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Insolvency and Bankruptcy - Appellate Tribunal - Case Laws
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2022 (9) TMI 752
Distribution of proceeds of Resolution Plan - Appellant-dissenting Financial Creditor is entitled to claim distribution of proceeds of the plan as per value of the security interest of the Appellant or as per the debt of the Appellant (voting share) or not - whether distribution as approved by the CoC to the Appellant as per voting share of the Appellant contravenes the Section 30(2)(b) as contended by Learned Counsel for the Appellant? - HELD THAT:- The financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt. The above statement of objects and reasons also makes it clear that the entitlement of dissenting financial creditor is to receive liquidation value of their debt and not the distribution as per their security value as is sought to be contended by the Learned Counsel for the Appellant. The statement of objects and reasons by which amendments in Section 30(2)(b) has been made, makes it clear that entitlement of dissenting financial creditor is the liquidation value of their debt which also clearly negate the submissions raised by the Learned Counsel for the Appellant.
The conclusion of the committee is that the priority under Section 53(1)(b)(ii) shall be only to the extent of security interest of the secured creditor. The secured creditor cannot claim priority under Section 53(1)(b)(ii) of the whole debt where only part of the debt is secured, the above report of the Committee in no manner helps the appellant to support the submission.
The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code - appeal dismissed.
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2022 (9) TMI 751
Seeking reversal of transactions of appropriation of the margin money against the Letters of Credit (LC) - seeking to credit the same amount of the margin money into the Current Account of the Corporate Debtor - breach of the Moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016.
Whether margin money deposited by way of an FDR against a Letter of Credit (LC) is an asset of the Corporate Debtor? - Whether margin money construes, a Security as provided for under the Code? - Whether this margin money can be appropriated by the Appellant Bank during the period of Moratorium on the ground that it does not form a part of the asset of the Corporate Debtor.
HELD THAT:- Admittedly, the amount of margin money is not debited to make any recovery or adjustment towards the dues of the Bank, but the payment is made to the supplier of the material to keep the Company as a going concern. It is also seen that the payment under the LC along with the margin money cannot be said to be an appropriation of the Corporate Debtor’s funds towards the dues of the issuing Bank. A perusal of the Clause 8 of Form-C as provided for under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016, the Claim submitted by the Banks specifically provides for the list of securities and it is pertinent to mention that there is no mention of ‘margin money’ in this list of securities - In the instant case, the FDRs cannot be said to be a property of the Corporate Debtor as the date of default is much prior to the date when the Moratorium was invoked. A perusal of the material on record also shows that the entries which have been justified against the LCs and the payment loans are not shown as assets of the Corporate Debtor in its Balance Sheet and Moratorium can be applicable under Section 14 of the IBC only to the assets of the Corporate Debtor.
Margin money is construed as substratum of a Trust created to pay to the beneficiary to whom Bank Guarantee is given. Once any asset goes into trust by documentation for the benefit of beneficiary, the original owner will not have any right over the said asset unless it is free from the Trust. As it is observed that margin money has the character of Trust for the benefit of the beneficiary, it cannot be said to be an asset of the Corporate Debtor. These FDRs cannot be realized by the Corporate Debtor as and when it desires. The margin money is deposited in the FDRs which the Corporate Debtor becomes entitled to only when the Margin Money is free from the obligations of the terms of the LC.
This Tribunal is of the view that in terms of its functions, a Performance Guarantee is similar to that of an LC. Further, having observed so, the contention of the Respondents that the Banks have erroneously invoked the LCs and liquidated the margin money during the period of Moratorium, cannot be sustained - the material on record does not establish that any Security Interest was created by the Corporate Debtor with margin money. The provision of Section 14(3)(b) specifically excludes the Application of Section 14 to a ‘surety’ in a contract of Guarantee to a Corporate Debtor. This Tribunal is of the earnest view that LC is basically akin to a contract of Guarantee, as it a contingent liability of the Corporate Debtor which gets crystallized on the happening of a future event.
The margin money can in no manner be said to be a Security Interest as defined under Section 3(31) of the IBC. Section 14(1)(c) prohibits any action to foreclose, recover or ensure any Security Interest created by the Corporate Debtor in respect of its property - a conjoint reading of Section 3(31) and Section 14 of the Code makes it abundantly clear that margin money is not included as a Security and is not an asset of the ‘Corporate Debtor.
Appeal allowed.
