TaxTMI 
TaxTMI 
2017 (9) TMI 1781
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....nd further M/s. Rotomac Exports Private Limited (as being surety to the loan availed). Hence, both the applications were heard together and for the sake of convenience, are being disposed of by this common order. 3. Brief facts of the case, as per the Applicant Bank is that the Corporate Debtor Company has committed default in making payment of its debts for outstanding amount of Rs. 553.78.21954.66 (Rupees Five hundred and Fifty-Three Crores, Seventy-Eight Lakhs, Twenty-One Thousand, Nine Hundred and Fifty-Four and Sixty-Six Paise Only) such loan facilities have been availed by the borrower company M/s. Rotomac Global Pvt. Ltd. to which the another Corporate Debtor Company (in CP No. 71/2017) e.g. M/s. Rotomac Exports has stood as guarantor. In addition to such loan the admitted outstanding debts due by the Corporate Debtors in respect of other secured creditors also comes around to Rs. 4,420/- Crores (Rupees Four Thousand Four Hundred Twenty Crores) which is evident from the company's own letter dated 14th March, 2016 in respect of the loan amount advanced to the Rotomac Global Pvt. Ltd. being a principal borrower for which the Rotomac Export Pvt. Ltd. Company (herein the ....
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....Corporate Guarantee dated 06.10.2015 5. The applicant Hank has annexed also a written communication which is sent by the proposed Interim Resolution Professional in Form No. II informing such that there is no disciplinary proceeding pending against him. Hence, the present applications to trigger the CIRP against the Corporate Debtor Companies. 1. In opposition of these applications, the Corporate Debtor Companies have raised objection stating that the Applicant-Bank was granting to it certain loan facilities from 2009 onwards and time to time. The last loan facilities were sanctioned to a sum of Rs. 435 crores as per the Consortium of Bank's Agreement. As the total loan availed by the Corporate Debtor Company through all the members Banks of Consortium (including the Bank of India as a Lead Bank) comes around to Rs. 2,129/- Crores. Thus, as per the Corporate Debtor Companies such outstanding against the present Applicant Bank/Financial Creditor in view of the amounts of loan advanced by the Consortium Banks comes only to 22% of the entire debts. It is reported that the Consortium of Banks is comprised of seven banks namely:- i. Bank of India (Lead Bank) ....
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....um have so far been convened on the issue of restructuring of debts between the periods 19.06.2015 to 05.11.2016 and the Banks were working out for a restructuring programme but till the last meeting of JLF held on 5th November, 2016 such Resolution Plan could not be materialized and thereafter, no JLF meeting could be held. On such pretext that the Financial Creditor Bank has initiated a debt recovery proceeding against the Corporate Debtor in the DRT, Allahabad as well as under the SARFAFSI Act. It is also alleged that Financial Creditor Bank went on further to declare the Corporate Debtor as wilful defaulter by its decision dated 04.03.2017. Hence, such action of the Bank was impugned in a Writ Petition No. 12648 of 2017 filed by the Corporate Debtor Company before the Hon'ble Allahabad High Court. The above said writ petition came to be disposed of by the Hon'ble High Court's order dated 20.04.2017 with following direction/observation:- "The Review Committee, thereafter shall pass a fresh order, as expeditiously as possible and in any case on or before 20.05.2017. After a fresh order is passed by the Review Committee, as aforesaid the orders' d....
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....of account of Corporate Debtor Company, and if the company goes into liquidation, then there is every possibility that the present Applicant-Bank may not get any redress from such liquidation as per the Applicant Bank is not a Financer. 11. The Corporate Debtor Companies have further pointed out that the manufacturing activities of the Company are being carried out from Kanpur, Jamnagar and Ahmedabad wherein around 1000 employees are engaged on regular basis. Therefore, the result of admission of the instant applications will necessarily lead to their un-employment and displacement of their families. 12. It is also submitted that the Corporate Debtor Companies are hopeful enough that some positive result will come out in the JLF meeting that may be convened in immediate future (depending upon the convenience of the various Banks). Hence, in the interest of justice the present applications are liable to be dismissed with costs. 6. The Applicant-Financial Creditor in its rejoinder to the abovestated objection has filed affidavit of its Senior Manager Mr. Chandra Shekhar Awasthi stating inter alia that the financial creditor filed its Supplementary Affidavit-II on....
