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TMI Blog2023 (2) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... negligence by the State Bank of India as well as Punjab National Bank. The fact that certain portion of sanction amount of financial facilities could not be disbursed by the Financial Creditors can be ground for rejecting Section 7 Application has already been answered by the Hon ble Supreme Court in its judgment in Innoventive Industries Limited [ 2017 (9) TMI 58 - SUPREME COURT ]. In Innoventive Industries Limited, a Section 7 Application was filed by the Financial Creditors. Nineteen Banking entities had extended credit to the Innoventive Industries Ltd. In the above case also restructuring proposal given by the Corporate Debtor was approved in the meeting of Joint Lenders Forum. A Restructuring Agreement was entered into on 09.09.2014, under which funds were to be infused by the creditors and certain obligations were to be met by the debtors. Insolvency resolution process was set in motion by filing a Section 7 Application. In reply to Section 7 Application, Corporate Debtor took plea that under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, all liabilities of the Corporate Debtor except certain liabilities and remedies for enforcement thereof were tempo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT) (Insolvency) No. 978 of 2022 Company Appeal (AT) (Insolvency) No. 1000 of 2022 Company Appeal (AT) (Ins.) No. 1039 of 2022 & I.A. No. 3015 of 2022 - - - Dated:- 3-2-2023 - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Krishnan Venugopal, Sr. Advocate with Mr. Sanjay Kapur, Ms. Megha Karnwal, Mr. Surya Prakash, Mr. Arjun Bhatia, Mr. Surya Prakash, Advocates. For the Respondents : Mr. Ramji Srinivasan, Sr. Advocate, Mr. Zeeshan Haq, Mr. Animesh Kumar, Mr. Ram Maroo, Mr. Tanay Agarwal, Ms. Shruti Pandey, Ms. Megha Dugar, Advocates For the Appellant : Mr. Krishnendu Datta, Sr. Advocate, Mr. Bishwajit Dubey, Mr. Palash S. Singhai, Ms. Neha Shivhare, Ms. Nayani Agarwal, Mr. Rajat Sinha, Ms. Varsha Himatsingka, Ms. Yashvi Agarwal, Advocates For the Respondents: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Ms. Shruti Pandey, Ms. Megha Dugar, Advocates For the Appellant : Mr. Rajesh Kumar Gautam, Mr. Anant Gautam, Mr. Nipun Sharma, Mr. Vidur Ahluwalia and Mr. Sumit Sharma, Advocates For the Respondents : Mr. Ramji Srinivasan, Sr. Advocate, Mr. Zishan H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Bank of India issued a Sanction Letter, by which letter it renewed the credit facility sanctioned to Corporate Debtor on certain terms and conditions. On 31.03.2017, the Corporate Debtor executed balance confirmation letter in favour of State Bank of India, confirming the correctness of debt balance of Rs.37,28,20,668.36 as on 31.03.2017 along with further interest thereto. (iii) The Corporate Debtor committed default, hence the account of Corporate Debtor declared NPA by the State Bank of India on 28.06.2017. (iv) The Corporate Debtor filed a Civil Suit No.188 of 2017 on 16.08.2017 impleading the State Bank of India, Punjab National bank and South Indian Bank seeking various reliefs, including a Decree for a sum of Rs.117.59 crores and suit was also for a mandatory injunction. (v) On 20.09.2017, State Bank of India issued demand notice, calling upon the Corporate Debtor to pay a sum of Rs.39,46,43,964.00/- upto 18.09.2017 with further interest. The State Bank of India also filed OA No.69 of 2018 on 22.02.2018 before the Debt Recovery Tribunal, Kolkata. (vi) On 31.10.2019, the State Bank of India filed CP(IB) No.1905 of 2019 under Section 7 of the Insolvency and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Project. The other lenders have also issued various sanction orders. (ii) On 25.02.2011, a Common Loan Agreement was entered into between Abhijeet Integrated Steel Ltd., Lenders and IDBI Trusteeship Services Ltd. The other Agreements were also executed on the same day entered between lenders and Security Trusteeship. The Abhijeet Integrated Steel Ltd. entered into an Indenture of Mortgage and Pledge of Shares. The Lenders Independent Engineer M/s Development Consultants Pvt. Ltd. issued a certificate to the Appellant for disbursement towards the Project. (iii) The Central Bureau of Investigation filed a first information report against Mr. Manoj Jayaswal, one of the Directors of the Corporate Debtor and Jas Infrastructure Pvt. Ltd., one of the group companies of the Corporate Debtor for coal block allocation. (iv) Joint Lenders Meeting ( JLM ) was held on 12.10.2012, 26.07.2013, 08.02.2014. In the JLM meeting held on 08.02.2014, Abhijeet Integrated Steel Ltd. informed the Lenders that it has decided to sell its majority stake to Uttam Galva Steel Limited ( UGSL ). On 02.06.2016, UGSL submitted a proposal to acquire the entire stake in the Project and bring in addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f inquiry of Section 7. The finding of Adjudicating Authority that due to non-disbursement of part of financial assistance sanctioned by the Financial Creditors, there is contributory negligence, hence, Section 7 Application cannot be admitted, is totally contrary to the Scheme of the Section 7. The cause of default on the part of the Financial Creditor is not relevant for rejecting the Section 7 Application. It is submitted that the opinion expressed by the Adjudicating Authority that there was contributory negligence on the part of Financial Creditors is also incorrect. The Corporate Debtor having failed