TaxTMI 
TaxTMI 
2023 (1) TMI 812
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Company Law Tribunal', Division Bench - I, Chennai), in the 'Application'. 2. The 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai). in CP(IB)/203(CHE)/2021, (Filed by the '1st Respondent / Petitioner / Financial Creditor'), while passing the 'impugned order' dated 09.06.2022, wherein, inter alia at Paragraphs 5 to 10, had observed the following: 5. "From Part-IV of the Application it is seen that the Financial Creditor has claimed a sum of Rs.31,17,20,210.16 (Rupees Thirty One Crores Seventeen Lakhs Twenty Thousand Two Hundred and Ten and Sixteen paise only) as on 19.08.2021 which is due and payable by the Corporate Debtor together with interest. The date of default as mentioned in the application is 31.10.2018. The amount of disbursement as mentioned in Part IV of the Application is as follows: Sl. No. Facility Date Interest Limit A Cash Credit (including LC Limit of Rs. 8.00 Crores) 23.05.2016 13.50% 18,00,00,000.00 B Term Loan 23.05.2016 13.75% 71,89,000.00 C Term Loan (closed) 23.05.2016 13.45% 4,50,00,000.00 23,21,89,000/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mited to assessing the records provided by the financial creditor to satisfy itself that the default has occurred. 28. "When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by regist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8,85,229.37 through Demand Notice, who had sanctioned a limit of only Rs.10 Crores. In fact, the '1st Respondent / Bank / Financial Creditor', had not wanted to show the Letter of Credit Limits, which they permitted the Corporate Debtor to use for the greed of Letter of Credit Commission and Charges. Moreover, the '1st Respondent / Bank / Financial Creditor', in their Notice, had merged the 'Letter of Credit utilisation into Cash Credit Facility', and claimed a Sum, which is double of the Cash Credit Limit. 4. It is represented on behalf of the Appellant, whatever money was received as the refund of Letter of Credit Development, was taken by the '1st Respondent / Bank / Financial Creditor' for servicing interest. Also that, the '2nd Respondent / Corporate Debtor', had not taken any amount, out of the Company and any 'Auditor', would be able to certify the same. 5. It is the version of the 'Appellant' that the '1st Respondent / Bank / Financial Creditor', had declared the 'Corporate Debtor's Account', as 'Fraud Account' and the same was not notified to the 'Corporate Debtor / M/s. Rosvar Steels Pvt. Ltd'. In fact, the 'Corporate Debtor', on numerous dates, had requested the 'Bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7/- was paid in favour of the '1st Respondent / Bank / Financial Creditor', by the '2nd Respondent / Corporate Debtor', in respect of the outstanding amount of Rs.23,21,89,000/-. Therefore, according to the 'Appellant', the remaining sum to be paid is Rs.6,59,06,393/-. 10. The stand of the Appellant is that, the '2nd Respondent / Corporate Debtor', is willing to honour its 'Repayment Obligation', and therefore, a case is made out by the 'Appellant' to set aside the 'impugned order', passed by the 'Adjudicating Authority', and a direction is to be issued to the '1st Respondent / Bank / Financial Creditor', to receive the Sum offered by the '2nd Respondent / Corporate Debtor', towards settlement of Loan Accounts. 11. The grievance of the Appellant is that, the 1st Respondent / Bank had declared the account of the 2nd Respondent / Corporate Debtor as 'Fraud', without any cogent proof and later, lodged a complaint with the 'Enforcement Agencies', which was a 'violation' of the Corporate Debtor's basic rights, guaranteed under the 'Constitution of India'. 12. In this connection, the Learned Counsel for the Appellant points out that a 'Fraud Tag', can affect a Defaulting Promote....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Award, a sum of Rs.1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor. The answer, in our view, is necessarily in the negative. 61. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management. 62. As pointed out by Mr. Gupta, Legislature has, in its wisdom, chosen to use the expression "may" in Section 7(5)(a) of the IBC. When an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor. 78. The Legislature has consciously differentiated between Financial Creditors and Operational Creditors, as there is an innate difference between Financial Creditors, in the business of investment and financing, and Operational Creditors in the business of supply of goods and services. Financial credit is usually secured and of much longer duration. Such credits, which are often long term credits, on which the operation of the Corporate Debtor depends, cannot be equated to operational debts which are usually unsecured, of a shorter duration and of lesser amount. The financial strength and nature of business of a Financial Creditor cannot be compared with that of an Operational Creditor, engaged in supply of goods and services. The impact of the non-payment of admitted dues could be far more serious on an Operational Creditor than on a financial creditor. 79. As observed above, the financial strength and nature of business of Financial Creditors and Operational Creditors being different, as also the tenor and terms of agreements/contract....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s incapable of realisation. The example is only illustrative." 16. The Learned Counsel for the Appellant, adverts to the decision of the Hon'ble Supreme Court of India in E S Krishnamurthy v. Bharath Hi Tech Builders Pvt. Ltd., reported in (2021) SCC Online SC 1242, to fortify his stance that, a 'Tribunal', can encourage 'Settlement', between a 'Financial Creditor', and a 'Corporate Debtor'. 