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TMI Blog2020 (10) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... ). How this profit making company all of a sudden went into insolvency, no valid explanation is forthcoming. According to the Ld. Counsel for the Corporate Debtor, it is because the situation had changed from the middle of March, 2018 because of a sudden and unexpected circular issued by the Reserve Bank of India dated March 13, 2018 being Circular No. 20 by which all authorized dealer Category-I Bank authorized to deal in foreign exchange were directed to discontinue the practice of issuance of Letter of Undertakings (LoUs)/Letter of Comforts (LoCs) for trade credits for imports into India with immediate effect. There is enough material on record to prove that the Financial Creditor had never been serious in initiating any action under the Code against the Corporate Debtor either in the earlier application under Section 10 of the Code, filed by the corporate applicant, or in the present proceedings under Section 7 of the Code. The Credit facilities had admittedly been revised and sanctioned from time to time and finally on 15th February, 2018 when various documents had been got executed from the Corporate Debtor, the date of default could not be 28th February, 2018 and the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Limited had been availing credit facilities under a Consortium arrangement. The other member Banks of the Consortium are State Bank of India, Allahabad Bank, Indian Overseas Bank, UCO Bank, Standard Chartered Bank, Canara Bank, Punjab National Bank and Corporation Bank. It is further submitted that the Corporate Debtor had executed joint documents in favour of the member Banks of the Consortium including supplemental joint deed of hypothecation dated 15.02.2018 and created joint mortgage by deposit of title deeds in favour of the member Banks of the Consortium. The Corporate Debtor had also executed individual documents in favour of the Financial Creditor i.e. Bank of Baroda on 22.02.2017. 4. Bank of Baroda, one of the Financial Creditors herein has filed the present application in respect of its share of finance by way of Cash Credit, Packing Credit/FBP/FBD, Inland/Import Letter of Credit and Inland/Foreign Bank Guarantee. It is submitted that the total amount of debt granted/disbursed to the Corporate Debtor is ₹ 85,95,00,000/- (Rupees Eighty Five Crore Ninety Five Lakh Only). The Financial Creditor has further submitted that the Corporate Debtor has committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) Letter of Undertaking in respect of Book Debts executed by the Corporate Debtor on 22.02.2017; m) Undertaking not to withdraw deposits by the Partners/Directors till the advance is liquidated, executed by the Corporate Debtor on 22.02.2017; n) General Undertaking, executed by the Corporate Debtor on 22.02.2017; o) Undertaking cum Declaration, executed by the Corporate Debtor on 22.02.2017; p) Declaration cum Undertaking, executed by the Corporate Debtor on 22.02.2017; q) Power of Attorney in respect of Book debts, executed by the Corporate Debtor on 22.02.2017; r) Supplemental Composite Instrument of Hypothecation of Goods, Book Debts, Moveable Machinery and Vehicles, executed by the Corporate Debtor on 22.02.2017; s) Hypothecation of Book Debts, executed by the Corporate Debtor on 22.02.2017; t) Declaration in the matter of Mortgage by Deposit of title deeds in respect of immovable and hypothecation of movables executed by the Corporate Debtor on 22.02.2017; u) General Form of Guarantee executed by Mr. Hulash Chand Jain, Mr. Nivin Kumar Jain and Mr. Jayant Kumar Jain on 22.02.2017; v) Resolution passed by the Board of Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign exchange were directed to discontinue the practice of issuance of Letter of Undertakings (LoUs)/Letter of Comforts (LoCs) for trade credits for imports into India with immediate effect. Therefore, by reason of the Reserve Bank of India Circular dated March 13, 2018 the working capital consortium agreement dated December 7, 2006 and the supplemental working capital consortium agreement dated February 15, 2018 which enabled the Corporate Debtor to apply and obtain credit was rendered nugatory. The facility of buyers credit/LoUs/LoCs were no longer being provided by the respective member banks in the Consortium of Banks known as BOB Consortium, in view of such Circular issued by the RBI. 9. It is further stated that the letters of credit opening banks under the consortium have demanded and are continuing to demand immediate payment from the company in respect of all the letters of credit despite the subsisting Consortium Agreements and despite the company's right to avail of and obtain the buyer's credit thereunder. The said Circular dated March 13,2018 of RBI had brought the entire business of the company to a grinding halt which is therefore on the verge of insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax department and in order to recover such purported demand, IT Department served notice upon all the banks of the consortium asking them to pay the money due and payable to the corporate debtor. Consequently entire accounts of the company have become inoperative since March, 2018. The management of the corporate debtor repeatedly urged before the members of the consortium banks to render assistance in this regard, which, however, was not heeded to, except demanding the alleged dues from the corporate debtor. 