TaxTMI 
TaxTMI 
2021 (11) TMI 794
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....lant submitted that the Appeal is preferred by a shareholder of the 'Corporate Debtor' holding 50.210% of shares and also a Suspended Director of the 'Corporate Debtor'. He submitted that the Respondent herein i.e. the State Bank of India filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the 'Adjudicating Authority' for initiation of 'CIRP' against the Corporate Debtor on the ground that the Corporate Debtor had defaulted in repaying an amount of Rs. 52,28,93,796/-. 3) It is submitted that the 'Impugned Order' passed by the Learned 'Adjudicating Authority' has created an inequitable and legally unsustainable position that the 'Corporate Debtor' resultantly suffered a huge financial and business losses along with adversely affecting the lives of families of around 500 workers of MSME Unit. 4) It is submitted that the Learned 'Adjudicating Authority' without appreciating the mandate of law including the debt on which the default occurred, the 'letter of law' as well as law settled by the Hon'ble Supreme Court of India. 5) It is submitted that the 'Corporate Debtor' had availed Working Capital credit facilities under Working Capital Arran....
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....on or before 12.11.2016. 8) It is submitted that the fact was intentionally suppressed by the Respondent while filing their application under Section 7 of the Insolvency and Bankruptcy Code, 2016 to revive the otherwise time barred debt. It is submitted that the Section 7(5)(a) of the Code specifically lays down that if there is a default and if the application is complete and there is no Disciplinary Proceedings pending against the proposed Resolution Professional it may, by order admit such Application by the 'Adjudicating Authority'. However, as per Section 7 Sub Section 5(b) states that 'default' has not occurred or the Application under Sub Section 2 is incomplete or any Disciplinary Proceeding is pending against the proposed Resolution Professional, it may by order, reject such application. The Proviso states that, provided that the 'Adjudicating Authority' shall before rejecting the application under Clause (b) of Sub Section 5 give a Notice to the applicant to rectify the defect in its application within 7 days of receipt of such notice from the 'Adjudicating Authority'. 9) The Learned Counsel submitted that as stated supra, the application under Section 7 of the Inso....
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....is to be taken into consideration for the purpose of counting the period of limitation not the Non-Performing Assets (NPA). The Application filed by the 1st Respondent herein is time barred. Further the Learned Counsel stated that the Hon'ble Adjudicating Authority failed to consider the grounds raised by the Appellant in their Counter Affidavit filed before the NCLT. 13) Further it is submitted that the Hon'ble Adjudicating Authority has ignored the Judgment of Shri B Prashanth Hegde v SBI & Anr. Passed by the NCLAT on 14.10.2020 in Company Appeal (AT)(Ins) No. 68 of 2019, wherein the same fact of no date of default being entered by the same bank was pointed out in the application in para 16 of the order and thereby not noting that the same nationalized bank was a deliberate non-complier of IBC Code and NCLT Rules, 2016. However, the Hon'ble Adjudicating Authority did not take into consideration even this aspect also. Further the Respondent Bank in order to discharge the onus of removing the defects which is apparent from the following finding in the 'Impugned Order' viz. "In spite of bringing this to the notice of the applicant and the counsel for the applicant, we do not find....
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....eir arguments. In the above application, the "date of default" in the relevant column has not been deliberately typed by the applicant. It is also brought to the notice of this Adjudicating Authority, which the counsel for the Applicant has not mentioned even in the written submission. However, the date of default has been mentioned in the pleadings of the application. It is important that date of default ought to be mentioned in the column Part-IV of the application as per the NCLT Rules, 2016. It is clearly in violation of the same. It is very unfortunate to know that a nationalized banker with a huge outstanding Rs. 52,28,93,796/- due and payable and the respondent admitted debt and default, the applicant bank ought to take bare minimum requirement of filling up the application in the proper format. In spite of bringing this to the notice of the applicant and the counsel for applicant, we do not find any reason as to why the applicant does not want to rectify the mistake in this column regarding 'date of default'. This raises a question in the mind, whether are there any collusion between the applicant and the respondent? Be that as it may, since the 'date of default' mentioned ....
