TMI Blog2018 (8) TMI 1949X X X X Extracts X X X X X X X X Extracts X X X X ..... Communication, under Rule 9 of I B(AAA) Rules, 2016 by interalia declaring that he is a qualified Insolvency Resolution Professional Registered with IBBI/IPA-OOI/IPP00077-18/ 10162 and he is not undergoing any disciplinary proceedings, expressing willingness to act as such etc. Application is admitted - moratorium is declared. - C.P. (IB) No. 66/BB/2017 - - - Dated:- 30-8-2018 - Hon'ble Shri Rajeswara Rao Vittanala, Member (Judicial) AND Hon'ble Shri Ashok Kumar Mishra, Member (Technical) For the Petitioner : Shri Udaya Holla, Senior Advocate. For the Respondent : Shri B.C.Thiruvengadum, Advocate. ORDER Per: Rajeswara Rao Vittanala, Member (Judicial) 1. The Company Petition(Application) bearing C.P (IrsB) No. 66/BB/2017, is filed under u/ s 7 of the Insolvency and Bankruptcy Code, 2016 R/ w Rule 4 of I B (Application to Adjudicating Authority) Rules, 201 6, by Axis Bank Limited , herein after called as Petitioner/ Financial creditor, by inter-alia seeking to initiate Corporate Insolvency Resolution Process (CIRP) in respect of Lotus Shopping Centres Private Limited (Respondent/ Corporate Debtor), under the provisions of IBC, 2016. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to as Axis Bank Facility 1 ) and ii. Facility 2 (Short Term Loan), details of which are set out in the Short TL Agreement and the Short TL Sanction Letter, in respect of which the principal amount extended by Axis Bank is ₹ 55,00,00,000/- (IRS. Fifty Five Crores only) (referred to as Axis Bank Facility 2 , together with Axis Facility 1, Axis Facilities ) e) The following are the debt and default. in respect of Axis Facility 1 i. Total amount of debt (including the default amounts reported under the application) is ₹ 147,78,03,498/- (Rs. One hundred Forty Seven Crores Seventy Eight Lakhs Three Thousand Four Hundred Ninety Eight only). The defaulted amount, under the Axis Facility 1 as on 15th July 2017 is ₹ 8,22,01,069/- (Rs. Eight Crores Twenty Two Lakhs One Thousand Sixty Nine only); and the initial date of default by the Corporate Defaulter with respect to Axis Facility 1 is 15 th April 2017. ii. In respect of Axis Facility 2: The total amount of debt (including the default amounts reported under this application) is ₹ 53,75,62,371/- (Rs. Fifty three Crores Seventy five Lakhs Sixty two Thousand and three Hundred seventy one). The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Security interest available to Axis Bank in respect of each of the Axis Facilities ( Common Security ) (including the principal amount, interest, default interest and all amounts owing there under) are set out below: a) First charge by way of hypothecation over the Corporate Debtors entire fixed assets both present and future, consisting of plant, machinery, spares, tools and accessories, fixtures, implements, fittings and other installations, furniture, vehicles, computer and all other articles etc., b) First charge by way of hypothecation over thc whole of the current assets of the Corporate Debtors namely, stock in trade, both present and future, consisting stock including raw materials, tock in process, finished goods, cash etc., c) Estimated value of the security given by the Corporate Debtor is approximately Rs (Rs. Four hundred fifty two Crores thirty three lakhs only). 3. The Respondent/ Corporate Debtor, by opposing the Company petition, filed reply dated 2nd November 2017, by inter-alia stating/contending as follows: a) WP No. 37729/2017 is filed challenging the constitutional validity of the IBC, 2016 and the jurisdiction of this Tribunal, and anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted indulging in the manipulation of the statement of account in order to maximize its revenue by way of interest and to fleece the Respondent. d) The Account of the Respondent Company became NPA on 31/08/2015. According to the statement of the Bank, the late payment was affected on 28/09/2015 and as per the NPA norms of RBI, the account was overdue by 3 months and ought to have been classified as NPA. Respondent released a sum of ₹ 5.17 Crores on 28/09/2015 as against their original sanctioning. Once again the account became NPA on 15/01/2016, but the Bank did not classify the account with malafide intention to charge interest and make profit. They have raised several contentions with regard to the declaration of NPA. It is alleged that the Bank has manipulated various documents using blank signatures by pointing out