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2022 (9) TMI 750
CIRP - Financial Creditor - Assignment of debt - Requirement of registration of assignment deed - requirement of proper stamping of the assignment deed - Appellant is related party to the Corporate Debtor or not - HELD THAT:- It is relevant to notice the transactions entered between the Reliance Infrastructure Ltd. and the Corporate Debtor according to which the Inter-Corporate Deposit of Rs.2500 Crores was given to the Corporate Debtor by Reliance Infrastructure Ltd. The Hypothecation Deed dated 07.03.2018 was executed between the Corporate Debtor and the Reliance Infrastructure Ltd. Borrower has availed from the Lender various financial assistance with regard to Master Restructuring Agreement which was entered earlier. At request of the Borrower, the Lender has agreed to give financial assistance in the form of Inter-Corporate Deposits of an aggregate amount not exceeding Rs.2500 Crores.
The assignment of debt was alongwith the relevant rights and liabilities of the Assignor with the consent of the Confirming Party (Corporate Debtor). The Assignment Deed which contains all rights and liabilities indicates that the assignment was not of only actionable claim.
Whether Registration of Assignment Deed was necessary? - HELD THAT:- The assignment by the Assignor to the Appellant was alongwith relevant rights and liabilities. We have noticed above that for securing the repayment of Inter-Corporate Deposit, Corporate Debtor and Reliance Infrastructure Ltd. entered into Hypothecation Deed as well as an Indenture of Mortgage dated 11.07.2018. The assignment in favour of the Appellant by the Assignor of entire debt was with relevant rights and liabilities of the Assignor, which has now been assigned to the Appellant - the Adjudicating Authority did not commit any error by coming to the conclusion that the Assignment Deed dated 01.03.2019 required registration.
Whether Assignment Deed was insufficiently stamped? - HELD THAT:- Reliance Infrastructure Ltd. had given Inter-Corporate Deposit for which Deed of Hypothecation and Indenture of Mortgage was entered on 07.03.2018. Application under Section 7 by the IDBI Bank against the Corporate Debtor was filed in September, 2018 and after filing of the application within six months Assignment Deed dated 01.03.2019 was executed by the Assignor in favour of the Assignee. The purpose and object was obvious that Reliance Infrastructure Ltd. being related party could not have participated in the CoC of the Corporate Debtor, hence, Assignee has been brought into for the sole purpose of participating in the CoC which Assignee as per the case of the Appellant is not a related party. Further, the debt of Rs.2538 Crore has been assigned for amount of Rs.114.93 Crores speaks for itself. Further, the Reliance Infrastructure Ltd. had Hypothecation Deed and Mortgage. The time and manner in which assignment has been made clearly indicate that Assignment is not bonafide and was made only to put the Appellant in the CoC with ulterior motive to watch the interest of the related party.
There are no infirmity in the opinion of the Adjudicating Authority where it has held that the Assignment Deed dated 01.03.2019 was not in good faith and rather shows that the arrangement was made with a view to get backdoor entry into the COC through the Applicant assignee to have a control over the process of the CIRP as the Reliance Infrastructure Ltd. being the related party to the Corporate Debtor could not be the member of the CoC. The Adjudicating Authority further held that an act of this kind done with malafide intention cannot give an equivalent right with that of the unrelated financial creditors.
There are no error in the order of the Adjudicating Authority rejecting the application of the Appellant as a Financial Creditor. The submission of learned counsel for the Appellant that even if it may not participate in the CoC, claim of the Appellant should be admitted as Financial Creditor, also could not be accepted - appeal dismissed.
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2022 (9) TMI 687
Maintainability of application - appellant contends that the observation recorded in the order that Appellant has withdrawn earlier application under Section 76 is incorrect - HELD THAT:- There is no dispute that matter has been heard thrice by the Adjudicating Authority but Section 9 Application could not be decided. Learned counsel for the Appellant submits that after order was passed on 03.06.2022, the Operational Creditor was directed to file affidavit which has already been filed. Learned counsel for the Appellant submits that it is only thereafter concealment has come which impelled the Corporate Debtor to file applications.
It is true that the application under Section 76 was not listed and was laying in defect, as has been submitted by learned counsel for the Appellant, however, the order record the statement of counsel for the Corporate Debtor that they shall withdraw the application. The Adjudicating Authority has heard the parties and has to decide finally. The power of the Adjudicating Authority to take proceeding for prosecution are ample and at any stage the Adjudicating Authority can direct for the prosecution of either of the parties.
Filing of applications on 30.08.2022 under Section 76 of I&B Code and Section 340 of CRPC were only for the purpose of delaying the proceedings as has been observed by the Adjudicating Authority - the Adjudicating Authority who is at the helm of the affairs and made observations after consideration and conducting the proceeding, due weightage has be given to such observation. When the Adjudicating Authority has observed that the application has been filed for delaying the proceedings, there are no reason to take a different view.
Appeal dismissed.