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....y to the Appeal and submitted that the Respondent filed the application before the Learned Adjudicating Authority under Section 7 for initiation of CIRP against the 'Corporate Debtor' who committed default in repaying the amount of Rs. 52,28,93,796/-. 20) It is submitted that the Respondent No.1 Bank extended various credit facilities to the Corporate Debtor and on 16.02.2007, credit facilities were enhanced to the limit of Rs. 18 Crores and further enhanced to Rs. 57.97 Crores as on 26.09.2009. 21) The Respondent being leader of the consortium issued a sanction letter dated 02.02.2010 for modification of existing credit facilities which was acknowledged by the Corporate Debtor as per the terms and conditions therein. A Consortium Agreement was executed by the 'Corporate Debtor' and Joint Deed of Hypothecation on 05.02.2010 was also executed. As stated supra, the 'Corporate Debtor' defaulted in repaying the above said amount in violation of the agreed terms the amount became as Non-performing Asset (NPA) on 27.11.2018 as per Section 13(2) of the SARFAESI Act, 2002. 22) The Corporate Debtor failed to take steps to regularize the same. The Respondent had issued legal notice ....
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.... of default as required and as such the details enclosed/attached along with Form-1 which are liable to be construed as an intrinsic part of Form-1 application. 26) It is submitted that the date of default in respect of Axis Bank's debt is irrelevant as the application filed by this Respondent is in respect of debt under the Working Capital Consortium i.e. for a sum of Rs. 52.28 Cores, which arrangement entitles each of the banks to independently enforce its rights arising therefrom. In any event, if the date of default in respect of Axis Bank debt is taken into consideration in as much as there has been a subsequent acknowledgment of liability on 16.08.2018, which extends the period of limitation under Section 18 of the Limitation Act, 1963. 27) The Learned Counsel further submitted that the date of Non-Performing Assets (NPA) was stated in Para 49 of the pleadings forming part of Form-1. The Hon'ble Adjudicating Authority found that date of default is mentioned in the pleadings and also in the documents enclosed along with Section 7 application as observed in Para 8 of the Impugned Order. The additional facts in proof of date and default stated in the attachments/enclosures....
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....position that the limitation starts running from declaration of NPA in the case of borrower. 30) Further, the Learned Counsel for the Respondent submitted that there is no legal bar for filing a separate application under Section 7 by the 1st Respondent herein as the Respondent No.1 is a Body Corporate carrying on the business of Banking and as such is regulated by RBI, a Financial Sector Regulator. It is submitted that the applicable RBI directives bind this respondent to declare Non-Performing Assets (NPA) of an overdue account and cannot fall back on the NPA declared by a Consortium Lender (RBI Master Circular RBI/2015-16/101 dated 1st July 2015). 31) The Learned Counsel further submitted that the application filed by the 1st Respondent is within three years from the date of Non-Performing Assets (NPA), hence it is within the period of limitation. It is also evident form the balance confirmation filed by this respondent and along with this reply and revival letter was issued within three years from the date on which the subject matter account of the Corporate Debtor was declared as Non-Performing Assets (NPA) by this Respondent. As such, the same would give rise to a fresh....
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....or, however maintained that the date of default is 12.11.2016. While reserving the order, this Adjudicating Authority had given opportunity for filing their respective written submissions in order to substantiate their arguments. In the above application, the "date of default" in the relevant column has not been deliberately typed by the applicant. It is also brought to the notice of this Adjudicating Authority which the counsel for the Applicant has not mentioned even in the written submission. However, the "date of default" has been mentioned in the pleadings of the application. It is important that "date of default" ought to be mentioned in the Column Part-IV of the application as per the NCLT Rules, 2016. It is clearly in violation of the same. It is very unfortunate to know that a nationalized banker with a huge outstanding Rs. 52,28,93,796/- due and payable and the respondent admitted debt and default, the applicant-bank ought to take bare minimum requirement of filling up the application in the proper format. In spite of bringing this to the notice of the applicant and the counsel for applicant, we do not find any reason as to why the applicant does not want to rectify the m....
