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TMI Blog2024 (10) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 specifically contained clauses for review/ renewal before expiry of one year. This review/ renewal was to be done by Bank based on Annual Audited Financial Statements and other documentary evidence to be submitted by the Corporate Debtor along with request letter which the Corporate Debtor did not furnish. It will be worthwhile to understand as to what is the need for such review/ renewal of cash credit facilities by banks at the request of the Corporate Debtor. It is noted that banks require such renewal regularly to ensure that the credit facilities and terms on which these facilities were granted, remains in sync with risk profile and credit worthiness of the Corporate Debtor so that such financial facilities remain healthy. By regular reviews, banks monitor financial performances of the borrowers, assessing that the business of the Corporate Debtor remains viable so as to meet the repayment schedule of the banks. Similarly, banks also would like to ascertain and reassess the risk profile of the Corporate Debtor which may change from time to time on several micro and macro factors including business performance by the Corporate Debtor due to technological and economical ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Debtor was servicing regular financial debt till March, 2015. The Appellant alleged that on 01.04.2015, the Respondent No. 2, made drawing power of the Corporate Debtor as zero without giving any reason. The Appellant further alleged that the Respondent No. 2 did not follow RBI Guidelines with only intention to put the Corporate Debtor into CIRP. 5. The Appellant brought out that on 01.07.2015, followed by reminder on 26.07.2015, the Corporate Debtor requested the Respondent No. 2 to allow the Corporate Debtor to operate the account, however, no response was given and in March, 2016 the Respondent No. 2 through its Advocate directly issued the recall notice, inter-alia, stating that account of the Corporate Debtor was declared as NPA. The Appellant stated that the Respondent No. 2 on 21.03.2016 also filed an application before the Debt Recovery Tribunal ( DRT ) for recovery of alleged dues vide Original Application bearing OA No. 176 of 2016 for claim of Rs. 22, 57,65, 097/-. 6. The Appellant brought out that the Respondent No. 2 approached the Corporate Debtor under MAHAMUKTI Scheme ( Mahamukti OTS ) for settling of alleged dues of the Corporate Debtor on payment of Rs. 16.97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en mentioned in part IV of the application filed under Section 7 and as such on this account only, the Impugned Order need to be rejected. 12. The Appellant brought out that the NPA date has been shown as 18.05.2015, however, on this date, the account was standard account. The Appellant reiterated that his sanction limit was Rs. 20 Crores and stated that the account could have been declared as NPA only if the sanction limit got exceeded which is not the case. 13. In this regard he referred to ledger accounts highlighting that his account always remained in sanction unit of Rs. 20 Crores. 14. Concluding his arguments, the Appellant stated that all records shows clearly that the account of the Corporate Debtor could not have been declared NPA as the Corporate Debtor never exceeded Rs. 20 Crores sanctioned limit. 15. Per contra, Respondent No. 2 the Contesting Respondent, denied all the averments made by the Appellant treating these as misleading and malicious. 16. The Respondent No. 2 submitted that the Corporate Debtor through Erstwhile Directors approached the bank in January, 2013 for grant of cash credit Rs. 20 Crores as working capital facility for business purpose along with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir best efforts, the Corporate Debtor failed to adhere to the terms and conditions of financial facilities and did not pay the interest on time which became over due and therefore, the Respondent No. 2 had to declare the account of Corporate Debtor as NPA in accordance with then prevalent RBI Guidelines dated 18.05.2015 and subsequent to which the Respondent No. 2 bank issued recall notice to the Corporate Debtor and erstwhile directors the Corporate Debtor on 01.03.2016. 22. The Respondent No. 2 denied allegations regarding bank putting the Corporate Debtor into CIRP and submitted that the Respondent No. 2 bank on its own encouraged the Corporate Debtor to avail the OTS as per Government Schemes like Mahamukti and Mahariyayat OTS Scheme, however, despite issuing the sanction letters under these schemes, the Corporate Debtor failed to meet the terms and conditions. 23. The Respondent No. 2 bank stated that the Corporate Debtor has been continuously acknowledging the dues and thus the debt is established without any doubt. Similarly, very fact that the Corporate Debtor could not pay in time and offered to make the payment under OTS also signifies the default and as such there is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities were sanctioned in favour of to the Corporate Debtor in 2013 and loan documents were executed by the Corporate Debtor through its erstwhile directors in order to secure those facilities which proves of the financial debt. The said financial facilities were required to be renewed yearly as per sanction letter. We also note that the Corporate Debtor failed to pay the interest that was accruing on the loan account and thus, the amount became overdue. We take into consideration that since the Corporate Debtor failed to pay the amount due and payable, the Respondent No. 2 Bank classified the account of the Corporate Debtor as NPA and issued a recall notice in order to recover the outstanding from the Corporate Debtor and subsequently the Respondent No. 2 filed an application in accordance with Section 7 of the Code to initiate the Corporate Insolvency Resolution Process ( CIRP ) against the Corporate Debtor. 