TaxTMI 
TaxTMI 
2022 (1) TMI 1136
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....nging the Order dated 06.10.2021 passed by Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-III) admitting the Application being CP. No. 4468/IBC/MB/2018 under Section 7 filed by the Respondent-Standard Chartered Bank, London. 2. The brief facts of the case and sequence of the events necessary to be noted for deciding this appeal are: Appellant-Koncentric Investments Limited, A Company incorporated under the Companies Act, 1956 entered into a Facility Agreement dated 22nd May, 2013 with Respondent No. 1-Standard Chartered Bank, London for disbursal of a Loan up to an amount USD 49 Million as an external commercial borrowing. In Amendment and Supplemental Agreement dated 19th August, 2013 the Facility Agreement was revised for an amount of USD 45 Million only and amount of USD 15 Million was disbursed to the Corporate Debtor in three tranches of USD 5 Million each only on 30th August, 2013, 31st October, 2013 and 31st December, 2013. Certain part-payments were made by the Corporate Debtor towards interest due in each tranches until 15th May, 2017 after which no payment towards interest was made. The payment of interest amount which became due on 30th J....
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....rom the date of default. This Appeal has been filed by Appellant No. 1-Promoter/Shareholder of the Corporate Debtor and by Appellant No. 2- a Member of the Suspended Board of Directors of Khubchandani Hospitals Pvt. Ltd. These Appellants being aggrieved by the Impugned Order has come by this Appeal and has challenged the impugned order on various grounds. 3. We have heard Mr. Ramji Srinivasan, Sr. Advocate for the Appellants and Mr. S. Niranjan Reddy, Sr. Advocate for the Respondent No. 1-Standard Chartered Bank, London. 4. Mr. Ramji Srinivasan, Sr. Advocate for the Appellant submits that limitation for filing an Application under Section 7 of the Code is the date when the right to apply accrues. Admittedly the amount of interest which was payable on 30th June, 2015 was not paid by the Corporate Debtor hence right to apply accrues to the Bank since the Bank could have filed the Application within three years i.e. by 30th June, 2018 and the Application filed on 28th November, 2018 i.e. more than three years from the date of default is clearly barred by time. The date on which Corporate Debtor committed default on payment of interest due is 30Th June, 2015. The date of default is....
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.... view of the Acceleration Notice dated 05.01.2017. Section 7 (1) of the Code speaks of default it does not mention first default. To accelerate Financial Facility by the Bank, the permission of Reserve Bank of India was necessary for proceeding for accelerating the facility which permission was also applied on 24th November, 2015 but could be granted only on 07.12.2016 thereafter Notice of Acceleration was given on 05.01.2017 and the entire amount became due, computing the period of limitation from first default of principal amount i.e. 30th November, 2015. The Application filed on 28th November, 2015 was well within three years and the Adjudicating Authority did not commit any error in admitting the Application. 9. On submissions regarding the stamp duty, it is submitted by Learned Sr. Counsel for the Respondent that there is a Registered Mortgage Deed entered between the parties on 4th July, 2013 evidencing the Financial Facility. It is also submitted that the default can be accepted by Adjudicating Authority on the documents filed by Applicant without filing any registered document and stamped document as claimed by the Appellant. In the pleading, the Corporate Debtor has not d....
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.... of MP) the Borrower will repay the Facility in 14 unequal semi-annual instalments as per the below schedule (each a Payment): Repayment Instalments (as % of Total Commitments) Repayment instalment Amount (in USD Million) At MP 1% 0.49 MP+6 months 1% 0.49 MP+12 months 2% 0.98 MP+18 months 2% 0.98 MP+24 months 5% 2.45 MP+30 months 5% 2.45 MP+36 months 7% 3.43 MP+42 months 7% 3.43 MP+48 months 9% 4.41 MP+54 months 9% 4.41 MP+60 months 12% 5.88 MP+66 months 12% 5.88 MP+72 months 14%6.88 MP+78 months 14% 6.88 14. Amendment and Supplemental Agreement to the Facility Agreement was executed on 19th August, 2013 which had modified the original facility agreement table mentioned in Clause 5.1 as noted above was modified in following manner: "2.2. The table mentioned in Clause 5.1-'Replayment' shall stand replaced as follows: On the expiry of a period of 27 (Twenty-Seven) months from the first Utilisation Data (Moratorium Period or MP). The Borrower will repay the Facility 14 unequal semiannual instalment as per the below schedule (each a Repayment Instalment): Repayment Instalment (as % of Tota....
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....me since admittedly the Application have been filed on 28th November, 2018. Mr. Ramji Srinivasan, Sr. Advocate has emphatically submitted that according to the Code when the first default has been committed, time shall start running and the Application under Section 7 cannot be filed for time barred debt. He further submits that the Financial Creditor has not filed the Section7 Application within three years from the date i.e. 30th June, 2015 and thus their claim is barred by time and application ought to have been rejected. 17. Now, we may notice certain provisions of the Code in regard to above. Section 3(11) of the Code defines 'Debt' and Section 3(12) defines 'Default' which are as follows: "3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be;" 18. Section 7 (1) of the Code provides that a Financial Creditor may file an Application for initiating 'Corporate Insolvency Resolutio....