various legalities of documentation process by the Bank. e) The Reserve Bank of India, has in the recent past penalized the Bank for fraudulent money laundering practices by the officials of Bank during the demonetization program launched by the Hon'ble Prime Minister of India, the penalty being a paltry sum of ₹ 5,00,00,000/- It is stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than 104,00,00,000/- as on 31/03/2013 for the purpose of the project. h) It is stated that there has been a delay of seven months in the sanction of loan, two months delay in documentation and releasing the first tranche of funds. The Respondent has relied upon the Master Circular issued by the RBI on Lending by Banks and financial Institutions Circular No. RBI/ 2012-13/79:DBOD.No.Dir:BC.4/ 13.03.00/2012-13 dt. 2 nd July 2012. c: Banks/ financial institutions should verify the loan applications within a reasonable period of time. If additional details/ documents are required, they should intimate the borrowers immediately . i) As against the sanction limit of ₹ 150,00,00,000/- the Bank has released a sum of ₹ 102,00,00,000/- and the promoter contribution was not less than ₹ 115,00,00,000/- and land worth ₹ 72,00,00,000/- and collateral worth ₹ 120,00,00,000/- The Bank ought to have fulfil the obligation of ₹ 48,00,00,000/- as per the norms. j) On 2nd July 2014, the Respondents submitted the project update to the Bant bank by seeking enhancement of the limit by another ₹ 70,00,00,000/- They have realised that the officials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) As against ₹ 120,00,00,000/- sanctioned ₹ 102,00,00,000/- had already been disbursed by the Bank and availed by the Respondent. But releasing of unutilized additional amount of ₹ 30,00,00,000/- the Bank has put a condition on the respondent to bring in corresponding equity capital or deposits or should be funded by any other or financial institution. p) It is alleged that the Bank vicariously liable for the fraudulent acts of omission and commissions committed by its employees and thus the Respondent has suffered huge loss on account of forced illegal borrowing from Shriram and Piramal. Therefore, the Respondent was constrained to initiate legal action by seeking damages towards abnormal interest levied by Shriram Finance and Piramal, on account of economic duress situation created by the Bank. The estimated damages according to the Respondent is not less than ₹ 300,00,00,000/- however the Respondent has restricted this claim in the suit in O.S No. 5553/2017 to about ₹ 101.77 Crores (Rupees Hundred and One Crores and Seventy Seven Lakhs). It is stated that Shri K.S Sornayyaji (former General Manager of State Bank of India was engaged by the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various documents filed in support of the Company petition, has further pointed out that term loan agreement dated 2 nd January 2013 was executed between Axis Bank Limited (Petitioner/ Financial Creditor) and Lotus Shopping Centres Private Limited (Respondent/ Corporate Debtor), which contains several terms and conditions for sanction of the loan and disbursement. Some of the terms, which are relevant to the issue are as follows:- a) Borrower agrees to borrow the loan from the Axis Bank on the terms and conditions as fully contained in the Agreement. b) The Axis Bank shall, unless otherwise agreed between the Borrower and the Bank, disburse the Loan in lump sum or in suitable instalments to be decided by the Bank, or in the name of the Borrower (s) or in the name of the previous financier towards the repayment of the previous loan to be taken over by utilising this Loan. c) The Bank shall have an unconditional right to cancel the undrawn/unavailed/unused portion of the Loan at any time during the subsistence of the Loan, without any prior notice to the borrower, for any reason whatsoever. In the event of any such cancellation, all the provisions of this Agreement and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrower standing to his credit in any account whatsoever with the Bank, towards payment of such deficiency. Nothing contained in this clause shall oblige the Bank to sell, hire or deal with the properties and the Banl shall be entitled to proceed against the Borrower independent of such other security. The Borrower agrees to accept the Bank's accounts in respect of such sale, hire, dealing or otherwise as conclusive proof of the correctness of any sum claimed to be due from the Borrower. In case of any