TMI Blog2022 (1) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... of debt. The submissions of Learned Sr. Counsel for the Appellant is agreed upon that there was default when interest was not paid on 30th June, 2015. When a Financial Creditor has not filed the Application on first default i.e. payment of interest whether he is precluded to file Application for subsequent defaults i.e. when default is committed for an instalment or for whole debt when it becomes due? - HELD THAT:- The Financial Creditor is at liberty to file Section 7 Application but is neither mandatory nor necessary that on first default Financial Creditor should rush to the Insolvency Court. Financial Creditor may await and give more time to Corporate Debtor to find out as to whether actually the Corporate Debtor has become insolvent and unable to repay the debt and even Financial Creditor ignores non-payment of interest when the Corporate Debtor first defaulted it shall not lose its right to file Application under Section 7 of the Code when default of instalment or whole amount became due. The only statutory requirement is that default as claimed in the Application under Section 7 should be within three years from the date when application is filed under Section 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deed clearly proved the financial debt. Furthermore, present is a case where Corporate Debtor has not denied receiving of Financial Facility as extended by Standard Chartered Bank and there is no denial of disbursement of 5 million dollars in three tranches and there was sufficient material before the Adjudicating Authority to come to the conclusion that default has been committed in payment of debt. The decision of the Adjudicating Authority that Corporate Debtor has committed default is not vitiated which was fully supported by the materials on record even if Facility Agreement dated 22 nd May, 2013 and 19th August, 2013 are ignored. The Corporate Debtor has taken a Financial Benefits from Standard Chartered Bank and obtained disbursal in three tranches of 5 Million Dollar each, which disbursements have not been denied in a pleading before the Adjudicating Authority - The submission of the Appellant that facility agreement being not stamped Section 9 Proceeding ought not to have proceeded has to be rejected - Appeal dismissed. - Company Appeal (AT) (Insolvency) No. 911 of 2021 - - - Dated:- 27-1-2022 - [Justice Ashok Bhushan] Chairperson And [Dr. Alok Srivastava] Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility. The Financial Creditor issued an Acceleration Notice dated 05.01.2017 in accordance with Clause 5.8 of the Facility Agreement cancelling the facility and declaring that all monies outstanding under the facility has been immediately due and payable. In reply to Acceleration Notice dated 05th January, 2017 neither any response was given by the Corporate Debtor nor any payment was made. On 11th June, 2018 Default Notice was issued by Financial Creditor demanding payment of outstanding amounts. On 28th November, 2018 the Financial Creditor filed an Application under Section 7 of the Code claiming an amount of USD 18,194,742.69/- as on 31st October, 2018. In the Application under Section 7 of the Code, computation of amount of default was made as on 31st October, 2018. In the Application at Part-IV Particulars of Financial Debt , the Registered Mortgage dated 26th June, 2013, Share Pledge Agreement dated 15th June, 2013, Facility Agreement dated 22nd May, 2013 and various documents to prove the existence of debt were filed along with the Application. The Corporate Debtor filed Miscellaneous Application No.613/2019 challenging the maintainability of Section 7 Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(11) of the Code consisting of both interest and principal amount although it is open for the Bank to file suit for recovery claiming only the debt which is not time barred but the Application under Section 7 filed on 28th November, 2018 is barred by time. 5. Even an interest default will trigger the right to apply for an application under Section 7 of the Code. The right to apply accrued on the day when any part of the debt (including interest) stood due and payable and was not paid. 6. A plain reading of the object clause of IBC, makes it clear that IBC is enacted to ensure that there is early identification and resolution of the insolvency of the Corporate Debtors. If the interpretation sought to be given by the Respondent No. 1 is accepted, the same shall render the entire IBC otiose. It is precisely to plug the problem of delayed identification and resolution of insolvencies that IBC is enacted so as to achieve early and time bound resolution of Corporate Debtors. 