submissions :-

12. Learned Counsel for the Appellants gave the overall background of the case and
circumstances which led to the present appeals. Learned Counsel for the Appellants stated that
the I.A. No. 86 of 2022 and I.A. No. 87 of 2022 were filed before the 'Adjudicating Authority' seeking
intervention in Company Petition as well as in seeking declaration that the Company Petition
amounts to fraudulent and malicious initiation of proceedings under section 7 of the I & B Code,
2016.

13. Learned Counsel for the Appellants in Company Appeal (AT) (Ins.) No. 142 of 2022 further
stated that the nine Appellants together holds more than 15% of shares of the 2nd Respondent
i.e. the 'Corporate Debtor'. Learned Counsel for the Appellants gave their details of Shareholding
in the 'Corporate Debtor', which is as under :-

Sl. No. Name of the Applicant(s) No. of equity shares held

1 Mr. Nirej Vadakkedathu Paul 1,50,000
2 Dr. TJ Leelamma 2,000
3 Ms. Litty Thomas 2,00,000
4 Ms. Sheeja T 22,222
5 M/s Equity Intelligence India Private Limited 4,20,000
6 M/s. Acacia Partners, L.P. 7,76,269
7 M/s. Acacia II Partner, L.P. 64,000
8 M/s. Acacia Institutional Partners, L.P. 4,88,709
9 M/s. Acacia Conservation Fund, L.P. 48,000
TOTAL 21,71,200 (approx. 15% share capital)

14. Learned Counsel for the Appellants assailed the conduct of the 1st Respondent, who is
connivance with the 2nd Respondent, initiated illegal and fraudulent 'Corporate Insolvency
Resolution Process' with mala-fide and ulterior motives. Learned Counsel for the Appellants also
stated that the 2nd Respondent was virtually unrepresented as there was only a solitary director
of the Corporate Debtor who was also appointed illegally and did not defend at all.
15. Learned Counsel for the Appellants further assailed the 'impugned order' 8-4-2022 as
unreasoned order passed without dealing with the arguments raised by the intervenors in both
the petitions before the 'Adjudicating Authority' and also ignored the maintainability issues
raised by the Intervenors therein.

16. Learned Counsel for the Appellants stated that the 2nd Respondent i.e. Corporate Debtor
was 'Non- Banking Financial Company' ('NBFC') having assets size of more than Rs. 500 crores
and therefore it was not within the jurisdiction of the 'Adjudicating Authority' as the proceedings
could have been filed only after approval of the 'Reserve Bank of India' as required under Rule 5
of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service
Providers and Application to Adjudicating Authority) Rules, 2019.

17. Learned Counsel for the Appellants pointed out that the entire Company Petition was a
collusive act of 1st & 2nd Respondent, who in guise of assignment of debts along with alleged
default, got into admission of 'Corporate Insolvency Resolution Process' solely with an intention
to defraud various stakeholders including the Appellants herein.

18. Learned Counsel for the Appellants emphasised that the Corporate Debtor was a company
owned primarily by Mr. Vijay Mallya (United Breweries) who in 2008 along with other Promoters
held 36.6% share capital in the 'Corporate Debtor' which further increased to 45% shareholding
in 2012. However, pursuant to invocation of pledge by various lenders, promoter's, shareholding
fell to 17.99% during 2017. Learned Counsel for the Appellants further stated that the promoter's
shareholding in 2nd Respondent is held at present only by (1) UB Holding Limited, which is in
liquidation, having about 2.27% shareholding in 2nd Respondent and (2) Mr. Vijay Mallya having 2
equity shares in 2nd Respondent, which are also attached by the 'Enforcement Directorate'
('ED'). As a result, 2nd Respondent does not have any promoter holding or any promoter who is
exercising any voting rights.

19. Learned Counsel for the Appellants submitted that in 2018, the 'ED' attached 15.73% of
promoter's holding and later these shares were transferred to the Recovery Officer of Debt
Recovery Tribunal -II, Bangalore leaving behind promoter shareholding of only 2.27% of the share
capital of 2nd Respondent. In the year 2020-21 the 15.73% shares transferred to the Recovery
Officer, DRT-II, Bangalore were fully sold in the stock market.

20. Learned Counsel for the Appellants mentioned that the Corporate Debtor is primarily a 'Non-
Banking Financial Company' incorporated in Bangalore on 1st March 2004 by a Composite
Scheme of Arrangement - more specifically demerger whereby the investment business of
McDowell and Company Ltd. was transferred to the 2nd Respondent.

21. Learned Counsel for the Appellants stated that in October/November 2020, the 2nd
Respondent appointed three Directors, namely, Mr. Theerthesh B.S., Ms. Sarvamangala
Hadapada and Mr. G. Sreenivas as its Additional Directors. These appointment were to be
confirmed in the Annual General Meeting held on 29-9-2021 for which e-voting was opened from
25-9-2021 to 28-9-2021, however, by 99.24% of voting, proposed appointments of all three
Additional Directors were rejected on 28-9-2021 and therefore, the 2nd Respondent illegally
sought to adjourn the AGM on pretext of want of quorum. The Additional Directors, who were
themselves voted out from the 'Corporate Debtor', appointed wrongly two more Additional
Directors namely, Amr. Nanjundaiah Ramanna and Mr. G.V.R. Murthy on 17-11-2021.

22. Learned Counsel for the Appellants stated that a tripartite agreement was entered into by
'ZACL' with 1st & 2nd Respondent for assignment of debts of Rs. 15 crores (approx.) with
malicious intentions to defraud the minority shareholders of the 'Corporate Debtor' and working
hand in gloves with the 1st Respondent, filed section 7 Application under I & B Code, 2016 against
the 2nd Respondent on 5-1-2022 which was admitted by the 'Adjudicating Authority' vide
'impugned order' dated 8-4-2022 rejecting the Intervention Applications bearing I.A Nos. 86 of
2022 and 87 of 2022.

23. Learned Counsel for the Appellants further submitted that the 2nd Respondent holds
63,45,011 equity shares of United Breweries Ltd. ('UBL') and 57,219 shares of Mangalore
Chemicals and Fertilizers Ltd. ('MCFL'). The present value of 63,45,011 equity shares of UBL itself
aggregates to Rs. 950 crores (approx.) at a share price of Rs. 1500/- per share.

24. Learned Counsel for the Appellants pointed out that the single largest asset of the 2nd
Respondent is shares in UBL are held by the lenders or by the ED.

25. Learned Counsel for the Appellants further stated that an alleged fraudulent tripartite
agreement with 'ZACL' and Respondents was entered into which become the basis of filing
section 7 Application under I & B Code, 2016. Learned Counsel for the Appellants alleged that the
illegal Board of Directors have close nexus with the Ex-Promoter Mr. Vijay Mallya and the entire
exercise of section 7 application is an attempt to retain the control over management of the 2nd
Respondent violating all laws of land and commercial practices.
26. Learned Counsel for the Appellants stated that the Additional Directors continued to work as
Directors of the 'Corporate Debtor' contrary to the Companies Act, 2013 where an Additional
Director automatically cease to be a director at the inception of ensuing AGM, even if same was
to be adjourned or not held otherwise. Incidentally, the adjourned AGM was held on 25-11-2021
where the Resolution for re-appointment of Additional Director was rejected by majority of
99.24% of shareholding. Learned Counsel for the Appellants further stated that during the
interim period, the illegal Board of Directors entered into alleged tripartite agreement on 19-11-
2021 with 'ZACL' to defraud minority shareholders. Learned Counsel for the Appellants
highlighted that the fraudulent intent of 1st & 2nd Respondent became clear by observing facts
that the 2nd Respondent allowed substitution/assignment of alleged debt by 'ZACL' by the 1st
Respondent and the 2nd Respondent undertook to pay in full by 30-11-2021 i.e. within 11 days of
execution of said agreement and in immediate subsequent event, an application was filed under
section 7 of the I & B Code, 2016 on 6-1-2022. According to Learned Counsel for the Appellants
the entire sequence from AGM to filing of section 7 application was orchestrated within two
months, which is a classic case of blatant misuse of provision of I & B Code, 2016 only to deprive
economic value of 46,000 majority shareholders of the 'Corporate Debtor'.

27. Learned Counsel for the Appellants continued arguments on fraudulence and illegal section 7
Application alleging that by alleged debt of mere Rs. 15 crores (approx.) the Respondents are
trying to take over the assets of more than Rs. 1000 crore of the 'Corporate Debtor'. Learned
Counsel for the Appellants again alleged that the CP (IB) 11/BB/2022 was malicious and had been
initiated on behalf of erstwhile promoters of the 2nd Respondent i.e. Mr. Vijay Mallya and his
group. To buttress his point, the Learned Counsel for the Appellants stated that the 1st
Respondent is an affiliate of one "Balaji Distilleries" Group which was contract manufacturer of
Vijay Mallya Group for many years. Learned Counsel for the Appellants further stated that the
promoter of Balaji Distilleries is one Mr. Srinivasulu Reddy Magunta a Member of Parliament, who
is a close associate of Vijay Mallya/UB Group and has entered into many personal loan
transaction with Mr. Vijay Mallya and pertinently also worked as Director on five companies of
Mallya Group, namely, McDowell Holdings Ltd, Balaji Distilleries Limited, Mangalore Chemicals,
UB Engineering Limited & Kingfisher Airlines Limited. This clearly establishes that the 1st
Respondent has direct relationship with Mr. Vijay Mallya and UB Group Companies.

28. Learned Counsel for the Appellants continued on the same point in trying to establish the
nexus between Respondents on behalf of Erstwhile Management of Mr. Vijay Mallya and U B
Group and their intention to play fraud on minority shareholders and further stated that it is
surprising to note the conduct of Respondent No. 2 who did not defend the 'Corporate Debtor'
in proceeding under section 7 Application and almost immediately agreed to Debt and Default
and consequently 'Corporate Insolvency Resolution Process'. Learned Counsel for the Appellants
further submitted that apparently no action was taken by the 'Corporate debtor' to raise any
funds from market or by way of right issue to existing shareholders who are still willing to
contribute towards outstanding of the 1st Respondent to take out the 'Corporate Debtor' from
the clutches of 'Corporate Insolvency Resolution Process'.

29. Learned Counsel for the Appellants stated that the 2nd Respondent -McDowell Holdings
Limited is categorised as NBFC-CIC (exempted) (Non-Banking Financial Company - Core
Investment Company) and the 2nd Respondent vide letter dated 3-8-2021 sought advice from the
Reserve Bank of India for grant of Certification for becoming CIC-NDSI (Systemically Important
Core Investment Company). Learned Counsel for the Appellants further stated that the 2nd
Respondent has an asset size of over Rs. 1000 cores, which is over threshold limit of Rs. 500
crores and therefore qualifying as a "financial service provider" as per section 3(17) of the I & B
Code, 2016 r/w Notification dated 18-11-2019 by the Ministry of Corporate Affairs. Therefore,
Application for initiating insolvency proceedings against the 2nd Respondent could have only
been filed by the financial sector regulator i.e., Reserve Bank of India as required under rule 5 of
the Insolvency and Bankruptcy (Insolvency Liquidation Proceedings of Financial Service Providers
and Application to Adjudicating Authority) Rules, 2019.

30. Learned Counsel for the Appellants mentioned that the 2nd Respondent also provided
Financial Consultancy Services as can be seen 'Memorandum of Association' of the 2nd
Respondent as well Annual Report for Financial Year 2020-21 which clearly establishes that one of
object of the 2nd Respondent is to provide 'Financial Advisory and Subsidiary Services'. Learned
Counsel for the Appellants also stated that the notes to the Financial Statements mentioned
clearly that the company had obtained Registration from RBI as Non-Banking (Non- Deposit
Accepting) Financial Company and this fact was also reflected by Independent Auditor's in their
opinion stating that the company should be registered with 'Reserve Bank of India' under section
45-IA of the RBI Act and has applied for such a registration.
31. Learned Counsel for the Appellants cited RBI website which lists the Respondent No. 2 as an
NBFC.

32. Learned Counsel for the Appellants pointed out that the Auditors of the 2nd Respondent
have taken a stand that the 2nd Respondent should be registered under section 45-IA of the
Reserve Bank of India Act.