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....rior permission is required by the financial creditor before filing an application under Section 7 of the present Code. In this context, the Hon'ble NCLAT held and observed as such:- "Insofar as the Master Restructuring Agreement dated 8th September, 2014 is concerned, the Appellant cannot take advantage of the same. Even if it is presumed that fresh agreement came into existence, it does not absolve the Appellant from paying the previous debts which are due to the financial creditor." "the Tribunal has noticed that there is a failure on the part of the appellant to pay debts. The Financial Creditor has attached different records in support of default of payment. Apart from that it is not supposed to go beyond the question to see whether there is a failure on fulfilment of obligation by the financial creditor under one or other agreement...." "..........beyond the aforesaid practice, the Adjudicating Authority is not required to look into any other factor, including the question whether permission or consent has been obtained from on or other authority, including the JLF." It is submitted that in fact, several other creditors including Union ....
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....ving over riding effect over other laws and being latest law on the subject, hence, the proceedings before DRT will not debar the right of Financial Creditor to file the application U/s. 7 of the Code. It is also emphasised that the proceedings under the RDDBFI Act is different one then the proceedings of I & B Code before the NCLT as the formal relate to recovery of debt due to the Bank and Financial institution by way of proceeding against the secured assets of debtor, However, the later Code provides for securing assets of debtor in initial nine months and to ascertain its liability for revival of a company or for a speedy liquidation. Therefore, the later Code balance the interests of all the stakeholders including alteration in the priority of payment of Government dues. It is also contended before us, in case the court finds that the present applications fulfil the requirement of Section 7 read with Section 3(11) & (12), then it is not expected to call for further explanation/submission keeping in view of language U/s. 7(5)(b) of the Code and thus the Court being an Adjudicating Authority is expected to admit the present application for triggering the CIRP in respect of the C....
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....12. Therefore, it is submitted that instead of the fact, 8 meetings of JLF were held between the period from 09.06.2015 to 05.11.2016 for the purpose of restructuring the debt of Corporate Debtor with a view to come up with a viable plan for rehabilitating the financial condition of the Corporate Debtor Company so as to ensure the repayment of the loans owed to the various constituent financial institutions of the JLF, to which the present Applicant Bank was a also party by representing its meeting in the JLF but in later course opted out from such proceedings moreover deliberately went on further to declare and categorized the Corporate Debtor Company as a wilful defaulter by its decision dated 04.03.2017 which is done with some mala fide intention to make the Corporate Debtor Companies ineligible for seeking restructuring of its debts and to put a complete stop on all the activities of the Joint Lender's Forum. Therefore, it is alleged such that the Bank has taken steps in contravention to the Statutory guidelines issued by the RBI. Hence, filing of the present application under the I & B Code should not be entertained. In addition to this, the Ld. Sr. Advocate further stress....
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....Court. 14. We gave due importance to the abovestated judgment, however, with due respect to the Hon'ble Bombay High Court and Hon'ble Principal Bench, NCLT in the above referred judgment in our humble opinion the abovestated judgment is not of much assistance to the present Corporate Debtor Companies. Keeping in view, the statutory provision of the Section 7 of the Code wherein pendency of a dispute is no Bar to a Financial Creditor when default occurred is of more than Rupees One Lakh to move the CIRP in respect of Corporate Debtor. Further, the Hon'ble Supreme Court in its recent judgment in Innoventive Industries (supra). As well as the Hon'ble NCLAT its decision in the very same matter has held the provision of the I & B Code are having overriding effect U/s. 238 of the Code. Hence, in our humble view the judgments as referred to on behalf of the Corporate Debtor Companies are distinguishable and may not apply to the fact of the present case. As the facts & circumstances of the case were different before the Hon'ble Bombay High Court in the matter of IDFC Bank Ltd. (supra) as in that case the other creditors came forward to oppose the winding up petition,....
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....atutes provide for creation of multiple for a such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual Bankruptcy & Insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. The objective of the Insolvency & Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framewor....
