TaxTMI 
TaxTMI 
2018 (8) TMI 1949
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....ner/ Financial Creditor was incorporated on 3rd December 1993 under the Companies Act, 1956 having PAN No. AAACU2414K, and it is carrying on banking business under the Banking Regulation Act, 1949. b) Lotus Shopping Centres Private Limited (Respondent Corporate Debtor) was incorporated on 30th November 2007, having CIN No. U45209KA2007PTC044541, with the Registrar of Companies, Karnataka. Its Authorised Share Capital of the Corporate Debtor Company is Rs. 3,19,46,000/- and the paid-up share capital is Rs. 2,91,70,030/-. c) On 2nd January 2013, a term loan agreement ("Original TL Agreement") was entered into between the Financial Creditor and the Corporate Debtor, and the same was subsequently amended by an Amendment Agreement dated 8th February 2015 (Supplemental TL Agreement), read with general undertaking/ indemnity for letters of credit dated 2nd January 2013 ("LC Undertaking") and counter-indemnity for buyers credit dated 2nd January 2013 ("Buyers Credit Indemnity" together with the Original TL Agreement & Supplemental TL Agreement, LC Undertaking and Buyers credit Undertaking, the "TL Agreements"), each having been entered into between, the Corporate Debtor and Axis Bank, ....
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....); and the initial date of default by the Corporate Defaulter with respect to Axis Facility 2 is 30th April 2017. f) Corporate Guarantee are as follows: Each of Lotus Three Developments limited ("Lotus Three"), G-Corp Lotus Mall Private Limited ("G-Corp"), and Linga.maneni Landmarks Developments Private Limited ("Lingamaneni") have, subject to the monetary limits set out therein, guaranteed the obligations of the Corporate Debtor in respect of Axis Facility 1, under the TL Agreements pursuant to separate guarantee agreements dated 15th February 2013 ("Lotus Three Guarantee Agreement"), 20th February 2013 ("G-Corp Guarantee Agreement") and 23rd April 2014 (read with modification letter dated 8th September 2015) (collectively "Lingamaneni Guarantee Agreement"), respectively (collectively, the "TL Corporate Guarantee Agreements"). g) Mortgage - first charge by way of mortgage over: i. Land, buildings and all immovable properties being a portion of the undeveloped industrial converted Survey No. 15/2 of Kenchanahalli Village, MO No. DDS. In ALN SR 3675, Kengeri Hobli, Bangalore South, thereof an extent of 2 Acres; undeveloped commercially converted survey No. 15/2 (Page-14) of Ke....
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....Rs. 101 Crores from the Bank before the X Additional City Civil and Sessions Judge, Bengaluru, and the all these legal proceedings are pending before the respective courts. Therefore, Adjudicating Authority (Tribunal) does not have jurisdiction, as it is not a Court of Record within the meaning of Section 41 of the Indian Evidence Act, 1872 and this Tribunal cannot pass a Judgement in Rem declaring any entity as insolvent. b) Axis Bank has filed the present Petition/ Application by suppressing several material facts with malafide intention and ulterior motives. The Bank has violated various regulations of RBI and issued several letters by committing several illegalities. c) The Respondent Company has been started to establish a shopping mall project in Mangalore, the Company has land to the extent of about 6 Acres in Mangalore City, and the market value as on date is not less than Rs. 73 Crores, which was much more valuable four years ago. The investor's equity in addition to the land value is Rs. 141 crores. The Bank wanted to fund the project on a debt equity ratio of 0.9:1 however, delayed the funding for more than 10 months and sanctioned Rs. 150 crores, but released on....
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....the other from Mauritius. Therefore, the Company has business proposal identifying land measuring 05 Acres 85 Guntas situated at # 2-16/139, NH-13 Main Road, Kulshekar, Mangalore575005. The proposed project was to be dcveloped by the Respondent investing huge amount investment, and it attracted lot of attention especially from banking companies and financial institutions and offered to lend money to the Company for the purpose of development and construction activities in the schedule property. f) Mr. Gireesh K, Deputy Vice President of Axis Bank approached the Directors of the Respondent and persuaded to give a proposal for an application for a loan of Rs with a promise they would take complete responsibility to get the sanctioned amount within a period of one month from the date of application. Subsequently, Mr. Gireesh K. on 19/06/2012 has informed that loan would be sanctioned subject to creation of exclusive charge of the assets funded by the Bank including equitable mortgage on the schedule land and the building that was to be put up on it thereon and 100% charge on any unencumbered commercial property to be furnished as collateral security. g) In pursuant to the complian....
