Dismissed

In the matter of Siti Vision Digital Media Private Limited Company Petition No. (IB)-980(ND)2020

NCLT8 Jun 2023

Case brief

AI extract

What is this about?

The Adjudicating Authority examined an application to initiate insolvency proceedings. It held that a shareholders' resolution was valid authorization. However, finding plausible pre-existing disputes regarding maintenance and equipment withholding, the application was dismissed without adjudicating related-party status.

What did the court decide?

Section 9 application for initiation of CIRP dismissed due to existence of pre-existing disputes.

In the matter of Siti Vision Digital Media Private… — Insolvency and Bankruptcy | NCLT (2023)

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NATIONAL COMPANY LAW TRIBUNAL NEW DELHI SPECIAL BENCH (COURT-II) Company Petition No. (IB)-980(ND)2020

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IN THE MATTER OF:

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Viswaroopa Info Services India Private Limited

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H. No. 6-3-667/4, Flat No. 204, 2^nd Floor, Sirimalle Towers, Somajiguda, Hyderabad – 500082

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…Applicant/Operational Creditor

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VERSUS

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SITI Visions Digital Media Private Limited

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F-1, J Block Market, Ashok Vihar, Phase-I, North West Delhi -110052

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…Respondent/Corporate Debtor

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Section: 9 of the IBC, 2016

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Order Delivered on: 08.06.2023

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CORAM

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SH. BACHU VENKAT BALARAM DAS, HON’BLE MEMBER (J)

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SH. L. N. GUPTA, HON’BLE MEMBER (T)

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PRESENT:

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For the Applicant : Sr. Adv. P. Nagesh, Adv. Harshal Kumar For the Respondent : Sr. Adv. Arvind Nayar, Adv. Shivam Singh, Adv. Akshay Joshi, Adv. Shubham Pande, Adv. Shaswati Parhi

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 1 of 24

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ORDER

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PER: SH. L. N. GUPTA, MEMBER (T)

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M/s Viswaroopa Info Services India Private Limited (for brevity,

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the ‘Applicant/Operational Creditor’ ) has filed the present Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity, the ‘IBC, 2016’ ) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s. SITI Vision Digital Media Private Limited (for brevity, the ‘Respondent’ ).

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The Respondent namely, M/s. SITI Visions Digital Media Private Limited is a Company incorporated on 07.06.2006 with CIN U64201DL2006PTC149333 under the provisions of the Companies Act, 1956 having its registered office at. F-1, J Block Market, Ashok Vihar, Phase-I, North West Delhi -110052, which is within the jurisdiction of this Tribunal. The Authorized Share Capital of the Respondent is Rs.1,50,00,000/- and its Paid-up Share Capital is Rs.1,47,76,210/- as per Master Data annexed.

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The Application was previously heard and reserved by the predecessor Bench of this Adjudicating Authority vide order dated 25.05.2022. However, the matter was de-reserved vide order dated 03.06.2022, as the application was incomplete as Column 2 of Part IV of Form 5 was missing. The Applicant was also directed to bring on record

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 2 of 24

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the list of invoices, which are unpaid and claimed towards the operational debt, and clarify whether the Applicant and the Respondent are related parties in terms of Section 5(24) of IBC, 2016.

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In compliance with the aforesaid directions, the Applicant filed its additional affidavits dated 11.06.2022 and 16.07.2022 annexing therewith the amended Part IV of Form 5 and copy of the pending invoices. Further, the Applicant has averred the following as regards to the related-party disclosure -

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“4. I say and submit that one of the director is, wife of the Managing Director of the Corporate Debtor company. I further submit that no provision under the code exists that due to one of the interested person in both the Companies (i.e. Operational Creditor & Corporate Debtor), Operational Creditor Company cannot initiate any Corporate Insolvency Resolution Process. Company is a separate legal entity and Company’s interest is paramount and it need to be protected by this Hon’ble Tribunal.”

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The Respondent has also filed its reply affidavit stating the following regarding the related-party disclosure -

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“10. That Ms. M. Sujatha, the authorized representative of the Operational Creditor, and her husband are shareholders of Corporate Debtor Company holding 9% equity together. Hence, the Operational Creditor and Corporate Debtor are related parties.

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11. That it is humbly submitted that the Operational Creditor by suppressing vital information, not following the provisions of related parties and is trying to mislead this Ld.

