TaxTMI 
TaxTMI 
2018 (8) TMI 1949
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as follows: a) Axis Bank Limited, Petitioner/ 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 havi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on 30th June 2017 is Rs. 94,60,455/- (Rs. Ninety four lakhs Sixty Thousand and Four Hundred Fifty Five only); 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, and another WP No. 45041/2017 filed by seeking a writ of Mandamus to cancel the license of the Axis Bank, and also filed Civil Suit (O.S No. 5553/2017) claiming damages of about 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 la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent Company is to set up shopping malls in the name of "Lotus Shopping Centres". The Respondent Company has investment under Foreign Direct Investment (FDI) by two substantial shareholders one from Cyprus and 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 equit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve hatched a conspiracy to defraud Respondent and to make wrongful gain. They have cited that the Term Loan Agreement dated 8th January 2015, whereas the date of embossment of stamp is 5th February 2016. Similarly, the term loan agreement dated 18th April 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plaints of the Respondent Company in a neutral manner, and to render his opinion. Accordingly, the said expert rendered his opinion on 29 th July 2017 by concluding that the Bank has committed serious irregularities, and is liable to pay damages to the Respondent. q) It is alleged that the 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 pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and all other related documents shall continue to be effective and valid and the Borrower shall repay the outstanding dues under the loan duly and punctually as provided herein. d) The Borrower agrees to pay interest on the Loan as per the Schedule to this agreement and the interest rests shall be calculated at the rates more particularly 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion and data relating to the Borrower; b) the information of data relating to its Credit Facility availed of/ to be availed by the Borrower and c) default, if any, committed by the Borrower, in discharge of the Borrower's such obligation; as the Bank may deem appropriate and necessary, to disclose and furnish to Credit Information Bureau (India) Limited {"CIBIL"} and any other agency authorised in this behalf by Reserve 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 convey....
X X X X Extracts X X X X
X X X X Extracts X X X X
....angalore". m) The repayment schedule is also modified. p) Another short term loan dated 25th April 2017 for Rs. 55,00,00,000/- vide Agreement dated 26th April 2017 was sanctioned, vide letter dated 25th April 2017 and the tenure of loan is 12 months. q) The total disbursement of loan till 15 th July 2017 is Rs. 150 Crores. Details of the Axis Facility I (Account No. 913060010883069) is mentioned as below: Total disbursed amount till 15^th July 2017 (in INR) Total Principal repaid till 15^th July 2017 Total interest & default interest charged and not paid as on 15th Jul 2017 Total debt outstanding 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 30^th July 2017 (in INR) Total Principal repaid till 30^th 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) 52,81,01,9....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has also addressed a letter to Mr. Ajantha Shelty, Director of the Corporate Debtor vide letter No. AXIS/ CO/ CCD/BT/2017-18/23490 dated 23rd June 2017 by inter-alia stating that, the Bank is governed by RBI guidelines on project funding. Any additional funding (without matching promoters' equity contribution) would have changed debt/ Equity ratio. which would have rendered the project as substandard. The project cost overrun funding also attracts RBI regulations. While banking Project finance, as per its commercial decisions, the sole responsibility of completion of the project, within the framework of mutually agreed terms, lies with the Borrower. It is also intimated that the account was irregular with an amount of Rs. 6.66 Crores with effect from 15th April 2017, and they were advised to regularize the account immediately as there has been repeated irregularities in the records. It is further informed that no additional credit facility would be extended by the Bank, and additional funding requirement, if any, is to be met from their own sources/ alternate funding arrangements. r) The Bank has also issued