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Supreme Court of India
K.N Rajakumar vs V Nagarajan on 15 September, 2021Author: L. Nageswara Rao
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NONREPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1792 OF 2021
K.N. RAJAKUMAR …APPELLANT(S)
VERSUS
V. NAGARAJAN & ORS. …. RESPONDENT(S)
WITH
CIVIL APPEAL NO.2901 OF 2021
JUDGMENT
B.R. GAVAI, J.
1. Both these appeals are being decided by this
common judgment and order.
2. The appellantD. Ramjee in Civil Appeal No.2901
of 2021, who is an exemployee of M/s Aruna Hotels Ltd.
(hereinafter referred to as ‘the Corporate Debtor’) has
approached this Court being aggrieved by the resolution
passed in the 8th Committee of Creditors (hereinafter
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referred to as ‘CoC’) meeting dated 25.5.2021; the order
passed by the National Company Law Tribunal, Chennai
(hereinafter referred to as ‘NCLT’ or ‘the Adjudicating
Authority’) dated 4.6.2021 thereby permitting withdrawal of
Corporate Insolvency Resolution Process (hereinafter
referred to as ‘CIRP’) in respect of the Corporate Debtor; and
the order passed by the Adjudicating Authority/NCLT dated
6.7.2021 thereby closing the proceedings initiated by D.
Ramjee.
3. Civil Appeal No. 1792 of 2021 is filed by K.N.
Rajakumar, suspended Director of the Corporate Debtor
(respondent No.1 in Civil Appeal No.2901 of 2021 filed by D.
Ramjee) thereby challenging the order passed by the
National Company Law Appellate Tribunal, Chennai Bench
(hereinafter referred to as ‘NCLAT’) dated 30.4.2021
dismissing the appeal filed by K.N. Rajakumar challenging
the order dated 22.4.2021 passed by NCLT vide which NCLT
had directed the Resolution Professional (hereinafter
referred to as ‘RP’) to convene a meeting of CoC consisting of
the members who constituted CoC originally in the year
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2017, soon after the order of admission of CIRP was passed
by NCLT.
4. The facts giving rise to the present appeals have
been taken from Civil Appeal No.2901 of 2021, and are as
under:
The Corporate Debtor was incorporated under the
provisions of the Companies Act, 1956 on 9.9.1960. It had
started various businesses like sugar, distillery, flour mill,
chemical unit, finance company, a 4star hotel etc. in
Chennai, but as on date owns only a hotel in Chennai. The
hotel business of the Corporate Debtor was shut down for
more than 7 years.
D. Ramjee joined the Corporate Debtor as a
Junior Assistant on 11.5.1964. Since D. Ramjee was not
receiving salary regularly, he sought to get relieved from the
services with effect from 30.9.2006 and sought for
settlement of his salary dues. However, it is his case that as
the Corporate Debtor requested him to continue in the
service, he continued to do so on a salary which was much
less than the one he was entitled to. On 31.5.2013, D.
Ramjee officially retired after serving for 49 years.
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In February, 2015, the Management of the
Corporate Debtor was taken over by one Subasri Realty
Limited, thereby acquiring the shareholding of the earlier
promoters, M. Sivaram and his family. According to D.
Ramjee, the new Management disowned itself from the
admissions of previous management pertaining to
settlement of arrears of salary.
On 27.2.2017, Ramjee issued a Demand Notice
under Section 271(1)(a) of the Companies Act, 2013 read
with Section 8(1) of the Insolvency and Bankruptcy Code,
2016 (hereinafter referred to as ‘the IBC’) calling upon the
Corporate Debtor to pay dues of outstanding salary
amounting to Rs.2,60,68,883/ along with interest at the
rate of 12%.
On failure of the Corporate Debtor to comply with
the notice, D. Ramjee filed an application under Section 9 of
the IBC, being C.P. No.478 of 2017 on 3.4.2017 before
NCLT. Two other employees of the Corporate Debtor had
also filed applications under Section 9 of the IBC. Vide
order dated 13.6.2017, the Adjudicating Authority admitted
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D. Ramjee’s application under Section 9 of the IBC and
initiated CIRP against the Corporate Debtor. One P. Sriram
was appointed as interim RP and moratorium was declared.
Being aggrieved by the order passed by NCLT
dated 13.6.2017, the Corporate Debtor filed an appeal being
Company Appeal (AT) (Insolvency) No.87 of 2017 before
NCLAT. NCLAT vide order dated 2.8.2017 allowed the said
appeal filed by the Corporate Debtor and set aside the order
dated 13.6.2017 passed by NCLT. NCLAT had also recorded
the assurance given by the Corporate Debtor that they will
be paying three years’ arrears of salary to the three
employees including Ramjee, who had initiated CIRP
proceedings against the Corporate Debtor.