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 3 of 24

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Tribunal. On the last of hearing on 16.08.2022, the Counsel for the Operational Creditor made a false and misleading statement that Ms. M. Sujatha does not hold any shares in Corporate Debtor Company but whereas she actually holds 9% equity along with her husband in the Corporate Debtor Company.”

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Before examining the application on its merits, we would, therefore, like to examine whether the Applicant and Respondent are “related parties” to each other. In order to adjudicate the same, we refer to Section 5(24) of IBC, 2016, which defines “related parties” thus:

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As per the contention of the Respondent, the Applicant is its related party because Ms. M. Sujatha, the authorized representative/ Director of the Operational Creditor, and her husband (who is Managing Director of CD) are shareholders of Corporate Debtor Company holding together 9% of equity share capital.

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However, both parties have not indicated under which specific Clause of Section 5(24), the Applicant is a related party to Respondent. Since the Applicant is a Private Limited Company, therefore, we would like to examine the criteria stipulated under Section 5(24) (d) of IBC, 2016, which reads thus:

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“(d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent of its share capital.”

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Applying Section 5(24) of IBC 2016, on the facts of the case, we found that none of the Directors of the Applicant Company is a Director/Manager in the Respondent/Corporate Debtor Company. Merely, because one of the Directors i.e., Ms. M. Sujatha in Applicant Company and her husband, who is Managing Director in Respondent/ Corporate Debtor Company who together hold 9% of shares of CD, will not attract Section 5(24) (d) of IBC, 2016.

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 5 of 24

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However, we would still like to examine whether the Applicant is a related party to the Respondent in terms of Section 5(24) (f) of IBC 2016, which reads thus:

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“(f) any body corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor.”

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As disclosed by the Applicant that one of its directors Ms. M. Sujatha is the wife of the Managing Director of the Corporate Debtor. However, in order to attract the provision of Section 5(24) (f) of IBC 2016, what is needed is that the said Director of the Applicant Company was acting on the advice/ direction/instructions of the Director/MD of the Corporate Debtor. There is nothing on record that could suggest that in the ordinary course of business, the Directors of Applicant Company or for that matter the Director Ms. M. Sujatha were acting on the instructions of the Directors/MD of the Respondent Company. In the absence of any corroborative material, this Adjudicating Authority cannot assume this fact merely on the basis of the relationship between two Directors as Husband and Wife.

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In view of the above, we find nothing on record, which could suggest that the Applicant and Respondent Company are related in terms of Section 5(24) of IBC, 2016. Hence, we would like to proceed ahead with the adjudication of the present application on merits.

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The detailed particulars of the Operational Debt claimed, the total amount of default, and the date of default are mentioned in the amended

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 6 of 24

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Part IV of the application, which is reproduced below, for the sake of convenience:

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 8 of 24

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 9 of 24

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(IB)-980/(ND)/2020

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Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Vision Digital Media Pvt. Ltd. Page 10 of 24

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(IB)-980/(ND)/2020

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Thus, the Applicant has claimed an amount of Rs.2,78,50,347/excluding interest as the unpaid Operational Debt due and relied on 01.05.2019 as the date of default.

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It is stated by the Applicant that since the Respondent did not make the payment of its operational debt, it had issued a Demand Notice dated 01.07.2020 under Section 8 of IBC 2016 at the Registered office of the Respondent vide speed post, which was served to the Respondent on 06.07.2020. The Tracking Report of delivery of the demand notice has

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been placed on record on page no. 214 of the application. The Applicant has also placed an Affidavit under Section 9(3)(b) of 2016 on pages 259 - 260 of the application stating that it did not receive any notice of dispute.

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On issuance of the notice, the Respondent filed its reply and stated that the application has been filed without any authority and the Applicant itself had admitted on page no. 13 of the application that Board Resolution could not be issued for initiating the present insolvency proceeding.

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16.1 It is further stated by the Respondent that the Applicant is being represented by Smt. M Sujatha Director, who is also a shareholder holds 32.23 % of the share capital in the Applicant Company, whereas the other 2 (two) directors of the Applicant are holding more than 64% of the share capital. The Respondent has added that the consent of the second director of the Applicant, namely, Mrs. K. Pushpalatha and other shareholders has not been obtained and the present Application is filed in a mala fide manner.

