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TMI Blog2023 (1) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in the 'Application'. 2. The 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai). in CP(IB)/203(CHE)/2021, (Filed by the '1st Respondent / Petitioner / Financial Creditor'), while passing the 'impugned order' dated 09.06.2022, wherein, inter alia at Paragraphs 5 to 10, had observed the following: 5. "From Part-IV of the Application it is seen that the Financial Creditor has claimed a sum of Rs.31,17,20,210.16 (Rupees Thirty One Crores Seventeen Lakhs Twenty Thousand Two Hundred and Ten and Sixteen paise only) as on 19.08.2021 which is due and payable by the Corporate Debtor together with interest. The date of default as mentioned in the application is 31.10.2018. The amount of disbursement as mentioned in Part IV of the Application is as follows: Sl. No. Facility Date Interest Limit A Cash Credit (including LC Limit of Rs. 8.00 Crores) 23.05.2016 13.50% 18,00,00,000.00 B Term Loan 23.05.2016 13.75% 71,89,000.00 C Term Loan (closed) 23.05.2016 13.45% 4,50,00,000.00 23,21,89,000/- 6. Part V of the application describes the particulars of Financial Debt, documents and the same is placed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed 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 existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the Letter of Credit Limits, which they permitted the Corporate Debtor to use for the greed of Letter of Credit Commission and Charges. Moreover, the '1st Respondent / Bank / Financial Creditor', in their Notice, had merged the 'Letter of Credit utilisation into Cash Credit Facility', and claimed a Sum, which is double of the Cash Credit Limit. 4. It is represented on behalf of the Appellant, whatever money was received as the refund of Letter of Credit Development, was taken by the '1st Respondent / Bank / Financial Creditor' for servicing interest. Also that, the '2nd Respondent / Corporate Debtor', had not taken any amount, out of the Company and any 'Auditor', would be able to certify the same. 5. It is the version of the 'Appellant' that the '1st Respondent / Bank / Financial Creditor', had declared the 'Corporate Debtor's Account', as 'Fraud Account' and the same was not notified to the 'Corporate Debtor / M/s. Rosvar Steels Pvt. Ltd'. In fact, the 'Corporate Debtor', on numerous dates, had requested the 'Bank / Financial Creditor', to consider its 'Restructuring of Loan Proposal', but was denied on all occasions and only through a correspondence dated 22.02.2021, the 'Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/-. Therefore, according to the 'Appellant', the remaining sum to be paid is Rs.6,59,06,393/-. 10. The stand of the Appellant is that, the '2nd Respondent / Corporate Debtor', is willing to honour its 'Repayment Obligation', and therefore, a case is made out by the 'Appellant' to set aside the 'impugned order', passed by the 'Adjudicating Authority', and a direction is to be issued to the '1st Respondent / Bank / Financial Creditor', to receive the Sum offered by the '2nd Respondent / Corporate Debtor', towards settlement of Loan Accounts. 11. The grievance of the Appellant is that, the 1st Respondent / Bank had declared the account of the 2nd Respondent / Corporate Debtor as 'Fraud', without any cogent proof and later, lodged a complaint with the 'Enforcement Agencies', which was a 'violation' of the Corporate Debtor's basic rights, guaranteed under the 'Constitution of India'. 12. In this connection, the Learned Counsel for the Appellant points out that a 'Fraud Tag', can affect a Defaulting Promoter's ability, to control other businesses, and the 'Settlement Process' was scuttled and a 'One Time Settlement Proposal' of the 'Corporate Debtor', proved 'futile'. Moreover, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative. 61. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management. 62. As pointed out by Mr. Gupta, Legislature has, in its wisdom, chosen to use the expression "may" in Section 7(5)(a) of the IBC. When an Adjudicating Authority (NCLT) is satisfied that a default has occurred and the application of a Financial Creditor is complete and there are no disciplinary proceedings against proposed resolution professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, as there is an innate difference between Financial Creditors, in the business of investment and financing, and Operational Creditors in the business of supply of goods and services. Financial credit is usually secured and of much longer duration. Such credits, which are often long term credits, on which the operation of the Corporate Debtor depends, cannot be equated to operational debts which are usually unsecured, of a shorter duration and of lesser amount. The financial strength and nature of business of a Financial Creditor cannot be compared with that of an Operational Creditor, engaged in supply of goods and services. The impact of the non-payment of admitted dues could be far more serious on an Operational Creditor than on a financial creditor. 79. As observed above, the financial strength and nature of business of Financial Creditors and Operational Creditors being different, as also the tenor and terms of agreements/contracts with financial creditors and operational creditors, the provisions in the IBC relating to commencement of CIRP at the behest of an Operational Creditor, whose dues are undisputed, are rigid and inflexible. If dues are admitted as against the O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 242, to fortify his stance that, a 'Tribunal', can encourage 'Settlement', between a 'Financial Creditor', and a 'Corporate Debtor'. 