TMI Blog2017 (10) TMI 1580X X X X Extracts X X X X X X X X Extracts X X X X ..... aged with the FC. Such revelations also show that the assets/properties of the Cd herein which were pledged / mortgaged with the FC in likely to disposed of in the event of the enforcement of the recovery certificate from the side of the DRT, Kolkata. When such admitted or well evident positions are considered in the light Of laid down in section 14 of the Code of 2016, it would appear clearly that directions in the aforesaid section needs to be extended to proceeding in question, now pending before the DRT, Kolkata. Being so, in my opinion, in the event of admission Of the present application, this Adjudicating Authority would be required to declare by order moratorium for the purposes, so specified in Section 14 Of the Code Of 2016. In that event, the moratorium, declared would also cover the proceeding pending before the DRT, Kolkata. The claim advanced from the side Of CD that the application in hand could not disclose even the claim as contemplated in sect on 3(6), much less its such application establishing the fact that the CD owed a debt to the FC as on 11 .08.2017 or that there was a default in repayment Of loan on same date, same being 11.08.2017, are wholly witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unconditional and continuing guarantee in favour of FC ensuring due repayment of loan in accordance with the repayment schedule included in the loan agreement between the FC and principal debtor on 05 of January, 2011. CD herein further undertook to repay the loan with interest including penal interest in the event of failure of the principal borrower to repay the loan in accordance with the repayment schedule. 6. However, the principal borrower failed to repay the loan in accordance with repayment schedule for which the FC had issued notice to principal debtor to repay the loan. However, the loan was not repaid for which the FC had to file an application under Section 19 Of the Debt Recovery Tribunal Act (in short 'DRT Act') praying for a Recovery Certificates for an amount to the tune of same being the principal amount overdue and interest overdue as well as amount towards fees and Other charges as on December, 2012. 7. The said proceeding has still been pending before the Debt Recovery Kolkata and awaiting disposal. Since the principal debtor had committed default in repayment of loan in accordance with the repayment schedule. notice was also sent to the CD herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant could not even establish as to what was the debt allegedly due from the Side Of the CD to the FC as on 11.08.2017, one cannot but conclude that the claim of the FC that the CD started committing default in repayment of debt on and from 11.08.2017 is also nothing but a huge hoax only- argues Mr. R. Saha, learned Sr. Advocate appearing for the CD in the present proceeding. 14. It is also the case of the CD that having filed two parallel proceedings in two different fora- one before the ORT, Kolkata and the other before this authority and that too- arraigning the CD herein in both those proceedings as opposite party, the FC has completely jeopardised-nar peter Out- all the right and benefits which law has bestowed upon it as being a guarantor in respect of a loan which he guaranteed the repayment. 15. In support of such allegation, it has been stated that the present proceeding has been initiated against the CD herein allegedly for its failure as a guarantor to repay the loan With interest Which the FC had granted in four of the principal borrower. Therefore, in the event of the application in hand being accepted, there is always a possibility Of the assets and prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hand, the FC has claimed a huge amount, same being ₹ 493,85,10,906.00 as penal charges, from the CD herein, Who was one Of the guarantors in respect Of repayment Of aforesaid loan sanctioned to the principal debtor. 21. When the FC failed to claim from the principal debtor any amount towards the penal interest in the aforesaid proceeding before the DRT, Kolkata, it is beyond its competence to claim such penal interest from the CD in the proceeding under consideration. Incidentally, such episode further demonstrates that the claim of debt to the tune of ₹ 595,60,65,355.00 made from the side of FC is wholly without any substance. 22. Attacking the application in more and more, it has again been contended that the FC must establish in unequivocal terms that the CD had owed it a definite amount as being the debt due to the FC. The FC must also establish that there was clear default in repayment of such debt. In that connection, my attention has been drawn to the definition of the terms of claim , 'debt and default as has been given in the Sub-section 3(6), 3(11) and 3(12) of the Code of 2016 respectively. 23. Such references to Subsection 3(6), 3(11) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated to be ₹ 121,41,39,813.00 All these speak loud and clear that the claim Of the FC that as on 15.12.2012, the CD owed the FC an amount to the tune Of ₹ 121,41,39,813.00 is nothing but a huge lie. 29. Further, in Annexure- 'E, the amount, claimed to be in default, as on 31.12.2013, was shown as ₹ 167,08,22,087.00 whereas the amount, alleged to be in default, as on 31.12.2014 was shown as ₹ 238,21,83,033.00. Equally importantly, such an amount, as on 31.12.2015, as well as on 31.12.2016 were shown as ₹ 339,64,09,497.00 and ₹ 484,70,95,760.00 respectively whereas as on 31.06.2017, such amount was shown to be ₹ 577,93,95,461.00. 