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....art IV of the application as per the NCLT Rules, 2016. 39) Insolvency and Bankruptcy Code and Rules thereof prescribes for filing of an application by the Financial Creditor either by itself or jointly to initiate the Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code. However, the Financial Creditor need to file application in a prescribed Form as per Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Rule 4 of the said rules a Financial Creditor may file an application under Section 7 of the Code in Form-1 accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Regulations, 2016. In Form-1 Part-I prescribes particulars of applicant, Part II prescribes particulars of Corporate Debtor, Part III prescribes particulars of proposed Interim Resolution Professional, Part IV prescribes particulars of financial debt and Part V prescribes particulars of financial debts (documents, records and evidence of default). We have also perused the application in Form-1 filed before the Adjudicating Authority ....
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....t the applicant, Financial Creditor complied with the procedure as prescribed in Form-1. 41) The Learned Counsel for the Appellant submitted that the non-mentioning of the date of default is fatal in admitting the application under Section 7 of the Act, since it is a Directory as per the decision of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC. We would like to reiterate the Provision of Law with regard to the instant issue i.e. Section 7 (5)(a) and (b). Sub Section 5(a) reads thus, where the Adjudicating Authority is satisfied that: (a) a default has occurred and the application under sub section 2 is complete, and there is no disciplinary proceedings pending against the proposed Resolution Professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub section 2(2) is incomplete or any disciplinary proceeding is pending against the proposed Resolution Professional, it may by order, reject such application. Provided that the Adjudicating Authority shall, before rejecting the application under clause b of sub section 5, give a notice ....
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....inancial Creditor. Therefore, this 'Tribunal' is of the view that the Financial Creditor has shown the date of NPA by providing the documents which is an evidence admissible in law. 43) In this regard, the Judgment of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC is relevant to show that the Provisions of Section 7 (5) are directory in nature as held by the Hon'ble Supreme Court in Para 25. 44) The next contention of the Learned Counsel for the Appellant is that there is a consortium banks and as per the said consortium, the first date of default and date of Non-Performing Assets (NPA) is of the Axis Bank i.e. the date of NPA is 10.02.2017. As per the RBI Framework for revival and rehabilitation of Micro, Small and Medium Enterprises (MSME) dated 17th March 2016, as per Clause 2.1 the identification by Banks or Creditors regarding a loan account of MSME terms comes into a NPA, the Banks or the Creditors should identify incipient stress in the account by creating three sub categories and the special mention account (SMA) category as given in the table below. SMA Sub-Categories Basis for classification S....
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.... referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and 7) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and 8) an application under section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application." 45) It is a settled law that Article 137 of the Limitation Act, 1963 applicable to Section 7 for the purpose of initiation of CIRP against the Corporate Debtor and therefore, three years period from the date when the right to apply accrues. Further, the Hon'ble Supreme Court in re Laxmi Pat Surana held at para 42 of the Judgment that Section 7 comes into play when the Corporate Debtor commits default. Section 7 consciously uses the expression default-not the date of notifying the loan account of the Corporate persons as NPA. Further, the Hon'ble Supreme Court is of the view that, the date of default is not the date of NPA. The Learned Counsel for the Appellant....
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....Pat Surana, the application is within the period of limitation. Further, this 'Tribunal' hold that omission to mention date of default in Col.2 Part IV in Form 1 is not fatal to the application. As we are of the view that as per Col.8 of Part V in Form 1 regarding particulars of Financial Debt documents, records and evidence of default to be attached, the Financial Creditor has shown sufficient documentary evidence to establish the date of NPA i.e. 27.11.2018 and the Adjudicating Authority has taken note of the same and admitted the application. This 'Tribunal' do not find any illegality in admitting the application. 48) This 'Tribunal' have also perused the agreement dated 05.02.2010 of the consortium banks. In Page 72 Volume I of Respondent Typed set Papers Article I Para 4 states that "The rights signed application of each of the said Banks are several and failure of any one or more than of the said banks to perform its or their application in respect of the said banks does not relieve or absolve the other members of the Bank consortium of the borrower of their or its received applications. Further in Article 5 at Page 92 Sub Clause 3 it is stated that the Borrower hereby agr....