TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 732
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate Financial Corporation (hereinafter referred to as 'Petitioner/Financial Creditor') is incorporated on 31.03.1959 with its registered office situated at HP & FS Department, No. 1/1, Thimmaiah Road Vasanth Nagar, Bengaluru-560050. (2) M/s. Namasthe Exports Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor) is a Public Limited Company incorporated on 21.03.1988 (and not Private Limited Company as mentioned in the CP) with Identification No. 08/08988/1988 and having its registered office situated at No. 21/2, Vittal Nagar, Chamarajpeth, Bengaluru-560018. Its Nominal Share Capital and the Paid-up Share Capital is Rs. 20 Crore at the time of sanction of loan and 20 equity shares at the time of sanction of loan. (3) It is stated that the Respondent Company borrowed a sum of Rs. 150 lakhs from the Petitioner Corporation. Further the erstwhile Board for Industrial and Financial Reconstruction (BIFR) by its Order dated 19.03.1999 declared the Respondent Company as sick industrial Company and sanctioned a rehabilitation Scheme (SS-03) for the revival of the Company. IDBI was appointed as the monitoring agency. The Board fixed the payment terms for fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c Limited company and not a Private Limited Company and therefore, the Petitioner be directed to rectify the same in its Petition. (2) It is contended that the instant Petition is not maintainable as the Respondent does not owe any financial debt to the Petitioner. The Respondent as per the order of BIFR made on 23.08.2005 issued 3,20,900 Equity Shares of Rs. 10/- each amounting to Rs. 32,09,000/-(Rupees Thirty Two Lakh Nine Thousand only) against the interest accrued amount of Rs. 32,09,583/- (Rupees Thirty Two Lakh Nine Thousand Five Hundred and Eighty Three only) on 29.09.2006 on which date the last payment of OTS amount of Rs. 150 Lakh was paid by cash. The moment the accrued interests are converted into equity shares, the accrued interests (Financial Debt) ceases to exist. Hence, committing default on payment of financial debt does not arise and consequently Section 7 of the Code is not attracted. (3) As per the orders dated 23.08.2005 of BIFR, the Respondent would make necessary arrangements for buy-back of equity (within 12 months from the date of payment of the principal amount) at par, or at the market rate and lenders would be free to sell their share-holding in the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sought to modify repayment of OTS from equal quarterly instalments to uneven monthly instalments, however, restricting the period to May 2005 instead July 2005. The BIFR vide Sl. No. 3 of Annexure - 1 also proposed for conversion of interests liable to be paid at 12.5% p.a. w.e.f. July 11, 2003 into equity. It may be seen from the proposed amendment that the BIFR did not propose buy back of shares. (6) As the Respondent was unable to implement the scheme fully due to withdrawal of the proposed co-promoter and at the joint meeting held on 29.04.2005 the Respondent proposed for extension of time for payment of OTS amount and conversion of interest on the OTS amount into equity with buy back arrangements. The minutes of the said meeting held on 29.04.2005 was circulated to all the creditors of Respondent. (7) Thereafter, the BIFR after hearing the parties including the Petitioner at hearing held on 23.08.2005 modified the original sanctioned scheme (SS-03). Paragraph 11 of the Order states that BIFR specifically recorded the consent of the Petitioner for the proposed amendments to the original sanctioned scheme (SS-03). It may be seen from Sl. No. 2 of the Annexure-1, that time fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IFR at all. The Petitioner has accepted the shares without any demur. (10) It is further contended that Success Apparels Pvt. Ltd., a group Company of the Respondent had paid the sums on different dates for purchase of 70,900 shares, totalling in all Rs. 32,09,000/- for purchase of 3,20,900 shares. The Petitioner has accepted these payments without any demur. The Petitioner after receiving the payment should have come forward to transfer the shares pro-rata in favour of Success Apparels Private Limited but it did not do so. The Petitioner even as on date is retaining the jumbo share certificate. (11) The Respondent in order to come out of the BIFR has proposed the merger of Success Apparels Pvt. Ltd., with it. The BIFR vide its letter dated 29.08.2013 attached Modified Draft Rehabilitation Scheme (MDRS) dated 22.08.2013 and the same was issued by BIFR on 04.09.2013. The Petitioner has received the MDRS on 12.09.2013. The BIFR in terms of Section 19(2) R/w Section 19(1) of SICA invited objections to the proposed merger of Success Apparels Pvt. Ltd., with the Respondent within 60 days of the receipt of the notice. The Petitioner having received the MDRS on 12.09.2013 should have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 27/2016 against the order dated 24.05.2016 of BIFR made in MA No. 277/2015 and the same was pending before it. In the meanwhile, the IBC has been notified. Section 252 of the Code R/w Sch. 8 which came into effect on 01.11.2016 substituted sub-clause (b) of Section 4 of Sick Industrial Companies (Special Provisions) Repeal Act, 2003. According to substituted sub-clause (b) that any appeal filed before AAIFR or any reference made or inquiry pending to or before the Board shall stand abated. The said sub-clause (b) has been qualified by four provisos. According to first proviso, "A Company in respect of which such appeal or reference or inquiry stands abated under this clause may make a reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred eight days from the Commencement of Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016." The said proviso reveals that it is the Company, which is nothing but the Corporate Debtor, can only make a reference for initiating insolvency resolution process u/s 10 of the Code, as the appeal filed by it on the