13. During the various meetings of the consortium held on April 23, 2018; May 10, 2018; June 4, 2018 and October 5, 2018, the Corporate Debtor is stated to have elaborately explained the effect of various unforeseen incidents due to which the affairs of the corporate debtor were adversely affected and to get out of the stringent situation, the Corporate Debtor had requested for cooperation such as Holding on operation from the members of the consortium. However, except minutising the grievances urged by the corporate debtor, none of the member banks rendered any co-operation to the corporate debtor till date. 14. It is stated that under these circumstances Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted and Resolution Professional should be appointed. 17. It is submitted that the Corporate Debtor was maintaining the account in a satisfactory manner till its account was classified as a Non Performing Asset with effect from 29th May, 2018. 18. After dealing with the pleadings of the Financial Creditor and the Corporate Debtor, we need to deal with the application filed by Sleepwell Industries Co. Limited which has come forward to intervene in the proceedings as a necessary party by way of an application being CA(IB) No. 881/KB/2019 filed on 7th March, 2019. The applicant in this application has submitted that the applicant is the holder of two foreign awards passed by GAFTA Tribunal, London. The applicant filed two Execution Applications for enforcement of the aforesaid Awards before the Hon'ble High Court at Calcutta against the Corporate Debtor herein. By a combined order dated 4th December, 2014 the Ld. Single Judge of the Hon'ble High Court at Calcutta inter-alia held that the Awards were enforceable and oral objections under section 48 of Arbitration Conciliation Act, 1996 were rejected. The Corporate Debtor herein preferred two Special Leave Petitions wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Financial Creditor as well as the Corporate Debtor. The Corporate Debtor has not objected the admission of the application. However, an intervener appears and strongly objected this application and submitted that a Special Leave Petition (Civil) No. 5493 of 2019 has been filed before the Hon'ble Supreme Court for stay of the Section 7 application filed by the Financial Creditor before this Tribunal, which is pending for consideration. Upon hearing objection on the side of the Ld. Counsel for the intervener, it appears that a direction be issued to the Financial Creditor to give a copy of the C.P. Accordingly, directed the Ld. Counsel appearing for the Financial Creditor to serve a copy of the C.P. within 3 days from today to the intervener. 22. To reach the appropriate level of understanding the issue involved in the matter, we will have to go into the background of the matter. From the aforesaid pleadings and the judgments passed by the Hon'ble High Court of Calcutta and Hon'ble Supreme Court of India, it is very clear that Section 10 application filed by the Corporate Debtor was to prevent and frustrate the claim of the applicant in this application No. 88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24. In the meanwhile the Corporate Debtor had filed Section 10 application (CP (IB) No. 615/KB/2018) wherein the present applicant had filed an intervening application CP(IB) No. 635/KB/2018 and ultimately Section 10 application was dismissed by this Tribunal on 15th November, 2018 inter alia holding that the Corporate Debtor had failed in proving the existence of default of financial debt and that the application filed by the Corporate Debtor in C.P. 615/2018 was with mala fide intention and with the ulterior motive for the purpose other than for resolution and to frustrate the order dated 20th April, 2018 of the Hon'ble Supreme Court of India. 25. In the aforesaid Section 10 application the creditors and shareholders who had intervened, made serious allegations of collusion against the Managers of the Consortium Bank headed by Bank of Baroda which remained un-controverted by the Banks. Such observation was also made by this Tribunal in its orders dated 15th November, 2018. 26. The present application under Section 7 filed by the Bank of Baroda has also been allegedly filed by Bank of Baroda at the behest of Corporate Debtor herein since Section 10 application was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 7 10, the two factors are common i.e. the debt is due and there is a default. In a case of this nature, no doubt, the occurrence of default is to be established by supporting evidence by the financial creditor. 30. In the said application under Section 10, no argument had been advanced on behalf of the Financial Creditors denying the allegations levelled against it by the objectors. Except Punjab Sind Bank, no argument had been advanced on behalf of the Financial Creditors and therefore serious allegations had been levelled against the Financial Creditors by the objectors/Operational Creditors that there was collusion between the Consortium Banks and the Corporate applicants. 