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TMI Blog2017 (9) TMI 1781X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. - Present Insolvency Applications i.e. CP No.(IB)70/ALD/2017 and CP No.(IB)71/ALD/2017 are filed by the Financial Creditor (the Bank of Baroda) against the Corporate Debtor Companies Rotomac Global Private Limited and Rotomac Exports Private Limited respectively. 2. These applications have been filed U/s. 7 of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as "the Code"] read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for triggering the Corporate Insolvency Resolution Process in respect of the corporate debtor companies namely M/s. Rotomac Global Private Limited (being principal borrower) and further M/s. Rotomac Exports Private Limited (as being surety to the loan availed). Hence, both the applications were heard together and for the sake of convenience, are being disposed of by this common order. 3. Brief facts of the case, as per the Applicant Bank is that the Corporate Debtor Company has committed default in making payment of its debts for outstanding amount of ₹ 553.78.21954.66 (Rupees Five hundred and Fifty-Three Crores, Seventy-Eight Lakhs, Twenty-One Thousand, Nine Hundred and Fifty-Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor to inter alia the Corporate Debtor Company and the Borrower dated October 04th, 2016 for repayment of ₹ 515,99,56,040.13/-. VII. The Demand Notice sent by the Financial Creditor to the Borrower under Section 13(2) of SARFAESI dated November 21st, 2016 for repayment of ₹ 529,25,95,650,67/-. (B) Corporate Guarantee given by Corporate Debtor (e.g. M/s. Rotomac Exports Ltd.) I. Corporate Guarantee No. 1 dated 16.01.2001 II. Corporate Guarantee No. 2 dated 13.12.2010 III. Corporate Guarantee No. 3 dated 23.01.2012 IV. Corporate Guarantee No. 4 dated 03.02.2014 V. Consortium Corporate Guarantee dated 06.10.2015 5. The applicant Hank has annexed also a written communication which is sent by the proposed Interim Resolution Professional in Form No. II informing such that there is no disciplinary proceeding pending against him. Hence, the present applications to trigger the CIRP against the Corporate Debtor Companies. 1. In opposition of these applications, the Corporate Debtor Companies have raised objection stating that the Applicant-Bank was granting to it certain loan facilities from 2009 onwards and time to time. The last loan facilities were sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicant-Bank. It is stated that certain differences have arisen between the Management and the Applicant-Financial Creditor Bank, due to such, the Bank has refused to give further financial assistance to the Corporate Debtor Companies. Therefore, a Joint Lender's Forum has earlier been constituted on 06.04.2015 with the Bank of India as being Lead Banker and with other Banks in terms of the RBI guidelines dated 26.12.2014. It is reported that pursuant thereto, 8 meetings of the Joint Lender's Forum have so far been convened on the issue of restructuring of debts between the periods 19.06.2015 to 05.11.2016 and the Banks were working out for a restructuring programme but till the last meeting of JLF held on 5th November, 2016 such Resolution Plan could not be materialized and thereafter, no JLF meeting could be held. On such pretext that the Financial Creditor Bank has initiated a debt recovery proceeding against the Corporate Debtor in the DRT, Allahabad as well as under the SARFAFSI Act. It is also alleged that Financial Creditor Bank went on further to declare the Corporate Debtor as wilful defaulter by its decision dated 04.03.2017. Hence, such action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Corporate Debtor has been declared as a wilful defaulter the proceedings before the JLF are going to adversely affected. 10. It is also contended that the amount of debts due to the Applicant-Bank of Baroda is only a part of substantial amount due by the Corporate Debtor Company to the various other Banks, those have not yet opted to file present application. Hence, admission of the present applications under the I & B Code would certainly jeopardize the entire process of restructuring of account of Corporate Debtor Company, and if the company goes into liquidation, then there is every possibility that the present Applicant-Bank may not get any redress from such liquidation as per the Applicant Bank is not a Financer. 11. The Corporate Debtor Companies have further pointed out that the manufacturing activities of the Company are being carried out from Kanpur, Jamnagar and Ahmedabad wherein around 1000 employees are engaged on regular basis. Therefore, the result of admission of the instant applications will necessarily lead to their un-employment and displacement of their families. 