AI Drafter 
TaxTMI 
TaxTMI 
2021 (4) TMI 947
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....ty was revised from time to time and supplementary agreements were entered into. Corporate Loan was granted by the Financial Creditor in its individual capacity vide documents executed on 22.01.2015. The Corporate Debtor could not honour its commitments. Both these facilities were classified as NPA consequently. 3. Learned Senior Counsel Mr. Navin Pahwa appeared on behalf of Financial Creditor and submitted that in the present case, there was a debt which was due and payable and default had occurred in payment thereof, hence, this application was liable to be admitted. It was further contended that there/were acknowledgements of debt by the Corporate Debtor from time to time. It was also claimed that debt was also appearing in financial statement of the Corporate Debtor. 4. On the other hand, Learned Senior Counsel Mr. Saurabh Soparkar appeared on behalf of Corporate Debtor. He has taken various pleas as regard to technical defects/infirmities in the application filed by the Financial Creditor, hence, application being liable to be dismissed. In addition to this plea, it has also been claimed that in the present case, firstly date of NPA has been stated as in Form No. 1 where....
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....v. Record of information utility. (d) The aforesaid mandatory documents which were or ought to be in the possession of the Applicant, were not annexed to the Application for reasons best known, thus making the Application incomplete. (e) The Respondent highlighted the incompleteness of the Application in its Reply. It is at this juncture that the Applicant sought to annex additional documents in an attempt to complete its incomplete application and attempted to cure some fundamental defects in the application. The following documents were annexed to the Rejoinder: i. Complete copy of Original Working Capital Consortium Agreement dated 26th September 2008; ii. Certificate of eligibility of IRP; iii. Certificate of registration of charge; iv. Letter showing that Manis Das is Chief Manager Grade IV; v. Corrected/modified computation of debt amount; vi. Modification in date of default. (f) It is submitted that the Applicant cannot fill up the lacuna in the Application by supplying additional documents at any later stage akin a civil suit. Rule 42 of the National Company Law Tribunal, Rules 2016 permits fil....
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....te legal action on behalf of the Applicant, however, there is no document in support of the Application evincing that Mr. Manis Das was infact the Chief Manager of the Applicant and authorized to file the Application. It was only when the Respondent pointed out the error, the Applicant sought to rectify this error by annexing a letter authorizing Mr. Manis Das with the Rejoinder (Page 3 - para 20 read with Annexure D - Page 47), without any permission from this Hon'ble Tribunal. This letter filed at page 47 of the Rejoinder cannot be considered as the same does not form part of the Application. Notably, this Hon'ble Tribunal only permitted the Applicant to file its Rejoinder on 19th August 2020 of not more than 5 pages. However, Applicant has filed a Rejoinder running into 61 pages. (ii) INCOMPLETE CERTIFICATES OF REGISTRATION OF CHARGE - Serial No. 1 - Part 5 of Form 1 (Page X) mandates the Applicant to file along with the Application, all certificates of registration of charge issued by the Registrar of companies. Notably, at page 3, paragraph 17 of the Rejoinder, the Applicant has admitted that it has failed to produce all documents, more particularly t....
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....the Application. (v) NO CERTIFICATE OF ELIGIBILITY OF IRP - The Certificate of eligibility of the proposed IRP is required to be furnished along with the Application as per Rule 9(2) of the Rules. However, the Applicant has failed to produce the same with the Application and has merely produced it with its Rejoinder at Annexure B - page 35, when the same was pointed out by the Respondent in its Reply. (vi) MODIFIED DATE AND COMPUTATION OF DEFAULT - Serial No. 1 - Part 4 of Form 1 (Page W) mandates the Applicant to furnish the Date of default based on which such Applicant seeks to initiate corporate insolvency resolution process of a Corporate Debtor along with computation of its debt. The Applicant has, vide its Rejoinder, sought to alter the date of default and computation of debt as recorded in the Application, in an attempt to overcome the valid objections raised by the Respondent. It is submitted that such alteration made by the Rejoinder is impermissible as it changes the very basis of the Application - Gurjant Singh Vs. Krishan Chander & Ors. (AIR 2001 Raj 211). SUBMISSIONS (i) As per the provisions of the Code, only Form 1 and all document....
