TaxTMI 
TaxTMI 
2025 (7) TMI 225
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.... Code, 2016 ("IBC") seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Takshashila Heights Pvt Ltd (Corporate Debtor) was dismissed. The Petition was filed on account of financial defaults by the Corporate Debtor in respect of two loan facilities sanctioned in 2018, amounting to Rs 70 crores (Rs 40 crores and Rs 30 crores respectively), originally extended by ECL Finance Ltd and subsequently assigned to the Appellant on 09.05.2022. The account was classified as a non- performing asset (NPA) on 30.12.2021. Despite initial restructuring of the outstanding dues in May 2023 and payment of the first instalment, the Corporate Debtor defaulted on the subsequent instalments, leading to revocation of the restructuring arrangement and continuation of enforcement actions, including proceedings under the SARFAESI Act and a pending DRT Application. The Section 7 Petition, filed on 31.01.2024 claiming an outstanding sum of Rs 93.54 crores, was supported by evidence of debt and default. However, the Adjudicating Authority dismissed the Petition holding that the proceedings were aimed at recovery rather than resolution, thus constituting a misuse of IBC provisions, and th....
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....fferential stamp duty. 02.11.2018 In consideration of the Original Lender having lent and advanced and/or agreed to lend and advance the loan to the Corporate Debtor, the Corporate Debtor and Mr Kamleshbhai Gondalia executed an unattested deed of hypothecation. 04.09.2020 With respect to the TL-I Facility and TL-II Facility, the Corporate Debtor, Takshashila Developers Pvt Ltd, and the erstwhile Neelkamal Realtors and Complex Pvt Ltd executed an indenture of mortgage in favour of the Original Lender. 07.09.2020 An escrow agreement came to be executed amongst the Corporate Debtor, the erstwhile Neelkamal Realtors and Complex Pvt Ltd, Axis Bank Ltd and the Original Lender. 30.09.2021 The Corporate Debtor made last payment in the TL-I Facility and TL-II Facility account. 30.12.2021 In view of the persistent defaults committed by the Corporate Debtor in repayment of principal debt and interest thereon, the Financial Creditor classified the account of the Corporate Debtor as non-performing asset (NPA). 09.05.2022 An assignment agreement came to be executed between the Original Lender and the Financial Creditor. 31.05.2022 The Financial Creditor ....
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.... and all collateral and underlying security interests and/or pledges and/or guarantees, in favour of the Applicant Financial Creditor vide an Assignment Agreement dated May 09, 2022. 4. The Corporate Debtor had started committing defaults in repayment of the loan accounts and made last payment towards its loan obligations on September 30, 2021. In view of the persistent defaults committed by the Corporate Debtor in repayment of principal debt and interest thereon, the Financial Creditor classified the account of the Corporate Debtor as non- performing asset (NPA) on December 30, 2021. Thereupon, the Financial Creditor issued recall notice dated May 31, 2022, upon the Corporate Debtor demanding the outstanding dues stated therein. The Corporate Debtor failed and neglected to comply with the requisitions made in the aforesaid notice. 5. The Financial Creditor had, vide its letter dated May 23, 2023 (Annexure L to the captioned Petition), agreed to restructure the dues of the Corporate Debtor. However, the Corporate Debtor failed to make repayments to the Financial Creditor in terms of the amortisation schedule provided in the aforementioned Restructuring Letter. As stated in th....
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.... complying with the amortisation schedule agreed upon by and between the Financial Creditor and the Corporate Debtor and has deliberately and consciously chosen not to regularise their account. The Corporate Debtor has failed to comply with the terms of the sanction and has made no legitimate attempts to repay the outstanding dues of the Financial Creditor. 9. Further, the Corporate Debtor has made bald objections to the admission of the captioned Company Petition in view of the proceedings initiated by the Financial Creditor against the Corporate Debtor under the SARFAESI Act, 2002. It is a well settled position of law that there is no bar against the Financial Creditor to proceed under the Code as well as the SARFAESI Act against a Corporate Debtor and the objections of the Corporate Debtor hold no water. 10. In the correspondences produced by the Corporate Debtor along with its Reply, the Corporate Debtor has clearly acknowledged (i) the persistent defaults committed on the terms of the Sanction Letters as well the Restructuring Letter, (ii) difficulties in procuring funds from other Financial Creditors, (iii) difficulties in the sale of the assets of the Corporate Debtor ....