12. It is also submitted that the Corporate Debtor Companies are hopeful enough that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial Creditor. In this respect, the Financial Creditor has placed reliance on an order of the Hon'ble Appellate Tribunal in the matter of Innoventive Industries Ltd. v. ICICI Bank[2017] 82 taxmann.com 190/142 SCL 11 (NCL - AT), wherein the Hon'ble Appellate Tribunal has dealt with the question of whether in a case the Joint Lender's Forum (JLF) reached agreement and considering the debts restructuring of the Corporate Debtor, then its prior permission is required by the financial creditor before filing an application under Section 7 of the present Code. In this context, the Hon'ble NCLAT held and observed as such:- "Insofar as the Master Restructuring Agreement dated 8th September, 2014 is concerned, the Appellant cannot take advantage of the same. Even if it is presumed that fresh agreement came into existence, it does not absolve the Appellant from paying the previous debts which are due to the financial creditor." "the Tribunal has noticed that there is a failure on the part of the appellant to pay debts. The Financial Creditor has attached different records in support of default of payment. Apart from that it is not supposed to go beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Code before this Tribunal and in no manner affects its eligibility to do so. Further, the Applicant Bank placed reliance on a latest decision of Hon'ble Supreme Court in the matter of Innoventive Industries Ltd. v. ICICI Bank Ltd.[2017] 84 taxmann.com 320/143 SCL 625 and also to the view taken by the Hon'ble NCLT, Chandigarh Bench in the matter of Punjab National Bank v. James Hotels wherein it has been held that the provisions of the I & B Code are having over riding effect over other laws and being latest law on the subject, hence, the proceedings before DRT will not debar the right of Financial Creditor to file the application U/s. 7 of the Code. It is also emphasised that the proceedings under the RDDBFI Act is different one then the proceedings of I & B Code before the NCLT as the formal relate to recovery of debt due to the Bank and Financial institution by way of proceeding against the secured assets of debtor, However, the later Code provides for securing assets of debtor in initial nine months and to ascertain its liability for revival of a company or for a speedy liquidation. Therefore, the later Code balance the interests of all the stakeholders including alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Forum on 26.12.2014 when the amount of the Corporate Debtor Companies become irregular. Such JLF has been constituted as per the statutory guidelines of RBI dated 06.04.2015 for the purpose of Revitalising Distressed Assets in the economy through Joint Lender's Forum and Corrective Action Plan (Reference may kindly be made to Annexure 8 of the Counter Affidavit at Page 35-Statutory Guidelines of the RBI. The present Applicant Bank is also a member. 12. Therefore, it is submitted that instead of the fact, 8 meetings of JLF were held between the period from 09.06.2015 to 05.11.2016 for the purpose of restructuring the debt of Corporate Debtor with a view to come up with a viable plan for rehabilitating the financial condition of the Corporate Debtor Company so as to ensure the repayment of the loans owed to the various constituent financial institutions of the JLF, to which the present Applicant Bank was a also party by representing its meeting in the JLF but in later course opted out from such proceedings moreover deliberately went on further to declare and categorized the Corporate Debtor Company as a wilful defaulter by its decision dated 04.03.2017 which is done with some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner would not benefit generally the petitioner nor the creditors of the respondent company. Thus, the Hon'ble Bombay High Court has pleased to consider the wishes of large number of creditors who were seriously opposing the winding up of the respondent company as they had agreed to take steps to revive the respondent company by taking corrective action plan. In view of this the winding up petition was dismissed by the Hon'ble Bombay High Court. 14. We gave due importance to the abovestated judgment, however, with due respect to the Hon'ble Bombay High Court and Hon'ble Principal Bench, NCLT in the above referred judgment in our humble opinion the abovestated judgment is not of much assistance to the present Corporate Debtor Companies. Keeping in view, the statutory provision of the Section 7 of the Code wherein pendency of a dispute is no Bar to a Financial Creditor when default occurred is of more than Rupees One Lakh to move the CIRP in respect of Corporate Debtor. Further, the Hon'ble Supreme Court in its recent judgment in Innoventive Industries (supra). As well as the Hon'ble NCLAT its decision in the very same matter has held the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MENT OF OBJECTS & REASONS There is no single law in India that deals with Insolvency and Bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple for a such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual Bankruptcy & Insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. The objective of the Insolvency & Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above objectives." (Emphasis Supplied) One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average, which was much higher when compared with the United Kingdom (I year), USA (1.5 years) and South Africa (2 years). The World Bank's Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia. The UK Law, on the other hand, is governed by the Insolvency Act of 1986 which has served as a model for the present Code. While piloting the Code in Parliament, Shri Arun Jaitley, Learned Finance Minister, stated on the floor of the House: "SHRI ARUN JAITLEY: One of the differences between your Chapter 11 and this is that in Chapter 11, the debtor continues to be in possession. Here the creditors will be in possession. Now, the SICA is being phased out, and I will tell you one of the reasons why SICA didn't function. Under SICA, the predominant experienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 17. Thus, in the light of abovestated discussion and by perusal of the present applications