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2022 (6) TMI 543 - AT - Insolvency and BankruptcyViolation of principles of natural justice - suppression of material facts - Suspension of initiation of Corporate Insolvency Resolution Process - time limitation - Section 10A of the IBC, 2016 - HELD THAT - The parties both the Financial Creditors/Respondent No. 1 and Corporate Debtor/Appellant is not denying that an OTS was not sanctioned on 28.01.2019 and the same was rescinded by the Bank on 17.06.2019. The Corporate Debtor failed to pay balance Rs. 83.18 Crore out of OTS sanctioned of Rs. 93.18 Crore and hence only Rs. 10 Crore was paid by the Corporate Debtor/ Appellant to the Bank - What it is observed that the Respondent No.1/Bank sanctioned 2nd OTS on 13.03.2020 for an amount of Rs. 40 Crore and out of which only Rs. 4 crore was paid by the Corporate Debtor/Appellant to the Respondent No.1/Bank. It is very much clear that the debt is neither barred by the limitation nor it is barred by the provision of Section 10(A) of the IBC, 2016 as the bank has filed the petition on 13.08.2019. The record also revealed that the Respondent No.1/CBI/FC has filed the Petition for initiation of CIRP originally on 22.10.2018 but before the admission of the said application, the Corporate Debtor has approached the Respondent No.1/Bank for settlement of their dues and accordingly, the compromise proposal submitted by the Corporate Debtor/Appellant was accepted by the Applicant Bank vide sanction letter dated 28.01.2019 - OTS is a mechanism available with the banks for years together to allow survival of Debtors and maintain cash flow for banks. However, repeated failure reflects either the intention of the Corporate Debtor/Appellant is not fair as in every OTS the settlement amount is going down and thereby reflecting that delay in CIRP will make the organization weaker and the object of the code for maximization of the value of assets of such persons shall not happen. The are no infirmity in the impugned order and the order deserves to be sustained - Appeal fails and is dismissed.
Issues Involved:
1. Default in payment under loan documentation. 2. Allegations and disputes raised by the appellant. 3. One Time Settlement (OTS) proposals and their acceptance. 4. Impact of COVID-19 pandemic on the appellant's ability to pay. 5. Principles of natural justice and fair hearing. 6. Applicability of Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016. 7. Adjudicating Authority's observations and decisions. 8. Actions taken by the Resolution Professional (RP). 9. Status and claims of the financial creditors. 10. Arguments and submissions by the respondent bank. Detailed Analysis: 1. Default in Payment Under Loan Documentation: The appellant, an ex-director of the corporate debtor, was aggrieved by the adjudicating authority's order holding that the appellant defaulted in paying the respondent bank under the loan documentation. The respondent bank claimed an amount of Rs. 185,35,24,319/- due from the corporate debtor towards the loan advanced. 2. Allegations and Disputes Raised by the Appellant: The appellant denied the allegations of default through a letter dated 12.10.2018, raising a dispute. The appellant approached the respondent bank for a One Time Settlement (OTS) and paid an amount of Rs. 10 crores, which was accepted by the respondent bank. 3. One Time Settlement (OTS) Proposals and Their Acceptance: The appellant proposed multiple OTSs: - First OTS: Paid Rs. 10 crores out of Rs. 93.18 crores, leading to the withdrawal of the company petition by the respondent bank. - Second OTS: Proposed Rs. 40 crores and paid Rs. 4 crores as an upfront deposit. The respondent bank accepted this proposal but later rescinded it due to non-payment of the balance amount. 4. Impact of COVID-19 Pandemic on the Appellant's Ability to Pay: The emergence of the COVID-19 pandemic and subsequent lockdowns made it difficult for the appellant to mobilize resources and meet the bank. The appellant requested an extension of time for payment, which was initially granted by the bank but later rescinded. 5. Principles of Natural Justice and Fair Hearing: The appellant contended that the adjudicating authority refused to hear their submissions during a virtual hearing due to a technical snag, thus violating the principles of natural justice. The appellant cited cases such as "Swadeshi Cotton Mills vs UOI" and "Maneka Gandhi vs. Union of India" to support their claim of not being given a reasonable opportunity to present their case. 6. Applicability of Section 10A of the IBC, 2016: The appellant argued that the default occurred within the protected period stipulated in Section 10A of the IBC, 2016, which bars the initiation of Corporate Insolvency Resolution Process (CIRP) for defaults arising on or after 25th March 2020. However, the adjudicating authority observed that the debt and default were within the limitation period and not barred by Section 10A as the petition was filed on 13.08.2019. 7. Adjudicating Authority's Observations and Decisions: The adjudicating authority noted that the corporate debtor failed to comply with the terms of the OTS despite availing nearly two years' time. The authority admitted the insolvency application against the corporate debtor, observing that the debt and default were admitted, and the application was complete in all respects. 8. Actions Taken by the Resolution Professional (RP): The RP made a public announcement inviting claims from creditors and constituted the Committee of Creditors (CoC). The RP continued to manage the affairs of the corporate debtor despite the stay granted by the Supreme Court on further CIRP proceedings. 9. Status and Claims of the Financial Creditors: The respondent bank held about 24.53% share of the overall financial claim against the corporate debtor. The bank had entered into an OTS for Rs. 40 crores but later rescinded it due to non-payment. Other financial creditors were also involved, and the CoC was constituted based on the claims received. 10. Arguments and Submissions by the Respondent Bank: The respondent bank argued that there was no violation of natural justice and that Section 10A of the IBC was inapplicable as the default occurred much earlier. The bank also contended that the appellant's repeated failures to comply with the OTS terms indicated an unhealthy financial situation. Conclusion: The appellate tribunal found no infirmity in the adjudicating authority's order and dismissed the appeal. The tribunal observed that the debt was neither barred by limitation nor by Section 10A of the IBC. The repeated failures of the corporate debtor to comply with the OTS terms reflected an intention not to pay, leading to the dismissal of the appeal.
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