TMI Blog2018 (7) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... This is an application under Section 7 of the Insolvency Bankruptcy Code, 2016 (in short, Code of 2016) read with Rule 4 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short, Rules of 2016), filed by IDBI Bank Ltd. seeking initiation of Corporate Insolvency Resolution Process (in short CIRP) against Kitply Industries Limited. 2. It has been submitted that IDBI Bank Ltd., the Financial Creditor (hereinafter referred to as FC ) was incorporated on 27.09.2004 and its identification number was given as CIN-L65190MH2004GO1148838. 3. On the other hand, Kitply Industries Limited, the Corporate Debtor (hereinafter referred to as CD ) is a company registered under the Companies Act with its registered office at Makum Pathar, A.T. Road, Margherita, Tinsukia, Assam and its date of incorporation was 26.08.1982. 4. It may be stated that in 1994, a loan to the tune of ₹ 500 lakhs was granted to the CD by the FC in order to felicitate the CD to run its business in a better way. A schedule of repayment was also prepared so that the loan can be repaid within a certain time frame. However, there was default in repayment of the loan. Ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh investment, even IDBI opened a separate account for this in its books. Please refer to communication of May 14, 2009 by your large Corporate Branch from Mumbai in this regard confirming the same. It is further pertinent to mention that as part of CDR Scheme, all lenders including IDBI had specifically given up any right to recompense and therefore there is no question of any alleged OTS being in place or any alleged default thereunder. Further, as you may be aware, due to mandatory requirement under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, the Company in the year 2012 had made a reference before the Hon ble Board for Industrial Financial Reconstruction (BIFR) which is pending and due to financial distress it is not in a position to redeem any debenture and the same can take place only in terms of the rehabilitation scheme to be worked out under the aegis of Hon ble BIFR. In view of the aforesaid, we request you to kindly withdraw your erroneous letter dated February 29, 2016 based on wrong factual understanding and the threat made thereunder and bear and co-operate with us to overcome the situation by working out a rehabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance of the provisions of IBC, 2016. However, the CD never approached concerned NCLT Bench within the time fixed by the statute seeking protection from any legal proceeding which may be initiated for realization of the debt in respect of the default that has already occurred. Therefore, as on date of preferring the application under consideration, there was no bar on the part of FC in initiating present proceeding seeking initiation of CIRP against the CD. 11. According to the FC, as on 31.10.2017, the CD owed the FC a debt to the tune of ₹ 53,87,09,011.75, out of which, ₹ 31,55,10,000 was payable towards the principal amount whereas the remaining amount, same being ₹ 22,31,99,011.75, was payable towards the interest accrued on the principal amount till 31.10.2017. Since there was debt due from CD and since there was clear default in repayment of such loan, the FC has validly initiated the proceeding under Section 7 of the Code of 2016. 12. It has also been contended that the application has been filed in accordance with the prescription of law and the Rules framed thereunder. However, the Registry of this Authority had notified some defects therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Dattaraya Bapurao Sawangikar, General Manager, on the basis of authority which was conferred on him by the power of attorney dated 29.11.2017. Since the officer, who was authorized to present the application before this Authority, relied entirely on the power of attorney aforesaid and since such power of attorney is turned out to be enormously defective, it becomes well evident that Shri Sawangikar, did not have requisite authority to present the application seeking initiation of CIRP against the CD. 18. It has also been contended that the Board of Directors of the Bank concerned by its resolution dated 23-06-2017 had authorized all Executive Directors, all Chief General Managers (Grade F), and all General Managers (Grade E) to do various acts which included the power to file application under Section 7 of the Code of 2016. As per the said Board resolution dated 14.08.2017, when the Bank s exposure is less than ₹ 100 crores, the authority to file claim has been delegated to the jurisdictional Deputy General Manager. 19. However, when the Bank s exposure is ₹ 100 crores or above, the power to file claim has been delegated to the concerned General Manager. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under consideration, such conduct provides one more ground to this Authority to reject the present application. 24. Referring to section 7(3)(b) of the IBC, 2016, it has again been submitted that the said section, amongst others, provides that a financial creditor shall, along with application, furnish the name of the resolution professional, proposed to act as interim resolution professional . The financial creditor initially in its Form 1 named one Sri Anup Kumar Singh as IRP and in support thereof, it had also annexed with the application letter dated 22-11-2017, issued by FC (vide page No 1838, Vol. V of the application), whereby it had appointed Sri Anup Kumar Singh to work as IRP. 25. However, the letter dated 22-11-2017 reveals some facts which raises a serious doubt about the impartiality of such a person to work as IRP and therefore, same was conveyed to the FC through the Registry of this Authority. On coming to know about such apprehensions, expressed by the CD, the FC, in its rejoinder, stated that Sri Anup Kumar Singh had rescued himself from the proceeding and as such, he was replaced by one Sri Vijay Murmuria. 