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TMI Blog2024 (9) TMI 1608X X X X Extracts X X X X X X X X Extracts X X X X ..... ime to regularise its loan account in terms of RBI circular before declaring the account of the Corporate Debtor to be NPA under the SARFAESI Act? - HELD THAT:- There are not much substance in the contention of the Appellant that they were denied adequate opportunity to regularise their loan account. Respondent No.1 on 24.02.2020 vide their letter had accepted to regularise the loan account of the Corporate Debtor subject to payment of an amount of Rs 2.38 Cr. towards the over-due debt on or before 15.03.2020. It is also found that in response to this letter, the Corporate Debtor deposited Rs 1 Cr. in two tranches but failed to pay the balance amount as assured by 15.03.2020 to regularise the loan account. Furthermore, declaration of account as NPA under the SARFAESI Act is an independent proceeding and cannot be adopted as a defence to obstruct the Financial Creditor from proceeding under IBC to initiate CIRP against the Corporate Debtor. Existence of key ingredient of Section 5(8) of the IBC of disbursement of loan against consideration for time value of money by the Financial Creditor qua the Corporate Debtor or not - HELD THAT:- In the instant case, the Sanction Letter clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating Authority (National Company Law Tribunal, Mumbai Bench-IV) in C.P. (IB) No. 1142/MB-IV/2023. By the impugned order, the Adjudicating Authority has admitted Section 7 application filed by the Respondent No.1 and admitted the Corporate Debtor into Corporate Insolvency Resolution Process ( CIRP in short). Aggrieved by the impugned order, the present appeal has been preferred by the Ex-Director of the Corporate Debtor. 2. Coming to the factual matrix of the present case, a Section 7 application under IBC was filed against the Corporate Debtor-Narang Developers Pvt. Ltd (NDPL) by Aditya Birla Finance Ltd-Financial Creditor. The Financial Creditor, a Non-Banking Finance Company had sanctioned a loan facility aggregating Rs 11.50 Cr wherein NDPL-Corporate Debtor, an MSME entity, is a Co-Borrower, subject to terms and conditions contained in Sanction letters dated 19.09.2016 and 04.12.2018 and the Facility Agreement dated 29.09.2016 and Supplementary Facility Agreement dated 07.12.2018. An Indenture of Mortgage was also executed on 17.10.2016 by the Corporate Debtor in favour of the Financial Creditor creating security interest over the secured asset. On account of default in repayme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgage deed and that the mortgage deed was given by other entities. Hence, putting Corporate Debtor to the rigours of CIRP by the Adjudicating Authority is completely dehors the law and against the very object of IBC. It was also submitted that the element of disbursement against consideration for the time value of money by the Financial Creditor qua the Corporate Debtor was also absent. In support of their contention reliance was placed on the judgment of the Hon ble Supreme Court in the matter of Anuj Jain-Interim Resolution Professional for Jaypee Infratech Ltd. Vs Axis Bank Ltd. (2020) 8 SCC 401 which has laid down the fundamental requirements of disbursement against the consideration for time value of money for any transaction to become a financial debt. Since the alleged debt did not fall within the definition of the word Financial Debt as defined in Section 5(8) of the IBC, it was also submitted that the Respondent No. 1 cannot be looked upon as the Financial Creditor. It was therefore vociferously argued that the Adjudicating Authority ought to have first adjudicated upon the maintainability of the Section 7 petition against the Corporate Debtor before admitting the same. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistance provided by Respondent No. 1 and the mortgage deed clearly bears the signature of the Corporate Debtor through its Director Mr. Amit Narang. Having failed to adhere to the financial commitments made under the Loan Agreement, the Loan account was declared NPA and a Demand Notice had been issued on 05.07.2019 under Section 13(2) of SARFAESI Act. The Borrower and Co-Borrowers including Corporate Debtor failed to discharge their liability in terms of the demand notice. However, the Corporate Debtor as Co-Borrower sent a letter to the Respondent No.1 acknowledging the outstanding debt and assuring the repayment of the debt by 15.03.2020 besides requesting the Respondent No.1 to restructure their debt. This letter clearly shows that the Corporate Debtor was liable for the contractual obligations arising out of the loan agreement and having defaulted in making payments, Section 7 proceedings could well be instituted against the Corporate Debtor. On the issue of the Facility Agreement being an insufficiently stamped instrument, it was contended that non-payment of stamp duty being a curable defect, it does not render the instrument void. Rebutting the argument that the Financial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; 9. Basis the above-cited definition clauses of financial debt and financial creditor , we can safely conclude that for any creditor to become financial creditor under Section 5(7) of IBC, there must be a financial debt which is owed by the borrower to the financial creditor. Furthermore, for a debt to become financial debt under the various transactions stated in subclauses (a) to (i) of Section 5(8) of IBC, the basic non-negotiable ingredients to be met is disbursal of funds against the consideration for time value of money as spelt out in the principal clause which we have already noted above. 