to perform its part under the Agreement, further disbursement could not be made by the Financial Creditors. It is submitted that debt and default on the part of Corporate Debtor was fully proved, there being clear acknowledgement of debt by the Corporate Debtor. Filing of suit by the Corporate Debtor in the Calcutta High Court, claiming decree of Rs.117 crores and injunction against the Financial Creditors was not relevant for rejecting Section 7 Application. The Corporate Debtor never complied the conditions on which restructuring of debt was granted. The Adjudicating Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 52.45 crores out of the sanctioned limit of INR 100 crores and due to default committed in payment, the Corporate Debtor account has been declared NPA. The submission of the Corporate Debtor that Appellant is attempting to take away the Promoters Company into Corporate Insolvency Resolution Process ( CIRP ) even when CD has not committed any default, is wholly incorrect. The Promoters themselves suggested the Appellant to consider restructuring of Corporate Debtor s debt. In the JLM held on 08.02.2014, Promoters themselves have proposed to sell their majority stake in the Corporate Debtor to new investor i.e. UGSL and proposed Swiss Challenge Method for selling their stake in the Corporate Debtor, as is clear from JLM dated 08.02.2014 and 05.06.2014. The debt and default on the part of the Corporate Debtor having been established in terms of Section 7 Application, the Adjudicating Authority ought to have admitted Section 7 Application. The Appellant was fully entitled to adjust the due interest from the sums to be disbursed to the Borrower and the sums so deducted or adjusted were deemed to be disbursement made by the lenders as per Clause 2.8. The observation of the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f corporate insolvency, but to render the Suit infructuous. The expression may in Section 7, sub-section 5 of the IBC clearly confers an absolute discretion. In appropriate case, like the present case, the Adjudicating Authority was well within its jurisdiction to reject the Application. The breaches committed by the Appellant(s) and the Consortium Lender were sufficient to refuse the admission of Section 7 Application. It is submitted that breach on the part of the Lenders to disburse loans, attracts Section 54 of the Indian Contract Act, 1872. Shri Ramji Srinivasan has placed reliance on judgment of the Hon ble Supreme Court in Gujarat State Financial Corporation vs. Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379. The Civil Suit has bearing on Section 7 Application. The Suit was filed nearly two years ago prior to filing of Section 7 Application. Issues framed in the Suit relate to question of default and to whom such default is attributable. Debt and default has not been admitted and the Corporate Debtor has stated that Appellant is in default having failed to disburse the amount in terms of Master Restructuring Agreement. It is fundamental principle of jurisprudence that a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gan even before the working capital for Phase II was sanctioned by the Financial Creditor. The debts of the Corporate Debtor had to be restructured by the Financial Creditor and other consortium members due to their failure to disburse the committed amounts of loan as per the JLF agreement and the assessment note prepared by the Financial Creditor. 13. The Adjudicating Authority has further relied on the Suit filed by the Corporate Debtor in the Calcutta High Court, which according to the Adjudicating Authority will result in determination of the default inasmuch as there will be an adjudication also on whether the Corporate Debtor has discharged from its obligations. In paragraph 5.12, following has been observed: 5.12 The adjudication of the suit by the Hon ble Calcutta High Court will result in determination of the default, inasmuch as there will be an adjudication also on whether the Corporate Debtor is discharged from its obligations. We wonder why, after all the intervening years when the accounts were apparently declared as NPA with effect from 28.06.2017, the Financial Creditor waited for two more years before initiating the present proceedings. We restrain oursel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing-i.e. before such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; g) Further interest; h) Cost; 17. From the judgment of the Adjudicating Authority as noticed above in State Bank of India s case, it is clear that Adjudicating Authority has based its decision of rejecting Section 7 Application on the ground that the default committed by the Corporate Debtor in restructuring its debt, there is contributory negligence by the State Bank of India as well as Punjab National Bank. The fact that certain portion of sanction amount of financial facilities could not be disbursed by the Financial Creditors can be ground for rejecting Section 7 Application has already been answered by the Hon ble Supreme Court in its judgment in Innoventive Industries Limited (supra). We need to notice some submissions, which were raised before the Hon ble Supreme Court in Innoventive Industries Limited and the views, which were expressed by the Hon ble Supreme Court in the above case. In Innoventive Industries Limited, a Section 7 Application was filed by the Financial Creditors. Nineteen Banking entities had extended credit to the Innoventive Industries Ltd. In the above case also restructuring proposal