30. But then, in the application u/s 7 of the Code, only after a gap Of months, the amount in default as on 11.08.2017 was stated to be ₹ 595,60,65,355.00. All those figures devastatingly demonstrate that the amount, claimed to be in default as on 11.08.2017, was also highly inflated. They are also tell-tale testimonies to the fact that under no circumstances, the amount, stated be debt as on 11.08.2017, can be treated as debt as contemplated in law. 31. Since the FC could not show what the debt d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational Creditor' or 'Corporate Applicant' in favour Of its officers to do needful in legal proceedings by and against the Financial 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 'for 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 Coder. 35. In regard to the second contention aforesaid, it has been stated that the definition of Financial Debt is inclusive one - and- not exhaustive as claimed by the learned Advocate for the CD. In that connection, it has been stated that any amount which broadly satisfy the conditions enumerated in Section 5 (8) may qualify to be Financial Debt although such a debt may not find its name in the list Of debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly at proper time and place. 41. In regard to the allegation that since the FC did not claim penal charges from the principal debtor in the application before the DRT, the former is no longer entitled to claim such amount from the CD in the present proceeding, it is being submitted that such an argument was premised not on law but on surmise. In that connection, my attention has been drawn to the loan agreement between the FC and principal debtor as well as to the agreement between the FC and CD herein. 42. According to Mr. Banerjee, learned Sr. Advocate, under the terms conditions of the loan agreement between the FC and principal debtor, the principal debtor was to repay the loan in four equal instalments, first thereof was to have been paid on the 15th day of the 15th month from the date of disbursement of the loan. 43. The terms and conditions, so agreed to by the FC and the principal debtor, further demonstrate that the loan was to be repaid with agreed rate of interest. But then, in the event of failure of the principal debtor to repay the loan in accordance with the repayment schedule, the principal debtor was to pay mn0t only loan With interest at the agreed rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it proceedings under section 7 are admitted then there will be moratorium as against the corporate debtor in respect of all other proceedings pending including the proceedings before Debts Recovery Tribunal, The Hon'ble Supreme Court has held that in case of Transcrore Vs. Union of India in 2008 (1) SCC '25 at paras 64. 65 and 66 that doctrine of election for remedies will not apply in such a case. (copy enclosed) It held by the Hon ble NCIT Mumbai Bench in Indus Finance Ltd. Vs. Quantum Ltd (copy enclosed) that section 14 of the IBC itself has prescribed the while setting Moratorium in motion then the other proceedings as defined therein Shan be abated (para 8 onwards). Similar view has been taken by Hon'ble Mahesh Chandra Tripati, J of Allahabad High Court in WRIT-C No.30285 30033 Of 2017 in Sanieev Shriya VS. State Bank Of India (copy enclosed). 49. According to Mr. Banariee, since the FC establishes without any doubt that the FC has a right to get payment from the CD an amount to the tune of ₹ 595,60,65,355.00 as on 11,08.2017, since it also shows that the CD has an obligation to repay such amount as being debt due from it and since the FC also de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim such penal charges from the CD herein, who was one of the guarantors in respect of the loan, sanctioned in favour of the principal debtor, it is found that such allegation too is without any element of truth. 55. In order to appreciate the rival submissions on this score in proper perspective, I find it necessary to go through loan agreement between the FC and the principal debtor. For ready reference, clauses having relevance to the matter on this score are reproduced below: - Interpretation 1.1.30. Interest Rate means the rate of interest on the Loan as determined by SREI and set forth in Item 1 Of Schedule 2- (page497, Vol. of the application) 9-4 (a) Default Interest - If Borrower fails to pay any amount of the unpaid Sum on its due date ( Overdue Amount ), interest shall accrue on the overdue Amount from the due date upto the date Of actual payment (both before and after judgment) ( Default Interest ) at the Default Interest Rate and in such a manner which is set forth in schedule 2. The Default Interest shall be immediately payable by the Borrower on demand by SREI. (b) Default Interest (if unpaid) arising on an overdue Amount Will be compounded with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment entered into between the FC and the CD too has huge relevance in deciding the dispute in the proceeding in hand, I also find it necessary to go through the relevant clauses in such an agreement. For ready reference, those clauses are reproduced below: 3. Default a). In the event of any default as defined in the Loan Agreement on the part Of the customer in payment/repayment Of any Of the moneys referred to Clause 2 above, or in the event Of any default on the part of the customer to comply with or perform any of the terms, conditions and covenants contained in the Financing Documents, the Guarantor shall, upon demand, forthwith pay to the SREI without demur all the amounts payable by the customer under the Financing Documents. Any such demand made by SREI on the Cuarantor Shan be final, conclusive and binding notwithstanding any difference or any dispute between SREI and the customer/arbitration or any other legal proceedings, pending before any court, tribunal, arbitrator Or any other authority. b) In the event of failure by the Guarantor to make payment as stated above, the