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TMI Blog2020 (10) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... could, therefore, also be no default under the Code. The Petition fails on this account. The entire exercise of repayment of debt in this Petition is an exercise in recovery. Once the matters have been brought under the IBC 2016, and all earlier matters have abated, they have to be considered under the provisions of the Code. It is a settled position of law that the provisions of the Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code - In the instant case there was no debt within the meaning of the Code, even if there may otherwise be amounts payable by the Respondent, and that too was disputed from the very beginning requiring the intervention of the BIFR with the Petitioner opposing various proposals, from time to time. There was. therefore, no clear debt. Proceedings under the Code are summary proceedings where the debt, if any, has to be undisputed and clear. This is not the case here. Petition dismissed. - C. P. (IB) No. 75/BB/2019 - - - Dated:- 10-2-2020 - Rajeswara Rao Vittanala , Member ( J ) And Ashutosh Chandra , Member ( T ) For the Appellant : T. Somashekar , K. S. Vadivelu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above rehabilitation scheme. The total dues of the Company as on 23.08.2005 was to be paid from May, 2004 to May, 2005 in uneven instalments as per the Schedule given by the BIFR or within three months from the date of sanction of the amendment/modifications in the SS-03, whichever was later. (5) However, the Company did not stick to the above payment schedule and the last payment was received on 29.09.2006. There was an overall delay of 16 months and the interest amount calculated for this delayed period was ₹ 32,09,583/-. After repeated persuasions, the Respondent Company paid ₹ 32.09 lakhs in four instalments on the following dates: 07.03.2009 10.00 Lakh 06.08.2010 05.00 Lakh 16.12.2010 10.00 Lakh 31.03.2011 07.09 Lakh Total 32.09 Lakh (6) The erstwhile BIFR formulated a Modified Draft Rehabilitation Scheme (MDRS) for the revival of the Company through merger of Success Apparels Private Limited with the Respondent Company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted shares to any other person/agency at the prevalent market rate price or even at any other price. The case of the Petitioner is that the Respondent bought back the shares belatedly and consequently liable to pay interests. The Petitioner could have always sold the shares to any other person without waiting for buy back of the shares by the Respondent and it is for this reason that the BIFR did not order payment of interest on belated buy back of shares. The Respondent is a Public Limited Company and its shares are freely transferable and it did not prohibit the Petitioner from selling the shares to any other person and in fact, Success Apparels Pvt. Ltd., a group Company of the Respondent, only bought the shares. When the BIFR did not stipulate payment of interest on belated buy-back of shares, the question of making payment of interests on the purchase of shares by a group Company (Third person) does not arise. (4) It is contended that earlier, the Respondent during 1998 approached BIFR for restructuring and revival as it had gone sick with Case No. 281/1998 and the BIFR sanctioned a revival scheme in 2003. The BIFR vide paragraph 2.4 of the Sanctioned Scheme determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulated buy-back of company's equity (within 12 months from the date of payment of the principal amount), at par or at the market rate and lenders would be free to sell their shareholding in the market or to any other person/agency at the prevalent market price or even at any other price, as may be determined by the lenders (emphasis supplied). The BIFR has not mandated payment of any interest on the belated buy back of shares for the simple reason, the lenders were given right to sell the shares to any other person. (8) If the Petitioner contends that it had given only in-principle approval and not absolute approval, then it should have sought modification of the order dated 23.08.2005 or should have appealed before AAIFR, seeking payment of interest on the belated buy back of shares. It is pertinent to note that buy-back of shares means re-payment of capital and not re-payment of loans and no interests is payable on the buy-back of shares as the Order of BIFR did not provide for it. The Petitioner did not file an Application u/s 18(5) of Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA') to modify the order nor filed an appeal with AAIFR under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The BIFR did not even consider the objections of the Petitioner in its order dated 18.11.2013. No appeal was filed. Hence, this order has become final. (12) Further, the Petitioner filed MA. 277/2015/BC dated 21.07.2015 before the BIFR demanding interest for delayed period in accordance with the terms and conditions of the amendments/modifications brought out by the order of BIFR dated 23.08.2005. The BIFR by its order dated 24.05.2016 dismissed the contention of the Petitioner that it is entitled for interest for the delayed period. The BIFR in its order categorically stated in paragraph 2.5(vi) that all secured creditors including KSFC were settled and paid by the Company after the Board's Order dated 23.08.2005 and also prior to the sanction of MS-13 by BIFR on 18.11.2013. Hence, the question of payment of LD and penal interest as per clause Vll(i) of SS-03 and Clause 17(x) of the General Terms and Conditions of MS-13, to KSFC or even to Company's other Secured Creditors, whose dues have been settled and paid, does not arise at all. This Clause of 17(x) of MS-13 (General Terms and Conditions) for payment of delayed period interest is obviously only for those credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore Board itself and in such case also, the Corporate Debtor can only initiate insolvency resolution process u/s 10 of the Code. Therefore, any other appeal filed before AAIFR stands abated under sub clause (b) and the same cannot be revived by filing a petition before NCLT or NCLAT. (2) KSFC has claimed further interests on interests and arrived a figure of ₹ 54,13,582/-. When the