Learned Counsel for the Appellants emphasised that in any case whether the 2nd Respondent is
an NBFC CIC (Exempt Category) or an NBFC CIC, that should be registered with the Reserve Bank
of India, the 'Corporate Debtor' fall under the definition of NBFC as per section 44-I (f) of the RBI
Act, 1934, and are only permitted to operate as NBFC CIC based on the authorisation of the
Reserve Bank of India.

33. Learned Counsel for the Appellants assailed that the 'Adjudicating Authority' failed to take
these vital factors into consideration and acted beyond its jurisdiction in admitting the 2nd
Respondent into 'Corporate Insolvency Resolution Process'.

34. Learned Counsel for the Appellants referred to the para 11 of the 'impugned order' dated 8-4-
2022, whereby it has been clearly recorded that on 17-2-2022, after hearing, the notices were
issued to the 'Corporate Debtor' who accepted notice and on the same date admitted 'Debt and
Default' thereof. Learned Counsel for the Appellants further explained that this was contrary to
the 'Corporate Debtor' own notes attached to unaudited financial results for the quarter ending
31-9-2021 which were taken on record by the Board of Directors in their meeting held on 27-1-
2022. Learned Counsel for the Appellants stated that in these notes, in Para-16, the 'Corporate
Debtor' has clearly acknowledged that companies net worth taking into account the market value
of investments would be more than adequate to meet all its liabilities and will continue to
operate in future and therefore, the 'Corporate Debtor' has presented its account on the
principals applicable to 'Companies as Going Concern'. Learned Counsel for the Appellants
mentioned that the stark admission of 'Debt and Default' on the same date on 17-2-2022 is
complete volte-face and very clearly demonstrate malicious intentions and acting hands in gloves
with the 1st Respondent at the behest of Ex- promotes Mr. Vijay Mallya.
35. Learned Counsel for the Appellants stated that on 6-7-2022 the Appellants wrote to the
'Resolution Professional' making an offer of upfront payment of Rs. 16,30,00,000/- by way of
'Demand Draft' to settle the entire claims of the 'Committee of Creditors' and promised to settle
the remaining amount within one month of acceptance of settlement. Learned Counsel for the
Appellants further stated that as per settlement proposal, 100% of admitted claims of both the
'Financial Creditors', namely, the 1st Respondent and M/s Pixie amounting to Rs. 18,65,17,601/-,
were to be satisfied and the proposal was supported by almost 45% of shareholders of the
'Corporate Debtor'. Learned Counsel for the Appellants stated that the 'Committee of Creditors'
however, did not accept the proposal which demonstrated that the 'Committee of Creditors'
were acting with ulterior motives without any intention for resolution and recovering of money of
their debts.

36. Learned Counsel for the Appellants referred to the judgment of the Hon'ble Supreme Court
of India in the matter of Swiss Ribbon where it was held that the focus of I & B Code, 2016 is to
revive the Corporate Debtor and to protect it from the 'Erstwhile Management' and not mere
recovery legislation for Creditors. Learned Counsel for the Appellants stated that this landmark
judgment was not considered by the Adjudicating Authority in the 'impugned order' and the
'Adjudicating Authority' refused to lift the 'corporate veil' to arrive at true reason behind filing the
Insolvency Petition.

37. Learned Counsel for the Appellants also stated that the application under section 7 was
initiated with an intention of getting benefit of section 32(A) of the I & B Code, 2016 where liability
for the offences conducted by the 'Corporate Debtor' prior to commencement of 'Corporate
Insolvency Resolution Process' cease, once the 'Resolution Plan' is approved.
38. Learned Counsel for the Appellants emphasised that they are very much concerned parties
to the 'impugned order' as their application for intervention were rejected and they are entitled
to challenge it as parties directly aggrieved by the 'impugned order' in terms of section 61(1) of
the I & B Code, 2016. Learned Counsel for the Appellants further submitted that the Appellants
have not preferred the present appeal on behalf of the 2nd Respondent, but as independent
shareholders aggrieved by the order of 'Corporate Insolvency Resolution Process'. Learned
Counsel for the Appellants stated that their investment by way of shareholding of the 'Corporate
Debtor' is at stake and outcome of the Appeal will have direct impact on the valuation of shares,
hence they must be treated as aggrieved persons in terms of section 61(1) of the I & B Code,
2016.

39. Learned Counsel for the Appellants stated that in the matter of "P. Naveen Chakravarthy v.
Punjab National Bank" [W. P. No. 27780 of 2019, dated 1-2-2021], it was held that, notwithstanding
the judgment of the Hon'ble Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank Ltd." [2017]
84 taxmann.com 320/143 SCL 625 (SC)/[2018] 1 SCC 407, the right of a shareholder of a 'Corporate
Debtor' is not jeopardized in so much as a shareholder can espouse their cause qua the
'Corporate Debtor' while seeking to right a perceived wrong. Similarly, in "Dr. Periasamy Palani
Gounder v. Radhakrishnan Dharmarajan, RP Appu Hotels Ltd. [2022] 135 taxmann.com 319/(2022 SCC
OnLine NCLAT 86) this 'Appellate Tribunal' has held that nothing prevents a shareholder from
producing evidence to establish the illegality in the 'Corporate Insolvency Resolution Process'.

40. Learned Counsel for the Appellants stated that they are "person aggrieved" by the fraudulent
and collusive attempt of the 1st Respondent to initiate 'Corporate Insolvency Resolution Process'
in relation to the 2nd Respondent, as 'Corporate Insolvency Resolution Process' would reduce
the value of their shareholding to a throw away prices. This will not only affects the present
Appellants but also 47,000 other shareholders of the 2nd Respondent. The 2nd Respondent
colluding with the 1st Respondent on the other hand, would avail the benefit of Section 32-A of
the I & B Code, 2016 to remove the attachment on the assets of the 2nd Respondent and gain
assets worth over Rs. 1000 crores and retain control of the 2nd Respondent.
41. Learned Counsel for the Appellants also cited judgment of this Appellate Tribunal in the
matter of "Reliance Commercial Finance Ltd. v. Darode Jog Builder (P.) Ltd." in [CA (AT) (Ins.) No. 1005
of 2022, dated 19-9-2022], wherein this 'Appellate Tribunal' held that if the 'Corporate Debtor' is
willing to pay the entire amount, the Financial Creditor cannot refuse to accept the same and this
'Appellate Tribunal' while confirming the 'Adjudicating Authority' 'impugned order' affirmed that
no purpose or occasion shall survive to still proceed with the Insolvency Resolution of the
Corporate Debtor.
42. Learned Counsel for the Appellants, therefore, urged strongly that in light of this judgment
read along with judgment of the Supreme Court of India in the matter of "Vidharbha Industries
Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355, the 'Adjudicating Authority'
ought not to have admitted the Insolvency Petition of the 1st Respondent and should have
allowed the settlement proposal on behalf of the 'Corporate Debtor'.

43. Learned Counsel for the Appellants strongly refuted the allegation regarding alleged collusion
by the Appellant with erstwhile Promoters of the 2nd Respondent. Learned Counsel for the
Appellants stated that they are public shareholders of the 2nd Respondent and have no personal
or professional connection to the erstwhile promoters of 2nd Respondent. Learned Counsel for
the Appellants have purchased shares of the 2nd Respondent through stock exchange
transactions, with no ulterior motive.

44. Learned Counsel for the Appellants submitted a table/flowchart showcasing the collusion
between the 2nd Respondent and the Committee of Creditor is produced herewith :-
45. Learned Counsel for the Appellants concluded his arguments and urging this 'Appellate
Tribunal' to accept these 'Appeals' and set aside the 'impugned order'.
Respondents Submissions:

46. Learned Counsel for the 'Respondents' refuted all the averments made by the 'Appellants'.

47. Learned Counsel for the 1st Respondent stated that an application under section 7 of the I &
B Code, 2016 was filed as a Financial Creditor against the 2nd Respondent ('Corporate Debtor')
on failure to pay back debt due. Learned Counsel for the 1st Respondent further stated that the
assets of the 2nd Respondent are only in form of holding of shares in certain companies and all
are under attachment by statutory and enforcement authorities subsequent to action against
the Erstwhile Promoter of the 2nd Respondent Mr. Vijay Mallya. Learned Counsel for the 1st
Respondent stated that due to such attachments, there was less probability of getting money
back from the 2nd Respondent which compelled the 1st Appellant to initiate section 7
application.

48. Learned Counsel for the 1st Respondent mentioned that the debt due and non-payment of
the same are undisputed facts and the 2nd Respondent has clearly acknowledged the liability for
payment at various places in the financial statements of the 2nd Respondent.
49. Learned Counsel for the 1st Respondent gave the background of accumulation of debts.
Learned Counsel for the 1st Respondent briefed that the 2nd Respondent entered into a
settlement agreement with 'ZACL' and MCFL on 17-6-2019 w.r.t. one 'ICD' from 'ZFCL'. Learned
Counsel for the 1st Respondent further briefed that as per this settlement agreement, the 2nd
Respondent was to make all the payment on or before 16-12-2020 which included sum of Rs.
10,60,56,810/- along with interest being outstanding of ICD amount. Learned Counsel for the 1st
Respondent elaborated the details of two tranches i.e. the first tranche by way of sale and
transfer of shares of the 'Corporate Debtor' in 'MCFL' to 'ZACL' and the second tranche was by
procuring release of shares of United Breweries Limited and amounts realized from the sale of
shares of United Breweries Limited. Learned Counsel for the 1st Respondent stated that at the
request of the 'Corporate Debtor' repayment schedule was extended by ZACL for a period of 6
months and as per modified terms of agreement the 'Corporate Debtor', was required to make
payment towards (i) the remaining sum due which consisted of Rs. 5,68,13,785.95, (ii) interest of
Rs. 7,38,11,381/19/- and (ii) interest accrued on the sum outstanding from completion of
payment of tranche 1.

50. Learned Counsel for the 1st Respondent stated that they were made to believe by the 2nd
Respondent that the 2nd Respondent would be shortly in possession of the attached shares and
therefore, was persuaded to advance further Rs. 1,50,00,000/- as 'ICD' vide agreement dated 20-
10-2021 @18% interest p.a. and the same was required to be paid back within four weeks.

51. Learned Counsel for the 1st Respondent submitted that the after expiry of the four weeks
period, there seemed no possibility of getting money back and as such they were compelled to
protect their financial interest and start asking the 2nd Respondent for payment, however, and
the 2nd Respondent offered to takeover rights of 'ZACL' on plea that the 2nd Respondent was on
verge of receiving funds through dividend income and other sources once attachment is lifted.
The arrangement was agreed to by the 1st Respondent and the tripartite agreement was entered
on 19-11-2021 and 'ZACL' agreed to discharge the 2nd Respondent of his obligations under the
earlier agreement dated 17-6-2019. Learned Counsel for the 1st Respondent further submitted
that through this tripartite agreement, they stepped into shoes of 'ZACL' and thereby acquired
right of enforcement of recovery.

52. Learned Counsel for the 1st Respondent assailed the conduct of the 2nd Respondent who
miserably failed to pay outstanding dues and defaulted on 'ICD'. Learned Counsel for the 1st
Respondent submitted that on detailed examination of the ground realities, they came to know
that even the dividend was subject matter of attachment and there was no possibility of recovery
of money whatsoever. After coming to know these facts, they issued a 'Demand Notice' on 10-12-
2021 and got a reply on 15-12-2021 under which the 2nd Respondent sought further time to
make payments without any dispute regarding debt due and amount involved. Learned Counsel
for the 1st Respondent mentioned that the situation was reviewed comprehensively and
thereafter decided to initiate a proceeding under section 7 of the I & B Code, 2016. Learned
Counsel for the 1st Respondent emphasised that all money were paid in good faith and as per
normal commercial practice and took the steps of section 7 application only after realising 'NIL'
chances of recovery.

