9911796707
TMI Blog2020 (10) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... s the "Corporate Debtor". 2. The Financial Creditor has proposed the name of one Mr. Samir Kumar Bhattacharyya to act as Interim Resolution Professional in case the application is admitted. Mr. Samir Kumar Bhattacharyya vide his letter dated 23.08.2018 has given his consent to be appointed as IRP. 3. It is submitted that the Financial Creditor is the Lead Bank of the Consortium of Banks from whom the Corporate Debtor, (formerly known as LMJ International Limited), now known and named as Sri Munisuvrata Agri International Limited had been availing credit facilities under a Consortium arrangement. The other member Banks of the Consortium are State Bank of India, Allahabad Bank, Indian Overseas Bank, UCO Bank, Standard Chartered Bank, Canara Bank, Punjab National Bank and Corporation Bank. It is further submitted that the Corporate Debtor had executed joint documents in favour of the member Banks of the Consortium including supplemental joint deed of hypothecation dated 15.02.2018 and created joint mortgage by deposit of title deeds in favour of the member Banks of the Consortium. The Corporate Debtor had also executed individual documents in favour of the Financial Creditor i.e. Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Receipt (Export) executed by the Corporate Debtor on 22.02.2017; h) Letter of Undertaking (Packing Credit Advance) executed by the Corporate Debtor on 22.02.2017; i) Inland/Foreign Letter of Credit Undertaking executed by the Corporate Debtor on 22.02.2017; j) Letter of Undertaking executed by the Corporate Debtor on 22.02.2017; k) Letter of Undertaking of Packing Credit Facility executed by the Corporate Debtor on 22.02.2017; l) Letter of Undertaking in respect of Book Debts executed by the Corporate Debtor on 22.02.2017; m) Undertaking not to withdraw deposits by the Partners/Directors till the advance is liquidated, executed by the Corporate Debtor on 22.02.2017; n) General Undertaking, executed by the Corporate Debtor on 22.02.2017; o) Undertaking cum Declaration, executed by the Corporate Debtor on 22.02.2017; p) Declaration cum Undertaking, executed by the Corporate Debtor on 22.02.2017; q) Power of Attorney in respect of Book debts, executed by the Corporate Debtor on 22.02.2017; r) Supplemental Composite Instrument of Hypothecation of Goods, Book Debts, Moveable Machinery and Vehicles, executed by the Corporate Debtor on 22.02.2017; s) Hypothecatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor were regularly enhanced after reviewing the past dealings and transactions of the Corporate Debtor. It is submitted that the situation had changed from the middle of March, 2018 because of a sudden and unexpected circular issued by the Reserve Bank of India dated March 13, 2018 being Circular No. 20 by which all authorized dealer Category-I Bank authorized to deal in foreign exchange were directed to discontinue the practice of issuance of Letter of Undertakings (LoUs)/Letter of Comforts (LoCs) for trade credits for imports into India with immediate effect. Therefore, by reason of the Reserve Bank of India Circular dated March 13, 2018 the working capital consortium agreement dated December 7, 2006 and the supplemental working capital consortium agreement dated February 15, 2018 which enabled the Corporate Debtor to apply and obtain credit was rendered nugatory. The facility of buyers credit/LoUs/LoCs were no longer being provided by the respective member banks in the Consortium of Banks known as BOB Consortium, in view of such Circular issued by the RBI. 9. It is further stated that the letters of credit opening banks under the consortium have demanded and are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally neglected to disburse the agreed enhanced limit of Rs. 8.5 crores in terms of the said supplemental working capital consortium agreement. It is further stated that apart from the difficulties faced with some of the member banks of the consortium as mentioned above, the Corporate Debtor had also received a purported demand of Rs. 173 crore from Income Tax department and in order to recover such purported demand, IT Department served notice upon all the banks of the consortium asking them to pay the money due and payable to the corporate debtor. Consequently entire accounts of the company have become inoperative since March, 2018. The management of the corporate debtor repeatedly urged before the members of the consortium banks to render assistance in this regard, which, however, was not heeded to, except demanding the alleged dues from the corporate debtor. 13. During the various meetings of the consortium held on April 23, 2018; May 10, 2018; June 4, 2018 and October 5, 2018, the Corporate Debtor is stated to have elaborately explained the effect of various unforeseen incidents due to which the affairs of the corporate debtor were adversely affected and to get out of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the Corporate Debtor in para 21 of the reply affidavit unambiguously submitted admission of the petition filed by the Financial Creditor and for appointment of Resolution Professional. It is submitted that in the light of the unequivocal admission of default by the Corporate Debtor, the petition filed by the Financial Creditor should be admitted and Resolution Professional should be appointed. 