TMI Blog2022 (3) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The conduct of the Petitioner made to believe that it has been trying to utilise this forum as a 'recovery mechanism'. It is pertinent to take into consideration the financial position of the Respondent and the repercussions if the Respondent Company, a going concern, is admitted into CIRP more so when all other Lenders, who comprises the required majority percentage, in the event of constitution of the Committee of Creditors, seriously pursuing for the resolution of the Corporate Debtor under the Prudential Framework, with the active consent and participation of the Petitioner. In the present case, the Respondent is willing and trying to repay the debts of all the Creditors and to show its bona fides when it was ready to sell its vending business, and when other Lenders accepted the said move, but the Petitioner refused to cooperate in that process. This action of the Petitioner clearly establishes that its intention was recovery of its debt but not the resolution of the Corporate Debtor. Therefore, though, a Creditor can choose its own forum, but in the peculiar facts of the present case, we are of the view that the Petitioner is trying to utilise the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l amount and interest) under the above-mentioned facility agreements. As on 06.01.2021, the total amount due to the Applicant from the Corporate Debtor including default interest is USD 1,49,42,788 (INR 1,09,79,96,062.24 computed at the rate of USD 1 = INR 73.48). 5. For the purpose of proving the existence of debt and consequent default under the aforementioned Facilities, the Petitioner inter alia filed the following documents: i.) Extracts of resolutions passed by the Board of Directors of the Corporate Debtor in respective meetings held on 14.07.2015 and 26.03.2018, resolving to borrow Facility 1 and Facility 2 from the Applicant, are annexed as Annexure A-18 and Annexure A-19. ii.) Facility 1 Agreement dated 29.07.2015 executed between the Applicant and the Corporate Debtor is annexed as Annexure A-5. iii.) Facility 2 Agreement dated 27.03.2018 executed between the Applicant and the Corporate Debtor is annexed as Annexure A-6. iv.) The workings for the computation of the total amount of default as well as the days of default as on 06.01.2021 are annexed as Annexure A-7(Colly). v.) Under the Facilities, the Corporate Debtor's payment obligations w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lenders on a common platform and pursue a comprehensive resolution. It stipulates a window of 180 days to implement the resolution plan, which drives the lenders to take collective decision and resolve the stressed asset in a time bound manner. ii.) In view of the above circular, the Lenders have formulated a resolution plan involving sale of the Vending Division of the Respondent through a bid process. Hence, the lenders have already signed the ICA on 06.01.2021 and Kotak Mahindra Bank also proposes to enter into ICA. As on 31.12.2020, the lenders constitute about 51% of the total outstanding debt of the Respondent Company. Other foreign lenders are also in support of the resolution process initiated by domestic leaders. iii.) A Steering Committee comprising of Yes Bank, RBL Bank and Karnataka Bank has been formed to oversee the resolution process on behalf of the Lenders and it has held 5 meetings till date. Further, to facilitate the resolution process, the Lenders have appointed various advisors. There has been significant progress in the resolution process and several prospective buyers have shown interest in the Vending Business and submitted Non-Binding Offers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meetings, the Respondent explained that the Respondent Company has, with the other lenders and advisors, devised a plan to 'Revive the businesses and Repay the Lenders'. iii.) Apart from reviving the business, efforts were being made to sell one of the business verticals, viz., 'coffee vending machine business', to prospective buyers. However, due to Covid-19 pandemic the Respondent did not get any favourable offers from the prospective buyers. On account of the devastating impact on the economy which the Covid-19 pandemic had, guidelines were issued to the Ministry of Corporate Affairs, Reserve Bank of India, etc. among other regulators to grant extensions to companies to pay debts and restructure the finances which were tendered to the borrowers. iv.) In consonance with the Ordinance dated 05.06.2020, Section 10A was inserted to the IBC, 2016 by way of an amendment. From the proviso to Section 10A, it is clear that no Petition under Sections 7, 9 and 10 of the IBC could ever be filed against a Corporate Debtor for any default occurring between the period 25.03.2020 and 24.03.2021. ('Period of Suspension'). The Petitioner filed the present Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the framework of Code. ix.) When the Respondent came to note that the Petitioner had filed the present Petition (in the month of March 2021), the Respondent agreed to cooperate with the Petitioner regarding the sale of the charged assets, without any modifications to the Engagement Letter proposed by the Petitioner. The Parties agreed to engage JLL, the property management Company. However, the Petitioner refused to cooperate in this regard. In the month of September 2021, the top management of the Petitioner has seemed cooperative with respect to formulating a resolution plan of the Respondent. The Petitioner has also been actively participating in lenders' meetings. While on one hand, the Petitioner has extended cooperation, on the other the Petitioner is strongly contesting the present Petition, which is defective. 