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TMI Blog2021 (4) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... ether debt is due and payable. A plea was made that this debt was not due and payable on the date of classification of the account of the Corporate Debtor As NPA as mentioned in the Form-1 filed by the Financial Creditor. Further, it was claimed that there was a restructuring of the loan and new time schedule was prescribed which was acted upon by both sides, hence, any application filed under Section 7 of Insolvency and Bankruptcy Code, 2016 could be filed only on the basis of default which took place thereafter. Accordingly, focussed argument was made that in the present application, debt was not payable and pre-mature. In this regard, based on the subsequent documents executed by and between the financial lenders and the Corporate Debtor, it was claimed that it was an instance of novation of contract as per the provisions of Section 62 of Indian Contract Act, 1872. There is established fact situation of a novation of contract between parties whereby earlier arrangement/contract stood extinguished and parties are governed by the new contract/arrangement. This factual position is of substantial nature and goes to the root of the matter because if such subsequent contract is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA had been mentioned. Thus, there was a need to inquire into as to why different dates were given for classification of the account of the Corporate Debtor as NPA. In this regard, Learned Senior Counsel took us to various documents and on that basis, he concluded his arguments that it was a case of debt being premature and not payable and therefore, this application was liable to be dismissed. In this regard, detailed submissions have been made by the Corporate Debtor which are, for the sake of ready reference, reproduced as under: I. THE APPLICATION FILED UNDER SECTION 7 OF THE CODE IS INCOMPLETE AND OUGHT TO BE DISMISSED (a) The provisions of the Insolvency and Bankruptcy Code 2016 ('Code') read with the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules) 2016 ('Rules') have prescribed a distinct and detailed form with elaborate requirements for an Application to be filed under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process of any company. There is a higher and stricter threshold prescribed for such applications as these proceedings are those in rem having drastic consequences and which have to be conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no provision enabling the Applicant to supply or furnish additional documents in rejoinder, and that too without obtaining leave of the Hon'ble Tribunal. (g) In addition to the aforesaid, the Applicant once again took the liberty (without the permission of the Hon'ble Tribunal) to file additional documents with its written submissions filed on 21st January 2021: i. Annual Report of Respondent for FY 2019-2020; ii. National E Governance Services Limited - Bye Laws iii. Judgment of the Hon'ble NCLT, Mumbai - Standard Chartered Bank Anr. V. Ruchi Soya Industries Ltd. iv. Certificate under the Banker's Books Evidence Act, 1891 dated 16th January 2021 (THIS CERTIFICATE WAS NOT IN EXISTENCE WHEN THE APPLICATION WAS FILED); (h) The following are the fundamental deficiencies found in the Application, which warrants dismissal at the very threshold: (i) INCOMPLETE AUTHORIZATION - As per Serial No. 5 - Part 1 of Form 1 (Page T), the Application ought to furnish details of 'person authorized to submit application' along with the documents proving such authorization. Similarly, Rule 23(2) read with Rule 26 of the National Company L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant had produced the documents which were available with the applicant at that time. I say that the Applicant has subsequently been able to procure the other Certificates of charges, which the Applicant could not produce at the time of filing the present Petition . These certificates annexed by the Applicant at Annexure C - page 39 to 46 of its Rejoinder cannot be taken into consideration as the same do not form part of the Application. (iii) INCOMPLETE FINANCIAL CONTRACTS - Serial No. 5 - Part 5 of Form 1 (Page YY) mandates the Applicant to file the latest and complete copy of the financial contract reflecting all amendments and waivers, along with the Application. The Applicant has admitted that it failed to produce the complete copy of the Working Capital Consortium Agreement dated 26th September 2008 ( Original WCCA ) with the Application (page 2 - paragraph 9 of its Rejoinder). Relevant portion of the Rejoinder is reproduced herein below: Copies of all the agreements are produced by way of Annexure K in the Petition, however, since the Original WCCA as produced in the Petition is incomplete, the same is being reproduced hereto as Annexure-A. . The Applicant has so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cannot be modified or amended by way of a Rejoinder. The documents annexed to the Rejoinder do not form part of the Application and therefore cannot be taken into consideration. (ii) As is apparent from perusal of pleadings and orders of the Hon'ble