TMI Blog2018 (7) TMI 1983X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the facts and circumstances then existing, the loans are non performing assets and have been duly and validily classified as such, in accordance with the guidelines issued by RBI in this regard and all applicable law. The breach of representation regarding the loan being non performing asset is a matter between the petitioner and HSBC - In the present case, the respondent cannot seek to take benefit of whether the assigned debt is a NPA and the matter lies between the petitioner and HSBC. The petition is, therefore, admitted under Section 7(5) (a) of the Code and the moratorium is declared for prohibiting all of the following in terms of sub-section (1) of Section 14 of the Code. - CP(IB) No. 35/Chd/HP/2018 - - - Dated:- 6-7-2018 - Mr. R.P. Nagrath, Judicial Member AND Mr. Pradeep R. Sethi, TECHNICAL MEMBER For the Appellant : Manish Jain and Ms. Divya Sharma Advs. For the Respondent : Pooja Mahajan and Gaurav Arora Advs. JUDGMENT Pradeep R. Sethi, Technical Member The instant petition has been filed in Form No.1 by M/s. Phoenix Arc Pvt. Ltd. (hereinafter referred to as the petitioner) for initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reply dated 06.07.2012. It is stated thereafter, the petitioner issued a notice dated 30.09.2015 under Section 13(4) of the SARFAESI Act to take possession of the secured assets of the respondent and against the said notice, the respondent filed SA 281/2015 which is pending for adjudication before the DRT-1, Chandigarh. 3. It is stated further that the petitioner filed an application for recovery by OA # 919/2016 under Section 19 of the Recovery of Debts due to Banks Financial Institutions Act, 1993 for recovery of ₹ 222,07,13,590 alongwith interest till realisation of the entire amount and expenses of ₹ 73,35,840 and the said application is still pending for adjudication before the DRT-1, Chandigarh. It is submitted that due to the continuous failure of the respondent to pay the loan amount, the petitioner issued recall notice dated 19.01.2016 thereby recalling its all financial facilities. In para 2 of Part IV of Form 1, the amount in default is stated to be ₹ 268,29,20,033 as on 26.12.2017 and workings and computation of the amount of default and date of default are stated to be attached in the table of date of defaults annexed as Annexure-IV (d) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank Ltd. which was fully cash collateralized by GLAM. 6. It is further alleged that on or about 08.04.2009 the ICICI Bank Ltd. loan was swapped with a loan from HSBC and a corporate loan facility agreement dated 08.04.2009 was entered into between HSBC and the respondent (sanction letter is stated to be dated 24.03.2009). Further, HSBC, the respondent and GLAM also entered into tripartite facility rights agreement dated 08.04.2009 (Annexure R-1 of the reply). It is submitted that as per the HSBC sanction letter, the HSBC facility agreement and facility rights agreement, the entire principal outstanding of terms loan of ₹ 129.02 crores was to be repaid by the respondent to HSBC by way of a bullet repayment at the end of 60 months from the drawn down i.e. with effect from 20.04.2014 and further monthly interest of 11% per annum basis was payable on 20th of each month and the HSBC loan was required to be backed by a SBLC denominated in USD from HSBC Mauritius. It is submitted that as per sanction on 25.03.2009 by HSBC Mauritius of banking facility to GLAM, the HSBC SBLC was fully cash collateralised by way of a term deposit given by Glam to HSBC Mauritius for the full a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been classified as NPA by HSBC when interest had been recovered and the principal only became due on 20.04.2014; no notice of default was given to the respondent after 2009; HSBC appeared to have received approximately ₹ 81 crores by way of transfer from HSBC and on the other hand transferred the entire HSBC loan to the petitioner. 8. According to the respondent several legal proceedings were pending between the promoters of respondent-company and GLAM before and around the time of the impugned assignment. Further on 16.06.2012, the promoters of respondent company filed Title Suit No.38 of 2012 before the Civil Judge (Senior Division), 1st Court, Alipore alongwith an application under order 39 Rule 1 2 read with Section 151 of Civil Procedure Code, 1908 inter alia assailing the validity of the assignment deed and the impugned assignment. It is stated that vide order dated 21.04.2014, the ex-parte ad interim order dated 17.07.2012 was made absolute till final disposal of the promoter's suit. The ex-parte ad interim order is stated to restrain the petitioner and others from enforcing any rights under the impugned assignment. It is submitted that against the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RBI guidelines dated 23.04.2003 and 01.07.2015 and that the impugned assignment is illegal as the