10. It is the case of the Appellant that no direct consideration has flown from the Respondent No.1 to the Corporate Debtor and that the loan facility was actually disbursed to Csango and Pacific Link. Hence, there was no obligation on the part of the Corporate Debtor to repay the loan facility and the Respondent No.1 not having advanced credit to the Corporate Debtor, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the facility of Rs 10 Cr. including taking necessary action to create security documents in favour of the lender as placed at page No. 341 and 343 respectively. It is also noticed that the Corporate Debtor alongwith Csango and Pacific Link executed an Undertaking- cum-Declaration dated 26.09.2016 in favour of Respondent No.1 indemnifying the Respondent No.1 in the event of default under Facility Agreement. This Undertaking-cum-Declaration is also signed by the Corporate Debtor and placed at page No. 349 of APB. This document clearly depicts the Corporate Debtor as a Co-Borrower. More importantly, it also stipulated that The Borrower and Co- Borrower are hereinafter collectively referred to as Co-Borrowers which shows that they had stepped into each other s shoes. The Facility Agreement dated 29.06.2016 was also executed between Csango and Pacific Link with the Corporate Debtor as Co-Borrower. This agreement appears at page no. 358 of APB wherein the Corporate Debtor has also appended its signature. The Facility Agreement at Clause 25 clearly states that the liability of the Borrowers in respect of this facility shall be joint and several. Further, in order to secure the Facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 60(2) and 60(3), CIRP can proceed against the Principal Borrower as well as Guarantor. The said judgment held that IBC has no aversion to simultaneously proceeding against the Corporate Debtor as Principal Debtor and Corporate Guarantor. Therefore, when the Principal Borrower and Guarantor have co-extensive liabilities, we see no reason as to why CIRP proceedings cannot be initiated against a Co-Borrower who has equal and similar liabilities with that of the Primary Borrower under a Facility Agreement which has been jointly signed and executed as in the present factual matrix. 14. We also find that the reliance place by the Respondent No. 1 on the judgement of the Hon ble Supreme Court of India in Maitreya Doshi Vs Anand Rathi Global Finance Ltd. in Civil Appeal No. 6613 of 2021 is contextually relevant wherein it has held that: If there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. Needless to mention, the same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A of IBC and the contention of the Appellant is clearly misplaced and hopelessly devoid of merit. 17. This brings us to another limb of the argument raised by the Appellant that the Section 7 petition was barred by limitation having been filed on 16.11.2023 while the date of default as specified in Part-IV of the Section 7 application was 15.03.2020. The judgment of the Hon ble Supreme Court in Laxmipat Surana Vs Union Bank of India (2021) SCC Online SC 267 is a complete answer to the above submission made by the Appellant. This judgment has held that if an acknowledgment is made by the Corporate Debtor of the debt within three years period, which happens to be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, fresh period of limitation shall be available to the Financial Creditor. We notice that the Adjudicating Authority has also dwelled upon this aspect and the relevant findings of the Adjudicating Authority is in line with the above-cited judgement of the Hon ble Supreme Court. The relevant extract of the judgement is as reproduced below: 4.5. This bench notes that, the date of default as sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor to be NPA under the SARFAESI Act. We do not find much substance in the contention of the Appellant that they were denied adequate opportunity to regularise their loan account. Respondent No.1 on 24.02.2020 vide their letter had accepted to regularise the loan account of the Corporate Debtor subject to payment of an amount of Rs 2.38 Cr. towards the over-due debt on or before 15.03.2020. We also find that in response to this letter, the Corporate Debtor deposited Rs 1 Cr. in two tranches but failed to pay the balance amount as assured by 15.03.2020 to regularise the loan account. Furthermore, declaration of account as NPA under the SARFAESI Act is an independent proceeding and cannot be adopted as a defence to obstruct the Financial Creditor from proceeding under IBC to initiate CIRP against the Corporate Debtor. 21. This now brings us to the submission raised by the Appellant that the key ingredient of Section 5(8) of the IBC of disbursement of loan against consideration for time value of money by the Financial Creditor qua the Corporate Debtor is missing and hence this is not a fit case for initiation of Section 7 proceedings. We now proceed to examine whether in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurrence of a default by the Corporate Debtor beyond a prescribed threshold limit. Default in the IBC framework means the incidence of non-payment of debt in whole or in part when the debt has become due and payable, in law and in fact. In the present facts of the case, there is no doubt in our minds that facility amount was disbursed by the Respondent No.1. No claim has been made that the loan facility was repaid by the Primary Borrower or the Co-Borrowers. There is clearly no material on record to show that this debt had been liquidated by the Corporate Debtor. This debt had also been clearly acknowledged by the Corporate Debtor in their reply to the SARFAESI notice. It is also an undisputed fact that a re-structuring proposal had been sent by the Corporate Debtor to the Respondent No.1 on 10.02.2020 and 20.02.2020 acknowledging their liability to pay to the Respondent No. 1. Having sent a re-structuring proposal, the Corporate Debtor has no good grounds to deny that they were not wearing the shoes of the Co- Borrower. The acknowledgment of debt in the present facts of the case is therefore clear and unambiguous and nothing on record controverts the position that there was a def ..... 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