Directors Of Financial Creditors Not Disqualified From Filing Plea U/S 7 Of IBC Due To Sister Company's Default U/S 248 Of Companies Act: NCLAT
The NLCAT New Delhi bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) held that directors of the financial creditors are not disqualified from filing a petition under section 7 of the IBC merely on the ground that sister company of the financial creditors in which they were holding the same position, defaulted under section 248 of the Companies Act in...
The NLCAT New Delhi bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) held that directors of the financial creditors are not disqualified from filing a petition under section 7 of the IBC merely on the ground that sister company of the financial creditors in which they were holding the same position, defaulted under section 248 of the Companies Act in failing to continue its business for continuous period of 2 years. The default under section 164(2) of the Companies Act has to be proved to disqualify them from acting as the directors in other companies than which is in default.
Brief Facts
By these two Appeals between the same Parties, Orders dated 13.06.2022 passed by the Learned Adjudicating Authority in I.A. No. 5670(ND)/2023 in C.P. (IB) No. 211(ND)/2022 and in I.A. No. 5682(ND)/2023, in C.P. (IB) No. 210(ND)/2022 has been challenged.
A Section 7 Application was filed by JKM Infrastructure Private Limited, the Respondent herein against the Appellant on which C.P. (IB) No.211(ND)/2022 was registered. The total amount of debt claimed in the Part IV of the Application was ₹5,73,75,000/- as on 01.03.2022. Application was filed by the Financial Creditor on 04.03.2022. The Application under Section 7 was through Authorised Representative, Vinod Sachdeva, one of the Directors of the Financial Creditor.
The Corporate Debtor filed an Application on 11.10.2023 being I.A. No. 5670(ND)/2023, in C.P. (IB) No. 211(ND)/2022, seeking dismissal of the Company Petition on the ground that Vinod Sachdeva, the Authorised Signatory of the Section 7 Application has no authority to file Section 7 Application.
Sister concern of the Financial Creditor, namely Airwill Infracon had been struck off from the Register of Company since 08.08.2018, in terms of Section 248 of the Companies Act 2013 (hereinafter referred to as `The Act'). Vinod Kumar Sachdeva, Authorised Signatory of Financial Creditor was also Director of the Airwill Infracon. Vinod Kumar Sachdeva, even after being disqualified, was signing and verifying the Affidavits. It was pleaded that in light of proviso to Section 167(1)(a) of the Act, Vinod Kumar Sachdeva was disqualified and could not have signed the Affidavit in light of the automatic vacation of his Office as Director of all Companies.
AA in the Impugned Order held that disqualification under Section 164(2) shall extend only to the defaulting Company, i.e., Airwill Infracon and shall have no implication on the sister Company i.e., the Financial Creditor.
Contentions
The appellant submitted that the existence of default in filing the Financial Statement by Infracon Company as on 07.05.2018 is sufficient to attract the disqualification of Vinod Sachdeva, Director of Company to act as Director of the Financial Creditor, which disqualification continued to exist as on the date of filing of Section 7 Application.
That Office of Vinod Sachdeva, as Director of Infracon Company became vacant in all other Companies due to lack of authority of Vinod Sachdeva to sign and verify the Section 7 Application and supporting Affidavit therein, Application under Section 7 deserves to be rejected on this ground alone.
Per contra, the respondent submitted that Infracon Company has been struck off from the Register of the Companies not on account of any default under Section 164(2) but it has been struck off on the ground of its failure to commence business operation for a continuous period of 2 preceding Financial Year and also for not preferring any Application for seeking status of dormant Company.
That there is no deemed disqualification in terms of Section 164(2) of the Act. There is no adjudication and decision by the RoC regarding disqualification of Directors of Infracon Company under Section 164(2).
NCLAT's Analysis
The tribunal analysed multiple documents to discern the grounds on which the sister company of the financial creditor was struck off from the record of the Registrar of Companies and noted that the reason for striking off was not non-filing of Financial Statement or Annual Statement for continuous 3 Years rather was on the ground that Companies have not been carrying on any business or operation for 2 immediately preceding Financial Years as per section 248 of the Companie Act as has not made any Application within such period for obtaining the period of dormant Company under Section 465.
The tribunal further noted that it is proved from the record that striking off Airwill Infracon was not on the ground as mentioned in Section 164(2)(a) rather was on the ground on Section 248(1)(a).
The tribunal also referred to section 167 which provides that in event, disqualification under sub-Section (2) of Section 164, the Office of Director becomes vacant in all the Companies other than the Company which is in default .
The tribunal further noted that for applicability of Section 164(2), essential condition is that the Company has not filed Financial Statement or Annual Return for any continuous period of 3 Financial Years but in the present case Striking off Infracon Company was not on account of any default under sub-Section (2) of Section 164, rather was default under Section 248(1), which is proved from the Orders issued by the Government of India, MCA therefore there being no disqualification attached under sub-Section (2) of Section 164, there is no question of applicability of Section 167(1) proviso.
The tribunal further referred to the Delhi High Court judgment in Mukul Pathak & Ors.' Vs. `Union of India & Anr.' 2018. wherein it was held that “if directors suffer any of the disqualifications under Section 164(2) on or after 07.05.2018, the clear implication of the proviso to Sections 164(2) & 167(1)(a) of the Act are that they would demit their Office in all Companies other than the defaulting Companies”.
Based the above, the tribunal noted that present is not a case where on any material or reasons a conclusion can be drawn that Director Vinod Sachdeva suffer from any disqualification under Section 164(2) on or after 07.05.2018.
The tribunal concluded that there is no Applicability of Section 167(1) proviso to hold the Vinod Sachdeva as disqualified in the Airwill JKM Infrastructure Pvt. Ltd., the Financial Creditor. On the date of filing the Section 7 Application, Airwill Infracon had already been struck off, and the Vinod Sachdeva could not continue as Director of the Company Airwill Infracon having been dissolved, but that shall have no effect on continuance of Vinod Sachdeva as Director in Airwill JKM Infrastructure Pvt. Ltd. Vinod Sachdeva was fully competent to file Section 7 Application and swear Affidavit in support of Section 7 Application.
Accordingly, the present appeals was dismissed.
Case Title: CADILLAC INFOTECH PVT. LTD.Versus JKM INFRASTRUCTURE PVT. LTD and Ors.
Case Reference: Company Appeal (AT) (Insolvency) No. 1610 of 2024 & I.A. No. 5879 of 2024
Judgment Date: 11/11/2024