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TMI Blog2018 (12) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of any matter in which the Adjudicating Authority is empowered to decide under the Code, we hold that the provisions of Sections 3 & 4 of the ‘Usurious Loans Act, 1918’ are not applicable to any of the proceeding under Section 7 or 9 of the ‘I&B Code’. Further, as initiation of ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 do not amount to recovery proceedings, the question of deciding the claim, which may include the interest by the Adjudicating Authority does not arise for the purpose of triggering the ‘Corporate Insolvency Resolution Process’. If the application is complete and the Adjudicating Authority is satisfied that there is a debt due to the ‘Financial Creditor’ and there is a default on the part of the ‘Corporate Debtor’, it has no other option but to admit the application in absence of any other infirmity. For the reasons aforesaid, no interference is called for against the order(s) of admission which are under challenge - Company Appeal (AT) (Insolvency) No. 336 of 2017 With Company Appeal (AT) (Insolvency) No. 07 of 2018 With Company Appeal (AT) (Insolvency) No. 10 of 2018 - - - Dated:- 29-11-2018 - Mr S.J. Mukhopadhaya, Chairperson Vers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y can entertain or reject an application under Section 7 of the I B Code on the ground of usurious and extortionate penal interest ? Stand of the counsel for the Appellant- Mr. Naveen Luthra in Company Appeal (AT) (Insolvency) No. 336 of 2017 6. Learned counsel appearing on behalf of the Appellant submitted that the Adjudicating Authority even though took cognizance of the arbitral proceedings which suggest that a dispute with regard to quantum is pending wrongly admitted the application. Further, according to him, it was the responsibility of the Adjudicating Authority to decide where penal interest claimed by the Financial Creditor is hit by Usurious Loans Act, 1918 . 7. According to the learned counsel for the Appellant, the time value of money in the instant case is the flat rate of 10% per annum which stood paid on the date of disbursal of the loan amount and the usurious and extortionate penal interest does not give rise to a financial debt as defined under Section 5(8) of the I B Code . It is stated that an amount of ₹ 1,37,66,400/- was disbursed after deducting flat rate of 10% advance interest which amounted to ₹ 34,41,600/-. Thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to usurious and extortionate rate of interest . 15. It was also submitted that the contravention of NBFC Fair Practices Code prescribed by the Reserve Bank of India under Section 45L of the Reserve Bank of India Act, 1934 and provisions of Sections 3 and 4 of the Usurious Loans Act, 1918 stand violated in the present case. 16. According to learned counsel, the Usurious Loans Act, 1918 was enacted in the year 1918 whose object was to confer powers to all courts in India and equitable jurisdiction in cases relating to usurious loans of money or in kind. It was submitted that the documents were deceitfully obtained by the Financial Creditor under the garb of standard documents . 17. Reliance has also been placed on Section 2 of the Usurious Loans Act, 1918 which defines interest means rate of interest and includes the return to be made over and above what was actually lent, whether the same is charged or sought to be recovered specifically by way of interest or otherwise. 18. It was submitted that the charging of interest @ 1% per day for default levied by the Financial Creditor , even after recovery of interest for the entire tenure of loan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor . 23. It was alleged that since then not even a single payment was made by the Corporate Debtor , the Appellant was compelled to issue notice to the Corporate Debtor on 11th September, 2016 under Sections 433 and 434 of the Companies Act, 1956, stating that since the Corporate Debtor failed to make any of the installments as agreed by the Corporate Debtor , it is liable to pay additional interest @1% per day on and over the outstanding interest. It is only thereafter petition under Section 7 was filed. Findings: 24. We have gone through the facts of each of the case and heard the submissions made by the parties and perused the relevant provisions and the records. 25. The Presidency- Towns Insolvency Act, 1909 Act 3 of 1909 was in existence while the Usurious Loans Act, 1918 was enacted. As per The Presidency- Towns Insolvency Act, 1909 , the Court of Competent Jurisdiction used to decide the Insolvency under the aforesaid Act, 1909, the procedure was completely different than the procedure of resolution as prescribed under the I B Code . 26. When the power was vested with the Court to deal with the insolvency proceedings under The Presid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Court. Explanation - In the case of a suit brought on a series of transactions the expression the transaction means for the purposes of proviso (i), the first of such transactions. (2) ( a) In this section excessive means in excess of that which the Court deems to be reasonable having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the date of the loan. (b) In considering whether interest is excessive under this section, the Court shall take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premia, renewals or any other charges, and if compound interest is charged, the periods at which it is calculated, and the total advantage which may reasonably be taken to have been expected from the transaction. (c) In considering the question of risk, the Court shall take into account the presence or absence of security and the value thereof, the financial condition of the debtor and the result of any previous transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been known, to the creditor. (d) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objective of the I B Code As evident from the long title of the I B Code , it is for reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders. The recent Ordinance explicitly aims to promote resolution over liquidation. 2. The objective of the I B Code is Resolution . The Purpose of Resolution is for maximisation of value of assets of the Corporate Debtor and thereby for all creditors. It is not maximisation of value for a stakeholder or a set of stakeholders such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is resolution . The second order objective is maximisation of value of assets of the Corporate Debtor and the third order objective is promoting entrepreneurship, availability of credit and balancing the interests . This order of objective is sacrosanct. In the matter of Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors. , the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide goods and services on credit. The objective of promoting availability of credit will be defeated. c. The I B Code is for reorganisation and insolvency resolution of corporate persons, .for maximisation of value of assets of such persons to . balance interests of all stakeholders. It is possible to balance interests of all stakeholders if the resolution maximises the value of assets of the Corporate Debtor . One cannot balance interest of all stakeholders, if resolution maximises the value for a or a set of stakeholder such as Financial Creditors . One or a set of stakeholders cannot benefit unduly stakeholder at the cost of another. d. The I B Code prohibits any action to foreclose, recover or enforce any security interest during resolution period and thereby prevents a creditor from maximising his interests. e. It follows from the above: i. The liabilities of all creditors who are not part of Committee of Creditors must also be met in the resolution. ii. The Financial Creditors can modify the terms of existing liabilities, while other creditors cannot take risk of postponing payment for better future prospectus. That is, Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology, product portfolio or marketing strategy; acquisition or disposal of assets, undertaking or business; modification of capital structure or leverage; infusion of additional resources in cash or kind over time; etc. Each plan has a different likelihood of turnaround depending on credibility and track record of Resolution Applicant and feasibility and viability of a Resolution Plan are not amenable to bidding or auction. It requires application of mind by the Financial Creditors who understand the business well. It is not recovery: Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues one after another or simultaneously- from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the Corporate Debtor to death, resolution endeavors to keep the Corporate Debtor alive. In fact, the I B Code prohibits and discourages recovery in several ways. It is not liquidation: Liquidation brings the life of a corporate to an end. It destroys organisational capital and renders resources idle till reallocati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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