deficit, the deficit amount shall be recovered by the Bank from the Borrower. i) The borrower also agrees, undertakes and confirms as under: The Borrower understands that as a precondition relating to the grant of and/or continuing the grant of Credit Facility to the Borrower, the Bank requires the Borrower's consent for the disclosure by the Bank of information and data relating to the Borrower, of the Credit Facility availed by the Borrower, in discharge thereof. Accordingly, the Borrower hereby agrees and gives consent for the disclosure by Bank of all or any such: a) information and data relating to the Borrower; b) the information of data relating to its C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m) The loan amount of ₹ 150.00 crores shall be repaid in 99 Equated Monthly Instalments (EMIs) commencing from 20th Month from the date of first disbursement. The EMI is proposed to be stepped up over the tenor of the loan, in line with increase in rental income. The proposed instalments for repayment of term loan are given as under: (Rs. In Crores) Instalments EMI 1st to 36 th 2.05 37th to 72nd 3.00 73rd to 99th 3.22 The company shall pay the actual interest applied during the construction period (initial 19 months) from internal accruals/ promoter contribution and the same shall be payable at monthly rests. n) The cost of the project as above shall be financed by way of internal accruals/ funding from promoter (including CCD) ₹ 151.39 crores and term debt of ₹ 150 crores. Any overrun in the project cost shall be financed by unsecured interest free funds from the promoters of the borrower. Any funds, from the promoter would be subordinate to cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Default Days of Default as on 15 th July 2017 Defaulted principal amount Defaulted scheduled interest payment Default Interest Total overdue 1 AxisFacility 1 (As on 15 th April 2017) 46,14,964 1,58,85,036 0 2,05,00,000 15 th April 2017 95 2 AxisFacility 1 (As on 15 th May 2017) 50,41,648 1,54,58,352 32,575 2,05,32,575 3 AxisFacility 1 (As on 15 th June 2017) 43,53,359 1,61,46,641 68,521 2,05,68,521 4 AxisFacility 1 (As on 15 th July 2017) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional funding (without matching promoters' equity contribution) would have changed debt/ Equity ratio. which would have rendered the project as substandard. The project cost overrun funding also attracts RBI regulations. While banking Project finance, as per its commercial decisions, the sole responsibility of completion of the project, within the framework of mutually agreed terms, lies with the Borrower. It is also intimated that the account was irregular with an amount of ₹ 6.66 Crores with effect from 15th April 2017, and they were advised to regularize the account immediately as there has been repeated irregularities in the records. It is further informed that no additional credit facility would be extended by the Bank, and additional funding requirement, if any, is to be met from their own sources/ alternate funding arrangements. r) The Bank has also issued another reply dated 17th July 2017 to the Director of the Corporate Debtor and Copy to the Company by inter-alia intimating that the Corporate Debtor remains in default of repayment obligations since 15th April 2017 under the Facility 1 and 30th April 2017 for facility 2. As the total amount of ₹ 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult. e. It is also contended that the Respondent by its undertaking dated 26.04.2017, has confirmed and acknowledged its indebtedness to the Respondent for a sum of ₹ 143,02,40,456/-. Therefore, the disputes now raised are just a moonshine with a sole intention to delay the present proceedings. It is stated that the Respondent has already instituted a Civil Suit being OS 5553/2017 in the City Civil Court, Bangalore and the City Civil Court will conduct a full trial into all the alleged factual disputes that have been agitated by the Respondent. Therefore, the issue before the City Civil Court is in no manner affected by the moratorium to be imposed u/ s 14 of the Code, which operates only against the suits filed against the Corporate Debtor, and thus the Respondent is not prejudiced in any manner. f. The Respondent has filed IA No.239/2018 with an intention to delay the proceedings. Moreover, Section 2 of the Code is not applicable to an application filed u/ s 7 of the Code. g. It is also contended that the Respondent has attempted to confuse the issue by placing reliance on