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2022 (9) TMI 686
Validity of ad-interim stay granted to the process of fresh e-auction - e-auction of immovable property - HELD THAT:- No relaxation in respect of time-line would be provided to the successful bidder in the second round of e-auction. Since this order had achieved finality as it had not been appealed against or modified, Pavan Enterprises could not have been given extension of time-line to what was provided in the e-auction document. Moreover, Pavan Enterprises who was the successful bidder in the second e-auction, had committed itself to making full payment by 21.4.2021 and therefore to engage in litigation through IA no. 868/2022 and IA no. 485.2021 was highly improper on the part of Respondent, and obtaining the order of ad-interim stay dated 28.2.2022 when it was precluded from doing so was clearly abuse of the judicial process - the Respondent experienced difficulty in depositing the balance of sale consideration after the first round of e-auction and could not deposit the requisite amount after committing itself to doing so.
In view of the order dated 16.3.2021 passed by the Adjudicating Authority which had achieved finality and also the Terms and Conditions of the second round of e-auction process, it is opined that the Respondent caused a serious obstruction in the sale of ‘the property’ by preferring an application to obtain stay order to the third round of e-auction through order dated 28.2.2022 which was granted - In view of the facts of the case and the conduct of the Respondent in obstructing the process of liquidation, particularly the e–auction of ‘the property’ despite it being fully aware of the order dated 16.3.2021 in IA No.468 of 2021, it is opined that the Respondent has clearly abused the process of law to gain undue advantage and thereby caused a delay in the culmination of the liquidation process.
In view of the situation and the conduct of the Respondent as discussed in detail above, we are of the view that a fine of Rs. One Lakh should be imposed on the Respondent for abusing the process of law thereby causing delay in the liquidation process, and seeking to subvert the basic objective of IBC. This fine shall be deposited in Prime Minister’s Relief Fund within 30 days of this order - appeal disposed off.
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2022 (9) TMI 685
Maintainability of application - Initiation of CIRP u/s 9 of IBC - default of instalment of Settlement Agreement - Operational debt or not - HELD THAT:- The Adjudicating Authority has considered the Settlement Agreement and rightly come to the conclusion that default of instalment of Settlement Agreement does not come within the definition of ‘operational debt’ as it does not fall within the definition of additional debt as per Section 5(21) of the IBC and further prayer made by the Corporate Debtor that the matter be referred to the Arbitration under Section 8 of the Arbitration and Conciliation Act, the Adjudicating Authority has also rightly held that the role of National Company Law Tribunal is very limited while exercising its power under Section 7, 9 and 10 of the IBC, 2016, it is beyond the scope of Section 9 of the IBC.
The Adjudicating Authority has taken note of the submissions of Corporate Debtor that the Commercial Civil Suit No. 2/2020 is pending for consideration before the Court of competent jurisdiction and rightly rejected the claim of the Appellant.
The impugned order passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench Court-V) is hereby affirmed. The Appeal is hereby dismissed.
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2022 (9) TMI 684
Resolution Professional seeking payment of his fees - whether the Appellant Bank, which is the sole ‘Financial Creditor’ of the reconstituted CoC be made liable to pay the fees of the CIRP Cost and RP, which the earlier CoC had ratified? - HELD THAT:- The ‘Operational Creditor’ who had initiated the CIRP was initially the sole CoC Member which had ratified the fees and expenses at Rs.1 Lakh per month. The total liability to be paid by the ‘Operational Creditor’ towards CIRP Cost was Rs.2,07,000/- till 12.10.2019. Subsequently, the Appellant Bank filed its claim and the CoC was reconstituted and the Bank became the sole CoC Member. It is not in dispute that the Appellant participated in all the CoC Meetings and even passed a Resolution seeking Liquidation of the ‘Corporate Debtor’ in the fourth CoC Meeting dated 10.02.2020. It is also not disputed that the fees and the cost incurred, claimed by the RP is only till the date, the Resolution for the Liquidation was passed.
The proviso in this Regulation clearly stipulates that if any decision is taken by the committee, prior to the reconstitution, which in this case is the ratification of the fees and the expenses, its validity will not be affected. Admittedly the CIRP Costs were approved by the COC prior to the inclusion of the Appellant Bank and hence as per the proviso to Regulation 12(3) of CIRP Regulations, 2016, it is the liability of the Appellant Bank to pay the expenses. The quantum of costs and fees was ratified by the earlier CoC and the Appellant has not objected to any such issues having participated in the Meetings and specifically being the sole CoC. The Adjudicating Authority has only very fairly bifurcated the expenses to be paid by the ‘Operational Creditor’ and Rs.10,20,858/- to be paid by the Appellant Bank for the subsequent period till the Liquidation Resolution was passed.
There are no substantial reasons to interfere with the well-considered Order of the Adjudicating Authority - appeal dismissed.