Tribunal, the Applicant has time and again sought to (i) amend/cure the Application by filing additional documents and (ii) alter the date of default and computation of debt, in an attempt to complete the incomplete application, and each time has produced documents without obtaining any order from the Hon'ble Tribunal. (iii) The aforesaid documents clearly change the substance and scope of the Application and could not have been added even under Section 7(5) of the Code. (iv) It is submitted that the Applicant has failed to give any just cause and/or reasons as to why the aforesaid additional documents were not filed along with the Application, despite the fact that the same were in the power, possession and custody of the Applicant at the time of filing such Application. The Applicant cannot conveniently contend at the time of filing the Petition the Applicant had produced the documents which were available w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the Applicant had, vide the Working Capital Consortium Agreement dated 26th September 2008 advanced cash credit facilities to the Respondent. It was agreed between parties that the credit facilities would be governed by the terms and conditions set out in the sanction letters (Annexure K/page 882 para 2) ( cash credit contract ). In 2015, the Applicant advanced a corporate term loan repayable in 18 quarterly instalments starting after moratorium of 6 months from date of disbursement i.e. 22nd January 2015 ( corporate loan agreement ). (d) On 25th October 2017, the Applicant offered to review and restructure the facilities under the cash credit contract and corporate loan agreement for a period of 6 months i.e. till 9th April 2018 (Annexure N/page 1938) ( Review Sanction Letter ). (e) Accordingly, on 8th November 2017, the Respondent accepted the offer made by the Applicant and complied with the terms of acceptance by (i) returning a duplicate signed copy of the said letter (Annexure N/page 1937 read with page 1940) and (ii) depositing an amount of ₹ 66,03,605/- from its cash credit account on 31st October 2017 (Annexure M/page 1706) (f) As the parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfies all the requisite elements of novation in as much as: - The Review Letter completely substituted the cash credit contract and corporate loan agreement; - Considering that the review was offered by the Applicant and accepted by the Respondent, such substitution took place with the consent of both parties; - The existing cash credit contract and corporate loan agreement was substituted by the Review Letter by the same parties with a mutual consideration of discharge of the former contracts; (p) Evidently, there was a novation of contract between parties, as the repayment obligations under the former contracts came to an end, and the parties stood governed by the Review Letter with effect 25th October 2017. (q) The Hon'ble Supreme Court in the matter of of Chrisomar Corporation vs. MJR Steels Private Limited and Ors. [ (2018) 16 SCC 117 - Para 39] further held that for novation to take effect, modification to the contract must go to the root of the original contract and change its essential character, so that the modified contract must be read as doing away with the original contract. (r) In view of the aforesaid, the Applicant cannot seek to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the root of the Application and cannot be rectified even under Section 7(5). (y) In the aforesaid circumstances, the present Application filed on the basis of an incorrect date of default is not maintainable and ought to be dismissed. III. REJOINDER CANNOT EXPAND THE SCOPE OF THE APPLICATION (a) In the Application, the Applicant has stated that the Date of Default under the Working Capital Consortium Agreement dated 26th September 2008 was 7th September 2017 and under the Corporate Loan Agreement dated 22nd January 2015 was 30th June 2017 (Serial No. 2 - Part 4 of Application). Subsequently, the Applicant sought to modify the Date of Default to 20th October 2017 by way of the Rejoinder (Para 14 - Pg. 3 of Rejoinder). (b) It is settled that a party cannot be permitted to raise a new plea under the garb of filing rejoinder-affidavit, or take a plea inconsistent to the pleas taken by him in the petition. The modification and amendment to the 'Date of Default' by way of Rejoinder is not permitted under the provisions of the Code and therefore should be struck off at the very outset - Gurjant Singh Vs. Krishan Chander Ors. (AIR 2001 Raj 211) (c) Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the threshold of proof is much higher in proceedings under Section 7 of the Code in as much as Form 1 must be complete in all respects for enabling this Hon'ble Tribunal to pass an Admission Order in rem based on such an Application (Swiss Ribbons (Supra) - Para 43 and 82). The Applicant is therefore obliged to prove debt and default based on solid documentary evidence (Swiss Ribbons (Supra) - Para 64). V. AGREEMENTS FORMING PART OF FINANCIAL CONTRACT' ARE (I) INSUFFICIENT STAMPED (II) UNSTAMPED AND (III) UNREGISTERED. (a) The present Application has been filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( Code ). In order to substantiate the alleged debt and default, the Applicant has sought to rely upon the following documents as 'Financial Contracts': (i) Working Capital Consortium Agreement dated 26th September 2008; (ii) Supplemental Agreements (from 2009-2015) and (iii) Corporate Loan Agreement dated 22nd January 2015 as being the financial contracts. (b) As seen from the documents on record, the aforesaid agreements are not duly stamped as set out by the Respondent in its Reply (V at para 22). List of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anr. (Writ Petition No. 2519 of 1988 - 9th January 2018), have clarified that differential stamp duty is liable to be paid even on photocopies of instruments. (j) Therefore, the Agreements which are sought to be relied upon by the Applicant to prove the alleged debt and alleged default on the part of the Respondent, cannot be relied upon for the aforesaid reasons. The Applicant has filed an Interlocutory Application No. 54 of 2020 challenging admissibility of these insufficiently stamped and unregistered documents, as proof of debt. 5. In rejoinder, Learned Senior Counsel for the Financial Creditor has counter claim made by the Corporate Debtor by making following submission Adjudicating Authority under: The Financial Creditor has an outstanding of over ₹ 660 Crores from the Corporate Debtor, which debt is not disputed, as evident from, inter alia: (i) The Annual Report for the year 2019-2020 of the Corporate Debtor (@ page 39 - Annexure-A to the Reply of the Petitioner dated 24.02.2021) which acknowledges the outstanding to the Financial Creditor; (ii) The Corporate Debtor's letter(s) dated 19.12.2017 which acknowledge the debt due to the Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petition. In the present case, the petitioner itself had provided/rectified the information which even according to the Corporate Debtor was not provided. As such, the petition is complete in all respects. 3. Re: The submission of the Corporate Debtor as regards, change in the date of default. For reply on merits, please see paragraph 46 and 47 @ page O-P of the Reply filed on behalf of the Petitioner, on 24.2.2021 and @ para 17 to 27, Page 13 to 15 of the Reply dated 08.03.2021 The Financial Creditor has modified the date of default, as there was an inadvertent error in mentioning the date of default in the Petition. It is however relevant to mention that the respondent has not disputed the date of default in its reply. The respondent has also not disputed the date on which the account of the respondent Corporate Debtor was classified as NPA in its reply. The documents on record clearly make out a default committed by the Corporate Debtor. As such, the alleged change which was purely on account of an inadvertent mistake, would have no bearing on maintainability of a petition u/s. 7 of IB Code. Such a change in the date of default does not cause any material dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 and were privy to the discussion. A copy of the said minutes was provided to the Company. Upon the failure of implementation of S4A, on account of withdrawal of the scheme by RBI, the stand still clause (part of S4A Scheme) was revoked and asset classification is governed by ageing criterion as per Income Recognition and Asset Classification norms of RBI. It was consequent to such withdrawal that the account of the Corporate Debtor came to be classified as NPA from the date it had defaulted, which in this case was 20.10.2017. These facts would demonstrate that the account of the Corporate Debtor was classified as NPA in the quarter ending 31.3.2018 w.e.f. 20.10.2017 and the same is within complete knowledge of the Corporate Debtor. 5. Re: the submission of the Corporate Debtor that the review of credit facilities brought about by the letter of 25.10.2017 is a novation and the Financial Creditor cannot maintain action upon the earlier contract. This submission is fundamentally flawed. Novation arises (in terms of section 62 of the Indian Contract Act, 1872) when the parties to a contract substitute a new contract for the old one or rescind or alter it, in which case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nutan Mills Ltd.) holds that a copy is not an instrument which would attract stamp duty and that a copy cannot be impounded. The said judgment was rendered in a case where a company wished to create a charge u/s. 125 of the then Companies Act, 1956, on the basis of a copy of an instrument. That is to state that the company in the said case wished to enforce a copy, as if the same was an original instrument, for the purpose of section 125 of the Companies Act, 1956. The facts of the said case are therefore completely distinguishable from the facts of the present case, where there is no enforcement of the alleged insufficiently stamped documents, sought for. The position therefore is that by a deeming provision, a copy, which is not an instrument and therefore not required to be stamped, maybe required to be stamped for differential duty in Gujarat, when originally stamped outside the State, if a copy is sought to be enforced, as if it is an instrument creating a right or liability. A