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TMI Blog2021 (11) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... e latest date of default being 29.02.2020 is Rs. 24,20,59,951.14/- (Rupees Twenty-Four Crores Twenty Lakhs Fifty-Nine Thousand Nine Hundred Fifty-One and Fourteen Paise Only), out of which Rs. 19,86,17,729.02/- (Rupees Nineteen Crores Eighty-Six Lakhs Seventeen Thousand Seven Hundred Twenty-Nine and Two Paise Only) is towards outstanding principal under the various financial facilities and Rs. 4,34,42,222.12/- (Rupees Four Crores Thirty-Four Lakhs Forty-Two Thousand Two Hundred Twenty-Two and Twelve Paise Only) towards interest. 2. The Corporate Debtor is a private limited company incorporated on 20.02.2003. The Authorised Share Capital of the Corporate Debtor Company is Rs. 5,00,00,000 (Rupees Five Crores) and the Paid-up Share Capital is Rs. 10,60,00,00 (Rupees Ten Crores and Sixty Lakhs Only). The brief facts of the case are as under:- 3. The Financial Creditor, being a registered non-banking financial institution, inter alia, carries on business of financing or assisting in financing the sale of automobiles and all kinds of goods, articles, vehicles, machineries or equipment, by way of hire purchase, instalments sale, leasing, loans, deferred payments system and to enter int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default as the Corporate Debtor has failed to make the payment, in spite of agreeing to do so in terms of the Settlement Agreement. 7. It is stated that the Platino Classic Motors India Private Limited ("Platino") being an erstwhile dealer of BMW India Private Limited ("BMW"), until 31 December, 2018, was engaged in the sale, distribution and maintenance of BMW vehicles and BMW parts, within the State of Kerala. For the purposes of smooth functioning and operation of its (then existing) dealership, Platino had approached the Financial Creditor for various financial facilities from time to time. 8. It is stated that during the financial year 2017-2018, when Platino was finding it difficult to fulfil its repayment obligations under the various financial facilities sanctioned by the Financial Creditor, one of the promoter group companies of Platino, Koyenco Automobiles Private Limited on 17.05.2017 along with Platino requested the Financial Creditor to add the Corporate Debtor as a co-borrower to all the financial facilities availed by Platino. The said letter was signed by and between Platino and the Corporate Debtor. Subsequently a common Addendum dated 17.05.2017 was executed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs Seventy-Five Thousand Six Hundred and Seventy-Three Only) from the Platino on 01.12.2018. However, no clarification was provided by Platino to the Financial Creditor as to against which of the Financing Facilities the aforesaid payment was made. In absence of any such clarification, the Financial Creditor had adjusted the same against the outstanding under the Floorplan Financing Facility. After such adjustment, the total amount payable by the Corporate Debtor towards outstanding principal under the Floorplan Financing Facility as on 29.02.2020 is Rs. 1,46,46,494.41 (Rupees One Crore Forty-Six Lakhs Forty-Six Thousand Four Hundred Ninety-Four and Forty-One Paise Only) b). Working Capital Demand Credit Facility Agreement: On 28.11.2011 The Financial Creditor issued a sanction letter to Platino sanctioning Working Capital Facility of Rs. 5,00,000,000 (Rupees Five Crore) as per the terms and conditions indicated in the said sanction letter. The rate of interest was 12.75% per annum. On 30.11.2011 pursuant to issuance of the sanction letter, a Working Capital Demand Credit Facility Agreement was executed between the Financial Creditor and Platino ("Working Capital Facility"). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards principal and Rs. 1,61,92,168.18 (Rupees One Crores Sixty-One Lakh Ninety-Two Thousand One Hundred and Sixty-Eight and Eighteen Paise Only) towards outstanding interest, thereby, as on 29 February, 2020 totalling to Rs. 13,51,66,198.99 (Rupees Thirteen Crores Fifty-One Lakhs Sixty-Six Thousand One Hundred and Ninety-Eight and Ninety-Nine Paise Only) d). Spare Part Financing Agreement: It is submitted that there is no default amount outstanding under this facility qua to the Corporate Debtor, as it paid the entire outstanding amount on 16.10.2018, however, only for the sake of completeness in relation to all the financial facilities qua the Corporate Debtor, this being be stated below. 10. On 13.01.2015 the Financial Creditor issued a sanction letter in favour of Platino sanctioning Spare Part Financing Facility of Rs. 3,50,00,000 (Rupees Three Crore Fifty Lakhs Only) as per the terms and conditions stated therein. The regular rate of interest was 13% per annum and additional interest was 8% per annum. On 14.01.2015 pursuant to the aforesaid sanction letter, a Spare Part Financing Agreement ("Spare Part Facility") came to be executed between the Financial Creditor and Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor sent an email dated 11.06.2019 whereby he requested for revised outstanding and dues from the Corporate Debtor and Platino payable to the Financial Creditor. Vide email dated 21.06.2019, it was jointly communicated by BMW India and the Financial Creditor to Platino and the Corporate Debtor that its dues and outstanding towards the Financial Creditor stood at Rs. 25,18,33,300/- (as of 31.05.2019). 