TMI Blog2024 (3) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the Central Government to take over management from the borrower-company. Even the Division Bench order of this Court directed the management to be continued by the borrower-Company. Hence, the lame excuse of the workers interest is mere lip-service in the mouth of the petitioner, since the borrower-company, evidently without knowledge or permission of the lender-Bank, had transferred the security, invoking the umbrella of the Central Government directions - The moratoria contemplated in the IBC were introduced for the protection of the corporate debtor in order to facilitate resolution. Such legal fiction, however, was created only in order to sustain the business of the company in the hands of the successful resolution applicant, inter alia, to protect the interests of the workers and the business of the unit in general. However, even if CIRP commences, the Directors, who were the masterminds in control and charge of affairs of the Company at the relevant juncture, cannot be absolved of any wilful default committed by the borrower-Company at the relevant juncture. In the present case, the petitioner was a Director and at the helm of affairs, responsible for the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to repay the loan under the OTS due to the commencement of the CIRP. 3. Secondly, the borrower-Company suffered huge losses during the relevant financial years, that is, from 2014-15 to 2018-19. The Committees failed to take into consideration that due to such huge losses, it could not be said that the borrower, despite having capacity to honour the repayment obligations, had defaulted in meeting the same. It is argued that there is no allegation of siphoning off the proceeds from sales realization. 4. The premise of the allegation that Clause 2.1.3(a) of the Master Circular applies, with regard to alleged non-repayment despite having capacity to pay, is that the credit summation in the company s cash credit account was lower than revenue earned from its operations. 5. It is argued that the Wilful Defaulter Identification Committee failed to rebut/disprove the allegation that the Company was suffering huge losses during the relevant period and consequently had no capacity to pay. Credit summation, in vague terms, cannot tantamount to or be a measure to determine capacity to pay . 6. The Cash Credit Account maintained by the borrower-Company with the Bank was a monitored account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tea gardens in favour of the assignee but only entered into a marketing, management contract with it. 12. Insofar as the assignment of Hantapara, Garganda, Tulsipara and Dhumchipara Tea Estates are concerned, the Central Government had authorized the Tea Board under Section 16E of the Tea Act in a Notification dated January 20, 2016 to take immediate steps to take over management and control of seven gardens belonging to the Company, including those gardens. A writ petition was filed by the Company against the Notification, which went up to a Division Bench of this Court which by an order dated September 20, 2016 observed that the situation had turned worse than what it was on the date of the Notification and accordingly directed the company to take over management of the gardens to pay the current and arrear dues of the workers and to run the garden in a prudent business-like manner, keeping the team informed of the steps taken by them. The order recorded that the same was passed only for the purpose of improving the lot of the workers as also that of the gardens. 13. As the borrower-Company did not have the funds to run the gardens or pay the dues of the workers, it was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolve the responsibility of its Directors. The purpose of the Master Circular is to put in place a system of disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions so as to ensure that further Bank finance is not made available to them. It is argued that the same operates on a different footing than a CIRP under the IBC. 20. Learned counsel places reliance Section 31A of the IBC to further the said line of argument. The petitioner is admittedly the promoter and whole-time director of the borrower-Company, thus, satisfying the definition of an Officer who is in default as provided in Section 2(60) of the Companies Act, 2013. 21. Learned counsel for the respondent-Bank cites Manish Kumar Vs. Union of India and Another, reported at 2021 SCC OnLine SC 30, where, while upholding the vires of Section 32A, the Supreme Court had observed that the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan was the reason behind introduction of Section 32A of the IBC. It was clarified that it is not as if the wrong-doers are allowed to get away. 22. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the impugned finding is based on no evidence. 28. While testing an order of a quasi-judicial authority, it is argued that this Court should not be concerned with the correctness of the order. If the order can be sustained on some evidence already on record, even if the conclusion is not correct and the reasons are not adequate, there will be no interference by this Court. The Bank cites B .C. Chaturvedi Vs. Union of India and others, reported at (1995) 6 SCC 749, State of T.N. and another Vs. S. Subramaniam, reported at (1996) 7 SCC 509 , for the proposition that the High Court would interfere in judicial review only if the impugned conclusion could not have been reached by a reasonable person. Learned counsel also cites Deputy General Manager (Appeallte Authority) and Others Vs. Ajai Kumar Srivastava, reported at (2021) 2 SCC 612. 29. Court would not interfere if the reasons, though not spelt out in the order, are available on the records, as held in Income Tax Officer, Cuttack and Others Vs. Biju Patnaik, reported at 1991 Supp (1) SCC 161. It is next argued that in Commissioner of Income-tax Vs. K.Y. Pilliah Sons, reported at [1967] 63 ITR 411 and Ram Kumar Vs. State of Haryan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same could not reach culmination as the CIRP intervened. Such argument, however, has no legs to stand upon. An OTS means that a part of the debts is only paid, whereas the other part is written-off by the Bank. Therefore, even if the OTS is in full and final settlement of the loan insofar as recovery is concerned, since a part of the same is written-off, it cannot be said that the loan was repaid in full. That apart, the default committed at the relevant juncture does not get effaced merely by entering into an OTS. Thus, if a default is found to be willful under the contemplation of the RBI Master Circular, there may very well be a declaration to that effect despite an OTS being entered into. 35. The petitioner has taken a plea that due to loss suffered during the relevant period, it did not have the capacity to pay back. However, even if there is no profit but it is shown that revenue was earned but not used to repay the loan, there can very well be a wilful default under the contemplation of the Master Circular. Profit is not an essential criterion for making repayment. Mere earning of revenue and sales realization, if not utilized to meet the loan, it can very well be construe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale and manufacture of tea. The right to realize the proceeds of such sale of tea and manufacture of the same comprises the entire corpus of the secured assets. Having assigned the same in favour of third-parties, the borrower-Company was definitely guilty of disposing of and removing the secured assets pledged with the Bank without the knowledge of the Bank. 41. Admittedly, an agreement was entered into in the year 2004 which was much prior to the directions of the Central Government to take over management from the borrower-company. Even the Division Bench order of this Court directed the management to be continued by the borrower-Company. Hence, the lame excuse of the workers interest is mere lip-service in the mouth of the petitioner, since the borrower-company, evidently without knowledge or permission of the lender-Bank, had transferred the security, invoking the umbrella of the Central Government directions. Even if the borrower was under compulsion to pay the workers, nothing prevented it from informing and taking consent of the lender-Bank before assigning the sale proceeds of the tea gardens, that is, the entire corpus of the assets, which was secured with the Bank. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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