TaxTMI 
TaxTMI 
2023 (7) TMI 66
X X X X Extracts X X X X
X X X X Extracts X X X X
....bunal', Special Bench - II, Chennai). 2. While passing the 'impugned order', dated 13.04.2022 in IBA / 49 / 2019 (Filed by the '1st Respondent / Financial Creditor / Bank / Petitioner' - under Section 7 of the I & B Code, 2016, r/w Rule 4 of the I & B (AAA) Rules, 2016), the 'Adjudicating Authority' ('National Company Law Tribunal', Special Bench - II, Chennai), among other things, at Paragraph Nos. 6 to 16, had observed the following: 6. "It was submitted by the Learned Counsel for the Applicant that the Financial Creditor had caused demand notice dated 27.01.2015, under SARFAESI, Act to the Corporate Debtor with the request to pay a sum of Rs.16,51,98,135.20/- (Rupees Sixteen Crore Fifty-One Lakh Ninety-Eight Thousand One Hundred Thirty Five and Twenty Paise only) as the outstanding amount as on date of notice together with future interest thereon at the contractual rate. Since, the Corporate Debtor has not replied to the demand notice the Financial Creditor had taken possession of the property mortgaged on 28.07.2015 and issued possession notice to the Corporate Debtor, against which the Corporate Debtor has not taken any action, which shows the Corporate Debtor has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs.14,08,75,444.17/- (Rupees Fourteen Crore Eight Lakh Seventy-Five Thousand Four-Hundred Forty-Four and Seventeen Paise only). 12. On the other hand, the Learned Counsel Appeared on behalf of the Corporate Debtor submitted in the counter that the application OA No.633 of 2016 filed by the Financial Creditor and the Securitization Application filed by the Corporate Debtor were pending before the DRT - II, Chennai Bench. 13. It was further submitted that in the writ petition WP No. 1421 of 2017, the Hon'ble High Court of Madras has given liberty to the Corporate Debtor to claim damages against the Financial Creditor for the mistake the made in the CIBIL score of the Corporate Debtor. 14. Subsequently, the Corporate Debtor filed a counterclaim in C.C. No.6 of 2018 in OA No.633 of 2016 before DRT - II Chennai, wherein vide order dated 30.05.2019. DRT held that the Financial Creditor is not entitled to any interest for the financial facilities sanctioned to the Corporate Debtor from the date of sanction till the date of filing OA No.633 of 2016 and directed the Financial Creditor to adjust the payment made by the Corporate Debtor towards the principal amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Performing Asset', on 30.12.2014. 4. According to the Appellant, the 1st Respondent / Bank, had directed the 2nd Respondent / Corporate Debtor, to clear the 'Due Outstanding', and that the 2nd Respondent / Corporate Debtor, had approached various Banks, including the 'New India Co-operative Bank', for taking over the 'Loan', by clearing the 'Dues', payable to the 1st Respondent / Bank. 5. It is the version of the Appellant that the 1st Respondent / Bank, had misused the 'Collateral', provided by the '2nd Respondent / Corporate Debtor', and wanted to ensure that the 'Loan', is not serviced so that the mortgaged properties can be sold in auction at a throw away price to the land sharks who have a mutual beneficial understanding with the 'Bank' officials. 6. The Learned Counsel for the Appellant points out that the '1st Respondent / Bank / Financial Creditor', made a 'false reporting' of a 'non-existent account to Credit Information Bureau of India Ltd (CIBIL) which showed the dues of the 'Corporate Debtor' at Rs.32 Crores when the actual dues were only about Rs.14 Crores. Therefore, the 'Corporate Debtor', approached the High Court praying for CBI Investigation and while ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laimed to be payable by the '1st Respondent / Bank', has been paid in full and there is no 'aspect of default', on the part of the '2nd Respondent / Corporate Debtor'. 11. The Learned Counsel for the Appellant submits that being dissatisfied with the 'Final Order' of the 'Debt Recovery Tribunal - II, Chennai, dated 30.05.2019, the '1st Respondent / Bank', had preferred 'Appeals', before the 'Debt Recovery Appellate Tribunal', Chennai, in RA No. 110 and 111 of 2019, and the 'Corporate Debtor', had also preferred an 'Appeal', as against the 'Dismissal' of the 'counterclaim', in RA No.138 of 2019. In fact, on 14.11.2019, the Debt Recovery Appellate Tribunal, Chennai, had passed Final Orders, dated 14.11.2019, holding that the 'Financial Creditor', is entitled to charge 'Interest', on the 'Loan Accounts', from the date of 'Sanction', @ 9% and thereby modifying the 'Final Order' of the 'Debt Recovery Tribunal', to that extent and affirmed the 'Dismissal' of the 'Counterclaim', filed by the 'Corporate Debtor'. 12. The Learned Counsel for the Appellant, points out that the 2nd Respondent / Corporate Debtor, in respect of the 'Common Order', passed by the Debt Recovery Appellate Trib....