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2022 (9) TMI 683
Resolution Professional (RP) seeking a direction to Bank of India/the Appellant herein to release an amount of Rs.100Lakhs/- held in the ‘no lien account’ - seeking release for the purpose of CIRP of the Corporate Debtor Company/M/s. Actif Corporation Limited. - whether the amount of Rs. 1 Crore lying in the ‘no lien account’ belongs to the Appellant Bank? - HELD THAT:- It is relevant to note that this amount was admittedly paid by the ‘Corporate Debtor’ pursuant to an OTS Proposal on 15.07.2017 to show its bona fide. It is not in dispute that the OTS, as proposed, did not materialise and the amount of Rs.1 Crore was parked in the ‘no lien account’ maintained with the Bank. CIRP was initiated on 26.11.2019. Despite repeated requests of the RP, the Appellant Bank did not release the said amount.
The said amount was to be adjusted/utilised upon approval of the Resolution Plan and was not to be adjusted towards ‘Interest’ or ‘Principal’ till then. Prior to the commencement of CIRP, this amount was not adjusted by the Bank towards the loan account of Bank as the OTS Proposal had failed. Once the CIRP was initiated, keeping in view that the OTS had failed, the amount lying in the ‘no lien account’ belongs to the ‘Corporate Debtor’ and under Section 18(f) of the Insolvency and Bankruptcy Code, 2016, the IRP/RP is obligated to take control and custody of all the assets and properties of the ‘Corporate Debtor’. Further, the Bank could not have appropriated this money once the period of Moratorium has commenced on 26.11.2019.
The contention of the Learned Counsel for the Appellant Bank that the Bankers lien over the money held in a customer’s account is a Statutory Right, is unable, keeping in view the facts of the attendant case and also that CIRP had commenced on 26.11.2019, and having regard to the fact that the amount was deposited with a specific understanding that the amount shall not be used by the Bank until approval of OTS. Admittedly, the said amount was paid at the behest of the ‘Corporate Debtor’ by a third party and it was lying with the Bank for more than five years.
There is no illegality or infirmity in the Order of the Adjudicating Authority - Appeal dismissed.
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2022 (9) TMI 635
Initiation of CIRP - Assignment of debts - Operational Creditors - existence of debt and dispute or not - Settlement is already arrived at between parties - HELD THAT:- The Application filed under Section 9 of the IBC has rightly been rejected by the Adjudicating Authority in view of the Settlement Agreement dated 21.07.2015 arrived between the Appellant – Sansing Limited with HSBC and Respondent – APL Metals Limited.
The Adjudicating Authority has rightly come to the conclusion that Corporate Debtor raised a bonafide dispute regarding the ‘operational debt’ wherein the Appellant- Operational Creditor had assigned the debt to HSBC Bank and HSBC Bank has not instituted this proceeding under Section 9 of the IBC, therefore, taking in the above facts, the Application under section 9 is not maintainable as the reasons assigned by the Adjudicating Authority is cogent and require no interference.
Appeal dismissed.
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2022 (9) TMI 634
Maintainability of claim filed in form C - whether the claim submitted by NHSH is under limitation based on the documents submitted alongwith the claim in Form C? - whether the RP has looked into the veracity and genuineness of the said claim in the light of provisions of IBC and regulations 13 and 14 of CIRP Regulations?
HELD THAT:- The Adjudicating Authority has considered various documents submitted by NHSH regarding its claim along with Form C and held that RP has considered and screened all the documents properly as per the provisions of IBC and CIRP Regulations and further the allegations made by the Appellant have not been substantiated. In addition, he has held that the application is also bad for non-joinder of two directors of the corporate debtor, who had signed the confirmations of ledger account. As a result, the application filed by P.M. Cold Storage Pvt. Ltd. before the Adjudicating Authority was dismissed by the Impugned Order - we are unable to place reliance of balance sheets for the relevant FY 2016-17, FY 2017-18 and FY 2018-19 regarding acknowledgment of debt. Since they were prepared on 12.3.2020, and contain the admitted claim of NHSH which is in question. Thus, in view of the fact that the last payment by the corporate debtor was made to the financial creditor NHSH on 5.8.2016 and the claim was filed on 26.2.2019. We find that the claim is barred by limitation.
The fact that the corporate debtor has paid TDS on interest payable cannot be considered as acknowledgment in writing of the liability by the corporate debtor and therefore, such TDS payment will not have any effect of being an acknowledgment of said debt.
The documents on which the RP relied on in accepting and admitting the claim of NHSH and inducting it as a member of CoC does not inspire confidence and should not have been relied upon by the RP in admitting the claim of the NHSH being within limitation. The Adjudicating Authority has, therefore, committed an error in upholding the admission by RP of claim of NHSH - appeal disposed off.
