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2026 (2) TMI 34
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....y the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-VI) in C.P. (IB) No. 294/MB/2025. By the impugned order, the Adjudicating Authority has admitted the Section 7 application filed by the Financial Creditor-Punjab National Bank and admitted the Corporate Debtor-Damara Gold Pvt. Ltd. into the rigours of Corporate Insolvency Resolution Process ("CIRP" in short). Aggrieved by the impugned order, the present appeal has been preferred by the suspended director of the Appellant-Corporate Debtor. 2. Coming to the brief facts of the case at hand, the Appellant had approached the Financial Creditor-Respondent No.1 for a Term Loan and Bank Guarantees ("BG" in short) which Term Loan of Rs. 5,70,00,000/- and BGs amounting to Rs. 21,50,00,000/- respectively was sanctioned vide sanction letter dated 17.03.2011. These facilities were disbursed on various dates and also renewed from time to time with the last such renewal done vide sanction letter dated 17.03.2022 in lieu of which certain properties situated at Mumbai were mortgaged as security. In 2023, as the BGs were invoked by the beneficiaries for a total amount of Rs. 54,34,00,000/-, the Respondent No.1 charged the s....
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....ular dated 29.05.2015. It was emphatically asserted that consideration of their restructuring proposal was mandatorily incumbent upon the Respondent No.1 for their consideration in terms of the judgment of the Hon'ble Supreme Court in M/s. Pro Knits vs. The Board of Directors of Canara Bank & Anr. (2024) 10 SCC 292. However, the Respondent No. 1 had rejected the same on the flimsy pretext of non-completion of stock audit of the Appellant. While admitting that the Appellant had earlier been prevented by circumstances beyond its control to have the stock audit conducted, they had subsequently requested Respondent No. 1 on 03.10.2025 to conduct the stock audit despite and the Respondent No. 1 having failed to do so acted in contravention of the RBI Circular. It was added that now that the custody of the Corporate Debtor is with the Interim Resolution Professional ("IRP" in short), stock audit can be conducted to enable restructuring by the Respondent No.1-Financial Creditor. It is also submitted that the Appellant had made substantial payments aggregating to Rs. 21.72 Cr. against the total BG invocations of Rs. 40.65 Cr. clearly demonstrating their intent to resolve the dues as well a....
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....ty of the ratio contained in the judgment of the Hon'ble Supreme Court in Pro Knits judgment supra, the Ld. Sr. Counsel representing Respondent No.1 added that while the MSME Framework Notification of 29.05.2015 was binding upon lending banks, however, for any MSME to avail this benefit was also required to comply with the procedural requirements under the said Framework. In the present case, though the Appellant had been requested to permit stock and book audit and to allow inspection of plant to evaluate the feasibility of restructuring as per MSME framework, there was utter lack of response from the Appellant. Even an email sent as late as on 11.03.2025 by the Respondent No.1 requesting the Appellant to cooperate with the audit process and provide access to the secured assets which was not responded to by the Appellant. This clearly shows that the plea of restructuring has been contrived as a belated afterthought to derail the CIRP process. Further, it is submitted that, in any event, the Appellant being an MSME is eligible to participate in the CIRP process and is not hit by the disqualification under Section 29A of the IBC. Hence, with debt and default being proven, the impugn....
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....td. Vs ICICI Bank (2018) 1 SCC 407 has laid down the guiding precepts in para 28 of its judgment which is as reproduced below: "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 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, 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 authori....
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....ate Debtor. The impugned order also notes that the NeSL record of default is under the "Authenticated" status category. Further the Adjudicating Authority has also taken notice that the Corporate Debtor had not denied the fact that it had availed the loan facilities from the Respondent No.1. This coupled with the fact that the Appellant had also approached the Respondent No.1 with a letter dated 02.09.2024 seeking restructuring of their loan facility was held by the Adjudicating Authority to clinch the fact that this letter was an admission of debt on part of the Appellant qua the Respondent No.1 and that the restructuring proposal was an acknowledgement by the Corporate Debtor that it was in default. 11. At this stage, it may be useful to advert attention to the relevant extracts of the impugned order as reproduced below: "40. Applicant has placed before us necessary documents to prove that on the request of the applicant they have sanctioned and disbursed various credit facilities. 41. Corporate Debtor has not denied obtaining the credit facilities from the Applicant. 42. Applicant has placed before us the various loan documents, security documents a....