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is 'Due and Payable'. Also that, the 'Adjudicating Authority', had not even ascertained, whether any 'Debt' existed, and instead presumed the 'existence of Debt'. 17. According to the 'Appellant', the whole decision, was based on a 'Stale One Time Settlement Offer', provided by the '2nd Respondent / Corporate Debtor', which was filed in the year 2016, when the '2nd Respondent / Corporate Debtor', had paid huge sums of money, subsequently in numerous proceedings, including the Proceedings, before the 'Adjudicating Authority', and thus mentioned in the 'Affidavits', filed by the '1st Respondent / Bank', before the 'Adjudicating Authority', and in fact, had cleared the 'Entire Liability' (pending determining of the 'Actual Liability', albeit), and this fact, was taken note of, by the Hon'ble High Court in its Order dated 04.12.2019. However, the 'Adjudicating Authority' / 'Tribunal', had failed to consider the subsequent repayments, that cleared the 'Entire Liability', and other factors, such as the 'Financial Position' of the 'Corporate Debtor'. 18. The Learned Counsel for the Appellant submits that in Contempt Petition No. 1260 / 2022, the Hon'ble High Court recorded the earl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the 'impugned order', dated 13.04.2022 in IBA/49/2019, passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Special Bench - II, Chennai). Appellant's Submissions: 23. The Learned Counsel for the Appellant, contends that the 2nd Respondent / Corporate Debtor, had paid amounts, in excess of Rs.1.63 Crores (as on 21.08.2019), upon being declared 'Non Performing Asset', and much before the 'impugned order', came to be passed on 13.04.2022. As a matter of fact, the '2nd Respondent / Corporate Debtor', had paid a Total Amount of Rs.14.13 Crores and this amount has to be adjusted to the 'Principal', in terms of the cumulative reading of the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal's Orders. 24. The Learned Counsel for the Appellant, contends that where in a Petition, the Sum indicated as 'Amount Due', is admittedly and wholly paid prior to an 'Order on Admission', the same automatically renders the Petition under Section 7 of the Code infructuous since, there would not be any amount due (and, therefore, no default), requiring initiation of 'Corporate Insolvency Resolution Process' in terms of Section 7(5) of the Code. 25. The Learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., in the instant 'Appeal'. 31. The Learned Counsel for the Appellant, takes a plea that in as much as the 1st Respondent / Bank, has made substantial recoveries, during the pendency of 'Legal Proceedings', and until the 'impugned order', and since the '1st Respondent / Bank, had pursued the 'Petition', in IBA/49/2019 (filed under Section 7 of the I & B Code, 2016), despite, any 'Order of Injunction', dated 04.12.2019, passed against it, by the Hon'ble High Court, it is clear that, Petition under Section 7 of the I & B Code, 2016, filed by the 1st Respondent / Bank, to the 'Fraudulent and Malicious initiation of proceedings', and on this score, the 'impugned order', dated 13.04.2022, passed by the 'Adjudicating Authority' / 'Tribunal', in IBA/49/2019, is to be set aside and accordingly, the main 'Petition', is to be 'dismissed'. Appellant's Decisions: Hon'ble Supreme Court's Decisions: 32. The Learned Counsel for the Appellant cites the decision of the Hon'ble Supreme Court of India in Innoventive Industries Limited v. ICICI Bank & Anr., reported in (2018) 1 SCC Page 407, at Spl. Pg. 410, wherein, at Paragraph 28, it is observed as under: 28. "When it comes to a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 7(5), where the Adjudicating Authority is to be satisfied that default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the 'debt', which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact." 21. "In such circumstances if the adjudicating authority finds from the material available on record that the situation is not yet ripe to call it a default, that too if it is satisfied that it is profit making company and certain other factors which need consideration, appropriate orders in that regard would be made; the consequence of which could be the dismissal of the petition under Section 7 IBC on taking note of the stance of the corporate debtor. 26. The underlying principle laid down by the Supreme Court in a number of decisions is that the reference to the triggering of a petition under Section 7 IBC to consider the same as a proceedings in rem, it is necessary that the adjudicating authority ought to have applied its mind, recorded a finding of default and admitted the petition. On admission, third-party right is created in all the credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tween the parties indisputably contains an arbitration clause. 