2022 (3) TMI 701 - AT - Insolvency and Bankruptcy

Maintainability of application - CIRP process - Financial Creditors - default was committed by the Appellant or it was commission and omission on behalf of the Bank - refund of the facility fee not done by bank - cancellation of the 2nd tranche of credit facility availed - violation of principles of natural justice - HELD THAT - When Bank charges facility fee on borrowing, it cannot be accepted that on a loan of ₹ 1700 Crores facility fee shall be charged on the first tranche of ₹ 750 Crores and no facility fee was chargeable on 2nd tranche of ₹ 950 Crores. The payment of facility fee was received by the Bank on disbursement of 1st tranche which was facility fee for both the tranches and when 2nd tranche of ₹ 950 Crores stood cancelled, the Bank was obliged to refund the proportionate facility fee. The action of Bank in not refunding/ adjusting the proportionate facility fee is unjust enrichment by the Bank at the cost of borrower. The relationship between a banker and borrower is of trust. The purpose of all financing is for the purpose of promotion and completion of project by different borrowers. Bank is supposed to extend a helping hand and to act as a facilitator in carrying out the project. In the present case, the Bank has not acted fairly and even after cancellation of 2nd tranche of ₹ 950 Crores, it did not of its own refunded the proportionate facility fee which it ought to have been done in all fairness so as the borrower may be relieved from some financial burden but instead of refunding the proportionate fee, the Bank has pushed the borrower into serious financial constraint. The payment of monthly interest which was to be made for a period of 36 months was substantial amount of more than ₹ 6 Crores per month and refund of proportionate facility fee would have brought great help to the borrower to meet the interest instalment. Bank who was obliged to reverse/ refund the proportionate facility fee, it could not be allowed to withhold the aforesaid facility fee and contend that borrower has committed default on 01.08.2019. It was omission or commission of the Bank in not refunding the facility fee to the borrower due to which Bank cannot contend that any default was committed by the borrower on 01.08.2019 - there being no default on principal borrower on 01.08.2019, the Bank also cannot proceed against the Corporate Debtor by filing of Application on the basis of default dated 01.08.2019. There being no default by the principal borrower on 01.08.2019, all subsequent action by the Bank on the alleged default dated 01.08.2019 are unsustainable. Hence, information recorded in the information utility on the strength of loan recall notice dated 18.11.2019 in no manner can be read as material to prove that default was committed by the Bank on 01.08.2019 - sufficient ground was raised by the Appellant in I.A which was filed by the Appellant in Section 7 Application on which ground Section 7 Application deserves to be rejected. The Adjudicating Authority committed error in admitting the Application under Section 7 on the ground that default was committed by the Appellant on 01.08.2019. There was no default on the part of the Appellant on 01.08.2019 and it was commission and omission on behalf of the Bank of which no benefit can be taken by the Bank - Section 7 Application filed by the Respondent Bank is dismissed.

Summary

Issues Involved:
1. Validity of the default date claimed by the Financial Creditor.
2. Entitlement to the refund or adjustment of the facility fee.
3. Admissibility of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Validity of the Default Date Claimed by the Financial Creditor:
The Appellant contested the default date of 01.08.2019 claimed by the Financial Creditor, arguing there was no default on that date. The loan was split into two tranches: ?750 crores and ?950 crores, with a facility fee of ?100 crores charged on the entire loan of ?1700 crores. The Appellant claimed that the interest was paid up to June 2019, and if the proportionate facility fee for the canceled ?950 crores tranche had been refunded or adjusted, there would have been no default on 01.08.2019. The Financial Creditor argued that the entire facility fee was non-refundable and charged on the disbursement of the first tranche. The Tribunal concluded that the Bank's omission in not refunding the proportionate facility fee resulted in no default on 01.08.2019.

2. Entitlement to the Refund or Adjustment of the Facility Fee:
The Appellant argued that after the cancellation of the second tranche of ?950 crores, the Bank should have refunded the proportionate facility fee of ?55.88 crores. The Bank's internal documents, including an Office Memorandum dated 23.09.2019, acknowledged the original understanding that the facility fee was for the entire loan of ?1700 crores and recommended a partial refund of ?10 crores, which was executed on 24.09.2019 and 25.09.2019. The Tribunal found that the Bank was obliged to refund the proportionate facility fee, and its failure to do so was unjust enrichment.

3. Admissibility of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized that for initiating proceedings under Section 7, the Financial Creditor must prove that a default has occurred. The Adjudicating Authority failed to consider whether there was a default on 01.08.2019, the basis for the Section 7 Application. The Tribunal held that the Bank's actions, including withholding the proportionate facility fee, engineered the default and could not be used to push the Corporate Debtor into insolvency. The Tribunal concluded that there was no default on 01.08.2019 and dismissed the Section 7 Application.

Conclusion:
The Tribunal allowed the Appeal, set aside the order of the Adjudicating Authority, and dismissed the Section 7 Application filed by the Financial Creditor. The Tribunal held that there was no default on the part of the Corporate Debtor on 01.08.2019, and the Bank's actions in withholding the proportionate facility fee were unjust.