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TMI Blog2017 (7) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... of the corporate debtor. (II) That supply of essential goods or services to the corporate debtor if continuing, shall not be terminated or suspended or interrupted during moratorium period. (III) That the provisions of sub-section (1) Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (IV) That the order of moratorium shall have effect from 06.06.2017 till completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, as the case may be. (V) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code. (VI) That this Bench hereby appoints, Mr. Dhinlal Shah, 9, Urmikunj Society, Nr. St. Xavier's College Corner, Navrangpura, Ahmadabad- 380009, Gujarat, India, Registration Number: IBBI/IPA-01/2016-17/015, as Interim Resolution Professional to carry the functions as mentioned under Insolvency & Bankruptcy Code. - C.P. NO. 292/I & BP/NCLT/MAH/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 02, 2011. The original WCF is comprised of fund based limits (cash credits) and non-fund based limits (including bank guarantees under letters of credit). It was later reconstructed under CDR scheme by Master Restructuring Agreement (MRA) dated June 30, 2012 executed inter alia among the corporate debtor and IDBI from time to time for a total facility amounting to ₹ 615.12 crores which includes the following: - 1. Working capital facility (including cash credit facility, overdue due to interest, penal commission and crystallized non-fund based limits i.e. development of bank guarantees and letters of credit) of ₹ 319.81crores. 2. Working capital-additional cash credit facility (including inter changeability allowed from non-fund based to fund based) of ₹ 285 crores. 3. Priority term loan facilities of ₹ 6.24 crores for vessel completion. 4. Priority term loan facility for capex programme of ₹ 4.07 crores (it has been said that no amount under this facility was disbursed to the company). 3. Further, pursuant to the MRA, IDBI also advanced an amount of ₹ 5,72,500 on March 10, 2016 towards funding of valuation expenses in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding payment of dues owed by the debtor company to IDBI. For there being clear evidence reflecting that the corporate debtor committed default in repaying debt aforesaid to IDBI, and having this applicant (Asset Reconstruction Company) stepped into shoes of IDBI by virtue of assignment agreement dated March 30, 2016, this applicant has filed this case. In the annual report of the debtor company for the year ended March 31, 2016, it is reflected that the debtor company committed default in repayment of the loans assigned inter alia by IDBI to EARC. In addition to the aforesaid, EARC, vide letter dated August 25, 2016, had instructed SBICAP Trustee Company Ltd to invoke pledge of shares of the corporate debtor and its associates, pledged by the debtor company to IDBI and other Banks. When the debtor company failed to get the shares freed, SBICAP Trust, on the instructions of the Applicant, invoked the pledge. In the result, the applicant company received the proportionate value of the shares held in pledge by the financial creditor and the same has been deducted from the due outstanding. This applicant made claim for the balance outstanding after having deducted the value of those sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction Company Limited. 7. This petition is not in the prescribed form, because no record of default is recorded with information utility, no identification number of financial creditor has been produced, computation has not been claimed as per Part IV of Form - 1, no details of record of default have been recorded with any credit information agency, the entries are not shown as stated under Banker's Book Evidence Act, 1981. 8. That IDBI Bank failed to provide additional facilities in full and in compliance with MRA; therefore, there has been no default on the part of the company qua any financial debt. 9. Stamp duty has not been paid over the Assignment Agreement dated March 30, 2016 as per the provisions of Bombay Stamp Act 1958; therefore, this case should not be admitted for it is hit by Indian Stamp Act. 6. Before going into merits of the case, this Bench believes it is important to look into as to whether this company is solvent enough to discharge its debts. Why it is important is, the title of this Code itself says what this Code is - it comes into operation when company has become insolvent or become deemed insolvent. It has come into force with a stated obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not but it is obvious the purpose and object of the Code would be knocked down and the cause of the country at large will get eclipsed. If the history of recession all over the world is seen, one of the causes for recession is bad loans, the problem today our country facing is bad loans in several crores. It is a known fact that there is a difference between criminal jurisprudence and civil jurisprudence in evaluating evidence - civil courts require plaintiff to prove his case by a preponderance of evidence, this means the person suing must prove that there is greater than 50% chance to win the case based on reasonable evidence, whereas in criminal case, the prosecutor must prove that the accused did the crime beyond reasonable doubt by this, it is evident that there are two standards of proof in adjudicating cases, civil courts apply a lower standard of proof of preponderance of evidence , while criminal courts apply higher standard of beyond reasonable doubt . So in a case like this, which is civil in nature, lower standard is to be applied or at least go by the mandate given by the Code. Evidence is to be weighed to adjudicate the case. The logic behind variance of standard i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nactment. This is an inbuilt enactment including procedure, mode of taking proof and substantial law, therefore this Bench need not look for outside help to