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....pril 2017 whereas the date of embossment of stamp is 26th April 2017 k) Therefore, they have contended that documents made by the Bank is improper and illegal. They have relied upon on various Reserve Bank of India (RBI) Circulars including Master Circular dated 1st July 2014 to contend that the Bank has to follow guidelines in sanctioning loans. On account of high handed attitude of the Bank, the project came to a grinding halt. Due to non-payment of bills the vendors and contractors stopped their work and started to demobilize from the site. More than 80% of the employees were laid off, thus causing additional expenditure on the Respondent Company by way of terminal benefits to such employees. l) The Bank refused to revalue the collateral and refused to release the balance of Rs. 48,00,OO,OOO/-sanctioned limit and refused to restructure the loan by enhancing the limit. The present valuation of the land along as per the Respondent's approved valuer is Rs which is on the conservative side. Taking into consideration the Revaluation Reserve alone is Rs. 69,47,51,880/- Therefore, the debt Equity ratio is lopsided in favour of the Respondent viz., about 1:1.5. m) The action o....
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....Insolvency and Bankruptcy Code, 2016 appears to render this Tribunal powerless and incompetent to look into serious acts of violation, illegality and fraud, the petitioner as an entity of India is hapless, when an adjudicating authority, which is not empowered to look into serious allegations of fraud, misfeasance and illegality. It is unfortunate, that such an infirmity has been brought in the said Code by design and not by default. The Respondent has filed WP No. 45041-45042/2017 before the Hon'ble High Court of Karnataka by inter-alia seeking a writ of Mandamus to the Reserve Bank of India for cancellation of the banking license of the 2 nd Respondent. r) It is contended that relying on the judgement of Hon'ble High Court in the matter of Mobilox Innovations Private Limited Vs Kirusa Software Private Limited is an attempt made by the Petitioner Bank to mislead and pressurize the Tribunal, and it is contended that IBC is a mere procedural code and the Hon'ble Supreme Court in number of cases has held that procedural law are more hand maids of justice. The Respondent has also relied in the case of Sushil Kumar Sen Vs State of Bihar (1975) I SCC 774. And reliance made....
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....arly described in the Schedule. e) The Borrower shall repay to the Bank the amount in terms of the instalments as mentioned in the Schedule as shall remain due and owing to the Bank. f) The Axis Bank may by a written notice to the Borrower, declare all sums outstanding under the Loan (including the principal, interest, charges, expenses) to become due and payable forthwith irrespective of any agreed maturity forthwith and enforce the security created in favour of the Bank for the Loan upon the occurrence (in the sole decision of the Bank) of any one or more of the following: i. The Borrower commits any default in the payment of interest, principal, other charges or any obligation and in the payment of any other amounts to the Bank when due and payable; ii. The Borrower fails to pay to any person other than the Bank any amount when due and payable or any person other than the Bank demands repayment of the loan or dues or liability of the Borrower to such person ahead of its repayment terms as previously agreed between such person and the Borrower; iii. The Borrower defaults in performing any of its obligations under this Agreement or breaches any of the terms or conditions....
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....ve Bank of India. j) Repayment Schedule: The loan amount of Rs. 150.00 Crores shall be repaid in 99 Equated Monthly Instalments (EMIs) commencing from 20th Month from the date of first disbursement. The EMI is proposed to be stepped-up over the tenor of the loan, in line with increase in rental income. The proposed instalments for repayment of term loan are given as under: (Rs. In Crores) Instalments EMI 1st to 36th 2.05 37th to 72nd 3.00 73rd to 99th 3.22 The company shall pay the actual interest applied during the construction period (initial 19 months) from internal accruals/ promoter contribution and the same shall be payable at monthly rests. k) The Axis Bank has conveyed sanction of term loan of Rs. 150.00 Crores vide letter reference No. AXISB/BNG/CB-MC/GK/419/2012-13 dated 04/ 12/2012,towards part-funding construction of "Shopping Mall with Multiplex & Hotel at Kulashekara, Mangalore", which is subject to terms and conditions Annexed to this letter. l) Term Loan tenor is proposed to be 118 months including moratorium.The disbursement of the term loan is linked to percentage of Lette r of Intent (LOI) tied up by the company for leasing the shopping....
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....tanding as on 15th July 2017 (A+B+C) (A) (B) (C) 150,00,00,000/- 8,56,44,580/- 6,34,48,078/- 147,78,03,498/- Details of the Axis Facility 2 (Account No. 917060034308081) is mentioned as below: Total disbursed amount till 30th July 2017 (in INR) Total Principal repaid till 30th July 2017 Total interest & default interest charged and not paid as on 30th Jul 2017 Total debt outstanding as on 30th July 2017 (A+B+C) (A) (B) (C) 52,81,01,916/- 0.00 94,60,455/- 53,75,62,371/- Axis Facility 1 Default Sl. No. Facility Overdue at 15th Jul 2017 for Axis Facilit t 1 INR Initial Date of Default Days of Default as on 15th July 2017 Defaulted principal amount Defaulted scheduled interest payment Default Interest Total overdue 1 AxisFacility 1 (As on 15th April 2017) 46,14,964 1,58,85,036 0 2,05,00,000 15th April 2017 95 2 AxisFacility 1 (As on 15th May 2017) 50,41,648 1,54,58,352 32,575 2,05,32,575 3 AxisFacility 1 (As on 15th June 2017) 43,53,359 1,61,46,641 68,521 2....
