TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 947
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....ntary 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 whereas in other documents different dates of NPA had ....
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....ssion 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 filing of Rejoinder to the limited extent of countering additional facts stated by the Respondent in the Reply. There is no provision enabling the Applicant to supply or furnish ....
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.... 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 the certificates of registration of charge. Relevant portion of the Rejoinder is reproduced herein below "J say that at the time of filing the Petition the Applicant had produced the documents which were available with the applicant at that time. I say ....
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.... 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 documents filed ALONG WITH IT, has to be taken into consideration for adjudicating debt and default. It is submitted that the date of default of the computation of debt as stated in the Application cannot be modified or amended by way of a Rejoinder. The documents annexed to the Rejoinder do not form part of....
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....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 Rejoinder, which is disputed by the Respondent). However, Applicant has deliberately concealed that the account of the Respondent was cured and regularized in August 2018, more particularly as shown below. (c) In the present case, the Applicant had, vide the Working Capital Consortium Agreement dated 26th September 2008 advanced cash credit facilities to the Respondent. ....
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....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 is erroneous. (n) As per Section 62 of the Indian Contract Act, 1872, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed. (o) It is stated that the present case satisfies all the requisite elements of novation in as much as: - The Review Letter completely substituted the cash credit contract and corporate loan agreement; - Considering that the review was offer....
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....red 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 granted moratorium until 9th April 2018 under the Review Sanction Letter. (x) It is clear from the above that the date of default as pleaded by the Applicant is erroneous and the present Application is not maintainable and sustainable. Such an error is not a defect of "form" but a defect of "substance" which goes to the root of the Application and cannot be rectified even under Section 7(5). (y) In the aforesaid circumstances, the present Application filed on the basis of an incorrect date of default is not maintainable and ought to be dismisse....
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....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 proof to establish any debt/default. (e) It is submitted that the Applicant has failed to (i) prove any valid debt or default based on solid documentary proof and (ii) demonstrate and prove beyond doubt the date of the alleged default. The documents on record are insufficient and do not fulfill the test of solid documentary proof. (f) It is further submitted that the threshold of proof is much higher in proceedings under Section 7 of the Code in as much as Form 1 must be complete in all respects for enabling this Hon'ble Tribunal to pass an Admission Order in rem based on such an Application (Swiss Ribbons (Supra) - ....
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.... 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 relied upon by the Applicant are merely "photocopies" of the original and thus no stamp duty is applicable under the Gujarat Stamp Act. (i) It is submitted that the Hon'ble Gujarat High Court in the matter of The Chief Controlling Revenue Authority, Ahmedabad Vs. The Nutan Mills Ltd., Ahmedabad and the Hon'ble Bombay High Court in the matter of The Indian Hume Pipe Co. Ltd. & Ors. Vs. State Of Maharashtra & Anr. (Writ Petition No. 2519 of 1988 - 9th January 2018), have clarified that differential stamp duty is liable to be paid even on photocopies of instruments. (j) Therefore, the Agreements which are sought to be relied upon by the Applicant to prove the alleged debt and alleged default on the part of the Re....
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....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 to maintain a Section 7 Application. The Corporate Debtor has not disputed that the debt or the default as per scheme of IB Code. The alleged incompleteness was technical. In any case, before the commencement of hearing, even such alleged incompleteness was fully rectified. The petition was maintainable. Without prejudice, it is relevant to mention that Section 7(5) of the IBC Code itself contemplates providing of an opportunity to rectify defects, if any, in the Petition. In the present case, the petitioner itself had provided/rectified the information which even according to the Corporate Debtor was not provided. As such, the petition is complete in all respects. 3. Re: The submission of the Corporate Debtor as regards, change in the date of default. For reply on merits, please see paragraph 46 and 47 @ p....
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....h 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 dated 25.10.2017 which was based on S4A, lost its efficacy. On the contrary, in view of the Reserve Bank of India Circular, it became incumbent to classify the account of the Corporate Debtor as NPA w.e.f. the actual date of default which was 20.10.2017. Upon such withdrawal, the lenders to the Corporate Debtor, at their meeting of 21.02.2018, withdrew the S4A implementation process. Significantly, the representatives of the Corporate Debtor MD, CFO and GM were present in the said meeting dated 21.02.2018 and were privy to the discussion. A copy of the said minutes was provided to the Company. Upon the failure of implementation of S4A, on account of withdrawal of the scheme by RBI, the stand still clause (part of S4A Scheme) was revoked and asset classification is governed by ageing criterion as per Income Recognition and Asset Classification norms of RBI. It was consequent to su....