adjudicate either to admit or dismiss these petitions. Natural justice is also inbuilt because an opportunity is allowed to a limited extent to the corporate debtor to establish that the applicant has no case as specified in the Code. May be it does not look conventional in adjudication of cases without reply, rejoinder or without chief examination and cross-examination, but fact of the matter is almost all transactions in a company at one or other level gets recorded, which company normally cannot disown such transaction, therefore there is hardly any possibility to sweep the facts under the carpet and for proof facts, most of the times, courts need not fall back upon the conventional procedures, only thing to be known is which document and which register in the books of the company reveal which transaction. That is the reason; issues in corporate litigation are without any difficulty decided without applying the procedure of examination and cross-examination, especially the issues on factual aspects. For this reason only, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 3 of section 7, let us see what section 7 (3) asking the financial creditor to show for admission of this petition. The text of section 7 (3) is as follows: Section 7: Initiation of corporate insolvency resolution process by financial creditor. Sub-Section 1: .. Sub-Section 2: .. Sub-Section (3): The financial creditor shall, along with the application furnish - (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. 11. In clause (a) of this sub-section, three situations are given to establish default in repayment, one - the record available with information utility; two - such other record of default as specified; three - such other evidence of default as specified. All these three mandates are disjunctive, connected with clause 'OR' not with clause 'AND', therefore each mandate is independent and complete. If the financial creditor is able to furnish material c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be filed. But, it is not the case here. Therefore, when choice is given by the statute to the financial creditor either for production of record of default or evidence of default, the financial creditor shall not be weighed down to produce record from Information Utility Centre in addition to production of record or evidence of default as specified. 14. Since it has been asked in section 7 (3) (a) either to produce record of default with information utility OR such other record OR evidence of default as may be specified, let us look into as to what is specified in Rule 4 of Insolvency and Bankruptcy (Application to adjudicating authority) Rules, 2016 dealing with Application by financial creditor: Application by financial creditor: - (1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) (3) ... (For sub-rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing three for admission of the petition: one - the records available with an information utility, if any, (Record available with information utility is sufficient to reckon record of default) Or two - (b) other relevant documents, including - (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been repaid. (as per this second mandate, if documents reflecting financial contract to show evidence of debt, evidence of debtor drawing such facility and financial statements disclosing failure of repayment are shown, then such proof is enough to this Bench to believe that the corporate debtor availed facility and committed default in making repayment) Or Three- (iv) an order of a court or Tribunal that has adjudicated upon the non-payment of a debt, if any. (Last option open to the financial creditor is, he can file court or Tribunal order upon non-payment of debt to independently prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure or extent of any right, liability or disability is asserted or denied in any suit, then such issue has to be decided. By which it is understandable a fact will become a fact in issue only when it is denied, therefore as long as denial is absent, a fact asserted will not become a fact in issue , of course whether such fact is believable or not is another point that is clarified in the ensuing clauses. Next clause is Evidence', which is focal point for our discussion, in interpreting this clause, it has been said that all statements which court permits to be taken in an enquiry either orally or documentary is called evidence. Since this being the meaning of evidence, this Bench doubts that there is any impediment to prove a fact by taking evidence into consideration apart from presumptive facts. Here it does not matter whether any issue on fact is in existence or not in existence, in both the cases, evidence has to adduced in an enquiry, upon such adduce of evidence, a fact can be proved or disproved or not proved. Why this Bench discussed all these words is apart from clause record of default , there has another clause evidence of default in Section 7 (3) (a), Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Bench to believe those facts as true) showing grant of loan, then default, then assignment of the debt to EARCL, this Bench believes existence of debt, default, assignment of debt to EARCL and invocation of pledge of shares. Then the points left to be answered are the objections about no record in existence with information utility, no record or evidence of default, claim is not adjudicated by any court, debt is not in default for additional facilities have not been provided by IDBI, court cases pending in respect to this claim, the applicant cannot become a financial creditor, debt has not yet been crystallized, insufficient stamp duty on assignment deed. It has been already held that information utility centre was not in existence as on the date of filing this petition, assuming information utility center was in existence as on the date of filing, then also non filing of record from utility centre will not make this case invalid because it is only optional, not compulsory to produce the record from utility center. As to