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....ded on 11.05.2023) has held that once the NCLT is satisfied that the default as occurred, there is hardly any discretion left with the NCLT to refuse admission of the Application under Section 7 IBC. The Apex Court referred to their decision in Innoventive Industries Limited vs ICICI Bank (Innoventive) wherein the entire scope of Section 7 was explained and it was held that if the NCLT is satisfied there is a debt and default, it is bound to admit a Petition under Section 7 of the IBC, which was reiterated in the judgment of Hon'ble Supreme Court in E S Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd. Civil Appeal No. 3325 of 2020 decided on 14.12.2021, while holding that the NCLT cannot direct parties to enter into settlement terms. The aforesaid judgment of M Suresh Kumar Reddy (Supra), the Supreme Court has clearly held that the decision passed in the Vidarbha case was in the setting of the facts of that case only. 15. The Adjudicating Authority ignored the landmark precedents of the Hon'ble Supreme Court in the case Innoventive Industries Limited (supra) and Swiss Ribbons Pvt Ltd vs Union of India (2019) 4 SCC 17 (Swiss Ribbons). In the Innoventive case, the S....
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....intent to misuse the provisions of the IBC. By this observation, the Adjudicating Authority incorrectly concluded that the intention of the Appellant was only to recover its dues though the process of insolvency, which is against the object of IBC and has baselessly assumed that the Appellant has filed the Section 7 Petition with a malafide intent, on account of the pendency of DRT and SARFAESI proceedings. There were no material facts on record that conclusively established or proved any "malicious" or "fraudulent" intent on the part of the Appellant to initiate CIRP against the Corporate Debtor within a malicious intent, which would stop the admission of the Petition in view of Section 65 IBC. The Appellant only took steps as prescribed in law and as available to the Appellant as a lender, to attempt to recover its dues through various legal processes such as DRT, SARFAESI etc. 19. Appellate Tribunal (Chennai Bench) in the case of Mr Amar Vora vs City Union Bank Ltd [Company Appeal (AT) (CH) (Ins) No. 130 of 2022 (decided on 11.05.2022) has held that the Financial Creditor/Operational Creditor/Corporate Persons can file an Application under Sections 7, 9 and 10 of the Code bef....
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.... project of the Corporate Debtor and the Corporate Debtor has booked/sold 185 (out of 259) residential units/flats and 1 (out of 20) commercial unit/shops totalling to 186 units out of 279 units of the project of the Corporate Debtor consisting of the homebuyers. 24. The Corporate Debtor had obtained the financial assistance/facilities from the original lender, namely, ECL Finance Limited in the year 2018 and two other financial creditors namely Axis Rera Opportunity Fund in 2020 and Swamih Investment Fund-I-SBI, Cap Venture for timely completing the project but due to delay in statutory approvals and or account of impact of COVID-19, project was delayed and it resulted into interest pile up and cost overrun. 25. Just before the recalling of the dues from the Respondent CD on 31.05.2022, original lender-ECL Finance Limited had assigned the debts in respect of Respondent - Corporate Debtor along with the underlying securities and all the rights, title and interest therein to Applicant-Edelweiss Asset Reconstruction Company Limited on 09.05.2022. 26. Immediately, thereafter on 21.07.2022, Applicant had issued notice called upon to discharge in full the total outstanding unde....
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.... Negotiable Instruments Act under the guise of exercise of rights/remedies available under the said laws. 28. As per Clause 6 of the restructuring letter dated 23.05.2023, as well as Clauses 4.12 of Schedule-2 of the Loan Agreements dated 25.07.2018 and 26.09.2018, Applicant was under the obligation to issue provisional NOC at the request of the Respondent - Corporate Debtor /borrowers for monetising the secured assets at a minimum pre-determined rate as mentioned therein which was not issued by the Applicant despite several communications with the Applicant and requests thereto which resulted into failure of the Respondent - Corporate Debtor to proceed with sale of the units to prospective buyers and generate revenue and make payments therefrom to the Applicant. Considering the abovementioned factual position, the Corporate Debtor should not be penalised/punished/brought into the rigors of CIRP on account of the wrong doings of the Applicant. 29. With the series of events as referred in above paras and actions of forum shopping by the Applicant and action of sale notice as well as publication for sale of the charged assets clearly shows malicious intent of recovery of its du....
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....ing no intention to resolve the insolvency of the Respondent - Corporate Debtor, the present Application deserves to be dismissed in the interest of the Respondent - Corporate Debtor, its stakeholders including the public at large in the form of homebuyers and to avoid multiplicity of proceedings. Appraisal 32. Heard counsels of both sides and also one intervener and also perused the material placed on record. 33. We note that this Appeal is filed by Edelweiss Asset Reconstruction Company Limited (EARCL/Appellant), challenging the Order dated 06.11.2024 passed by the Adjudicating Authority/NCLT thereby dismissing the petition under Section 7 IBC bearing C.P (IB) No. 104 (AHM)/2024, which was filed by the Appellant seeking initiation of Corporate Insolvency Resolution Process (CIRP) against 'Takshashila Heights Private Limited' ("Corporate Debtor"). The Petition sought initiation of the CIRP against the Corporate Debtor due to admitted defaults of its financial obligations. 34. It is undisputed that two loan facilities amounting to Rs 40 crores and Rs 30 crores were sanctioned in 2018 by ECL Finance Ltd. (Original Lender) to the Corporate Debtor. These loan facilities we....