53. Learned Counsel for the 1st Respondent strongly objected to the present appeal filed by the
'Appellants' being non-maintainable at the first place. Learned Counsel for the 1st Respondent
stated that the 'Appellants' herein, are only shareholders and by law shareholders cannot
maintain derivative actions. Learned Counsel for the 1st Respondent assailed the conduct of the
'Appellants' who purchased shares in recent past knowing fully well that outstanding debts of the
2nd Respondent reflected in the financial statements. Learned Counsel for the 1st Respondent
tried to question genuine intention of the 'Appellants' for acquiring shares even with knowledge
that the assets of the 2nd Respondent i.e. shares in certain company are under attachment.
Learned Counsel for the 1st Respondent also alleged that the 'Appellants' have come with
unclean hands and have not disclosed the dates on which the shares were acquired by them.
54. Learned Counsel for the 1st Respondent challenged the locus of the 'Appellants' in the
present appeal and reiterated that the 'Appellants' are mere shareholders and by no stretch of
imagination, they can be treated as aggrieved party. Learned Counsel for the 1st Respondent
stated that it is settled law that with regard to debt and default, the contesting parties can only
be the 'Financial Creditor' and the 'Corporate Debtor' and therefore, there is no place for third
party to intervene as per the scheme of I & B Code, 2016.

55. Learned Counsel for the 1st Respondent brought out that in the various judgments of the
Hon'ble Supreme Court of India, it has been held that there is limited scope for judicial
intervention, once debt and default is established. Learned Counsel for the 1st Respondent cited
judgment of Innoventive Industries Ltd. case (supra), where it has been laid down that the moment
the 'Adjudicating Authority' it satisfied regarding default occurred, the application under section
7 should be admitted.

56. Learned Counsel for the 1st Respondent also referred to this Tribunal judgment in "Axis Bank
Ltd. v. Lotus Three Developments Ltd." [2018] 97 taxmann.com 96/2018 SCC Online NCLAT 914)
where it was held that the role of 'Adjudicating Authority' is only to satisfy that the default has
occurred and also held that the no other person has a right to be heard at the stage of
application under section 7 or Section 9 of the I & B Code. 2016 including 'shareholders' or
'personal guarantor'.
57. Learned Counsel for the 1st Respondent stated that the 'Adjudicating Authority' after due
consideration of all facts and detailed examination rightly came to conclusion regarding the fact
that the 'Appellants' did not have locus and therefore, the intervention application was not
maintainable.
58. Learned Counsel for the 1st Respondent mentioned that allegation regarding infringement of
the rights of the minority shareholders, if at all, can be a subject matter of 'Oppression and
Mismanagement' under the Companies Act, 2013 and there is no scope under I & B Code, 2016 to
deal such allegations which are in any case false, misleading and mischievous in nature.

59. Learned Counsel for the 1st Respondent referred to I. A. No. 517 of 2022 filed by the
'Appellants' in the present appeal for grant of stay on the ground that the 'Appellants' are ready
to deposit the amount payable to the 'Financial Creditor' by the 2nd Respondent. Learned
Counsel for the 1st Respondent pointed out that this is also not maintainable in an application
filed under section 7 of the I & B Code, 2016 and such outsiders cannot be allowed to deviate I &
B Code provisions.
60. Learned Counsel for the 1st Respondent stated that there is no provision under I & B Code,
2016 or under the Companies Act, 2013 which allows shareholders to directly deposit the money
on behalf of the Company/Corporate Debtor to settle dues with financial creditor. Learned
Counsel for the 1st Respondent also mentioned that there are no such precedents or judicial
judgments to support wrongful suggestions of the 'Appellants'. Learned Counsel for the 1st
Respondent further stated that the once the 'Resolution Plan' is approved, it takes care in
interest of all the stakeholder including the 'Appellant' herein and furthermore the 'Appellants'
are free to take legal remedies as permissible under concerned law rather than abusing the
provisions of I & B Code, 2016.

61. Learned Counsel for the 1st Respondent also strongly refuted allegations of fraud/collusion
between the 1st Respondent and the 2nd Respondent which have been alleged without any basis
and in fact the 'Appellants' are themselves having nexus with Erstwhile Promoters of the
company Mr. Vijay Mallya and is corroborated by the fact that the 'Appellants' purchased most of
the shares recently knowing very well that assets (in form of shares of the 'Corporate Debtor' in
other companies) are under attachment. Learned Counsel for the 1st Respondent stated that the
'Appellants' have failed to produce any documentary documents to establish nexus between the
'Respondents' with Erstwhile Promoter Mr. Vijay Mallya and U B Groups Companies.

62. Learned Counsel for the 1st Respondent also refuted the contentions of the 'Appellants' that
the 2nd Respondent is 'NBFC'. Learned Counsel for the 1st Respondent stated that from various
records it is very clear that the 'Corporate Debtor' ceased to be 'NBFC' long back. Learned
Counsel for the 1st Respondent emphasised that the 2nd Respondent is neither 'NBFC' nor the
financial service provider as per I & B Code, 2016.
63. Learned Counsel for the 1st Respondent stated that the 'Committee of Creditors' has already
approved the 'Resolution Plan' and once an IRP/RP has been appointed, he assumes full
authority to represent the 'Corporate Debtor' and therefore, no derivative actions can be
initiated by the shareholders being non-maintainable. Elaborating the legal position, the Learned
Counsel for the 1st Respondent stated that the such action can be resorted only in exceptional
condition where Company has failed to take action as required by the law. Learned Counsel for
the 1st Respondent stated that the present appeal is a clear case of debt and default,
acknowledgement of liability to pay and therefore has nothing to do with so-called derivative
action. Learned Counsel for the 1st Respondent referred to the pleadings of the 'Appellant'
relying on the decision of the Hon'ble Madras High Court in Naveen Chakravarthy case (supra), to
support a case of a right to initiate derivative action and submitted that the issue in
consideration in the said judgment was in respect of maintainability of a Writ Petition filed
against a 'statutory authority' under Article 226 of the Constitution of India, against an order
passed by the DRAT during the period of moratorium, which is entirely different from the facts in
the present appeal.

64. Learned Counsel for the 1st Respondent submitted that all other cases cited by the
'Appellants' are not relevant and applicable in the present appeal. Learned Counsel for the 1st
Respondent further submitted that the present appeal is filed under section 61 of the I & B Code.
2016 where the 'Appellants' claiming to be an aggrieved person, has to show how the Appellant
has been aggrieved in respect of the specific circumstances of the case to maintain a derivative
action, which the 'Appellants' have miserably failed to do.
65. Learned Counsel for the 1st Respondent alleged that the intention of the 'Appellants' is to
derail the process of 'Corporate Insolvency Resolution Process' which has resulted into approval
of the 'Resolution Plan' by the 'Committee of Creditors'. Learned Counsel for the 1st Respondent
further stated that in guise of buying some shares in the recent past knowing well that the
property of the 'Corporate Debtor' is under attachment, the 'Appellants' have devised an illegal
and fraudulent method of taking over reins of the 'Corporate Debtor' and taking over the assets
of more than 1000 crores by mere 'Speculative Investment' in shares of the 'Corporate Debtor'.
Learned Counsel for the 1st Respondent stated that the intent becomes quite clear when the 1st
Appellant himself have volunteered to be the Board of Directors of the 2nd Respondent. Learned
Counsel for the 1st Respondent stated that their all transactions have been entered into on
commercial principals and strictly following all the laws of the land and was done with genuine
intention of reviving the 'Corporate Debtor'.

66. Learned Counsel for the 1st Respondent also refuted alleged settlement proposal submitted
by the 'Appellants' which is only with intent to step into shoes of the 1st Respondent and in effect
become the 'Financial Creditors' of the 'Corporate Debtor' rather than as shareholders. Learned
Counsel for the 1st Respondent also tried to give details according to which is clear that the
'Appellants' in both the Appeals are working in tandem. Learned Counsel for the 1st Respondent
stated that the 'Appellants' in both the appeal are acting collusively on behalf of the Erstwhile
Promoter Mr. Vijay Mallya.

67. Learned Counsel for the 1st Respondent pointed out that one Mr. Kushal Sengupta who
initially filed intervention application with Padron Marketing Pvt. Ltd. in I.A/87/BB/2022 before the
'Adjudicating Authority', was in fact ex-employee of several companies owned by Mr. Vijay Mallya
and Mr. Kushal Sengupta was an employee of 'Herbertsons Limited', a company controlled by the
Promoters, shifted to 'McDowell & Company' in mid 90s and thereafter was transferred to
Brewery Division of the said company during 1998-99. Learned Counsel for the 1st Respondent
stated that Mr. Kushal Sengupta all of a sudden became a shareholder of the 'Corporate Debtor'
in June, 2021 by acquiring 6350 shares and further increased to 19,350 shares in December, 2021
and off loaded shares except 14 shares in May, 2022. Learned Counsel for the 1st Respondent
pointed out that 'Padrone Marketing Private Limited' is owned by Mr. Ajay Gaggar who owns a
liquor manufacturing company and has been operating a major manufacturing unit of the Ex-
Promoters of the 'Corporate Debtor' which clearly establishes his nexus with Erstwhile
Promoters. Learned Counsel for the 1st Respondent further submitted that like Mr. Kushal
Sengupta, Mr. Ajay Gaggar acquired 39,550 shares in his own name and 6,95,484 shares through
Padrone Marketing Private Limited during Financial Year 2019-20. Learned Counsel for the 1st
Respondent termed such acquisitions as a concerted plan by the Erstwhile Promoters to avoid
any scrutiny.

68. Learned Counsel for the 1st Respondent further submitted that Mr. Ajay Gaggar also
acquired 6,95,000 shares during 2019-20 from close relatives 'the Taparias' who owns 'Famy Care
Private Limited' which funded Rs. 5 crores out of Rs. 16.3 cores deposit offered by the
'Appellants'. Learned Counsel for the 1st Respondent further submitted that interestingly the
said company does not hold any shares in the 'Corporate Debtors' company.
69. Learned Counsel for the 1st Respondent emphasised that similar pattern of unhealthy
acquisition of shares has been resorted by other shareholders also and to prove this point,
Learned Counsel for the 1st Respondent submitted the details of acquisition of shares made by
the parties 'the settlement proposal' in form of a chart along with Chart showing inter-se
relationship between the Appellants and that they are persons acting in concert which is Chart
showing links between few Appellants/Persons proposing to make payments and Mr. Vijay
Mallya. These charts furnished by the 'Respondents' which are seen as under :-
Learned Counsel for the 1st Respondent pointed out that the arguments of the 'Appellants' of
their entitlement to submit settlement proposal as a 'contributory' under Companies Act, 2013,
is legally not permissible as, the I & B Code, 2016 is a complete cod and the concept of
'contributory' is envisaged only during process of liquidation under the Companies Act, 2013 and
not during 'Corporate Insolvency Resolution Process' under I & B Code, 2016

70. Learned Counsel for the 1st Respondent refuted the allegations about collusion between the
1st and 2nd Respondents merely because the Counsel for the 'Corporate Debtor' who appeared
at the first hearing before the 'Adjudicating Authority on 17-2-2022 at the time of admission and
did not deny the debt or default. Learned Counsel for the 1st Respondent further submitted that
such allegations have no merit whatsoever. Learned Counsel for the 1st Respondent mentioned
that Rule 4(3) read with Annexure V of Form-I of the Insolvency & Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 require that advance notice has to be served on the
Corporate Debtor before filing the application with the Adjudicating Authority. Learned Counsel
for the 1st Respondent submitted that since the debt and default was undeniable, the 'Corporate
Debtor' on receiving advance notice, could not deny the existence of the debt and the default
when the matter came up for admission before the Adjudicating Authority.
71. Learned Counsel for the 1st Respondent again refuted the allegations regarding fraud and
collusion. Learned Counsel for the 1st Respondent mentioned that this aspect was specifically
dealt by the Adjudicating Authority and to satisfy the 'Adjudicating Authority' through its order
dated 17-2-2022 asked the 'Corporate Debtor' to file an Affidavit regarding pending litigations
and claims along with detailed financial position. Learned Counsel for the 1st Respondent further
stated that the only after detailed examination and hearing averments, the 'Adjudicating
Authority' came to clear finding that there is no fraud or collusion by the Respondents herein
and accordingly, the 'impugned order' was pronounced.