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16.2 In terms of Sl. No. 39 of the Articles of Association (AoA) of the Applicant, the management and control of the Applicant Company is vested with the Board of Directors. The relevant extract of the AoA of the Applicant is produced as under:

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“39. The management and the control of the business of the Company shall be vested with the Board of Directors, who may exercise all such powers and do all such acts and things as may be exercised or done by the Company...”

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(IB)-980/(ND)/2020

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16.3 It is contended by the Respondent that the Applicant being a juristic person, can be controlled and managed only through the Board of Directors. In the instant Application, the Applicant through Smt. M. Sujatha has annexed with the Application, consent letters of 6 shareholders of the Applicant allegedly authorizing Smt. M Sujatha to initiate corporate insolvency proceedings against the Respondent. It is submitted that the aforementioned consent by the shareholders does not empower Smt. M Sujatha to act on behalf of the Applicant and initiate corporate insolvency proceedings against the Respondent.

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16.4 It is further claimed by the Respondent that there are pre-existing disputes between the parties. It has stated that vide various e-mails dated 13.02.2014, 18.02.2014, 08.04.2014, 07.04.2014, 21.04.2014, 22.04.2014, 25.11.2014, 08.12.2014, 09.02.2015, 03.10.2015, 23.11.2015, 24.11.2015, 23.04.2015, 16.04.2015, 14.06.2016 19.07.2018, 25.06.2019, 02.07.2019, 18.07.2019, 19.07.2019, 13.08.2019, 12.09.2019 and 16.09.2019 the Respondent, inter alia, informed the Applicant of the poor and deficient services and requested the Respondent for rectification of the same. However, the Applicant paid no heed to the complaints/requests made by the Respondent, and the deficiency in the services under the Agreements continued.

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16.5 It is stated by the Respondent that owing to the poor services of the Applicant, the Respondent was left with no other alternative than to lay its own Optical Fiber Cable Network and terminated the Agreements. The Respondent complete the work of laying its own

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(IB)-980/(ND)/2020

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Optical Fiber Cable Network between July/August 2018 and October 2018. Since after the establishment of the Optical Fiber Cable Network by the Respondent in the area of operation, which is the subject matter of the Agreements between the Applicant and the Respondent, the Respondent accordingly informed the Applicant that the services of the Applicant under the Agreements were no longer required and the same tantamounted to the termination of the Agreements with effect from 01.11.2018, which was subsequently recorded in the e-mail dated 25.06.2019 also marked to the Applicant.

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16.6 It is further stated by the Respondent that till date; the Applicant has been withholding the assets of the Respondent to the tune of Rs. 8,80,00,000/- which were handed over to the Applicant for maintenance.

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The Applicant has filed an additional affidavit dated 30.10.2021 stating that the shareholders of the Applicant in the Extra Ordinary General Meeting (EGM) held on 28.10.2021 has passed a resolution authorizing Smt. M. Sujatha to initiate the CIRP against the Respondent and the Form MGT-14 has been uploaded on MCA portal to that effect.

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After hearing the submission of both the parties and perusing the documents and written submissions placed on record, this Bench observes that the Respondent has raised certain technical objections with respect to the maintainability of the present application, which need to be dealt with first.

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It is contended by the Respondent that there is no Board Resolution annexed with the application authorizing the applicant to initiate the CIR process against the Respondent and therefore, the present application filed under Section 9 of IBC, 2016 is without any authority. Per contra, the Applicant vide its additional affidavit dated 30.10.2021 submitted that the shareholders of the applicant company, in the Extra Ordinary General Meeting held on 28.10.2021, passed a Resolution authorizing Smt. M. Sujatha to initiate the CIRP against the Respondent and the Form MGT-14 has been uploaded on the MCA portal to that effect. The applicant has placed the Form MGT-14 on record, which is reproduced below for immediate reference:

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(IB)-980/(ND)/2020

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However, the Ld. Sr. Counsel for the Respondent still contended that the Resolution is of subsequent date to the filling of the present Application. In response, the Ld. Sr. Counsel for the Applicant relied on the Judgement of the Hon’ble Supreme Court in “ Dr. Satya Charan Law

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V. Rameshwar Prasad Bajoria” [1950, 20 Com Cases 39, 48, AIR 1950 SC 133 ,] wherein the following was held:

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“Ordinarily, the Directors are the only persons who can conduct litigation in the name of the Company, but when they themselves are the wrong-doers against the Company and have acted malafide or beyond their powers, and they will not take steps to seek redress for the wrong done to the Company, the majority of the shareholders must in such case be entitled to take steps to redress the wrong.”