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2022 (9) TMI 633
Approval of the Resolution Plan - Resolution Plan challenged on the ground that all claims/demands/liabilities owed or payable to the Operational Creditors including the Appellant itself ought not to be permanently extinguished - HELD THAT:- Keeping in view of the fact that the Resolution was already approved vide Impugned Order dated 19.10.2020 and almost two years have passed and specifically that there are contrary stands taken by both parties with respect to the possession and the ownership of the subject land and also taking into consideration the Order of the Adjudicating Authority dated 02.02.2021 taking on record the terms of settlement between Mr. Pradeep Agarwal and the Resolution Applicant regarding the subject land, it is found a fit case to grant liberty to the Appellant to proceed in accordance with law in an appropriate forum.
Appeal allowed in part.
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2022 (9) TMI 632
Seeking to Recall the original order dated 05.05.2022 and to issue a fresh order, appointing the Resolution Professional and directing him to submit a Fresh Report, after affording an opportunity to the Appellant/Applicant - Principles of natural justice - HELD THAT:- In view of the fact that the Adjudicating Authority (National Company Law Tribunal, Kochi Bench) has not yet finally arrived at a conclusion, cementing upon the Report of the Resolution Professional, and despite the earlier observation made by the Adjudicating Authority (National Company Law Tribunal, Kochi Bench) in CP(IBC)/24/KOB/2022 dated 05.05.2022 that Debt and Default were proved, yet in the considered opinion of this Tribunal, the Adjudicating Authority (National Company Law Tribunal, Kochi Bench) had provided an opportunity to the Appellant/ Applicant to file a Reply Statement on or before 17.06.2022 and posted the matter on 21.06.2022 For Hearing (vide Order dated 16.06.2022 in CP(IBC)/24/KOB/2022).
Also keeping in mind of another fact that the Appellant / Applicant was provided with an opportunity to approach the Resolution Professional in IA/IBC/147/KOB/2022 filed by the Applicant/Appellant, this Tribunal holds that IA/IBC/147/KOB/2022 filed by the Applicant / Appellant was rightly dismissed by the Adjudicating Authority (National Company Law Tribunal, Kochi Bench) on 29.06.2022 by holding that Tribunal has no power to Recall or Review its Order or Decision etc. and opines that it is open to the Applicant / Appellant to file Reply before the Resolution Professional appointed in CP(IBC)/24/KOB/2022 for redressal of his grievances, if he so desires / advised.
Application disposed off.
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2022 (9) TMI 631
Initiation of CIRP - Assignment of debts - Financial Creditors - NCLT admitted the application - disputes regarding the term-loans by engaging in settlement discussions with Mr. Rana Kapoor and other HDIL Promoters - illegal attachment of loans - HELD THAT:- Merely because there is a ‘debt’ and a ‘default’ it cannot be construed that a Section 7 Application is required to be admitted. The Adjudicating Authority ought to have examined the ‘nature of these financial transactions’ having regard to the Investigation Reports which were filed by the Appellant herein, the violation of the Articles of Association and assessed whether the transactions were collusive in nature or not and used its discretion whether to admit such an Application or not, keeping in view the scope and objective of the Code.
It is appropriate at this juncture, to rely on the Judgement of the Hon’ble Supreme Court in M/S EMBASSY PROPERTY DEVELOPMENTS PVT. LTD. VERSUS STATE OF KARNATAKA & OTHERS [2019 (12) TMI 188 - SUPREME COURT], in which the Hon’ble Apex Court has clearly noted that the Adjudicating Authority has the jurisdiction to enquire into allegations of fraud when there is a prima facie case of fraudulent initiation of CIRP.
The Assignment to Suraksha is not a bona fide one, peculiar to the facts of the attendant case and the loan amounts do not satisfy the essential requisites of a ‘Financial Debt’ as envisaged under the Code. This Tribunal observed that the fundamental scope & objective of IBC is ‘Resolution’ and ‘Maximization of Assets’ and not ‘Recovery’ of loans which do not strictly fall within the definition of ‘Financial Debt’ as defined under Section 5(8) of the Code.
Appeal allowed.
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2022 (9) TMI 568
Failure to invite the Public Announcement of the Liquidation Order - Time limitation - HELD THAT:- Ordinarily, it is for the Applicant / Appellant, when there has occasioned a delay in preferring a Condone Delay Application in a given Proceeding or an Appeal, to specify / mention the exact number of days of Appeal that had occasioned by computing / calculating the same - It cannot be gainsaid that the ingredients of Section 5 of the Limitation Act, 1963, is a Hard Taskmaster and the delay that has occurred in the instant case is an exorbitant one, which cannot be condoned by this Tribunal, as the application lacks Bona-fide.
Appeal dismissed.
