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TMI Blog2020 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be sufficient to satisfy the debt is not liable to be accepted. The application is complete and the loan has been disbursed and the same has not been repaid by the Corporate Debtor, therefore there is default in payment of debt, there is no disciplinary proceedings pending against the RP. Application is admitted - moratorium declared. - (IB) 1295 (ND)/2019 - - - Dated:- 16-6-2020 - Abni Ranjan Kumar Sinha, Member (J) And Kapal Kumar Vohra, Member (T) For the Appellant/Respondent: Jatin Julka, Approva Malhotra, Syed Arsalan Abid, Prateek Khaitan and Vaibhav, Advs. ORDER ABNI RANJAN KUMAR SINHA, MEMBER (J) 1. The present application is being preferred by The Jammu Kashmir Bank Ltd. (hereinafter referred to as FC ) against Vinayak Rathi Steels Rolling Mills Pvt. Ltd (hereinafter referred to as CD ) under Section 7 of the Insolvency Bankruptcy Code, 2016, (hereinafter referred to as the Code ) read with Rule 6 of the IBC, 2016 to initiate Corporate Insolvency Resolution process in respect of CD. 2. The applicant/FC is a duly incorporated banking company incorporated under the then J K Companies Act, No. XI of, 1977 (1920 AD) governed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit of the Corporate Debtor, Affidavit of the Director of the Corporate Debtor, Memorandum of Entry all dated 09.08.2010. The said documents have been enclosed alongwith the application and are collectively marked as Annexure P-4 (Colly). v. That thereafter in the year 2013, the Corporate Debtor requested for an enhancement of the existing Cash Credit Facility from 12.5 Crore to 22.5 Crore and the same was enhanced by the Financial Creditor vide Sanction Letter dated 18.04.2013 and after executing a Loan Agreement dated 06.05.2013. The period of loan was decided to be one year which was subject to renewal after annual review. A copy of the Sanction letter dated 18.04.2013 Loan Agreement dated 06.05.2013 have been enclosed alongside the application and are collectively marked as Annexure P-5(Colly), vi. That in terms of the aforementioned credit facilities the Financial Creditor and Corporate Debtor executed various security documents being Hypothecation of Book Debts, Hypothecation Deed, Letter of Undertaking, Letter of Waiver of Notice, Deed of Personal Guarantee, Memo of Deposit of Title Deeds, Affidavit of Rajiv Rathi, Affidavit of Ram Chander Rathi all dated 06.05. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 and Loan Agreement dated 17.05.2016 have been enclosed alongside the Application and are collectively marked as Annexure P-10(Colly). xi. That in terms of the aforementioned sanction dated 16.05.2016, the Corporate Debtor executed security documents being Deed of Personal Guarantee, Deed of Counter Guarantee, Hypothecation Agreement, Letter of Mortgagor confirming the extension of the Equitable Mortgage, Letter of Undertaking, Affidavit of Rajiv Rathi, Irrevocable Power of Attorney all dated 17.05.2016 as well as Letter of Continuity and Letter of waiver both dated 19.05.2016. Copies of the said documents have been enclosed alongside the Application and are collectively marked as Annexure P-11(Colly). xii. That in the year 2016 itself, the Corporate Debtor yet again requested the Financial Creditor for issuance of an Ad-Hoc facility of 4 Crore over and above the existing Cash Credit Limit of ₹ 35 Crore. The Said Ad-Hoc Facility was sanctioned by the Financial Creditor vide Sanction letter dated 13.12.2016 after executing a Loan Agreement dated 21.12.2016. In terms of the aforementioned Sanction Letter dated 13.12.2016, the Corporate Debtor executed Security Document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor, the Financial Creditor had sanctioned the aforementioned sanctions for Cash Credit Facility, Term Loan Facility and Ad-Hoc Facility against securities being the personal guarantees of the directors of the Corporate Debtor and creation of equitable mortgage of two immovable properties (one situated at Mathura Road the other at Village Kojhabad, Bulundsher). Furthermore, the Corporate Debtor in its Reply has stated that it has been making regular payments, however the record itself makes it evident that no payment had been made into either the Cash Credit Account or the Term Loan Account since 15.07.2017. Copies of the Demand Notice dated 07.10.2017, Loan Recall Notice dated 14.03.2019 and Reply dated 22.03.2019 have been enclosed alongside the Application and are