26. However, the replacement of Sri Anup Kr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 141 CLA 83 ), it has been submitted that in view of law laid down in Palogix Infrastructure (P.) Ltd. s (supra), even if there is defect in the authority of the person concerned in filing of the application under section 7 of the Code, same cannot be rejected straightaway. Rather, an opportunity needs to be given to the FC to rectify the defect in authority, if any. For ready reference, relevant part of the decision is reproduced below: - 31. As per Section 7 of the I B Code an application for initiation of Corporate Insolvency Resolution Process requires to be filed by Financial Creditor itself. The form and manner in which an application under section 7 of the I B Code is to be filed by a Financial Creditor is provided in Form-1 of the Adjudicating Authority Rules. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the I B Code and the Adjudicating Authority Rules recognize that a Financial Creditor being a juristic person can only act through an Authorized Representative . Entry 5 6 (Part I) of Form No. 1 mandates the Financial Creditor to submit name and address of the person authorized to submit applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial Creditor / Operational Creditor / Corporate Applicant , mere use of word Power of Attorney while delegating such power will not take away the authority of such officer and Tor all purposes it is to be treated as an authorization by the Financial Creditor / Operational Creditor/ Corporate Applicant in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the Authorized Representative for the purpose of filing any application under section 7 or Section 9 or Section 10 of I B Code . 37. As per Entry 5 6 (Part I) of Form No. 1, Authorised Representative is required to write his name and address and position in relation to the Financial Creditor /Bank. If there is any defect, in such case, an application under section 7 cannot be rejected and the applicant is to be granted seven days time to produce the Board Resolution and remove the defect. 38. This apart, if an officer, such as senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a proceeding for Corporate Insolvency Resolution Process against the person who have taken loan, in such case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to cover up some shortcomings in presentation of the application under consideration, such allegation too is required to be rejected as fanciful one. 34. In regard to the contention that the defects in naming the application require this Authority to reject the application, it has been stated that such a contention is also without any substance. According to the learned counsel appearing for the FC, the Code, particularly section 7(3)(b) of the Code of 2016 specifies that certain qualifications for a person to be named as IRP. Once it is found that the person, chosen by the FC to work as IRP, possesses such qualifications, the defect of the nature, so pointed out by the CD, cannot come in the way of initiating CIRP against the CD. 35. I have considered the rival submissions having regard to the materials on record as well as the decisions, relied on by the parties. Coming to the allegation that a defective power of attorney cannot give requisite authority to Sri Dattaraya Bapurao Sawangikar, General Manager IDBI Bank Ltd. Kolkata to file the application under consideration, it is found that the FC too admitted that the aforesaid power of attorney suffers from the defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that those two resolutions too, for their being enormously defective, could confer no valid authority on Sri Sawangikar, General Manager of the Bank, to present application under section 7 of the Code, 2016 seeking initiation of Corporate Insolvency Resolution Process against the CD. 41. Such alleged contradictions between the resolution, adopted by the Board on 23-06-2017 and the resolution, adopted by the same Board on 14-08-2017 are detailed in the reply, filed by the CD opposing the contentions in the application under consideration. For ready reference, the relevant part of the reply is reproduced below: - The resolution dated 14.08.2017 was brought into record subsequently by the Financial Creditor along with its Rejoinder wherein it was specifically stated in paragraph 8 that to avoid further controversies and to put at rest all the purported objections with regard to my authority to file and proceed with the case, I am enclosing herewith an Extract form Minutes of the 134th Meeting of the Board of Directors of IDBI Ltd. held on 14.8.2017at Mumbai regarding the Revision in Delegation of Powers of the Bank to competent individuals. By the said resolution dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he copy of resolution dated 23-06-2017 clearly shows that it starts from item no. ii (delegation of power for initiation of action under the Insolvency and Bankruptcy Code, 2016). 44. Since only a part of copy of the resolution dated 23-06-2017 was produced before this authority (which has bearing on the matter under consideration as is evident from title of the item, same being the delegation of power for initiation of action under the Insolvency and Bankruptcy Code, 2016 ), it cannot be expected that such a copy would contain the signatures of the Directors of the CD -since- the signature of the authors of the resolution generally occur on the last page of such resolution. 45. Being so, one cannot find fault with the resolution dated 23-06-2017 for its not containing signature of the directors of the Board of the applicant bank. The fact that such a copy is certified by the Company Secretary of the FC makes such a conclusion inevitable. In the face of above revelations, one needs to conclude that the allegation that Sri Sawangikar could not have presented the application u/s 7 of the Code is found to be wholly without any substance. 