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....e debt and default based on solid documentary evidence (Swiss Ribbons (Supra) - Para 64.) Admittedly, Application does not disclose all documents necessary to meet the test of Section 7 of the Code. (vii) Moreover, Adjudicating Authority is only required to ensure whether there is a debt and default on the basis of record (Form 1). It cannot take into consideration any other facts. The 'Corporate Insolvency Resolution Process' not being a litigation much less adversarial litigation or a recovery proceeding or a money suit-Shobhnath & Ors. Vs. Prism Industrial Complex Ltd. [NGBPLAT - Comp Appeal No. 557/2018 - Para 12] II. THE DATE OF DEFAULT PLEADED BY THE APPLICANT IS INCONSISTENT AND ERRONEOUS Discrepancies in Date of default pleaded by Applicant (a) There are several inconsistencies in the date of default specified by the Applicant. A chart reflecting various dates of default as pleaded by the Applicant is reproduced herein below for ease and reference: (b) It is the case of the Applicant that the account of the Respondent was in default on 20th October 2017 or prior thereto (the date of 20th October 2017 is stated in the Rejo....
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....ent: (i) As per corporate loan agreement, repayment was to be made in 18 quarterly instalments starting after moratorium of 6 months from date of disbursement (Page 1282). (j) A chart evidencing that all amounts under the corporate loan agreement were cleared and account was regularized in August 2018 is reproduced herein below for ease in reference: SUBMISSIONS; (k) It is submitted that since the account of the Respondent was regularized on 31st August 2018 and 4th September 2018, the account ought to have been reclassified by the Applicant and converted from "NPA" to "standard". (l) As per the Master Circular dated 1st July 2015 issued by the Reserve Bank of India on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, if arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be treated as NPA and may be classified as 'standard' accounts. (m) Considering that all dues were cleared on 31st August 2018 and 4th September 2018, the date of default 20th October 2017 as pleaded by the Applicant i....
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....n the matter of Dharani Sugars and Chemicals Ltd. v. Union of India & Ors. [ (2019) 5 SCC 480] declared that the Circular dated 12th February 2018 issued by the Reserve Bank of India is ultra vires and accordingly struck down the said Circular. In view of the decision of the Hon'ble Supreme Court of India, the Applicant ought to have recalled such wrongful NPA classification; (v) In any case, merely because the Circular dated 12th February 2018 withdrew the S4A, that did not negate/terminate/invalidate the novated contract entered into between parties on 25th October 2017, as the Review letter clearly stipulated that in the event the S4A is not invoked within the stipulated time frame then, it is only the concessions thereunder which will stand withdrawn. Thus, the restructuring under the Review letter was independent of the S4A; (w) Thus, in view of the (i) novation of contract on 25th October 2017 and (ii) regularization of accounts as on August 2018 which cured the default if any as on 20th October 2017, the Applicant is not entitled to initiate the present proceedings basis the pleaded date of default i.e. 20th October 2017, especially when the Applicant g....
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....eated as a record of default. (c) The Applicant has produced bank statement to prove default. However, neither is the bank statement at page 1579, certified under the Banker's Books Evidence Act, 1891 nor has the Applicant furnished the requisite certificates along with the Application under the Banker's Books Evidence Act, 1891 confirming that there is no payment of an unpaid debt which is a sine qua non for proving default. Special provisions have been made in the Banker's Books Evidence Act for Banker's Book whereby certified copy of an entry in such a book is admissible in evidence. But mere entries in bank's books of account or mere copies thereof are not sufficient to charge a person with liability Deepakk Kumar v. Phoenix ARC Pvt. Ltd. & Anr. (Para 36); Chandradhar Goswami & Ors. v. Gauhati Bank Ltd. (AIR 1967 SC 1058 - Para 6) (d) Moreover, the bank statement produced by the Applicant is incomplete as the same is only for the period April 2017 till March 2020 whereas the present Application has been filed basis facilities allegedly advanced in 2008 and 2015. Therefore, the bank statement cannot be taken into evidence or be treated as pr....