10. In response to the aforesaid objections, the Financial Creditor vide its rejoinder dated 09.12.2021 has inter alia stated that the Corporate Debtor has failed to deny the existence of financial debt owed to the Financial Creditor and the defaults highlighted in the Petition. The Corporate Debtor has mischaracterised the Petitioner's email d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Day Global Limited, has filed an I.A., being I.A. No. 261 of 2021, u/s. 10A of the I B Code, 2016 r/w Rule 11 of the National Company Law Tribunal Rules, 2016, seeking to dismiss the instant Company Petition for not being maintainable under law briefly on account of the following grounds: i.) The Promoter of the Respondent, Mr. VG Siddhartha, and his family were mainly in the business of coffee plantation and export and is presently one of the India's leading 'coffee cafe' chain companies with over 572 outlets across 165 cities and employing around 5,150 personnel, as on 31.03.2021. The Respondent has had a blemishless track record for over three decades, and also enjoyed an excellent credit rating as it was prompt in repaying the loans which it had received. The Respondent is the founder and owner of the iconic brand 'Cafe Coffee Day'. ii.) The Respondent enjoyed continued profits just before the unfortunate outbreak of Covid-19 pandemic in early 2020, which crippled majority of the businesses across the world. Audited Financial statements for the years ended 31.03.2016, 31.03.2017 and 31.03.2018 are placed on record as Annexure-R1, R2 and R3. iii.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, and therefore this debt fell during the Period of Suspension. Further, the present Petition is also filed during the Period of Suspension i.e. in January, 2021. vii.) It is further stated that the Respondent was in the process of restructuring its business so that the Respondent can make up the losses and lack of business on account of the Covid-19 pandemic and repay the debts which are due to its lenders from it. As part of the said process, a resolution plan was formulated involving sale of the Vending Machine Division' of the Respondent through a bid process. It is stated that the said vending machine business of the Respondent would fetch the Respondent a sum of around Rs. 2,400 Crores, which is in excess of the debt due to all lenders put together. viii.) It is stated that while the Respondent had proposed the sale of its Vending Machine Business to prospective buyers, the Applicant opposed the said sale, for reasons best known to it. Further, the Petitioner filed the instant Petition with the sole motive to scuttle the resolution process already being undertaken by the other lenders. The Respondent has also relied upon the following decisions of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 8 months from the date of filing of the Petition, it is apparent that the Corporate Debtor filed the instant IA with the mala fide intention of delaying the adjudication of the Petition and thus ought to be rejected. 15. The learned Counsel for the Petitioner, in support of his submissions, placed reliance on the following decisions: (a) Ramesh Kymal vs. Siemens Gamesa Renewable Power Private Limited; (b) Ramesh Kymal vs. Siemens Gamesa Renewable Power Private Limited, (2021) 3 SCC 224; (c) Apya Capital Services Private Limited vs. Guardian Homes Private Limited (Company Appeal (AT)(Insolvency) No. 412 of 2020 dt. 8 December 2020; (d) Innoventive Industries Limited vs. ICICI Bank Anr., (2018) 1 SCC 407; (e) Swiss Ribbons Private Limited and Anr. vs. Union of India, (2019) 4 SCC 17 . 16. Heard Shri Rajiv Nayar, learned Senior Counsel for the Financial Creditor and Shri A. Murali, learned Counsel for the Respondent/Corporate Debtor and carefully perused the pleadings on record. 17. The Hon'ble Supreme Court of India in M/s. Innoventive Industries Ltd. vs. ICICI Bank Anr. in Civil Appeal Nos. 8337-8338 of 2017 observed as under: 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese directions shall apply to the following entities: (a) Scheduled Commercial Banks (excluding Regional Rural Banks); (b) All India Term Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI); (c) Small Finance Banks; and, (d) Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D). 4. These directions are issued with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets. 5. These directions are issued without prejudice to issuance of specific directions, from time to time, by the Reserve Bank to banks, in terms of the provisions of Section 35AA of the Banking Regulation Act, 1949, for initiation of insolvency proceedings against specific borrowers under the Insolvency and Bankruptcy Code, 2016 (IBC). I. Framework for Resolution of Stressed Assets A. Early identification and reporting of stress 6. Lenders For the purpose of these directions, 'lenders' shall mean all entities mentioned at paragraph 3, unless specified otherwise. shall recognise incipient stress in loan accounts, immediately on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery. 10. In cases where RP is to be implemented, all lenders shall enter into an intercreditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender. In cases where asset reconstruction companies (ARCs) have exposure to the borrower concerned, they shall also sign the ICA and adhere to all its provisions. The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders. Additionally, the ICA may, inter alia, provide for rights and duties of majority lenders, duties and protection of rights of dissenting lenders, treatment of lenders with priority in cash flows/differential security interest, etc. In particular, the RPs shall provide for payment not less than the liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shall require one ICE. Only such RPs which receive a credit opinion of RP4 Annex-2 provides list of RP symbols that can be provided by CRAs as ICE and their meanings. or better for the residual debt from one or two CRAs, as the case may be, shall be considered for implementation. Further, ICEs shall be subject to the following: (a) The CRAs shall be directly engaged by the lenders and the payment of fee for such assignments shall be made by the lenders. (b) If lenders obtain ICE from more than the required number of CRAs, all such ICE opinions shall be RP4 or better for the RP to be considered for implementation. 15. A RP in respect of borrowers to whom the lenders continue to have credit exposure, shall be deemed to be 'implemented' only if the following conditions are met: (a) A RP which does not involve restructuring/change in ownership shall be deemed to be implemented only if the borrower is not in default with any of the lenders as on 180th day from the end of the Review Period. Any subsequent default after the 180 day period shall be treated as a fresh default, triggering a fresh review. (b) A RP which involves restructuring/change in ownership sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional provisions may be reversed upon completion of the assignment of debt/recovery. E. Prudential Norms 22. The prudential norms applicable to any restructuring/change in ownership, whether under the IBC framework or outside the IBC, are contained in Annex-1 During the period when the RP is being finalised and implemented, the usual asset classification norms would continue to apply subject to additional provisioning requirements of this circular. The process of re-classification of an asset should not stop merely because RP is under consideration. . II. Supervisory Review 23. Any action by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts, will be subjected to stringent supervisory/enforcement actions as deemed appropriate by the Reserve Bank, including, but not limited to, higher provisioning on such accounts and monetary penalties This may be in addition to direction to bank/s to file insolvency application under the IBC. . III. Disclosures 24. Lenders shall make appropriate disclosures in their financial statements, under 'Notes on Accounts', relating to RPs implemented. IV. Exceptions 25. Rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in this framework. Yours faithfully, (Saurav Sinha) Chief General Manager-in-Charge 21. In terms of the above referred Prudential Framework, Yes Bank, one of the Financial Creditors of the Respondent-Corporate Debtor, along with the Petitioner-Bank and others, had taken the initiative along with all other Lenders to undertake the debt resolution process of the Corporate Debtor; and, in pursuance of the same, issued the following letter: 22. The Petitioner-Bank has also actively participated in the process of resolution of the Corporate Debtor in terms of the Prudential Framework, along with all other lenders of the Corporate Debtor. However, during the process of the said Prudential Framework resolution process, and when a proposal was made for selling its vending machine business which may fetch about Rs. 2,400 Crores, which is sufficient for repayment of the debts of all the creditors, Petitioner-Bank has not agreed to give a formal No Due Certificate for the release of charge. The relevant correspondence read as under: 23. Even after filing of the instant CP also, the resolution process of the Corporate Debtor in terms of the Prudential Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of the Corporate Debtor. 27. Whether an application under section 7 of the Code is filed with bona fide intention for the resolution of the Corporate Debtor or for recovery of debt can be determined by examining the facts of the case. In the present case, the Petitioner had actively participated in the resolution process of the Corporate Debtor in terms of the Prudential Framework, along with all other Lenders before filing the CP and even thereafter. This conduct of the Petitioner puts a question on the bona fides of the instant Petition. The conduct of the Petitioner made us to believe that it has been trying to utilise this forum as a 'recovery mechanism'. We further believe that it is pertinent to take into consideration the financial position of the Respondent and the repercussions if the Respondent Company, a going concern, is admitted into CIRP more so when all other Lenders, who comprises the required majority percentage, in the event of constitution of the Committee of Creditors, seriously pursuing for the resolution of the Corporate Debtor under the Prudential Framework, with the active consent and participation of the Petitioner. In the present case, th ..... 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