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Title: Whether non-disclosure of facts beyond the statutory
requirement under the Code can be a ground to dismiss an application for
initiation of Corporate Insolvency Resolution Process? – M/s. Unigreen Global Pvt. Ltd. v. PNB and Ors.

M/s. Unigreen Global Private Limited v. Punjab National Bank
and Others (Company Appeal (AT) (Insolvency) No. 81 of 2017)

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Financial Creditor: Punjab National Bank
& others

Corporate Debtor: Unigreen Global Pvt. Ltd.
(Applicant)

Amount of Default: Rs. 100 Crore

Forum: NCLAT

Judgment delivered on: 01st December, 2017

Ratio: If complete information is provided by
a Corporate Debtor as required under Section 10 and Form 6 of the Code and if
the applicant is otherwise not ineligible under Section 11 of the Code, the Adjudicating
Authority shall be bound to admit the application and cannot reject the
application on any other ground.

Background:

The NCLAT in its order Innoventive Industries Ltd. Vs. ICICI Bank and Ors.1
has
outlined objects and reasons of The Insolvency and Bankruptcy Code, 2016(Code)2. The objective of
the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws
relating to reorganization and insolvency resolution of corporate persons,
partnership firms and individuals in a time bound manner for maximization of
value of assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders including alteration
in the priority of payment of government dues and to establish an Insolvency
and Bankruptcy Fund, and matters connected therewith or incidental thereto.(Para12)

Facts:

Corporate Debtor, Unigreen
Global Private Limited was incorporated on 13th June, 2008 as a
Private Limited Company with Registrar of Companies, N.C.T. Delhi & Haryana.
To set up the business, Corporate Debtor took heavy loans in excess of Rs. 100
crores from Financial Creditors, namely Punjab National Bank and 3 others. The
loan was been acquired against 4 immovable properties as securities deposited
with the bank.  In the wake of losses,
the Corporate Debtor applied for initiation of Corporate Insolvency Resolution Process
(CIRP) u/s. 10 of the Code.

The notice of the said application was served
to the Creditors so that it can be ascertained if they had any objection in
relation to the initiation of CIRP. Perusal to which several objections were
raised by Punjab National Bank that the petitioners have not came with
disclosure of full facts in relation to the assets mortgaged or the securities furnished.
The same were entangled in legal web by the owners themselves to sustain the possession of the properties.
Corporate Debtor has also filed a suit u/s. 17 of The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against the
sale of the mortgaged properties.

NCLT(Mumbai Bench) Order3:

The NCLT observed there are
suit in existence with respect to Khasi Baoli Property, titled Mayank Maheswari v. Anurag Garg4
and another with respect to the S.A. filled before DRT III in Punjab National Bank v. Unigreen Global
Private Ltd.5 In which the court
appointed the receiver to take the possession of the property, and the initiation
of CIRP is only an abuse of process of law. There also exists a civil suit for
permanent and mandatory injunction with respect to Defence Enclave Property in Sh. Jagat Nath Mahto v. Vedika Overseas
Tradex (P) ltd.6

The NCLT observed that
admission of the CIRP application would induce a moratorium on all other legal
actions and the Creditor would unjustly be stayed from taking possession of the
secured assets for a period of at least six months. The NCLT opined that non-disclosure
of these informations results in the fraudulently or with malicious intent for any purpose other
than for the resolution of insolvency, or liquidation, as the case may be.

Thus, NCLT accordingly dismissed the CIRP
application and imposed a penalty of Rs. 10,00,000/- on Unigreen and its directors
u/s. 65 of the Code.

NCLAT Decision7:

The appeal has been
preferred by the Corporate Debtor against the order passed by the Adjudicating Authority
against rejection of application filled u/s. 10 of the Code in Form 6 of
the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016. The questions involved in the appeal were:

i.                   
Whether non-disclosure of facts beyond the statutory
requirement under the Code read with relevant Form 6, can be a ground to
dismiss an application for initiation of Corporate Insolvency Resolution Process?
And;

ii.                 
Whether the penalty imposed by the Adjudicating Authority
under Section 65 of the Code is legal or not?

The Adjudicating Authority had noticed
unrelated facts, which were not required to be disclosed in terms of Section 10
or Form 6 and as the suits mentioned by the Financial Creditor also relates to
third party suit or proceeding, and not the Corporate Debtor. It was held that
if the application u/s. 10 is complete and in absence of any ineligibility of
appellant u/s. 11, it was incumbent on the part of the Adjudicating Authority
to admit the appeal, having no jurisdiction to notice unrelated facts beyond
the requirement under Code as followed in Leo Duct Engineers
& Consultants Ltd. V. Canara Bank & Anr8.

The main plea taken by the Corporate Debtor
is that initiation of proceedings under the SARFAESI Act cannot be a ground to
reject an application under Section 10, 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 u/s. 7(5) of the code.9

NCLAT, drew a comparison
between Section 7 and Section 10 of the Code and concluded that sub-section (4)
of Section 7 is similar to sub-section (4) of Section 10. Thus, the two factors
which are common under Section 7 and 10 of the Code are (i) there should be a
debt due; and (ii) there should be a default in payment of such debt.

It is also desirable to refer to Section 238
of Code:

“S.238
The provisions of this Code shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in force
or any instrument having effect by virtue of any such law”

In view of the aforesaid provision also, the
Code shall have the effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force including DRT Act, 1993;
SARFAESI Act, 2002; money suit etc.

The NCLT has erred in its order to impose
fine u/s. 65 upon Corporate Debtors reading that Corporate Debtors had filed
the petition for initiation of proceeding “fraudulently” or “with malicious
intent”, but that is not true. Applicants had approached the Adjudicating
Authority with sole honest motive to initiate the process of CIRP.

Based upon the above
conclusions, NCLAT set aside the judgment of NCLT, Mumbai Bench, and remitted
the application of Unigreen back to NCLT for consideration.

 

 

 

 

Pintu Babu, 3rd year law student at Hidayatullah
National Law University, Naya Raipur(C.G.)

[email protected], M:+91-7906721265

1 Innoventive Industries Ltd. Vs. ICICI Bank
and Ors, 2017 SCC online SC 1025

2 The Insolvency and Bankruptcy Code, 2016 No. 31 of 2016,
Passed on 28th May, 2016

3M/s. Unigreen Global Private
Limited v. Punjab National Bank and Others, 8th May, 2017
http://www.ibbi.gov.in/8thMay2017_in_the_matter_of_Unigreen_Global_Pvt_Ltd_CP_No_39PB2017.pdf

4 Mayank Maheswari v. Anurag
Garg, Csdj/0000/947/2017

5 Punjab National Bank v.
Unigreen Global Private Ltd, No.146/2017/DRT-III

6 Sh. Jagat Nath Mahto v.
Vedika Overseas Tradex (P) ltd, No.9398/2016

7 M/s. Unigreen Global Private
Limited v. Punjab National Bank and Others, 1st December,
2017 http://nclat.nic.in/final_orders/Principal_Bench/2017/insolvency/01122017AT812017.pdf

8 Leo Duct Engineers & Consultants Ltd. V.
Canara Bank & Anr. Company Appeal (AT) (Insolvency) No. 100 of 2017

9 Supra 3

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