2024 (10) TMI 574 - AT - IBC

Financial creditor's Section 7 petition upheld after corporate debtor acknowledged liability extending limitation period

Rajesh Ravji Patel Suspended Director of Vilsons Roofing Product Pvt. Ltd. Versus Pegasus Assets Reconstruction Pvt. Ltd., Vandana Garg Interim Resolution Professional of Vilsons Roofing Product Pvt. Ltd

The NCLAT upheld the admission of a Section 7 petition filed by a financial creditor against a corporate debtor. The tribunal found the petition was filed ... Admissibility of Section application - Petition barred by time limitation or not - existence of debt and default corroborated by records or not - Legal Right Under Sanctioned Restructuring - Interpretation of Clause 7. Date of Default and Limitation Period - HELD THAT:- The period of limitation was extended, pursuant to the restructuring of debt, vide letter dated 27th March, 2021, and further modified vide letter dated 31st March, 2021. By this, the corporate debtor acknowledged its liability as on 31.12.20219, to the extent of Rs. 30,33,02,248.17. Thus, there was due acknowledgment of debt/liability, by the corporate debtor, prior to expiry of limitation period on 29.04.2021, even if the date of default is taken as 30.04.2018. Therefore, we find that the Adjudicating Authority has correctly concluded that the limitation period was extended due to the restructuring of the debt acknowledged on 27.03.2021, thus making the filing of the Petition on 15.12.2022 within the limitation period. The part payments made by the Corporate Debtor post-cancellation of the restructuring plan do not alter this acknowledgment. The Hon’ble Supreme Court's order in IN RE: COGNIZANCE FOR EXTENSION OF LIMITATION [2022 (1) TMI 385 - SC ORDER], which excluded the period from 15.03.2020 to 28.02.2022 for limitation purposes, further supports the timely filing of the Petition. The Honourable Apex Court had issued direction that period from 15.03.2020 till 28.02.2022, shall stand excluded for the purposes of limitation as may be prescribed under any special or general statute. Legal Right Under Sanctioned Restructuring - HELD THAT:- Respondent No.1 exercised its legal right under Clause 7 of the Sanctioned Restructuring to revoke the restructuring upon default, reinstating the original liability plus interest. The Corporate Debtor's failure to meet the restructuring terms led to the revocation, and subsequent letters from the Corporate Debtor requesting additional time were not grounds for continuation of the restructuring plan. Compliance with Circular and Other Grounds - Appellant's contention regarding non-compliance with the Master Circular on Asset Reconstruction Companies dated 10.02.2022 is not substantiated with concrete evidence. Furthermore, the arguments about malicious intent and lack of evidence are unsubstantiated, given the documentary evidence presented by Respondent No.1. Interpretation of Clause 7 - HELD THAT:- Clause 7 of the Sanctioned Restructuring Plan explicitly provides that in the event of default, the Financial Creditor has the legal right to revoke the sanctioned restructuring and restore the original liability as on the cutoff date. The Corporate Debtor's non-compliance with the restructuring terms justified the revocation - Appellant has relied on the judgement of the Hon’ble Apex Court in Vidharbha Industries Power Limited vs Axis Bank Limited [2022 (7) TMI 581 - SUPREME COURT] wherein it was held that discretionary power vests with this Tribunal under Section 7 (5)(a). It was held that while discretion is conferred on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. The Hon’ble Supreme Court further held that the decision in the case of Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in the case of Innoventive Industries [2017 (9) TMI 58 - SUPREME COURT] and E.S. Krishnamurthy [2021 (12) TMI 683 - SUPREME COURT]. It finally held that the non-payment of a part of the debt when it becomes due and payable will amount to default on the part of the corporate debtor and an order under Section 7 Insolvency Bankruptcy Code must follow. So both these judgements do not support the case of the Appellant. In view of the admitted facts, documentary evidence, and the justified findings of the Adjudicating Authority, the Appeal lacks merit. The Impugned Order dated 27.10.2023, admitting Company Petition No. 9 of 2023 and initiating CIRP against Vilson Roofing Product Pvt. Ltd., is upheld. Appeal dismissed. Issues Involved:1. Incorrect Date of Default2. Determination of Default Date3. Improper Basis for Default4. Acknowledgment of Debt5. Barred by Limitation6. Compliance with Circular7. Clause 7 Interpretation8. Lack of Evidence9. Service of Petition10. Malicious Intent11. Hon'ble Supreme Court PrecedentsIssue-wise Detailed Analysis:1. Incorrect Date of Default:The Appellant contended that the date of default should be the date of non-payment under the restructured plan, not before. The Tribunal found that the restructuring plan acknowledged the debt, thus extending the limitation period. The default date of 30.04.2018 was not barred by limitation due to the acknowledgment of debt on 27.03.2021.2. Determination of Default Date:The Appellant argued that the Adjudicating Authority cannot determine a default date different from that stated in the Petition. The Tribunal upheld the NCLT's finding that the restructuring acknowledgment extended the limitation period, making the Petition timely.3. Improper Basis for Default:The Appellant claimed that the basis for default, being the NPA classification, was incorrect post-restructuring. The Tribunal found that the restructuring plan's revocation clause legally reinstated the original liability upon default, justifying the CIRP initiation.4. Acknowledgment of Debt:The Appellant disputed that part payments extended the limitation period. The Tribunal held that the acknowledgment of debt in the restructuring plan extended the limitation, supporting the Petition's timeliness.5. Barred by Limitation:The Appellant argued the claim was time-barred, with the default date being 30.04.2018. The Tribunal concluded that the restructuring acknowledgment extended the limitation, and the Supreme Court's exclusion of the limitation period due to COVID-19 further supported the Petition's timeliness.6. Compliance with Circular:The Appellant alleged non-compliance with the Master Circular on Asset Reconstruction Companies. The Tribunal found no concrete evidence to support this claim, dismissing it as unsubstantiated.7. Clause 7 Interpretation:The Appellant contended that reliance on Clause 7 for default determination was misplaced. The Tribunal upheld the Financial Creditor's legal right to revoke restructuring upon default, as explicitly provided in Clause 7.8. Lack of Evidence:The Appellant claimed a lack of evidence for the default date. The Tribunal found sufficient documentary evidence supporting the Financial Creditor's claims, dismissing this contention.9. Service of Petition:The Appellant argued non-compliance with Rule 4(3) regarding service of the Petition. The Tribunal did not find this argument substantiated with evidence, dismissing it.10. Malicious Intent:The Appellant alleged the Petition was filed with malicious intent. The Tribunal found the CIRP initiation justified by the Corporate Debtor's default, rejecting claims of malicious intent.11. Hon'ble Supreme Court Precedents:The Appellant cited Supreme Court precedents to argue against the CIRP initiation. The Tribunal clarified that the cited judgments did not support the Appellant's case, affirming the NCLT's decision to proceed with the CIRP.Conclusion:The Tribunal upheld the NCLT's Impugned Order dated 27.10.2023, admitting Company Petition No. 9 of 2023 and initiating CIRP against the Corporate Debtor, Vilson Roofing Product Pvt. Ltd. The Appeal was dismissed, and the CIRP was directed to continue as per the Impugned Order, with the Interim Resolution Professional proceeding in accordance with the Insolvency and Bankruptcy Code, 2016.