31. It is further significant to note that the Corporate Applicant or the Financial Creditors had not chosen to file any reply affidavit to any of the Interim Applications filed by the objectors. Finally, this Bench had held that the Corporate Applicant had failed to prove existence of default of any financial debt. There was however, objection on behalf of the Operational Creditors who had specifically alleged that the application under Section 10 had been made to defraud all its creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this fact has not been noticed by the Adjudicating Authority. It is also submitted by the 'Financial Creditor' that the application under Section 7 of the I B Code has also been filed and is pending before the Adjudicating Authority. Learned counsel appearing on behalf of Respondent No. 11 (Operational Creditor) submits that the application under Section 10 was filed by the Appellant in collusion with the Banks. Reliance has been placed on the judgment of the Hon'ble Supreme Court dated 20th February, 2019 passed in 'Special Leave Petition (Civil) No. 540 of 2018' and 'Special Leave Petition (Civil) No. 5493 of 2019'. The aforesaid appeal was preferred by the Appellant in connection with order passed by the High Court of Calcutta covering the foreign award. It is stated by the Appellant that pursuant to the order of the Hon'ble Supreme Court the total amount directed by the Hon'ble Supreme Court has been paid to the Respondent. However, it is disputed by the learned counsel appearing on behalf of the 'Operational Creditor'. Heard the learned counsel for the parties. Hearing remained inconclusive. We allow the Appellant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inland/Foreign Guarantees 4,00,00,000/- Credit Exposure limit 5,00,00,000/- Total 85,95,00,000/- The Ld. Counsel highlighted some important dates:- Amount claimed to be in default and the date on which the default occurred Total defaulted amount in Cash Credit Account No.11520500000035 is ₹ 46,32,00,000/- as on 23.09.2018. Total defaulted amount in Packing Credit/FBP/FBD Account No.11520700000002 is ₹ 17,17,00,000/-as on 23.09.2018 Total defaulted amount in Inland/Import Letter of Credit Account is ₹ 7,32,00,000/- as on 23.09.2018, Total defaulted amount in Inland/Foreign Bank Guarantee Account is ₹ 73,00,000/-as on 23.09.2018. Therefore, the total defaulted amount in the loan accounts, namely, Cash Credit, Packing Credit/FBP/FBD, Inland/Import Letter of Credit and Inland/Foreign Bank Guarantee is ₹ 71,54,00,000/- (Rupees Seventy One crore fifty four lakh only) as on 23.09.2018 and the total outstanding claim of the Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2006, as varied by the Supplemental Agreement dated 22nd December, 2008, 17th August, 2010, 9th December, 2014 and 11th August, 2016. It is submitted that this agreement dated 15th February, 2018 mentions that on the request of the Borrower (Corporate Debtor) and with the consent of the Consortium Banks, the Bank of Baroda has reviewed the limits under the Credit Facilities and agreed to enhance the limits under the credit facilities from ₹ 71,25,00,000/- to ₹ 78,25,00,000/-. 40. It is further submitted that the State Bank of India had reviewed the limits under the credit facilities from ₹ 54,00,00,000/- to ₹ 60,00,00,000/- and Allahabad Bank has reviewed the limits under the credit facilities and enhanced the credit facilities from ₹ 75,00,00,000/-to ₹ 85,00,00,000/-. It is submitted that likewise other Consortium Banks had also agreed to enhance the limits of credit facilities in favour of the Corporate Debtor/Borrower. 41. It is submitted that all the terms and conditions had been specifically mentioned in the said agreement dated 15th February, 2018. In clause 23 of the said agreement, it is mentioned that, 23. Upon the happen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolute discretion; vii. The Borrower shall make suitable modifications to its constitutional documents to facilitate the aforesaid Conversion Right, in a seamless manner. The Borrower shall ensure that all requisite corporate approvals/authorizations including but not limited to the approvals from the shareholders are duly obtained for giving effect to the aforesaid Conversion Right available to the Bank and the same is in conformity with the Constitutional documents of the Borrower. Failure to obtain the requisite approvals as mentioned above shall amount to an event of default under the Facility Letter and/or agreements executed in relation thereto. Notwithstanding anything to the contrary contained in this agreement, in the event of formation of a joint lenders forum in terms of the Distressed Assets Framework (RBI's Framework for Revitalising Distressed Assets in the Economy dated 25 February 2014 read with the Strategic Debt Restructuring Scheme issued by the RBI on 8 June, 2015 as amended or modified or replaced from time to time by any rules, regulations, notifications, circulars, press notes or orders by the RBI in this regard or any other Governmental Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed in conjunction with these presents. It is submitted by the Ld. Counsel that immediately after entering into a document by the Bank with the Corporate Debtor it is unbelievable that there would be a default within a few days. 44. Ld. Counsel has further referred to the report of ICRA in respect of the Corporate Debtor, LMJ International Limited, dated July 09, 2018. Under the heading Rating Action it is written as under:- ICRA has revised the long-term rating from (ICRA) BBB (pronounced ICRA triple B) ISSUER NOT COOPERATING to (ICRA) D pronounced (ICRA D) ISSUER NOT COOPERATING and the short term rating from (ICRA)A3+ (pronounced (ICRA A three plus) ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING assigned to the ₹ 173.70 crore fund-based bank facilities of LMJ International Limited (LIL). ICRA has also downgraded the short-term rating assigned to the ₹ 330.00 crore non-fund based bank facilities of LIL from (ICRA)A3+ ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING. ICRA has further downgraded the short-term rating from (ICRA)A3+ ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING assigned to the unallocated limits of Rs A3.