In pursuance to the assurance given to NCLAT,
the Corporate Debtor made payment vide two Demand
Drafts dated 8.8.2017 for a sum of Rs.18,50,000/ to D.
Ramjee along with a letter dated 22.8.2017.
In the meanwhile, one other exemployee of the
Corporate Debtor, N. Subramanian, who is respondent No.3
in both the appeals, also issued a Demand Notice dated
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29.6.2017 under Section 8 of the IBC to the Corporate
Debtor. On failure by the Corporate Debtor to comply with
the Demand Notice, N. Subramanian also filed an
application under Section 9 of the IBC being CP/597/
(IB)/CB/2017 on 21.7.2017 before NCLT. NCLT admitted
the said application under Section 9 of the IBC filed by N.
Subramanian vide order dated 17.11.2017.
Being aggrieved by the initiation of CIRP, the
Corporate Debtor filed an appeal being Company Appeal
(AT)(Insolvency) No.290 of 2017 before NCLAT on
24.11.2017. Vide order dated 16.7.2018, NCLAT allowed
the appeal of the Corporate Debtor and set aside the order
dated 17.11.2017 passed by NCLT on the ground of
‘existence of dispute’ about arrears of salary and that N.
Subramanian had not explained the delay from the year
1998 to 2016.
Being aggrieved by the order dated 16.7.2018
passed by NCLAT, N. Subramanian filed Civil Appeal No.187
of 2019 before this Court. This Court vide judgment and
order dated 3.3.2021 set aside the order dated 16.7.2018
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passed by NCLAT and restored the order dated 17.11.2017
passed by NCLT admitting the application under Section 9
of the IBC.
It is pertinent to note that D. Ramjee had also
filed an application for permission to file an appeal being D.
No.34836 of 2018, which came to be rejected by this Court
by the same judgment and order dated 3.3.2021.
In the meantime, Subasri Realty Limited, a major
shareholder of the Corporate Debtor filed a Miscellaneous
Application No. 480 of 2021 in Civil Appeal No.187 of 2019
before this Court seeking to compromise with respondent
No. 3. This Court vide order dated 19.3.2021 granted
liberty to the said applicant to approach CoC for settlement
under Section 12A of the IBC.
Vide order dated 22.4.2021, NCLT directed RP to
convene a meeting of CoC consisting of the members, who
constituted CoC originally in the year 2017.
Being aggrieved thereby, the erstwhile Director of
the Corporate DebtorK.N. Rajakumar, had preferred an
appeal being Company Appeal (AT)(CH)(Ins) No. 48 of 2021
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before NCLAT. The said appeal came to be dismissed by
NCLAT vide order dated 30.4.2021, which in turn has been
challenged in Civil Appeal No. 1792 of 2021 and Civil
Appeal No.2901 of 2021.
CoC vide its resolution dated 25.5.2021 passed in
its 8th meeting, unanimously resolved to withdraw CIRP
initiated in respect of the Corporate Debtor.
Vide order dated 4.6.2021, NCLT allowed the
application filed by K.N. Rajakumar for withdrawal of CIRP
in respect of the Corporate Debtor and directed RP to hand
over the management of the Corporate Debtor to the Board
of Directors. The application filed by D. Ramjee seeking to
set aside the resolution dated 25.5.2021 passed in the 8 th
CoC meeting thereby approving the withdrawal of CIRP
initiated against the Corporate Debtor was dismissed by
NCLT vide order dated 6.7.2021, having been rendered
infructuous.
Hence Civil Appeal No.2901 of 2021, filed by D.
Ramjee before this Court being aggrieved as aforesaid.
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5. In Civil Appeal No. 2901 of 2021, this Court on
23.7.2021 passed the following order:
“Permission to file appeal is
granted.
Issue notice.
In the meantime, there shall be
stay of operation and implementation of
the impugned judgment and stay of
further proceedings taken out in
pursuance of the impugned order.”
6. In Civil Appeal No.1792 of 2021 filed by K.N.
Rajakumar, this Court vide the same order dated 23.7.2021
directed the said appeal to be listed along with Civil Appeal
No.2901 of 2021 filed by D. Ramjee.
7. Subsequently, K.N. Rajakumar filed an
application being I.A. No.87750 of 2021 in Civil Appeal
No.2901 of 2021 seeking vacation of the stay granted by
this Court vide order dated 23.7.2021. When the said I.A.
was listed, we directed the appeals to be heard on merits.
Accordingly, on 1.9.2021 the appeals were heard at
considerable length.
8. We have heard Shri Ritin Rai, learned Senior
Counsel appearing on behalf of D. Ramjee, Shri K.V.
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Viswanathan, learned Senior Counsel appearing on behalf
of K.N. Rajakumar and Shri Mohan Chevanan, learned
counsel appearing for HDFC Bank.