other objection in respect to non-filing of court order disclosing default, it is true no such record is in existence, therefore filing such order would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount appropriated to the financial creditor, therefore it can't be the argument of the corporate debtor that invocation pledge of shares has not happened and money received by the financial creditor towards IDBI loan facility has not been crystallised is not correct. The financial creditor filed dues position as on March 15, 2017 as Exhibit 5-B (page 52-D) disclosing subtraction of consideration received from the proceeds from pledge invocation. Moreover, if the amount is disputed that less has come on sale of shares, then it is understandable that the debtor is unfairly treated. Here this creditor in deed subtracted the proceeds from pledge invocation from the dues outstanding; hence forth we have not found any merit in the objection raised by the corporate debtor. 25. Since the Financial Creditor has filed the Agreements reflecting Financial Contract, the accounts disclosing disbursement of loan amount to the Corporate Debtor and also Financial Statements, even the Financial statement of the Debtor Company reflecting the failure of the company in making repayment to the Assignee itself, therefore, today this corporate Debtor cannot raise an objection that the Financial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case supra being decided on the provisions applicable to Section 9 of the Code, the ratio decided in that case is not applicable to the case under Section 7 of the Code. 27. It is not out of context to mention that under Section 63 of the Code, it has been categorically mentioned that no civil court or authority shall have jurisdiction to entertain any suits or proceedings in respect of any matter in which NCLT or NCLAT has jurisdiction under this Rule likewise in Section 238, it has been mentioned that the provisions of IB Code shall have effect, notwithstanding anything inconsistent therewith contained with any other law for time being in force or any instrument having effect by virtue of any such law. In view of bar of jurisdiction under Section 63 and overriding effect on all other laws under Section 238, pendency of proceedings in respect to this claim before any other court will not become a bar to entertain this petition, therefore, the objection raised by the Corporate Debtor has no merit. 6th objection of the debtor company: The applicant herein will not fall within the definition of 'financial creditor', because the transaction enumerated in the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al as specified under law. As to non-production of identification number of the Financial Creditor, since it is a Trust that is making the claim, there cannot be any possibility to have an identification number like CIN that companies will have. As to computation of the claim defaulted, the applicant has annexed Schedules to the form, since those annexure have been mentioned in the form, those annexure have to be construed as part of the form disclosing computation of the default claim. It is true that credit information agency report had initially not been filed but whereas subsequently the applicant filed CIBIL report disclosing that this Debtor Company has not repaid loan to IDBI at any point of time therefore, the Debtor Company cannot say that the record lying with Credit Information Agency has not been filed. Since the present applicant is not an NBFC, there is no obligation to be recorded with Credit Information Agency therefore, it is not even an obligation upon this Applicant to place any such record maintained by Credit Information Agency. In spite of it, this applicant has furnished that information as well. The applicant has filed all the copies of the ledgers maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment had been putting stress on the bringing up an infrastructure to deal with escalating bad debt at banks. This Bill finally received the assent of the President on August 12, 2016. The Ministry of Finance had issued a Notification (S.O. 2831 (E)) dated September 01, 2016, through which the Act came into force on September 01, 2016, therefore, this Bench has either way not found any merit in the allegation that stamp duty has not been paid over the assignment Agreement. It is not the case stamp duty has not been paid, if at all it is payment of inadequate stamp duty, obligation is upon the corporate debtor to specify how much duty has been paid, how much in fact is to be paid has to come from the debtor, and specific section of law governing the situation, de hors all these details, can a party engage the court to get into an enquiry on a sweeping allegation of the party? We sincerely believe it is a tactic to burden this Tribunal to decide issues without any factual foundation. 33. The Corporate Debtor Counsel relied upon a ratio in these cases, (a) Ashok Kumar Sharma v. Chander Shekher 1993 Supp (2) SCC 611 (Para 19); (b) Nazir Ahmed v. King Emperor AIR 1936 PC 253; (c) Ramc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he possession of the corporate debtor. (II) That supply of essential goods or services to the corporate debtor if continuing, shall not be terminated or suspended or interrupted during moratorium period. (III) That the provisions of sub-section (1) Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (IV) That the order of moratorium shall have effect from 06.06.2017 till completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, as the case may be. (V) That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code. (VI) That this Bench hereby appoints, Mr. Dhinlal Shah, 9, Urmikunj Society, Nr. St. Xavier's College Corner, Navrangpura, Ahmadabad- 380009, Gujarat, India, Registration Number: IBBI/IPA-01/2016-17/015, as Interim Resolution Professional to carry the functions as mentioned under Insolvency Bankruptcy Code. 38. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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