9911796707
TMI Blog2022 (3) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... 85110KA1993PLC015001 with its registered office at K.M. Road, Chikmagalur, Karnataka-577101. Hence the jurisdiction lies with this Adjudicating Authority. The Authorised Share Capital of the Respondent Company is Rs. 2,35,48,60,635/- and its Paid up Share Capital is Rs. 19,15,08,844/-. 3. Brief facts of the case, as stated in the Petition, are that Co-operative Rabobank U.A., the Applicant, is a Company registered as an overseas Company in Hong Kong where it maintains a branch. The Applicant, through its branch in Hong Kong, had extended two facilities amounting to USD 4,50,00,000 (INR 3,30,66,00,000 computed at the rate of USD 1 = INR 73.48) to the Corporate Debtor by way of the facility agreement dated 29.07.2015 and 27.03.2018. The Corporate Debtor is a Company registered under the Companies Act, 1956 having its registered office as mentioned above. Under the Facility Agreement dated 29.07.2015, the Applicant had disbursed USD 2,00,00,000 ('Facility 1') to the Corporate Debtor, while USD 2,50,00,000 ('Facility 2') was disbursed under the other Facility Agreement. 4. The Principal amount and the overdue interest amount were required to be paid at different inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the stated immovable properties are deposited with the Security Trustee to secure, inter alia, the Facilities, is annexed as Annexure A-20. viii.) Copies of Personal Guarantee issued by Mr. V.G. Siddhartha (now deceased) in respect of Facility 1 and 2 were annexed as Annexure A-15 and Annexure A-16. ix.) Letter dated 06.08.2020 issued by the Applicant to the Corporate Debtor mentioning the payment defaults by the Corporate Debtor under the Facilities is annexed as Annexure A-35. 6. In light of the continuing defaults by the Corporate Debtor under the said Facilities, the Applicant initiated the present proceedings as a Financial Creditor of the Corporate Debtor by filing this Petition on 18.01.2021. 7. The Corporate Debtor has filed its preliminary objections on 27.07.2021 by inter alia contending as under: i.) It is submitted that Yes Bank Limited, Respondent's lender, along with other lenders such as RBL Bank, Karnataka Bank, IndusInd Bank and Kotak Mahindra Bank have taken the initiative of debt resolution process of the Respondent Company vide RBI's Circular dated 07.06.2019, under the 'Prudential Framework for Resolution of Stressed Assets', which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiated on 06.01.2021, the timelines specified in ICA for implementation of resolution plan (180 days) have expired on 05.07.2021. Till date, the resolution process under the Circular is in preliminary stages as no unconditional offer for the Corporate Debtor's vending division is received despite the process being pending since April, 2020. 9. The Corporate Debtor also filed the statement of objections dated 03.12.2021 by inter alia contending as under: i.) In order to restructure its businesses, the Respondent has already taken steps to hive-off all non-core businesses, to conserve liquidity and improve the profitability of core businesses of the Company, namely, operating of Cafe Coffee Day outlets and operating of Coffee Vending machine business, etc. In this regard, the Respondent reached out to all its lenders (despite not having recovered from the impact of the Covid-19 pandemic), and offered to restructure its business and assets so as to pay the dues. ii.) The Respondent has held several meetings with its lenders including the Petitioner, even as recently as on 17.11.2021. The meeting was successful where the lenders promised to co-operate with the Respondent SB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the Petition for the 'sake of completeness', without even a whisper of such an averment in the Petition. vii.) The Hon'ble High Court of Delhi has expressed the view that when a particular installment fell due during a suspension period (despite of defaults of previous instalments before a suspension period) declared by the RBI, the concerned bank ought not to have classified the defaulter's account as an NPA. viii.) It is submitted that Yes Bank Ltd., Respondent's key lender along with other lenders have taken initiative of debt resolution process of the Respondent in terms of RBI's Circular dated 07.06.2019 under the Prudential Framework for Resolution of Stressed Assets, which provides a robust mechanism for timely resolution of stressed assets. The said Prudential Framework binds all lenders with the resolution plan if the same has been agreed to by 75% of lenders in value and 60% of lenders in number. The lenders had a detailed meeting on 17.11.2021, regarding the restructuring of the Respondent and there has been a considerable progress in this regard. However, the Petitioner filed the instant Petition despite being aware that the lenders in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Corporate Debtor had committed 7 distinct defaults prior to 25.03.2020 and the value of said defaults were USD 75,83,213.86 (INR 55,72,14,554). The Corporate Debtor has craftily sought to misinterpret Section 10A of the Code on mere technicalities to avoid admission of the Petition. 