another reply dated 17th July 2017 to the Director of the Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r-alia held that once the default in question has been proved by the Petitioner, the Tribunal is bound to admit an application u/s 7 of the Code, and it is not open to the Tribunal to conduct a trial into the matter, in order to determine the reasons of such default. e. It is also contended that the Respondent by its undertaking dated 26.04.2017, has confirmed and acknowledged its indebtedness to the Respondent for a sum of Rs. 143,02,40,456/-. Therefore, the disputes now raised are just a moonshine with a sole intention to delay the present proceedings. It is stated that the Respondent has already instituted a Civil Suit being OS 5553/2017 in the City Civil Court, Bangalore and the City Civil Court will conduct a full trial into all the alleged factual disputes that have been agitated by the Respondent. Therefore, the issue before the City Civil Court is in no manner affected by the moratorium to be imposed u/ s 14 of the Code, which operates only against the suits filed against the Corporate Debtor, and thus the Respondent is not prejudiced in any manner. f. The Respondent has filed IA No.239/2018 with an intention to delay the proceedings. Moreover, Section 2 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... paragraph 2104), Ms. Kirthana Vs. Mrs. Vinaya Krishnan reported in 2017 SCC Online Mad 10224 (relevant paragraph 21, 24 and 28), Upinder Singh Lamba Vs. Ramindner Singh reported in 2012 SCC Online P&H 1735 (relevant paragraph 9-12 and 17), Gulabchand Vs. NTC Bombay reported in 2007 (3) Mho L.J. (relevant paragraph 10), Major Gian Singh Vs. Shri S.P. Batrar reported in AIR 1973 P&H 400 (relevant paragraph 13 and 15) and Amar Singh Vs. Smt. Bhagwati reported in 2000 SCC Online Raj 61 (relevant paragraph 28), in support of its case. The Respondent has failed to establish that the Bank has filed the present proceedings for reasons for malice and malicious prosecution; j. It is denied that there is any delay in sanctioning of loan. As stated supra, that the test for admission u/ s 7 of IBC is whether there is any non-payment of debt due. Having availed the loan, the Corporate Debtor cannot refuse to pay the instalments having accepted the original sanction term and modified sanction terms. k. There is no delay in disbursement of loan in question. It is stated that there is no restriction under law preventing a Bank from granting loan to a Creditor even if another loan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bank. Mere filing of a Civil Suit for damages against the Bank will not be a 'debt due' against the Bank since a claim for damages only becomes a 'debt due' only when the Court awards damages. This has been held by the High Court of Karnataka in the case of Greenhills Exports (P) Ltd and Ors. Vs. Coffee Board reported in ILR 2001 KAR 2950; o. The Respondents have filed Writ Petition No. 37729 of 2017 before the Hon'ble High Court of Karnataka. Though the High Court initially passed an interim order not to pass any adverse order against the respondent by this Tribunal, it was vacated vide order dated 08.11.2017. Though the Writ Petition is pending, the Adjudicating Authority is empowered to decide the question of admission. They have relied upon the judgment as laid down by Hon'ble Supreme Court in KS Venkataraman & Co. (P) Limited Vs. State of Madras reported in AIR 1966 SC 1089 at Paragraph 23 as held "But an authority created by a statute cannot question the vires of that statute or any of the provisions thereof where under it functions. It must act under Act and not outside it. " p. Hon'ble Supreme Court has upheld the Constitutiona....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fault and interest are admitted as these are grossly unfounded for the reason that the statement of accounts from pages 254-272 are untrue and incorrect. The loan was suspended after funding Rs. 101 Crorcs after the sanction limit of Rs. 150 Crores. f. The loan of Rs. 5.17 Crores to set off the interest amount to nothing but falsification of accounts to show the account is regular even though it had become NPA. The additional loan in order to set off the interest in nothing but ever greening. It is not only fraud but also a violation of RBI guidelines 3.11, page 456 of Volume Il. Therefore, they contended that disputed debt stems out of fraud and manipulation; g. It is also stated that Hon'ble High Court of Karnataka in the case of Lotus Shopping Malls Pvt. Ltd. Vs. Axis Bank, vide order dated 08.11.2017 in WP No. 37729/2017, held