interests accrued on the Principal of ₹ 150 lakhs has been converted by the Respondent into shares in compliance with the orders of BIFR and jumbo Share Certificate has been issued on 17.01.2008, the interest liability got extinguished and by no stretch of imagination it can be said that the interests is outstanding. When interest liability got extinguished by conversion of the same into equity shares and the debt itself does not exit, the question of committing default as defined in Section 3(12) of the Code by the Respondent does not arise at all. Therefore, the question of paying further interests on interest also does not arise. (3) The Default as defined in Sec. 3(12) of the Code refers to debt defined in Sec. 3(11) which in turn refers to financial debt as defined in Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDBI 1,291.00 2,05,12,000 20,51,200 KSFC 150.00 32,09,000 3,20,900 SBI 1,995.00 3,98,78,500 39,87,850 Canara Bank 795.00 1,26,75,000 12,67,500 Total 4,541.00 8,28,74,500 82,87,450 From the above, the interests outstanding was ₹ 8,28,74,500/-and the Respondent was having only unutilized Authorised Capital of ₹ 5 Crore which was not sufficient to issue the shares. The Respondent at the AGM held on 29.09.2007 increased the Authorised Capital to ₹ 50 Crore and thereafter issued the jumbo share certificate. In any event, the NCLT is not an appropriate forum to raise the belated issue of Share Certificate at this point of time. If the KSFC has been aggrieved by belated issue of Share Certificate, it should have filed an application for issue of Share Certificate eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2019, by inter alia stating as follows: (1) It is the Respondent Company which approached the erstwhile BIFR for some reliefs under SICA Act. As per the Scheme sanctioned and modified by BIFR, the Petitioner Corporation extended OTS facility to the Respondent Company by crystallizing the entire amount of ₹ 150 Lakhs and waiving of the simple interest, compound interest and other liquidated damages. In the process it had waived a huge amount of ₹ 4,07,52,731/- as on 30.06.2003 under the OTS facility to the Respondent Company. (2) The violation apparent on face of record. (a) The crystallized unpaid OTS amounts were not paid before May, 2005. The delay was 16 months. (b) The Respondent Company did not issue equity shares in lieu of interest accrued towards delay in payment of their crystallized OTS dues along with the last instalment of payment of principal instalment. The share certificate was issued on 17.01.2008 thereby there was delay of another 16 months. (c) The Respondent Company issued the shares in physical form and did not convert the shares into D-mat form. This resulted in Petitioner not realizing the delay period interest. (d) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CP (IB) No. 228/KB/2018, disposed on 19.12.2018 (Coal India Limited Vs. Gulf of Oil Lubricants India (GOLIL). (6) Therefore, it is wrong on the part of the Respondent Company to say that the provision for payment of penal interest/Liquidated damages has not been retained for the Company's Financial Institutions/Banks, whose dues have already been paid/settled in terms of SS-03 r/w MS-05 and the same has been retained only for those concerned agencies, whose dues are payable by the Respondent Company, in terms of merger/amalgamation scheme, i.e. MS-13. This is wrong because this condition has been continuously stipulated as general terms and conditions in all its drafts of BIFR right from SS-03, MS-05, MDRS MS-13. Moreover, the Petitioner Corporation is demanding the interest for the delay in making payment by the Respondent Company beyond the period stipulated by BIFR as per MS-05 and arbitrarily and unilaterally extending to pay the interest calculated up to the date of principal payment over a period of 7 years and 2 months. (7) Furthermore, the erstwhile BIFR has observed in Para No. 2.5(vi) of its Order dated 24.05.2016 and in Para No. 2.7 has directed the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other price. No interest on the belated buy back of shares was stipulated, as the lenders could have sold the equity in the market. This was neither objected to nor appealed against by the Petitioner. As per this arrangement, the Respondent issued Equity Shares amounting to ₹ 32,09,000/- on 17.01.2008, delayed on account of procedural delays and various approvals, in lieu of the interest payable of the same amount. These were accepted by the Petitioner, who could have encashed the same by re-selling the same in the market. The Petitioner's plea before the BIFR, through an MA dated 21.07.2015 demanding interest for delayed period was dismissed by its order dated 24.05.2016. It was also stated by the BIFR that all Secured Creditors including KSFC were settled and paid by the Company after the Board's Order dated 23.08.2005 and also prior to the sanction of MS-13 by BIFR on 18.11.2013. With the introduction of the IBC 2016, the Petitioner's appeal before the AAIFR stands abated. On a consideration of the above facts, and the material placed on record, we are of the view that with the issue of Equity Shares amounting to ₹ 32,09,000/- by the Respondent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract between the parties concerned, and does not give rise to a right to payment in the hands of the creditor. No claim or debt therefore arises. There could, therefore, also be no default under the Code. The Petition fails on this account. 8. Without prejudice, we may also state that the entire exercise of repayment of debt in this Petition is an exercise in recovery. Once the matters have been brought under the IBC 2016, and all earlier matters have abated, they have to be considered under the provisions of the Code. It is a settled position of law that the provisions of the Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353, has inter alia, held that I B Code, 2016 is not intended to be substitute to a recovery forum. Further, in another latest judgement rendered in Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd. (CA No. 9597 of 2018) dated 23rd October, 2018, (2018) 147 CLA 112 (SC) Hon'ble Supreme Court of India has inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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