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....(2011) 14 SCC 66 - Para 22); Garware Wall Ropes ( (2019) 9 SCC 209 - Para 22) and COC of Essar vs. Santosh Gupta (Para 131) (e) Therefore, the Agreements forming part of the Financial Contract are unenforceable in law, which makes the Application, under Section 7 of the Code, untenable in its present form and must be rejected at the very threshold; (f) In addition to the aforesaid, the Agreements are not only unstamped but also not registered. List of agreements which are unregistered despite being compulsorily registrable under Section 17 of the Registration Act annexed at Schedule 2 hereto (g) It is settled law that non-testamentary instruments which acknowledge receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest are to be compulsorily registered under the provisions of the Registration Act, failing which such documents shall not be received as evidence of any transaction affecting such property or conferring such power-Mst. Sanjya v. Chathumal (AIR 1963 Raj 129 - Para 15); (h) It is the Applicant's case that the documents sought to be rel....
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.... that the Petition is filed without authority. This is incorrect. For reply on merits, please see para 19 @ page 3and Annexure-D @ Page 47 of the Rejoinder filed on behalf of the Petitioner. The Corporate Debtor has itself acknowledged that the Board Resolution of the Petitioner does authorize its Chief Managers to initiate legal actions. It is only the document that shows that the signatory Mr. Das is a Chief Manager, which was produced along with the Rejoinder of the Petitioner, to support the assertion made in the Petition as to Mr. Das being a Chief Manager. 2. Re: The submission of the Corporate Debtor that the Petition is incomplete. This is incorrect. For reply on merits, please Paras 15 to 18 @ Pg.3 of Rejoinder Affidavit r/w. documents produced at Annexure-B to C Pg. 35 to 46. (ii) Para 12 to 15, 30, 32, 39, 41 and 42 Page H to I and M and N of the Affidavit in Reply of the Financial Creditor dated 24.02.2021 document produced at Annexure-C-page 115; (iii) Para 6, 17 to 20, Pages 2 and 13 of the Affidavit in Reply of the Financial Creditor on 8.3.2021. It is submitted that the Form-I does contain essential ingredients required t....
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....made on the basis of this letter are wholly misconceived. The letter of 25.10.2017 is a letter which approves, in principle, implementation of S4A. In order to further strengthen the lenders' ability to deal with stressed assets and to put real assets back on track by providing an avenue for reworking the financial structure of entities facing genuine financial difficulties, the Reserve Bank of India had, on 13.06.2016, issued guidelines on a 'Scheme for Sustainable Structuring of Stressed Assets'. The 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) was formulated as an optional framework for the resolution of large stressed accounts. The S4A envisaged determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which was expected to provide upside to the lenders when the borrower turns around. It is however relevant to mention that the terms stipulated in this letter dated 25.10.2017 were never implemented. The RBI's circular of 12.02.2018 withdrew certain extant instructions, including S4A. As such, the letter d....
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....act, the very letter of 25.10.2017 categorically provides that the bank reserves the right to discontinue the facilities without giving any notice and to withdraw, modify or amend the terms and conditions of the loan. Clearly, there is no intent to novate the contract which continues to be the basis of the relationship between the parties. The S4A contemplated in the letter of 25.10.2017 was not at all implemented and came to be withdrawn by RBI Circular dated 12.02.2018. Upon withdrawal of S4A by RBI, the concessions and facilities provided thereunder, automatically lapsed and the account of the Corporate Debtor was classified as NPA w.e.f. 20.10.2017. 6. Re: The submission of the Corporate Debtor that the instruments are inadequately stamped/unregistered. For reply on merits, please see paragraph 15, 31 and 51 @ pages I, M and Q of the Reply filed on behalf of the Petitioner, on 8.3.2021. This submission is without substance for multiple reasons. Firstly, the submission of the Corporate Debtor is a theoretical and vague, in as much as there is nothing to show on record that the documents in question have been under-stamped in the sense....
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.... Act. Any instrument chargeable with duty and found not duly stamped shall be required to be impounded only when it is sought to be relied for enforcement of the rights under the instrument.." The correct legal position therefore is that the question as to the appropriateness or otherwise of stamping of the copies of the documents executed between the parties would only arise, if and when the Financial Creditor is seeking to enforce the documents in question, before this Hon'ble Tribunal. This is not so as the present proceedings are not enforcement proceedings. In the alternative and without prejudice to the aforesaid contentions, assuming whilst denying that any document is not properly stamped or registered, or that any differential stamp duty is required to be paid in Gujarat, the said aspect has no relevance to the initiation of insolvency proceedings by a Financial Creditor. Section 7 of the IBC contemplates initiation of corporate insolvency resolution process by a Financial Creditor. The term Financial Creditor is defined u/s. 5(7) as meaning "...any person to whom a financial debt is owed and includes a person to whom such debt has been legally assign....