72. Thus, all allegations and averments of the 'Appellants' including admission of Debt and
Default by the 'Corporate Debtor' on the first date of hearing itself, collusive lending of money by
the 1st Respondent to the 2nd Respondent, short period of repayment aggrieved by the 2nd
Respondent etc. are only afterthought, fabricated, frivolous and without any basis.

73. Learned Counsel for the 1st Respondent strongly refuted the allegations of the 'Appellants'
that the 1st Respondent is insisting on 'Corporate Insolvency Resolution Process' in order to take
over the management of the 'Corporate Debtor' and the landing to the 2nd Respondent was
collusive in nature. Learned Counsel for the 1st Respondent brought out that the 'Committee of
Creditor' has already considered five 'Resolution Plans' and has approved 'Resolution Plan' of
'Phoenix Theme Infra Projects LLP' in their meeting held on 19-10-2022 in accordance with
Regulations 18 and 19 of IBBI and the same is pending before the 'Adjudicating Authority' for
approval in I.A No, 399 of 2022 in CP (IB)/11/2022.
Learned Counsel for the 1st Respondent further stated that it is a settled law that the 'Financial
Creditor' i.e. the 1st Respondent herein is only entitled to its contractual determination dues and
nothing more. Learned Counsel for the 1st Respondent alleged that on the contrary, it is the
'Appellants' who are trying to take over company through an illegal a settlement proposal/loan
and has also offered to be on the 'Board of Directors' of the 'Corporate Debtor' as indicated by
the 1st Appellant.

74. Learned Counsel for the 1st Respondent further refuted the allegations of the 'Appellants'
that the 'Respondents' are trying to take benefit of section 32(A) of the I & B Code, 2016 get out of
clutches of law for offences. Learned Counsel for the 1st Respondent stated that both as per
section 32(A) of the I & B Code, 2016 as well as in terms of ratio pronounced by Hon'ble Supreme
Court of India in the matter of 'Manish Kumar v. Union of India' [2021] 123 taxmann.com 343/(SC)/5
SCC 1), laid down the conditions and it is therefore clear that the prosecution would continue
against the person who committed any offence and it is only the new management totally
unconnected with old management of the 'Corporate Debtor', are given immunity and
protection from the prosecution.

75. Learned Counsel for the 1st Respondent also assailed the conduct of the 'Appellants' who
filed an I.A. No. 517 of 2022 in C.A. (AT) (Ins.) No. 142 of 2022 seeking stay on proceeding by
offering to deposit the entire amount owed to the Creditors of the 'Corporate Debtor'. Learned
Counsel for the 1st Respondent stated that there is no such provision under I&B Code, 2016 and
the intent of the I & B Code, 2016 is to allow genuine resolution of the 'Corporate Debtor' in order
to put it back on rails. Learned Counsel for the 1st Respondent further stated that it was never
intention of the I & B Code, 2016 to protect only 'shareholders'.
76. Learned Counsel for the 1st Respondent further pointed out that on the contrary there are
several judgment of the Apex Court where it has been indicated that the 'Resolution Plan' should
take care of various stakeholders including the 'Appellants'. Learned Counsel for the 1st
Respondent brought out that incidentally out of seven persons who have come forward to make
payment under alleged settlement proposal, five are not even the 'Appellants' in the present
appeal, which indicate that it is only the 1st Respondent along with few others who are trying to
derail the process of 'Resolution'. Learned Counsel for the 1st Respondent also brought out that
one un-known party i.e. 'Famy Care Private Limited' is not connected to any of the proceeding
and also not shareholder of the 'Corporate Debtor' has been roped into so-called 'settlement
proposal'.

77. Learned Counsel for the 1st Respondent further stated that all these lead to conclusion that
the 'Appellants' are working at the behest of Erstwhile Promoter- Mr. Vijay Mallya who is seeking
back door entry to take control of the company. Learned Counsel for the 1st Respondent
submitted that for arguments sake, even if the I & B Code, 2016 has provision to allow
'shareholder' to offer such settlement proposals, still it could have been seen as tainted
proposal and indirectly proposed by Erstwhile Promoter- Mr. Vijay Mallya who is under
investigation by several agencies. Learned Counsel for the 1st Respondent stated that on the
contrary the I & B Code, 2016 in transparent and dignified manner facilitate chance to all to
participate in 'Resolution Plan' and once it is approved by the 'Adjudicating Authority' the
Respondent will get their claims settled as per approved 'Resolution Plan'.

78. Learned Counsel for the 1st Respondent stated that if the 'Appellants' are so interested to
take part in the management of the 'Corporate Debtor', could have participated as the
'Resolution Applicant'. Learned Counsel for the 1st Respondent pointed out that the very fact of
the 'Appellants' not participating for 'Resolution' of the 'Corporate Debtor' indicate that their
dubious intentions to work on behalf of the Erstwhile Promoters - Mr. Vijay Mallya

79. Learned Counsel for the 1st Respondent strongly refuted allegations of the 'Appellants' that
the 2nd Respondent/Corporate Debtor is a 'NBFC' of is a 'Financial Service Provider'. Learned
Counsel for the 1st Respondent further stated that this argument was not taken up by the
'Appellants' in their Intervention Applications in I.A. No. 86 of 2022 and I.A. No. 87 of 2022 before
the 'Adjudicating Authority' and has been taken up for the first time before this 'Appellate
Tribunal' and therefore, cannot be allowed.

Learned Counsel for the 1st Respondent further stated that the 'Corporate Debtor' is neither
'NBFC' nor 'Financial Service Provider' in term of section 3(16) of the I & B Code, 2016.

Learned Counsel for the 1st Respondent submitted that the I & B Code, 2016 do not provide
definition of 'NBFC' and therefore what is significant to establish whether the 'Corporate Debtor'
is a 'Financial Service Provider'. Learned Counsel for the 1st Respondent stated that since the
'Corporate Debtor' is not performing any activity which can be classified as 'Financial Service' and
therefore the 'Corporate Debtor' is neither 'Financial Service Provider' nor the 'NBFC'.

80. Learned Counsel for the 1st Respondent also assailed the conduct of the 'Appellants' who
tried to give wrong information regarding 'Corporate Debtor' status as 'NBFC' based on old RBI
link and the 1st Respondent has filed the latest updated list of 'NBFC' registered with RBI as on
31-7-2022 which clarifies that the name of the 'Corporate Debtor' is not there in the list and for
the same reason the 'Appellants' have not furnished this information as by way of filing an
Affidavit and has submitted mere as 'Written Submissions'.

81. Learned Counsel for the 1st Respondent refuted the claims of the Appellants who is taking
shelter of 'Annual Reports' of the 'Corporate Debtor' to prove that the 'Corporate Debtor' has
declared itself to be a 'CIC' (exempted category). Learned Counsel for the 1st Respondent pointed
out that the 'Corporate Debtor' was deregistered as 'NBFC' by RBI on 11-12-2017 and
subsequently the 'Corporate Debtor' was reclassified as 'CIC' (exempted in category) due to the
fact that the 'Corporate Debtor' was holding strategic investments in the UB Group of
Companies. Learned Counsel for the 1st Respondent clarified that after the attachment of shares
and consequently sale of such shares by DRT Bangalore, there is no strategic holding by the
'Corporate Debtor'. Learned Counsel for the 1st Respondent stated that in any case, the RBI vide
letter dated 25-10-2021 asked the 'Corporate Debtor' to examine the applicability of 'CIC'
directions 2016. Learned Counsel for the 1st Respondent emphasised that the said letter do not
give any directions to the 'Corporate Debtor' to get itself registered as 'CIC'. Learned Counsel for
the 1st Respondent stated that it made clear the 'Corporate Debtor' is not a 'NBFC'.
82. Learned Counsel for the 1st Respondent further submitted that the primary requirement for
a company to be a 'CIC' is to hold such strategic investments in group companies. Learned
Counsel for the 1st Respondent stated that the 'Corporate Debtor' does not fall under the ambit
of any of the arrangements mentioned therein with United Breweries Limited, since the
shareholding of the 'Corporate Debtor' in United Breweries Limited is only 1.72%. Therefore, the
CIC Directions, 2016 are not inapplicable to the 'Corporate Debtor'.

83. Learned Counsel for the 1st Respondent stated that the 'Appellants' have relied on various
decisions of the 'Apex Court' and this 'Appellate Tribunal', and emphasised that none of the
decisions are applicable, since in the said cases, all the companies had valid and live registration
certificates as NBFCs from the Reserve Bank of India at the time of filing of the Petition under
section 7 of the I & B Code, 2016. Learned Counsel for the 1st Respondent further stated that in
the present case, the 'Corporate Debtor's' registration as a 'NBFC' stood cancelled on 11-12-2017
and the 'Corporate Debtor' ceased to be a 'NBFC'.

84. Learned Counsel for the 1st Respondent emphasised that the 'Corporate Debtor' does not
offer any financial service as defined under section 3(16) of the I & B Code, 2016. Learned Counsel
for the 1st Respondent submitted whether the 'Corporate Insolvency Resolution Process' could
have been invoked by the 1st Respondent is based on fact whether the 'Corporate Debtor' is a
financial service provider under section 3(17) of the I & B Code, 2016. Learned Counsel for the 1st
Respondent emphasised that even its participation in financial activities is limited to only certain
restricted instances which do not fall within section 3(16) of the I & B Code, 2016 and in any event
is 'business 'is limited to 'acquisition of shares and securities' whereas a 'Financial service
provider under section 3(17) of the I & B Code, 2016 has to be engaged in the business of
providing financial services.

85. Learned Counsel for the 1st Respondent further submitted that the section 3(17) of the I & B
Code, 2016 specifically requires an authorisation issued or 'registration granted' by a financial
sector regulator and even 'exempted category' would come under the ambit or authorisation
issued. Learned Counsel for the 1st Respondent emphasised that the 'Corporate Debtor' is very
much a 'Corporate Debtor' under section 3(7) of the I & B Code, 2016 and is amenable to be
admitted into 'Corporate Insolvency Resolution Process' on a petition filed by a 'Financial
Creditor' under section 7 of the I & B Code, 2016.

86. Learned Counsel for the 1st Respondent summarised his pleadings and mentioned that the
present application is not maintainable and even on merits its liable to be dismissed.

Findings
87. Heard Learned Counsel for the Appellant and the Respondents and also perused record
made available to us. Several issues have been raised in the Appeals which are required to be
deliberated upon before coming to final conclusion.

(I) (a) Whether the 'Adjudicating Authority' committed an error in admitting the 'CIRP' of
the 'Corporate Debtor'

And

(b) Whether, the shareholder of the 'Corporate Debtor' has any locus in Section 7
application filed by the 'Financial Creditor'.

(II) Whether, the shareholders can make payment to satisfy financial debt of financial
creditor in order to take away the 'Corporate Debtor' from the clutches of the
'Corporate Insolvency Resolution Process'.

(III) Whether the Respondent No. 2 ('Corporate Debtor') is a Non- Banking Financial
Company ('NBFC') having assets of more than Rs. 500 crores and therefore exempted
from the 'Corporate Insolvency Resolution Process' ordered by the 'Adjudicating
Authority'.
 (IV) Whether, such cases of Non- Banking Financial Company are required to be registered
or can fall in the definition of 'Exemption' even without being registered with the
'Reserve Bank of India'.

(V) Whether the permission of the 'Reserve Bank of India' is mandatorily to be taken prior
to initiating the 'Corporate Insolvency Resolution Process' proceedings against the
'Corporate Debtor' ---- being adjudicated by the 'Adjudicating Authority'.