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2022 (9) TMI 567
Seeking issuance of directions by this Tribunal, to the Resolution Professional, to communicate the revised Settlement Proposal to the Committee of Creditors - Rule 31 of the NCLAT Rules, 2016 - prime contention of the Applicant/Appellant is that the Settlement Agreement is to be placed before the Committee of Creditors and in any event the Appellant is required to abide by the decision taken by the Members of the Committee of Creditors - HELD THAT:- It cannot be gainsaid that an inherent power of a Tribunal/Court of Law, cannot be exercised in violation or in conflict with or upon ignoring express and specific provision of Law.
It is pertinently pointed out that the Object of the I & B Code, 2016, is to reorganised and evolve Insolvency Process of Corporate Persons in a time bound manner for maximisation of such Persons. If there is a delay, in regard to the maximisation of value of assets of the Corporate Debtor, it will debilitate the value of realisation of Potential Creditors, in the considered opinion of this Tribunal. No wonder, Time is the essence of the I & B Code, 2016. Without any simmering doubt, Speed is the gist of the Code. A timely Liquidation is preferred over endless Resolution Proceedings, as opined by this Tribunal.
This Tribunal, taking note of the primordial fact, that there is no provision under the I & B Code, 2016, authorising this Tribunal, to grant the relief of issuance of direction to the Resolution Professional, in communicating the Settlement Proposal of the Applicant/Appellant to the Committee of Creditors and to place the same for e-voting and since I.A. No.558 of 2022 in the instant Appeal is not filed by the ₹ 1st Respondent/Association at whose behest, the Corporate Insolvency Resolution Process was initiated, added further, the said application is not accompanied with the mandatory Form FA (Application for withdrawal of CIRP under 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, as prescribed, all the more, the Draft Settlement Agreement/Proposal has not received the ascent /consent/ approval of the Home Buyers, especially, forming part of the ₹ 1st Respondent/Association who hold approximately ₹ 56% voting share in the Committee of Creditors, and considering the whole gamut of the matter in a holistic fashion, comes to an irresistible, inevitable and inescapable conclusion that application filed by the Applicant/Appellant (under Rule 31 of NCLAT Rules, 2016), is not a Bonafide one.
The appeal filed by the Applicant/Appellant is dismissed to prevent an aberration of justice and in furtherance of substantial cause of justice.
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2022 (9) TMI 543
Seeking recognition of R-2 to R-5 as Financial Creditors - the decision of the Resolution Professional of classifying the indirect lenders as the Financial Creditor of the Corporate Debtor is correct or not - considering the Respondents based on ‘Deed of Hypothecation’ (DOH) as Financial Creditor, is valid or not - HELD THAT:- What has come under appeal is that the Adjudicating Authority has considered the R- 2 to R- 5 as Financial Creditors of the Corporate Debtor. The basis of consideration is the ‘Deed of Hypothecation’only for considering the R-2 to R-5 as Financial Creditors of the Corporate Debtor. The Appellant No. 1 has critically sought that R-2 to R-5 should be derecognized/deleted as ‘Financial Creditors’ of the Corporate Debtor - It is an admitted position that the Corporate Debtor hypothecated its asset in favor of R-2 to R- 5 under the Deed of Hypothecation to secure the loans disbursed by them to the Reliance Communication Entities. It is also an admitted position that R-2 to R-5 have not disbursed money to Corporate Debtor.
Section 5(8) of the Code is exhaustive and mere ‘Deed of Hypothecation’ does not fall within its ambit. RP has considered DOH as a ‘Deed of Guarantee’ which is a misconception of the obligations - The Security Interest created under the DOH shall be continuing security and shall remain enforce until all the obligations have been discharged by the borrowers under the respective facility documents. Hence, it can be construed that the clauses of DOH cannot be construed to be a ‘Covenant of Guarantee’ or ‘Contract of Guarantee’.
Hypothecation Deed is a legal document and it establishes contractual relations between the parties where the lender agrees to grant a loan to the borrower in return for movable assets provided as security. Hypothecation of a moveable assets does not involve giving up ownership rights like title or possession. The Hypothecation Deed ensures that the parties are aware of their rights and liabilities and have a document which can be enforced in a court of law. It also grants the lender a right to cease the asset when the borrower fails to meet the terms of the Hypothecation Deed.
The ‘Deed of Hypothecation’ is merely creation of security interest and a mere security of interest created by hypothecation or mortgage does not constitute a financial debt. From our commercial understanding ‘Deed of Hypothecation’ is not a ‘Deed of Guarantee’. The ‘Deed of Hypothecation’ discharges the liabilities of other borrowers upon their default and is limited to the realization value of those hypothecated assets and hence it cannot be construed as a contract of guarantee - ‘Deed of Hypothecation’ is a regular boilerplate clause in any standard draft of a ‘Deed of Hypothecation’. The instrument which covers hypothecation or guarantee is specifically specified in the initial part or object of the agreement or preamble and not somewhere some wordings are mentioned in the agreement.