later judgment of the Hon'ble Gujarat High Court in the case of Tata Teleservices Ltd. (Annexure-A) clearly holds (at paragraph 5.5 thereof) that no instrument can be charged with stamp duty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the IBC. A similar question arose before the Mumbai NCLT in Standard Chartered Bank and Anr. V/s. Ruchi Soya Industries Ltd. (@ Annexure C, Page 115 of the Rejoinder of the Petitioner). The Mumbai NCLT observed that the Corporate Debtor has nowhere mentioned as to how much stamp duty is to be paid and how much is not paid by the Petitioner, and thus held that the submission of Corporate Debtor was not relevant to decide the case. The Mumbai NCLT also relied upon the judgments passed by the Hon'ble Bombay High Court (@ para 33(v), page 135 of Annexure-C of the Financial Creditor's Rejoinder) wherein it has been held that as the agreements had been acted upon by both the parties and the obligation to pay the requisite stamp duty was on the Respondent (who in that case objected to the admissibility of the documents), the objection on account of non-payment of stamp duty was devoid of merits. In the instant case too, not only have the parties acted upon the instruments but the obligation to pay stamp duty was also on the Corporate Debtor. There is no requirement of registering a copy in Gujarat when the original instrument, if requiring registration, has already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of Insolvency and Bankruptcy Code, 2016 could be filed only on the basis of default which took place thereafter. Accordingly, focussed argument was made that in the present application, debt was not payable and pre-mature. In this regard, based on the subsequent documents executed by and between the financial lenders and the Corporate Debtor, it was claimed that it was an instance of novation of contract as per the provisions of Section 62 of Indian Contract Act, 1872. 7. In this background, now we will look at the documents referred to by the Corporate Debtor and sequence of events. In Form No. 1, Part-IV, admittedly, date of default has been mentioned as 07.09.2017 in respect of working capital loan and as regard to corporate loan, the date of default has been stated as 30.06.2017. The Corporate Debtor has taken a plea that at various places, various dates of default have been mentioned by the Financial Creditor. In this regard, he has referred to the synopsis of the petition, rejoinder filed by the Financial Creditor and written submissions filed by the Financial Creditor. In addition to this, our attention has also been drawn to letter dated 01.09.2017 as well as 19.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture both facilities for a period of 6 months i.e. till 09.04.2018. In this regard, our attention has been drawn to the copy of said letter placed at pages 1938 to 1940 of the paper book, volume-7. It is noted that bank had given in principle approval of implementation S4A scheme with reference date as on 03.08.2017. It is also noted that as per term of such re-structuring if S4A is not implemented within stipulated time then all concessions would stand withdrawn. However, it is not provided therein that in such event such accounts of Corporate Debtor would be treated again NPA from earlier dates when accounts were firstly classified as NPA. Even if we assume it to be so, then also date of NPA is different than the date mentioned in Form-1 for the event of default. It is also noted that this letter has been given in duplicate and one copy of the same was to be returned by the Corporate Debtor after signing as a token of acceptance. It is also noted that in pursuance of such renewed arrangements between Applicant - Financial Creditor and Corporate Debtor, the Corporate Debtor not only gave the signed letter as required but also deposited a sum of ₹ 66030605/- in Cash Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It is in dispute that RBI is sectoral regulator and its directions are binding on the entities covered within that sector. Thus, even though, such circular was declared ultra-virus subsequently action taken by the entities governed by such circular when the circular was in force does not become null and void by implication or otherwise. Thus, we do not find any merit in the contentions taken by the Financial Creditor, in the rejoinder, that because of such decision of the Hon'ble Supreme Court, action taken by the lenders in pursuance of such circular should be declared as null and void. Hence, we reject the same. 10. In view of the above fats and applicable legal position, we hold that present application is based upon an event which became invalid in view of subsequent contractual arrangement between the parties involved herein, we further hold that it is an instance of premature application, hence, it is liable to be dismissed as requirement of debt being payable as on the date as mentioned in Form-1 is not fulfilled. 11. In IA 54 of 2021, various technical pleas have been taken. The said technical pleas have also been taken in written submissions as well as in affi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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