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.... is well within three years from above two defaults i.e. default of instalment and default for whole. 20. The Application under Section 7 is to be filed in Form-1 as per sub-rule 1 of Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules) 2016 Part-IV requires Particulars of Financial Debt that specifically requires "amount claimed to be in default and the date on which default occurred" if an application is filed within three years from the date on which default occurred the amount claimed shall be amount due and payable if the said Application is filed within three years from the date of default. 21. The Insolvency and Bankruptcy Code including rules and regulations, does not indicate that it is mandatory for the Financial Creditor to rush to file Section 7 Application whenever first default is committed in payment of interest. Although it had liberty to file an application even if there is default in payment of interest. Section 7 (1) of the Code uses the expression when a default has occurred there is no indication under Section 7 of the Code that unless an Application is filed on first default committed, no application can be filed when subsequent ....
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....scharge of each proportionately" These sections also recognise the fact that limitation bars the remedy but not the right. In the context in which Section 60 appears, it is interesting to note that Section 60 uses the phrase "actually due and payable to him..." whether its recovery is or is not barred by the limitation law. The expression "actually" makes it clear that in fact a debt must be due and payable notwithstanding the law of limitation. From this, it is very difficult to infer that in the context of the Contract Act, the expression "due and payable" by itself would connote an amount that may be due even though it is time-barred, for otherwise, it would be unnecessary for Section 60 to contain the word "actually" together with the later words, "whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits" 42. It is thus clear that since the Limitation Act is applicable to applications filed under Section 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the....
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....Part-V of the application, the respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part-V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default." 23. We may also refer to Judgment of the Hon'ble Supreme Court in 'Laxmi Pat Surana Vs. Union of India and Anr.' [(2021) 8 SCC 481] in the above case the default had occurred on 30th January, 2010 which was a date on which loan in question was declared NPA. Supreme Court held that ordinarily date on which Account has been declared NPA is to be treated as date of default. In paragraph 43 following was laid down: "43. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code. However, 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 co....
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....it is for the purpose that when a Corporate Debtor becomes insolvent, proceeding for resolution of insolvency may be commenced. If we accept the submissions of the Learned Sr. Counsel for the Appellant that on every first default even if it small fraction of loan, Financial Creditor has to rush to the IBC for initiating Insolvency Proceeding the same shall not be in accordance with the object of the Code. The Code is not recovery proceeding so as to on fraction of default a creditor rush to IBC Code. Financial Creditor can very well give little more time to borrower or to itself for coming to the conclusion that Corporate Debtor has apparently become insolvent although at the risk of forfeiting its right to claim amount which is barred by time. 25. To accept the submissions made by Learned Sr. Counsel for the Appellant, we have to read one additional word under Section 7 before the word 'Default' under Sub-Section 1 of Section 7 of the Code i.e. the word 'First'. The submission of the Appellants is that when first default is committed by a Debtor, the Creditor has necessarily and mandatorily to initiate Application under Section 7 failing which the right of creditor to file an App....
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.... order that a final and authoritative decision may be given on the following questions: 1. Where a preliminary decree (or money allows instalment and provides that in case of default in payment of any specified number of instalments, the entire amount then remaining unpaid would become payable, whether the words "when the right to apply accrues" in the third column in Article 181, Limitation Act are confined to the first default or include every fresh accrual of the right to apply upon the happening of each successive default and limitation for applying for a final decree for the balance then due may be counted from the accrual of the last default? 2. Whether in such a case the right to apply for a final decree in respect of the instalments not barred by limitation as individual instalments, remains intact in spite of the omissions to take advantage of the default clause? 3. Whether the answers to the above two questions would be affected if the default clause instead of being worded as "the decree-holder shall have a right to apply," or "the decree-holder shall have the option to apply", is worded as "the entire decretal amount shall become payable," or "the entire decretal ....
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....ly accrues" in the third column in Article 181, Limitation Act must mean the first default giving rise to the particular cause of action on the basis of which the application for a final decree is made, unless there has been a waiver, express or implied of the first default in which case the words "when the right to apply accrues" would mean the next succeeding default which is not waived, but the decree-holder will have a right to apply for realisation of each successive instalment as it falls due, provided the decree is not so worded that the only right left to the decree-holder after the first default is to realise the whole decretal amount. 2. The answer to the second question is the same, that is, the right to apply for a final decree in respect of the instalments not barred by limitation as individual instalments would remain intact in spite of the omission to take advantage of the default clause provided the default clause is not so worded that the decree-holder has a right to rely on that alone and the decree after the default ceases to be an instalment decree. 3. It is immaterial that the default clause is worded as "the decree-holder shall have a right to apply", or a....