orders of BIFR stan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tioned on 18.11.2013. (4) When the Principal of Rs. 150 lakhs has been fully paid on 29.09.2006 and the interests outstanding till date i.e., Rs. 32,09,000/- have been converted into equity, the claiming of further interests on Rs. 32,09,000/- cannot even be considered as the same is barred under proviso to Sec. 3(1) of the Interest Act, 1978. (5) The contention of KSFC that the Respondent issued Share Certificate after a period of 16 months after paying the Principal on 29.09.2006. It is true that the Respondent has issued the Share Certificate after a period of 16 months after paying the Principal of Rs. 150 Lakh. When the Respondent filed reference before the Authorised Capital was Rs. 20 Crore and the Paid-up Capital was Rs. 15 Crore. The Company has paid the following Principal amounts to the following banks and FIs and the interests converted into Equity Shares on such principal amounts are furnished below: Name of the Creditor Principal Amount (Rs. In Lakh) Interests outstanding on the principal (in Rupees) No. of equity shares issued KSIIDC 350.00 66,00,000 6,60,000 IDBI 1,291.00 2,05,12,000 20,51,200 KSFC 150.00 32,09,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8.11.2013 as the BIFR did not even consider the objection dated 13.11.2013. BIFR in its order dated 18.11.2013 in paragraphs 6.01 and 6.02 specifically recorded that the amounts to banks and FIs have been settled. The BIFR has only recorded the finding made in the order dated 13.11.2013 in its order dated 24.05.2016. Hence, the KSFC is actually aggrieved by the orders dated 18.11.2013 and not by the orders dated 24.05.2016. Since KSFC has not filed appeal against the order dated 18.11.2013 u/s 25 of SICA, the findings made by the BIFR that amounts have been fully settled to KSFC has become final. KSFC cannot take shelter under orders dated 24.05.2016 for filing this Petition. 5. The Petitioner has also filed written brief summary dated 02.08.2019, by inter alia stating as follows: (1) It is the Respondent Company which approached the erstwhile BIFR for some reliefs under SICA Act. As per the Scheme sanctioned and modified by BIFR, the Petitioner Corporation extended OTS facility to the Respondent Company by crystallizing the entire amount of Rs. 150 Lakhs and waiving of the simple interest, compound interest and other liquidated damages. In the process it had waived a huge amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... banks prevailing at the time of such default, for the period of such default. (5) The Respondent Company has executed an Agreement on 10.05.1996 wherein it was agreed for the condition put forth by the Petitioner Corporation in respect of default which is the agreed condition. Therefore, any default in payment of amount by way of interest or interest for the delayed period constitutes debt. Hence, there is existence of debt and default committed by the Respondent Company in the instant case. This issue has been dealt with by the Hon'ble NCLAT in Company Appeal (AT) (Insolvency) No. 807/2018 disposed on 19.03.2019 with reference to the decision of the Hon'ble NCLT, Kolkata Bench, Kolkata in CP (IB) No. 228/KB/2018, disposed on 19.12.2018 (Coal India Limited Vs. Gulf of Oil Lubricants India (GOLIL). (6) Therefore, it is wrong on the part of the Respondent Company to say that the provision for payment of penal interest/Liquidated damages has not been retained for the Company's Financial Institutions/Banks, whose dues have already been paid/settled in terms of SS-03 r/w MS-05 and the same has been retained only for those concerned agencies, whose dues are payable by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Rs. 32,09,000/- payable by the Respondent. On account of the difficulty faced by the Respondent in paying the OTS amounts, on its request, on 29.11.2004 the Scheme was modified and the BIFR proposed conversion of interest payable @ 12.5% w.e.f. 11.07.2003 into Equity. On further modification of the Scheme on 23.08.2005, the BIFR extended the OTS payment period and allowed conversion of interest into Equity and also permitted it to buy back such Equity. The Petitioner's consent was taken and had its in-principle approval. The Petitioner was permitted to sell their shareholding in the market or to any other person/agency at the prevalent market price or even at any other price. No interest on the belated buy back of shares was stipulated, as the lenders could have sold the equity in the market. This was neither objected to nor appealed against by the Petitioner. As per this arrangement, the Respondent issued Equity Shares amounting to Rs. 32,09,000/- on 17.01.2008, delayed on account of procedural delays and various approvals, in lieu of the interest payable of the same amount. These were accepted by the Petitioner, who could have encashed the same by re-selling the same in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sue of shares, and when the same had been accepted by the BIFR as the final settlement of its liability under the revised Scheme, further interest, i.e. interest on interest, being charged by the Petitioner would not constitute debt as per the Code, even if it is otherwise payable. As per Sec. 5(8) of the Code, financial debt means "a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes.......". The interest upon interest claimed after much time is not receivable against any disbursement against the consideration for the time value of money, or against any Agreement or Contract between the parties concerned, and does not give rise to a right to payment in the hands of the creditor. No claim or debt therefore arises. There could, therefore, also be no "default" under the Code. The Petition fails on this account. 8. Without prejudice, we may also state that the entire exercise of repayment of debt in this Petition is an exercise in recovery. Once the matters have been brought under the IBC 2016, and all earlier matters have abated, they have to be considered under the provisions of the Code. It is a settled position ....