TaxTMI 
TaxTMI 
2025 (4) TMI 379
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....l Company Law Tribunal, Kolkata Bench-I) in C.P.(IB) No.1593/KB/2018. By the impugned order, the Adjudicating Authority has admitted the Section 7 petition filed by the Financial Creditor admitting the Corporate Debtor into Corporate Insolvency Resolution Process ("CIRP" in short). Aggrieved by the impugned order, the present Appeal has been preferred by the Suspended Director of the Corporate Debtor. 2. The salient facts of the case which are relevant to be noticed for deciding this appeal are as briefly outlined below : * ICICI Bank and IFCI Ltd. sanctioned certain loan facilities to the Corporate Debtor-Uniworth Textiles Ltd. ("UTL" in short). * In the year 2004, proceedings under Sick Industrial Companies Act, 1985 (SICA) was initiated by the Corporate Debtor. The account of Corporate Debtor was declared NPA on 31.08.2007. * The loan of ICICI and IFCI was assigned in favour of the Asset Reconstruction Company (India) Ltd. ("ARC" in short) on 31.03.2004 and 12.01.2007 respectively. The SICA proceedings were however abated by the Appellate Authority (AAIFR) in 2013. * On 05.09.2014, the ARC had filed an Original Application No. 162 of 2014 b....
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.... settlement amount of Rs 51.10 Cr. However, the Financial Creditor-ARC revoked the GSA unilaterally. Though this revocation of GSA was contested by the Corporate Debtor in their letter dated 14.12.2018, the Adjudicating Authority erroneously misconceived this letter to be an acknowledgement of debt and default. Thus, rather than endeavouring to examine the facts to undertake determination of the issue of debt and default, instead, the Adjudicating Authority has summarily concluded the issue of debt and default. It was also stated that even though the amount due in terms of the GSA exceeded Rs 1 Cr., the Section 7 petition was not maintainable, since the claim of the ARC arose on account of default in payment of settlement amount which was not in the nature of financial debt as defined under the provisions of IBC. The nature and character of outstanding liability on account of violation of the GSA proposal had altered the character of the original debt. Furthermore, since both the parties had entered into a GSA, the original debt had ceased to exist and therefore the ARC was estopped from claiming the original amount of debt. It was also contended that while for the purposes of cons....
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....gations. That only part payment of GSA has been made has also not been disputed. That the liability arising out of the GSA still needs to be discharged has neither been denied. In such circumstances, merely by contesting that the revocation of GSA was unilateral and that there was breach of settlement obligations by the Financial Creditor, is not sufficient ground for disallowance of the Section 7 application. 5. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. 6. The short issue for our consideration is whether in the given set of facts and circumstances, the Adjudicating Authority was correct in holding that the Financial Creditor-ARC has been able to set out a case of debt and default above the threshold level and that the Section 7 application was maintainable for the original amount of debt prior to the GSA. 7. The first issue for our consideration is whether there was a debt and default by the Corporate Debtor qua ARC which had arisen on account of the breach of the GSA. 8. It is the case of the Appellant that the Adjudicating Authority had wrongly admitted the Section 7 application filed....
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.... relevant excerpts of the impugned order are as extracted below: "18.2 Against the Settlement offered for an amount of Rs.75 crores for 5 group companies, the amount payable under the terms of settlement is more than 1 crore which crosses the minimum threshold. 18.3 The Corporate Debtor has duly acknowledged that the terms of settlement stands revoked. ....... 20.2 The issues voiced by the Corporate Debtor with regard to group settlement and not individual company settlement has been adequately dealt with by the Hon'ble NCLAT. Hon'ble NCLAT in no uncertain terms has held that it is an individual company wise settlement, and the view stands affirmed by the Hon'ble Supreme Court too. 20.3 The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted." 11. When we look at the ma....
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.... We shall keep in abeyance all charges, litigation and cases of whatsoever nature filed by us at various forums for the assets of Indoworth India Limited, Uniworth Limited, Uniworth Textile Limited, Texprint Overseas Limited, Uniworth Apparels Limited and Uniworth International Limited and/or any other related/ associated company during the course of the settlement period and the same shall be adhered by Arcil as well. We shall withdraw and so shall Arcil after satisfactory completion of the settlement process. * Further after full and final payment of Rs. 75.00 crore Arcil shall issue No Dues Certificate for all the companies mentioned above except Uniworth Apparels Limited and will release all personal and corporate guarantee/s extended in respect of above companies. As it was earlier conveyed to your goodselves that the condition of the business is deteriorated. Further the units are only working on demand based condition and due to the same the assets have started getting deteriorated. We urge you to consider this sympathetically. With a lot of difficulty we have stretched the offer to Rs. 75.00 crore. Hope to hear positively from your end and resolve the matt....
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....h Textiles Ltd and Texprint Overseas Ltd) have failed and neglected to make payment of these amounts within agreed timeframe. In view of the above we are constrained to hereby recall the said terms of settlement and the same stands revoked w.e.f. the date of this letter in respect of OTS granted to Uniworth Textiles Ltd and Texprint Overseas Ltd. We, therefore, call upon you (Uniworth Textiles Ltd and Texprint Overseas Ltd) to pay the outstanding amount as on September 26, 2018 of Rs. 795,61,06,937/- i.e. total dues of Uniworth Textiles Ltd being Rs. 402,05,64,202/- and total dues of Texprint Overseas Ltd being 393,55,42,735/- on or before November 23, 2018 failing which Arcil shall pursue legal action for recovery of the outstanding dues under applicable laws. Yours faithfully, Jigar Dalal Vice President" (Emphasis supplied) 14. From a reading of the above letter, it is clear that the ARC has in clear and unambiguous terms stated that NDCs have been issued for those companies whose settlement amount has been paid while the amounts payable by Uniworth Textiles Ltd of Rs. 21.40 crore as per terms of GSA had still not been paid. The letter also ....