9. It is contended on behalf of D. Ramjee that the
provisions of the IBC require the claims of all the creditors
of the Corporate Debtor to be updated by RP from time to
time.
Relying on Regulation 16 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations 2016 (hereinafter
referred to as ‘2016 Regulations’), it is submitted on behalf
of D. Ramjee that since the matter was settled between the
financial creditors and the Corporate Debtor, CoC was
required to be constituted only of the operational creditors.
Further relying on Section 25(2)(e) of the IBC, it is
submitted that in recognition of the principle that a creditor
must continue to have a valid claim to be a member of CoC,
it is mandated that RP should maintain an updated list of
claims. It is further submitted that Section 24(6) of the IBC
provides that the voting share shall be based on the
financial debts owed.
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Relying on various provisions of the IBC and the
2016 Regulations, it is submitted that the composition of
CoC must change on the basis of the updated claims of the
creditors and whenever the claims of the creditors undergo
any change, the composition of CoC must change
accordingly. It is therefore submitted that since the
Corporate Debtor does not have any financial creditors, CoC
ought to have been constituted of operational creditors,
wherein D. Ramjee would have a substantial voting right.
It is further submitted on behalf of D. Ramjee
that the contention of K.N. Rajakumar that since the
Corporate Debtor has taken finance from HDFC Bank
(respondent No.2 in Civil Appeal No.1792 of 2021 and
respondent No.4 in Civil Appeal No.2901 of 2021), CoC
should consist only of HDFC Bank, is without merit,
inasmuch as the finance taken from HDFC Bank was only
an ‘interim finance’ and as such, HDFC Bank could not be
termed as a financial creditor. It is submitted that the view
taken by both NCLT and NCLAT that CoC should constitute
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only of financial creditors as on the date of initiation of CIRP
proceedings is untenable.
10. Per contra, it is submitted on behalf of K.N.
Rajakumar that the new Management of the Corporate
Debtor has successfully revived the business by settling the
claims of members of CoC, amounting to
Rs.46,31,16,650/.
It is submitted that order dated 13.6.2017 passed
by NCLT admitting Section 9 application of D. Ramjee
initiating CIRP proceedings was challenged by the Corporate
Debtor before NCLAT. NCLAT vide order dated 2.8.2017
had allowed the appeal and set aside the said order dated
13.6.2017. It is submitted that D. Ramjee did not challenge
the same and as such, said order dated 2.8.2017 had
attained finality.
It is further submitted that D. Ramjee had
received an amount of Rs.18,50,000/ as arrears of salary.
Vide order dated 3.3.2021, this Court had rejected the
application filed by D. Ramjee for permission to file an
appeal. It is submitted that having not challenged the
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order dated 2.8.2017 passed by NCLAT allowing the appeal
and setting aside the initiation of CIRP proceedings against
the Corporate Debtor at the behest of D. Ramjee, he did not
have any locus in the proceedings initiated by the Corporate
Debtor for withdrawal of CIRP proceedings.
It is submitted that the new Management of the
Corporate Debtor has taken a loan from HDFC Bank, which
fact has also been acknowledged by NCLT in its order dated
4.6.2021 while permitting withdrawal of CIRP proceedings
under Section 12A of the IBC.
It is the contention of K.N. Rajakumar that as a
matter of fact, NCLT and NCLAT ought to have held that
CoC should consist only of HDFC Bank, which is now the
sole financial creditor.
11. Though, various submissions have been
advanced on behalf of the rival parties, we do not find it
necessary to go into the said issues. It is a settled principle
of law that the Court should not go into the academic issues
and seek to interpret the provisions of law when it is not
necessary for deciding the issues in the appeal(s). Reference
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in this regard could be made to the judgments of this Court
in the cases of Vidya Charan Shukla v. Purshottam Lal
Kaushik1 and K.I. Shephard and others v. Union of
India and others2.
12. At this juncture, it would be relevant to refer to
Section 12A of the IBC, which reads thus:
“12A. Withdrawal of application
admitted under section 7, 9 or 10.—
The Adjudicating Authority may allow
the withdrawal of application admitted
under section 7 or section 9 or section
10, on an application made by the
applicant with the approval of ninety per
cent voting share of the committee of
creditors, in such manner as may be
specified.”
13. It could thus be seen that the Adjudicating
Authority is entitled to withdraw the application admitted
under Section 7 or Section 9 or Section 10, on an
application made by the applicant with the approval of 90%
voting share of the CoC.
14. It is not in dispute that the resolution of CoC
approving withdrawal of CIRP proceedings was supported by
1 (1981) 2 SCC 84
2 (1987) 4 SCC 431
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the requisite voting majority. NCLT after considering the
resolution passed by CoC in its 8 th meeting held on
25.5.2021 has allowed the application filed by K.N.
