2019 (10) TMI 280 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Time limitation - forum hunting - proceedings under the SARFAESI Act 2002 were pending - Status of the applicants who are the assignee of the loan - HELD THAT - The proceeding under the SARFAESI 2002, were initiated well within that period and subsequent follow up action was also taken. Therefore, for the purposes of the Code also, the application under Section 7 filed on 25.09.2018 is to be taken as well within the time. There is no averment that the winding up proceedings were initiated. No provision in the Code has been brought to our notice by which application under Section 7 of the Code cannot be filed where proceedings under SARFAESI 2002 are pending. Status of the applicants who are the assignee of the loan - The Hon ble High Court had held that the challenge of assignment debt is wholly devoid of merit and the other argument that the financial creditor was an agent and thus could not be assigned the debt is again not tenable. The conditions provided for by Section 7(5) (a) of the Code being satisfied in the present case, we direct that the application for initiation of CIRP against Corporate Debtor be admitted. The directions regarding moratorium and appointment of IRP issued.

Issues Involved:
1. Jurisdiction and Application Filing
2. Credit Facilities and Defaults
3. Security and Collateral
4. Debt Assignment and Financial Creditor Status
5. Limitation and Time-Barred Debt
6. Forum Shopping and Multiple Proceedings
7. Indicative Term Sheet and Advisory Services Agreement
8. Moratorium and Appointment of Interim Resolution Professional (IRP)

Detailed Analysis:

1. Jurisdiction and Application Filing:
The application was filed by Kotak Mahindra Bank Limited for initiating the Corporate Insolvency Resolution Process (CIRP) against Sachdeva and Sons Rice Mills Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016. The application was signed by the Vice-President of the Bank, authorized by a resolution dated 02.05.2018. The Corporate Debtor was incorporated on 30.03.1991, with its registered address in Amritsar, Punjab, establishing jurisdiction with the Chandigarh Bench of the Tribunal.

2. Credit Facilities and Defaults:
The Corporate Debtor was granted various credit facilities by Bank of Punjab Limited, which later merged with Centurion Bank of Punjab Limited (CBOP). The facilities included fund-based and non-fund-based credit, restructured multiple times. Defaults occurred, notably failing to honor a bank guarantee, leading to further restructuring. The Corporate Debtor's account was classified as NPA on 31.12.2004.

3. Security and Collateral:
The credit facilities were secured by hypothecation of machinery and collateral security through mortgage of properties, including flats, agricultural land, and a rice mill. The acknowledgment letters for deposit of title deeds and balance confirmation letters were filed. The charge on securities was registered with the Registrar of Companies under the Companies Act, 1956.

4. Debt Assignment and Financial Creditor Status:
The debt was assigned from Centurion Bank of Punjab to Kotak Mahindra Bank via a Deed of Assignment dated 27.09.2007. The Corporate Debtor contested the assignment, arguing Kotak Mahindra Bank did not share details of the transaction and claimed the bank acted as a financial advisor, not a financial creditor.

5. Limitation and Time-Barred Debt:
The Corporate Debtor argued the debt was time-barred, referencing the loan agreement dated 24.09.2002, and cited Supreme Court judgments on the applicability of the Limitation Act to the IBC. The Tribunal found the application within time, noting the 12-year limitation for enforcing payment of money secured by a mortgage and actions taken under SARFAESI 2002 within this period.

6. Forum Shopping and Multiple Proceedings:
The Corporate Debtor accused the financial creditor of forum shopping, citing proceedings under SARFAESI 2002 and notices for winding up under the Companies Act, 1956. The Tribunal found no provision in the Code preventing an application under Section 7 where SARFAESI proceedings are pending, emphasizing the Code's overriding effect.

7. Indicative Term Sheet and Advisory Services Agreement:
The Corporate Debtor referenced an indicative term sheet and a letter dated 17.04.2007, arguing the financial creditor was only entitled to reimbursement of the cost of buying the debt plus agreed fees. The Tribunal rejected this contention, noting a previous High Court order dismissing challenges to the assignment deed and recognizing the financial creditor's competence to take possession under Section 13 of SARFAESI Act.

8. Moratorium and Appointment of Interim Resolution Professional (IRP):
The Tribunal declared a moratorium as per Section 14 of the Code, prohibiting suits or proceedings against the Corporate Debtor, transferring or disposing of assets, and actions to enforce security interests. Mr. Hemanshu Jetley was appointed as the Interim Resolution Professional, with instructions to manage the Corporate Debtor's affairs, constitute a committee of creditors, and submit regular progress reports.

Conclusion:
The application for initiation of CIRP against the Corporate Debtor was admitted, with directions for moratorium and appointment of IRP. The Tribunal rejected the Corporate Debtor's contentions regarding limitation, forum shopping, and the financial creditor's status, affirming the validity of the CIRP proceedings.

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