Case Law Details
K Parthiban Rasu Vs Umiya Development Centre India Pvt. Ltd. & 2 Ors. (NCLAT Chennai)
Introduction: The recent case between K Parthiban Rasu, Umiya Development Centre India Pvt. Ltd., and the State Bank of India (SBI) heard at the National Company Law Appellate Tribunal (NCLAT) in Chennai has brought attention to some pressing issues in insolvency and corporate law. In essence, the case addresses the validity of a Memorandum of Compromise (MOU) and the role of the State Bank of India as a Financial Creditor.
Role of State Bank of India: SBI, being the sole Financial Creditor in the case, filed an application seeking to continue the Corporate Insolvency Resolution Process (CIRP). The Tribunal ruled in favor of SBI, stating that the absence of a valid Form FA severely affected SBI’s interests.
The Memorandum of Compromise: The MOU signed on 16.12.2021 between the Operational Creditor (Umiya Development) and the Corporate Debtor was scrutinized for its validity. Harsan Kumar, who signed the MOU, was found to have resigned two months prior, rendering the MOU invalid.
Interplay of Court Orders: The Appellate Authority gave multiple extensions to the appeal filed by Parthiban Rasu K, which later was withdrawn due to a settlement. Despite this, no proper application was filed to proceed with the resolution, which played a role in the court’s final decision.
Implication on Insolvency Resolution Process: The NCLAT found no errors in the initial decision of the National Company Law Tribunal (NCLT). The verdict highlights the importance of adhering to proper legal procedures and documentation, especially in matters of insolvency.
Conclusion: The NCLAT upheld the NCLT’s ruling in favor of SBI, stating that a Memorandum of Compromise signed by a resigned director is invalid. This case serves as a precedent in insolvency cases, emphasizing the need for valid and legally compliant documentation. Therefore, the appeal by Parthiban Rasu K was dismissed, reinforcing that proper procedures must be followed in insolvency and corporate cases.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
This appeal is filed by the Suspended Director of the Corporate Debtor (M/s Star Trace Pvt. Ltd.) who is aggrieved against the order dated 28.06.2023, passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench – II, Chennai) in I.A. (IBC)/792/CHE/2022 by which prayer ‘a’ made by the sole Financial Creditor (State Bank of India) (Respondent No. 3 herein) has been allowed.
2. The brief facts of this case are that M/s Umiya Development Centre India Pvt. Ltd. (Operational Creditor) filed an application i.e. IBA/304/2020 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) against M/s Star Trace Pvt. Ltd. (Corporate Debtor) which was admitted on 09.08.2021. K. Ganesan was appointed as the Interim Resolution Professional (IRP) and thereafter C. Ram Subramaniam was appointed as the RP of the Corporate Debtor on 31.03.2022.
3. Parthiban Rasu K, Suspended Director of the Corporate Debtor challenged the order of admission dated 09.08.2021 by way of CA (AT) (CH) (Ins) No. 242 of 2021 in which vide order dated 07.10.2021 the implementation of the order dated 09.08.2021 was stayed which was extended till 23.02.2022. The aforesaid appeal was withdrawn by the Appellant therein on account of a settlement with the Operational Creditor and the appeal was dismissed vide order dated 23.02.2022 by the Appellate Authority with the direction to file Form FA as per IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 before the Adjudicating Authority within two weeks from 23.02.2022 and the Adjudicating Authority was further directed to dispose of the same within a week thereafter and the interim order dated 07.10.2021 passed by the Appellate Authority was ordered to be continued.
4. The Application i.e I.A.(IBC)/792/CHE/2022 was filed by the State Bank of India (Sole Financial Creditor) seeking following reliefs which are as under:-
“a. direct the 2nd Respondent represented by its RP to continue the CIRP since the first respondent has failed to file an application (Form FA) under Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in terms of order dated 23.02.2022 passed in CA (AT) (CH) (Ins) No. 242 of 2021 by the Hon’ble NCLAT, Chennai Bench and thus render justice.
b. direct the 1st Respondent to pay cost as well as compensation to the applicant for not filing the application as directed by Hon’ble NCLAT, Chennai Bench vide order dated 23.02.2022 in CA (AT) (CH) (Ins) No. 242 of 2021 thereby causing irreparable loss & hardship to the applicant and thus render justice”
5. The case of State Bank of India was that the Operational Creditor and the Director of the Corporate Debtor, namely, P.R. Maheswaran entered into a memorandum of compromise on 16.12.2021 but Harsan Kumar was not the director of the Operational Creditor at the time of compromise i.e. 16.12.2021 because MCA Master data shows that he had resigned on 16.10.2021. It was also the case of the State Bank of India that the Operational Creditor did not file any such application or Form FA before the Adjudicating Authority as directed but still the interim order is operative. The case set up by the State Bank of India is that it is being a sole Financial Creditor is unable to move to the Appellate Authority because the appeal filed by Parthiban Rasu K as the Suspended Director against the order of admission bearing CA (AT) (CH) (Ins) No. 242 of 2021 was withdrawn and the Operational Creditor was directed to file withdrawal application within two weeks from the date of passing of the order i.e. 23.02.2022. It is the case of the State Bank of India that since interim order is operative against them, therefore, their interest is adversely affected.