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....ulted in payment thereof. On behalf of Corporate Debtor, various technical pleas as regard to the completeness and validity of application filed under Section 7 of Insolvency and Bankruptcy Code, 2016, have been made. However, we are not inclined to deal with the same at this stage though generally such issues are decided at the first instance before deciding the issues on merit. In this case, this is being an application filed under Section 7 of Insolvency and Bankruptcy Code, 2016, we have to see the main factor i.e. whether debt is due and payable. When this matter was earlier heard and reserved for order, issue of this application being barred by limitation was argued by both sides in detail. However, this matter was released for clarification on certain aspects. In the meantime, proceedings were stayed by the Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court passed final order directing this Adjudicating Authority to consider other IA filed by the Corporate Debtor along with main CP. This has been done so. However, in the course of hearing of the matter, the Corporate Debtor did not take the plea of the debt barred by limitation. On behalf of Corporate Debtor,....
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....1 and as specified in the IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016. When we read explanation to Section 7 of IBC, 2016, it is noted that the default can be in respect of financial debt owed not only to the Applicant but to any Financial Creditor of the Corporate Debtor. The definition of Financial Creditor as given in Section 5(7) of the IBC, 2016 includes legal assignee or transferee of Financial Creditor. The application filed under Section 7 of IBC, 2016 can also be filed independently or jointly with other Financial Creditor. In case of an application by an assignee or transferee, Rule 4(2) and Rule 4(4) of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules), 2016 shall come into play. Accordingly, Form-1. Thus, on combined reading of provisions of Section 7(1), 7(2) of IBC, 2016 and Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules), 2016, it is established beyond doubt that mentioning wrong date in documents other than Form 1 does not have any relevance or bearing on the merits or otherwise of the application filed under Section 7 of IBC, 2016. Thus, we hold that so-called mistakes as claime....
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....upon by both sides. Hence, original contract/arrangement stands substituted in terms of provisions of Section 62 of the Indian Contract Act, 1872 by such new agreement. Thus, there is established fact situation of a novation of contract between parties whereby earlier arrangement/contract stood extinguished and parties are governed by the new contract/arrangement. This factual position is of substantial nature and goes to the root of the matter because if such subsequent contract is ignored, then the sanctity of contract gets lost. At this stage, it may not be out of place to mentioned that this provision of Section 62 of Indian Contract Act, 1872 is not contrary to any provisions of IBC, 2016, hence, Section 238 of IBC, 2016 does not come into play as far as this aspect is concerned. It is also worth mentioning that provisions of Section 238 of IBC, 2016 also apply to instrument in form of agreement executed with mutual understanding/agreement by both sides and, therefore, such instrument is to be given effect too, if it is not contrary to any provisions of IBC, 2016. 9. Accordingly, we hold that proceedings initiated on the basis of any default committed by the Corporate Debto....
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....me additional facts in the written submissions alongwith documents being attached thereto. This aspect has also been pleaded by the Corporate Debtor while arguing the main matter. Financial Creditor has also replied. However, in view of our decision on merit, we do not consider it necessary to get ourselves involved in this controversy. Thus, for this reason, this IA 180 of 2021 is also dismissed and disposed-off. 13. Urgent certified copy of this order, if applied for, be issued upon compliance with all requisite formalities. 14. CP(IB) No. 245/7/NCLT/2020, IA 54 of 2021 and IA 180 of 2021 stand dismissed and disposed of. ============= Document 1 S.N. 1. Synopsis NPA 20/10/2017 2. Synopsis Pleading Working Capital Consortium Agreement - 7/7/2017 Corporate Loan Agreement - 30/6/2017 Page/ Para J/ 36 Q/ 40 3. Application Pg. X Cash Credit 7/9/2017 Corporate loan- 30/6/2017 4. Annexure N-Letter dated 19th September 2017 Pg. 1955 Cash Credit 11/7/2017 Corporate Loan -31/7/2017 5. Annexure N - Letter dated 1st September 2017 Pg. 1959 Cash Credit 11/7/2017 Corporate Loan -22/7/2017 6. Rejoinder NPA on 31/....