TMI Blog2017 (9) TMI 1781X X X X Extracts X X X X X X X X Extracts X X X X ..... divine right to keep continue with the managing the affair of the company. Therefore, by considering the abovestated facts & circumstances of the present applications and by following the Judicial Trends, as settled we find that the present applications deserve for admission, hence, are admitted under Section 7 of I & B Code, 2016 with such consequential directions - CP Nos. (IB) 70 & 71/ALD/2017 - - - Dated:- 20-9-2017 - Harihar Prakash Chaturvedi, JUDICIAL MEMBER For the Appellant : Anurag Khanna, Sr. Adv. and Rahul Agarwal, Adv. For the Respondent : Navin Sinha, Sr. Adv. and Dinesh Kakkar, Adv. JUDGMENT 1. - Present Insolvency Applications i.e. CP No.(IB)70/ALD/2017 and CP No.(IB)71/ALD/2017 are filed by the Financial Creditor (the Bank of Baroda) against the Corporate Debtor Companies Rotomac Global Private Limited and Rotomac Exports Private Limited respectively. 2. These applications have been filed U/s. 7 of the Insolvency Bankruptcy Code, 2016 [hereinafter referred to as the Code ] read with Rule 4 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for triggering the Corporate Insolvency Resolution Process in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng debt to the tune of ₹ 35 Crores. III. A reply of the Borrower to notice issued by the Financial Creditor under Section 13(2) of the SARFAESI Act, dated November 28th, 2016. IV. The demand Notice sent by the financial creditor to the Corporate Debtor Company Rotomac Exports Pvt. Ltd. by invoking the corporate guarantee issued by it on February 03rd, 2014 and for demanding payment to the tune of ₹ 529,25,95,650.67 (as on November 21st, 2016) in respect of loans availed by the Borrower. V. The recall letter sent by Financial Creditor to the Borrower dated May 11th, 2016. VI. A demand Notice sent by the Financial Creditor to inter alia the Corporate Debtor Company and the Borrower dated October 04th, 2016 for repayment of ₹ 515,99,56,040.13/-. VII. The Demand Notice sent by the Financial Creditor to the Borrower under Section 13(2) of SARFAESI dated November 21st, 2016 for repayment of ₹ 529,25,95,650,67/-. (B) Corporate Guarantee given by Corporate Debtor (e.g. M/s. Rotomac Exports Ltd.) I. Corporate Guarantee No. 1 dated 16.01.2001 II. Corporate Guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DRT, Allahabad who has already issued a notice on 29.05.2017 under section 29 of the RDDBFI Act, 1993 to the Corporate Debtors. 4. It is also contended that apart the Applicant Bank has further issued notice dated 21.11.2016 under Section 13(2) of SARFAESI Act, and consequent thereto a symbolic possession has also been taken by the Bank U/s. 13(4) of the SARFAESI Act in respect of secured/mortgaged properties. 5. It is also contended that although the Debts Recovery Tribunal, Allahabad passed an order for issuing recovery certificates against the Corporate Debtor Company, but it was kind enough to grant time for one year from the date of its order to make payment of such amount with such a direction that in event of non-payment by the company during such period of one year, then such period may further be extendable upto another six months to enable the respondents to liquidate its outstanding to the Applicant-Bank. It is stated that certain differences have arisen between the Management and the Applicant-Financial Creditor Bank, due to such, the Bank has refused to give further financial assistance to the Corporate Debtor Companies. Therefore, a Joint Lender' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Lead Bank as well as the other Banks to take a decision for bringing the company back on track by preparing a resolution plan and restructuring the debts but because of filing of the present application for part amount of ₹ 500 Crores (odd), will necessarily jeopardize the process of coming for settlement with the lead bank as well as with the other banks, who are holding a stake of almost 80% of total outstanding debts. 9. It is also contended that, if one banker from the Consortium of Banks declare the borrower company as a wilful defaulter then it will necessarily fetter its restructuring process. In support of such contention the Corporate Debtors have referred to a Reserve Bank of India's Circular dated 26.02.2014, which speaks such to consider the possibility of restructuring the Account, if it is prima facie viable and borrower is not a wilful defaulter . However, since the Corporate Debtor has been declared as a wilful defaulter the proceedings before the JLF are going to adversely affected. 