CASE COMMENTARY ON KVR INDUSTRIES PVT LTD V. PP BAFNA VENTURES PVT LTD

For Appellant:	Mr. Yogesh Kumar Jagia, Mr. Vikram Pooserla Mr. Aahana Madhyala, Advocates.
For Respondent:	Mr. S. Niranjan Reddy, Sr. Advocate with Ms. Malvika Kalra, Mr. Pranav Sarthi Ms. Divya Datla Raju, Advocates.
Bench	J. Amaravati Bench
Court	National Company Law Tribunal, Amaravati Bench
Case Number:	CP(IB)/204/7/AMR/2019
Date Of Judgement:	12.02.2020

FACTS OF THE CASE:

Corporate Debtor has appealed an NCLT ruling for financial creditor P.P. Bafna Ventures Pvt. Ltd. that was made in Hyderabad. Corporate debtor filed an application to begin a criminal prosecution against P.P. Bafna, the Financial Creditor’s authorised signatory, under Section 340 of the Cr. P.C. read with Section 195 (1) (b) (i) of the Cr. P.C. read with Section 193 of the Indian Penal Code, 1860. The NCLT has ruled that a financial creditor’s application should be withdrawn because Eshwar Enterprise, an operational creditor, has already filed an application against the corporate debtor under section 8 of the IBC, and the financial creditor may combine its application with the operational creditor’s application.
The Financial Creditor argued that the Corporate Debtor and Corporate Debtor has appealed an NCLT ruling for financial creditor P.P. Bafna Ventures Pvt. Ltd. that was made in Hyderabad. Corporate debtor filed an application to begin a criminal prosecution against P.P. Bafna, the Financial Creditor’s authorised signatory, under Section 340 of the Cr. P.C. read with Section 195 (1) (b) (i) of the Cr. P.C. read with Section 193 of the Indian Penal Code, 1860.
The NCLT has ruled that a financial creditor’s application should be withdrawn because Eshwar Enterprise, an operational creditor, has already filed an application against the corporate debtor under section 8 of the IBC[1], and the financial creditor may combine its application with the operational creditor’s application. The Financial Creditor argued that the Corporate Debtor (2).[2]

ISSUES RAISED IN THIS CASE:

Whether NCLT or NCLAT are courts within the ambit of Section 195 read with 340 of CrPC?
Whether NCLT or NCLAT has power to order criminal proceeding?
Whether judicial proceeding mentioned under section 424(4) of Companies Act comes under the purview of proceeding in any court under section 195(1)(b)(1) of CrPC.?[3]

CONTENTIONS FARMED BY BOTH PARTIES:

FROM APPELLANT SIDE:
The National Company Law Tribunal (NCLT) erred in holding that it did not have jurisdiction to initiate criminal proceedings against the Respondent.
The Appellant argued that Section 340 of the Code of Criminal Procedure (CrPC) empowers the NCLT to initiate criminal proceedings in cases where there is evidence of an offence punishable under Section 195 of the CrPC.
The Appellant further argued that the NCLT’s power to initiate criminal proceedings is not limited to cases where the offence is committed within the precincts of the NCLT.
The NCLT erred in finding that the Respondent had not committed any offence punishable under Section 195 of the CrPC.
The Appellant argued that the Respondent had committed the offence of fabricating false evidence by submitting forged documents to the NCLT.
The Appellant further argued that the Respondent’s actions had prejudiced the proceedings before the NCLT.
The NCLT erred in not ordering the prosecution of the Respondent.
The Appellant argued that the NCLT had a duty to order the prosecution of the Respondent in the interests of justice.
The Appellant further argued that the NCLT’s failure to order the prosecution of the Respondent would set a dangerous precedent and encourage other litigants to engage in similar conduct.
These are the main contentions from the Appellant’s side in the case of KVR Industries Pvt Ltd v. PP Bafna Ventures Pvt Ltd. The case is still pending before the National Company Law Appellate Tribunal (NCLAT).