filed by the Financial Creditor, it seems that these are found to be filed in conformity with Section 7 of Code to meet the requirement of Section 3(11) and 3(12) of the Code, which reads as under:- Section 3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; Section 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debt, as the case may be; 18. Keeping in view of the abovestated provision of the I & B Code, the present applications/petitions are found complete for admission and to trigger a CIRP in respect of Corporate Debtor Companies, moreover, the legal position in I & B Code has recently been settled by Hon'ble Apex Court in the matter of Innoventive Industries Ltd. (supra) wherein it has been held as such, the moment the court is satisfied that a default has occurred, then the application filed by the financial creditor under Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. 24. The object of IBC, 2016 is categorical and as per provisions contained under Section 60(1) the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal. In the present matter, admittedly the proceeding has been initiated under the IBC, 2016 and the Moratorium under Section 14 of the IBC, 2016 has already been issued by the NCLT. The NCLT is already ceased with the process of insolvency resolution against the company (in liq.) under IBC, 2016 and moreover, the SBI has also put their appearance in the said proceedings regarding its claim. At no point of time the SBI has disassociated itself from the proceeding before the NCLT and it is actively participating in the proceeding. 29. In the present matter, it has been urged that while passing the impugned order the DRT has failed to take notice of Part-III of IBC, 2016, which prevails over the provisions of the Act of 1993. It has also been urged that the entire proceeding before the DRT is completely without jurisdiction precisely in the backdrop that once the proceeding has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the Corporate Debtor Companies are not able to repay its debts then, its Board of Director cannot be expected to remain in and to keep continue with the affair of managing the company. As per its obiter dictum the Hon'ble Supreme Court in the above referred matter of Innoventive Industries Ltd. (supra) has pleased to refer Bankruptcy Law Reforms Committee (BLRC) Report and made some observation (in its relevant para) for the sake of convenience may be reproduced hereunder: 16. At this stage, it is important to set out the important paragraphs contained in the report of the Bankruptcy Law Reforms Committee of November, 2015, as these excerpts give us a good insight into why the Code was enacted and the purpose for which it was enacted: ** ** ** "The limited liability company is a contract between equity and debt. As long as debt obligations are met, equity owners have complete control and creditors have no say in how the business is run. When default take place, control is supposed to transfer to the creditors; equity owners have no say." Under these conditions, the recovery rates obtained in India are among the lowest in the world. When default takes p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till failing to repay its creditors. A sound bankruptcy process is one that helps creditors and debtors realise and agree on whether the entity is facing financial failure and business failure. This is important to allow both parties to realise the maximum value of the business in the insolvency." ** ** ** "Control of a company is not divine right. When a firm default on its debt, control of the company should shift to the creditors. In the absence of swift and decisive mechanisms for achieving this, management teams and shareholders retain control after default. Bankruptcy law must address this." In the light of the aforesaid rulings and the law of the land as declared by the Hon'ble Supreme Court under Articles 141 & 144 of the Constitution of India, this Court is equally bound by it and is expected to act in aid with the Hon'ble Supreme Court. Therefore, we find that the objections as raised by the Corporate Debtor Companies are no longer relevant for rejecting the present petition under the I & B Code. Moreover, it is a matter of record that the Corporate Debtor Companies M/s. Rotomac Global Private Limited itself through its letter dated 14.03.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14 sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 6. That the public announcement of Corporate Insolvency Resolution Process be made immediately as specified under Section 13 of the code and calling for submissions of claim under Section 15 of the Code. 7. The Interim Resolution Professional shall perform all his functions strictly which are contemplated, inter alia, by Sections 17, 18, 20, 21 of the Code. It is further made clear that all the personnel connected with Corporate Debtor, its promoter or any other person associated with management of the Corporate Debtor are under legal obligation under Section 19 of the Code extend every assistance and cooperation to the Interim Resolution Professional. Where any personnel of the corporate debtor, its promoter or any other person required to assist or co-operate with IRP, does not assist or co-operate, IRP would be at liberty to make appropriate application to this Tribunal with a prayer for passing an appropriate order. 8. The IRP shall be under duty to protect and preserve the value of the property of the 'Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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