34. In the present case, it would be premature at this point to arrive at a conclusion that there was default in payment of any debt until the said issue is resolved and the amount repayable by Indus Biotech Pvt. Ltd. to KIV with reference to equity shares being issued is determined. In the process, if such determined amount is not paid it will amount to default at that stage. Therefore, if the matter is viewed from any angle, not only the conclusion reached by the adjudicating authority, NCLT insofar as the order on the petition under Section 7 IBC at this juncture based on the factual background is justified but also the prayer made by Indus Biotech Pvt. Ltd. for constitution of the Arbitral Tribunal as made in the petition filed by them under Section 11 of the A & C Act, 1996 before the Supreme Court, is justified." 34. The Learned Counsel for the Appellant, refers to the decision of the Hon'ble Supreme Court of India in Ebix Singapore Pvt. Ltd. v. CoC, Educomp Solutions & Anr., reported in (2022), 2 SCC Page 401, at Spl. Pg. 496, wherein, at Paragraph 130, it is observed as under: 130. "..... A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is untenable as we are of the view that the amounts claimed pertain to the period prior to the date of Notification. We also do not wish to delve into the other submissions of the Appellant regarding the nature of transactions, absence of Financial Contract, non-registration of debt with the information utility whether interest at 18% per annum was ever concluded between the parties except for reference in the legal Notice issued by the second Respondent. This Tribunal is of the earnest view that taking into consideration the facts and circumstances of the attendant case on hand, the issue with respect to Admission of Section 7 Petition is required to be decided on the touchstone of the ratio of the Hon'ble Supreme Court in 'Vidarbha Industries Power Limited' Vs. 'Axis Bank Limited', 2022 SCC OnLine SC 841, wherein the Hon'ble Apex Court has observed as follows: "55. When an application is filed under Section 7(2) of the IBC, the Adjudicating Authority (NCLT) is required to ascertain the existence of a default from the records of the information utility or any other evidence furnished by the financial creditor under sub-section (3) of Section 7 of the IBC, within 14 days ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters. 61. The Adjudicating Authority (NCLT) found the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition. Disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance. The question is whether an award of the APTEL in favour of the Corporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms 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. 62. 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 asp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and not otherwise. Moreover the timeline starts ticking only from the date of admission of the application for initiation of CIRP and not from the date of filing the same. 84. In Swiss Ribbons (supra) this Court considering the vires of the IBC observed as follows:- "43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a "default" occurs. The Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the applicati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st due @18% p.a. is Rs.87,76,100/- till 26.03.2021, which is the date of initiation of the CIRP. Learned Sr. Counsel for second Respondent strenuously argued that the amount lent is a 'Financial Debt' and that the second Respondent is a 'Financial Creditor' and the debt is acknowledged in the books of accounts and hence the Adjudicating Authority was right in admitting the Section 7 Application, keeping in view the admitted 'debt' & 'default'. Reliance was placed on the Judgements of the Hon'ble Supreme Court in 'Innoventive Industries Ltd.' (Supra) and 'Orator Marketing Pvt. Ltd.' (Supra). While, we find force in the submissions of the Ld. Sr. Counsel that there is 'debt' and a 'default' what should also be examined is whether the intent for initiation of CIRP is 'Recovery' or 'Resolution.' 13. It is pertinent to mention that the second Respondent in para 14 of their Reply and in para 40 of their objections have never refuted the submission of the Appellant that 'the 'Corporate Debtor' 'is a going concern' and a viable unit and has great commercial prospects... and that the 'Corporate Debtor' in their Reply dated 07.08.2019 have clearly stated that they had the bona fide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that CIRP cannot be initiated with fraudulent and malicious intent 'for any purpose other than the Resolution of Insolvency or Liquidation' and therefore it is clearly covered under Section 65 of the Code. 16. Though the aforesaid Section does not expressly mention 'Debt Recovery Action' under 'for any purpose other than resolution of insolvency..', keeping in view the factual occurrence of the events of this particular matter, we hold that the 'intent' may not be a 'malafide intent', but is nevertheless a fundamental attempt to obtain an edge/ advantage / an upper hand in 'recovering their dues'. At this juncture we place reliance on the judgment of The Hon'ble Madras High Court in 'S.T. Sahib' Vs. 