7. It is further submitted that the Facility Agreement dated 22rd May, 2013 is unstamped document which cannot be looked for any purpose. Stamping a document is for the purpose of revenue requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -payment of interest by the Corporate Debtor, cause of action has a reason for filing Section 7 Application and when limitation starts running it cannot be stopped hence Application could have been filed before 30th June, 2018 only and the Application filed on 28th November, 2018 was well beyond three years and liable to be rejected. The Bank was effectively injured on 30th June, 2015 when payments were not made. Mr. Ramji Srinivasan, Sr. Advocate submits that the unstamped document could not be admitted in evidence and could not have been looked into for any purposes. 11. Learned Sr. Counsel for the parties have relied on various Judgments of Hon ble Supreme Court and this Tribunal, we shall consider the same while considering the submissions in detail. 12. We need to first notice transactions of Facility Agreement dated 22nd May, 2013 entered into between the Financial Creditor and Corporate Debtor. 13. By the Facility Agreement, the Lenders had agreed to make available to the borrower a term loan facility for an amount of USD 49,000 million which was to be utilised in one or more utilisations each utilisation to be minimum of USD 5 million. Clause 5.8 provides for accel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in following manner: 2.2. The table mentioned in Clause 5.1- Replayment shall stand replaced as follows: On the expiry of a period of 27 (Twenty-Seven) months from the first Utilisation Data (Moratorium Period or MP). The Borrower will repay the Facility 14 unequal semiannual instalment as per the below schedule (each a Repayment Instalment): Repayment Instalment (as % of Total Commitments) Repayment instalment Amount (in USD Millions) At MP 1% 0.45 MP+8 months 1% 0.45 MP+12 months 2% 0.9 MP+18 months 2% 0.9 MP+24 months 5% 2.25 MP+30 months 5% 2.25 MP+36 months 7% 3.15 MP+42 months 7% 3.15 MP+48 months 9% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be answered is as to whether non-filing of the Application within three years from 30th June, 2015 shall make the Application filed by the Financial Creditor under Section 7 as barred by time since admittedly the Application have been filed on 28th November, 2018. Mr. Ramji Srinivasan, Sr. Advocate has emphatically submitted that according to the Code when the first default has been committed, time shall start running and the Application under Section 7 cannot be filed for time barred debt. He further submits that the Financial Creditor has not filed the Section7 Application within three years from the date i.e. 30th June, 2015 and thus their claim is barred by time and application ought to have been rejected. 17. Now, we may notice certain provisions of the Code in regard to above. Section 3(11) of the Code defines Debt and Section 3(12) defines Default which are as follows: 3(11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 3(12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years as per below: a. Well within first instalment became due on 30th November, 2015 and; b. When entire loan became due after notice acceleration dated 05.01.2017 The Application under Section 7 is well within three years from above two defaults i.e. default of instalment and default for whole. 20. The Application under Section 7 is to be filed in Form-1 as per sub-rule 1 of Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority Rules) 2016 Part-IV requires Particulars of Financial Debt that specifically requires amount claimed to be in default and the date on which default occurred if an application is filed within three years from the date on which default occurred the amount claimed shall be amount due and payable if the said Application is filed within three years from the date of default. 21. The Insolvency and Bankruptcy Code including rules and regulations, does not indicate that it is mandatory for the Financial Creditor to rush to file Section 7 Application whenever first default is committed in payment of interest. Although it had liberty to file an application even if there is default in payment of interest. Section 7 (1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionately These sections also recognise the fact that limitation bars the remedy but not the right. In the context in which Section 60 appears, it is interesting to note that Section 60 uses the phrase actually due and payable to him whether its recovery is or is not barred by the limitation law. The expression actually makes it clear that in fact a debt must be due and payable notwithstanding the law of limitation. From this, it is very difficult to infer that in the context of the Contract Act, the expression due and payable by itself would connote an amount that may be due even though it is time-barred, for otherwise, it would be unnecessary for Section 60 to contain the word actually together with the later words, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits 42. It is thus clear that since the Limitation Act is applicable to applications filed under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of default as 8.7.2011 being the date of NPA . It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made. As noticed, even in Part-V of the application, the respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part-V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default. 