17. According to the Appellant, the Legislature intended Section 9 (5) (a) of the I & B Code, 2016, is a 'Mandatory' one and Section 7 (5) (a) of the Code, to be a 'Discretionary' one. 18. An 'Adjudicating Authority', is to take into account, all relevant facts and circumstances, including the overall 'Financial Health' and 'Viability', of the '2nd Respondent / Corporate Debtor'. Further, an 'Adjudicating Authority' ('Tribunal'), may in its 'Discretion', not to admit the 'Application' of a 'Financial Creditor'. Also that, the 'Adjudicating Authority', is to consider the grounds, made out by the 'Corporate Debtor' against an 'Admission Order', on its own merits. 1st Respondent / Bank's Pleas: 19. According to the 1st Respondent / Petitioner / Financial Creditor (Bank), the 'Debts', granted to the 'Corporate Debtor', were mentioned in Column I Part IV of the Section 7 Application of the I & B Code, 2016, in which, the 'Term Loan of Rs.4.5 Crores', was clearly showed as 'Closed', and the 'Outstanding' was depicted in the next Column at Rs.31,17,20,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustification at her end to conduct and defend Mr. Ravichandran, the erstwhile 'Director' of the 'Corporate Debtor' from the proceedings initiated by the 'Financial Creditor'. Indeed, the 'Classification of Account of Rosvar Steels Private Limited (as 'Fraud), by a 'Financial Creditor', which can be attributed only to the 'Directors' of the 'Corporate Debtor', and a company by itself, cannot be indicted to have committed 'fraud', only for 'stalling' the 'Corporate Insolvency Resolution Process' proceedings, the allegations were made by the 'Erstwhile Managing Director', which are all 'misconstruing' one. 27. Before the 'Adjudicating Authority', the '1st Respondent / Bank / Financial Creditor', had filed an 'Application', under Section 7 of the Code, in the matter of Rosvar Steels Private Limited, wherein at Part IV, the 'Debt', granted was Rs.23,21,89,000/- and the breakup is mentioned, as under: PART - IV PARTICULARS OF FINANCIAL DEBT 1 TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF DISBURSEMENT Debt Granted is Rs.23,21,89,000/- as detailed below Sl.No. Facility Date Int Limit A Cash Credit (including LC Limit of Rs. 8.00 Crores) 23.05.2016 13.50% 18,00,00,000.00 B Term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 'Financial Creditor' / 'Bank', under the 'Right to Information Act', seeking information, about the basis for 'declaring' the 'Corporate Debtor's Account' as a 'Fraud Account', and an evasive reply was given by the 'Bank / Financial Creditor', on 01.07.2021. 34. The Corporate Debtor took a stand before the 'Adjudicating Authority', that the 'Classification of its Account' as 'Fraud', impaired the ability of the 'Borrower', to engage a Settlement talks with the 'Bank' and settle the Accounts. Also that, the 'Central Bureau of Investigation', who is investigating the matter, after registering a 'First Information Report', was not able to identify any 'Diversion of Funds' or any 'act', that would tantamount to, the 'Account', being characterised as 'Fraud'. 35. Added further, the 'Corporate Debtor', had pointed out that, it must be given extensions, on account of prevailing pandemic, etc., and it is clear from the antecedents of 'Corporate Debtor', they were inclined towards 'honouring its payment obligations', and it desires to make good the payment obligation. The 'I & B Code, 2016', is not a mere 'Money Recovery Legislation', and the 'Code', is intended to place the 'Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing. 1[Explanation. - For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount claimed to be in 'Default', as on 19.08.2021 was Rs.31,17,20,210.16. The name of the 'Corporate Debtor' is M/s. Rosvar Steels Pvt. Ltd., Coimbatore. 54. The main plea taken on behalf of the Appellant is that, the 'Corporate Debtor / M/s. Rosvar Steels Pvt. Ltd.', had repaid the 'Loan Amounts', in numerous instalments to the '1st Respondent / Bank', and a payment of Rs.16,62,82,607/- was made in favour of the '1st Respondent / Bank', during the period 01.03.2011 to 31.10.2018 and that only a Sum of Rs.6,59,06,393/-, was only to be paid as 'Outstanding Sum'. Furthermore, the 'Corporate Debtor', is willing to honour its repayment obligation. 55. The other stand taken by the Appellant is that, only with a 'Malicious Intent', the 'CIRP', was initiated by the '1st Respondent / Bank'. Also that, the 'Corporate Debtor', is a 'Solvency Company', and that the I & B Code, 2016, cannot be used as a 'Pressure Tool', of the 'Recovery', through the 'impugned order', passed by the 'Adjudicating Authority' ('Tribunal'). 56. The emphatic contention advanced on behalf of the Appellant is that, the ingredients of Section 7 (5) (a) of the 'Code', are discretionary in nature and an 'Adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Fact'. A 'Party' is not to be permitted to 'abuse' the 'Legal Process', by adopting dilatory tactics at the stage of 'admission' of an 'Application'. 64. As for as the present case is concerned, the 'Corporate Debtor', had not 'disputed the Debt', but 'admitted' the same. There is no 'Dispute', in regard to the grant of 'Term Loan Facilities' or about the 'Corporate Debtor', being in 'Default'. 65. The amount of 'Debt', given to the 'Corporate Debtor' was Rs.23,21,89,000/- and that a Sum of Rs.31,17,20,210.16 was the amount in 'Default', as on 19.08.2021. 66. The 'Default' occurred when the 'Account' of the 'Corporate Debtor', was classified as 'Non Performing Asset', on 31.10.2018. 67. In the light of the qualitative and quantitative discussions, this 'Tribunal', keeping in mind of the fact that the 'Financial Debt' and 'Default' of the 'Corporate Debtor', were established by the '1st Respondent / Financial Creditor / Bank', based on the facts and circumstances of the instant case which float on the surface, on going through the the 'impugned order' dated 09.06.2022, passed by the 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai) in CP( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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