the decisions, which define insolvency under the erstwhile Companies Act, 1956, and relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho L.J. (relevant paragraph 10), Major Gian Singh Vs. Shri S.P. Batrar reported in AIR 1973 P H 400 (relevant paragraph 13 and 15) and Amar Singh Vs. Smt. Bhagwati reported in 2000 SCC Online Raj 61 (relevant paragraph 28), in support of its case. The Respondent has failed to establish that the Bank has filed the present proceedings for reasons for malice and malicious prosecution; j. It is denied that there is any delay in sanctioning of loan. As stated supra, that the test for admission u/ s 7 of IBC is whether there is any non-payment of debt due. Having availed the loan, the Corporate Debtor cannot refuse to pay the instalments having accepted the original sanction term and modified sanction terms. k. There is no delay in disbursement of loan in question. It is stated that there is no restriction under law preventing a Bank from granting loan to a Creditor even if another loan account is in default. Further, there is no prohibition under law that once default occurs, a Bank cannot fund such account further, Moreover, the RBI Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - projects under Implementation date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Board reported in ILR 2001 KAR 2950; o. The Respondents have filed Writ Petition No. 37729 of 2017 before the Hon'ble High Court of Karnataka. Though the High Court initially passed an interim order not to pass any adverse order against the respondent by this Tribunal, it was vacated vide order dated 08.11.2017. Though the Writ Petition is pending, the Adjudicating Authority is empowered to decide the question of admission. They have relied upon the judgment as laid down by Hon'ble Supreme Court in KS Venkataraman Co. (P) Limited Vs. State of Madras reported in AIR 1966 SC 1089 at Paragraph 23 as held But an authority created by a statute cannot question the vires of that statute or any of the provisions thereof where under it functions. It must act under Act and not outside it. p. Hon'ble Supreme Court has upheld the Constitutional validity of NCLT and NCLAT in the case of Madras Bar Association Vs. Union of India (2015) 8 SCC 583), and has further validated the vesting of the jurisdiction of the Civil Courts with the NCLT. 7. Shri B.C. Thiruvengadam, after making elaborate arguments, has also filed written submission dated 21.08.2018 giving his gist o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts to show the account is regular even though it had become NPA. The additional loan in order to set off the interest in nothing but ever greening. It is not only fraud but also a violation of RBI guidelines 3.11, page 456 of Volume Il. Therefore, they contended that disputed debt stems out of fraud and manipulation; g. It is also stated that Hon'ble High Court of Karnataka in the case of Lotus Shopping Malls Pvt. Ltd. Vs. Axis Bank, vide order dated 08.11.2017 in WP No. 37729/2017, held that IBC proceedings u/ s 7 of the IBC Code are adversarial in nature. Lotus can urge all its defenses and NCLT should give ample time to the parties to argue on issues of malice. The report given by former General Manager, SBI, indicts the Applicant Bank and its officials of malafide and illegal conduct contravening various regulations of RB. It is contended that the Account of Corporate Debtor had become NPA, the Bank chose not to classify it as one, in order to hoodwink RBI and with an intent to book more income as interest; h. It is alleged that the present application has been filed with an ulterior motive and malicious intent to pre-empt the threat for damages; i. It is alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenging the proceedings of IBC, 2016. The Hon'ble High Court of Karnataka, while ordering notice to the Respondent, has passed an interim-order dated 23/08/2017, by directing the Tribunal that Pending consideration of the petition no adverse orders shall be passed against the Petitioner in the present Company Petition. Subsequently, the interim order dated 23/08/2018i was vacated by order dated 08/ 11/2017. Accordingly the case was taken up for hearing. 