TaxTMI 
TaxTMI 
2024 (10) TMI 829
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....tinent to mention that this is the second round of litigation. In the first round of litigation, this Court vide its order dated 14.11.2022 set aside the order of admission dated 05.03.2020 and remanded the case back to the Adjudicating Authority to record cogent reasons in respect of admission of the application filed under Section 7 of the Code. 3. In the impugned order, the Adjudicating Authority has reproduced the order passed by this Court and thereafter it has noticed the additional affidavit dated 17.05.2023 filed by the Financial Creditor which is in para 4 of the impugned order and is reproduced as under:- "4. In the context, the Financial Creditor vide its additional affidavit filed on 17.05.2023 has given its submissions onto those objections raised by Corporate Debtor. The relevant part thereof are reproduced here as under: - (i) That the main objection raised by the Corporate Debtor with regard to "classification of credit facility of Respondent being not in compliance of circular issued by Reserve Bank of India dated 07.02.2018 (Annexure R/3 Page 517) and therefore classification of credit facility of Corporate Debtor as NPA is not only bad in law....
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.... the borrower from 30.09.2014 to 30.08.2017 = Rs 9739512.00 (Refer pages 413 to 418 of the application) Hence the Term Loan account was overdue as on 01.09.2017 by [Rs 11060003/-Rs 9739512/-] Rs 1320491/-. And as it would be amply clear from the statement of account of the Term Loan Account No. 881070210000008 that the aforesaid overdue amount and payments from the borrower due between September 1, 2017 and January 31, 2018 were not paid by the Corporate Debtor within 180 days from their respective original due dates as required by the RBI circular. That the last repayment in the said account was of Rs. 1000/- on 03.11.2017. Therefore, it is most humbly submitted that there is an existence of default in the sense that the debt is due. Default has been defined under Section 3 (12) in very wide terms as meaning non- payment of even part thereof or an instalment amount, as the debt is a liability and obligation on the part of Corporate Debtor towards Financial Creditor. The Code gets triggered the moment default is of Rs. One Crore or more. A copy of statement of Term Loan Account No. 881070210000008 is filed herewith and marked as Annexure A/3. (iii) That with regar....
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.... 103 (2) of the SARFAESI Act, 2002 to the Corporate Debtor demanding to discharge its full liabilities to the tune of Rs. 1066.21 Lakhs, as on the date of notice, along with further interest at the contractual rate on aforesaid amount together with incidental expenses, cost charges, etc. within stipulated time under Section 13 (2) of the SARFAESI Act, 2002. The said notice is produced at Annexure I, page 475 along with the Application (relevant page 478). (iv) The Corporate Debtor had on several occasions, during the pendency of this petition, offered various Settlement Proposal and the Applicant Financial Creditor has always showed its support to that effect. However, the last OTS proposal also failed on account of noncompliance of the terms and conditions of the Settlement Scheme. The Letter of rejection addressed by the Applicant dated 07.10.2019, is produced at Annexure R-16, page 544, by the respondent Corporate Debtor itself. (v) The total outstanding amount due and payable by the Corporate Debtor is to the tune of Rs. 11,57,89,697/- as on the date of filing the Application under Section 7 of IBC 2016 plus further interest. That the outstanding debts have no....
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....Section 13(1) of the Code, to act as an Interim Resolution Professional. Form 2 along with the Certificate of Registration of the proposed Interim Resolution Professional has been annexed in IA/89(MP)2023 at Annexure A6, Pg. 40 of the Interim Application, wherein the declaration has been made that no disciplinary proceedings is pending against her with the Board or Indian Institute of Insolvency Professionals of ICSI. A copy of the order dated 24.03.2023 of this Hon'ble Tribunal allowing IA/89(MP)2023 is filed herewith and marked as Annexure A-4. (xi) In conclusion, it is most humbly submitted that there is an existence of default in the sense that the debt is due. Default has been defined under Section 3(12) in very wide terms as meaning non-payment of even part thereof or an instalment amount, as the debt is a liability and obligation on the part the Corporate Debtor towards Financial Creditor. The Code gets triggered the moment default is of Rs. One Crore or more. It is reiterated that the Application is complete in all respect as per the Rules and in such form and manner as prescribed in the Rules " 5. The Court has also noticed that the submissions made by the CD a....
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.... 16.10.2017 (Annexure D Pg. 29 of Section 7 Application), after considering memorandum dated 05.08.2017 clearly point towards the account being standard, and not NPA, and being eligible for the loan and cash credit facilities. [Pg. 30-33/ Section 7 Application & @ Page 8-9/Reply to Additional Affidavit]. (v) As per the ZLCC Meeting minutes, account was standard and was contemporaneously recommended for extension of credit to the tune of Rs. 966.68 lacs (subsequently revised to Rs. 955.42 lacs). Thus, the Bank cannot now submit to the contrary to claim that the account was contemporaneously also declared NPA as on 30.09.2017. (vi) Notably, under the same ZLCC meeting minutes, the Bank has artificially sought to reduce the credit limits of the Corporate Debtor's account and such unilateral actions on the part of the Bank cannot form the basis of default on the part of the Corporate Debtor for the purposes of the IBC. (vii) The following aspects/admissions on the part of the Bank are clearly made out from the aforementioned communication dated 16.10.2017, ZLCC recommendation dated 13.09.2017 and the memorandum dated 05.08.2017: (a) The Respondent ha....