(VI) Whether the Appellants are related parties of the suspended management as claimed
by the Respondents and similarly whether the Respondents are related parties of the
suspended management of the 'Corporate Debtor' as claimed by the Appellants and
what is going to be impact of such relationship, if exists, over the maintainability of
section 7 Application under I & B Code, 2016.
88. Issue (I) (a) Whether the 'Adjudicating Authority' committed an error in admitting the 'CIRP' of
the 'Corporate Debtor'

And

(b) Whether, the shareholder of the 'Corporate Debtor' has any locus in Section 7 application
filed by the 'Financial Creditor'.

l In order to examine this critical issue of locus and maintainability, this 'Appellate Tribunal'
needs to look into various provisions of the I & B Code, 2016 carefully. The relevant provision,
connected to this issue are:—

"3 (23) "person" includes—

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;
(d) a trust;

(e) a partnership;

(f) a limited liability partnership; and

(g) any other entity established under a statute,

and includes a person resident outside India;"

(emphasis supplied)

"5(7) "financial creditor" means any person to whom a financial debt is owed and includes a
person to whom such debt has been legally assigned or transferred to;

(8) "financial debt" means a debt along with interest, if any, which is disbursed against the
consideration for the time value of money and includes—
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised
equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures,
loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a
finance or capital lease under the Indian Accounting Standards or such other accounting standards
as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on non-recourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase
agreement, having the commercial effect of a borrowing.

[Explanation.—For the purposes of this sub-clause,—

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount
having the commercial effect of a borrowing; and

(ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned
to them in clauses
(d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with protection against or benefit from
fluctuation in any rate or price and for calculating the value of any derivative transaction, only the
market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter
of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items
referred to in sub-clauses (a) to (h) of this clause;

(emphasis supplied)

"5(26) "resolution plan" means a plan proposed by resolution applicant for insolvency
resolution of the corporate debtor as a going concern in accordance with Part II; "

(emphasis supplied)

"CHAPTER II

CORPORATE INSOLVENCY RESOLUTION PROCESS

6. Persons who may initiate corporate insolvency resolution process. - Where any corporate debtor
commits a default, a financial creditor, an operational creditor or the corporate debtor itself may
initiate corporate insolvency resolution process in respect of such corporate debtor in the
manner as provided under this Chapter."

(emphasis supplied)
"7. Initiation of corporate insolvency resolution process by financial creditor—(1) A financial
creditor either by itself or jointly with 1[other financial creditors, or any other person on behalf of
the financial creditor, as may be notified by the Central Government,] may file an application
for initiating corporate insolvency resolution process against a corporate debtor before the
Adjudicating Authority when a default has occurred.

Explanation.—For the purposes of this sub-section, a default includes a default in respect of a

financial debt owed not only to the applicant financial creditor but to any other financial
creditor of the corporate debtor.

(2) The financial creditor shall make an application under sub-section (1) in such form and
manner and accompanied with such fee as may be prescribed.

(3) The financial creditor shall, along with the application furnish—

(a) record of the default recorded with the information utility or such other record or
evidence of default as may be specified;

(b) the name of the resolution professional proposed to act as an interim resolution
professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-
section (2), ascertain the existence of a default from the records of an information utility or on
the basis of other evidence furnished by the financial creditor under sub-section (3).

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is complete, and there is no
disciplinary proceedings pending against the proposed resolution professional, it may, by
order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete or any
disciplinary proceeding is pending against the proposed resolution professional, it may, by
order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application under clause
(b) of sub-section (5), give a notice to the applicant to rectify the defect in his application
within seven days of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission
of the application under sub-section (5).

(7) The Adjudicating Authority shall communicate—(a) the order under clause (a) of sub-
section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b)
of sub-section (5) to the financial creditor, within seven days of admission or rejection of
such application, as the case may be."

(emphasis supplied)
"61. Appeals and Appellate Authority.—(1) Notwithstanding anything to the contrary
contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the
Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate
Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company
Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed
after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause
for not filing the appeal but such period shall not exceed fifteen days.

(3) An appeal against an order approving a resolution plan under section 31 may be filed on
the following grounds, n amely:—

(i) the approved resolution plan is in contravention of the provisions of any law for
the time being in force;

(ii) there has been material irregularity in exercise of the powers by the resolution
professional during the corporate insolvency resolution period;

(iii) the debts owed to operational creditors of the corporate debtor have not been
provided for in the resolution plan in the manner specified by the Board;

(iv) the insolvency resolution process costs have not been provided for repayment
in priority to all other debts; or

(v) the resolution plan does not comply with any other criteria specified by the
Board.

(4) An appeal against a liquidation order passed under section 33, or sub-section (4) of
section 54L, or sub-section (4) of section 54N, may be filed on grounds of material irregularity
or fraud committed in relation to such a liquidation order."

(5) An appeal against an order for initiation of corporate insolvency resolution process
passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity
or fraud committed in relation to such an order."

(emphasis supplied)

♦ As per Section 7 of the I & B Code, 2016, a 'Financial Creditor' either by itself or
jointly with other 'Financial Creditors' may file an Application for initiating
'Corporate Insolvency Resolution Process' against the 'Corporate Debtor' before
the 'Adjudicating Authority' when the default has occurred.

♦ The 'Adjudicating Authority' shall, within 14 days of receipt of the application,

ascertain the existence of default and where the 'Adjudicating Authority' is
satisfied that the default has occurred and application is complete, admit such
application and 'Corporate Insolvency Resolution Process' shall commence from
the date of such admission of the application.
♦ According to scheme under section 7, the 'Adjudicating Authority' is not required
to look into other criteria for admission.

♦ As per Section 5 (7) of the I & B Code, 2016, 'Financial Creditor', means any
person to whom the financial debt is owed and includes a person to whom such
a debt is legally assigned or transferred. Where an assignment agreement legally
assigns the impugned debt to a person, such a person becomes a financial
creditor within a meaning of Section 5(7) of the I & B Code, 2016. In such case, the
assignee steps into the shoes of the 'Financial Creditor' and as such he is entitled
to the reliefs as available in the I & B Code, 2016.

♦ In the present case, undisputedly, the 1st 'Respondent' became 'Financial

Creditor' since the assignment was created with all requisite formalities and the
'Corporate Debtor' has not denied the financial transaction. In such case, the
'Adjudicating Authority' is supposed to admit Section 7 Application.

♦ It is the case of 'Appellant' that Section 7 Application was filed by the 'Financial
Creditor' in collusion with the 'Corporate Debtor'.

♦ After reading section 61(1) of the I & B Code, 2016, it becomes clear that "any
person aggrieved" by the order of the 'Adjudicating Authority' may prefer an
appeal to "National Company Law Appellate Tribunal".

♦ The definition of "person" has been given in section 3(23) of the I & B Code, 2016
which includes an "individual". This does not specifically mention "shareholder".
However, "individual" is wider term and can include "shareholder".

♦ Section 6 of the I & B Code, 2016 prescribes as to who may initiate 'Corporate
Insolvency Resolution Process'. It includes a 'Financial Creditor' or an
'Operational Creditor' or the 'Corporate Debtor' itself. This definition is
restrictive and includes only 'Creditors' both 'Financial Creditors' & 'Operational
Creditors' and the 'Corporate Debtor' who may wilful.

♦ As already discussed earlier in preceding paras, the 'Financial Creditor' either by

itself or jointly with others may file an application for 'Corporate Insolvency
Resolution Process'. In the present case, the 'Financial Creditors' had filed the
application under section 7 of the I & B Code, 2016 before the 'Adjudicating
Authority' which was admitted and 'Corporate Insolvency Resolution Process'
was initiated.

♦ The 'Appellants' herein filed two intervention applications, namely, I.A No. 86 of
2022 and I.A No. 87 of 2022 before the 'Adjudicating Authority' claiming to be
aggrieved persons seeking to intervene in CP (IB) No. 11/2022 with prayer to
declare that the CP amounts to fraudulent and malicious initiation of
proceedings under I & B Code, 2016 and to dismiss CP (IB) No. 11/2022.

♦ The 'Adjudicating Authority' had discussed this aspect in details in para-20 of the
'impugned order' which reads as under:-
 "It is the case of the Intervening Applicants that they are holding certain shares in
the Respondent/Corporate Debtor Company and if the C.P. is admitted and the
Insolvency Resolution Process is initiated against the Corporate Debtor, their
right as shareholders will be severely affected and their interest will be
prejudiced. It is the settled principle of law that in an Application u/s. 7 of the
Code, there is no place for any third party other than the Financial Creditor and
the Corporate Debtor. The Shareholders of the Financial Creditor or of the
Corporate Debtor in their capacity as a shareholder have no locus standi to get
themselves impleaded in the C.P. filed u/s.7 of the IBC, 2016. If any Shareholder of
the Financial Creditor or the Corporate Debtor have any grievances with regard
to the representation of the Company in the C.P., they can agitate their rights as
Shareholders under the applicable provision of the Companies Act, 2013 but
cannot be allowed to be impleaded or intervened in the C.P. This Adjudicating
Authority, while exercising summary jurisdiction such as section 7 of the IBC,
2016, cannot adjudicate the disputes, if any, inter se, between the Shareholders
or Directors of the Corporate Debtor, Accordingly, both the Interlocutory
Applications are dismissed."

(emphasis supplied)

♦ It is the case of the 'Appellants' that being "shareholders", if 'Corporate

Insolvency Resolution Process' is allowed to continue their 'financial interest' will
be adversely affected and therefore, they are aggrieved by the 'impugned order'.

♦ The 'Appellants' cited the judgment of P. Naveen Chakravarthy and Dr. Periasamy
(supra) Palani Gounder (supra) to support their averments.

♦ The 'Appellants' have further argued that the interest of 'Financial Creditor' is to
recover his money and to put 'Corporate Debtor' into 'Corporate Insolvency
Resolution Process' or 'Liquidation'.

♦ To protect the financial interest of a company having assets in form of shares in

the other companies of more than Rs. 1000 crores, the 'Appellants' as
shareholders are willing to pay the entire outstanding debt including interest.

♦ In response to a pointed query by this 'Appellate Tribunal' to the 'Appellants',

whether the proposition of shareholders to settle the outstanding dues of the
'Corporate Debtor' by shareholders, is permitted by any law especially under the
I & B Code, 2016 or the Companies Act, 2013, it transpires that the there is no
such direct and specific provision allowing the same.

♦ Similarly, on further specific query by this 'Appellate Tribunal' of any precedent

through judgments of the Hon'ble Supreme Court of India or this 'Appellate
Tribunal' which permitted such settlement of outstanding dues of the 'Corporate
Debtor' by the shareholders, the 'Appellants' could not give any direct citations
except few citations mentioned earlier which are not directly connected here
looking to the facts herein.
 ♦ This 'Appellate Tribunal' notes that citations made by the 'Appellants' in the
'Written Submissions' and during averments made by the 'Appellants', are not
directly on this point and do not support claims of the 'Appellant'.

♦ It has further been argued by the 'Respondents' that the 'Appellants' have
sought to maintain the present appeal as a derivative action which cannot be
maintained. Once an IRP/RP has been appointed, he/she becomes responsible
for the functioning of the 'Corporate Debtor' and has the sole authority to
represent the 'Corporate Debtor' and a derivative action, both at the stage of
admission and/or after the corporate debtor has been admitted into 'Corporate
Insolvency Resolution Process' cannot be maintained.

♦ During averments, it has been brought to the notice of this 'Appellate Tribunal'
one judgment of Delhi High Court on derivative action on behalf of the Corporate
Debtor under I & B Code, 2016. In the case of ICP Investments (Mauritius) Ltd. v.
Uppal Housing (P.) Ltd. 2019 SCC Online Del 12371, following has been recorded in
the judgment :-

"18. The IRP appointed with respect to Umang, under the law having powers/authorities as
aforesaid, I have wondered about the maintainability of a derivative action on behalf of
Umang.

20. It is felt that once the affairs of the Umang are taken over by an IRP, the Directors of
Umang can no longer be blamed for not taking the requisite steps to seek redress for the
wrong if any done to Umang, and a derivative action by plaintiff, as a majority shareholder,
for the benefit of Umang would not be maintainable. The plaintiff now has to approach the
IRP for taking action against Uppal and it is the IRP who has to, if finds any merit in the
grievance of the plaintiff, take appropriate remedy on behalf of Umang. Moreover, if the
plaintiff remains dissatisfied with the decision of IRP, has remedy before the NCLT.

