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TMI Blog2025 (2) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... n of PMC in which there are three members of the financial creditors i.e. majority, blame for non-payment of due amount can be put on the financial creditor itself. The PMC was constituted to assist and improve the operations and construction of the project which in no manner diminish the obligation of the corporate debtor to fulfil its payment obligation. The default in repayment of the obligation by obligors cannot in any manner be put on the financial creditor nor constitution of PMC in any manner affect the obligation or absolve the corporate debtor from its default for repayment of the debt. The Respondent is right in his submission that in Section 7 application the Adjudicating Authority was obliged to determine whether default has occurred or whether debt was due as remained unpaid. The Hon'ble Supreme Court in "E.S. Krishnamurthy and Others vs. Bharath Hi-Tech Builders Private Limited [2021 (12) TMI 683 - SUPREME COURT] referring to the earlier judgment of the Hon'ble Supreme Court in Innoventive Industries Ltd. vs. ICICI Bank [2017 (9) TMI 58 - SUPREME COURT] held 'in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7 application filed by IDBI Trusteeship Services Limited, the Financial Creditor. The Appellant aggrieved by the impugned order has come up in this Appeal. 2. Brief background facts necessary to be noticed for deciding the Appeal are : - 2.1. A Debenture Trust Deed dated 19.04.2016 was executed between the Company- Shree Vardhman Infraheights Private Limited and Santur Infrastructures Private Limited (a wholly owned subsidiary of the company) and Promoters Sandeep Jain, Sachin Jain, Rishi Gupta, Vivek Aggarwal, Gautam Chaudhary, Tushar Goel and IDBI Trusteeship Services Limited for raising funds by issuing upto 140 number of to be listed, rated, senior, fully secured, redeemable, transferable, interest-bearing non-convertible debentures of face value of Rs.1,00,00,000/- includes Series A and Series B. The first Amended Debenture Trust Deed was on 20.07.2017 and Restated and Amended Debenture Trust Deed dated 27.09.2018. Default having been committed on 30.06.2019, IDBI issued a repayment notice requiring the corporate debtor to repay the outstanding amount. Upon failure of the same, the financial creditor filed a Commercial Suit before the Delhi High Court. During pendency of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the corporate debtor. The corporate debtor filed a reply to the section 7 application on 22.01.2024. IA No.1527 of 2024 was filed by the financial creditor seeking replacement of the proposed IRP. IA No.3961 of 2024 was filed by the financial creditor seeking certain directions. The Adjudicating Authority heard the parties and by impugned order after returning the findings of debt and default has admitted Section 7 application. IA No. 1527 of 2024 was also allowed and disposed of aggrieved by which order this Appeal has been filed. 3. We have heard Shri Arun Kathpalia, Learned Senior Counsel appearing for the Appellant, Shri Krishnendu Datta and Shri Abhijeet Sinha, Learned Senior Counsel for the Financial Creditors and Shri Abhirup Dasgupta, Learned Counsel for the IRP. 4. Shri Arun Kathpalia, Learned Senior Counsel for the Appellant challenging the impugned order submits that the Adjudicating Authority failed to appreciate the evidence and circumstances that unequivocally establish that the financial creditor exercised control over the project actively and it was the financial creditor who orchestrated the alleged default. It is submitted that the financial creditor by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayment. 5. Shri Krishnendu Dutta, Learned Senior Counsel for the Financial Creditor refuting the submissions of the Counsel for the Appellant submits that the only question to be determined in Section 7 application is debt and default. Adjudicating Authority has to consider whether there is a financial debt and whether there is a default committed in repayment of financial debt. It is submitted that debt and default committed by the corporate debtor is not even disputed. The question of debt and default being admitted fact, no error has been committed by the Adjudicating Authority admitting Section 7 application. Default report from Information Utility is on record which demonstrate that default occurred on 30.06.2023. It is submitted that the debt and default has been acknowledged by the corporate debtor from time to time. Letter dated 23.11.2020, Amendment to the Restated and Amended Debenture Trust Deed dated 23.11.2021 and Financial Statements of the corporate debtor for F.Y. 2021-2022 contained express acknowledgment of the corporate debtor of default. The litigation between the parties which is pending in the Delhi High Court including the proceeding for initiation of arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust Deed dated 19.04.2016 and subsequent amendments to Debenture Trust Deed including the amendment dated 23.11.2021 are matter of record. Copy of Section 7 application filed by the financial creditor to initiate CIRP against the corporate