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2023 (2) TMI 185
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....rsha Himatsingka, Ms. Yashvi Agarwal, Advocates For the Respondents: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Ms. Shruti Pandey, Ms. Megha Dugar, Advocates For the Appellant : Mr. Rajesh Kumar Gautam, Mr. Anant Gautam, Mr. Nipun Sharma, Mr. Vidur Ahluwalia and Mr. Sumit Sharma, Advocates For the Respondents : Mr. Ramji Srinivasan, Sr. Advocate, Mr. Zishan Haq, Mr. Tanay Agarwal, Mr. Animesh Kumar,Mr. Ram Maroo, Advocates JUDGMENT ASHOK BHUSHAN, J. These Appeal(s) have been filed by Financial Creditors, challenging the orders of Adjudicating Authority National Company Law Tribunal, Kolkata Bench-I, Kolkata, by which Section 7 Applications filed by Financial Creditors have been rejected. 2. Company Appeal (AT) (Insolvency) No. 978 of 2022 has been filed against the order dated 28.06.2022 in CP(IB) No.1905/KB/2019 by which order, Section 7 Application filed by State Bank of India against the Corporate Debtor - N.S. Engineering Projects Pvt. Ltd. was rejected. Company Appeal (AT) (Ins.) No. 1039 of 2022 has also been filed against the same order dated 28.06.2022 by which Section 7 Application being CP(IB) No.1857/KB/2019 filed ....
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..... (v) On 20.09.2017, State Bank of India issued demand notice, calling upon the Corporate Debtor to pay a sum of Rs.39,46,43,964.00/- upto 18.09.2017 with further interest. The State Bank of India also filed OA No.69 of 2018 on 22.02.2018 before the Debt Recovery Tribunal, Kolkata. (vi) On 31.10.2019, the State Bank of India filed CP(IB) No.1905 of 2019 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC") against the Corporate Debtor before the NCLT, Kolkata Bench. The Corporate Debtor on 27.02.2020 also filed an Application under Section 65 in the above case, which Application was replied by the Financial Creditor. (vii) On 28.06.2022, by the impugned order the Adjudicating Authority rejected the Section 7 Application. 3. The facts relating to Punjab National Bank in Company Appeal (AT) (Ins.) No. 1039 of 2022 also needs to be noted separately, which are: (i) A credit facility was extended by Punjab National Bank to the Corporate Debtor in the year 2013. The Corporate Debtor applied for debt restructuring in the year 2015 and restructuring credit facility was permitted and Master Restructuring Agreement dated 29.09.2015 was ex....
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....al block allocation. (iv) Joint Lenders' Meeting ("JLM") was held on 12.10.2012, 26.07.2013, 08.02.2014. In the JLM meeting held on 08.02.2014, Abhijeet Integrated Steel Ltd. informed the Lenders that it has decided to sell its majority stake to Uttam Galva Steel Limited ("UGSL"). On 02.06.2016, UGSL submitted a proposal to acquire the entire stake in the Project and bring in additional equity. The IDBI Bank Ltd. disbursed a total amount of INR 68,84,89,080/- to the Corporate Debtor on 27.09.2014. (v) The Corporate Debtor defaulted in repayment of interest on the principal for three consecutive months from October 2014. Hence, the loan account was declared as NPA on 30.12.2014. A JLM was held on 02.01.2015 wherein it was observed that actual progress was not commensurate with the disbursements made by them. (vi) On 15.06.2015, the Appellant issued a demand notice to the Abhijeet Integrated Steel Ltd. that it had failed to pay the principal amount to INR 64,84,89,080/- together with interest. The IDBI Bank Ltd. suspended the unpaid principal amount of INR 29.15 crores. The JLM granted time to UGSL to submit a final proposal. The UGSL failed to submit a proposal. The proposal o....
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.... clear acknowledgement of debt by the Corporate Debtor. Filing of suit by the Corporate Debtor in the Calcutta High Court, claiming decree of Rs.117 crores and injunction against the Financial Creditors was not relevant for rejecting Section 7 Application. The Corporate Debtor never complied the conditions on which restructuring of debt was granted. The Adjudicating Authority while deciding Section 7 Application has to look into the 'debt' and 'default' and it having proved that 'debt' and 'default' has been committed by the Corporate Debtor, Section 7 Application was required to be admitted. The Adjudicating Authority committed error in rejecting Section 7 Application. 7. Shri Rajesh Kumar Gautam, learned Counsel for the Punjab National Bank has also relied on the submission of Shri Krishnan Venugopal. It is further submitted that 'debt' and 'default' having not been disputed by the Corporate Debtor or by the Adjudicating Authority, the Adjudicating Authority committed error in rejecting Section 7 Application. The Adjudicating Authority cannot go into the issue of reason for default while deciding Section 7 Application. Reliance placed by the Corporate Debtor before the Adjudicat....