6. In the impugned order, the Adjudicating Authority has observed that despite the order of the Appellate Authority, no application on Form FA has been filed and because of the stay granted by the Appellate Authority being operative the State Bank of India being the sole Financial Creditor is unable to proceed with the CIRP. The Adjudicating Authority deprecated the conduct of the RP in its order and allowed the application (prayer ‘a’) made by the State Bank of India.
7. Aggrieved against the aforesaid order, the present appeal has been filed.
8. Counsel for the Appellant has argued that the MOU dated 16.12.2021 has been signed by Harsan Kumar as authorised representative of the Company and in this regard, he has referred to board resolution dated 01.10.2021 of the Operational Creditor but he could not deny the fact that before it could sign the MOU dated 16.12.2021, tendered his resignation on 16.10.2021 and was no more a director on the date when the MOU was signed.
9. Counsel for the Respondent (SBI) has argued that neither Form FA has been filed which was required in terms of the order dated 23.02.2022 in which the order of stay has been operative nor the MOU dated 16.12.2021 can be looked into for any purpose because it has been entered into by the Director who had resigned about two months back prior to signing of the MOU.
10. We have heard Counsel for the parties and perused the record.
11. In the appeal filed by Parthiban Rasu K against the order of admission, the interim order was passed on 07.10.2021 which read as under:-
“Heard Mr. P H. Arvindh Pandian, the Learned Senior Counsel appearing for the Appellant.
Let Notice be issued to the Respondent Nos. 1 & 2 through Speed Post returnable by 16.12.2021. Let the Requisite together with Process Fee be filed by the Appellant within three days from today before the Office of the Registry. The Appellant is also to provide Mobile Number as well as e-mail address of the Respondent before the Office of the Registry and in such an event, the Notices may also be served in that mode also.
The ‘Office of Registry’ is directed to List the matter on 16th December, 2021.
Till the next date of ‘Hearing’, there shall be order of stay of the implementation of the Impugned Order dated 09.08.2021 passed in IBA/304/2020 passed by National Company Law Tribunal, Chennai.”
12. The Memorandum of compromise was entered on 16.12.2021 in which the parties to the compromise has been referred to as under:-
13. Thereafter, the final order was passed by the Appellate Authority, Chennai on 23.02.2022 which read as under;-
“The Learned Counsel for the Appellant seeks permission from this Tribunal to withdraw the instant Company Appeal (AT)(CH)(Ins) No.242/2021. Acceding to the said request, the instant Company Appeal (AT)(CH)(Ins) No.242/2021 is dismissed as withdrawn. No costs.
It is open to the 1st Respondent to file the Form FA (application for withdrawal of CIRP) under Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 before the ‘Adjudicating Authority’ (through Interim Resolution Professional/RP) mentioning the name of the Corporate Debtor within two weeks from today. In the event of filing of such application, the Adjudicating Authority is to number the same, if otherwise in order, and to dispose off the same within one week thereafter.
Till the application of withdrawal is disposed office, the interim order granted by this Tribunal on 7.10.2021 shall continue.
IA No.510/2021 (for stay) is closed.”
14. There is no denial to the fact that Harsan Kumar resigned on 16.10.2021 as per the MCA Master data, therefore, he was not competent to enter into MOU dated 16.12.2021 on behalf of the Operational Creditor.
15. In order to rebut the arguments of the Appellant, the only submission made by the Respondent is that Harsan Kumar was authorised by the resolution of the board dated 01.10.2021, therefore, he had signed the MOU as the authorised person.
16. This argument has no legs to stand because the MOU has been entered into between the Corporate Debtor and the Operational Creditor and in that the Operational Creditor has been represented by Harsan Kumar as the Managing Director.
17. Thus, keeping in view the facts which are not in dispute as these are borne out from the record, we are of the considered opinion that there is no error in the view taken by the Adjudicating Authority in granting the prayer ‘a’ contained in the application i.e. IA (IBC)/792/CHE/2022 filed by the State Bank of India (Respondent No. 3 herein).
18. No other point has been raised.
19. In view of the aforesaid facts and circumstances, the present appeal fails and the same is thus hereby dismissed. No costs.
