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Manish Soni v. Concept Eduventures Pvt Ltd And Amit Pareek, RP
Factual and Procedural Background
This opinion concerns an unnumbered application filed under Section 70 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) by the Resolution Professional (RP). The applicant sought initiation of contempt proceedings against the Directors of the suspended Board of the Corporate Debtor (respondents 1 and 2) for failing to hand over documents and assets despite an earlier undertaking given before the Adjudicating Authority (AA) on 19.03.2020. The applicant alleged that this non-cooperation hindered the completion of the time-bound Corporate Insolvency Resolution Process (CIRP), which had already exceeded 100 days. The matter was heard via Video Conference due to the prevailing COVID-19 lockdown. Respondent 2 appeared through counsel, respondent 1 did not appear despite notice. The RP pressed for penalties and directions for handing over possession of assets and documents.
Legal Issues Presented
- Whether penal action under Section 70 of the I&B Code can be initiated against the respondents for non-compliance with the undertaking given to the AA.
- Whether the application under Section 70 of the I&B Code is maintainable in the circumstances where the alleged offences were committed post the insolvency commencement date.
- Whether the Adjudicating Authority can issue directions under Section 19(2) of the I&B Code and Rule 11 of the NCLT Rules to ensure cooperation and handing over of assets and documents by the respondents.
Arguments of the Parties
Applicant's Arguments
- The respondents disobeyed their undertaking given before the AA and failed to hand over the assets and documents of the Corporate Debtor, including lease deeds and rental agreements.
- Despite repeated requests, including as recent as 21/05/2020, the respondents refused to cooperate or hand over possession.
- The applicant pressed for initiating contempt proceedings under Section 70(1) of the IBC against the Directors for this disobedience.
- Prayers included imposition of fines, strict directions to hand over physical possession of assets and documents, provision of accounting data, police assistance, and any other appropriate orders.
Respondent No. 2's Arguments
- Respondent No. 2 submitted that after giving the undertaking, all records in his possession were handed over to the RP on 20/05/2020.
- Some documents remained with the Chartered Accountant's office due to disruption caused by the COVID-19 lockdown and would be handed over once work resumed.
- Two cars in possession of respondent No. 2 would be handed over when the RP was ready to take possession.
- Denied any deliberate violation of the undertaking and asserted that no other assets were in his possession.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Committee of Creditors of Amtek Auto Ltd. through Corporation Bank v. Mr. Dinkar T. Venkatasubramian and Others; Liberty House Group Pte Ltd. v. Mr. Dinkar T. Venkatasubramanian and Others; Liberty House Group Pte Ltd. v. The Committee of Creditors of Amtek Auto Ltd. and Another [Company Appeal (AT) (Insolvency) No. 219 of 2019] | Procedure for filing complaints by RP before AA for offences under Chapter VII of Part II of I&B Code | The court relied on this precedent to hold that complaints alleging offences under Chapter VII must follow the procedure prescribed under Section 74(3) read with Section 213 of the Companies Act, 2013, and cannot be entertained directly under Section 70 by the AA. |
| Lagadapati Ramesh v. Mrs. Ramanathan Bhuvaneshwari [2020] 114 taxmann.com 348 (NCL-AT), Company Appeal (AT) (Insolvency) No. 574 and No. 592 of 2019 | Clarification on procedure under Section 74(3) of I&B Code and Section 213 of Companies Act for offences by officers/directors | The court applied this precedent to confirm that the AA is bound by the NCLAT's ruling that such complaints must be referred appropriately and the AA cannot impose penalty directly under Section 70 for post-insolvency offences. |
Court's Reasoning and Analysis
The court first examined whether Section 70 of the I&B Code applies to the alleged offences. It noted that Section 70(1)(i) applies to offences committed within twelve months immediately preceding the insolvency commencement date, which was not the case here as the allegations arose post CIRP. Section 70(1)(ii) applies to offences committed after the insolvency commencement date. However, the court found that the procedure for initiating action under Section 70 post-insolvency is governed by the procedure laid down by the NCLAT in cited precedents, involving filing complaints under Section 74(3) read with Section 213 of the Companies Act before the AA or NCLT. Therefore, the court held that the present application under Section 70 was not maintainable.
Despite this, the court found that the respondents, particularly respondent No. 2, had not complied with their undertaking and were obstructing the CIRP by withholding assets and documents. The court invoked its powers under Section 19(2) of the I&B Code and Rule 11 of the NCLT Rules to issue directions to the respondents to hand over possession of assets and documents. The court emphasized that non-compliance with these directions could lead to contempt proceedings under the Contempt of Courts Act.
Holding and Implications
The court held that the application under Section 70 of the I&B Code for imposing penalty is not maintainable in this case.