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.... next strand of argument canvassed by the Appellant that once both parties had entered into the GSA, the original debt had ceased to exist as it was subsumed under the GSA. Since the original debt had ceased to exist between the parties on their having entered into the GSA, the balance amount payable under the settlement had acquired a character which was different from a financial debt. The amount payable under the GSA was not a 'financial debt' in terms of Section 5(8) of the IBC. No Section 7 application could have therefore been maintained on grounds of violation of the GSA. The Adjudicating Authority had committed a grave error in permitting the ARC to enforce the GSA by allowing them to file a Section 7 petition. In support of their contention, reliance has been placed on the judgment of this Tribunal in the matter of Amrit Kumar Agarwal Vs Tempo Appliances Pvt. Ltd. in CA(AT)(Ins)No. 1005 of 2020 and Trafigura India (P) Ltd. Vs TDT Copper Ltd. in CA(AT)(Ins)No.742 of 2020. 18. Rival submission was made by the Respondent that even if a Settlement Agreement between the parties failed, the Financial Creditor is not barred from filing a Section 7 application on the basis of o....
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.....09.2014 together with further contractual interest as agreed upon per annum (compounded monthly) till date of payment and/or realization. Perusal of the Section 7 application makes it clear that it is not based on the default of the GSA but founded on the original financial debt which was extended by the ICICI and IFCI to the Corporate Debtor which had been subsequently assigned to the ARC. 20. This issue has been squarely covered on similar set of facts by the judgement of this Tribunal in Priyal Kantilal supra wherein the inapplicability of the judgement of this Tribunal in Amrit Kumar Agarwal supra which has been relied upon by the Appellant has also been discussed. The relevant portions of the said judgement is as extracted hereunder : "12. The judgement which has been relied by Learned Counsel for the Appellant "Amrit Kumar Agrawal" (supra) was a case where section 7 application was filed on the ground of default in payment of settlement agreement where the court held that default in payment of settlement agreement does not constitute a financial debt. The facts of the present case are clearly distinguishable. Present is not a case where Section 7 App....
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....issue as to whether there was debt which was due and payable and default in the payment thereof. 23. It is the case of the Appellant that the Adjudicating Authority has committed a grave error in treating an acknowledgement of debt for the purposes of Section 18 of the Limitation Act as admission of debt. In support of their contention, reliance was placed on the judgment of the Hon'ble Supreme Court in J.C. Budhraja vs. Chairman Orissa Mining Corporation Limited (2008) 2 SCC 444. Submission has been pressed by the Appellant that acknowledgment of debt in the Balance sheet of Corporate Debtor at best suffices to establish the jural relationship between the Corporate Debtor and Financial Creditor for the purposes of limitation. But mere acknowledgment of debt in Balance sheet is not sufficient for the purposes of considering a Section 7 application as admission of debt under Section 7 is required to be clear, unambiguous, unqualified and unequivocal. It was submitted that the Annual Reports in the Balance sheet of the Corporate Debtor clearly show that the Corporate Debtor had contested the liability. It was pointed out that in some of the Annual Reports of the Corporate Debtor, ....
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....ebtor have no relevance in the instant matter as the Corporate Debtor has acknowledged its debt and stated default in no uncertain terms. 20.3 The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted. 26. It may also be useful to take note of the letter of the Corporate Debtor dated 11.11.2016 where it was admitted that the terms and conditions of the Original Loan Agreement executed with the financial institutions whose debt had been acquired by ARCIL would cease and come to an end only on payment of full settlement consideration of Rs.75 Cr. The said letter is as reproduced hereunder : 11th November 2016 To, Mr. Vinayak Bahuguna The CEO & Managing Director, ARCIL, Subject : - Payment towards settlement of entire dues of Uniworth Limited, Uniworth Textiles Limi....
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....nk/ financial institutions whose debts have been assigned to ARCIL or whose assets or the secured assets are acquired by ARCIL The sum of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only) as agreed is towards full and final settlement consideration of all claims, rights as existing or may exist in future against the Uniworth Group and five companies mentioned in your letter dated 08.11.2016 or any of its guarantors. For Uniworth Group (Emphasis supplied) 27. When we look at the material on record, we find that it is an admitted fact that the GSA entered into both parties provided for a settlement amount of Rs 75 Cr. of which the amount paid by the Corporate Debtor was only Rs 51.10 Cr. Only part payment had been made towards satisfaction of the full and final claim of the financial creditor in terms of the settlement agreement. The ARC in their letter of 22.11.2018 as at para 13 supra had clearly pointed out that the amounts payable by the Corporate Debtor was Rs. 21.40 cr. There has been no specific denial that this amount was not due nor has any proof been submitted of payments to the tune of Rs. 21.40 cr. having been made. Even though the Corporate Debtor ....
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....ate 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. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 acc....