14. It is stated that in relation to the above exchanges, a meeting was convened amongst the representatives of Platino, Corporate Debtor, BMW India and the Financial Creditor on 25.06.2019 wherein various ways of resolving the payment default, including liquidation of mortgaged property at Maradu, Ernakulam, Kerala which stands as a security to the financial facilities provided by the Financial Creditor. Subsequently, Mr. P.P. Ashique for and on behalf of Platino and the Corporate Debtor issued another letter dated 29.07.2019 whereby he consented to handing over of remaining cars hypothecated to the Financial Creditor. 15. It is stated that on 04.09.2019 both the parties entered into a settlement agreement. In the date of Deed of Settlement, being 04.09.2019, an amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W in Kerala and had made record sales of BMW cars. Owing to this stellar performance of Platino, BMW wheedled and coaxed Platino into expanding the dealership in the State or Kerala. Pursuant to the above, several meetings were held between the Managing Director of Platino, representatives of BMW and the Financial Creditor, wherein the Financial Creditor constantly exercised undue pressure on Platino by forcing it to expand its operations. However, when Platino refused to take up such a huge investment, the Financial Creditor, particularly the then President of BMW made several representations, assurances and promises to Platino that they will make good such payments in some other way, even if the said investment does not yield desired results. Therefore, based on the express representations and warranties made by BMW in collusion with its finance arm (the Financial Creditor herein), Platino set up the establishment at Trivandrum as well as at Calicut. During the year, 2011, Platino was asked to expand its network and open a showroom in Thiruvananthapuram according to the specifications of BMW for which a sum of Rs. 35 Crores was required for investment in land, buildings, fixtures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Creditor is dismissed, the claim of the Financial Creditor will also be rendered void and unsustainable. Therefore, in view of Section 60(2) and Section 60(3) above, it is imperative that both matters are heard together as both matters pertain to the same set of claims, and an independent application is not maintainable in law. 20. It is also stated that the nature of dispute between the Financial Creditor and Corporate Debtor herein is a mixed question of fact and law, which can be decided only by appreciation of evidence let in during trail. The Financial Creditor and BMW has caused huge losses to the Corporate Debtor and Platino and coerced the Corporate Debtor into entering financial agreements only to further its own interests. The adjudication of the instant dispute necessarily involves addition of Platino and BMW as parties to the proceeding. Adjudication of the same involves interpretation of substantial questions of law and fact that can be raised before an Arbitral Tribunal. The summary proceedings under Section 7 clearly cannot be permitted to precede, such arbitration which will cause extreme prejudice and loss to the Corporate Debtor. A perusal of the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent application under Section 7 apart from being not maintainable is premature unjust, unreasonable and prejudicial. The dispute arising in this case is not only as between the Financial Creditor and the Respondent herein, but also essentially and intricately involves Platino and BMW India Ltd. When such disputes involving third parties are pending Insolvency Proceedings initiated against another for adjudication of such dispute at a Forum where all concerned have a say is against the very scheme of Insolvency. 22. It is also stated that according to Schedule I of Floor Plan Financing Agreement, the repayment period is 100 days for stock car and 60 for demo cars. If any default shall have occurred in the repayment, it is considered as an event of default. The Floor Plan Agreement is dated 06.09.2010. The Financial Creditor has not produced the statement of accounts in the Floor Plan Financing Facility. To the knowledge of the respondent there has been default in repayment exceeding 100 days for stock car and 60 for demo cars on the part of Platino Classic Motors India Pvt. Ltd. and that there has been default in repayment exceeding the repayment provision in Schedule I of Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seded by the Floor Plan Financing Agreement dated 01.02.2011 produced by the Financial Creditor, wherein there is an over-riding provision which states that "This Financing Agreement and any other documents attached hereto or referred to herein, integrate all the terms and conditions mentioned herein or incidental hereto and supersedes all oral negotiations and prior writings in respect of the subject matter hereof, except for those provisions of the sanction letter, issued prior or post to the execution of this Financing Agreement which are in addition