'Hasan Ghani Sahib', 1956 SCC OnLine Mad 344', wherein the Hon'ble High Court has examined the word 'malice' and observed that 'malice' would mean 'inappropriate' and wrongful motive to use the law in a manner other than its 'legally appointed and appropriate purpose'. The Hon'ble Madras High Court has further observed that a wrongful motive need not be a mala fide intent, it could simply be an attempt to attain an advantage. 17. This Tribunal is of the ernest view th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nuing Personal Guarantee Deeds', on 30.09.2013, for an 'aggregate amount' of Rs.19/- Crores, to and in favour of the '1st Respondent / Bank'. 39. The Learned Counsel for the 1st Respondent / Bank, points out that under the 'Inland Letters of Credit Limit of Rs.6 Crores', the '1st Respondent / Bank', had issued 'Letters of Credit', to the material suppliers of the '2nd Respondent', to purchase 'raw materials', required for 'processing'. In terms of the 'Agreement', upon supplying the materials to the '2nd Respondent / Corporate Debtor', the 'supplier', has to submit the 'bills', and the '2nd Respondent / Corporate Debtor', has to arrange for 'sufficient funds', in its 'Cash Credit Account', for 'honouring' the said 'bills', by the 'Bank'. 40. The Learned Counsel for the 1st Respondent / Bank, submits that in the event of 'Insufficiency of Funds', in 'Cash Credit Account', on the 'due date of bill', the '1st Respondent / Bank', would 'debit', the said 'Account', and make the payment of the 'bill', by utilising the said 'Letter of Credit Limit', the 2nd Respondent / Corporate Debtor, had purchased materials from various 'Parties', and although, the 2nd Respondent / Corporate Deb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ale Notice', on 19.12.2015, determining the 'Date of E-Auction', on 19.01.2016, which was challenged in SA No. 20 / 2016, before the Debt Recovery Tribunal - III, Chennai, by the 2nd Respondent / Corporate Debtor. An 'Interim Order' (in the said 'Application'), was passed by the said 'Tribunal', on 13.01.2016, on condition, to 'Deposit a sum of Rs.4.5 Crores in two instalments, by expressing their willingness to settle the entire 'Dues', by way of 'One Time Settlement', by 31.03.2016, and that the 'Conditional Order', was complied with, but the 'Undertaking', to settle the 'Loan Account', was not 'honoured'. 44. It is the version of the 1st Respondent / Bank, during the course of the Hearing of 'SARFAESI' Application, the 2nd Respondent / Corporate Debtor', had alleged that in view of the 'CIBIL Report', exhibiting the 'Outstanding Sum', as Rs.32 Crores, as against the 'Dues', was only a sum of Rs.16 Crores only, they were unable to seek, takeover of their 'Loan Account', but the said 'Application' bearing No.20 / 2016, came to be dismissed on 09.09.2016, wherein the Debt Recovery Tribunal - III, Chennai, made the following observation: "Whereas Ld. Counsel appearing fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dopted by the respondent bank in issuance of the subject sale notice. Even otherwise, the subject sale notice has become infructuous for want of bidders. From the above discussion, except for the quantum of money to be paid by the appellants, on an extended time, there are no infirmities established in issuance of the sale notice by the respondent bank in its lawful course of recovery. As the appellants failed to establish any infirmities in the procedure adopted, this SA is liable to be dismissed." 45. The Learned Counsel for the 1st Respondent / Bank, adverts to the Filing of W.P. No. 1421 of 2017, filed by the 2nd Respondent / Corporate Debtor, seeking 'Mandamus', to take on file the said 'Complaint', and to investigate the matter, and that the Writ Petition, was dismissed on 13.11.2017, whereby and whereunder at Paragraphs 21 to 23, it is observed as under: 21. "Apparently, in this case, a dispute has arose and the communication between the parties since 21/11/2005 till 30/03/2016 centres around the dispute and the settlement of the said dispute. Despite rectification of the duplicate entries, if the writ petitioner is under the impression that the duplicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the I & B Code, 2016), to trigger the 'Insolvency Resolution Process', against the '2nd Respondent / Corporate Debtor', and on 30.11.2018, the 2nd Respondent / Corporate Debtor, came out with an 'Offer', to pay a sum of Rs.11.46/- Crores, under 'One Time Settlement', which was accepted by the 1st Respondent / Bank, and communicated to the '2nd Respondent / Corporate Debtor', on 21.03.2019, but the 2nd Respondent / Corporate Debtor, had not honoured the said 'One Time Settlement'. 