17. It is submitted that the Corporate Debtor was maintaining the account in a satisfactory manner till its account was classified as a Non Performing Asset with effect from 29th May, 2018. 18. After dealing with the pleadings of the Financial Creditor and the Corporate Debtor, we need to deal with the application filed by Sleepwell Industries Co. Limited which has come forward to intervene in the proceedings as a necessary party by way of an application being CA(IB) No. 881/KB/2019 filed on 7th March, 2019. The applicant in this application has submitted that the applicant is the holder of two foreign awards passed by GAFTA Tribunal, London. The applicant filed two Execution Applications for enforcement of the aforesaid Awards before the Hon'ble High Court at Calcutta against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10 application was dismissed by this Tribunal. Even this Tribunal in its order dated 15.11.2018 has observed that the Corporate Debtor (corporate applicant therein) has means but desires not to pay. 21. During the course of hearing held on 6th November, 2019, the following order was passed:- "We heard the Ld. Counsel for the Financial Creditor as well as the Corporate Debtor. The Corporate Debtor has not objected the admission of the application. However, an intervener appears and strongly objected this application and submitted that a Special Leave Petition (Civil) No. 5493 of 2019 has been filed before the Hon'ble Supreme Court for stay of the Section 7 application filed by the Financial Creditor before this Tribunal, which is pending for consideration. Upon hearing objection on the side of the Ld. Counsel for the intervener, it appears that a direction be issued to the Financial Creditor to give a copy of the C.P. Accordingly, directed the Ld. Counsel appearing for the Financial Creditor to serve a copy of the C.P. within 3 days from today to the intervener." 22. To reach the appropriate level of understanding the issue involved in the matter, we will have to go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther attempt by the Corporate Debtor to continue avoidance of the dues of the present applicant/Intervener with the alleged active support from the Officers/Officials of Bank of Baroda who have filed Section 7 petition against the Corporate Debtor in spite of the fact that all the records and pleadings speak otherwise. 24. In the meanwhile the Corporate Debtor had filed Section 10 application (CP (IB) No. 615/KB/2018) wherein the present applicant had filed an intervening application CP(IB) No. 635/KB/2018 and ultimately Section 10 application was dismissed by this Tribunal on 15th November, 2018 inter alia holding that the Corporate Debtor had failed in proving the existence of default of financial debt and that the application filed by the Corporate Debtor in C.P. 615/2018 was with mala fide intention and with the ulterior motive for the purpose other than for resolution and to frustrate the order dated 20th April, 2018 of the Hon'ble Supreme Court of India. 25. In the aforesaid Section 10 application the creditors and shareholders who had intervened, made serious allegations of collusion against the Managers of the Consortium Bank headed by Bank of Baroda which remained un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate applicant is indebted to it to the extent of Rs. 9,07,78,093.53 and defaulted in repayment. However, it opposed the application, denying the contentions taken by the corporate applicant in its application". 29. It is submitted by the Ld. Counsel for the corporate debtor that under both Sections 7 & 10, the two factors are common i.e. the debt is due and there is a default. In a case of this nature, no doubt, the occurrence of default is to be established by supporting evidence by the financial creditor. 30. In the said application under Section 10, no argument had been advanced on behalf of the Financial Creditors denying the allegations levelled against it by the objectors. Except Punjab & Sind Bank, no argument had been advanced on behalf of the Financial Creditors and therefore serious allegations had been levelled against the Financial Creditors by the objectors/Operational Creditors that there was collusion between the Consortium Banks and the Corporate applicants. 