29. The only point which is to be decided in the present appeal is whether there was any default, since the debt is undisputed fact and has not been agitated by either of the parties. 30. It is the case of the Appellant that since his sanction limit never exceeded and rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re at any time including the outstanding under LC/BG with Corporation bank) Above facility shall be guaranted by following directors in their personal capacity : - S.No . Name of the Guarantors 1 Mr. Vijaykumar Rajnarain Singh 2 Mr. Anand Vijaykumar Singh 3 Mr. Amit Vijaykumar Singh Special Conditions: Before disbursement of facilities following terms and conditions shall be complied with : The Bank reserves the right to recall the advance/transfer of the advance as under. In the event of any default repayment and servicing of interest and or continuous frequent default thereof, or in ease of adversity in the periodical Credit-Risk Rating/ External Credit Rating of the borrower, non-complaince of any of the stipulated terms of sanction, diversion of sanctioned credit for any other purpose, any of the declared statement by the borrower/guarantor/Directors is subsequently found false-the bank will reserve its right to recall part/entire advance. All regulatory/statutory declaration/undertaking as detailed be submitted. In case working capital limit utilization is less than 50% of the sanctioned limit commitment charges as per guidelines are applicable. Any other terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power under CC including sub limit proposed for LC/BG sub limit was not to exceed Rs. 20 Crore at any time including outstanding payment under LC/BG. 32. We note that the sanction limit also includes other terms and condition as per enclosed sheet and condition No. 6 is relevant to the present case which is reiterated as under for clarity :- 6. The sanction for CC limit is valid for one year. The limit should be got reviewed before completion of one year . The sanctioning authority of existing facilities on being satisfied about the genuineness of the request may allow extension maximum 3 months from the due date of review pending regular review/renewal with specific stipulation that the borrower shall submit proposal on full review based on audited financial statement before the expiry of this extension. (else 1% extra interest will be charged ) 22. In case of default in repayment of any loan instalment and/ or servicing of interest in any loan account (Includes working capital) for any month , it is credit rating may be adversely affected resulting in higher rate of interest. 23. If the default continues subsequently the asset class of the borrower may also be adversely affected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of your credit facilities.We regret tog note that inspite of consideration lapse of time: we have not illegible financial papers for review/renewal. I have are some major-irregularities to be complied by you, as per previous sanctioned as follows. 1.Executive of registered mortgage of the properties. i.e. property comprising Land, Building, Plant Machinery at S.No.170,Plot NO D-1, Chakan-Telegaon Highway, Khalumber, Chakan-MIDC, P:Une 2. Registering charge of mortgage with ROC. 3. Submission of Tripartite agreement with MIDC Kindly comply the formalities at the earliest. Please Acknowledge. Thanking you 34. We observe that the intention the Respondent No. 2 seems to help the Corporate Debtor to complete the formalities. We further observe that the Respondent No. 2 also sent their team to the Corporate Debtor on 19.11.2014 for verification of assets and follow up of the review/ renewal of credit facilities and brought to the notice of Corporate Debtor to submit the review/ renewal urgently and as the review of the account was due since March, 2014. The visit report reads as under :- VISIT REPORT Date of visit 19.11.2014 Verified byh(Name) Shri D.B. Doke, AGM D.G.Br. Pune Designat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure compliance. 39. Yet another important aspect for review is to adjust credit limits, which can be adjusted depending upon business growth and challenges and keeping in mind with the increase or decrease requirement of funds by the Corporate Debtor as well as their capacity to repay the same. This occasion provide opportunity to banks to revisit the sanction limit as well as drawing power linked to such sanction. 40. We understand that although the sanction limit may remain the same, yet drawing power may be increased or reduced depending upon the result of such review/ renewed. In case such facilities are not requested to be reviewed or renewal by the Corporate Debtor, bank may contain clause regarding implication of non renewal, inter-alia, including making the drawing power of the Corporate Debtor as zero and not honoring the cheques issued by the Corporate Debtor. Due to higher risk profile consequent to non renewal of such facilities, the interest is also generally increased by banks. 41. We understand that if bank do not follow such standard practice of review/ renewal of financial facilities of the borrowers on regular basis, the bank itself may attract adverse non comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'. (Emphasis Supplied) 47. From the above it is seen that the account becomes out of order in terms of Para 2.2 of RBI Circular dated 01.07.2013 for cash credit facilities if the outstanding balance remains continuously in excess of sanction limit/ drawing power. 48. We note that although the outstanding balance in the account of the Corporate Debtor may be less than sanction limit yet the account will be treated as out of order . If the following conditions are met :- (i) No credit occurs continuously for 90 days as on date of balance sheet (ii) Credit are not enough to recover the interest debited during the sale period (iii) The account become in excess of sanction limit or drawing power. 49. We put a pointed query to both the parties to seek clarification regarding word used sanctio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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