10. I.A No. 159/2017 was filed by Lotus Three Developments Limited and Kakosi Limited by inter-alia seeking to implead them as Respondent Nos. 2 3 to the main Company Petition. The Tribunal vide its order dated 25th April, allowed I.A No. 159/2017 by directing the Petitioner to implead them as Respondent Nos. 2 and 3 and to file an amended Company Petition. And this Order was questioned before the Hon'ble NCLAT by filing Company Appeal (AT) (Insolvency) No.246/2018. The Hon'ble NCLAT has allowed the Company Appeal (AT) (Insolvency) No.246/2018 by an order dated 31/07/2018, by setting aside the order of this Tribunal with a direction to the Tribunal to decide the case, in terms of the observations made by the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3) 57. Sub-section (5) of Section 7 of the I B Code provides for admission or rejection of application of a financial creditor. Where the Adjudicating Authority is satisfied that ...the documents are complete or incomplete. 58. The Adjudicating Authority post ascertaining and being satisfied that such a default has occurred may admit the application of the financial creditor. In other words, the statute mandates the Adjudicating Authority to ascertain and record satisfaction as to the occurrence of default before admitting the application. Mere claim by the financial creditor that the default has occurred is not sufficient. The same is subject to the Adjudicating Authority's summary adjudication, though limited to 'ascertainment' and 'satisfaction'. 12. The Hon'ble Supreme Court has also upheld the above judgement in Civil Appeal Nos. 8337-8338 of 2017 vide judgem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the light of provisions of Section 7 of Code, and law as declared by the Hon ble NCLAT and Hon ble Supreme Court as extracted above, the Adjudicating Authority/ Tribunal has to examine the instant case with regard to default, Application/ petition is complete/ incomplete, such default is supported by evidence; and has named Interim Resolution Professional. As explained above, the instant Company Petition is filed by Axis Bank (Financial Creditor) strictly in accordance with provisions of Section 7 of Code by interalia producing record of default as per the Bank Statement; suggested Mr. Sundaresh Bhat, as Interim Resolution Professional , who has filed Written Communication, under Rule 9 of I B(AAA) Rules, 2016 by interalia declaring that he is a qualified Insolvency Resolution Professional Registered with IBBI/IPA-OOI/IPP00077-18/ 10162 and he is not undergoing any disciplinary proceedings, expressing willingness to act as such etc. As stated above, the total amount of debt including the defaulted amount s reported under this application under Axis Facility I is ₹ 147,78,03,498/(One Hundred Forty Seven Crores Seventy Eight Lakhs Three Thousand and Four Hundred Ninety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess in respect of Corporate Debtor. For the reasons stated supra, the Adjudicating Authority is satisfied that the instant Company Petition is filed by complying with the provisions of Section 7 of IBC, 2016 and also suggested Mr. Sundaresh Bhat, BDO Restructuring Advisory LLP, Level 9, the Ruby, NW Wing, Senapati Bapat Marg, Dadar (West) Mumbai400028. Registration No. IBB1/1PA-001/1P-P00077/2017-2018/ 10162 as IRP, who is competent to be appointed to as such and he is not undergoing any disciplinary proceedings. Therefore, we are of the considered opinion that the instant Company petition deserves to be admitted in consonance with ratio as laid down by the Honble NCLAT and the Hon ble Supreme Court as mentioned supra. 16. Since the Tribunal has admitted the main Company Petition, I.A No. 164/2017 filed under section 65 of Code is not maintainable, and even prima facie case is not made out to entertain it. In support of this application, the learned Counsel for the respondent was mainly relying on damage suit and Writ petition filed against Financial Creditor. As explained above, the suit in question is with regard to damages alleged to have suffered by delay in disbursement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate 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 Corporate Debtor; (e) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period; (f) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator as also not applicable to surety. (g) The order of moratorium shall have effect from the date or such order till the completion of the corporate insolvency resolution process; (h) The IRP should follow all extant provisions of IBC, 2016 and the rules including fees rules as framed by IBBI. The IRP is hereby directed to file his report in the Tribunal from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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