same was made in breach of the agreements between the parties. It is submitted that the impugned assignment is contrary to Section 5(3) of the SARFAESI Act and that it was not open to HSBC to conveniently pick and choose securities which are to be assigned and which are not to be assigned and/or released. It is submitted that in absence of the books of the petitioner and of HSBC, duly certified in accordance with the Bankers Books Evidence Act, 1891, the defaults alleged on part of the respondent cannot be ascertained. It is stated that the assignment deed enclosed with the petition mentions one Annexure-A purportedly being Details of Ledger Extract but Annexure-A is missing from the assignment deed filed alongwith the petition. It is stated that HSBC was not made a party to the petition, even though it had to answer various critical unanswered questions surrounding the impugned assessment. It is stated that the respondent cannot be considered in default (as the security stood encashed by HSBC) and in fact the respondent stood discharged. It has been prayed that the petition be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reference to BIFR raising serious questions about their capability to repay the secured debts. It is argued that as per Section 11.5 of General Conditions to the Corporate Rupee Loan Facility Agreement dated 08.04.2009 (Annexure-IV (b) of the petition, HSBC has a right to assign in part or whole of the Facility and any dispute that the company may have with regard to SBLC can be raised with HSBC. It is submitted that the respondent has admitted the assignment in favour of the petitioner which has been duly recorded in the BIFR order dated 20.04.2012. It is argued that GLAM was the investor of the respondent company since 2007 and therefore, it cannot be contended that there was collusion between the HSBC, petitioner and GLAM. It is stated that the Facility Rights Agreement (Annexure R-1 of the reply) is related to SBLC facility only and thus will not be binding upon the petitioner. It is submitted that till the preliminary arguments on 21.03.2018 in this Tribunal, no case was filed by the petitioner against GLAM or HSBC and the respondent have chosen to challenge the same only in the 4th week of March, 2018 before the Hon'ble Himachal Pradesh High Court which too has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply), a financial asset (i.e. loan) can be sold to a securitisation company/asset reconstruction company (like the petitioner) by a bank/FI (like HSBC) where the asset is declared as NPA and that NPA declaration is a pre-requisite for assignment of loan and in case of interest payment remaining over-due, banks should classify and account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. It is argued that the principal amount of HSBC loan was due on 20.04.2014 and as regards the monthly interest of 11%, the last payment of interest took place on 15.02.2012 by drawing down SBLC for ₹ 3.7 crores and hence the account was not over due for more than 90 days from end of quarter as on 01.03.2012. It is stated that the HSBC loan was not accelerated and there is no notice of demand or notice of default or notice of acceleration or notice of cure issued by HSBC to the petitioner. It is submitted that the guidelines issued by RBI on NPAs and loan assignments have a statutory force and must be complied with by referring to APS Star Industries Ltd. v. Commissioner of Customs 2001 taxmann.com 546 (SC) case. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner. 13. As regards the petitioner's arguments regarding event of default in the Corporate Rupee Loan Agreement dated 08.04.2009, it is submitted by the learned counsel for the respondent that the default under the Code is defined as non-payment of financial debt, and not an event of default under some agreement. As regards petitioner's arguments regarding assignment of debt being permitted under Section 11.5 of General Conditions of the Corporate Rupee Loan Facility Agreement, it is pleaded by the learned counsel for the respondent that the facility agreement does not talk of assignment and that however, facility rights agreement talks of assignment and states that assignment can only take place subject to clause 5 and that SBLC and loan go hand in hand. 14. With reference to petitioner's arguments that Facility Rights Agreement is not binding on the petitioner, it is stated that the Facility Rights Agreement was assigned to the petitioner by HSBC vide assignment deed (Serial No.92 of Part II of Assignment Deed at page 255 of the petition). As regards the petitioner's arguments that the respondent admitted/accepted the transfer of HSBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection to the satisfaction of the conditions provided for in Section 7 of the Code and Rule 4 of the IBC Rules. In its reply, the respondent had stated that the assignment deed dated 21.03.2012 (Annexure-IV (c ) of the application) mentions one Annexure-A purportedly being details of ledger extract and that the said Annexure-A is missing from the assignment deed filed alongwith the application. Notice of this defect was given to the petitioner and the defect was removed and Annexure-A was filed alongwith compliance affidavit by diary No.1575 dated 15.05.2018. 