collectively marked as Annexure P-13(Colly). xviii. That Financial Creditor maintained proper accounts of the Corporate Debtor and the statement of the account shows an outstanding/debit balance payable by the Corporate Debtor as on 30.04.2019 to be ₹ 50, 49,57,539.52/-. A copy of the Statement of Accounts depicting the outstanding balance as on 30.04.2019 has been enclosed alongside the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the working capital of the company got further squeezed. That on account of unfavourable market conditions, instalment was not being paid in time and further the FC issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002 and claimed a due of ₹ 5400 Lakh. 8. That the CD in his written synopsis stated as follows:- i. It was further the allegation of the Financial Creditor that the account of the Corporate Debtor was classified as Non-Performing Assets (NPA) w.e.f. 29.09.2017 and that the following amounts became due and payable by the Corporate Debtor as on 29.09.2017: Name of the Facility Amount Due (i) Cash Credit ₹ 40,48,99,423.52 (ii) Term Loan ₹ 90,39,713.00 Total ₹ 41,39,39,136.52. ii. That a detailed reply to the said Notice was issued by the Corporate Debtor vide reply dated 14.12.2017. That the said reply was disposed of vide communication dated 27.12.2017 issued by the Financial Creditor thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate Debtor is entirely mala fide inasmuch as admittedly the value of the Mohan Co-operative Estate property is more than ₹ 50,00,00,000/-(Rupees Fifty Crore Only) and the Financial Creditor has no intention to sell the said property. This is despite the fact that the Corporate Debtor had repeatedly offered to the Financial Creditor that the said Mohan Co-operative Estate Property be auctioned and the entire sale proceed be adjusted towards outstanding dues of the Financial Creditor. However, with mala fide intention, the Financial Creditor gave the said property on rent. It is a matter of common knowledge that a rented property cannot realise its true market value on sale. Hence, on one hand the Financial Creditor is not willing to sell the said Mohan Co-operative Estate property to realise its outstanding dues and on the other hand the only intention of the Financial Creditor is to kill the industry of the Corporate Debtor. In view of the above facts, it is submitted that there was no default which can be attributed to the Corporate Debtor on the basis of which the present proceedings have been initiated by the Financial Creditors. Hence, the present proceedings are liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red and sixty only). xii. It is submitted in this regard that it is a matter of common knowledge that the market value of the property is always more than the circle rate. Hence, the value of the property in question is more than ₹ 50,00,00,000/-. Hence, even if calculated conservatively, the property of the Corporate Debtor and its guarantors should fetch not less than ₹ 52,00,00,000/- to ₹ 55,00,00,000/- crores in terms of the market value. xiii. It is submitted that on account of the fact that the Corporate Debtor has approached the Financial Creditor on a number of occasions with a request that it may sell the said Mohan Cooperative Industrial Area property. However, no steps have been taken by the Financial Creditor to sell the said Mohan Cooperative Industrial Area property to realize its dues. In fact, if the Financial Credit -would have sold the said Mohan Cooperative Industrial Area property, the alleged outstanding dues would not have become due and payable against the Corporate Debtor since the entire outstanding dues would have been cleared by the sale of the said Mohan Co-operative Industrial Area property.. 9. We have heard the Ld. Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led his written synopsis, therefore, we have gone through the submissions made on behalf of the CD, which have already been mentioned by us in the aforementioned Paragraph. The CD in his written synopsis mentioned this fact that the FC had got the said Mohan Co-operative Estate Property vacated from the tenant namely Concord Motors Pvt. Ltd. It is also mentioned that the CD had repeatedly offered to the Financial Creditor that the said Mohan Co-operative Estate Property be auctioned and the entire sale proceed be adjusted towards outstanding dues of the Financial Creditor. But the FC with mala fide intention, gave the said property on rent. It is also mentioned since the FC took the possession of