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....d South Africa (2 years). The World Bank's Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia. The UK Law, on the other hand, is governed by the Insolvency Act of 1986 which has served as a model for the present Code. While piloting the Code in Parliament, Shri Arun Jaitley, Learned Finance Minister, stated on the floor of the House: "SHRI ARUN JAITLEY: One of the differences between your Chapter 11 and this is that in Chapter 11, the debtor continues to be in possession. Here the creditors will be in possession. Now, the SICA is being phased out, and I will tell you one of the reasons why SICA didn't function. Under SICA, the predominant experience has been this, and that is why a decision was taken way back in 2002 to repeal SICA when the original Company Law amendments were passed. Now, since they were challenged before the Supreme Court, it didn't come into operation. Now, the object behind SICA was revival of sick companies. But not too many revivals took place. But what happened in the process was that a protective wall was created under SICA that once....
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....udes a financial debt and operational debt; Section 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debt, as the case may be; 18. Keeping in view of the abovestated provision of the I & B Code, the present applications/petitions are found complete for admission and to trigger a CIRP in respect of Corporate Debtor Companies, moreover, the legal position in I & B Code has recently been settled by Hon'ble Apex Court in the matter of Innoventive Industries Ltd. (supra) wherein it has been held as such, the moment the court is satisfied that a default has occurred, then the application filed by the financial creditor under Section 7 of the Code must be admitted (unless it is found incomplete) the Hon'ble Supreme Court further pleased to observe, "that the non-obstante clause, in the widest terms possible, is contained in Section 238 of the Code, so that any right of the corporate debtor under any other law cannot come in the way of the Code". 19. Further, the Hon'ble NCLAT, in the very same case before, it has ruled that the 'Adj....
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....ratorium under Section 14 of the IBC, 2016 has already been issued by the NCLT. The NCLT is already ceased with the process of insolvency resolution against the company (in liq.) under IBC, 2016 and moreover, the SBI has also put their appearance in the said proceedings regarding its claim. At no point of time the SBI has disassociated itself from the proceeding before the NCLT and it is actively participating in the proceeding. 29. In the present matter, it has been urged that while passing the impugned order the DRT has failed to take notice of Part-III of IBC, 2016, which prevails over the provisions of the Act of 1993. It has also been urged that the entire proceeding before the DRT is completely without jurisdiction precisely in the backdrop that once the proceeding has already been commenced under IBC, 2016 and Moratorium under Section 14 of IBC, 2016 has already been issued and even in the said proceeding the parties have put their appearance before the insolvency professionals, then the impugned proceeding against the guarantors of principal debtor is per se bad.......... 31. This Court is of the considered opinion that in the aforementioned facts & circum....
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....s relevant para) for the sake of convenience may be reproduced hereunder: 16. At this stage, it is important to set out the important paragraphs contained in the report of the Bankruptcy Law Reforms Committee of November, 2015, as these excerpts give us a good insight into why the Code was enacted and the purpose for which it was enacted: ** ** ** "The limited liability company is a contract between equity and debt. As long as debt obligations are met, equity owners have complete control and creditors have no say in how the business is run. When default take place, control is supposed to transfer to the creditors; equity owners have no say." Under these conditions, the recovery rates obtained in India are among the lowest in the world. When default takes place, broadly speaking, lenders seem to recover 20% of the value of debt, on an NPV basis. When creditors know that they have weak rights resulting in a low recovery rate, they are averse ....
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....ing a high recovery rate is primarily about identifying and combating the sources of delay." ** ** ** "The role that insolvency and bankruptcy plays in debt financing Often, an enterprise may be a successful business model while still failing to repay its creditors. A sound bankruptcy process is one that helps creditors and debtors realise and agree on whether the entity is facing financial failure and business failure. This is important to allow both parties to realise the maximum value of the business in the insolvency." ** ** ** "Control of a company is not divine right. When a firm default on its debt, control of the company should shift to the creditors. In the absence of swift and decisive mechanisms for achieving this, management teams ....
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....ets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act, 2002; the recovery of any property by an owner or less or where such property is occupied by or in the possession of the corporate debtor. 4. That the supply of essential goods or services to corporate debtor, continuing, shall not be terminated or suspended or interrupted during the Moratorium period. The Corporate Debtor to provide effective assistance to the IRP as and when he takes charge of the Corporate Debtor. 5. That the provisions of section 14 sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 6. That the public announcement of Corporate Insolvency Resolution Process be made immediately as specified under Section 13 of the code and calling for submissions of claim under Section 15 of the Code. 7. The Interim Resolution Professional shall perform all his functions strictly which are contemplated, inter alia, by Section....