10. It is also contended that the amount of debts due to the Applicant-Bank of Baroda is only a part of substantial amount due by the Corporate Debtor Company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Act, 2002, or that the pendency of certain proceedings before the Hon'ble High Court in Misc. Writ Petition No. 12648 of 2017, are not impediments to a financial creditor for moving an application before this Hon'ble Tribunal under Section 7 of the Insolvency Code, and in no manner affects its ability to do so. iv. With reference to the submissions made by the Corporate Debtor in paragraphs 12, 16, 17, 18, 19, 21, 22, 24 27 of the Counter Affidavit. It is replied that the fact that certain other creditors of the Corporate Debtor Companies are working on certain mechanism to fix the default position of the Corporate Debtor but it does not create a bar to the Financial Creditor to approach Hon'ble Tribunal by tiling present application under the provisions of the Code and nor it absolve the Corporate Debtor Companies from its obligation to repay its debt availed from the present Financial Creditor. In this respect, the Financial Creditor has placed reliance on an order of the Hon'ble Appellate Tribunal in the matter of Innoventive Industries Ltd. v. ICICI Bank[2017] 82 taxmann.com 190/142 SCL 11 (NCL - AT), wherein the Hon'ble Appellate Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord a Power of Attorney dated June 19th, 2017 executed by its Power of Attorney holder Sh. Brijesh Kumar Singh by appointing authorizing to Mr. Chandra Shekhar Awasthi as an attorney to file application on behalf of the Applicant Bank against the Corporate Debtor Companies including filing of the present application i.e. CP No. (IB)70/ALD/20I7 CP No.(IB)71/ALD/2017. Thus, the Bank has duly ratified the authority of authorisation in favour of Mr. Chandra Shekhar Awasthi to sign the pleadings and to file the present application. A copy of such power of attorney dated 19th June, 2017 is placed on record along with his affidavit. The Applicant Bank further took such plea that the pendency of the recovery proceeding before the DRT, Allahabad and proceeding under the SARFAES1 Act are not impediments to a Financial Creditor for making an application U/s. 7 of the I B Code before this Tribunal and in no manner affects its eligibility to do so. Further, the Applicant Bank placed reliance on a latest decision of Hon'ble Supreme Court in the matter of Innoventive Industries Ltd. v. ICICI Bank Ltd.[2017] 84 taxmann.com 320/143 SCL 625 and also to the view taken by the Hon'ble NC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to look into any other factor for consideration of admission or rejection of the present application except to as provided in the Code and on occurrence of default U/s. 7, it is immaterial for deciding the present application as to whether a prior permission of or consent from one or other authority including the JLF is obtained or otherwise. Therefore, according to him, the present application deserves for admission. 11. In contra to this, Sh. Navin Sinha, Ld. Sr. Advocate along with Advocate Sh. Dinesh Kakkar for the Corporate Debtor Company would submit that the financial creditor was not fair enough to approach this Court because the debt owed to the Applicant Bank is only 22% of the total debt owed to the consortium of Bank/other Banks except the present applicant other Banks have not opted to initiate such proceedings, but went to constitute a Joint Lender's Forum on 26.12.2014 when the amount of the Corporate Debtor Companies become irregular. Such JLF has been constituted as per the statutory guidelines of RBI dated 06.04.2015 for the purpose of Revitalising Distressed Assets in the economy through Joint Lender's Forum and Corrective Action Plan (Reference may ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 10 CPC. It would promote forum shopping which is wholly impermissible in law . 13. He further placed reliance on a decision of the Bombay High Court in Company Application No. 470 of 2016 in [Company Petition No.570 (Bom.) of 2016, dated 14-2-2017] (along with group of matters) in the matter of IDFC Bank Ltd. v. Ruchi Soya Industries Ltd. wherein the Ld. Single Judge of the Hon'ble Bombay High Court took such view by observing that if 98% of the creditors in value of the total dues of respondent are agreed to oppose the winding up petition are participating in JLF's meetings to take steps for rectification and restructuring of the debts of respondent company then a winding up petition at the instance of a petitioner who claims only 1% of the total debts of the respondent company cannot be entertained and such order of winding up in favour of the petitioner would not benefit generally the petitioner nor the creditors of the respondent company. Thus, the Hon'ble Bombay High Court has pleased to consider the wishes of large number of creditors who were seriously opposing the winding up of the respondent company as they had agreed to take steps to revive the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Lender's Forum. Moreover, the Hon'ble Supreme Court in the above referred recent judgment in the matter of Innoventive Industries Ltd. (supra) has ruled to set up a guidelines and pleased to issue a mandate to us by observing as such, because this is very first application that has been moved under the Code, we thought it necessary to deliver a detailed judgment so that all Courts and Tribunals may take notice of a paradigm shift in the law. Entrenched managements are no longer allowed to continue in management if they cannot pay their debts. 