12. The Petitioner further submits that the Hon'ble Supreme Court has held in the case of Swiss Ribbons v. Union of India and Ors., (2019) 4 SCC 17 that legislative policy has shifted from the concept of 'inability to pay debts' as under the Companies Act, 1956 to 'determination of default'. Therefore, the Corporate Debtor's submissions regarding its solvency/profitability are irrelevant under the Code. The Corporate Debtor had defaults amounting to Rs. 211.65 crores as on 31.03.2020. According to the Corporate Debtor's credit rating, as per CARE Ratings as on 02.12.2020 is 'CARE D: ISSUER NOT COOPERATING'. According to the Prudential Framework Circular, a resolution plan, if any, is required to be implemented by the participating lenders of Corporate Debtor within 180 days. However, till date no such plan has been implemented by it and further seeks an additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2016 by way of an amendment, wherein, it inter alia states that for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in that behalf. Provided that no Petition shall ever be filed for initiation of CIRP of a Corporate Debtor for the said default occurring during the said period. Section 10A of the IBC, 2016 is prefaced with a non obstante provision which has the effect of overriding Sections 7, 9 and 10. On 04.04.2021, the IBC (Amendment) Ordinance, 2021 was issued notifying the suspension of filing petitions u/s. 7, 9 and 10 of the IBC, 2016 ended on 24.03.2021. v.) From the proviso to Section 10A, it is clear that no Petition under Sections 7, 9 and 10 of the IBC, 2016 can ever be filed against a Corporate Debtor for any default occurring between the period 25.03.2020 and 24.03.2021 ('Period of Suspension'). vi.) Therefore, the present Petition u/s. 7 of the Code, is not maintainable against the Respondent since the debt fell due during the period of suspension of IBC Petitions. As per the Applicant's own admission, the Respondent had failed to pay a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the restriction on filing a petition u/s. 7 of the Code during the Suspension Period is inapplicable as the Petition is filed because the Corporate Debtor committed several defaults before 25.03.2020, as detailed in pages 13-16 of the Petition. A mere mention of defaults committed after 25.03.2020 does not in any manner dilute or undermine the maintainability of the Petition pursuant to the defaults committed before the Suspension Period. iii.) The Corporate Debtor defaulted on multiple repayment obligations which started from 06.08.2019. Further, till 06.02.2020, which is before the commencement of the Suspension Period, the Corporate Debtor had defaults amounting to Rs. 55,72,14,554/-. iv.) The Corporate Debtor's objections in the preliminary objections were limited to stating that the Petition is premature as certain lenders of the Corporate Debtor are attempting resolution of Corporate Debtor's debt under the circular titled 'Prudential Framework for Resolution of Stressed Assets' (Circular) issued by the Reserve Bank of India on 07.07.2019. However, the preliminary objections which did not contain any objection to the maintainability of the Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor-it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under subsection (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution process is in advanced stage, the Petitioner taken a U-turn and filed the instant CP with the sole purpose of recovery of its alleged debt. The learned Counsel submits that since the instant CP is filed for the purpose of recovery of the debt but not for resolution of the Corporate Debtor, which is the sole object of the I & B Code, 2016, the same is liable to be dismissed. 20. The Circular dated 07.06.2019 of the Reserve Bank of India, under which the Prudential Framework for Resolution of Stressed Assets was issued, reads as under: RBI/2018-19/203 DBR No. BP.BC.45/21.04.048/2018-19 June 7, 2019 Prudential Framework for Resolution of Stressed Assets Introduction In exercise of the powers conferred by the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the directions hereinafter specified. Short title and commencement 1. These directions shall be called the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019. 2. These directions shall come into force with immediate effect. App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving aggregate exposure Aggregate exposure under the guidelines would include all fund based and non-fund based exposure, including investment exposure with the lenders. of Rs. 50 million and above with them. The CRILC-Main Report shall be submitted on a monthly basis. In addition, the lenders shall submit a weekly report of instances of default by all borrowers (with aggregate exposure of Rs. 50 million and above) by close of business on every Friday, or the preceding working day if Friday happens to be a holiday. B. Implementation of Resolution Plan 9. All lenders must put in place Board-approved policies for resolution of stressed assets, including the timelines for resolution. Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default. In any case, once a borrower is reported to be in default by any of the lenders mentioned at 3(a), 3(b) and 3(c), lenders shall undertake a prima facie review of the borrower account within thirty days from such default ("Review Period"). During this Review Period of thirty days, lenders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances/securities, which would generally include, among others, alteration of payment period/payable amount/the amount of instalments/rate of interest; roll over of credit facilities; sanction of additional credit facility/release of additional funds for an account in default to aid curing of default/enhancement of existing credit limits; compromise settlements where time for payment of settlement amount exceeds three months.. The RP shall be clearly documented by the lenders concerned (even if there is no change in any terms and conditions). C. Implementation Conditions for RP 14. RPs involving restructuring/change in ownership in respect of accounts where the aggregate exposure of lenders is Rs. 1 billion and above, shall require independent credit evaluation (ICE) of the residual debt The residual debt of the borrower entity, in this context, means the aggregate debt (fund based as well as non-fund based) envisaged to be held by all the lenders as per the proposed RP. by credit rating agencies (CRAs) specifically authorised by the Reserve Bank for this purpose. While accounts with aggregate exposure of Rs. 5 billion and above shall require two such ICEs, others shall r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be made as per the asset classification status of the borrower account. 19. The additional provisions shall be made by all the lenders with exposure to such borrower. 20. The additional provisions shall also be required to be made in cases where the lenders have initiated recovery proceedings, unless the recovery proceedings are fully completed. 21. The above additional provisions may be reversed as under: (a) Where the RP involves only payment of overdues by the borrower - the additional provisions may be reversed only if the borrower is not in default for a period of 6 months from the date of clearing of the overdues with all the lenders; (b) Where RP involves restructuring/change in ownership outside IBC - the additional provisions may be reversed upon implementation of the RP; (c) Where resolution is pursued under IBC - half of the additional provisions made may be reversed on filing of insolvency application and the remaining additional provisions may be reversed upon admission of the borrower into the insolvency resolution process under IBC; or, (d) Where assignment of debt/recovery proceedings are initiated - the additional provisions may be reverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursue such cases as per the specific instructions issued to them. V. Withdrawal of extant instructions 29. The extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect. Accordingly, the Joint Lenders' Forum (JLF) as mandatory institutional mechanism for resolution of stressed accounts also stands discontinued. 30. The list of circulars/directions/guidelines that stand repealed is given in Annex-3. 31. The lenders shall not reverse the provisions maintained as on April 2, 2019 in respect of any borrower unless the reversal is a consequence of an asset classification upgrade or recovery or resolution following the instructions of this circular. Any RP under consideration as on the date of this circular may be pursued by lenders under this revised framework subject to meeting the requirements/conditions specified in this framework. Yours faithfully, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Corporate Debtor. It is further revealed that the Petitioner-Bank has also participated along with all other Lenders in the process of the resolution of the Corporate Debtor in terms of the Prudential Framework before filing the instant CP and even thereafter. A perusal of the guidelines/norms of the resolution process under the Prudential Framework also reveals that the same is not in derogation to the provisions of the I & B Code, 2016. 25. The Hon'ble Supreme Court of India in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. (2019) 4 SCC 17, has explicitly opined that the primary focus of the legislation is to ensure revival and continuation of the Corporate Debtor and that the object of the Code is the resolution of the Corporate Debtor but not simply the recovery of debt of a Creditor. 26. The Hon'ble Apex Court as well as the Hon'ble NCLAT and various Benches of this Tribunal time and again have observed that no creditor is permitted to utilise the provisions of the I & B Code, 2016 for a mere recovery of its debts as the same is meant for the resolution and benefit of the Corporate Debtor. 27. Whether an application under section 7 of the Code is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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