46. In regard to the allegation that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge the function(s) entrusted to an officer superior to him. 51. The CD has, however, made one more attempt to dislodge the application stating that in its application, FC has specifically and categorically stated that as far as the authority to file application is concerned, it relies on the power of attorney dated 29-11 -2017 and nothing else. In the teeth of such a claim, FC must not be allowed to say that it has in its possession more and more document(s) to show that Sri Dattaraya Bapurao Sawangikar was duly empowered to file application in hand. 52. One again, such a claim cannot be allowed to take the better of the case of the FC. In Palogix Infrastructure (P.) Ltd. s case (supra) , it has been held that when the authority to file application u/s 7 of the Code is found defective for one reason or other, the Authority concerned, instead of rejecting the application straightway, needs to give the applicant an opportunity to rectify the defects in authority in presenting the application. Such a decision also demonstrates that a too technical approach qua defect in authority/power may not advance the cause of justice. 53. On considering the present controversy in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions in Rule 4(3) of the Rules 2016. But where it is found that there was substantial compliance of the directions in Rule 4(3) and in pursuance thereto, the CD had even participated in the proceeding questing the initiation of a proceeding u/s 7 of the Code, mere peripheral infringements of the said provision cannot throw overboard such a proceeding. In that view of the matter, the word shall , so used in Rule 4(3) of the Rules of 2016, cannot also be read as mandatory. 58. Coming back to our case, I have found that the counsel for the FC arduously contends that there was no violation of the mandate in the Rule 4(3) of the Rules 2016-----since ----it had duly despatched forthwith a copy of the application, filed with Authority, to the registered office of CD. More importantly, the copies of such application were also furnished to learned counsel for the CD. On the perusal of the materials, I feel inclined to accept such contention which, in turn, requires me to hold that this proceeding cannot be rejected at the threshold as prayed for by the CD for alleged violation of Rule 4(3) of the Rules, 2016. 59. But then, even if one assumes for the sake of argument that the copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to have a look at the explanation, put forward from the side of the FC, contradicting such allegations. On going through such explanations, I have found such justification to be proper and, therefore, safe for reliance. For ready reference, the relevant part of the explanation in the rejoinder is reproduced below: - 5. With reference to the statements made in paragraph 5 of the said reply, I deny that the proposed Interim Resolution Professional (hereafter referred to as IRP) is not independent. I deny that the IRP had made communication with any of the stake holders. I deny that the IRP had sent any advance copy of the present application to the company on his letter head as alleged or at all. I say that the alleged letter does not bear any signature of IRP. I say that the said letter was prepared at the office of the Advocate and was forwarded to the Corporate Debtor. The IRP was completely unaware of the exercise of service of the copy of such application and he has no role therein. I say that the forwarding letter was inadvertently made due to misinterpretation of the newly enacted Insolvency and Bankruptcy Code, 2016 by a junior Advocate at the office of the advoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l a resolution professional is appointed. 68. Since the IRP is to discharge some very important duties at the very initial stage of the Corporate Insolvency Resolution Process, therefore, it becomes obligatory to find a professional who has in his possession all the wherewithal s to cobble all the aforesaid things together so that in the event of admission of the application, the affairs of the CD could be conducted reasonably normally. What is, however, important to note is that the legislature in their wisdom found it fit to leave such a duty to the person who is desirous of initiating such a process and such wisdom of the legislature has assumed the shape of section 7(3)(b) of the Code, 2016. 69. Therefore, when one considers the aforesaid lapses, on the part of the FC, in attending the duty imposed on it by law having regard to the scheme of the section 7(3)(b) of the Code of 2016--as is evident from our foregoing discussion--- it would appear clear that if the person concerned otherwise fulfils the requirements which law wants to see in an IRP, the small and minor lapses which occurred in naming the IRP by the FC cannot be allowed to have size larger than their lives to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Corporate Debtor in respect of its property including any action under the SARFESI Act, 2002 the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. c. That the supply of essential goods or services to corporate debtor, if continuing shall not be terminated or suspended or interrupted during the Moratorium period. d. That the provisions of Section 14 sub-section (1) shall not apply in such transactions as may be notified by the Central Government in consultation with any financial sector regulator. e. That the public announcement of corporate insolvency resolution process be made immediately as specified under Section 13 of the Code and calling for submissions of claim under Section 15 of the Code. f. An authentic copy of this order be issued to the parties after the completion of necessary formalities for their information and doing needful. g. An authentic copy of this order be issued to the Interim Resolution Professional after the completion of necessary formalities for his information and doing needful in accordance with the prescription of law as well as directions rendered he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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