The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) held that the resolution plan was not approvable due to non-compliance with provisions under section 29A(G) read with section 240 A of the Insolvency and Bankruptcy Code, 2016.
Mr. Guruprasad V Hishobkar, the appellant is the Promoter / Shareholder of Shree Ashraya Infra-Con Limited (Corporate Debtor). The First Respondent is a Co-operative Society registered under the ‘Karnataka Co-operative Societies Act, 1959’ and subsequently got registered under ‘Karnataka Souharda Sahakari Act, 1977’ and changed its name to ‘Shree Aashraya Souhard Credit Society Limited’.
The Corporate Debtor is a Company which is engaged in the business of Real Estate and Construction, having few Common Directors with the Petitioner’s Society based on which the Petitioner (‘Financial Creditor’) had provided Secured Cash Credit Facility to the tune of Rs. 14 Crores, before 1997 and thereafter extended Cash Credit Facilities.
It was averred that the loan amount was disbursed in several tranches and since the management of the Financial Creditor and the Corporate Debtor is the same, the Corporate Debtor was able to pool in huge investments from a large number of small investors. The Corporate Debtor did not create a charge on the assets of the Corporate Debtor.
The Financial Creditor issued various loans calling upon the Corporate Debtor to repay the loan amount for which the Corporate Debtor issued Reply letters but never made the payments. The Financial Creditor also got issued a Legal Notice on 01/03/2018 which was returned on 10/03/2018 with an endorsement ‘Not Claimed’.
The Depositors of the Society approached the Registrar of the Co-operative Society and expressed their grievance before him, after which the Registrar appointed a Special Officer to facilitate the holding of Elections in the Society and to appoint a new Board of Directors to regularise the operations of the Financial Creditor. Thereafter, the Liquidator was appointed on 14/01/2019 to recover the pending dues and settle the dues of a large number of individual investors.
It was evident from the ‘Investigation Report’ that the Society was used as a channel to pool funds from a large number of small investors to fund the financial requirement of the Corporate Debtor. The Corporate Debtor is in the business of Real Estate and Construction and has secured the funds from the general public through the 1st Respondent / Financial Creditor.
The Balance Sheet on 31/03/2011 of the Corporate Debtor Company shows that a major chunk of the deposited amount of the 1st Respondent has been taken by the Corporate Debtor by way of a Cash Credit Facility. The Investigation Report establishes that the disposing of the said loan itself is a violation of ‘The Karnataka Souharda Sahakari Act, 1997’ and the bye-laws of the 1st Respondent’s Society.
A two-member bench comprising Ms Shreesha Merla, Member (Technical) and Justice M. Venugopal, Member (Judicial) observed that the record establishes that there is a ‘debt’ and a ‘default’ and the Application is complete and the Adjudicating Authority has rightly admitted the Application under Section 7 of the Code.
The Adjudicating Authority has rejected the Resolution plan, though approved by the CoC, on the ground that it does not satisfy the provisions of Section 29A(G) read with Section 240 A of the Code. The Tribunal upheld the Order of the Adjudicating Authority in rejecting the Resolution Plan filed by the Appellant and the Suspended Directors.
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