K.N RAJAKUMAR vs. V NAGARAJAN

1 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 J U D G M E N T   B.R. GAVAI, J.  1. Both   these   appeals   are   being   decided   by   this common judgment and order. The appellant­D. Ramjee in Civil Appeal No.2901 2. 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 th passed   in   the   8   Committee   of   Creditors   (hereinafter 2 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 3 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. 4 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 5 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 6 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 7 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 8 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 th its   8   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 th set aside the resolution dated 25.5.2021 passed in the 8 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.  9 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.   Subsequently,   K.N.   Rajakumar   filed   an 7. 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. 10 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.   11 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 12 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 13 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 14 in this regard could be made to the judgments of this Court in the cases of  Vidya Charan Shukla v. Purshottam Lal 1 and   Kaushik   K.I.   Shephard   and   others   v.   Union   of 2 India and others . At this juncture, it would be relevant to refer to 12. 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 15 the requisite voting majority.   NCLT after considering the th resolution   passed   by   CoC   in   its   8   meeting   held   on 25.5.2021   has   allowed   the   application   filed   by   K.N. Rajakumar vide order dated 4.6.2021.   This Court in the case of   15. Ghanashyam Mishra and   Sons   Private   Limited   through   the   Authorized Signatory v. Edelweiss Asset Reconstruction Company

considering the earlier pronouncements of law by this Court with regard to aims and objects of IBC has observed thus:  

3 2021 SCC OnLine SC 313 16

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.   17 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.  18 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 19 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.   The appeals are disposed of in the above terms. 22. 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