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....ons which were already initiated. Subsequent requests made by the Corporate Debtor to revive the restructuring payments, were rejected by the Appellant. Thereafter, on 31.01.2024, the Appellant filed the Section 7 IBC Petition before the Adjudicating Authority, seeking admission of CIRP against the Corporate Debtor claiming an outstanding sum of Rs 93.54 crores including principal, interest, and penalties, as on the said date. The said Petition included evidence of debt, default and also disclosed efforts being made towards recovery of outstanding debt, including SARFEASI measures undertaken by the Appellant. During the pendency of the said Petition, the Appellant had also issued a notice of sale under Rule 8 (6) read with Rule 9 (1) of the Security Interest (Enforcement) Rules, 2002, in furtherance of the SARFAESI proceedings. 36. Per contra the Respondent - Corporate Debtor claims that the Appellant-Financial Creditor had issued a restructuring letter, as per which the amount was to be repaid in 8 instalments. As per the terms of the OTS, in case of any shortfall in repayment of the instalments the Corporate Debtor had the liberty to monetize the secured assets once a provi....
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....Respondent failed to make necessary payments under the restructuring scheme and as such, the Appellant was well within its contractual rights to revoke the said restructuring and recall the entire outstanding liability vide its Restructuring Letter dated 29.12.2023. We cannot find fault in the course of action adopted by the Appellant. It is also inconceivable to agree with the arguments of the Respondent that the Appellant acted with mala fide intent and ulterior motive to recover its outstanding debts through pressure tactics and not resolution as against Section 13 of the Code. From the materials on record we find that the Appellant had revoked the restructuring scheme due to the Respondent's failure to make the full payment of the 2nd instalment of Rs. 3 crores. This is evidenced by the email communication annexed by the Respondent in its reply, which further clarifies that despite Appellant granting various opportunities to the Respondent to regularize its overdue amount, the Respondent admittedly failed to deposit the remaining Rs 2.25 crores (approx.) against the instalment amount of Rs. 3 crores which was due on 30.09.2023. Further, the Respondent made subsequent requests t....
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....al Creditors, the difficulties in the sale of the secured assets and procuring buyers of its assets due to issues with the projects of the Corporate Debtor itself, the terms of Restructuring as well as the terms of penal interest applicable in terms of default thereof failure to comply with the rules and regulations of the Civil Authorities and its failure to receive mandatory compliance certificates and the failure to sell its units at the market rates despite various efforts with different entities, which in turn substantiates the case for the initiation of CIRP of the Corporate Debtor. 38. Further the Respondent argues that the said conduct is nothing but forum shopping through misuse of the provisions of the laws, i.e, IBC, SARFAESI Act and Negotiable Instruments Act under the guise of exercise of rights/remedies available under the said laws. With such arguments being entertained against the Financial Creditor, no lender will be able to proceed in any forum and it is, therefore, difficult to agree with the arguments of the Respondents and on the contrary we find that arguments of the Appellant to be convincing that the Code is a separate and distinct enactment from the SARF....
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....vant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management. [61] The title "Insolvency and Bankruptcy Code" makes it amply clear that the statute deals with and/or tackles insolvency and bankruptcy. It is certainly not the object of the IBC to penalize solvent companies, temporarily defaulting in repayment of its financial debts, by initiation of CIRP. Section 7(5)(a) of the IBC, therefore, confers discretionary power on the Adjudicating Authority (NCLT) to admit an application of a Financial Creditor Under Section 7 of the IBC for initiation of CIRP. [81] The Adjudicating Authority (NCLT) failed to appreciate that the question of time bound initiation and completion of CIRP could only arise if the companies were bankrupt or insolvent 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 ....
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....empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.[27] The IBC is a complete code in itself. The Adjudicating Authority and the Appellate Authority are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus, while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity.[29] Order of the Adjudicating Authority, and the directions which eventually came to be issued, suffered from an abdication of jurisdiction. The observation that the appeal was not maintainable is erroneous. Plainly, the Adjudicating Authority failed to exercise the jurisdiction which was entrusted to it. A clear case for t....