given by the Corporate Debtor was approved in the meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 19. The submission, which was pressed by the Corporate Debtor before the Adjudicating Authority and the Appellate Tribunal regarding non-releasing of funds under MRA was also pressed before the Hon ble Supreme Court. The Hon ble Supreme Court although held that Adjudicating Authority and Appellate Tribunal were right in not going into this contention, but also proceeded to examine the submission. The Hon ble Supreme Court looked into the different clauses of MRA. The Hon ble Supreme Court has relied on Clause 10(t) in the MRA, which has been reflected in paragraph 63 and ultimately hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing Agreement entered between the parties is in the identical words as Clause 20(t), which was noticed by the Hon ble Supreme Court in Innoventive Industries Ltd. The Hon ble Supreme Court in Innoventive Industries Ltd. having held that The Obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant company is a declaration of law in reference to an Application under Section 7. The view taken by the Adjudicating Authority in the impugned order dated 28.06.2022 is clearly not in consonance with the law declared by the Hon ble Supreme Court in Innoventive Industries Ltd. (supra). This alone is sufficient to set aside the impugned order passed by the Adjudicating Authority. 22. We may also notice that Hon ble Supreme Court while considering the Scheme of the IBC, i.e., an Application under Section 7 of the IBC had considered the claim of set-off or counterclaim in Swiss Ribbons Pvt. Ltd. Anr. vs. Union of India and Ors. (2019) 4 SCC 17. The Hon ble Supreme Court has held that claim of set-off will be considered at the time of filing of proofs of claim during the resolution process. In parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rotecting the economic interest of the corporate debtor is more relevant. 64.4. Fourthly, the trigger that would lead to liquidation can only be upon failure of the resolution process. 24. Under the Scheme of IBC, when a Corporate Debtor is unable to pay its debt, which becomes payable, it is a warning signal for Corporate Debtor and when an Application is filed by a Financial Creditor to initiate CIRP under Section 7 and there are ample material that Corporate Debtor is unable to pay its debt and has committed default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate Debtor needs insolvency resolution. Red signal having been flagged by the Applicant, ignoring the precarious financial situation and status of the Corporate Debtor and not taking remedial action to bring back the Corporate Debtor on its track by adopting resolution process as per IBC and reject the Application on the reasons of default, is clearly contrary to the whole Scheme of the IBC. There being sufficient material before the Adjudicating Authority that consistent defaults have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not render the Corporate Debtor accountable for default. 26. The judgment of the Park Energy Pvt. Ltd., does not notice paragraphs 63 and 64 of the Innoventive Industries Ltd. of the Hon ble Supreme Court. We, thus, are of the view that judgment of this Tribunal in Park Energy Pvt. Ltd. does not render any help to the Respondent in the facts of present case. 27. The learned Counsel for the Respondent has placed reliance on the judgment of the Hon ble Supreme Court in Gujarat State Financial Corporation vs. Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379. It is submitted that Hon ble Supreme Court has held that the Gujarat undertaking was bound by the principle of promissory estoppel. It further held that the Government undertaking cannot back out from its promise held out to the contracting party, which incurred expenditure and suffered liabilities. In the case of Gujarat State Financial Corporation, the Appeal was filed against the judgment of the High Court in a Writ Petition filed under Article 226. The Writ Petition was filed by the Respondent Lotus Hotels Pvt. Ltd. praying for a Writ of Mandamus directing the Appellant to disburse the promised loan to the Company in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default. The determination by the High Court can at best be for the purposes of Suit filed in the High Court and cannot be reasoned for not entertaining Section 7 Application filed by Financial Creditors claiming default on the part of Corporate Debtor. We are of the view that Adjudicating Authority erred in relying on Suit filed by the Corporate Debtor in the Calcutta High Court for rejecting Section 7 Application. Reliance on filing of a Suit by the Corporate Debtor was not relevant for rejecting Section 7 Application. 30. Now we come to the submission of Shri Krishnendu Datta made on behalf of IDBI Bank Ltd. that there are several other distinguishable facts in the case of IDBI from the N.S. Engineering Projects Pvt. Ltd. case. It is submitted that leaving the view of the Adjudicating Authority in N.S. Engineering Projects Pvt. Ltd. aside, there were other distinguishable facts in the case, which had not been noticed by the Adjudicating Authority in its order rejecting Section 7 Application. Suffice, to say that we having already held that view of the Adjudicating Authority in the State Bank of India vs. N.S. Engineering Projects Pvt. Ltd. in the impugned order dated 28.06.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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