22. I must however note that the aforesaid cases involved a company which was at the stage
of liquidation, as distinct from Umang in the present case, against which only the insolvency
process has begun. However considering the duties and role of the IRP under the IBC as
discussed hereinabove, the principle in each of the aforesaid cases i.e. of the management of
the company, on whose fraud/mismanagement a derivative action becomes maintainable,
being no longer in power/control, and consequently a derivative action being no longer
maintainable, also applies to the present case."

23. I also find a Single Judge of the High Court of Madras in Jai Rajkumar v. Stanbic Bank Ghana Ltd.
2018 SCC OnLine Mad 10472 to have held a suit by way of a derivative action to be not maintainable
when the company, for whose benefit derivative action was initiated, was under insolvency. It was
held that it is for the RP to act on behalf of the corporate debtor and to initiate suitable proceedings if
any deemed necessary for the benefit of the corporate debtor and its creditors.

24. I respectfully concur.

(emphasis supplied)
♦ It infers that the 'Appellants' even as "shareholders" cannot be aggrieved merely
by the admission of the 'Corporate Debtor' into 'Corporate Insolvency
Resolution Process'. Such objection may render the object of I & B Code, 2016
illusory since any shareholder of any 'Corporate Debtor' against which
Insolvency proceedings have been initiated can then seek to maintain a
derivative action and sabotage a valid 'Corporate Insolvency Resolution Process'
initiated by the Adjudicating Authority.

♦ The 'Appellants' have prayed for setting aside the 'impugned order' dated 8-4-
2022 in their C.A (AT) (Ins.) No. 174 of 2022 whereas in C.A (AT) (Ins.) No. 142 of
2022 the prayer has been made to stay 'operation of the impugned order'.

♦ Although, the 'Appellants' have not asked in their prayers before this 'Appellate
Tribunal' for any liberty to seek permission to pay all outstanding dues of the 1st
Respondent herein/Financial Creditor, it has been made in 'Written Submissions'
as well as in the main application seeking intervention before the 'Adjudicating
Authority' whereas such requests/averments were made by the 'Appellants'.

♦ As discussed prima facie there is no specific law which allows any shareholder of
the 'Corporate Debtor' to challenge the admission of 'Corporate Insolvency
Resolution Process' of the 'Corporate Debtor', once the debt due and default is
established by the 'Adjudicating Authority', in an application made by the
'Financial Creditor' filed under section 7 of the I & B Code, 2016 before the
'Adjudicating Authority'.

♦ Moreover, there is no law which allows a third-party to settle the claims of the
'Financial Creditor' on behalf of the 'Corporate Debtor', more so without any
consent of the 'Corporate Debtor' and in the teeth of opposition by the 'Financial
Creditor'. The 'Appellants' could not produce any precedents in this regard.

♦ Theoretically, even a 'person' aggrieved by the 'impugned order' challenges

admission of 'Corporate Insolvency Resolution Process', it is not going to resolve
the issues under any relevant law and the whole exercise with such appeal
become futile, purposeless and will only cause delay in resolution, for which the
'Resolution Plan' has already been approved by the 'Committee of Creditors' and
is under consideration of the 'Adjudicating Authority'.

♦ We also take into account the judgment of this 'Appellate Tribunal' wherein, it
was held that the no direction can be given to any third-party for the settlement
between other parties as observed in I.A. No. 642 of 2019 in Company Appeal (AT)
(Insolvency) Nos. 255-256 of 2018, dated 30-4-2019 in the matter of Punit Garg v.
Ericsson India (P.) Ltd. in I.A. No. 637 of 2019 in Company Appeal (AT) (Insolvency)
Nos. 257-258 of 2018 in the matter of Satish Seth v. Ericsson India (P.) Ltd. and in I.A.
No. 638 of 2019 in Company Appeal (AT) (Insolvency) Nos. 259-260 of 2018 in the
matter of Suresh Madihally Rangachar v. Ericsson India (P.) Ltd. wherein this
'Appellate Tribunal' observed as under :-
"45. In view of the observations made above, in an appeal filed under section 61 of the 'I&B Code',
no direction can be given to any party to the settlement (particularly the third party) to perform
certain duties to ensure settlement between other parties."

(emphasis supplied)

♦ Similarly, this 'Appellate Tribunal' also take note of its earlier order, where it has
been held that an investor in a 'Corporate Debtor' cannot claim to be an
'aggrieved person' for preferring an appeal against an order against insolvency
petition in Company Appeal as held in the matter of Anant Kajare v. Eknath Aher
[2018] 89 taxmann.com 453 (NCLAT - New Delhi) wherein the relevant para reads
as under :-

"4. Heard learned counsel for the Appellant. Admittedly, the Appellant is an Investor therefore, the
Appellant cannot claim to be an 'aggrieved person' for preferring appeal against the order dated 2nd
May, 2017 passed by Adjudicating Authority whereby the application under section 9 of the 'I&B
Code' was admitted. In fact, the Appellant being an investor is entitled to file its claim before the
'Insolvency Resolution Professional."

(Emphasis Supplied)

♦ The term 'investor' has not been defined in the I & B Code, 2016 as well as in the
Companies Act, 2013. A reference, therefore, has been made to 'Investopedia'
where investor has been defined as under :-

"What Is an Investor?
An investor is any person or other entity (such as a firm or mutual fund) who commits capital with
the expectation of receiving financial returns. Investors rely on different financial instruments to
earn a rate of return and accomplish important financial objectives like building retirement
savings, funding a college education, or merely accumulating additional wealth over time.

A wide variety of investment vehicles exist to accomplish goals, including (but not limited to) stocks,
bonds, commodities, mutual funds, exchange-traded funds (ETFs), options, futures, foreign
exchange, gold, silver, retirement plans, and real estate. Investors can analyze opportunities
from different angles, and generally prefer to minimize risk while maximizing returns.

Investors typically generate returns by deploying capital as either equity or debt investments.
Equity investments entail ownership stakes in the form of company stock that may pay
dividends in addition to generating capital gains. Debt investments may be as loans
extended to other individuals or firms, or in the form of purchasing bonds issued by
governments or corporations which pay interest in the form of coupons."

(emphasis supplied)

♦ Therefore, a shareholder is also technically speaking an "investor"/"owner", who

owns limited investment in the company to the extent of share capital
subscribed by him. Therefore, the judgment of Anant Kajare (supra) is applicable
in the present appeal as discussed in preceding paragraphs.
 ♦ This 'Appellate Tribunal' carefully examined the averments made on behalf of the
'Appellants' that this 'Appellate Tribunal', has already allowed such appeals in
cases of P. Naveen Chakravarthy (supra) where it has been held that the right of a
shareholder of a 'Corporate Debtor' is not jeopardized in so much as a
shareholder can espouse their cause qua the 'Corporate Debtor' while seeking to
right a perceived wrong. This 'Appellate Tribunal' also examined citations quoted
by the 'Appellants' in the case of Periasamy Palani Gounder (supra), wherein this
'Appellate Tribunal' has held that nothing prevents a shareholder from
producing evidence to establish the illegality in the 'Corporate Insolvency
Resolution Process'.

♦ However, this 'Appellate Tribunal' after careful considerations of these

`Citations/Judgments', comes to the conclusion that these cases are not directly
connected or similar to the present `Appeal', and therefore, it is not of any
assistance to the `Appellants'.

♦ Having considered all the averments made by the 'Appellants' as well as the
'Respondents', including various Written Submissions made available to this
'Appellate Tribunal' and after careful consideration of various judicial
pronouncements of the Hon'ble Supreme Court of India as well as this 'Appellate
Tribunal', comes to concrete conclusion without any hesitation that in the
present `Appeals', the 'Appellants' do not have any `Locus', and therefore the
present `Appeals', are `not maintainable'. This 'Appellate Tribunal', therefore,
does not find any `Error'/`Legal Infirmity', in the 'impugned order', on this issue.

♦ Having decided the non-maintainability of the `Appeals' itself, this 'Appellate

Tribunal', has not traversed on any other issues, touching upon the `Appeal', as it
is unnecessary to go into the same and as such, they have not been discussed.
89. In fine, the `Appeals' fail and are dismissed. No costs. The connected `Pending Interlocutory
Applications', if any, are closed.

ANNEX

[2023] 151 taxmann.com 175 (NCLT-Bang.)

NATIONAL COMPANY LAW TRIBUNAL, BENGALURU BENCH

Sunstar Hotels & Estates (P.) Ltd. v. McDowell Holdings Ltd.

AJAY KUMAR VATSAVAYI, JUDICIAL MEMBER

AND MANOJ KUMAR DUBEY, TECHNICAL MEMBER

CP (IB) NO. 11/BB/2022
I.A NOS. 86 & 87 OF 2022

APRIL 8, 2022
Rahul Balaji, A S Vishwajith, Srinivasa Raghavan, Sr. Counsel, Joy Saha, Sr. Counsel and Ms.
Urmila Chakraborthy, for the Appearing Parties. .

ORDER

Ajay Kumar Vatsavayi, Judicial Member. - The present Petition is filed, under section 7 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as TBC/Code') by M/s. Sunstar
Hotels and Estates Private Limited (hereinafter referred to as 'Applicant/Financial Creditor') to
initiate the Corporate Insolvency Resolution Process ('CIRP') against M/s. McDowell Holdings
Limited (hereinafter referred to as 'Respondent/Corporate Debtor).

2. The Corporate Debtor namely M/s. McDowell Holdings Limited is a Company incorporated on
1-3-2004 under the provisions of the Companies Act, 1956 with CIN:L05190KA2004PLC033485
having its registered office at UB Towers, Levels 12, UB City, 24, Vittal Mallaya Road, Bangalore
560 001, which falls within the territorial jurisdiction of this Adjudicating Authority. The Nominal
Capital of the Respondent/Corporate Debtor is Rs. 15,00,00,000/- and the Paid-Up Share Capital is
Rs. 13,99,22,580/- as per the Company Master Data attached at Annexure-1 (1) of this application.

3. The present application has been filed by the Financial Creditor against the Corporate Debtor
in respect of the default amount of Rs. 16,80,66,348/- (Rupees Sixteen Crore Eighty Lakhs Sixty Six
Thousand and Three Hundred and Forty Eight only) as on 30-11-2021.

4. It is submitted that the Corporate Debtor had availed InterCorporate Deposit (ICD) from an
entity named Zuari Fertilisers and Chemicals Limited ("ZFCL") which thereafter merged with Zuari
Agro Chemicals Limited ("ZACL"). In order to facilitate a timely repayment of the outstanding sum
of ICD, the corporate debtor entered into a Settlement Agreement dated 17-6-2019 with ZACL
and Mangalore Chemicals and Fertilizers Limited ("MCFL"). As per the arrangement contemplated
in the said settlement agreement, a sum of Rs. 10,60,56,810/-along with the interest, being the
outstanding ICD, was to be repaid in two tranches: (i) By way of sale and transfer to ZACL, 1
1,85,151 shares of MHL in MCFL; and (ii) by procuring release of shares of United Breweries
Limited and amounts realized from the sale of shares of United Breweries Limited.
5. It is further submitted that the interest outstanding as on the date of the agreement was Rs.
8,36,59,986/-. The repayment of borrowings, was to be completed, within a period of 18 months,
which expired on 16-12-2020. However, the Corporate Debtor was unable to comply with the
terms of the said agreement, and thus, sought for an extension of the agreement dated 17-6-
2019, by a further period of one year, vide communication dated 15-12-2020.

6. It is stated that pursuant to the request of the corporate debtor, ZACL extended the time
period of the agreement dated 17-6-2019, such that the term for repayment of the remaining
outstanding ICD was modified as 24 months and obligations therein were to be complied with, by
16-9-2021. As per the modified terms of the agreement, the corporate debtor, was required to
make payment towards (i) the remaining sum due consisted of Rs. 5,68,13,785.95/-, (ii) interest of
Rs. 7,38,11,381.19/- and (iii) interest accrued on the sum outstanding from completion of
payment of tranche 1. However, despite the extended timelines, the corporate debtor was
unable to meet the repayment obligations towards ZACL and requests for such further extension
of time by the Corporate Debtor, were rejected by ZACL.
7. It is further stated that the financial creditor had entered into discussions with ZACL and the
corporate debtor, to restructure the repayment obligations and to take over the rights of ZACL.
As per the arrangement the financial creditor was to discharge the entire liability of the
corporate debtor and step into the shoes of ZACL and claim repayment from the corporate
debtor. The terms of the said arrangement were crystallised into a formal agreement dated 19-
11-2021. As per the said agreement, the financial creditor was required to remit the outstanding
sum within 7 calendar days from 19-11-2021 and upon receipt of the said sum, ZACL had agreed
to discharge corporate debtor of its obligations under the earlier agreement dated 17-6-2019.
However, upon clearing the sums owed by the corporate debtor, the applicant herein, would be
subrogated to all of the rights of ZACL for recovery of the dues from the corporate debtor.