However, the court granted reliefs under Section 19(2) of the I&B Code and Rule 11 of the NCLT Rules, directing the respondents to hand over the two cars, all fixed assets, fixed asset register, and other relevant documents to the Resolution Professional within one week. The RP was authorized to prepare an inventory and obtain any remaining documents or assets thereafter. The court warned that failure to comply with these directions could result in contempt proceedings.
The decision directly affects the parties by compelling compliance with the undertaking and facilitating the progress of the CIRP. The court did not set any new precedent but followed established procedures as clarified by the NCLAT.
Per Shri Jinan K.R., Honble Member (J)
1. This unnumbered application filed u/s. 70 of the I & B Code, 2016came up for consideration today through a Video Conference for hearing. The applicant pressed for initiating contempt proceedings against the Directors of the suspended Board of the Corporate Debtor, who are respondent Nos. 1 and 2.
2. The applicant has prayed for an urgent hearing of the Application on the allegation that the respondents in disobedience of their own undertaking dated 19.03.2020 given before the Adjudicating Authority (AA), failed in handing over the documents and assets in their possession and not cooperating with him to complete the time bound Corporate Insolvency Resolution Process (in short, CIRP), and therefore liable to be punished u/s 70 of the Code. According to him as a result the CIRP could not progress in spite of 100 days having already elapsed. The urgency set out in the application being found satisfactorily explained and since the lockdown due to prevailing pandemic COVID-19 has not been lifted, the unnumbered application was listed on today for hearing through Video Conferencing (VC) by giving advance notice from the Registry to the applicant (Resolution Professional) as well as to the respondents directing them to submits their written notes of defence.
3. Today when this case was taken up for hearing, the applicant appears in person, R2 appears through his Counsel. Despite service of notice, R1 has not turned up.
4. Heard both sides . Perused the documents.
5. The Ld. Pr.CS. Mr. Bishal Harlalka for RP submits that the respondents in disobedience of the undertaking given by the respondent no. 2 in I.A. No. 33/2020 not handed over the assets of the Corporate Debtor and documents inclusive of Lease Deeds and rental agreement etc. He would submit that despite repeated requests lastly on 21/05/2020 the respondents does not care to hand over possession of the assets of the Corporate Debtor and the documents, which he calls for. He pressed for initiating contempt proceedings as well as prayed for the following reliefs: (a) Fines be imposed under Section 70 (1) of IBC 2016 against both the contemnor Mr. Abhijit Dutta & Gautam Saha, residing at2nd Floor, Nirvana Tower, Manik Nagar, R G Baruah Road, Guwahati-781005 having mobile No. 99575-63432 & email id abhimania@gmail.comand at 10th Floor, Subham Heights, A-Akash, Jatia, Kahilipara, Guwahati-781019 mobile No 98640-65887 & Email id gautamsaha70@gmail.com respectively who are the Directors of the suspended Board of CD. have committed acts of contempt as detailed in this application. (b) Strict direction be issued to both the contemnor to hand over the physical possession of all the fixed assets along with fixed asset register and other relevant documents in true and fair manner. (c) Strict directions to both the contemnor to provide or made available all the accounting and other datas, information, documents etc. of CD. (d) To direct the Police Authority to assist the RP in taking the physical possession of all the assets of CD along with books of accounts and other documents. (e) To pass such an order as may be deemed fit and proper.
6. Ld. Counsel Mr. Bikash Sharma, for the respondent no. 2 submits that immediately after the undertaking given to the Adjudicating Authority entire records which were in his possession has been handed over to the Resolution Professional on 20/05/2020 and that there are few documents left with Chartered Accountant (CA) office, which could not handed over because of the disruption of work of CAs office and showed his readiness to hand over the same after lifting of the lockdown and further submitted that two cars in their possession will be handed over whenever the RP is ready to take back possession of the same. According to him other than two cars no assets are in the possession of R2 and that there is no deliberate violation of the undertaking.
7. Upon hearing the arguments on both sides and on perusal of the documents and the averments in the application, I am satisfied that the R2 did not act in compliance with his own undertaking. Admission of possession of some more documents and admitted possession of cars with him indicates that R2 was not acted upon in terms of the undertaking given before the AA. The lame excuse that there is disruption of work of CAs office and therefore the documents left with them could not be collected back and therefore not handed over to the RP is unbelievable and unacceptable. So the first question is whether penal action as prayed for u/s.70 of the I & B Code can be initiated against the respondents?.