49. The Learned Counsel for the 1st Respondent / Bank, brings it to the notice of this 'Tribunal', that in May 2019, the OA 633 / 2016 and Counterclaim No. 6 / 2018, were taken up together for 'Hearing', by the Debt Recovery Tribunal - II, Chennai, under a 'Common Order', was passed on 30.05.2019. In fact, the Debt Recovery Tribunal, found that the Bank had proved its 'Claim', against the 2nd Respondent / Corporate Debtor, but in regard to the 'counterclaim', the Debt Recovery Tribunal, came to a conclusion that the Hon'ble High Court, had found the 2nd Respondent / Corporate Debtor, is entitled for 'Damages', on account of duplicate entry in the 'CIBIL Report', which took place, on account of the mist....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2019. 51. The Learned Counsel for the 1st Respondent / Bank, points out that the aforesaid 'Appeals', filed before the Debt Recovery Appellate Tribunal, were 'Heard', together and they were 'Disposed of', on 14.11.2019 and that the 'Appellate Tribunal', in Para 11 of its 'Order', had observed the following: "On 24/11/2015 while CIBIL report was generated, outstanding due amount against company was shown to be Rs.32,11,31,188/- whereas actual due was Rs.15,76,56,258/-. Had it been a mistake of only disclosing the account number in 15 digits or 17 digits, then there should have been no change in the figure of dues ...... The Bank furnished wrong information on CIBIL Report whether deliberately or inadvertently, but it has caused loss and damage to the borrowers to the extent they found it difficult to approach some other bank to take loan to the tune so that dues of the bank can be repaid." 52. The Learned Counsel for the 1st Respondent / Bank, comes out with a plea that the pleadings in WP No. 1421 of 2017, were filed as 'Documents', before the Debt Recovery Appellate Tribunal, to show how the dual entry, got reflected in 'CIBIL Reports', and by adverting to the 'CIB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent / Bank, that the amount decided by the 'Debt Recovery Appellate Tribunal', against the '2nd Respondent / Corporate Debtor', as 'Due', still subsists. 55. The Learned Counsel for the 1st Respondent / Bank puts forward a plea that although the 2nd Respondent / Corporate Debtor, had paid the 'Dues', calculated in terms of the 'Order' of the Debt Recovery Tribunal of a sum of Rs.52,93,874.05/-, the said 2nd Respondent / Corporate Debtor, had not chosen to pay the 'Dues', as calculated, in terms of the 'Order' of the 'Debt Recovery Appellate Tribunal', of a sum of Rs.3,55,32,235.80/-, as on 14.11.2019. 56. The Learned Counsel for the 1st Respondent / Bank, points out that the 2nd Respondent / Corporate Debtor, had falsely claimed that the 'Dues', as per the 'Order' of the 'Debt Recovery Tribunal', was paid and the sum 'Due', to the 1st Respondent / Bank, is disputed and sought the dismissal of the 'Application'. Moreover, in the 'Memo', dated 25.02.2022, the 1st Respondent / Bank, before the 'Adjudicating Authority' / 'Tribunal', had categorically mentioned that though, in the 'counterclaim', preferred by the '2nd Respondent / Corporate Debtor', the Debt Recovery Tribunal, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1st Respondent / Bank', through 'Contempt Petition No. 1260 of 2022', before the Hon'ble High Court, alleging 'Breach of the Order', dated 04.12.2019, in WMP No. 33866 of 2019 in WP No. 33396 of 2019, which was extended until further Orders. As a matter of fact, if the 'Appellant', is of the view that by proceeding with 'IBA/49/2019', the 1st Respondent / Bank, had committed the 'Contempt of Court', the 'Appellant', is free to proceed with the 'Contempt Petition', and in short, the 'Appellant', is not entitled to get the 'Order of Admission', dated 13.04.2022, set aside, on the said ground. 1st Respondent's Decisions: Hon'ble Supreme Court's Decisions: 61. The Learned Counsel for the 1st Respondent / Financial Creditor cites the decision of the Hon'ble Supreme Court of India in Innoventive Industries Limited v. ICICI Bank and Anr., reported in (2018) 1 SCC 407, at Spl. Pgs. 429, 431-432, 437-438 and 439, wherein, at Paragraphs 18, 20, 27, 28 and 30, it is observed as under: 18. "There are two sets of definition sections. They are rather involved, the dovetailing of one definition going into another. Section 3 defines various terms as follows: "Sec. 3(6) "....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred." 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the 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." 