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.... '2017' in Application under Section 9. 22. As can be seen from Section 8, reproduced above, the moment there is an occurrence of a default, copy of an invoice demanding payment of the amount involved in the default is to be delivered by way of a Demand Notice to the 'Operational Creditor'. Form III gives the details of the invoices. In the instant case, the 'Operational Creditor' has given the details of invoices from (pages 399 to 406 of Volume II) and has also crystallized the amount at Rs. 2,39,85,521.35/-, which is unpaid from 2011. Therefore, the argument of the Learned Counsel for the 'Operational Creditor' that the period should be confined only from 2015 to 2017 cannot be sustained. The Tribunal cannot confine to one or other invoice if the Applicant has relied on all the invoices to arrive at the amount of Rs. 2,39,85,521.35/- in the Demand Notice under Section 8. We are of the view that the Tribunal does not have Jurisdiction in these Insolvency Proceedings to cut-short the invoices which would cause recurring dates of cause of action as it is not a suit for recovery. 23. To reiterate, once the default takes place, the Right to file Application accrues as provided un....
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....t gave a final opportunity to the respondent to repay the amount, which was due and payable on the date of notice. The right to sue would occur, in my opinion, each time when, there is a default in payment of an EMI on its due date... ... ..." 32. We thus conclude that non-filing of the Application under Section 7 of the Code by the Appellant on default of interest which occurred on 30th June, 2015 shall not foreclose the right of the Financial Creditor to file an Application under Section 7 of the Code when default on first instalment occurred on 30th November, 2015 and when entire loan became due by notice dated 05.01.2017. 33. The Appellant has not claimed in Section 7 Application the amount of defaulted interest on 30th June, 2015. Thus the Application filed by the Financial Creditor under Section 7 claiming amount of default of the first instalment and default of the entire loan which occurred on 30th November, 2015 and 01st February, 2017 was well within time which has been filed on 28th November, 2018. The submission of Mr. Ramji Srinivasan, Sr. Advocate that no date of default has been given in Part-IV of Section 7 Application is not correct when we read Item 2 of Part-IV....
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.... debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 36. The above preposition is again reiterated by Hon'ble Supreme Court in [(2018) 1 SCC 363] 'Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited' wherein paragraph 37 following was observed: "37. It is now important to construe Section 8 of the Code. The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Government or to a local authority. This has to be contrasted with financial debts that may be owed to financial creditors, which was the subject matter of the judgment delivered by this Court on 31.8.2017 in Innoventive Industries Ltd. v. ICICI Bank & Anr. (Civil Appeal Nos.8337-8....
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....ial materials on record to come to the conclusion that default has been committed by the Corporate Debtor and the amount as claimed is due. 38. Now we may notice two judgments of Hon'ble Supreme Court relied on by the Learned Sr. Counsel for the Appellant. Learned Sr. Counsel for the Appellant has placed reliance on Judgment of Hon'ble Supreme Court in 2020 8 SCC 531 'Committee of Creditors of Essar Steel Ltd. Vs. Satish Kumar Gupta and Ors' reliance has been placed on paragraph 152 and 153 which is to the following effect: "152. So far as Civil Appeal No. 7266 of 2019 and Civil Appeal No. 7260 of 2019 are concerned, the resolution professional has rejected the claim of the Appellants on the ground of non-availability of duly stamped agreements in support of their claim and the failure to furnish proof of making payment of requisite stamp duty as per the Indian Stamp Act despite repeated reminders having been sent by the resolution professional. The application filed by the Appellants before the NCLT came to be dismissed by an order dated 14.02.2019 on the ground of non-prosecution. The subsequent restoration application filed by the appellants then came to be rejected by the NC....
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....of India in 2021 4 SCC 379 'M/s. N.N.Global Mercantile Pvt. Ltd. Vs. Indo Unique Flame Pvt. Ltd. & Ors'. In this case, the Hon'ble Supreme Court of India had occasion to consider Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996. In paragraphs 21 to 23 Hon'ble Supreme Court of India laid down as under: "21. The issue which has arisen in the present case is whether the arbitration agreement incorporated in the unstamped Work Order dated 28.09.2015, would also be legally unenforceable, till such time that the Work Order is subjected to payment of Stamp Duty. Undisputedly, the Work Order is chargeable to payment of Stamp Duty under Item No. 63 of the First Schedule to the Maharashtra Stamp Act, 1958. 22. In our view, the non-payment or deficiency of Stamp Duty on the Work Order does not invalidate the main contract. Section 34 provides that an unstamped instrument would not be admissible in evidence, or be acted upon, till the requisite stamp duty is paid. This would amount only to a deficiency, which can be cured on the payment of the requisite stamp duty. 23 The point for consideration is whether the non-payment of Stamp Duty on the Work Order, would rende....