15. The Insolvency Bankruptcy Code, 2016 has been passed after great deliberation and pursuant to various committee reports, the most important of which is the report of the Bankruptcy Law Reforms Committee of November, 2015. The Statement of Objects Reasons of the Code read as under: STATEMENT OF OBJECTS REASONS There is no single law in India that deals with Insolvency and Bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings envisaged in the Code. Information utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income-tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013. The code seeks to achieve the above objectives. (Emphasis Supplied) One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a direction issued by the Hon'ble Allahabad High Court in the above referred writ petition which may be subject to further challenge before the Hon'ble Allahabad High Court, but the things remains still unchanged until such decision (to classify the Corporate Debtor as a wilful defaulter) is not reversed by the Hon'ble High Court or by a competent court of law. Thus, in our view, till then the Joint Lender's Forum is not in a position to work on preparation of a resolution plan, if any, in respect of the Corporate Debtor Company, nor such plan can be materialized until unless such legal disability/procedural difficulty is removed by a competent Court of Law. It is also reported that the meetings of the JLF are not being convened since long nor any resolution plan in respect of the Corporate Debtor Companies has so far been materialised. 17. Thus, in the light of abovestated discussion and by perusal of the present applications filed by the Financial Creditor, it seems that these are found to be filed in conformity with Section 7 of Code to meet the requirement of Section 3(11) and 3(12) of the Code, which reads as under:- Section 3(11) debt means a liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 24, 29, 31 32 of the judgment) as such:- 21. Section 60 stipulates that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof, shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. As per provisions contained under Section 60 of the IBC, 2016 the National Company Law Tribunal shall be the Adjudicating Authority for insolvency resolution and liquidation of corporate debtors and also lays down the criteria for establishing the territorial jurisdiction of the Tribunal. The insolvency resolution or bankruptcy proceedings relating to a personal guarantor of a corporate debtor shall also be filed before the National Company Law Tribunal. 24. The object of IBC, 2016 is categorical and as per provisions contained under Section 60(1) the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal. In the present matter, admittedly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion such objection/contention may sound high but remedy lie elsewhere not necessarily before this Court under the I B Code. The company could take up such issue with the RBI but such action does not necessarily debar the Applicant Bank for filing present application under the I B Code before this Court nor jurisdiction of this Courts is expressly barred, if such RBI Circular/Guidelines are ignored or violated by the Applicant Bank. Moreover, M/s. Rotomac Global Pvt. Ltd. earlier itself, in its letter dated March 14th, 2016 No. RGPL/2015-16 addressed to AGM, Bank of India, Kanpur earlier has proposed for reassessment of its non-fund based limits from ₹ 2,250/- Crores to ₹ 4,220/- Crores out of which a debt of ₹ 3,100/- Cores as a non-fund based loan has been duly admitted. Since, such being position that the Corporate Debtor Companies are not able to repay its debts then, its Board of Director cannot be expected to remain in and to keep continue with the affair of managing the company. As per its obiter dictum the Hon'ble Supreme Court in the above referred matter of Innoventive Industries Ltd. (supra) has pleased to refer Bankruptcy Law Reforms Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout the full clarity of ownership and control, significant decisions cannot be made. Without effective leadership, the firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only answer. Second, the liquidation value tends to go down with time as many assets suffer from a high economic rate of depreciation. From the viewpoint of creditors, a good realisation can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay. ** ** ** The role that insolvency and bankruptcy plays in debt financing Often, an enterprise may be a successful business model while still failing to repay its creditors. A sound bankruptcy process is one that helps creditors and debtors realise and agree on whether the entity is facing financial failure and business failure. This is important to allow both parties to realise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution of suits or continuation of pending suit or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act, 2002; the recovery of any property by an owner or less or where such property is occupied by or in the possession of the corporate debtor. 4. That the supply of essential goods or services to corporate debtor, continuing, shall not be terminated or suspended or interrupted during the Moratorium period. The Corporate Debtor to provide effective assistance to the IRP as and when he takes charge of the Corporate Debtor. 5. That the provisions of section 14 sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 6. That the public announcement of Corporate Insol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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