62. The Learned Counsel for the 1st Respondent / Bank, relies on the decision of the Hon'ble Supreme Court of India in Swiss Ribbons Private Limited v. Union of India and Ors., reported in (2019) 4 SCC Page 17 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 registered post or speed post to the registered office of the corporate debtor. The speed, within which the Adjudicating Authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the Adjudicating Authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the ―debt, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the Adjudicating Authority is satisfied that a default has occurred, the applicatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal or arbitral panel adjudicating on the default; ......." xxxxxxxxxxxxxxx 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. Form C dealing with submission of claims by financial creditors in the CIRP Regulations states thus: "FORM C SUBMISSION OF CLAIM BY FINANCIAL CREDITORS [Under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016] [Date] From [Name and address of the financial creditor, including address of its registered office and principal office] To The Interim Resolution Professional/Resolution Professional, [Name of the Insolvency Resolution Professional / Resolution Professional] [Address as set out in public announcement] Subject: Submission of claim and proof of claim. Madam/Sir, [Nam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmation and belief and no material facts have been concealed therefrom. 4. In respect of the said sum or any part thereof, neither I, nor any person, by my order, to my knowledge or belief, for my use, had or received any manner of satisfaction or security whatsoever, save and except the following: [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim]. 5. I am / I am not a related party of the corporate debtor, as defined under Section 5(24) of the Code. 6. I am eligible to join committee of creditors by virtue of proviso to Section 21(2) of the Code even though I am a related party of the corporate debtor. Date: Place: (Signature of the claimant) VERIFICATION I, [Name] the claimant hereinabove, do hereby verify that the contents of this proof of claim are true and correct to my knowledge and belief and no material fact has been concealed therefrom. Verified at ... on this ...... day of ........., 20... (Signature of claimant) [Note: In the case of company or limited liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d decree of the DRT in favour of the financial creditor, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action to the financial creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the certificate of recovery. The third issue was, as to whether the Adjudicating Authority had the power to permit amendment of pleadings or to permit filing of additional documents in a petition filed under Section 7 of the IBC. 25. Though all these issues have been elaborately considered by this Court in the case of Dena Bank (supra), we would only be concerned with the issue, as to whether the issuance of the Recovery Certificate in favour of the "financial creditor" would give rise to a fresh cause of action to initiate proceedings under Section 7 of the IBC. This Court in the said case after considering various provisions of the IBC as well as the earlier judgments of this Court has observed thus: "99. There can be no dispute with the proposition that the period of limitation for makin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorising the creditor to realise its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the recovery certificate. *** **** *** 141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid." [emphasis supplied] 27. It could thus be seen that this Court in the case of Dena Bank (supra) in paragra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....BC shall have effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any other instrument, having effect by virtue of such law. 83. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor, as observed by this Court in Swiss Ribbons Private Limited v. Union of India14. 84. On the other hand, the IBC is a beneficial legislation for equal treatment of all creditors of the Corporate Debtor, as also the protection of the livelihoods of its employees/workers, by revival of the Corporate Debtor through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the Corporate Debtor to its creditors. It only segregates the interests of the Corporate Debtor from those of its promoters/persons in management. 