23. We may also refer to Judgment of the Hon ble Supreme Court in Laxmi Pat Surana Vs. Union of India and Anr. [(2021) 8 SCC 481] in the above case the default had occurred on 30th January, 2010 which was a date on which loan in question was declared NPA. Supreme Court held that ordinarily date on which Account has been declared NPA is to be treated as date of default. In paragraph 43 following was laid down: 43. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding total amount including interest and principle and amount was calculated from the date of default. IBC Proceedings are proceedings which are intended to be proceeding for Resolution of the insolvency of the Corporate Debtor, it is for the purpose that when a Corporate Debtor becomes insolvent, proceeding for resolution of insolvency may be commenced. If we accept the submissions of the Learned Sr. Counsel for the Appellant that on every first default even if it small fraction of loan, Financial Creditor has to rush to the IBC for initiating Insolvency Proceeding the same shall not be in accordance with the object of the Code. The Code is not recovery proceeding so as to on fraction of default a creditor rush to IBC Code. Financial Creditor can very well give little more time to borrower or to itself for coming to the conclusion that Corporate Debtor has apparently become insolvent although at the risk of forfeiting its right to claim amount which is barred by time. 25. To accept the submissions made by Learned Sr. Counsel for the Appellant, we have to read one additional word under Section 7 before the word Default under Sub-Section 1 of Section 7 of the Code i.e. the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Limitation Act, 1908 and following three questions were referred to: 32. It appears to us, therefore, that the decisions of this Court cannot be reconciled and, in our opinion, the case should be referred to a larger Bench in order that a final and authoritative decision may be given on the following questions: 1. Where a preliminary decree (or money allows instalment and provides that in case of default in payment of any specified number of instalments, the entire amount then remaining unpaid would become payable, whether the words when the right to apply accrues in the third column in Article 181, Limitation Act are confined to the first default or include every fresh accrual of the right to apply upon the happening of each successive default and limitation for applying for a final decree for the balance then due may be counted from the accrual of the last default? 2. Whether in such a case the right to apply for a final decree in respect of the instalments not barred by limitation as individual instalments, remains intact in spite of the omissions to take advantage of the default clause? 3. Whether the answers to the above two questions would be affe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r one decree. 28. The answer to the above three questions were given by Full-Bench in Paragraph 65 is to the following effect: 65. By the Court--The answers to the questions referred to the Full Bench are as below: 1. The words when the right to apply accrues in the third column in Article 181, Limitation Act must mean the first default giving rise to the particular cause of action on the basis of which the application for a final decree is made, unless there has been a waiver, express or implied of the first default in which case the words when the right to apply accrues would mean the next succeeding default which is not waived, but the decree-holder will have a right to apply for realisation of each successive instalment as it falls due, provided the decree is not so worded that the only right left to the decree-holder after the first default is to realise the whole decretal amount. 2. The answer to the second question is the same, that is, the right to apply for a final decree in respect of the instalments not barred by limitation as individual instalments would remain intact in spite of the omission to take advantage of the default clause provided the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount claimed is ₹ 2,39,85,521.35/-. Section 9 Application emanates from the Demand Notice under Section 8(1). Both have to be read conjointly and the date of default cannot be construed to be different merely because it is differently mentioned as 2011 in Section 8 Notice and 2017 in Application under Section 9. 