The ‘Deed of Hypothecation’ cannot be a basis to declare the parties as financial creditors as these Respondents are not even party to the DOH i.e. ‘Deed of Hypothecation’ - matter remanded back to the Adjudicating Authority for taking all consequential actions resulting from de-recognizing R-2 to R-5 as ‘Financial Creditors’.
Petition disposed off.
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2022 (9) TMI 488
CIRP - Financial Creditors - Financial Debt - Development Agreement with reciprocal promises - existence of debt and dispute or not - time limitation - Accretion of penal interest - HELD THAT:- From the perusal of the agreement, it is very much clear that these are all business agreements where each party has a role and there is a mechanism to release payment at various stages and the recoupment of such payments including the management of project land in consideration, failure of which will result into forfeiture of deposit, penal interest, liquidated damages etc.
It is not in dispute that this is an inclusive definition of “financial debt” but certain conditions must be complied with to be a financial debt i.e the CD must have borrowed the money from the Creditor against the payment of interest /time value of money. It means, the transactions require to be purely in borrowing nature. This does not cover the business transaction between the Creditor and Debtor which is applicable in business organization where either sale or purchase involved or construction activities involved or in Real Estate Project, multiple agencies with multiple terms and conditions are involved and each is supposed to gain or lose based on the performance of the business. In order to meet the time schedule whether in purchase or sale or development agreement or in any Real Estate project, there is always a clause for liquidated damages and the same may be either in the percentage form or sometime even other form of penal interest.
Accretion of penal interest emerging from clause 4 of the Agreement dated 20.03.2012 - HELD THAT:- There must be a disbursal of fund by the Creditor to the Debtor purely in the form of release of fund as a “borrowing” and must have a “time value of money”. The method may be different but the nature must be borrowing and in extended terminology even the liability in respect of guarantee is also covered. There must be a “Financial Debt” which is owed by the other side i.e. the Debtor. It should be amply clear that the CD owe the “Financial Debt” to the Creditor. There is a difference between the levy of liquidated damages or penal interest for default and the financial debt per se - interest per se in any business contract cannot be termed to make the “debt” as a “Financial Debt”, if it is in the nature of liquidated damages or in the nature of penal interest, which is a result of compensation for breach of contract which is stipulated for penalty. Hence, while examining the case, whether the Appellant is a Financial Creditor or not, a conclusion is now arrived at, based on above said discussions both on law & on facts and the citations produced by the parties, some of which have been explicitly cited as above reveals that the Appellant is not a “Financial Creditor” and hence, the order of the Adjudicating Authority are upheld.
Appeal dismissed.
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2022 (9) TMI 487
Seeking to set aside the decision of the RP partially rejecting the claim of the applicant and direct him to admit the claim of applicant in entirety - direction to follow the principles of fairness, impartiality and transparency in the conduct of Corporate Insolvency Resolution Process (CIRP) - seeking to restraint RP from creating any third party interest - HELD THAT:- It is evident, on examination of the impugned order, that there is no dispute regarding payment of amount which is Rs.10 crores which was claimed by the appellant. The said amount was already received on the date of the agreement i.e. 19.07.2018 and on the basis of the said agreement earlier petition filed by the appellant was withdrawn.
So far as amount of Rs.1 crore is concerned, the impugned order categorically reflects that after deducting Rs.10 lakhs as TDS, Rs.90 lakhs was already paid to the appellant. Only for remaining amount of Rs.1 crore, two cheques of Rs.50 lakhs each were issued. Dispute is only to the said amount. On examination of the claim the RP has also accepted regarding claim of the appellant of Rs. 1 crore.
In view of the fact that the amount of Rs.10 crore was received by the appellant on 19.07.2018 and thereafter Rs.90 lacs after deducting Rs.10 lacs as TDS, it is opined that the Adjudicating Authority has rightly approved the decision of Resolution Professional by reducing appellants’ claim to Rs.1 crore only. There was no reason for the Adjudicating Authority to pass a different order. Moreover there is no dispute on approval of Resolution Plan by the Adjudicating Authority.
Appeal dismissed.
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2022 (9) TMI 441
CIRP proceedings - validity of order of liquidation - Wither the Resolution Professional (RP) has not at all taken any sincere efforts for obtaining appropriate resolution plan - Section 33(2) of the IBC - HELD THAT:- On going through the impugned order it is evident that CIRP was initiated long back on 03.09.2019. As per scheme of IBC and also statutory provisions mentioned therein, such proceeding is required to be concluded within a specified time. The impugned order quoted hereinabove reflects that even after expiry of statutory period 90 days further time was granted but no resolution plan could be approved. In such situation the RP was having no alternative than to proceed with a petition under Section 33(2) of the IBC.