8. It is further submitted that as per the said arrangement, the financial creditor had remitted all
the sums outstanding, to the account of the corporate debtor on 20-11-2021, which has also
been acknowledged by ZACL, vide communication dated 26-11-2021. Therefore, by virtue of
clearing the outstanding sums, the financial creditor, has automatically stepped into the shoes of
ZACL and has acquired the rights to enforce recovery of the borrowings of the corporate debtor
and it had agreed to repay the sums due, by 30-11-2021.

9. Further, in addition to the outstanding ICD granted by the Zuari group, the financial creditor
had also advanced a sum of Rs. 1,50,00,000/- (Rupees One Crore and Fifty Lakhs Only) as an Inter -
Corporate Deposit, vide Agreement dated 20-10-2021, at an interest rate of 18% p.a., with
repayment of 4 weeks. However, the Corporate Debtor, not only failed to repay the sums due to
the Financial Creditor pursuant to the Agreement dated 19-11-2021 but also defaulted in
repayment of the Inter -Corporate Deposit made vide Agreement dated 20-10-2021.

10. The financial creditor issued a demand notice dated 10-12-2021, through its counsel,
demanding the repayment of sums at the earliest. In response thereto, the corporate debtor
addressed a reply dated 15-12-2021 to the Financial Creditor, seeking further time to remit the
sums due, citing the reasons of operational difficulty and the pandemic related restrictions.
Pertinently, there is no dispute on the sums claimed to be due in as much as the corporate
debtor has admitted to the outstanding obligations towards the financial creditor in its
communication dated 15-12-2021.

11. On 17-2-2022, after hearing the learned Counsel appearing for the Petitioner, notices were
directed to be issued to the Respondent/Corporate Debtor. The learned Counsel who appeared
for the Respondent/Corporate Debtor, on receipt of the advance notice, accepts notice in the
C.P. On the same day, since the Respondent/Corporate Debtor admitted the debt and default
thereon, in order to examine the financial position of the Corporate Debtor and its obligations
towards any other Creditors, it was directed to file a short affidavit with regard to the various
litigations pending including the claims from the cases, if any, filed by any Secured and
Unsecured Creditors against the Corporate Debtor. The Respondent/Corporate Debtor was also
directed to file its latest financials and also the copy of the order of NCLT in CP (IB) No.
57/BB/2019.
12. Accordingly, the Respondent/Corporate Debtor filed the compliance affidavit vide Diary No.
771 dated 25-2-2022. The relevant paragraphs of the said affidavit reads as under:
"(a) Pending action against the Corporate Debtor from secured and/or unsecured creditors.

4. The Corporate Debtor has two other creditors apart from the Applicant to this petition -
Pixie Enterprises Private Limited and UB Infrastructure Projects Limited. Both Creditors were
unsecured creditors. While the former is owned INR 99.49 Lakhs as on 17th February 2022,
the latter is owed INR 19.54 Lakhs as on 17th February 2022. That said none of these
creditors have initiated any action against the Corporate Debtor.
(b) Status of proceedings initiated by the Enforcement Directorate against the Corporate
Debtor.

5. Proceedings before the Enforcement Directorate is below:

A. Case No. F.No ECIR/03/MZO/2016 in the matter of Kingfisher Airlines Limited and Vijay
Mallya.

i. In the aforesaid case, the Enforcement Directorate ('ED') issued letters/orders dated 12
May 2016 to United Breweries Limited. (UBL) and United Breweries (Holdings) Limited
("UBHL") directing them not to allow the Corporate Debtor to sell/alienate/create third party
mortgage rights in any manner on the shares of such investee companies. I state that the
Corporate Debtor is an unconnected and independent company, and it is the Corporate
Debtor's stand that the ED has no case against the Corporate Debtor. The ED has also issued
letter dated 12 September 2016 to Yes Bank Limited with similar directions. I understand that
ECL Finance Limited has also received similar instructions from the ED. As a result, by virtue
of these proceedings, 63, 45, 011 shares of UBL held by the Respondent have been attached
by the ED in the following manner:

(a) 45,51,000 shares of UBL, lying in the Respondent's Demat account, were pledged in favour
of erstwhile lenders being Yes Bank Limited and ECL Finance Limited.' Based on the
Respondent's records, currently no dues are outstanding to these lenders. However, the
lenders have not released the pledge on these shares pursuant to the directions of the ED,
despite Respondent's follow up.

(b) Further 1,22,667 shares of UBL pledged to the above lenders are still lying in the demat
accounts of the said lenders. The Respondent understands from these lenders that pursuant
to the directions of ED, these shares will not be released by the lenders.
(c) Additionally, the ED unilaterally transferred 16,71,344 shares to its own demat account
from the demat account of the Respondent in May 2018. To the best of the Respondent's
knowledge, these shares were later transferred to the Hon'ble Debt Recovery Tribunal by the
ED pursuant to the order of the PMLA court dated 31 December 2019 (mentioned as 04
January 2020 in the ED's letter dated 2 September 2021 to the Respondent) in Cri. Misc. Appl
58/2019 involving the lending banks of Kingfisher Airlines and Dr. Vijay Mallya.

B. Cri. Misc. Appl. 854/2018

i. The Respondent had received a Show Cause Notice dated 3 July 2018 under the Fugitive
Economic Offenders Act 2018 (FEOA) as an interest person (and not as an Accused) to show
cause as to why the Respondent's investments in UBL and UBHL should not be confiscated
under the FEOA. The Respondent has filed its objections in the designated court for FEOA,
Mumbai stating that the Respondent is in no way connected to Dr. Vijay Mallya - the Accused
under the FEOA proceedings. The Respondent specifically contended that Accused is neither
a majority shareholders (given that he holds 2 shares only) nor a director or key Managerial
Personnel of the Respondent. The matter is still pending.

C. Cri. Misc. Appl 19/2016 in Cri Misc. 8/2016 in ECIR NO. ECIR/03/MBZO/2016

i. In a separate proceeding before the court of Special Judge for Prevention of Money
Laundering Act, 2002 (PMLA) an individual promoter (Dr. Vijay Mallya) of the Respondent has
been declared as a proclaimed offender. Pursuant to this declaration, the Respondent's
investments in UBL and UBHL have attached under the PMLA by the order dated 10
November 2016.

(c) Latest financial statements.

6. As directed by this Hon'ble Tribunal, the unaudited financial results of the Respondents for
the quarter ended 30 September 2021 and the Limited Review Report of the Statutory
Auditors for the quarter ended 30 September 2021 as filed with Bombay Stock exchange
Limited and the National Stock Exchange of India Limited on 27 January 2022 under
Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulation 2015
are annexed as Annexure A.

(d) Order of this Hon'ble Tribunal in CP (IB) No. 57/BB/2019

7. The Order dated 23 July 2019 passed by this Hon'ble Tribunal in CP (IB) No. 57 of 2019 (M/s.
Zuari Agro Chemicals Limited v. M/s. McDowell Holdings Limited) whereby this Hon'ble Tribunal
disposed of the petition by recording the settlement agreement dated 17th June 2019 is
annexed as Annexure B.

e) Any other information.

8. The Respondent's demat account maintained with Stock Holding Corporation of India was
suspended for debit on the instructions of the ED since 29 July 2019. The Respondent has
filed submissions with the ED seeking removal of this attachment. The ED issued summons
thereafter, and, pursuant to the summons, the Respondent made submissions. The matter
is pending. That apart, with effect from 18 February 2022, the trading in securities of the
Respondent has been suspended by the National Stock Exchange of India for non-
compliance with SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015. A
copy of the circular dated 18 January 2022 issued by the National Stock Exchange of India is
annexed as Annexure C.

9. Due to the attachment of the assets of the Respondent by the ED, the Respondent is
unable to meet its expenses and generate funds. The investments of the respondent are yet
to be unfrozen by the ED with no clear timelines in the horizon. The financial substratum of
the Respondent, as a result, is not sufficient to pay off all its debts. The Respondent is not
able to function with its complete capacity and it is not able to mobilize funds to pay off its
liabilities.

10. The following are the details of the assets and liabilities as at 30 September 2021.
 Sl. No. Particulars Amount
LIABILITIES
1. Long-Term Borrowings -
2. Short-Term Borrowings 1484.15
3. Other Current Liabilities 106.67
4. Long-Term Provisions -
5. Short-Term Provisions 1.04
6. Trade Payables 92.70
TOTAL 1684.53
ASSETS
1. Tangible Assets 0.06
2. Intangible Asset -
3. Investment (free from attachment) 0.00
4. Cash and Bank Balance 3.31
5. Short-term loans and advances 4.14
6. Trade Receivables -
7. Other Non-Current Assets 189.30
8. Other Current Assts -
TOTAL 196.81

Note: Attached investment Market Value is Rs. 100629.28 Lakhs (as on 30 September 2021)

11. To reiterate, the assets of the Respondent which would have generated revenue/income
have been attached by statutory authorities. The Respondent is undergoing severe financial
constraints due such attachments. Further, the Respondent has also been incurring losses.
12. As a result, the Respondent does not have the required liquidity to meet the dues of the
Applicant for the foreseeable future and repay the amount. The Respondent has many non-
statutory liabilities in existence, which the Respondent is not in position to pay. Further,
there are no liquid assets to pay off the debts of the company. Due to the absence of the
liquid assets, the Respondent will not be able to honour any payments with respect to the
existing debts in the near future. In these circumstances, I am constrained to state that the
Respondent cannot repay the sums owed to the Applicant.

13. Consequently, as the Company has been facing many difficulties due to financial stress it
is under, this Hon'ble Tribunal may pass appropriate orders in the application filed by the
Applicant."

13. At this stage Shri Nirej Vadakkedathu Paul and 8 Ors. filed LA No. 86 of 2022 seeking to
intervene in CP (IB) No. 11 of 2022 and to declare the C.P. amounts to fraudulent and malicious
initiation of proceedings under the IBC. Similarly, Mr. Kushal Sengupta and 8 Ors. filed LA No. 87
of 2022 also seeking for intervention and dismissal of the C.P (IB) No. 11 of 2022.

14. Heard Shri Srinivasa Raghavan, learned Senior Counsel for the Applicants in LA No. 86 of 2022
and Shri Joy Saha, learned Senior Counsel along with Ms. Urmila Chakraborthy, learned Counsel
for the Applicants in LA No. 87 of 2022 and Shri Rahul Balaji, learned Counsel for the Petitioner in
the C.P. and Shri A S Vishwajith, learned Counsel for the Respondent in the C.P.

15. The Applicants in the LA No. 86 of 2022 and also the Applicants in LA No. 87 of 2022 claiming
to be the shareholders of the Respondent/Corporate Debtor Company raised the following
grounds in support of the Interlocutory Applications:

1. The Deponent of the affidavit filed on behalf of the Corporate Debtor Company has no
authority to file the same.

2. The person authorised the learned Counsel who appeared for the Corporate Debtor, has
no power or authority to authorise him as such.

3. The Corporate Debtor is not an insolvent Company and it has sufficient means to repay
the debt of the Petitioner.
4. The C.P. has been filed due to fraud and collusion between the Petitioner and the
Respondent/Corporate Debtor.