22. As can be seen from Section 8, reproduced above, the moment there is an occurrence of a default, copy of an invoice demanding payment of the amount involved in the default is to be delivered by way of a Demand Notice to the Operational Creditor . Form III gives the details of the invoices. In the instant case, the Operational Creditor has given the details of invoices from (pages 399 to 406 of Volume II) and has also crystallized the amount at ₹ 2,39,85,521.35/-, which is unpaid from 2011. Therefore, the argument of the Learned Counsel for the Operational Creditor that the period should be confined only from 2015 to 2017 cannot be sustained. The Tribunal cannot confine to one or other invoice if the Applicant has relied on all the invoices to arrive at the amount of ₹ 2,39,85,521.35/- in the Demand Notice under Section 8. We are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already relied on a Judgment of Delhi High Court of Kotak Mahindra Bank Limited Vs. Anuj Kumar Tyagi wherein paragraph 12.2 following was laid down: 12.2. ... ... ... Quite clearly, the period of limitation, would, relate back to last defaulted EMI as, vide the aforementioned notice the appellant gave a final opportunity to the respondent to repay the amount, which was due and payable on the date of notice. The right to sue would occur, in my opinion, each time when, there is a default in payment of an EMI on its due date... ... ... 32. We thus conclude that non-filing of the Application under Section 7 of the Code by the Appellant on default of interest which occurred on 30th June, 2015 shall not foreclose the right of the Financial Creditor to file an Application under Section 7 of the Code when default on first instalment occurred on 30th November, 2015 and when entire loan became due by notice dated 05.01.2017. 33. The Appellant has not claimed in Section 7 Application the amount of defaulted interest on 30th June, 2015. Thus the Application filed by the Financial Creditor under Section 7 claiming amount of default of the first instalment and default of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 36. The above preposition is again reiterated by Hon ble Supreme Court in [(2018) 1 SCC 363] Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited wherein paragraph 37 following was observed: 37. It is now important to construe Section 8 of the Code. The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 2013, 31st October, 2013 and 31st December, 2013. The detail correspondences between the Respondent brought on record by the Financial Creditor including the No-Objection of Reserve Bank of India for accelerating the entire financing, all reflected the taking finance by Corporate Debtor. Adjudicating Authority had substantial materials on record to come to the conclusion that default has been committed by the Corporate Debtor and the amount as claimed is due. 38. Now we may notice two judgments of Hon ble Supreme Court relied on by the Learned Sr. Counsel for the Appellant. Learned Sr. Counsel for the Appellant has placed reliance on Judgment of Hon ble Supreme Court in 2020 8 SCC 531 Committee of Creditors of Essar Steel Ltd. Vs. Satish Kumar Gupta and Ors reliance has been placed on paragraph 152 and 153 which is to the following effect: 152. So far as Civil Appeal No. 7266 of 2019 and Civil Appeal No. 7260 of 2019 are concerned, the resolution professional has rejected the claim of the Appellants on the ground of non-availability of duly stamped agreements in support of their claim and the failure to furnish proof of making payment of requisite stamp duty as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporate Debtor. The present is the case where Financial Creditor has by materials on record in addition to Facility Agreement dated 22nd May, 2013 and 19th August, 2013 has proved the Financial Debt which remained unpaid. 40. The next Judgment relied on by Learned Sr. Counsel for the Appellant is Judgment of Hon ble Supreme Court of India in 2021 4 SCC 379 M/s. N.N.Global Mercantile Pvt. Ltd. Vs. Indo Unique Flame Pvt. Ltd. Ors . In this case, the Hon ble Supreme Court of India had occasion to consider Section 8 and Section 11 of the Arbitration and Conciliation Act, 1996. In paragraphs 21 to 23 Hon ble Supreme Court of India laid down as under: 21. The issue which has arisen in the present case is whether the arbitration agreement incorporated in the unstamped Work Order dated 28.09.2015, would also be legally unenforceable, till such time that the Work Order is subjected to payment of Stamp Duty. Undisputedly, the Work Order is chargeable to payment of Stamp Duty under Item No. 63 of the First Schedule to the Maharashtra Stamp Act, 1958. 22. In our view, the non-payment or deficiency of Stamp Duty on the Work Order does not invalidate the main contract. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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