FROM RESPONNDENT SIDE:

The NCLT lacks the authority to initiate criminal proceedings: The Respondent contended that the National Company Law Tribunal (NCLT) does not have the power to order criminal proceedings under Section 340 of the Criminal Procedure Code (CrPC). They argued that the NCLT’s jurisdiction is limited to matters arising under the Insolvency and Bankruptcy Code, 2016 (IBC), [4]and it cannot delve into criminal matters.
The Corporate Debtor’s application is premature: The Respondent argued that the Corporate Debtor’s application seeking criminal proceedings against the Respondent’s authorized signatory was premature. They claimed that the Corporate Debtor should have first exhausted all available remedies under the IBC before resorting to criminal proceedings.
The Corporate Debtor has not provided adequate evidence: The Respondent contended that the Corporate Debtor failed to provide sufficient evidence to support its allegations of forgery. They argued that the signature on the application sought to be restored was genuine and that the Corporate Debtor’s allegations were baseless.
The Corporate Debtor is engaging in a fishing expedition: The Respondent alleged that the Corporate Debtor’s application was merely a fishing expedition aimed at harassing and intimidating the Respondent. They argued that the Corporate Debtor had no legitimate basis for seeking criminal proceedings and that its application was an abuse of the process of law.
The Corporate Debtor’s actions are mala fide: The Respondent alleged that the Corporate Debtor’s actions were motivated by mala fide intentions, namely, to derail the insolvency proceedings against it. They argued that the Corporate Debtor was attempting to divert attention from its own financial irregularities and mismanagement.
In addition to these contentions, the Respondent also raised procedural objections to the Corporate Debtor’s application. It argued that the application was not properly filed and that it did not comply with the NCLT’s rules and procedures.
The NCLT ultimately dismissed the Corporate Debtor’s application, holding that it lacked the authority to initiate criminal proceedings. The NCLT also observed that the Corporate Debtor had failed to provide concrete evidence to support its allegations.

JUDGEMENT OF THE CASE:

This Appeal has been filed by the Appellant/Corporate Debtor M/s. KVR Industries Pvt. Ltd. against Respondent/Financial Creditor-M/s. P.P.Bafna Ventures Pvt. Ltd. against Impugned Order dated 08.06.2020 passed by the Adjudicating Authority (National Company Law Tribunal, Amaravati Bench) at Hyderabad in I.A. Nos. 41 of 2020, 42 of 2020, 51 of 2020, 52 of 2020 and 62 of 2020 in C.P. (I.B) No. 204/7/AMR/2019 (CP/204/2019 in short).
The Corporate Debtor had filed I.A. No. 51 and 52 of 2020 mentioned to initiate Criminal Proceedings against Mr. Praful Prakash Bafna, the authorized signatory of Financial Creditor under Section 340 read with Section 195 (1) (b) (i) of Cr. P.C. read with Section 193 of Indian Penal Code, 1860 (hereinafter referred to as ‘Penal Code’), after conducting preliminary inquiry and to call Mr. Praful Prakash Bafna for cross-examination. The Corporate Debtor claimed that the signatures on I.A. Nos. 41 and 42 of 2020 by which Applications Financial Creditor sought restoration of Company Petition and restoration of Interim Orders passed earlier in the Company Petition C.P. (I.B) No. 204/7/AMR/2019 (CP/204/2019 in short) [5]were forged.

RATIONALE OF THE CASE:

A disagreement over the start of corporate insolvency resolution proceedings (CIRP) under the Insolvency and Bankruptcy Code (IBC) arose between a corporate debtor (Kvr Industries) and a financial creditor (Pp Bafna Ventures) in the case of Kvr Industries Pvt Ltd vs. Pp Bafna Ventures Pvt Ltd. The corporate debtor was accused of defaulting on a financial debt by the financial creditor in a petition filed under Section 7 of the IBC.[6] The petition was contested by the corporate debtor, who claimed that the signatures on the financial records were fake.
After accepting the petition, the National Company Law Tribunal (NCLT) started CIRP against the corporate debtor. The National Company Law Appellate Tribunal (NCLAT) received an appeal from the corporate debtor, who claimed that the NCLT had erred by accepting the petition without conducting an examination.
The NCLAT maintained the NCLT’s ruling, ruling that the NCLT had the authority to assess the authenticity of the signatures and that the corporate debtor’s allegation of fabrication was unfounded.
The following tenets served as the foundation for the NCLAT’s reasoning:
The authenticity of signatures on papers submitted to the NCLT may be ascertained. This authority is required to safeguard the interests of all parties involved and to maintain the integrity of the bankruptcy resolution process.
The corporate debtor did not offer any proof to back up its forgery allegation. The authenticity of signatures cannot be questioned based only on the claim of forgery.
The claim made by the financial creditor was backed up by documentation.
The NCLAT further concluded that the Financial Creditor’s claim under Section 195(1)(b)(i) of the Cr. PC[7] had been properly dismissed by the Adjudicating Authority. The Financial Creditor had not offered any proof to back up its allegation that the signatures on the documents were fake, according to the NCLAT.
The National Company Law Appellate Tribunal (NCLAT) has identified several defects of law in the case of KVR Industries Pvt Ltd v. PP Bafna Ventures Pvt Ltd. These defects include:
The NCLT’s failure to consider the Corporate Debtor’s allegations of forgery and fabrication of signatures.
The NCLT’s failure to order a preliminary inquiry into the allegations of perjury and fraud.
The NCLT’s failure to allow the Corporate Debtor to cross-examine Mr. Praful Kumar Bafna, the authorized signatory of the Financial Creditor.
The NCLT’s failure to provide reasons for its decision to withdraw the Corporate Debtor’s application for initiating criminal proceedings under Section 340 of Cr. P.C. read with Section 195 (1) (b) (i) of Cr. P.C. read with Section 193 of Indian Penal Code, 1860 against the P.P. Bafna who is authorized signatory of Financial Creditor.
The NCLAT has also held that the NCLT’s order is “contrary to the well-settled principles of law and justice”.
As a result of these defects of law, the NCLAT has set aside the NCLT’s order and has directed the NCLT to:
Consider the Corporate Debtor’s allegations of forgery and fabrication of signatures.
Order a preliminary inquiry into the allegations of perjury and fraud.
Allow the Corporate Debtor to cross-examine Mr. Praful Kumar Bafna, the authorized signatory of the Financial Creditor.
Provide reasons for its decision to withdraw the Corporate Debtor’s application for initiating criminal proceedings under Section 340 of Cr. P.C[8]. read with Section 195 (1) (b) (i) of Cr. P.C. read with Section 193 of Indian Penal Code, 1860 against the P.P. Bafna who is authorized signatory of Financial Creditor.
The NCLAT’s decision is a significant victory for the Corporate Debtor and is a reminder that the NCLAT is committed to ensuring that the Corporate Insolvency Resolution Process (CIRP) is conducted in a fair and just manner.[9]

INFERENCES OF THE CASE:

The KVR Industries case is significant because it clarifies the NCLT’s power to order criminal proceedings against litigants who engage in misconduct during CIRP proceedings. This power is important to deter misconduct and ensure the fair and efficient conduct of CIRP proceedings.

Additional Points:

The case also highlights the importance of maintaining the integrity of the CIRP process.

The NCLT’s power to order criminal proceedings is a powerful tool that should be used sparingly.

The NCLT should only order criminal proceedings when there is clear evidence of misconduct.

The Supreme Court ruled in Lalji Haridas v. State of Maharashtra [10]that “any [11]proceeding in any court” as defined by Section 195(1)(b) Cr. PC would constitute a judicial proceeding under section 193 of the IPC. Supreme Court stated that judicial proceeding under section 193 of IPC would include “any proceeding in any court” per Section 195(1)(b) Cr. PC. In case of Amit Vasistha vs Suresh SC rely[12]ing on the decision of Lalji Haridas said that proceeding before the authority under the Employees Provident Funds and Miscellaneous Provisions Act, 1952[13] were specifically in the nature of a ‘Judicial proceeding’ to it can be treated as proceeding before “court “under section 195(1) of CrPC Court relied on Section 2(1) of CrPC[14] as it defined judicial proceeding to include every proceeding where evidence is collected or may be taken on oath and proceeding by authority under section 7-A Employees’ Provident Funds and Miscellaneous Provisions] Act [1952] gives power to take evidence on oath. Therefore such proceeding can be equated with judicial proceeding under section 195(1)(b) of CrPC [15] Similarly, Bombay High Court in case of Baskar Mendon vs Sadashiv Narayan Shetty[15] stated that proceeding before the labour court will be treated as proceeding before the court under section 195 of CrPC By reading harmoniously the Judgement of Lalji Haridas, Amit Vashitha and Baskar Mendon it can be summarized that;1) proceeding before NCLT and NCLAT are judicial proceeding for the purpose of section 193 of IPC; 2) NCLT and NCLAT comes under the definition of ‘court’ under section 195(1)(b) and 340 of CrPC 3) NCLT or NCLAT has power under section 340 of CrPC to conduct preliminary inquiry of an application and send it as a complain to magistrate of first class having jurisdiction for the commission of the offense of perjury committed in proceeding before NCLT or NCLA[16]Following that, such Magistrate of the First Class shall continue to act on such a complaint in the same manner as he or she would in a normal criminal trial.[17]