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....hat the attention of the Court was not invited to the case of ES Krishnamurthy. While disposing of Review Petition by Order dated 22nd September 2022, this Court held thus : "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. To interpret words and provisions of a statute) it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes." The Adjudicating Authority failed to appreciate that the Supreme Court in Vidarbha applied the literal interpretation test and held that the use of the word "may" confers upon the NCLT the discretion to admit the application after it is satisfied of the existence of debt. Further, it held that Section 9(5) of the IBC by using the word "shall" in the context of an application made by an operational creditor, highlights a deliberate legislative intent to differentiate between applications made b....
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....lders. Corporate Debtor has obtained building usage certificate permission on 10th April 2024 for certain parts of the project, thereby making the Corporate Debtor eligible to sell all the commercial units and some of the residential units. It claims that the intent of the Appellant is only to recover the defaulted amount which goes against the very spirit of IBC. On the other hand, we notice that the Corporate Debtor has committed defaults in repayment of the outstanding dues despite repeated requests and reminders of the Financial Creditor and despite the recall notice of the Financial Creditor and in view of the Corporate Debtor's inability to repay its debts, which include the outstanding dues due to the Financial Creditor, the initiation of CIRP in respect of the Corporate Debtor cannot be rejected. From the materials placed on record we notice that the Corporate Debtor has clearly acknowledged that: Persistent defaults committed on the terms of the Sanction Letters as well the Restructuring Letter, CD has been facing difficulties in procuring funds from other Financial Creditors, CD has been facing difficulties in the sale of the assets of the C....
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....ly without locus. We note that once the requirements of financial debt and default are satisfied, there is no scope under the Code for unrelated third parties to intervene, particularly at the admission stage. Invocation of Rule 11 in this context is wholly impermissible and contrary to the principles laid down in the case of Innoventive Industries (Supra), which mandates admission upon establishment of debt and default. The Intervenor is a registered society of a completed tower and cannot be treated as a representative of pending allottees. We find that this is an attempt by the intervener to stall CIRP and is therefore meritless and cannot be considered as it is without any merit and is rejected. 46. Despite the claims of the Respondent Corporate Debtor of being a viable unit, the Corporate Debtor has made no payments towards their outstanding dues and the averments made with respect to the Corporate Debtor being a going concern or a viable entity do not absolve the Corporate Debtor from its liabilities to repay the outstanding dues of the Applicant Financial Creditor. The Financial Creditor had acceded to the request of settlement and restructuring of the outstanding dues of....
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.... Appellant that the decision of the Adjudicating Authority which is fundamentally premised on the fact that the Appellant had initiated various recovery actions before DRT, under the Negotiable Instruments Act, issued Notice of Sale after filing of the Section 7, which all purportedly gave rise to a 'malafide intent' that the Appellant is only interested in recovery instead of resolution of the Corporate Debtor, is misconceived and fundamentally flawed observation and even otherwise, cannot be a sustainable ground to reject the Section 7 Petition filed by the Appellant. 49. We also note that in complete contrast to the Vidarbha judgment, a different bench of the NCLT, New Delhi, in Induslnd Bank Ltd vs Hacienda Projects Pvt Ltd MANU/NC/5231/2022 (NCLT, New Delhi, decided on November 11, 2022), rejected the arguments of the Corporate Debtor (who was also a real estate developer) that (i) the project undertaken by it was almost complete; (ii) it was a financially viable company; and (iii) initiation of CIRP would not be fruitful. NCLT, New Delhi, in its reasoning, held that had the Corporate Debtor been financially healthy, it would not have defaulted in repayment. Moreove....
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....est of the Corporate Debtor, ECL Finance Limited ("Original Lender") sanctioned two Term Loan Facilities totalling Rs 70 crores (Rupees 40 crores and Rupees 30 crores) vide sanction letters dated 19.07.2018. These facilities were disbursed on 26.07.2018 and 26.09.2018, respectively. The Corporate Debtor executed various contractual and security documents in favour of the Original Lender to secure its repayment obligations. However, the Corporate Debtor failed to comply with the repayment schedule and made its last payment on 30.09.2021. As a result, the loan account was classified as a Non-Performing Asset (NPA) on 30.12.2021. Subsequently, the Appellant acquired all rights, title, and interest in the said loan facilities and underlying securities from the Original Lender through an Assignment Agreement dated 09.05.2022. A Recall and Invocation of Guarantee Notice was then issued on 31.05.2022, demanding payment of the entire outstanding dues. The Appellant thereafter initiated recovery proceedings under the Recovery of Debts and Bankruptcy Act, 1993, and the SARFAESI Act, 2002. In response, the Corporate Debtor requested a restructuring of its outstanding dues, including those of ....