to and are not the same or in conflict with, the terms of this Financing Agreement which are in addition to and are not the same or in conflict with, the terms of this Financing Agreement. In the event of any conflict between the terms, conditions, and provisions of the latest sanction letter shall prevail". Hence the Floor Plan Financing Agreement dated 06.09.2010 has been superseded by the Floor Plan Agreement dated 01.02.2011 and hence the Floor Plan Financial Agreement dated 06.09.2010 is not in existence after 01.02.2011. There is no mention about the Floor Plan Agreement dated 01.02.2011 that superseded the Floor Plan Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Debtor cannot be considered as a Financial Creditor of the Financial Creditor for the Working Capital Agreement dated 13.12.2010, with effect from original dates mentioned in those agreements, but only from 17.05.2017. No amount has been disbursed by the Financial Creditor to Platino Classic Motors India Pvt. Ltd. or this respondent after 17.05.2017 under the working capital demand credit facility agreement so as to fasten any legal liability on this Corporate Debtor. Hence the Corporate Debtor cannot by any stretch of imagination be deemed to be a Corporate Debtor of the Financial Creditor. It is also stated that there is no amount is due under the Spare Parts Financial Facility. 27. It is also stated that the Term Loan Agreement dated 17.05.2017 produced by the Financial Creditor is only for an amount of Rs. 13,00,000/-. The Term Loan Agreement does not state about the schedule for repayment hence there has been no default in the said facility. The said amount has been granted by the Financial Creditor without any specific stipulation for repayment. The term of loan for the amount of Rs. 13,00,000/- is 10 years commencing from 17.05.2017. No amortization schedule is annexed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence. Clause No. 11 of the Deed of Settlement states that " In the event, Platino Group fails to pay the entire full and final settlement amount within the period specified in clause 6 above, this Deed of Settlement shall be rendered null and void." The Financial Creditor ought not to have produced a document which is null and void before this Tribunal. The Corporate Debtor cannot be fastened with any liability on the basis of a document which is null and void. It is also stated that the allegation that the Corporate Debtor failed to honour its repayment obligations under various facility agreements is false and hence denied. The Corporate Debtor was liable to repay only an amount of Rs. 13,00,000/- under the term loan agreement which the Corporate Debtor has already paid and all the allegations to the contra made by the Financial Creditor are false and hence denied. The respondent is not liable for the amount of Rs. 24,20,59,951.14/-. The Financial Creditor has not produced any document admissible in evidence to prove default. The total amount of debt in default/overdue as on 29.02.2020 stated as Rs. 24,20,59,951/- is false and hence denied. The Financial Creditor has not produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Financial Creditor in this application as being done jointly by a different entity by the name Platino Classic Motors India Pvt. Ltd. for and on behalf of the Corporate Debtor. The respondent is a legal entity and only those correspondences issued by the Corporate Debtor could be attributed to the Corporate Debtor and correspondence made by Platino cannot be attributed as that of the Corporate Debtor. 32. The Corporate Debtor further stated that there is no debtor creditor relationship between the Financial Creditor and the Corporate Debtor. There is no undertaking to repay the amount with interest within the specified period, hence there is no default. On the basis of documents which is not enforceable by law, the Financial Creditor cannot claim to owe financial debt from the Corporate Debtor and thereby cannot be claimed to be a 'Financial Creditor' as defined under Section 5(7) & 8 of the IBC, 2016. It is also stated that the application filed by the Financial Creditor Bank under Section 7 of the IBC is not complete as it is not supported by the documents mandated under the IBC, especially under Section 7. As per Section 7 (3), the Financial Creditor shall furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be read and construed as if they were references to the Co-borrower. iv. Borrower and Co-borrower agree to release, indemnify and keep indemnified from and against any liability incurred as a result of any action, demand, claim or proceeding against BMW Financial Services at any time by any party under or in respect of the Agreement relating to any act or omission of the Borrower and Co-borrower at any time (including prior to the Date of the addendum)" 34. It is also stated that the Corporate Debtor became a borrower for a fresh Term Loan that was jointly borrowed by the Corporate Debtor and Platino from the Financial Creditor, wherein Mr. P.P. Ashique subsequently joined as a co-borrower by way of an addendum. Pursuant to the aforesaid Addendum, a Working Capital Term Loan was executed on 17.05.2017 amongst Financial Creditor as the lender, and Platino and Respondent as the co-borrowers. It