TaxTMI 
TaxTMI 
2023 (2) TMI 185
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....Nayani Agarwal, Mr. Rajat Sinha, Ms. Varsha 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 Sect....
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....Decree for a sum of Rs.117.59 crores and suit was also for a mandatory injunction. (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 ....
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....Jayaswal, one of the Directors of the Corporate Debtor and Jas Infrastructure & Pvt. Ltd., one of the group companies of the Corporate Debtor for coal 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.....
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.... its part under the Agreement, further disbursement could not be made by the Financial Creditors. It is submitted that 'debt' and 'default' on the part of Corporate Debtor was fully proved, there being 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 re....
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....and proposed Swiss Challenge Method for selling their stake in the Corporate Debtor, as is clear from JLM dated 08.02.2014 and 05.06.2014. The 'debt' and 'default' on the part of the Corporate Debtor having 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 an....
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....upreme Court in Gujarat State Financial Corporation vs. Lotus Hotels Pvt. Ltd. - (1983) 3 SCC 379. The Civil Suit has bearing on Section 7 Application. The Suit was filed nearly two years ago prior to filing 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....
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....whether the Corporate Debtor has discharged from its obligations. In paragraph 5.12, following has been observed: "5.12 The adjudication of the suit by the Hon'ble Calcutta High Court will result in determination of the default, 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 ....
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....Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. 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 Corp....
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....ecting Section 7 Application has already been answered by the Hon'ble Supreme Court in its judgment in Innoventive Industries Limited (supra). We need to notice some submissions, which were raised before the Hon'ble Supreme Court in Innoventive Industries Limited and the views, which were expressed by the Hon'ble Supreme 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 u....
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....ect an application and not otherwise." 19. The submission, which was pressed by the Corporate Debtor before the Adjudicating Authority and the Appellate Tribunal regarding non-releasing of funds under MRA was also pressed before the Hon'ble Supreme Court. The Hon'ble Supreme Court although held that Adjudicating Authority and Appellate 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....
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....06.2022 is clearly not in consonance with the law declared by the Hon'ble Supreme Court in Innoventive Industries Ltd. (supra). This alone is sufficient to set aside the impugned order passed by the Adjudicating Authority. 22. We may also notice that Hon'ble Supreme Court while considering the Scheme of the IBC, i.e., an Application under Section 7 of the IBC had considered 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 S....
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....ommitted default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate Debtor needs insolvency resolution. Red signal having been flagged by the Applicant, ignoring the precarious financial situation and status of the Corporate Debtor and not taking remedial action to bring back the Corporate Debtor on 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 findi....
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....ion vs. Lotus Hotels Pvt. Ltd. - (1983) 3 SCC 379. It is submitted that Hon'ble Supreme Court has held that the Gujarat undertaking was bound by the principle of promissory estoppel. It further held that the Government undertaking cannot back out from its promise held out to the contracting party, which incurred expenditure and suffered liabilities. In the case of Gujarat State Financial Corporation, the Appeal was filed against the judgment 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 ca....