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....te funding arrangements. r) The Bank has also issued another reply dated 17th July 2017 to the Director of the Corporate Debtor and Copy to the Company by inter-alia intimating that the Corporate Debtor remains in default of repayment obligations since 15th April 2017 under the Facility 1 and 30th April 2017 for facility 2. As the total amount of Rs. 9,16,61,524/- have become due and payable by them, under the facilities on an immediate basis. They have also denied the allegations made in the Borrower Notice dated 28 th June, 2017 issued through Advocate Thiru & Thiru by reiterating of all the disbursements decisions in relation to the Facilities in question were made as per the accepted terms of the sanction of the Facilities. It is also intimated that no obligation to fund any cost overrun relating to the Project. s) The Corporate Debtor has acknowledged the debt by letter dated 26 th April 2017. 6. The Learned Sr. Counsel for Petitioner has also filed a summary of submissions dated 21.08.2018, by inter-alia contending as follows: a. Axis Bank (Applicant) has sanctioned a loan of Rs. 150 Crs. towards the Respondent for part funding of the Respondent's project vide sanc....
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....with an intention to delay the proceedings. Moreover, Section 2 of the Code is not applicable to an application filed u/ s 7 of the Code. g. It is also contended that the Respondent has attempted to confuse the issue by placing reliance on the decisions, which define insolvency under the erstwhile Companies Act, 1956, and relied upon the decisions of the Hon'ble Supreme Court in Pradeshiya Industrial and Investment Corporation of UP Vs. North India Petrochemicals Limited reported in 1994 SCC (3) 348, Calcutta High Court in 0m Prakash Mohta Vs. Steel Equipment and Construction Company Limited reported in (1968) 38 Comp Cas 82 and the decision of I<arnataka High Court in Airwings Private Limited Vs. Viktoria Air Cargo Gmbh reported in ILR 1994 1<ar 2560 for the definition the term 'insolvency'. These provisions are not applicable to the present case as the issue to be considered is under the provisions of IBC and not under the provisions of Companies Act, 1956. h. The main test of insolvency under the Code is 'default' i.e. nonpayment of debt. Therefore, whether the Corporate Debtor has sufficient assets or it has ability to pay debts cannot be considered unde....
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.... Creditor even if another loan account is in default. Further, there is no prohibition under law that once default occurs, a Bank cannot fund such account further, Moreover, the RBI Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - projects under Implementation dated 14.08.2014 clearly provides that Banks may fund additional interest during construction, which may arise on account of delay in completion of project. This has also been incorporated in Paragraph 13.3 of RBI Master Circular; Banks discretion as set out in the Master Circular on Income Recognition, Asset Classification and provisioning pertaining to Advances dated 01.07.2015 "17.1.14 Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects/ activity financed by banks would be treated as an attempt at ever greening a weak credit facility and would invite supervisory concerns/ action. Banks should accelerate the recovery measures in respect of such accounts. The viability should be determined by the banks based on the acceptable viability benchmarks determined by them, which may be applied on a case....
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....idity of NCLT and NCLAT in the case of Madras Bar Association Vs. Union of India (2015) 8 SCC 583), and has further validated the vesting of the jurisdiction of the Civil Courts with the NCLT. 7. Shri B.C. Thiruvengadam, after making elaborate arguments, has also filed written submission dated 21.08.2018 giving his gist of arguments, which are briefly stated as under: a. It is stated that objections dated 23.11.2017 filed by the Bank to IA filed u/ s 65 of the Code is vague and without any specific denial. It is settled position of law that when specific averments are not specifically denied, it amounts to admission and in its support, he relied upon decision given in Badat and Co. Vs. East India Trading Co. AIR 1964 SC 538, at page 546 para 11 (Sl. No. 1 Compilation of Citations Volume 2); b. It is contended that the term insolvency has not been defined in the Code. The Code is applicable only at thc instance of insolvency and in relation to the insolvency that has already occurred; not for an impending or looming insolvency, which may or may not occur. Section 7 of the Code cannot be pressed into service unless and until a Corporate Debtor is commercially insolvent. They hav....