would be pertinent to note that pursuant to the defaults, even a loan recall notice dated 14.01.2019 was issued to the Corporate Debtor intimating it about the recall of the entire loan facilities that were provided in view of the continuous defaults committed in its payment obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan facilities. Hence, the Corporate Debtor cannot deny the default. The objection on the Deed of Settlement is only on account of Corporate Debtor's own non-compliance. The Corporate Debtor states that Clause 11 of the Deed provides that if the payment of dues is not made by the Corporate Debtor in terms of Clause 6, the Deed of Settlement shall be rendered null and void. It is stated that such a statement can only be an oversight of the Corporate Debtor whereby it is highlighting its own financial indiscipline as to even after entering a Settlement, it did not comply with the terms of the settlement. Such being the case, the Corporate Debtor has not only admitted to its defaults, but has also casted aspersions on its financial conduct. Such conduct of the Corporate Debtor also makes it a wilful defaulter, who even after promising at multiple occasions of payment through its Director, is deliberately indulging in defaults to cause losses to a non-banking financial company and consequently, to the economy at large. Findings 38. We have heard learned counsel for the parties and perused the whole case records including documents appended with the case records. On perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h default, the status of the co-borrower metamorphoses into a debtor or a corporate debtor, if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. For, as aforesaid, expression "default" has also been defined in Section 3(12) of the Code to mean non-payment of debt when whole or any part or instalment of the amount of debt has become due or payable and is not paid by the debtor or the corporate debtor, as the case may be. A priori, in the context of the provisions of the Code, if the guarantor is a corporate person (as defined in Section 3(7) of the Code), it would come within the purview of expression "corporate debtor", within the meaning of Section 3(8) of the Code. We have also gone through the Addendum Agreement dated 17.05.2017. By way of the Addendum Agreement, the Corporate Debtor, as a Co-borrower assumed all the rights, interest and liabilities of Platino. Certain relevant clauses of the Addendum Agreement, inter alia, are provided below:- "With effect from 17.05.2017 Co-Borrower shall assume as Co-borrower, the rights, interests and liabilities of Borrower to the Agreement referred to above. Co-borrower undertake to comply with all the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the admission of such defaults was reduced in writing vide the Deed of settlement dated 04.09.2019. Suffice it to conclude that there is no substance even in the second ground urged by the Corporate Debtor regarding the maintainability of the application filed by the Financial Creditor under Section 7 of the Code on the ground of being barred by limitation. Hence, the contentions regarding maintainability/limitation will not stand for scrutiny and are to be rejected. 40. Point No. (ii). The Corporate Debtor mentions that the Application cannot be maintained against M/s. Koyenco Autos Private Limited Private Limited, the Corporate Debtor/Co-borrower, for the same debt arising out of identical loan in IBA/25/KOB/2020, in the matter of M/s. Platino Classic Motors (India) Private Ltd. This Bench takes note of the above contention and is of the view that the present application IBA/37/KOB/2020 has been filed by M/s. BMW India Financial Services Private Limited is only against Corporate Debtor herein i.e., Koyenco Autos Private Limited and not against M/s. Platino Classic Motors (India) Private Ltd. The Bench also noted that IBA/25/KOB/2020 was admitted on 08.03.2021. Since this applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count was declared as NPA. In the light of above facts and circumstances, the existence of debt and default is reasonably established by the Financial Creditor as a major constituent for admission of an application under Section 7(4) of the I&B Code. 45. The Application under Sub-Section (4) of Section 7 of I&B Code, 2016 is complete in all respects. Accordingly, the application filed under Section 7 of the Insolvency and Bankruptcy Code for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor deserves to be admitted. Hence, the Application No. IBA/37/KOB/2020 is admitted and the following order has been passed:- ORDER i. Having admitted the Application, the provisions of moratorium as prescribed under Section 14 of the Code shall be operative henceforth with effect from the date of order shall be applicable by prohibiting institution of any suit before a Court of Law, transferring/encumbering any of the assets of the Debtor etc. ii. The Financial Creditor has suggested the name of Mr. Sankar P. Panicker, Advocate for appointment as Interim Resolution Professional (IRP). Accordingly, the IRP proposed by the Financial Creditor, Mr. Sankar P. Pani ..... X X X X Extracts X X X X X X X X Extracts X X X X
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