85. Relegation of creditors to the remedy of Coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. While multiple coercive proceedings against a Corporate Debtor in different f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Zee Entertainment v. Indusind Bank Ltd. & Anr., reported in (2022) SCC OnLine Del. 2858, whereby and whereunder, at Paragraphs 6, 31 to 35, it is observed as under: 6. "On 25th February, 2021, learned Predecessor Division Bench directed that no coercive action be taken against the Appellant - Zee till the next date of hearing. The order dated 25 February, 2021 is reproduced hereinbelow: "Issue notice to the respondents. Mr. Diwakar Maheshwari, the learned counsel accepts notice for respondent No. 1. Ms. Ritwika Nanda, the learned counsel accepts notice for respondent No. 2. They seek time to get instructions and to file the replies. Replies, if any, be filed before the next date of hearing. List on 5 April, 2021. In the meanwhile, as an ex parte ad interim relief, we direct that no further coercive steps shall be initiated against the appellant by the respondent Bank, insofar as the dispute in question is concerned, till the next date of hearing." 31. Therefore assuming that IBC proceeding initiated by Respondent No.1 - bank is not a recovery proceeding, one will have to examine if IBC proceeding initiated by Respondent No. 1 -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....who failed to clear the dues of the corporate debtor to its creditors. It only segregates the interests of the corporate debtor from those of its promoters / persons in management. (emphasis supplied) 34. Consequently, initiation of IBC proceeding by Respondent No.1-bank does not constitute a coercive step against the Appellant - Zee and is therefore not prohibited by virtue of the orders dated 25th February, 2021 and 03rd December, 2021 passed by this Court. THE TERM 'RECOVERY' USED IN THE ORDER DATED 3rd DECEMBE, 2021 IS A GENERIC TERM TO INCLUDE ANY OR ALL LEGAL REMEDIES AVAILABLE TO THE RESPONDENT NO. 1 - BANK UNDER APPLICABLE LAWS TO REALISE THE AMOUNT DUE TO IT 35. This Court is in agreement with the submission of Dr. Singhvi that the term 'recovery' used in the order dated 03rd December, 2021 is a generic term to include any or all legal remedies available to the Respondent No.1 - bank under applicable laws to realise the amount due to it. After all, the ultimate object of IBC is resolution of insolvency, where commencement of insolvency is determined by occurrence of a payment default and the resolution is achieved through recovery of due....
X X X X Extracts X X X X
X X X X Extracts X X X X
....passed by the Hon'ble Division Bench in Contempt Petition on 12.10.2022. 70. According to the 2nd Respondent, till now, the 'Suspended Directors' of the 'Corporate Debtor' (including the 'Appellant'), had refused to co-operate with the '2nd Respondent', by not providing the necessary records, to enable the 2nd Respondent, to make 'Statutory Compliances', and seeking co-operation from the 'Suspended Directors' of the 'Corporate Debtor', the 2nd Respondent is contemplating an 'Application', under Section 19 (2) of the I & B Code, 2016. 71. The Learned Counsel for the 2nd Respondent, brings it to the notice of this 'Tribunal', that the 2nd Respondent, had conducted the '3rd Committee of Creditors Meeting', on 29.10.2022, after duly complying with the necessary procedures. As a matter of fact, the Representatives of the 1st Respondent / Bank, attended the said Meeting, in which, among other issues, a 'Proposal', to approach the 'Ld. Adjudicating Authority' / Tribunal', seeking exclusion of 131 days from 08.06.2022 to 16.10.2022, being the 'timeline', after the 'Resolution', was passed by the 'Committee of Creditors', to 'replace;' the 'Interim Resolution Professional', till the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 'Applicant', is not in a position to make 'Statutory Compliances'. I & B Code, 2016: Claim: 76. Section 3 (6) of the Code, defines 'Claim' meaning; (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured. Corporate Debtor: 77. Section 3 (8) of the Code, defines 'Corporate Debtor' meaning, 'a corporate person who owes a debt to any person'. Creditor: 78. Section 3 (10) of the Code, defines 'Creditor' meaning, 'any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder'. Debt: 79. Section 3 (11) of the Code, defines 'Debt' meaning, 'a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt'. Default: 80. Section 3 (12) of the Code....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause;'. 83. Where a certain 'Debt', is owed by a 'Corporate Debtor', to a 'Financial Creditor', in respect of 'repayment of Sum', received by a 'Corporate Debtor', the 'Debt', can be classified as 'Financial Debt', under Section 5 (8) of the Code. Financial Position: 84. Section 5 (9) of the Code, defines 'Financial Position', meaning, 'in relation to any person, means the financial information of a person as on a certain date'. Section 7 Application (u/n. I & B Code): 85. Indeed, the right to 'apply', under section 7 of the Code, accrues to a 'Person / Entity', only when it came into force. An 'Application', under Section 7 of the I & B Code, 2016, is only 'maintainable', by a 'Financial Creditor'. 