debtor has been brought on the record in Volume 10 of the Appeal. Part IV of Section 7 application and amount claimed to be in default mentioned an amount of Rs.263,00,46,668/- as on 30.09.2023 and date of default as 31.12.2021 i.e. failure in repayment as per revised terms of the amendment to third Debenture Trust Deed. 9. Part IV of the application contains necessary pleadings pertaining to debt and default. As per Amendment to the Restated and Amended Debenture Trust Deed dated 23.11.2021, revised terms of repayment on 31.12.2021 was mentioned as revised date of repayment in which the corporate debtor failed. Counsel for the Respondent has referred to Financial Statements of the corporate debtor for F.Y 2021-22 which also clearly mentioned the default. Acknowledgment letter issued by the corporate debtor acknowledging the debt has been noticed by the Adjudicating Authority dated 23.11.2020 which letter also contained the statement on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifteen Crores Only) and Interest due on the Debentures (including due TDS) is Rs 25,12,75,766/- (Rupees Twenty-Five Crores Twelve Lakhs Seventy-Five Thousand Seven hundred and Sixty-Six Only) aggregating to Rs 40,12,75,766/- (Rupees Forty Crores Twelve Lakhs Seventy-Five Thousand Seven Hundred and Sixty-Six Only). In respect of the above, certain disputes under the Restated and Amended DTD arose between the Parties pursuant to which the Debenture Trustee initiated the Enforcement Actions (as defined hereinafter) against the Obligors;" 13. Settlement Agreement contemplated 'Constitution of Project Monitoring Committee'. Clause 2.1 provides for setting of Project Monitoring Committee which is as follows:- "2.1 The Parties agree that, as part of this settlement, the Company will set up and appoint a Project Monitoring Committee ("PMC") with respect to the residential project being developed by the Company at Sector 70, Gurugram, Haryana under the name of 'Shree Vardhman Victoria', with the Existing FAR ("Project"). The PMC shall comprise of 5 (five) members, 3 (three) of which shall be nominated by the Debenture Trustee (acting on Approved Instructions) and the remaining 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions and give written directions as are required in respect of the Project to employees, agents, consultants and any other representative and to third parties, including but not limited to sales and marketing agents, real estate brokers, vendors, contractors, service providers, government authorities, as is required for effective exercise of the PMC's rights, purpose and authority as set out herein. The PMC will have full authority, for and on behalf of the Company and its Board, to exercise and undertake and further authorise any persons it deems fit to take any actions as it has been authorised to undertake in terms of the resolutions constituting the PMC." 15. Clause 2.6 of the Settlement Agreement dated 04.11.2019 contained a clarification that repayment of the amounts due is the obligation of the obligors. Clause 2.6 is as follows:- "2.6. It is clarified that (i) the responsibility for construction, development, marketing and sale of the Project in accordance with Applicable Laws and (ii) for repayment of the Amounts Due including but not limited to the outstanding and on-going interest and Redemption Amounts of NCDs in accordance with the Revised Repayment Schedules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine whether default has occurred or whether debt was due as remained unpaid. The Hon'ble Supreme Court in "E.S. Krishnamurthy and Others vs. Bharath Hi-Tech Builders Private Limited- (2022) 3 SCC 161" referring to the earlier judgment of the Hon'ble Supreme Court in "Innoventive Industries Ltd. vs. ICICI Bank- (2018) 1 SCC 407" held following in paragraph 32:- "32. In Innoventive Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, paras 28 and 30 : (2018) 1 SCC (Civ) 356] , a two-Judge Bench of this Court has explained the ambit of Section 7 IBC, and held that the adjudicating authority only has to determine whether a "default" has occurred i.e. whether the "debt" (which may still be disputed) was due and remained unpaid. If the adjudicating authority is of the opinion that a "default" has occurred, it has to admit the application unless it is incomplete. Speaking through Rohinton F. Nariman, J., the Court has observed : (SCC pp. 438-39, paras 28 & 30) "28. When it comes to a financial 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 [Ed. : The word bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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." (emphasis supplied) 19. Subsequent judgment of the Hon'ble Supreme Court in "M. Suresh Kumar Reddy vs. Canara Bank and Ors.-(2023) 8 SCC 387" also decode the same proposition. It is useful to extract paragraph 11 of the judgment which is as follows:- "11. Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. "Default" is defined under sub-section (12) of Section 3 IBC which reads thus: "3. Definitions.-In this Code, unless the context otherwise requires- * * * (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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