Guarantor shall pay default interest at the same ratels as specified in relation to the Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rima facie showed that as on 11.08.2017, the CD owed an amount to the tune of ₹ 595,60,65,355.00 to the FC. 61. I have also noticed that there were defaults in repayment of loan aforesaid for which both principal debtor and CD were requested to repay the loan which was, however, not attended to. One may also note here that the neither the principal debtor nor the CD herein dispute the failure in repayment Of loan in accordance with original repayment schedule, vide Annual Report of the CD for the period 2015- 2016Annexure -I-W annexed with the application 62. Being so, in the face Of such revelations, in my very considered opinion, the CD cannot take shelter under the plea that since the FC in the proceeding before the DRT, Kolkata did not claim for penal charges, and that too, against the principal debtor, it is no longer possible on the part of the FC to claim such penal charges from the CD herein. 63. Coming to the allegation that the figures, regarding debts, rendered in the application and in the other supporting documents, are enormously contradictory to one another and, therefore, such contradictory figures on debts could not at all establish as to what was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore Debt Recovery Tribunal, CIBJL, Notice Of December, 15, 2012, statement at page 806 and the present claim of ₹ 595 gores at page 101. Reply (a) Such statement is misleading. There is no mismatch Of claims. The present claim Of ₹ 595 crores is on the basis of the default of ₹ 100 crores along with default interest at the rate Of per month on compound basis. Calculations are given at pages 101, 102, '03 and 104 of the application. The default rate Of interest will appear at pages 491 and 527 of the agreement of January, 5, 1011. (b) In the proceedings before the Debts Recovery Tribunal calculation on 15.12.12 includes the principal default Of ₹ 75 Cores, last Of instalment Of ₹ 25 crores that was to fall due in January, 2013 was included as the entire outstanding loan amount was recalled in terms Of the agreement. The interest calculated in the claim of ₹ 121 crores is on the basis of default rate of interest basis. The actual claim as on 15.12.12 without considering the future amount Of Rs, 25 crores Will appear at Annexure-l to the notice of recall dated 15.12.12 at pages 1301 to 1303 Which shows the amount Of ₹ 96 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y substance. A perusal of Financial Debt in between the lines reveals that such a definition is inclusive one -and not an exhaustive definition -as claimed by the CD. Therefore, any amount which satisfies the key requirements of Financial Debt as defined in Section S (8) of the Code of 2016 would certainly qualify to be a Financial Debt. In that view Of the matter, in my opinion, arrear penalty is nothing but a form Of interest as contemplated Section 5 (8) Of the Code Of 2016. 70. Further, it is found f rom the Master Circular on Interest Rates on Advances issued by R 31 that interest, charged by the Banks and other Financial Institutions, may have different colours and contours, such as, simple rate of interest, compound rate of interest, Floating Interest, Penal Interest etc. Therefore, the Master Circular on Interest Rates on Advances, further fortifies my conclusion that the amount charged as arrear penalty, same being is one form of interest as specified in Section 5 (8) of the Code of 2016. 71. In this connection, one may look into the decision of Hon'ble Apex Court in the case of Central Bank of India Vs. Ravindra Ors., reported in AIR 2001 SC 3095. In the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean the amount which one has contracted to pay for use of borrowed money... In whenever category interest in a particular case may be put, it is a consideration paid either for the use Of money or for forbearance in demanding it, after it has fallen due, and thus, it is a charge for the use or forbearance Of money. in this sense, it is a compensation allowed by law or fixed by parties, or permitted by custom or usage, for use of money, belonging to another, or for the delay in paying money after it has become payable. It is the appeal against this decision Of Punjab High Court which was dismissed by Supreme Court in Dr. Shamlar Manila's case (supra). However, 'penal interest' has to be distinguished from 'interest'. penal interest is an extraordinary liability incurred by a debtor on account Of his being a wrong-doer by having committed the wrong of not making the payment When it should have been made, in favour Of the person wronged and it is neither related with nor limited to the damages suffered. Thus, While liability to pay interest is founded on the doctrine Of compensation, penal interest is a penalty founded on the doctrine Of penal action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here such property is occupied by or in the possession of the corporate debtor. (2) The supply Of essential goods Or services to the corporate debtor as may be specified shall not be terrninated Or suspended or interrupted during moratorium period. (3) 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. (4) The order of moratorium shall have effect from the date Of such order tin the completion Of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an Order for liquidation Of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 75. On reading of the provisions incorporated in Section 14 of the Code of 2016 in between the lines, it is found that on the admission Of an application under Section 7 Of the Code of 2016, the Adjudicating Authority shall by an order declare mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be no further proceedings before DRT, Kolkata till the finalization Of Corporate Insolvency Resolution process or till the Adjudicating Authority approves the Resolution plan under sub-section 1 of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33 of the Code of 2016, as the case may be. 81. It is worth noting that what Hon'ble Allahabad High Court in the case of Sanjeev Shriya Vs State Bank of India 6 ors. in Writ (C) No-30285 of 2017 in somewhat similar situations. In the case of Sanieev Shriya (supra), which was relied on by the learned counsel appearing for the SC, Hon'ble Allahabad High Court held as follows: . 