16. On the other hand, the Petitioner/Financial Creditor opposed the I.As, on the ground that
they are not maintainable.

17. The compliance affidavit filed by the Corporate Debtor vide Diary No. 771 dated 25-2-2022 was
accompanied with the affidavit dated 24-2-2022 of one Shri G Sreenivas claiming to be the Deputy
General Manager of the Respondent/Corporate Debtor. The said Deponent filed the certified
extract of the resolution passed by the Board of Directors of the Respondent/Corporate Debtor
at their meeting held on 27-1-2022, where under it was resolved to authorise the said Shri G
Sreenivas, Deputy General Manager of the Respondent Company to execute/sign/file pleadings,
petitions, affidavits before all Courts and Tribunals in the Country any action brought against the
Company, including before the National Company Law Tribunal. The said compliance affidavit
was also enclosed with the authorisation in favour of Shri A S Vishwajith, learned Counsel
appearing for the Respondent/Corporate Debtor, duly signed by Shri G Sreenivas who was
authorised to do so by the Board of the Respondent/Corporate Debtor, under the seal of the
Respondent Company. The Applicants in these I.As, except contending that the Deponent of the
affidavit filed on behalf of the Respondent/Corporate Debtor and the learned Counsel appearing
for the Respondent/Corporate Debtor have no valid authorisation to act as such, failed to show
any other valid document in support of their submissions, in the absence of the same, the
certified extract of the Resolution of the Board of Directors of the Corporate Debtor dated 27-1-
2022 in favour of Shri G Sreenivas i.e. Deponent of the affidavit filed on behalf of the
Respondent/Corporate Debtor and the authorisation given by the said Shri G Sreenivas in favour
of Shri A S Vishwajith, learned Counsel appearing for the Respondent/Corporate Debtor shall
have to be treated as valid and sufficient documents to enable them to represent the Corporate
Debtor. Accordingly, the ground Nos. 1 and 2 raised by the Intervening Applicants are rejected.
18. The Hontile Supreme Court of India in M/s. Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84
taxmann.com 320/143 SCL 625 (SC) observed as under:

"27. The scheme of the Code is to ensure that when a default takes place, in the sense that a
debt becomes due and is not paid, the insolvency resolution process begins. Default is
 defined in section 3(12) in very wide terms as meaning non-payment of a debt once it
becomes due and payable, which includes non-payment of even part thereof or an
instalment amount. For the meaning of "debt", we have to go to section 3(11), which in turn
tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning
of "claim", we have to go back to section 3(6) which defines "claim" to mean a right to
payment even if it is disputed. The Code gets triggered the moment default is of rupees one
lakh or more (section 4). The corporate insolvency resolution process may be triggered by
the corporate debtor itself or a financial creditor or operational creditor. A distinction is
made by the Code between debts owed to financial creditors and operational creditors. A
financial creditor has been defined under section 5(7) as a person to whom a financial debt is
owed and a financial debt is defined in section 5(8) to mean a debt which is disbursed against
consideration for the time value of money. As opposed to this, an operational creditor
means a person to whom an operational debt is owed and an operational debt under
section 5 (21) means a claim in respect of provision of goods or services.

28. When it comes to a financial creditor triggering the process, section 7 becomes relevant.
Under the explanation to section 7(1), a default is in respect of a financial debt owed to any
financial creditor of the corporate debtor - it need not be a debt owed to the applicant
financial creditor. Under section 7(2), an application is to be made under sub-section (1) in
such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a
financial creditor in Form 1 accompanied by documents and records required therein. Form
1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars
of the corporate debtor in Part II, particulars of the proposed interim resolution professional
in part III, particulars of the financial debt in part TV and documents, records and evidence of
default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed
with the adjudicating authority by registered post or speed post to the registered office of
the corporate debtor. The speed, within which the adjudicating authority is to ascertain the
existence of a default from the records of the information utility or on the basis of evidence
furnished by the financial creditor, is important. This it must do within 14 days of the receipt
of the application. It is at the stage of section 7(5), where the adjudicating authority is to be
satisfied that a default has occurred, that the corporate debtor is entitled to point out that a
default has not occurred in the sense that the "debt", which may also include a disputed
claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the
adjudicating authority is satisfied that a default has occurred, the application must be
admitted unless it is incomplete, in which case it may give notice to the applicant to rectify
the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-
section (7), the adjudicating authority shall then communicate the order passed to the
financial creditor and corporate debtor within 7 days of admission or rejection of such
application, as the case may be."

19. In view of the above enunciation of law, it is sufficient for this Adjudicating Authority in order
to accept or reject the Application filed u/s. 7 of the IBC, 2016, if the debt and default are proved.
In the instant case, when the learned Counsel appearing for the Respondent/Corporate Debtor,
on the first instance itself, admitted the debt and default and not opposed the admission of the
C.P. and initiation of CIRP proceedings against it, to find out the bona fides of the
Respondent/Corporate Debtor in stating so and also to find out whether the Petitioner and the
Respondent/Corporate Debtor colluded in any manner, to avoid the legitimate dues to any other
Secured or Unsecured Creditors, this Adjudicating Authority directed the Respondent/Corporate
Debtor to file an affidavit with regard to the various litigations pending including the claims from
the cases filed by any Secured and Unsecured Creditors against the Corporate Debtor. For the
same purpose, the Corporate Debtor was also directed to file its latest financials and a copy of
the order of the NCLT in CP (IB) No. 57/BB/2019. In response thereto, the Corporate Debtor filed
an affidavit and the contents of the same were already extracted as above. A careful examination
of the same reveals that there was no reason to disbelieve the contents of the same. Admittedly,
no Secured or Unsecured Creditor initiated any proceedings against the Corporate Debtor for
recovery of its debts. The pendency of the proceedings initiated by the Enforcement Directorate
against certain other Companies, or any order passed thereon, doesn't preclude the Financial
Creditor from genuinely seeking initiation of CIRP against the Corporate Debtor, if its debt was
under default by the Corporate Debtor. The interveners have not disputed the debt and default
in any manner. It is also not in dispute that all the properties of the Corporate Debtor are under
orders of attachment. Even otherwise, it is the settled principle of law that once the debt and
default are proved, the solvency of the Corporate Debtor, will not come in the way of the
admission of an Application under section 7 of the I&B Code, 2016. In view of the same, we reject
the ground Nos. 3 & 4 of the Intervening Applicants.

20. It is the case of the Intervening Applicants that they are holding certain shares in the
Respondent/Corporate Debtor Company and if the C.P. is admitted and the Insolvency
Resolution Process is initiated against the Corporate Debtor, their right as shareholders will be
severely affected and their interest will be prejudiced. It is the settled principle of law that in an
Application u/s. 7 of the Code, there is no place for any third party other than the Financial
Creditor and the Corporate Debtor. The Shareholders of the Financial Creditor or of the
Corporate Debtor in their capacity as a shareholder have no locus standi to get themselves
impleaded in the C.P. filed u/s.7 of the IBC, 2016. If any Shareholder of the Financial Creditor or
the Corporate Debtor have any grievances with regard to the representation of the Company in
the C.P., they can agitate their rights as Shareholders under the applicable provisions of the
Companies Act, 2013 but cannot be allowed to be impleaded or intervened in the C.P. This
Adjudicating Authority, while exercising summary jurisdiction such as section 7 of the IBC, 2016,
cannot adjudicate the disputes, if any, inter se, between the Shareholders or Directors of the
Corporate Debtor. Accordingly, both the Interlocutory Applications are dismissed.
21. However, we are conscious of the settled principle of law that fraud vitiates everything. That is
why we have heard the submissions made on behalf of the Applicants in the I.As to examine
whether there was any element of fraud, either in filing the C.P or in admitting the debt and
default by the Respondent. Similarly, for the same purpose, though the Respondent/Corporate
Debtor admitted the debt and default, we have directed it to file the affidavit indicating various
litigations including the claims from the cases filed by any Secured and Unsecured Creditors of
the Corporate Debtor. Again for the same purpose, we have directed the Corporate Debtor to file
the latest financials and also the copy of the order of the NCLT in CP (IB) No. 02/BB/2017 dated 9-
8-2019. Nothing is coming out of the same or from any document filed by any of the intervenors,
which can be termed as fraud or collusion in either filing the C.P. or in admitting the debt or
default by the Corporate Debtor.

22. Section7(5)(a) of the Code is as follows:-

"(5) Where the Adjudicating Authority is satisfied that-

(a) a default has occurred and the application under sub-section (2) is complete, and there is
no disciplinary proceedings pending against the proposed resolution professional, it may, by
order, admit such application."

23. In the present case, the occurrence of default is evidenced by the details furnished by the
Petitioner including the record of financial information (Form -C) issued by NESL in respect of the
debt of the Corporate Debtor, (enclosed at Page 175 of this Petition).

24. The other issue for consideration is whether present application is filed within limitation. The
date of default of the debt is well within the 3 years period from the date of filing of the C.P.
Therefore, the Petition has been filed within the period of limitation.

25. The respondent corporate debtor in his reply filed in the C.P, admitted the debt and its
inability to pay the same to the applicant.

26. The application filed in the prescribed Form No. 1 is found to be complete.

27. In the given facts and circumstances, the present petition being complete and having
established that the default in payment of the Financial Debt for the default amount of above Rs.
1,00,00,000/-, the petition is admitted in terms of section 7(5) of the IBC and accordingly,
moratorium is declared in terms of section 14 of the Code. As a necessary consequences of the
moratorium in terms of section 14, the following prohibitions are imposed, which must be
followed by all and sundry:

(a) The institution of suits or continuation of pending suits or proceedings against the
Corporate Debtor including execution of any judgment, decree or order in

(b) any court of law, tribunal, arbitration panel or other authority;

(c) Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its
assets or any legal right or beneficial interest therein;

(d) Any action to foreclose, recover or enforce any security interest created by the
Corporate Debtor in respect of its property including any action under the
Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002;

(e) The recovery of any property by an owner or lessor, where such property is occupied by
or in the possession of the Corporate Debtor;

(f) It is further directed that the supply of essential goods or services to the Corporate
Debtor as may be specified, shall not be terminated or suspended or interrupted during
the moratorium period;
 (g) The provisions of section 14(3) shall however, not apply to such transactions as may be
notified by the Central Government in consultation with any financial sector regulator
and to a surety in a contract of guarantee to a Corporate Debtor;

(h) The order of moratorium shall have effect from the date of this order till completion of
the Corporate Insolvency Resolution Process or until this Bench approves the
Resolution Plan under sub-section (1) of section 31 or passed an order for liquidation of
Corporate Debtor under section 33 as the case may be;
28. In Part-Ill of Form No. l, Mr. Konduru Prasanth Raju bearing Registration No. IBBI/IPA-002/IP-
N00708/2018-2019/12200 has been proposed as Interim Resolution Professional (IRP). Form No. 2
dated 1-2-2022 has been filed along with the C.P are found at Page Nos.l66-169A of the Petition.
The Law Research Associate of this Tribunal has checked the credentials of Mr. Konduru
Prasanth Raju and there is nothing adverse against him. In view of the above, we appoint Mr.
Konduru Prasanth Raju bearing Registration No. IBBI/IPA-002/IP-N00708/2018-2019/12200, having
registered address at B-804, Shriram Suhaana Apartments, Harohalli, Nagenahalli Gate,
Yelahanka, Bangalore 560064, email- ipkpraju@gmail.com and Contact No. 9980591019, as the
Interim Resolution Professional. The IRP is directed to take the steps as mandated under the IBC,
specially under sections 15, 17, 18, 20 and 21 of IBC, 2016.

29. The Interim Resolution Professional shall after collation of all the claims received against
Corporate Debtor and the determination of the financial position of the Corporate Debtor
constitute a Committee of Creditors and shall file a report, certifying constitution of the
Committee to this Tribunal on or before the expiry of thirty days from the date of his
appointment, and shall convene first meeting of the Committee within seven days for filing the
report of Constitution of the Committee. The Interim Resolution Professional is further directed
to send regular progress reports to this Tribunal every fortnight.

30. A copy of the order shall be communicated to both the parties. The learned Counsel for the
Petitioner shall deliver copy of this order to the Interim Resolution Professional forthwith. The
Registry is also directed to send the copy of this order to the Interim Resolution Professional at
his e-mail address forthwith.
LOVELY

† Arising out from order of NCLT - Bengaluru in Sunstar Hotels & Estates (P.) Ltd. v. Mc Dowell
Holdings Ltd. [2023] 151 taxmann.com 175.