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....g been established in terms of Section 7 Application, the Adjudicating Authority ought to have admitted Section 7 Application. The Appellant was fully entitled to adjust the due interest from the sums to be disbursed to the Borrower and the sums so deducted or adjusted were deemed to be disbursement made by the lenders as per Clause 2.8. The observation of the Adjudicating Authority that Appellant has played a contributory role in commission of default is wholly incorrect. The Appellant performed its obligations under the Agreement. The rights and obligations of each Consortium of Lenders under the Agreement are independent. A Lender is only responsible for its own obligation and if one Lender fails to perform its obligation, other Lenders cannot be held responsible for the same. The Appellant being Financial Creditor has statutory right to initiate Section 7 proceedings. The Appellant has not breached any obligation under the Agreement. The Corporate Debtor is not entitled for any disbursement after the account has been classified as NPA in the books of the lenders. 9. Shri Ramji Srinivasan, learned Senior Counsel appearing for both N.S. Engineering Projects Pvt. Ltd. and Abhijee....
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.... of Section 7 Application. Issues framed in the Suit relate to question of default and to whom such default is attributable. 'Debt' and 'default' has not been admitted and the Corporate Debtor has stated that Appellant is in default having failed to disburse the amount in terms of Master Restructuring Agreement. It is fundamental principle of jurisprudence that a person cannot be allowed to take advantage of his own wrong. It is held by the Hon'ble Supreme Court that if debt is not payable in law or in fact, the same will not amount to a 'debt' or 'default'. The order of Adjudicating Authority does not warrant any interference. 10. Coming to the case of Abhijeet Integrated Steel Ltd., Shri Ramji Srinivasan submits that default committed by the Lenders cannot be said to be default committed by Abhijeet Integrated Steel Ltd. The Banks after carrying out the study of the Corporate Debtor have sanctioned the financial facility. The Lenders committed disbursement of INR 200 crores, but they have disbursed only INR 100 crores. Shri Ramji Srinivasan, however, has been candid in his submission that Abhijeet Integrated Steel Ltd.'s facts should have been considered a little more. It is sub....
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...., inasmuch as there will be an adjudication also on whether the Corporate Debtor is discharged from its obligations. We wonder why, after all the intervening years when the accounts were apparently declared as NPA with effect from 28.06.2017, the Financial Creditor waited for two more years before initiating the present proceedings. We restrain ourselves on commenting on the reasons due to connected lis pendens." 14. The Adjudicating Authority in paragraph 5.14 held that when Financial Creditor, by its own acts of omission and commission, contributes to the default on the part of the Corporate Debtor, Application under Section 7 may not be admitted. 15. The Hon'ble Supreme Court has had occasion to examine the contours of Section 7 Application. The Hon'ble Supreme Court in Innoventive Industries Limited vs. ICICI Bank and Anr.- (2018) 1 SCC 407 had noted the Scheme of Section 7 of the Code and also contrasted it with the Scheme under Section 8 and 9. Paragraphs 28 and 29 of the judgment of the Hon'ble Supreme Court is as follows: "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 ....
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....e. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing-i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code." 16. The Hon'ble Supreme Court in the above case has observed that the moment Adjudicating Authority is satisfied that default has occurred, the Application must be admitted, unless it is incomplete. From the facts, which we have noticed above in these Appeal(s), there is no denial to the sanction of financial facilities to the respective Corporate Debtors and restructuring of the debt on account of default committed by the Corporate Debtors. It is further on the record that the Corporate Debtors were unable to carry out its repayment obligation as per Restructuring Agreement. The Corporate Debtor, in its reply to Section 7 Application has relied on the Suit filed in the Calcutta....
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....upreme Court in the above case. In Innoventive Industries Limited, a Section 7 Application was filed by the Financial Creditors. Nineteen Banking entities had extended credit to the Innoventive Industries Ltd. In the above case also restructuring proposal given by the Corporate Debtor was approved in the meeting of Joint Lenders Forum. A Restructuring Agreement was entered into on 09.09.2014, under which funds were to be infused by the creditors and certain obligations were to be met by the debtors. Insolvency resolution process was set in motion by filing a Section 7 Application. In reply to Section 7 Application, Corporate Debtor took plea that under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, all liabilities of the Corporate Debtor except certain liabilities and remedies for enforcement thereof were temporarily suspended, hence the Application under Section 7 could not have been filed. The Corporate Debtor also filed a second application taking another plea that owing to non-release of funds under Master Restructuring Agreement, the Corporate Debtor was unable to pay back its debts as envisaged. It was pleaded that no default has been committed by the Cor....