29. In the present matter, it has been urged that while passing the impugned order the DRI has failed to take notice of part-lIl of IBC, 2016, which prevails over the provisions Of the Act of 1993. It has also been urged that the entire proceeding before the DRI is completely without jurisdiction precisely in the backdrop that once the proceeding has already been commenced under IBC, 2016 and Moratorium under Section 14 Of 'BC, 2016 has already been issued and even in the said proceeding the parties have put their ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55.00 to the FC and there was clear default on 11.08.2017 in respect of repayment of the same. I have also found that application is complete in all respects. 85. It is also found from the record that one Sri Vinod Kumar Kothari has been named by the FC for being appointed as Interim Resolution Profession against whom no proceeding is said to have been pending. 86. Resultantly, the present application is admitted for declaring Moratorium with Consequential Directions Which are given as under: - i. That the order Of moratorium O/s. 14 shall have effect from 30.05.2017 till the completion of corporate insolvency resolution process Or until this Bench approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33 as the Case may be. ii. That the Bench hereby prohibits the institution of suits or continuation of pending suit or proceedings against the corporate debtor including execution of any judgment, decree or order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority failure to meet such time limit, the later would have no other alternative but to drop the proceeding. In that connection, the decision Of Hon'ble Apex Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, reported in Civil Appeal No. 9405 of 2017 dated 21,09.2017 has been relied On. However, it need to be stated here that after the receipt of the application Vis 7 of the Code, the Registry had scrutinised the application and detected some defects in the application. 89. On being required, the applicant had rectified the defects, so pointed out, within the time specified in the Statute. Thereafter, the CD was summoned to show cause as to why the application should not be accepted as prayed for. on receipt of the copy of the application, the Corporate Debtor, through their counsel entered appearance and prayed for time to file written objections against the application preferred by the Financial Creditor seeking initiation of corporate insolvency process 90. In support thereof, it relied on the decision of the Hon'ble Kolkata High Court in the case of Shree Metalics Ors. Vs Union of India Ors. Reported in (2017) 203 Compcas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with the Rules 2016 is silent on the procedure to be adopted at the hearing of an Application under section 7 presented before the NCLT, that is to say, it is silent Whether a party respondent has a right of hearing Before the adjucating authority or not. Section 242 of the Companies Act, 2013 requires the NCLT and NCLAT to adhere to the principles Of the natural justice above anything else. It also allows 'he NCLT and NCLAT the power to regulate their own procedure. Fetters Of the code of Civil procedure, 1908 does not bind it. However, it is required to apply its principles Principles Of natural justice requite an authority to hear the other party. In an application under Section 7 Code of 2016, the financial creditor is the applicant While the corporate debtor is the respondent. A proceeding For declaration of insolvency OF a company has drastic consequences For a company. Such proceeding may end up in its liquidation. A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not express terms oust the principles of natural justice, the same can and should be read into in. When the NCLT receives an application under Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation may arise which may require NCLT to pass an ex-parte ad interim order against a respondent. Therefore, in such Situation NCLT, it may proceed to pass an ex-parte ad interim order, however, after recording the reasons for grant of such an order and why it has chosen not to adhere to the principles of natural justice at that stage. It must, thereafter proceed to afford the party respondent an opportunity of hearing before confirming such ex-parte ad interim order. In the facts of the present case, the learned senior advocate for the petitioner submits that, orders have been passed by Che NCLT without adherence to the principles of natural justice. The respondent was not heard by NCLT before passing the order. 4 It would be open to the parties to agitate their respective grievances with regard to any order of NCLT or NCLAT as the case may be in accordance with law. It is also open to the parties to point out that the NCLT and the NCLAT are bound to Follow the In such circumstances, the challenge to vires to Section 7 of the Code of 2016 fails. 6. Therefore, it is clear that before admitting an application under Section 9 of the MB Code is mandatory duty of the adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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