2020 (10) TMI 164 - Tri - Insolvency and Bankruptcy

Tribunal dismisses insolvency application, finding collusion between bank and debtor. Sleepwell Industries intervenes.

Bank of Baroda Versus Sri Munisuvrata Agri International Limited and Ors.

The tribunal dismissed the Section 7 application under the Insolvency & Bankruptcy Code by Bank of Baroda against M/s. Sri Munisuvrata Agri ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- There is undoubtedly that the default in repayment of various loan admittedly availed by the CD is artificial and man-made. There are inconsistencies as regards date of declaration of NPA as well as the date of default. The date of default in Packing Credit Account allegedly occurred on 28.02.2018 and the Cash Credit, Packing Credit/FBP/FBD, Inland/Import Letter of Credit and Inland/Foreign Bank Guarantee have been allegedly classified as Non Performing Asset on 29.05.2018. However, the total default amount in cash credit account seems to have been claimed, is ₹ 46,32,00,000/- as on 23.09.2018, that is subsequent to the date of declaration of account as NPA on 29.05.2018. This anomaly has not been properly explained. Evidently as on 31.03.2017, the Corporate Debtor company was a profit making solvent company, (As per admitted financial statement of Corporate Debtor). How this profit making company all of a sudden went into insolvency, no valid explanation is forthcoming. According to the Ld. Counsel for the Corporate Debtor, it is because the situation had changed from the middle of March, 2018 because of a sudden and unexpected circular issued by the Reserve Bank of India dated March 13, 2018 being Circular No. 20 by which all authorized dealer Category-I Bank authorized to deal in foreign exchange were directed to discontinue the practice of issuance of Letter of Undertakings (LoUs)/Letter of Comforts (LoCs) for trade credits for imports into India with immediate effect. There is enough material on record to prove that the Financial Creditor had never been serious in initiating any action under the Code against the Corporate Debtor either in the earlier application under Section 10 of the Code, filed by the corporate applicant, or in the present proceedings under Section 7 of the Code. The Credit facilities had admittedly been revised and sanctioned from time to time and finally on 15th February, 2018 when various documents had been got executed from the Corporate Debtor, the date of default could not be 28th February, 2018 and the date of the corporate debtor's account could not be declared as NPA on 29th May, 2018 when bank had accepted the Resolution passed by the Board of Directors of the Corporate Debtor on 15th February, 2018. The Bank appears to have some other Agenda either at the time of enhancing credit facilities or at the time of declaring the account of the Corporate Debtor as an NPA on 29th May, 2018. The Financial Creditor has completely failed to convince us as regards the date of default being 28th February, 2018, and classification of its account being a non-performing asset on 29th May, 2018. The two dates being, material for initiating CIRP against a corporate person, the application is bound to fail - In the facts and circumstances and the arguments discussed, the Intervener's application is found liable to be allowed, and the CP, being devoid of any merit, liable to be dismissed. Application dismissed. Issues Involved:1. Application under Section 7 of the Insolvency & Bankruptcy Code (IBC) by the Financial Creditor.2. Allegations of collusion between the Financial Creditor and the Corporate Debtor.3. Intervention by a third party claiming fraudulent intent behind the insolvency application.4. Examination of the default and classification of the Corporate Debtor's account as a Non-Performing Asset (NPA).Issue-wise Detailed Analysis:1. Application under Section 7 of the IBC by the Financial Creditor:The Financial Creditor, Bank of Baroda, filed an application under Section 7 of the IBC seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Sri Munisuvrata Agri International Limited. The Financial Creditor claimed a total outstanding debt of Rs. 71,54,00,000 as on 23.09.2018, with the account classified as NPA on 29.05.2018. The Financial Creditor proposed Mr. Samir Kumar Bhattacharyya as the Interim Resolution Professional (IRP).2. Allegations of Collusion Between the Financial Creditor and the Corporate Debtor:The Corporate Debtor, in its response, highlighted that it had a satisfactory credit history and blamed its financial distress on external factors, such as an RBI circular discontinuing the issuance of Letters of Undertaking (LoUs) and Letters of Comfort (LoCs). The Corporate Debtor argued that certain consortium banks, including Standard Chartered Bank and Punjab National Bank, failed to comply with consortium agreements, exacerbating its financial troubles. The Corporate Debtor also mentioned a significant demand from the Income Tax Department, which further strained its finances.3. Intervention by a Third Party Claiming Fraudulent Intent:Sleepwell Industries Co. Limited, an intervener, claimed that the Section 7 application was a fraudulent attempt by the Corporate Debtor to avoid paying dues. The intervener had foreign awards against the Corporate Debtor and alleged that the Corporate Debtor's actions, including a name change and filing for insolvency, were intended to frustrate the execution of these awards. The intervener cited previous judicial observations and alleged collusion between the Corporate Debtor and the Financial Creditor.4. Examination of the Default and Classification of the Corporate Debtor's Account as an NPA:The tribunal scrutinized the timeline and circumstances leading to the default and NPA classification. The Financial Creditor claimed that the default occurred on 28.02.2018, and the account was classified as NPA on 29.05.2018. However, the tribunal found inconsistencies in these dates, particularly given that the consortium banks had enhanced credit facilities as recently as 15.02.2018. The tribunal noted that the Corporate Debtor was a profit-making entity as of 31.03.2017 and questioned how it could suddenly become insolvent.Conclusion:The tribunal concluded that the default claimed by the Financial Creditor was artificial and man-made. It found sufficient evidence of collusion between the Financial Creditor and the Corporate Debtor, aimed at avoiding payment to the intervener. The tribunal dismissed the Section 7 application, citing a lack of merit and inconsistencies in the Financial Creditor's claims. The intervention application by Sleepwell Industries Co. Limited was allowed, and the CIRP application by Bank of Baroda was dismissed. The tribunal directed the registry to communicate the order to all concerned parties.