31. It is further significant to note that the Corporate Applicant or the Financial Creditors had not chosen to file any reply affidavit to any of the Interim Applications filed by the objectors. Finally, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 to 5) also accepts that there is a 'default'. Learned counsel appearing on behalf of the 'Financial Creditor' submits that the 'default' has occurred prior to the date of filing an application under Section 10 of the I&B Code and submitted that this fact has not been noticed by the Adjudicating Authority. It is also submitted by the 'Financial Creditor' that the application under Section 7 of the I&B Code has also been filed and is pending before the Adjudicating Authority. Learned counsel appearing on behalf of Respondent No. 11 (Operational Creditor) submits that the application under Section 10 was filed by the Appellant in collusion with the Banks. Reliance has been placed on the judgment of the Hon'ble Supreme Court dated 20th February, 2019 passed in 'Special Leave Petition (Civil) No. 540 of 2018' and 'Special Leave Petition (Civil) No. 5493 of 2019'. The aforesaid appeal was preferred by the Appellant in connection with order passed by the High Court of Calcutta covering the foreign award. It is stated by the Appellant that pursuant to the order of the Hon'ble Supreme Court the total amount directed by the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit) (45,25,00,000/- Inland/Foreign Guarantees 4,00,00,000/- Credit Exposure limit 5,00,00,000/- Total 85,95,00,000/- The Ld. Counsel highlighted some important dates:- Amount claimed to be in default and the date on which the default occurred Total defaulted amount in Cash Credit Account No.11520500000035 is Rs. 46,32,00,000/- as on 23.09.2018. Total defaulted amount in Packing Credit/FBP/FBD Account No.11520700000002 is Rs. 17,17,00,000/-as on 23.09.2018 Total defaulted amount in Inland/Import Letter of Credit Account is Rs. 7,32,00,000/- as on 23.09.2018, Total defaulted amount in Inland/Foreign Bank Guarantee Account is Rs. 73,00,000/-as on 23.09.2018. Therefore, the total defaulted amount in the loan accounts, namely, Cash Credit, Packing Credit/FBP/FBD, Inland/Import Letter of Credit and Inland/Foreign Bank Guarantee is Rs. 71,54,00,000/- (Rupees Seventy One crore fifty four lakh only) as on 23.09.2018 and the total outstanding claim of the Financial Creditor is quantified at Rs. 71,54,00,000/- (Rupees Seventy One Crore Fifty Four Lakh Only) as on 23.09.2018. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that this agreement dated 15th February, 2018 mentions that on the request of the Borrower (Corporate Debtor) and with the consent of the Consortium Banks, the Bank of Baroda has reviewed the limits under the Credit Facilities and agreed to enhance the limits under the credit facilities from Rs. 71,25,00,000/- to Rs. 78,25,00,000/-. 40. It is further submitted that the State Bank of India had reviewed the limits under the credit facilities from Rs. 54,00,00,000/- to Rs. 60,00,00,000/- and Allahabad Bank has reviewed the limits under the credit facilities and enhanced the credit facilities from Rs. 75,00,00,000/-to Rs. 85,00,00,000/-. It is submitted that likewise other Consortium Banks had also agreed to enhance the limits of credit facilities in favour of the Corporate Debtor/Borrower. 41. It is submitted that all the terms and conditions had been specifically mentioned in the said agreement dated 15th February, 2018. In clause 23 of the said agreement, it is mentioned that, "23. Upon the happening of an event of default and/or continuance thereof the Bank shall have the absolute right to convert the entire loan and/or the unpaid interest and/or all other monies payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all requisite corporate approvals/authorizations including but not limited to the approvals from the shareholders are duly obtained for giving effect to the aforesaid Conversion Right available to the Bank and the same is in conformity with the Constitutional documents of the Borrower. Failure to obtain the requisite approvals as mentioned above shall amount to an event of default under the Facility Letter and/or agreements executed in relation thereto. Notwithstanding anything to the contrary contained in this agreement, in the event of formation of a joint lenders forum in terms of the Distressed Assets Framework (RBI's Framework for Revitalising Distressed Assets in the Economy dated 25 February 2014 read with the Strategic Debt Restructuring Scheme issued by the RBI on 8 June, 2015 as amended or modified or replaced from time to time by any rules, regulations, notifications, circulars, press notes or orders by the RBI in this regard or any other Governmental Authority in this regard), the Bank shall have an unqualified right, to take all such actions as may be prescribed in the Distressed Assets Framework, to convert the Obligations into paid-up equity share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin a few days. 44. Ld. Counsel has further referred to the report of ICRA in respect of the Corporate Debtor, LMJ International Limited, dated July 09, 2018. Under the heading Rating Action it is written as under:- "ICRA has revised the long-term rating from (ICRA) BBB (pronounced ICRA triple B) ISSUER NOT COOPERATING to (ICRA) D pronounced (ICRA D) ISSUER NOT COOPERATING and the short term rating from (ICRA)A3+ (pronounced (ICRA A three plus) ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING assigned to the Rs. 173.70 crore fund-based bank facilities of LMJ International Limited (LIL). ICRA has also downgraded the short-term rating assigned to the Rs. 330.00 crore non-fund based bank facilities of LIL from (ICRA)A3+ ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING. ICRA has further downgraded the short-term rating from (ICRA)A3+ ISSUER NOT COOPERATING to (ICRA) D ISSUER NOT COOPERATING assigned to the unallocated limits of Rs A3.00 crore of LIL. The rating continues to remain in issuer Not Cooperating category". 