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TMI Blog2024 (10) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... atter is remanded back to the Adjudicating Authority to redecide the issue after taking into consideration the contentions of both the parties by recording categoric finding on the issue which has been raised so that it may facilitate a judicial review by the Appellate Tribunal if any - Appeal allowed by way of remand. - [Justice Rakesh Kumar Jain] Member (Judicial) [Barun Mitra] Member (Technical), [Naresh Salecha] Member (Technical) For the Appellant: Mr. Krishnendu Datta, Sr. Adv. with Mr. Sanyat Lodha, Ms. Surbhi Arora, Ms. Niharika Sharma, Adv. For the Respondents: Mr. Aditya Kumar, Pallavi Saxena and Mr. Nath, Adv. for R1, Mr. Neeraj Kr. Gupta, Adv. for IRP ORDER (Hybrid Mode) Per: Justice Rakesh Kumar Jain: (Oral) This appeal is directed against the order dated 04.04.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Indore Bench) by which an application filed under Section 7 of the Code by the Respondent/Bank of India (Financial Creditor) has been admitted. Moratorium has been imposed and Chaya Gupta has been appointed as the Interim Resolution Professional (in short IRP ). 2. It is pertinent to mention that this is the second round of litigation. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .65 FY 2015-16 Next 12 monthly instalments of RS 66500.00 each 7.98 FY 2016-17 Next 12 Monthly instalments of RS.66500.00 7.98 FY 2017-18 Next 12 Monthly instalments of RS.333000.00 39.96 FY 2018-19 Next 12 Monthly instalments of RS.333000.00 39.96 FY 2019-20 Next 12 Monthly instalments of RS.333000.00 39.96 FY 2020-21 Next 11 monthly instalments of Rs. 440000.00 each and Last 1 monthly instalments of Rs 379000.00 52.19 Total 192.68 Monthly interest to be served as and when applied (I) Principal Amount payable from 30.09.2014 to 30.08.2017 Sr. No. Tenure Amount in Lacs 1. From 30.09.2014 to 30.03.2017 (31 Months) 66500x31=2061500 2. From 30.04.2017 to 30.08.2017 (5 Months) 333000x5=1665000 Total Amount Payable 3726500 Interest Amount payable from 30.09.2014 to 30.08.2017 = Rs 7333503.00 (pages 413 to 418 of the application) Total Amount Payable from 30.09.2014 to 30.08.2017 = Rs 11060003.00. Amount Paid by the borrower from 30.09.2014 to 30.08.2017 = Rs 9739512.00 (Refer pages 413 to 418 of the application) Hence the Term Loan account was overdue as on 01.09.2017 by [Rs 11060003/-Rs 9739512/-] Rs 1320491/-. And as it would be amply clear from the statement of account of the Term Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isa-a-vis the requirement of credit facilities. It is submitted that since the Corporate Debtor was unable to perform its repayment obligations towards the Financial Creditor, the Financial Creditor was constrained to send repeated reminders in the forms of letters, demand notices and correspondences to the Corporate Debtor and the guarantors requesting them to clear the outstanding dues. (iii) In view of the default by the Corporate Debtor, its account was classified as a Non-Performing Asset on 30.09.2017 by the Applicant Financial Creditor, as per the applicable RBI guidelines owing to persistent financial/non-financial irregularities in relation to repayment of the credit facilities, as per the terms of the various credit agreements/documents executed by the Corporate Debtor. The Applicant Bank issued Notice dated 06.11.2017 under Section 103 (2) of the SARFAESI Act, 2002 to the Corporate Debtor demanding to discharge its full liabilities to the tune of Rs. 1066.21 Lakhs, as on the date of notice, along with further interest at the contractual rate on aforesaid amount together with incidental expenses, cost charges, etc. within stipulated time under Section 13 (2) of the SARFAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether there is a debt and a default has occurred; whether the application is complete; and whether any disciplinary proceeding is pending against the proposed insolvency resolution professional. (x) The Applicant submits that the application is furnished in prescribed Form 1 of the Rules and the prescribed fee also has been paid. That the Applicant has proposed the name of the new interim resolution professional namely, Ms. Chhaya Gupta, Address: 1, Bima Nagar, 202 Almas Dreams Apartment, Near Anand Bazaar, Indore452018, Madhya Pradesh, Email Address: [email protected] having Registration No. IBBI/IPA- 002/IP-N00984/2020-2021/13133 as Interim Resolution Professional under Section 13(1) of the Code, to act as an Interim Resolution Professional. Form 2 along with the Certificate of Registration of the proposed Interim Resolution Professional has been annexed in IA/89(MP)2023 at Annexure A6, Pg. 40 of the Interim Application, wherein the declaration has been made that no disciplinary proceedings is pending against her with the Board or Indian Institute of Insolvency Professionals of ICSI. A copy of the order dated 24.03.2023 of this Hon ble Tribunal allowing IA/89(MP)2023 is fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of fact that the said three accounts were in operation, banking and standard pre-as well as post- 30.09.2017 and both credit and debit entries were continuously permitted from the same. Memorandum dated 05.08.2017 prepared for sanction/approval of ZLCC with respect to Respondent s account clearly shows that the account was standard, operational and banking, and not NPA, in the month of August, 2017. [Ref. Pg. 7-8/Para i/Reply to Additional Affidavit and Pg. 34-57 of the Section 7 Application] (iv) Minutes of the ZLCC meeting dated 13.09.2017 (Pg. 30-33 of Section 7 Application) as communicated vide letter dated 16.10.2017 (Annexure D Pg. 29 of Section 7 Application), after considering memorandum dated 05.08.2017 clearly point towards the account being standard, and not NPA, and being eligible for the loan and cash credit facilities. [Pg. 30-33/ Section 7 Application @ Page 8-9/Reply to Additional Affidavit]. (v) As per the ZLCC Meeting minutes, account was standard and was contemporaneously recommended for extension of credit to the tune of Rs. 966.68 lacs (subsequently revised to Rs. 955.42 lacs). Thus, the Bank cannot now submit to the contrary to claim that the account was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber and October 2017. (j) No contemporaneous mention of the account being NPA in any manner in the aforementioned contemporaneous detailed record of the Bank/Applicant. (k) No indication, contrary to what was sought to be orally argued without basis in documents, that the account was under default. viii) The entire stand of the Applicant Bank on the issue of NPA clearly appears to be a mala fide stand unsupported by the contemporaneous material on record. The said aspect is further evident from the factual events that transpired post the said date of 30.09.2017, as described hereunder. (ix) Notably, no notice was issued to the Corporate Debtor prior to, at the time of or post the purported NPA declaration on 30.09.2017. Further, no demand of overdue was raised by the Applicant before 30.09.2017. [Page 18/Reply] Demand Notice dated 06.11.2017 u/S. 13(2) of SARFAESI subsequently withdrawn by communication dated 06.04.2022. [@ Annexure R- 8/ Page 212-215/Reply to Additional Affidavit] (x) It is a matter of record as submitted during the course of the hearing that as a matter of practice and banking instructions, the Term Loan Account was all throughout serviced by way of payments bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 in the name of the M/s MP Agro BRK Energy Foods Limited is operational and banking with our branch. The certificate further states that the account can transact (receive and withdraw) maximum INR of Rs.99999999999999.99 on a single transaction as per RBI guidelines and adhering to KYC norms through clearing/transfer/RTGS/NEFT. Therefore, it is clear from the said certificate the account of the Respondent was standard and operational as on 17.04.2018 and no default had arisen in fact or in law [Pg. 529 of Reply to Section 7 Application / Also at Annexure 7 Page 211 - Reply to Additional Affidavit]. (xvi) It is a matter of record as aforementioned that the accounts of the Respondent were permitted to credit and debit entries all throughout, till as late as November, 2018 and as such, the question of the account being NPA does not arise, in view of the contemporaneous documents, stand and conduct of the Bank itself. (xvii) The Corporate Debtor is admittedly an MSME engaged in manufacture of essential commodities and has remained a going concern with ongoing business all throughout the period since the original order admitting the Corporate Debtor to insolvency to this date. (xviii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant herein had never claimed or raised any demand on the Respondent with respect to overdue amount prior to the alleged classification of Respondent s account as NPA, which itself militates against the aforesaid submission on the part of the Applicant Bank qua non- compliance with condition (iv). Even otherwise, any default in terms of condition (iv) could only be after the 6-month window envisaged therein and not a prior, as pleaded in the present Section 7 Application i.e. from 30.09.2017. (xxii) Without prejudice to the aforesaid, it is submitted as per RBI s Master Circular on NPA dated 01.04.2023 clear guidelines have been provided with regard to procedure to be followed for recognizing any default as defined in IBC. As per the said circular, it is the duty of the bank to recognise incipient stress in loan account on default and classy the same as Special Mention Accounts ( SMA ). Further as per circular dated 11.09.2013, it is obligatory upon the banks to report credit information including classification of account as SMA to Central Repository of Information on large Credit (CRILC). However, in the present case no such reporting had been done by the bank hence the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit account, without any intervention from the Corporate Debtor. (xxx) Without prejudice, even otherwise, the entire term loan account and cash credit account does not become due in case of a minor amount remaining due under the said accounts. (xxxi) Furthermore, it has been placed on record that the Bank had in the past as well charged exorbitant/excessive interest and thereafter reverted entries to the credit of the account towards such interest to the amount of Rs. 5,16,372.78/- on 05.05.2015 [@ Page 441/Application] and Rs. 8,67,936/- on 30.03.2016 [@ Page 455/Application] totalling Rs. 13,84,308.78/-. (xxxii) Bank Statements from Chartered Accountants clearly reflect an overcharging of interest to the tune of Rs. 51,97,373/- which further needs to be adjusted and cannot be claimed to have been due as on 30.09.2017. [@ Annexure R-10/Page 216-222/Reply] (xxxiii) Similarly, the amounts paid by third parties/corporate debtors during the process of restructuring of the accounts during the contemporaneous period from November, 2017 to March, 2018 to the tune of Rs. 42 lakhs approx., which has not been returned by the Bank, and has been appropriated as such, also needs to be adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count and that the same was being done but then in the year of 2017 at some point of time they had not transferred/withdrawal the amount from Cash Credit to the term loan account and created an artificial situation of default in respect of its term loan accounts. On this the learned counsel for the applicant/Financial Creditor submitted that the due instalments in respect of term loan was recovered through the Cash Credit accounts till the closing negative balance (overdraft amount) was within the limits granted against those cash credit accounts. Both the learned counsels had referred to the relevant entries in all these accounts. 6. After noticing the circular issued by the RBI, it recorded its finding in Para 10.1 to 11 which is also reproduced as under:- 10.1 Thus, it is noted that said circular was issued by the RBI keeping in view the adverse impact on the cash flow when GST regime had started, to give relief to the MSMEs whereby their accounts were to be classified as standard assets if the conditions (i to iv) as given therein were satisfied. In the context of the present respondent, the learned counsel for the applicant submitted that the condition No. (iv) which states th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreed schedule and had paid after date of default some amount in parts and not in accordance with agreed instalments, then also it will have to be inferred that it has defaulted the payment of due debt. The plea taken by the Corporate Debtor that it has not defaulted payment of due debt is completely misplaced and the same is rejected. 11. We have taken note of the various documents in support of the claim of the applicant bank such as loan sanction documents, acknowledgment, debt, list of mortgage properties, civil report of the Corporate Debtor, Bank statement as per The Bankers Books Evidence Act, 1891, notice under Section 13 (2) 13 (4) of SARFAESI demanding to discharge its full liabilities to the tune of Rs. 10.66 crore. We have also taken note that Corporate Debtor had on several occasions, during the pendency of this petition, offered various OTS proposals which were rejected by the applicant. We have also considered the objections raised by the Corporate Debtor as regards to the classification of its account in view of the RBI circular dated 07.02.2018. We have also taken note of the entries in the cash credit accounts terms loan accounts for the relevant period. Having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor) has submitted that there is no error in the impugned order which requires any interference by this Court. He has tried to explain the documents on record to support the findings recorded in para 10 and 11 of the impugned order. 9 . We have heard Counsel for the parties and after perusal of the record, are of the considered opinion that, once the Adjudicating Authority has taken into consideration the pleadings and evidence and the contentions raised by both the parties recording the finding only that it has looked into the documents, therefore, it has come to the conclusion that the default has been committed is not sufficient. 10 . Consequently, we are of the considered opinion that this case requires a relook by the Adjudicating Authority on the evidence which has been brought on record to judge about two basic issues i.e. debt and default having been committed by the Appellant for the purpose of attracting Section 7 of the Code. 11. As a result thereof, the appeal succeeds and the impugned order is set aside. The matter is remanded back to the Adjudicating Authority to redecide the issue after taking into consideration the contentions of both the parties by recording catego ..... X X X X Extracts X X X X X X X X Extracts X X X X
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