86. Further, a 'Person', 'opting to file / preferring' of 'Insolvency Proceedings' of the I & B Code, 2016, will be his / its 'conscious decision', who is 'entitled', to 'file such an Application / Petition', and to that extent, a 'Creditor', cannot be 'restricted', from filing such an 'Application', in accordance with 'Law', as opine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 in Civil Appeal No. 4633 of 2022, in the matter of Axis Bank Limited v. Vidarbha Industries Power Limited, had observed the following: "The elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case." Discretion: 98. In fact, 'Discretion', must be governed by 'Rule, not by 'Humour', and it must not be a 'fanciful', 'vague' and an 'arbitrary' one, but a legal and regular. Also the word 'Discretion', implies a 'vigilant circumspection and care'. Moreover, if a 'Legislature', concedes a wide discretion, then, a heavy responsibility is 'imposed', as per decision AIR 1933 Sind. Page 49. Discussions: 99. Before the 'Adjudicating Authority' ('National Company Law Tribunal', Special Bench - II, Chennai), the '1st Respondent / Bank / Financial Creditor', had filed an 'Application', seeking to initiate 'Corporate Insolvency Resolution Process', against the '2nd Respondent / Corporate Debtor' / 'M/s. INMA International Limited' (under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed in limine'. 104. The clear cut stand of the 2nd Respondent / Corporate Debtor is that, in the teeth of the 'Final Order', passed by the 'Debt Recovery Tribunal - II', Chennai, there are 'no Dues or Outstandings', payable by the 'Corporate Debtor', to the '1st Respondent / Bank / Financial Creditor', and therefore, the present 'Application', is not at all 'maintainable'. 105. The 2nd Respondent / Corporate Debtor, in its Written Submissions to IBA/49/2019 (filed before the 'Adjudicating Authority' / 'Tribunal'), took a plea that the 'Corporate Debtor'/ (2nd Respondent in 'Appeal, had made payments, in excess to the tune of about Rs.2/- Crores, to the 1st Respondent / Financial Creditor / Bank, as per the Debt Recovery Tribunal's Final Order dated 30.05.2019, but the 1st Respondent / Bank / Financial Creditor, had disputed the same and filed a 'Statement of Accounts', before the 'Adjudicating Authority', on 03.08.2019, mentioning that 'Still a sum of about Rs.52 Lakhs, was Due', as per the 'Final Order' of the 'DRT - II', Chennai, in 'OA No. 633 / 2016', and a 'Counterclaim' No. 6 / 2018'. 106. It is represented on behalf of the 2nd Respondent / Corporate Debtor that, it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dicating Authority' / 'Tribunal', had exercised its 'Discretion', without any basis and inspite of abundant material produced before it, elaborating that (a) there being no amount in default; (b) there being no valid debt being demonstrated by the 1st Respondent (c) the conduct of the 1st Respondent in creating dubious accounts in the name of the CD leading to the CD making a counter claim against the 1st Respondent; and (d) the interim order of the High Court of Madras dated 04.01.2020, recording prima facie case in favour of the CD in its challenge against the DRAT's order dated 14.11.2019 and affording 'interim protection', which continues till date. 113. According to the 1st Respondent / Bank / Financial Creditor, the 'Liability of the '2nd Respondent / Corporate Debtor', as on 15.11.2019, in terms of the 'Order', of the 'Debt Recovery Appellate Tribunal', was 3,55,32,235.80/- and the 'Liability', as on 01.03.2022 was Rs.4,29,94,004/-. 114. Furthermore, it is the stand of the 1st Respondent / Bank / Financial Creditor, that they are 'entitled, to recover the dues together with contractual rate of interest'. If the said rate of interest is applied the amount that would be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if it so desires / advised. 121. In regard to the 'Plea' of the Appellant that against the 'Senior Executive of the 1st Respondent / Bank', Contempt Petition No. 1260 of 2022, is pending (Filed by the Appellant), in regard to the alleged Violation of the Order dated 04.12.2019 in WMP No. 33866 of 2019 in WP No. 33396 of 2019, passed by the Hon'ble Madras High Court and later extended, until further 'Orders', on 28.02.2020, it is for the 'Appellant', to take a call in the matter, as he deems fit and proper, because of the fact that 'Contempt Proceeding', is not a 'Dispute', between the 'Parties', and the 'Proceeding', is primarily between the 'Court', and the 'Contemner', as per decision in State of Maharashtra v. Mahboob S. Allibhoy & Another, AIR 1996 SC 2131. 122. In the case on hand, before this 'Tribunal', although, on the side of the Appellant, a reference is made to the 'Order' dated 04.12.2019 of the Hon'ble Madras High Court in WMP No. 33866 of 2019 in WP No. 33396 of 2019, whereby and whereunder, an 'Order of Ad-interim Injunction', as prayed for, till 21.01.2020, was granted, and it was made clear that till the 'Disposal' of the 'Writ Petition', the 'Writ Petitione....