Rajakumar vide order dated 4.6.2021.
15. This Court in the case of Ghanashyam Mishra
and Sons Private Limited through the Authorized
Signatory v. Edelweiss Asset Reconstruction Company
Limited Through The Director and Others3 after
considering the earlier pronouncements of law by this Court
with regard to aims and objects of IBC has observed thus:
“86. As discussed hereinabove, one of
the principal objects of I&B Code is,
providing for revival of the Corporate
Debtor and to make it a going concern.
I&B Code is a complete Code in itself.
Upon admission of petition under
Section 7, there are various important
duties and functions entrusted to RP
and CoC. RP is required to issue a
publication inviting claims from all the
stakeholders. He is required to collate
the said information and submit
necessary details in the information
memorandum. The resolution applicants
submit their plans on the basis of the
details provided in the information
memorandum. The resolution plans
undergo deep scrutiny by RP as well as
3 2021 SCC OnLine SC 313
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CoC. In the negotiations that may be
held between CoC and the resolution
applicant, various modifications may be
made so as to ensure, that while paying
part of the dues of financial creditors as
well as operational creditors and other
stakeholders, the Corporate Debtor is
revived and is made an ongoing
concern. After CoC approves the plan,
the Adjudicating Authority is required to
arrive at a subjective satisfaction, that
the plan conforms to the requirements
as are provided in subsection (2) of
Section 30 of the I&B Code. Only
thereafter, the Adjudicating Authority
can grant its approval to the plan. It is at
this stage, that the plan becomes
binding on Corporate Debtor, its
employees, members, creditors,
guarantors and other stakeholders
involved in the resolution Plan. The
legislative intent behind this is, to freeze
all the claims so that the resolution
applicant starts on a clean slate and is
not flung with any surprise claims. If
that is permitted, the very calculations
on the basis of which the resolution
applicant submits its plans, would go
haywire and the plan would be
unworkable.”
16. It could thus be seen that one of the principal
objects of the IBC is providing for revival of the Corporate
Debtor and to make it a going concern. Every attempt has
to be first made to revive the concern and make it a going
concern, liquidation being the last resort.
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17. From the order of NCLT dated 4.6.2021, it could
be seen that the Corporate Debtor has already settled the
issue with the erstwhile financial creditors, who have
resolved to withdraw the CIRP proceedings and by virtue of
withdrawal of CIRP proceedings, the Corporate Debtor now
is a going concern.
18. Insofar as the appeal filed by D. Ramjee is
concerned, we have already observed that the order of
NCLAT dated 2.8.2017 allowing the appeal filed by the
Corporate Debtor and setting aside the order dated
13.6.2017 passed by NCLT in D. Ramjee’s application under
Section 9 of the IBC has admittedly not been challenged by
D. Ramjee. In pursuance of the assurance given before
NCLAT, an amount of Rs.18,50,000/ was also paid to D.
Ramjee towards arrears of salary by the Corporate Debtor.
The application for permission to file an appeal filed by D.
Ramjee before this Court has been rejected by this Court
vide judgment and order dated 3.3.2021.
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19. In that view of the matter, we find that insofar as
D. Ramjee is concerned, the issue has attained finality as on
2.8.2017 when the appeal filed by the Corporate Debtor
came to be allowed by NCLAT. We find that NCLT vide order
dated 6.7.2021, passed in the application
(I.A.No.540/CHE/2021) filed by D.Ramjee, has rightly held
that from the date of the order dated 4.6.2021, after the
withdrawal of CIRP proceedings, the powers and
management of the Corporate Debtor were handed over to
the Directors of the Corporate Debtor and from that date RP
and CoC in relation to the Corporate Debtor had become
functus officio. NCLT has rightly disposed of the application
filed by D.Ramjee having rendered infructuous.
20. In the result, we find no reason to interfere with
the same. Civil Appeal No.2901 of 2021 filed by D. Ramjee
is therefore dismissed.
21. Insofar as Civil Appeal No.1792 of 2021 filed by
K.N. Rajakumar is concerned, in view of the subsequent
development i.e. withdrawal of CIRP proceedings vide order
dated 4.6.2021, the counsel for the appellant has circulated
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a letter dated 23.7.2021, thereby seeking withdrawal of the
appeal leaving the questions of law open. The said appeal
therefore stands disposed of as withdrawn.
22. The appeals are disposed of in the above terms.
All pending applications in both the appeals shall also stand
disposed of.
…….……………………, J.
[L. NAGESWARA RAO]
…….……………………, J.
[B.R. GAVAI]
…….……………………, J.
[B.V. NAGARATHNA]
NEW DELHI;
SEPTEMBER 15, 2021
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