18. The other objection (page 57 of the reply) is that the petitioner has failed to substantiate the amount claimed to be in default as per the requirements of the Code. The respondent's contention is that the support given of the claimed default amount is not in accordance with the Bankers Books Evidence Act, 1891. We find that in Annexure-V (w) of the application the details of statement of dues showing total dues (including interest and penal interest) of ₹ 268,29,20,033 is accompanied by a certificate under Section 2A of the Bankers Books Evidence Act. This is also noted in this Tribunal's order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a financial creditor. The respondent has referred to the Guidelines on sale of financial assets to Securitisation Company (SC)/Reconstruction Company (RC) (created under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and related issues dated 23.04.2003 (2003 RBI Guidelines) (page 8 of diary No.1186 dated 17.04.2018 in which the details of financial assets which can be sold is given in para 3 as follows:- 3. A financial asset may be sold to the SC/RC by any bank/FI where the asset is : (i) A NPA including a non-performing bond/debenture, and (ii) A Standard Asset where: (a) the asset is under consortium/multiple banking arrangements, (b) at least 75% by value of the asset is classified as non-performing asset in the books of other banks/FIs, and (c) at least 75% (by value) of the banks/FIs who are under the consortium/multiple banking arrangements agree to the sale of the asset to SC/RC. 21. Further reference is made to para 2.1 of the RBI's Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated 01.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king business and it was held that trading in NPAs has the characteristics of a bonafide banking business. In para No.35, the Hon'ble Supreme Court held that in exercise of the powers conferred by Section 21 and 35A of the Banking Regulation act 1949, RBI can issued directions having statutory force of law. However, the directions are to be examined to find out whether the conditions of financial asset being NPA would make the assignment illegal. The first RBI Guidelines referred to by the respondent are the RBI guidelines dated 23.04.2003 in which details of financial assets which can be sold by banks/FIs to the Securitisation Company (SC)/Reconstruction Company (RC) are given. The relevant paragraph No.3 has been extracted above. The financial assets which can be sold are not only NPA but include standard asset also i.e. where the asset is under consortium/multiple banking arrangements/at least 75% (by value) of the banks/FIs who are under the consortium/multiple banking arrangements agree to the sale of asset to SC/RC etc. Therefore, subject to fulfilment of the conditions even standard asset i.e. a non-NPA can be sold by the bank/FI to SC/RC. In this context, reference may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation shall be rectified by the assignor forthwith and in no event later than 30 days from the date of receipt of notice by the assignor from the assignee, after a notice in respect of the breach is given to the assignor by the assignee. Therefore, the breach of representation regarding the loan being non performing asset is a matter between the petitioner and HSBC. The learned counsel for the petitioner has referred to para 52 of the decision of the Hon'ble Supreme Court in APS Star Inds. Ltd. (supra) in which the Hon'ble Supreme Court held as follows:- 52. Before concluding, we may state that NPAs are created on account of the breaches committed by the borrower. He violates his obligation to repay the debts. One fails to appreciate the opportunity he seeks to participate in the transfer of account receivable from one bank to the other. In the present case, the respondent cannot seek to take benefit of whether the assigned debt is a NPA and the matter lies between the petitioner and HSBC. 26. We are now taking into consideration the other issues raised by the respondent in support of its claim that the debt is not legally assigned or transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) It is argued by the learned counsel for the respondent that assignment of debt was contrary to the agreement between the parties and that the arrangement of SBLC by GLAM (by way of cash deposit by GLAM) was the very basis of investment of GLAM in the respondent company and that it was a condition precedent to the loan. It has been stated at page 3 of the respondent's reply filed by diary No.757 dated 15.03.2018 that a tripartite share subscription and shareholders agreement was entered into in March, 2007 between GLAM, the promoters and the respondent company, for investment in the respondent company and the understanding between the parties was that, to settle the dues of original lenders, GLAM will arrange financing for the respondent company, which financing shall be supported by GLAM and this understanding was the very basis of the investment in the respondent company by GLAM. However, no evidence to support the contentions raised has been filed and moreover, the issue relates to GLAM, respondent and the promoters of the respondent company and does not have any bearing on the assignment. Article III-Security of the Corporate Rupee Loan Facility Agreement dated 08.04.