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.... Debtor had become NPA, the Bank chose not to classify it as one, in order to hoodwink RBI and with an intent to book more income as interest; h. It is alleged that the present application has been filed with an ulterior motive and malicious intent to pre-empt the threat for damages; i. It is alleged that the acknowledgement of debt was obtained under duress and a suit bearing O.S No. 8046/2017 was also filed by seeking for declaration of documents as illegal and void; j. Obtaining signature on blank papers and back date, is illegal and opposed to the law. They relied upon the judgement of the Hon'ble High Court of Karnataka in Canara Bank Vs. Vara Trading Company AIR 2006 Kar 88 (Sl. No. 17 Spiral Compilation Vol. l); k. It is alleged that the Applicant Bank is guilty of manipulation of records and made false submissions and approached this Tribunal with unclean hands. They have relied upon the judgement rendered in the case of Dalip Singh Vs. State of Uttar Pradesh & Others, (2010) 2 SCC 114; l. The Respondents have relied upon the following judgements to establish malice and fraud on the part of Applicant Bank: i) State of Haryana vs. Bhajan Lai, 1992 supp (1) SC....
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....Appeal (AT) (Insolvency) No.246/2018. The Hon'ble NCLAT has allowed the Company Appeal (AT) (Insolvency) No.246/2018 by an order dated 31/07/2018, by setting aside the order of this Tribunal with a direction to the Tribunal to decide the case, in terms of the observations made by the Hon'ble Supreme Court in M/S Innoventive Industries Ltd., (Supra)" preferable with in a period of two weeks by hearing only the Corporate Debtor. 11. As stated supra, the instant Company Petition bearing C.P (1B) No. 66/BB/2017 is filed under u/ s 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of I & B (Application to Adjudicating Authority) Rules, '2016, by Axis Bank Limited by inter-alia seeking to initiate Corporate Insolvency Resolution Process (CIRP) in respect of Lotus Shopping Centres Private Limited (Corporate Debtor), under the provisions of IBC, 2016. As detailed supra, the basic factors with regard to disbursement of loans in question; debt and default, are not in dispute except with regard to delay in disbursement of loan in question, further funding etc. Therefore, the Adjudicating Authority has to examine, whether the instant Company Petition is filed in accor....
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....ot sufficient. The same is subject to the Adjudicating Authority's summary adjudication, though limited to 'ascertainment' and 'satisfaction'." 12. The Hon'ble Supreme Court has also upheld the above judgement in Civil Appeal Nos. 8337-8338 of 2017 vide judgement dated 31st August, 2017 The Hon'ble Supreme Court has adverted to the Section 7, at para 28 which reads as under: "28. When it comes to financial Creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7 (1), a default is in respect of a financial debt owed to any financial creditor of the Corporate Debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7 (2), an application is to be made under sub-section (l) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form I accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part Il, particulars o....
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....sing willingness to act as such etc. As stated above, the total amount of debt including the defaulted amount's reported under this application under Axis Facility I is Rs. 147,78,03,498/(One Hundred Forty Seven Crores Seventy Eight Lakhs Three Thousand and Four Hundred Ninety Eight Rupees) And under Axis Facility 2, total amount of debt is Rs. 53,75,62,371/- and the total outstanding amount is Rs. 201,53,65,869/- (Two hundred one Crore Fifty Three Lakh Sixty Five Thousand Eight Hundred Sixty Nine Rupees). 14. So far as the contention of the Shri B.C.Thiruvengadum, learned Counsel for Respondent that I.A No. 164/2017 filed under Section 65 of Code, has to be decided first before deciding the main company petition is concerned , it is to be stated here that the Adjudicating Authority, has, in the first instance, has (o see whether the main Company petition is filed in accordance with law satisfying the Tribunal for admission or not. If the Adjudicating Authority come to a conclusion that a case under examination is fit case to admit, then question of malicious, fraudulent initiation will not arise to examine an application filed under section 65 of the IBC, 2016. 15. The Hon'b....
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.... the learned Counsel for the respondent was mainly relying on damage suit and Writ petition filed against Financial Creditor. As explained above, the suit in question is with regard to damages alleged to have suffered by delay in disbursement of sanctioned loans by Bank. Moreover, it is settled position of law as of now that the Adjudicating Authority is Competent to decide an application/ petition filed under Section 7 of the Code. Therefore, I.A No. 164 of 2017 is liable to be rejected. 17. When the case was reserved for orders on 14/08/2018, the learned Counsel for Respondent has filed a Memo dated 29/08/2018 by enclosing a copy of the order dated 20/08/2018 of Hon'ble High Court of Karnataka, passed in I.A No.01/2018 in w.p No. 37729/2017, which reads as under: "I.A No. 1 / 2018 though filed seeking clarification of the order dated 08/ 11/2017 in the circumstances as stated therein, learned Counsel for the Petitioner would submit that subsequent thereto the NCLT has provided them an opportunity of being heard and as such, the prayer in I.A No. 1/2018 is not pressed. Accordingly, I.A No. 1/2018 is disposed of . List this matter before the roster Court in usual course". ....