17. According to the Appellant, the Legislature intended Section 9 (5) (a) of the I & B Code, 2016, is a 'Mandatory' one and Section 7 (5) (a) of the Code, to be a 'Discretionary' one. 18. An 'Adjudicating Authority', is to take into account, all relevant facts and circumstances, including the overall 'Financial Health' and 'Viability', of the '2nd Respondent / Corporate Debtor'. Further, an 'Adjudicating Authority' ('Tribunal'), may in its 'Discretion', not to admit the 'Application' of a 'Financial Creditor'. Also that, the 'Adjudicating Authority', is to consider the grounds, made out by the 'Corporate Debtor' against an 'Admission Order', on its own merits. 1st Respondent / Bank's Pleas: 19. According to the 1st Respondent / Petitioner / Financial Creditor (Bank), the 'Debts'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Petition No. 17839 of 2021, filed by the 'Corporate Debtor' to the 'Interim Resolution Professional', in regard to the challenge, relating to the 'Classification of Account of M/s. Rosvar Steels Pvt. Ltd. as 'Fraud'. 26. According to the 2nd Respondent / IRP, there was no reason of justification at her end to conduct and defend Mr. Ravichandran, the erstwhile 'Director' of the 'Corporate Debtor' from the proceedings initiated by the 'Financial Creditor'. Indeed, the 'Classification of Account of Rosvar Steels Private Limited (as 'Fraud), by a 'Financial Creditor', which can be attributed only to the 'Directors' of the 'Corporate Debtor', and a company by itself, cannot be indicted to have committed 'fraud', only for 'stalling' the 'Corporate Insolvency Resolution Process' proceedings, the allegations were made by the 'Erstwhile Managing Director', which are all 'misconstruing' one. 27. Before the 'Adjudicating Authority', the '1st Respondent / Bank / Financial Creditor', had filed an 'Application', under Section 7 of the Code, in the matter of Rosvar Steels Private Limited, wherein at Part IV, the 'Debt', granted was Rs.23,21,89,000/- and the breakup is mentioned, as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was taken by the Financial Creditor, for servicing interest and that the 'Corporate Debtor', had not taken any money out of the Company and any Auditor would be able to certify the same. 33. According to the 2nd Respondent / Corporate Debtor's reply, before the 'Adjudicating Authority' (to the main CP(IB)/203(CHE)/2021), it filed an 'Application', before the 'Financial Creditor' / 'Bank', under the 'Right to Information Act', seeking information, about the basis for 'declaring' the 'Corporate Debtor's Account' as a 'Fraud Account', and an evasive reply was given by the 'Bank / Financial Creditor', on 01.07.2021. 34. The Corporate Debtor took a stand before the 'Adjudicating Authority', that the 'Classification of its Account' as 'Fraud', impaired the ability of the 'Borrower', to engage a Settlement talks with the 'Bank' and settle the Accounts. Also that, the 'Central Bureau of Investigation', who is investigating the matter, after registering a 'First Information Report', was not able to identify any 'Diversion of Funds' or any 'act', that would tantamount to, the 'Account', being characterised as 'Fraud'. 35. Added further, the 'Corporate Debtor', had pointed out that, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing. 1[Explanation. - For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m' of the 'Respondent', may ascertain / find out, what amount is payable to the 'Respondent'. Provisions of Non Performing Asset: 52. The provisions of 'Non Performing Asset', relates to SARFAESI Act, or the 'Debt' recovery loss. Evaluation: 53. Before the 'Adjudicating Authority', the '1st Respondent / Bank' in Form I of Section 7 Application in CP(IB)/203(CHE)/2021, under Part IV, had mentioned that the 'Total Sum of Financial Debt', granted to the 'Corporate Debtor' is mentioned as Rs.23,21,89,000/-. The amount claimed to be in 'Default', as on 19.08.2021 was Rs.31,17,20,210.16. The name of the 'Corporate Debtor' is M/s. Rosvar Steels Pvt. Ltd., Coimbatore. 54. The main plea taken on behalf of the Appellant is that, the 'Corporate Debtor / M/s. Rosvar Steels Pvt. Ltd.', had repaid the 'Loan Amounts', in numerous instalments to the '1st Respondent / Bank', and a payment of Rs.16,62,82,607/- was made in favour of the '1st Respondent / Bank', during the period 01.03.2011 to 31.10.2018 and that only a Sum of Rs.6,59,06,393/-, was only to be paid as 'Outstanding Sum'. Furthermore, the 'Corporate Debtor', is willing to honour its repayment obligation. 55. The other s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of an Account' as 'Fraud', by the '1st Respondent / Financial Creditor / Bank', does not hinder the 'Bank', from considering the 'OTS Proposal', and the 'Offer of Rs.6 Crores', as against the due of Rs.24 Crores, was not acceptable to the '1st Respondent / Financial Creditor / Bank'. Although, a 'Notice', was issued to the 'Appellant', to improve his 'Offer', the 'Appellant', had not availed the same. 63. It is always open to a 'Corporate Debtor', to 'exhibit' that a 'Debt', may not be 'Due', ofcourse, it is 'not payable' in 'Law' or in 'Fact'. A 'Party' is not to be permitted to 'abuse' the 'Legal Process', by adopting dilatory tactics at the stage of 'admission' of an 'Application'. 64. As for as the present case is concerned, the 'Corporate Debtor', had not 'disputed the Debt', but 'admitted' the same. There is no 'Dispute', in regard to the grant of 'Term Loan Facilities' or about the 'Corporate Debtor', being in 'Default'. 65. The amount of 'Debt', given to the 'Corporate Debtor' was Rs.23,21,89,000/- and that a Sum of Rs.31,17,20,210.16 was the amount in 'Default', as on 19.08.2021. 66. The 'Default' occurred when the 'Account' of the 'Corporate Debtor', was clas....