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Facility Agreement dated 08.04.2009, draw down date means the date on which the facility is drawn down in the manner provided in Schedule- III i.e. the draw down has reference to the date on which the facility involving term loan not exceeding ₹ 129,02,00,000 is taken and utilised by the respondent for repayment of earlier loan borrowed from ICICI Bank. The draw down date has therefore, no reference to the SBLC. As already discussed above, default of payment of the monthly interest may result in the creation of additional security. The respondent has not referred to any specific clause of the Corporate Rupee Loan Facility Agreement dated 08.04.2009 or the Facility Rights Agreement dated 08.04.2009 by which HSBC could make the draw down of monthly interest from SBLC (in case of non payment by respondent on due date) as claimed by the respondent. On the other hand, it is seen from the Board resolutions dated 30.06.2009, 16.12.2009, 23.11.2011 and 23.03.2012 (Annexure A-IV (colly) of diary No.757 dated 15.03.2018 that consequent to HSBC issuing a default notice to the respondent, GLAM paid the amounts to cure the defaults. It was in these circumstances that the amounts were ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Documents i.e. approval of the respondent or any other person is not required. Moreover, transfer need not be of all the rights, benefits and obligations. Some benefits, rights and obligations can also be transferred i.e. the assignment without SBLC can be made. Therefore, the contentions of the respondent cannot be accepted. (vi) The learned counsel for the respondent has referred to various orders passed in Alipore Court (26.02.2010) and Hon'ble High Court of Calcutta (24.06.2011) which are stated to be specifically record the relevance of SBLC and its criticality. We find that at pages 25 and 26 of the reply filed by diary No.757 dated 15.03.2018, the respondent has stated that by SLP (Civil) No.36285 of 2011 (against the order dated 24.06.2011 of Hon'ble Calcutta High Court), the Hon'ble Supreme Court by order dated 24.03.2014 declared the order dated 26.02.2010 of the Alipore Court ineffective from the date of filing of the suit. In view of these facts, the orders of the Alipore Court and Hon'ble Calcutta High Court are not being further examined. (vii) The pleas taken by the learned counsel for respondent for stating that the assignment of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by letter dated 06.07.2012, it was told by letter dated 20.07.2012 (Annexure-V (h) of the application) that the matter may be taken up separately with HSBC for seeking the details. It appears that no further action has been taken by the respondent to find out the complete details of the amount of about ₹ 81.25 crores. We may add that in the letter dated 20.07.2012, the petitioner has stated that they have not received any money as part of repayment towards the loan due and payable after the execution of deed of assignment and that the allegation regarding appropriation of amount received from encashment of SBLC is incorrect and unjustified. The contention raised is of fraud committed on the respondent and settlement between HSBC, petitioner and GLAM (without knowledge and consent of the respondent). The evidence relied upon by the respondent is discussed above and in view of the discussion the contention cannot be accepted. (ix) The learned counsel for the petitioner has pleaded that the respondent has admitted the assignment in favour of the petitioner which has been duly recorded in the BIFR order dated 20.04.2012 and thus they cannot say that they were not aware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurred; the application under Section 7(2) of the Code is complete; and there are no disciplinary proceedings pending against the proposed Resolution Professional i.e. Shri Jalesh Kumar Grover. 27. The petition is, therefore, admitted under Section 7(5) (a) of the Code and the moratorium is declared for prohibiting all of the following in terms of sub-section (1) of Section 14 of the Code:- (a) the institution of suits or continuation of pending suits 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; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the ..... 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