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.....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 of the stamp duty which would have arguably been payable in Gujarat, would have been more then what is paid in Maharashtra. The Corporate Debtor's attempt is to erroneously equate an instrument (which is document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded) with a copy thereof. A copy is not an instrument which creates any rights. The judgment relied upon by the Corporate Debtor itself (The Chief Controlling Revenue Authority, Ahmedabad v. The Nutan Mills Ltd.) holds that a copy is not an instrument which would attract stamp duty and that a copy cannot be impounded. The said judgment was rendered in a case where a company wished to create a charge u/s. 125 of the then Companies Act, 1956, on the basis of a copy of an instrument. That is to state that the company in the said case wished to enforce a copy, as if the same was an original instrumen....
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....orate 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 assigned or transferred to". "Financial Debt" as defined u/s. 5(8) is wide enough to cover all debts and is not restricted to "a secured creditor". A Financial Creditor does not necessarily have to be a secured creditor. It is thus submitted that while the Financial Creditor maintains that it is a "secured creditor" as well, even if it is assumed otherwise, it does not take away from the fact that the Petitioner bank would continue to be a financial creditor and be entitled as such, to initiate and maintain the subject insolvency proceedings under the IBC. A similar question arose before the Mumbai NCLT in Standard Chartered Bank and Anr. V/s. Ruchi Soya Industries Ltd. (@ Annexure C, Page 115 of the Rejoinder of the Petitioner). The Mumbai NCLT observed that the Corporate Debtor has nowhere mentioned as to how much stamp duty is to be paid and how much is not paid by the Petitioner, and thus held that the submission of Corporate Debtor was not relevant to....
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....g 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, a new plea was taken on the basis of document already available on record. This plea was based upon different date of NPA recorded in some of the documents of the Financial Creditor. Accordingly, a plea was made that this debt was not due and payable on the date of classification of the account of the Corporate Debtor As NPA as mentioned in the Form-1 filed by the Financial Creditor. Further, it was claimed that there was a restructuring of the loan and new time schedule was prescribed which was acted upon by both sides, hence, any application filed under Section 7 of Insolvency and Bankruptcy Code, 2016 could be filed only on the basis of default which took place thereafter. Accordingly, focussed argument was made that in the present application, debt was not payable and pre-mature. In this regard, based on the subsequent documents executed by and between the financial lenders and the Corporate Debtor, it was claimed that it was an instance of novation of contract as per the provisions of....
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....uments 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 claimed by the Corporate Debtor are not of any significance. 8. Having stated so, now we move to the main plea raised by the Corporate Debtor which is that the account of the Corporate Debtor in respect of both facilities had been cured and regularized. In this regard, our attention has been drawn to the sequence of events which occurred since September 2008 till 22.01.2015 to give brief account of the transaction/agreements. The account did not proceed in the desired direction, hence, it is claimed on 25.10.2017, the Financial Creditor(s) offered to review and restructure both facilities for a period of 6 months i.e. till 09.04.2018. In this regard, our attention has been drawn to the copy of said letter placed at pages 1938 to 1940 of the paper book, volume-7. It is noted that bank had given in principle approval of implementation S4A scheme with reference date as on 03.08.2017. It is also noted that as per term of such re-structuring if S4A is not implemented within stipulated time then all con....
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....o 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 Debtor prior in 09.04.2018 are not maintainable. In this regard, we further find that such restructuring has been done in pursuance of the circular of RBI dated 12.02.2018 which was subsequently rescinded/withdrawn by RBI as consequence of the decision of Hon'ble Supreme Court in the case Dharani Sugar Chemical Ltd. Vs. Union of India & Others (2019) 5 SCC 480. However, there is nothing in that decision, which, in our humble view, declares action taken by the banks in accordance with said circular till it was declared ultra-virus would also stand invalid. It is in dispute that RBI is sectoral regulator and its directions are binding on the entities covered within that sector. Thus, even though, such circular was declared ultra-virus subsequently action taken by the entities governed by such circular when the circular was in force does not become null and void by implication or otherwise. Thus, we do not find any merit in the contentions taken by the Financial Creditor, in the rejoinder, that becau....