that IBC proceedings u/ s 7 of the IBC Code are adversarial in nature. Lotus can urge all its defenses and NCLT should give ample time to the parties to argue on issues of malice. The report given by former General Manager, SBI, indicts the Applicant Bank and its officials of malafide and illegal conduct contravening various regulati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....04/2018, 14/06/2018, 04/07/2018, 19/07/2018, 20/07/2018, 01/08/2018, 02/08/2018, 07/08/2018, 08/08/2018, 13/08/2018, 14/08/2018 & 21/08/2018. The case is adjourned on those due to various reasons including filing of several I.As and also filing Writ Petition before the Hon 'ble High Court of Karnataka. 9. The Respondent has filed Writ Petition No. 37729/2017 before the Hon 'ble High Court of Karnataka by inter-alia challenging the proceedings of IBC, 2016. The Hon'ble High Court of Karnataka, while ordering notice to the Respondent, has passed an interim-order dated 23/08/2017, by directing the Tribunal that "Pending consideration of the petition no adverse orders shall be passed against the Petitioner in the present Company Petition. Subsequently, the interim order dated 23/08/2018i was vacated by order dated 08/ 11/2017. Accordingly the case was taken up for hearing. 10. I.A No. 159/2017 was filed by Lotus Three Developments Limited and Kakosi Limited by inter-alia seeking to implead them as Respondent Nos. 2 & 3 to the main Company Petition. The Tribunal vide its order dated 25th April, allowed I.A No. 159/2017 by directing the Petitioner to implead them as Res....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as may be specified; ii. the name of the resolution professional proposed to act as an interim resolution professional; and iii. any other information as may be specified by the Board. 56. The procedure once an application is filed by the financial creditor with the Adjudicating Authority is specified in sub-section (4) of Section 7 to sub-section (7) of Section 7 of the Code. As sub-section (4) of Section 7 of the I & B Code: "(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3)" 57. Sub-section (5) of Section 7 of the I & B Code provides for admission or rejection of application of a financial creditor. Where the Adjudicating Authority is satisfied that.........the documents are complete or incomplete. 58. The Adjudicating Authority post ascertaining and being satisfied that such a default has occurred may admit the application of the financial creditor. In other words, the statute mandates the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice form the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 13. In the light of provisions of Section 7 of Code, and law as declared by the Hon'ble NCLAT and Hon"ble Supreme Court as extracted above, the Adjudicating Authority/ Tribunal has to examine the instant case with regard to default, Application/ petition is complete/ incomplete, such default is supported by evidence; and has named Interim Resolution Professional. As explained above, the instant Company Petition is filed by Axis Bank (Financial Creditor) strictly in accordance with provisions of Section 7 of Code by interalia producing record of default as per the Bank Statement; suggested Mr. Sundaresh Bhat, as Interim Resolution Professional , who has filed Written Communication, under Rule 9 of I & B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es. It is also stated that, as per unaudited Balance Sheet as at 31/03/2018 there are surplus assets over liabilities to the extent of about Rs. 129 Crores and Reserves and Surplus is Rs. 126 Crores and thus the Company is commercially solvent. However, the Corporate Debtor has not come forward to pay at least defaulted payment as stated supra. Therefore, the Tribunal is left with no other alternative except to initiate Corporate Insolvency Resolution Process in respect of Corporate Debtor. For the reasons stated supra, the Adjudicating Authority is satisfied that the instant Company Petition is filed by complying with the provisions of Section 7 of IBC, 2016 and also suggested Mr. Sundaresh Bhat, BDO Restructuring Advisory LLP, Level 9, the Ruby, NW Wing, Senapati Bapat Marg, Dadar (West) Mumbai400028. Registration No. IBB1/1PA-001/1P-P00077/2017-2018/ 10162 as IRP, who is competent to be appointed to as such and he is not undergoing any disciplinary proceedings. Therefore, we are of the considered opinion that the instant Company petition deserves to be admitted in consonance with ratio as laid down by the Honble NCLAT and the Hon"ble Supreme Court as mentioned supra. 16. Sinc....