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 SCC Online NCLAT 588). The relevant extract thereof is reproduced as under:- 4. It is submitted that if any person initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, the Adjudicating Authority may impose such person any penalty as stipulated under section 65. According to 2nd Respondent (Intervener), any person can bring to the notice of the Adjudicating Authority that the Insolvency Resolution Process has been initiated by the person fraudulently and with malicious intent for the purpose other than resolution of insolvency. For bringing the aforesaid facts to the notice of the Adjudicating Authority it is not necessary that he should be a shareholder or a creditor or a debtor for the Corporate Debtor. It is submitted that the 2nd Respondent (Intervener) intends to bring certain facts to the notice of the Adjudicating Authority, to suggest that it is a case for initiating proceeding and to punish the concerned person under Section 65. 5. We have heard Learned Counsel for the parties. The Corporate Insolvency Resolution Process can be initiated under Section 7 or Section 9 or Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction dated 9th February, 2017 issued by the International Business Branch, Kolkata of Bank of Baroda. It is submitted on behalf of the Bank that the facilities had been granted to the Corporate Debtor on the basis of Sanction Letter dated 9th February, 2017 only, and there is no sanction as such on 15th February, 2018. It is further submitted that when all the member Banks had sanctioned the credit facilities which took a lot of time, then only the documents dated 15th February, 2018 had been executed and thereafter the default had taken place. It is submitted that once the facilities desired by the Corporate Debtor had been circulated amongst the members and finally approved by the various Banks, that the sanction letters are issued by the members of the Consortium Bank, he conceded that there was a delay in executing the documents. 53. Ld. Counsel for the Corporate Debtor submitted that there was default and the same has been admitted in reply to the main petition. The Corporate Debtor, however, had not filed any reply to the application filed by the Intervener. Ld. Counsel for the Corporate Debtor, however, submitted that there is no basis for attributing collusion betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions of the Corporate Debtor, and the Financial Creditor has not tried to set up a case that they had discontinued any of the facilities extended to the Corporate Debtor. On the other hand, the Financial Creditor had executed Supplemental Working Capital Consortium Agreement on 15.02.2018, between the Corporate Debtor and the Consortium of Banks; Supplemental Joint Deed of Hypothecation, on 15.02.2018 between the Corporate Debtor and the Consortium of Banks; Supplemental Inter-se Agreement on 15.02.2018, executed between the Consortium Banks and Joint and Several Deed of Guarantee dated 15.02.2018, executed by Mr. Hulash Chand Jain, Mr. Navin Kumar Jain and Mr. Jayant Kumar Jain in favour of the Consortium Banks. 56. Within 4 months of the execution of the said agreements, the Financial Creditor has classified the account as NPA and issued demand notice under section 13(2) on 9th July 2018. What are the reasons for classification of the account by the Financial Creditor, no data has been made available. Before declaration/classification of account as NPA, the Financial Creditor is required to issue show cause notice enumerating the reasons for classification. No data is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvener in realising its debt found due. Even if the Corporate Debtor was found solvent and running in profit knocked the door of High Court, Supreme court and the this Tribunal for avoiding payment but showed inability to pay the debt found not due to the Financial Creditor. 59. After hearing Ld. Counsel for all the parties, including the intervener, we find that there is enough material on record to prove that the Financial Creditor had never been serious in initiating any action under the Code against the Corporate Debtor either in the earlier application under Section 10 of the Code, filed by the corporate applicant, or in the present proceedings under Section 7 of the Code. The Credit facilities had admittedly been revised and sanctioned from time to time and finally on 15th February, 2018 when various documents had been got executed from the Corporate Debtor, the date of default could not be 28th February, 2018 and the date of the corporate debtor's account could not be declared as NPA on 29th May, 2018 when bank had accepted the Resolution passed by the Board of Directors of the Corporate Debtor on 15th February, 2018. The Bank appears to have some other Agenda either ..... X X X X Extracts X X X X X X X X Extracts X X X X
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