On bare perusal of provisions of Section 33(2) of the IBC, once Resolution Professional in compliance with the conditions mentioned in sub-section (2) with a prayer to liquidate Corporate Debtor, the Adjudicating Authority has no option but to pass an order for liquidation. The word “shall” in sub-section (2) has been inserted and as such on being intimated by the RP, in the present case, the COC has resolved for liquidation in terms of sub-section (2) of Section 33 and as such the Adjudicating Authority was having no option but to pass order for initiation of the liquidation proceeding. Moreover, on examination of the impugned order itself it is evident that there was complete non-cooperation by the appellants who were suspended directors of the corporate Debtor.
The appeal stands dismissed without cost.
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2022 (9) TMI 440
Initiation of CIRP - period of limitation - NCLT admitted the application - whether the Application filed by Respondent No.1 on the ground that Corporate Debtor has committed breach of terms and conditions of the MoU, hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act, 1963? - whether a transaction entered between the parties under the MoU is a transaction within the meaning of Section 5(8) of the Code, so as to hold the transaction as a financial transaction? - transaction under MoU pertained to sale and purchase of the real estate property with motive of profit is in the nature of ‘financial debt’ or not - Application filed under Section 7 by Respondent No.1 is for the claim of damage under the MoU and not for the claim of any financial debt?
Whether the Application filed by Respondent No.1 on 06.11.2020 on the ground that Corporate Debtor has committed breach of terms and conditions of the MoU, hence liable to refund the amount with liquidated damages was filed within the period of limitation as prescribed under Article 137 of the Limitation Act, 1963? - Whether exercising the option to void the MoU dated 25.01.2013 on 07.03.2020 can be said to be in exercise of option by the Second Party as per MoU dated 25.01.2013, in accordance with law? - HELD THAT:- The maximum period for which the agreement was to continue was 36 months. In event there is breach of Clause 10, that is, 180 days, if the First Party has not launched the scheme, the cause of action become available to the Second Party. Further, the entire period of agreement being 36 months at maximum, when a breach is committed by Corporate Debtor of compliance of terms and conditions of the MoU, that is, handing over possession of flats/ units or transfer / assignment of the entire super built up area/ flats within 36 months, the cause arose to Second Party, that is, Respondent to sue for its breach.
Right to exercise of option arose to the Second Party after 180 days and also after 36 months when period of contract came to an end. By not exercising the option when right to exercise of option arose, the Second Party cannot stop running of period of limitation on the pretext that it exercised its option only on 07.03.2020. The exercise of option after seven years from entering into the MoU and filing of the Application after seven years from the date when right to exercise of option arose, is unsustainable.
The time is not the essence of contract with regard to sale of immovable property, unless there are special features and terms and conditions in the contract, which makes the time as essence of the contract - the right to sue accrued to Respondent for breach of Clause-10 of the MoU dated 25.01.2013 on 25.07.2013, thereafter on 25.01.2016 and the application filed on 06.11.2020 is clearly barred by time.
Whether a transaction entered between the parties under the MoU dated 25.01.2013 is a transaction within the meaning of Section 5(8) of the Code, so as to hold the transaction as a financial transaction? - Whether transaction under MoU pertained to sale and purchase of the real estate property with motive of profit is in the nature of ‘financial debt’ within the meaning of Section 5(8) of the Code? - Whether the Application filed under Section 7 by Respondent No.1 is for the claim of damage under the MoU and not for the claim of any financial debt? - HELD THAT:- There is no dispute regarding payment of an amount of Rs.1,26,00,000/- by Respondent No.1 to the Corporate Debtor on 25.01.2013. The Appellant has deposited the Bank Draft including the interest @ 12%. In the interest of justice, we are of the view that the amount deposited under orders of this Tribunal dated 03.06.2022, be refunded to Respondent No.1 to avoid further litigation between the parties.
The impugned order was passed on 04.05.2022 and the Appeal was immediately filed on 09.05.2022 and this Tribunal passed an interim order on 13.05.2022 directing the IRP not to constitute the CoC. Subsequently, by another order dated 03.06.2022, a direction was issued not to take any further steps in the CIRP process. In the impugned order Adjudicating Authority has directed the Financial Creditor to deposit Rs.2,00,000/- with the IRP. In addition to amount directed by Adjudicating Authority of Rs.2,00,000/-, the IRP shall be entitled to actual expenses incurred by her in publication and other actual expenses incurred by her. On submission of bill for actual expenses incurred by the IRP, Respondent No.1 (who filed Section 7 Application) shall make the payment of expenses within a period of two weeks.
The order dated 04.05.2022 passed by the Adjudicating Authority is set-aside - Appeal allowed.
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