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....d fact that the Corporate Debtor had issued a letter dated 02.09.2024 by which they approached the Respondent No.1 for restructuring of the Cash Credit Facility. We are inclined to agree with the observation of the Adjudicating Authority that if the Appellant had genuinely entertained any objection to the unilateral invocation of BGs by the Respondent No.1 without their knowledge, there should have been some signs of demur or protest registered on this score in their letter dated 02.09.2024. The Appellant has failed to place on record any document or material to show that they had raised such objections to the invocation of BGs on any occasion either before their letter dated 02.09.2024. This defence therefore seems to be an eye wash which was clearly contrived as an afterthought. We are of the view that Adjudicating Authority has rightly disregarded this defence and held it to be unsustainable. We therefore concur with the findings and conclusions drawn by the Adjudicating Authority of existence of the debt and default and that the default amount exceeded the statutory threshold of Rs. 1 Cr. Once the Adjudicating Authority is satisfied that there exists a debt and that a default h....
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....ich was in violation of the mandate of the RBI Circular. 15. Per contra it is the contention of the Respondent No.1 that they had duly considered the request of the Appellant for restructuring and on 07.10.2024 had requested the Appellant to permit conduct of stock and book audit and inspection of plant to evaluate the feasibility of restructuring as per MSME framework. It was emphatically asserted that while the RBI Circular dated 29.05.2025 was binding on lending institutions, the Hon'ble Supreme Court in Pro Knits judgement supra made it amply clear that there was a reciprocal obligation on the part of the MSME to also be diligent and show compliance to the procedural requirements under the Framework for completion of the restructuring exercise. The Auditor of the Respondent No.1 had issued ten emails calling upon the Appellant to permit inspection and audit of stocks but to no avail. The lack of response from the Appellant clearly shows deliberate non- cooperation. Even an email as late as on 11.03.2025 was issued by the Respondent No.1 to the Appellant requesting them to cooperate with the audit process and provide access to the secured assets. Even this email went un- resp....
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....ever, if at the stage of classification of the loan account of the borrower as NPA, the borrower does not bring to the notice of the bank/creditor concerned that it is a Micro, Small or Medium Enterprise under the MSMED Act and if such an Enterprise allows the entire process for enforcement of security interest under the SARFAESI Act to be over, or it having challenged such action of the bank/creditor concerned in the court of law/tribunal and having failed, such an Enterprise could not be permitted to misuse the process of law for thwarting the actions taken under the SARFAESI Act by raising the plea of being an MSME at a belated stage. Suffice it to say, when it is mandatory or obligatory on the part of the Banks to follow the Instructions/Directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the MSMEs concerned to be vigilant enough to follow the process laid down under the said Framework, and bring to the notice of the Banks concerned, by producing authenticated and verifiable documents/material to show its eligibility to get the benefit of the ....
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....enefit of the said framework". 19. Coming to our analysis and findings as to whether there is substance in the allegation of the Appellant that the Respondent No. 1 did not consider the restructuring proposal in the right earnest, we need to find out whether any restructuring proposal was placed by the Appellant before Respondent No.1 and if so how the proposal was treated. Records clearly reveal that the restructuring proposal request was made by the Appellant on 02.09.2024 which date was undisputedly prior to their filing of the Section 7 application. To find out what treatment was meted out by Respondent No. 1 to the restructuring proposal, we advert our attention to an e-mail addressed by Respondent No.1 to the Appellant in this regard appearing at page 980 of Appeal Paper Book ("APB" short) which is as reproduced below: From: Swapnil Kekare <[email protected]> on behalf of Zonal SASTRA Mumbai <[email protected]> Sent: Monday, October 7, 2024 3:45 PM To: Damara Accounts <[email protected]> Cc: 'PAHUJA JAGDISH' [email protected]...... Subject: Re: Request Letter for Restructuring sir, yo....
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....tates that even the Auditor of the Respondent No.1 had purportedly issued ten emails calling upon the Appellant to permit inspection and audit of stocks. The persistent lack of response from the Appellant clearly shows deliberate non- cooperation on their part. Thus the judgement of the Hon'ble Supreme Court in Pro Knits judgment supra does not come to rescue of the Appellant as the Hon'ble Supreme Court had categorically stressed that this benefit can be availed by an MSME where the MSME entity itself acts with diligence and complies with the procedural requirements under the Framework and remains vigilant in participating in the restructuring exercise while in this case the Appellant is found decisively wanting in this respect. 22. It is only after take-over of the Corporate Debtor by the IRP that the Appellant has now requested that stock audit can be conducted to enable restructuring by the Respondent No.1-Financial Creditor. It is therefore clearly borne out from material on record that the Corporate Debtor has yielded to the request for stock audit only after the management control has gone into the hands of the IRP. In such circumstances, we are inclined to agree with the....