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....ellate Tribunal were right in not going into this contention, but also proceeded to examine the submission. The Hon'ble Supreme Court looked into the different clauses of MRA. The Hon'ble Supreme Court has relied on Clause 10(t) in the MRA, which has been reflected in paragraph 63 and ultimately held that obligation of the Corporate Debtor was unconditional and did not depend upon infusing of funds by the creditors. In paragraph 63 and 64 of the judgment, which clinches the issue, following has been laid down: "63. Even otherwise, Shri Salve took us through MRA in great detail. Dr Singhvi did likewise to buttress his point of view that having promised to infuse funds into the appellant, not a single naya paisa was ever disbursed. According to us, one particular clause in MRA is determinative on the merits of this case, even if we were to go into the same. Under Article V entitled "Representations and Warranties", Clause 20(t) states as follows: "(t) Nature of Obligations The obligations under this Agreement and the other restructuring documents constitute direct, unconditional and general obligations of the borrower and the reconstituted facilities, rank at least pari passu a....
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....ered the claim of set-off or counterclaim in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India and Ors. - (2019) 4 SCC 17. The Hon'ble Supreme Court has held that claim of set-off will be considered at the time of filing of proofs of claim during the resolution process. In paragraph 61 and 63, following has been laid down: "61. Insofar as set-off and counterclaim is concerned, a set-off of amounts due from financial creditors is a rarity. Usually, financial debts point only in one way-amounts lent have to be repaid. However, it is not as if a legitimate set-off is not to be considered at all. Such set-off may be considered at the stage of filing of proof of claims during the resolution process by the resolution professional, his decision being subject to challenge before the adjudicating authority under Section 60. 63. Equally, counterclaims, by their very definition, are independent rights which are not taken away by the Code but are preserved for the stage of admission of claims during the resolution plan. Also, there is nothing in the Code which interdicts the corporate debtor from pursuing such counterclaims in other judicial fora." 23. The Hon'ble Supreme Court in Swiss R....
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.... its track by adopting resolution process as per IBC and reject the Application on the reasons of default, is clearly contrary to the whole Scheme of the IBC. There being sufficient material before the Adjudicating Authority that consistent defaults have been committed by the Corporate Debtor and it is unable to pay its debt, rejection of Section 7 Application on the ground that for default committed by the Corporate Debtor, the Financial Creditors have also to be blamed is closing the eyes to the Scheme of the insolvency resolution. 25. Shri Ramji Srinivasan has placed much reliance on the judgment of Park Energy Pvt. Ltd. vs. Syndicate Bank and Anr. - (2020) SCC online NCLAT 637. In the above judgment, we have noticed that this Tribunal has returned a finding that no default was committed by the Corporate Debtor, since the amount which was to be paid to Financial Creditors, i.e., Syndicate Bank, who had only 1.64% stake of the total value of the debt owed by the Corporate Debtor to all the Financial Creditors, could have been very well paid from the Trust Retention Account, where there was sufficient money, hence, it cannot be held that any default was committed by the Corporate....
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....ment of the High Court in a Writ Petition filed under Article 226. The Writ Petition was filed by the Respondent Lotus Hotels Pvt. Ltd. praying for a Writ of Mandamus directing the Appellant to disburse the promised loan to the Company in accordance with its letter of offer dated July 24, 1978, followed by the agreement dated February 1, 1979. The Writ Petition was allowed issuing the direction as prayed for and LPA was dismissed, against which an Appeal was filed before the Hon'ble Supreme Court. The Hon'ble Apex Court in the said judgment laid down following in paragraph 13: "13. Now if appellant entered into a solemn contract in discharge and performance of its statutory duty and the respondent acted upon it, the statutory corporation cannot be allowed to act arbitrarily so as to cause harm and injury, flowing from its unreasonable conduct, to the respondent. In such a situation, the court is not powerless from holding the appellant to its promise and it can be enforced by a writ of mandamus directing it to perform its statutory duty. A petition under Article 226 of the Constitution would certainly lie to direct performance of a statutory duty by "other authority" as envisaged....