8. Chapter VII of Part II deals with offenses and punishments. section 70 of the Code, can be invoked by the RP if he is satisfied that any officers or directors of the corporate debtors commits any offences as detailed in Clauses (a) to (g) of sub-section (1) (i) of section 70 within twelve months immediately proceedings insolvency commencement date. The allegations leveled are allegedly committed post CIRP and therefore, section 70 (1) (i) not at all attracted in the instant matter. Subsection 1(ii) of Section 70 truly deals with offenses falling under clauses (a) to (g) if any committed by any officers or directors after the insolvency commencement date. So even if the respondents are found answerable to the alleged offences, can I entertain an application of this nature under section 70 of the Code?. My answer is in the negative.
9. The Honble Appellate Tribunal in Committee of Creditors of Amtek Auto Ltd. through Corporation Bank v. Mr. Dinkar T. Venkatasubramian and Others, Liberty House Group Pte Ltd. v. Mr. Dinkar T. Venkatasubramanian and Others, Liberty House Group Pte Ltd. v. The Committee of Creditors of Amtek Auto Ltd. and Another.[Company Appeal (AT) (Insolvency) No. 219 of 2019], and in Lagadapati Ramesh v. Mrs. Ramanathan Bhuvaneshwari, [2020] 114 taxmann.com 348 (NCL-AT). Company Appeal (AT) (Insolvency)No. 574 of 2019 and Company Appeal (AT) (Insolvency)No. 592 of 2019, laid down a procedure to be followed in like cases for filing complaints by the RP before the AA for taking action against any officers or directors of the CD alleging commission of the offences falls under Chapter VII of Part II of the I&B Code. The Honble NCLAT by setting aside the liberty granted by the AA to the RP and the CoC to submits complaints falls under section 74 (3) as per section 236 of the Code, held that: However, liberty is given to the Resolution Professional or the Committee of Creditors or any creditor to move an application under Section
213 of the Companies Act, 2013 read with Section 74(3) of the I&B Code before the Adjudicating Authority/ National Company Law Tribunal to decide as to whether the matter is required to be referred to the Insolvency and Bankruptcy Board of India or the Central Government for taking any action under Section 74(3) and Section 213 read with Section 447 of the Companies Act, 2013. In such a case, the Adjudicating Authority will decide the same after notice to the Successful Resolution Applicant/ Corporate Debtor after following the procedure of Section 213 of the Companies Act, 2013 as discussed in the preceding paragraph. Truly the said proposition was held in a case that falls under section 74(3) of Chapter VII of the Code. In this matter the allegation falls under section 70(1) (ii) of Chapter VII of Part II of the Code. So it appears to me that any complaints alleging offences fall under Chapter VII, the very same procedure is to be followed, because, this AA is bound by the said proposition held by the Appellate Tribunal. Accordingly, this application filed under section 70 of the Code for imposing penalty is found not maintainable.
10. Even if I observed that this application prayed for a relief u/s. 70 of the I & B Code is not maintainable the prayers (b) (c) and (d) being found outside the scope of section 70 of the Code but falls under Section 19(2) of the I & B Code can be entertained by me because prima facie I am satisfied that 2nd respondent disobeyed his own undertaking and both respondents are found not assisting or cooperating with the RP even after repeated demands and approaching the AA with an application (I.A. No. 33/2020) u/s 19 (2) of the Code. That IA was disposed of by the AA recording the undertaking given by the R2. Now more than 100 days lapsed, after initiating the CIRP. However, the RP could not take over possession of all the assets of the CD so far, only because of the deliberate resistance and noncooperation from the side of the respondents. Therefore, invoking this AAs power under Rule 11 of NCLT Rules, further directions can be issued as against the defaulting directors of suspended board of CD who are found not handed over records and properties admittedly in their possession.
11. Upon the foregoing discussion I am of the considered view that reliefs nos (b) and (c) can be granted in the peculiar nature and circumstances brought out in the instant case. Accordingly the application is partly allowed upon the following directions: (a) The respondents are hereby directed to handover the two Cars of the CD admittedly in their possession to the Resolution Professional along with its original documents within one week from the date of receipt of this order; (b) The respondents are directed to hand over the physical possession of all the fixed assets along with fixed asset register and other relevant documents with in one week from the date of receipt of this order; (c) Resolution Professional shall draw an inventory as per the books of account and balance sheet detailing assets of the corporate debtor and to be handed over to the respondents. The respondents on receipt of the inventory shall handover any documents or assets found not handed over on the date of receipt of the inventory to be handed over within one week of the date of receipt of the Inventory; (d) RP is at liberty to take appropriate action against the respondents inclusive of contempt proceedings under Contempt Of Court Act, if any one of the directions is found not obeyed by the respondents.
12. The application is disposed of accordingly. The Registry is directed to send e-mail copies of the order forthwith to all the parties inclusive of the Counsel. (Jinan K.R.) Member (J) Signed on this, the 22nd day of June, 2020.
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