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At this stage, we refer to Column 6, Part I of Form 5 i.e., the format of Section 9 Application prescribed under the Application to Adjudicating Authority Rules 2016, which reads thus:

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On perusal of the above, we notice that the prescribed Form-5 only requires an “Authorization” to be enclosed. However, it does not specify the authorization to be in the form of a Board Resolution or a Resolution by Shareholders. Since in the present case, the Applicant has filed Authorization in the form of shareholders’ resolution, which is duly uploaded on the MCA portal, we find that the Authorization to file

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the Section 9 Application by the Applicant is valid.

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The Respondent in its reply as well as submissions made during the hearing has contended that there are pre-existing disputes between the parties. Hence, we would like to examine whether there is any preexisting dispute between the parties. During the course of hearing, Ld. Sr. Counsel for the Applicant stated that there is no pre-existing dispute and the unpaid invoices pertain to the years 2017 to 2019 and the emails as annexed by the Respondent with the reply do not relate to those invoices. Per Contra, the Respondent in its Written Submissions has stated that the Respondent had sent an email dated 19.07.2018 intimating that they are facing a lot of technical snags and issues in maintenance. As a counter, the Applicant in its Written Submissions has stated that the email dated 15.07.2019 (Pages 54-55 of Reply) from Applicant to Respondent clearly reflects that there is no pre-existing dispute. The Applicant had asked the Respondent to terminate the agreement and repay the dues of the Applicant.

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23. We w	ould like to exa	mine the cont	ention of both th	e parties The
Respondent	has placed e	mphasis on	thevarious e	-mails dated
13.02.2014,	18.02.2014,	07.04.2014,	08.04.2014,	21.04.2014,
22.04.2014,	25.11.2014,	08.12.2014,	09.02.2015,	16.04.2015,
23.04.2015,	03.10.2015,	23.11.2015,	24.11.2015,	14.06.2016
19.07.2018,	25.06.2019,	02.07.2019,	18.07.2019,	19.07.2019,
13.08.2019,	12.09.2019 and	16.09.2019.

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Since the Operational Debt is claimed for the unpaid invoices from 05.05.2017 to 01.05.2019, therefore, we ignore the e-mails prior to

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05.05.2017. Further, we have already noted in para 15 of this order that the Applicant had sent the Demand Notice to the Respondent on 01.07.2020. Hence, for the purpose of adjudication of the issue relating to the pre-existing dispute, if any, we would like to refer to the e-mails exchanged during the period from 05.05.2017 to 01.07.2020.

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Accordingly, first we refer to the email dated 19.07.2018 written by an official of Respondent to the Applicant, which reads thus:

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On perusal of the aforesaid e-mail, it can be observed that the Respondent had raised issues of “technical snags” and “disturbance in maintenance”. The Ld. Sr. Counsel appearing for the Respondent neither during the course of the hearing nor in their Written Submissions rebutted the charge or indicated any steps taken to resolve the issues.

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Vide aforesaid e-mail dated 13.08.2019, we further find that the Respondent had informed the Applicant that they did not receive the joint survey details regarding the UG ducts and UG cable and alleged that “ Instead of submitting the details just passing time to exchanging mails which are not at all useful. So please look into the matter and finish the pending work within the time period .”

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During the course of the hearing as well as in the written submissions, it was further contended by the Respondent that the Applicant has withheld its equipment worth Rs. 8,80,00,000/- which were handed over to the Applicant in terms of the Agreements/for the maintenance purpose. In support of its submissions, the Respondent has relied upon the emails dated 02.07.2019 & 18.07.2019 which read thus:

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xxxx xxxx xxxx xxxx

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However the Applicant, neither in its Written Submissions nor during the hearing gave any explanation as to why it withheld the equipment of the Respondent and did not return the same.

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In view of the aforesaid e-mail communications dated 19.07.2018, 13.08.2019, 02.07.2019, and 18.07.2019 from the Respondent raising the issues relating to “technical snags” and “disturbance in maintenance”

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and “return of equipment given for maintenance”, we observe that the Respondent has raised the plausible contentions prior to the issuance of demand notice i.e., 01.07.2020, which requires further investigation. At this juncture, we refer to the Judgement of the Hon’ble Supreme Court passed in the matter of “ Mobilox Innovations Private Limited Vs Kirusa Software Private Limited” in Civil Appeal No. 9405 of 2017 :

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“40. …Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”

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