the said property, therefore, there is no default. It is further submitted that the FC has been realizing the complete rent of the said property, the Financial Creditor has realized an amount of ₹ 1,92,00,000/- (Rupees One Crore Ninety-Two Lacs only) approx. till date and the FC has not disclosed the said fact of realization of rent. It is further submitted that with a view to regularize the account and with a view to restructure the account of the CD, the CD submitted a detailed res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the debt or not? 16. At this juncture, we have gone through the written submissions filed on behalf of the CD and we find that in support of his contentions, the CD has not placed reliance on any decision, which would substantiate the CD's submission on the liquidation of the debt. On the other hand, Ld. Counsel for the FC placed reliance upon the judgments, which we have referred in the aforementioned paragraphs, therefore, at this juncture, we would like to refer Section 7 of the IBC and the same is quoted below:- 7. Initiation of corporate insolvency resolution process by financial creditor- (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under subsection (1) in such form and manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court has clearly held that: Whereas a claim gives rise to a debt only when it becomes due , a default occurs only when a debt becomes due and payable and is not paid by the debtor. It is for this reason that a financial creditor has to prove default as opposed to an operational creditor who merely claims a right to payment of a liability or obligation in respect of a debt which may be due. When this aspect is borne in mind, the differentiation in the triggering of insolvency resolution process by financial creditors under Section 7 and by operational creditors Under Sections 8 and 9 of the Code becomes clear . Further, the Apex court has laid down the grounds for determination of default . The judgment reads that the trigger for a financial creditor's application is non-payment of dues when they arise under loan agreements. It is for this reason that Section 433(e) of the Companies Act, 1956 has been repealed by the Code and a change in approach has been brought about. Legislative policy now is to move away from the concept of inability to pay debts to determination of default . The said shift enables the financial creditor to prove, based upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he debtor has failed in such obligation and when we shall consider the provisions of the aforementioned decisions, then we find that here in this case in hand it is admitted by the CD that a cash credit facility was provided to him by the FC and to some extent, it is also admitted by the CD that there is default in repayment of the debt. The only contention of the CD is that since the FC had taken over the possession of the premises situated at plot No. 24/4, Block-A, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi measuring 1971 Sq. Meters along with 2 storied (Ground floor, 1st floor shed) and FC is also realizing rent and further contention is that if the said property is auctioned then the sale proceed would be sufficient to liquidate the debt. Hence, there is no default. 19. As we have already mentioned this fact that the loan has not been repaid by the CD which is due and payable and Hon'ble Supreme Court In Innoventive Industries Limited Vs. ICICI Bank reported in 2018 (1) SCC 407 which we have referred above, held that there is difference between Section 9 of IBC, 2016 and Section 7 IBC, 2016. The moment it is established that there is a default in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 22. The Financial Creditor has proposed the name of Mr. Neeraj Bhatia R/o P-27m 1st Floor, Malviya Nagar, New Delhi-110017 having Email: [email protected] and Registration No. : IBBI/IPA-001/IP-P00824/2017-18/11400, duly empanelled with the IBBI as the IRP. Therefore, he is appointed as IRP in this matter and directed to take such steps as are mandated under the Code, more specifically under Sections 15, 17, 18, 20 and 21 and shall file his report before the Adjudicating Authority. 23. The Financial Creditor is directed to deposit a sum of ₹ 2 lakhs to meet the immediate expenses of IRP. The same shall be fully accountable by the IRP and shall be reimbursed by the CoC, to the Financial Creditor to be recovered as CIR c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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