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....s further evident from the factual events that transpired post the said date of 30.09.2017, as described hereunder. (ix) Notably, no notice was issued to the Corporate Debtor prior to, at the time of or post the purported NPA declaration on 30.09.2017. Further, no demand of overdue was raised by the Applicant before 30.09.2017. [Page 18/Reply] Demand Notice dated 06.11.2017 u/S. 13(2) of SARFAESI subsequently withdrawn by communication dated 06.04.2022. [@ Annexure R- 8/ Page 212-215/Reply to Additional Affidavit] (x) It is a matter of record as submitted during the course of the hearing that as a matter of practice and banking instructions, the Term Loan Account was all throughout serviced by way of payments being made from the Cash Credit Accounts and the responsibility and power of taking the money from the cash credit account for servicing the term loan account was that of the Financial Creditor / Applicant Bank itself. [All credit entries in the Term Loan Account Statement Pg. 413 - 419 of the Section 7 Application] (xi) Specifically, an amount of Rs. 33,72,643.04/- was credited in Cash Credit Account No. 881030110000033 and Rs. 3,33,18,262.12/- in C....
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....dent was standard and operational as on 17.04.2018 and no default had arisen in fact or in law [Pg. 529 of Reply to Section 7 Application / Also at Annexure 7 Page 211 - Reply to Additional Affidavit]. (xvi) It is a matter of record as aforementioned that the accounts of the Respondent were permitted to credit and debit entries all throughout, till as late as November, 2018 and as such, the question of the account being NPA does not arise, in view of the contemporaneous documents, stand and conduct of the Bank itself. (xvii) The Corporate Debtor is admittedly an MSME engaged in manufacture of essential commodities and has remained a going concern with ongoing business all throughout the period since the original order admitting the Corporate Debtor to insolvency to this date. (xviii) There was no default in fact or in law and the alleged classification of the Corporate Debtor's account was contrary to the circulars issued by the Reserve Bank of India. Among the various circulars and guidelines issued from time to time on classification of MSME accounts the RBI circular dated 07.02.2018 directed schedule banks and NBFCs to provide relief for MSME borrowers....
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.... (iv) could only be after the 6-month window envisaged therein and not a prior, as pleaded in the present Section 7 Application i.e. from 30.09.2017. (xxii) Without prejudice to the aforesaid, it is submitted as per RBI's Master Circular on NPA dated 01.04.2023 clear guidelines have been provided with regard to procedure to be followed for recognizing any default as defined in IBC. As per the said circular, it is the duty of the bank to recognise incipient stress in loan account on default and classy the same as Special Mention Accounts ("SMA"). Further as per circular dated 11.09.2013, it is obligatory upon the banks to report credit information including classification of account as SMA to Central Repository of Information on large Credit (CRILC). However, in the present case no such reporting had been done by the bank hence the contention of bank that the account was having overdue on 01.09.2017 is false and is an afterthought. It is further submitted that once a borrower is reported to be in default, the banks are required to undertake a prima facie review of the borrower's account within 30 days from such default ('Review Period') and the same has not been undertaken ....
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...., it has been placed on record that the Bank had in the past as well charged exorbitant/excessive interest and thereafter reverted entries to the credit of the account towards such interest to the amount of Rs. 5,16,372.78/- on 05.05.2015 [@ Page 441/Application] and Rs. 8,67,936/- on 30.03.2016 [@ Page 455/Application] totalling Rs. 13,84,308.78/-. (xxxii) Bank Statements from Chartered Accountants clearly reflect an overcharging of interest to the tune of Rs. 51,97,373/- which further needs to be adjusted and cannot be claimed to have been due as on 30.09.2017. [@ Annexure R-10/Page 216-222/Reply] (xxxiii) Similarly, the amounts paid by third parties/corporate debtors during the process of restructuring of the accounts during the contemporaneous period from November, 2017 to March, 2018 to the tune of Rs. 42 lakhs approx., which has not been returned by the Bank, and has been appropriated as such, also needs to be adjusted against the claimed dues by the Bank. (xxxiv) Seen thus, there was even otherwise no default on the part of the Corporate Debtor of the amounts due as on 30.09.2017 and any amounts/instalments alleged to be due (Rs. 13,20,491/- as cla....
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....ult in respect of its term loan accounts. On this the learned counsel for the applicant/Financial Creditor submitted that the due instalments in respect of term loan was recovered through the Cash Credit accounts till the closing negative balance (overdraft amount) was within the limits granted against those cash credit accounts. Both the learned counsels had referred to the relevant entries in all these accounts." 6. After noticing the circular issued by the RBI, it recorded its finding in Para 10.1 to 11 which is also reproduced as under:- "10.1 Thus, it is noted that said circular was issued by the RBI keeping in view the adverse impact on the cash flow when GST regime had started, to give relief to the MSMEs whereby their accounts were to be classified as standard assets if the conditions (i to iv) as given therein were satisfied. In the context of the present respondent, the learned counsel for the applicant submitted that the condition No. (iv) which states that "The amount from the borrower overdue as on September 1, 2017 and payments from the borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days from their respective origin....
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....ue debt. The plea taken by the Corporate Debtor that it has not defaulted payment of due debt is completely misplaced and the same is rejected. 11. We have taken note of the various documents in support of the claim of the applicant bank such as loan sanction documents, acknowledgment, debt, list of mortgage properties, civil report of the Corporate Debtor, Bank statement as per The Bankers' Books Evidence Act, 1891, notice under Section 13 (2) & 13 (4) of SARFAESI demanding to discharge its full liabilities to the tune of Rs. 10.66 crore. We have also taken note that Corporate Debtor had on several occasions, during the pendency of this petition, offered various OTS proposals which were rejected by the applicant. We have also considered the objections raised by the Corporate Debtor as regards to the classification of its account in view of the RBI circular dated 07.02.2018. We have also taken note of the entries in the cash credit accounts & terms loan accounts for the relevant period. Having considered the facts of the case, we are of the view that the Corporate Debtor has defaulted payment of due debt which is above threshold amount of Rs 1 lakh and as such the applicat....