45. It is further argued that on what basis this report has been generated and downgraded in respect of the Corporate Debtor. Nothing has been ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of insolvency, the Adjudicating Authority may impose such person any penalty as stipulated under section 65. According to 2nd Respondent (Intervener), any person can bring to the notice of the Adjudicating Authority that the Insolvency Resolution Process has been initiated by the person fraudulently and with malicious intent for the purpose other than resolution of insolvency. For bringing the aforesaid facts to the notice of the Adjudicating Authority it is not necessary that he should be a shareholder or a creditor or a debtor for the Corporate Debtor. It is submitted that the 2nd Respondent (Intervener) intends to bring certain facts to the notice of the Adjudicating Authority, to suggest that it is a case for initiating proceeding and to punish the concerned person under Section 65. 5. We have heard Learned Counsel for the parties. The Corporate Insolvency Resolution Process can be initiated under Section 7 or Section 9 or Section 10 of I&B Code, Section 55 to 58 of I&B Code also relates to initiation of Corporate Insolvency Resolution Process known as 'Fast Track Corporate Insolvency Resolution Process'. Section 65 of I&B Code which relates to penal provision n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 only, and there is no sanction as such on 15th February, 2018. It is further submitted that when all the member Banks had sanctioned the credit facilities which took a lot of time, then only the documents dated 15th February, 2018 had been executed and thereafter the default had taken place. It is submitted that once the facilities desired by the Corporate Debtor had been circulated amongst the members and finally approved by the various Banks, that the sanction letters are issued by the members of the Consortium Bank, he conceded that there was a delay in executing the documents. 53. Ld. Counsel for the Corporate Debtor submitted that there was default and the same has been admitted in reply to the main petition. The Corporate Debtor, however, had not filed any reply to the application filed by the Intervener. Ld. Counsel for the Corporate Debtor, however, submitted that there is no basis for attributing collusion between the Corporate Debtor and the Bank. It is submitted that only because the Corporate Debtor had changed its name or adopted sharp practices, it cannot be stated that there was any collusion. It is submitted that, had the Banks timely given to the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsortium Agreement on 15.02.2018, between the Corporate Debtor and the Consortium of Banks; Supplemental Joint Deed of Hypothecation, on 15.02.2018 between the Corporate Debtor and the Consortium of Banks; Supplemental Inter-se Agreement on 15.02.2018, executed between the Consortium Banks and Joint and Several Deed of Guarantee dated 15.02.2018, executed by Mr. Hulash Chand Jain, Mr. Navin Kumar Jain and Mr. Jayant Kumar Jain in favour of the Consortium Banks. 56. Within 4 months of the execution of the said agreements, the Financial Creditor has classified the account as NPA and issued demand notice under section 13(2) on 9th July 2018. What are the reasons for classification of the account by the Financial Creditor, no data has been made available. Before declaration/classification of account as NPA, the Financial Creditor is required to issue show cause notice enumerating the reasons for classification. No data is available in this case as regards issuing of such a notice to the Corporate Debtor. It is significant to note that in the said notice, nothing is mentioned about the supplemental agreements admittedly executed in between the Financial Creditor and the Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59. After hearing Ld. Counsel for all the parties, including the intervener, we find that there is enough material on record to prove that the Financial Creditor had never been serious in initiating any action under the Code against the Corporate Debtor either in the earlier application under Section 10 of the Code, filed by the corporate applicant, or in the present proceedings under Section 7 of the Code. The Credit facilities had admittedly been revised and sanctioned from time to time and finally on 15th February, 2018 when various documents had been got executed from the Corporate Debtor, the date of default could not be 28th February, 2018 and the date of the corporate debtor's account could not be declared as NPA on 29th May, 2018 when bank had accepted the Resolution passed by the Board of Directors of the Corporate Debtor on 15th February, 2018. The Bank appears to have some other Agenda either at the time of enhancing credit facilities or at the time of declaring the account of the Corporate Debtor as an NPA on 29th May, 2018. The Financial Creditor has completely failed to convince us as regards the date of default being 28th February, 2018, and classification of it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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