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TMI Blog2025 (3) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 22.02.2024 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) in CP (IB) No. 05/7/JPR/2021. By the impugned order, the Adjudicating Authority admitted the Section 7 application filed by Respondent No. 1-Phoenix ARC Pvt. Ltd. and admitted the Corporate Debtor into Corporate Insolvency Resolution Process ("CIRP" in short). Aggrieved by the impugned order, the present Appeal has been preferred by the suspended Director of the Corporate Debtor. 2. Coming to the sequence of events which are required to be noticed for deciding the present matter are as outlined hereunder: * The Corporate Debtor- Karni Developers & Construction Pvt. Ltd. approached the Union Bank of India for a Term Loan (hereinafter referred to as "TL-1") of Rs 15 Cr. which was sanctioned on 02.12.2005. An amount of Rs 12.92 Cr. was disbursed. * On 30.04.2007, the Union Bank of India rejected a revised proposal from the Corporate Debtor seeking enhancement of the Term Loan from Rs 15 Cr. to Rs 35.50 Cr. * TL-1 became NPA on 31.12.2008. * On 07.01.2009, Union Bank of India issued notice under Section 13(2) of SARFAESI Act and took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 application was defective and hence the petition was not maintainable. It was contended that the Section 7 petition was liable to be dismissed for not mentioning the date of default in Part-IV. The Section 7 application was also filed without proper record of default as contained in the Information Utility or any other evidence of default. Further, the claim made in the petition was clearly time barred. The loan account of the Corporate Debtor had become NPA from 31.12.2008. Even if the NPA date was taken to be 31.03.2016 for TL-2 as claimed by the Respondent No. 1, the date of default could not have been later than 31.12.2015. However, the Section 7 application was filed on 09.01.2021 which was clearly beyond the three years limitation period. It was pointed out that the Hon'ble Supreme in the matter of Babu Lal Vardharji Gurjar Vs Veer Gurjar Aluminium Industries (2020) 15 SCC 1 held that the IBC does not intend to give a new lease of life to debts which are time-barred and that when a debt is barred by time, the right to remedy is time-barred. In the present case, though the claim was not made within the prescribed limitation period, the Adjudicating Authority had erroneously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed purpose of the loan which was to cover project related approvals and expenses. The Adjudicating Authority had also failed to consider that an exorbitant and unreasonable rate of interest and penal interest was being charged. It was also contended that the Corporate Debtor was a solvent entity with sound experience in the real estate sector. The Adjudicating Authority failed to appreciate that the Respondent No. 1 deliberately created a situation compelling the Corporate Debtor to face liquidity crunch by disbursing only Rs 3.40 Cr. against the request of Rs 6.90 Cr. and by declaring them to be NPA and pushing them to corporate death. It was submitted that on 31.05.2022, the Corporate Debtor had submitted a One-time Settlement (OTS) offer of Rs 18 Cr. to the Respondent No. 1 which the Corporate Debtor has ability to arrange for repayment of settlement amount by disposing of the property of the project. It was also added that their bonafide is established by the fact that they had already deposited the principal amount indicated in Part-IV with the NCLAT Registry. 5. Refuting the contentions of the Appellant, Shri Amit Singh Chadha, Ld. Sr. Advocate representing Respondent No.1 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TL-2. It is the contention of Respondent No. 1 that the rate of interest and penal charges was mutually agreed to and was a genuine pre-estimate of the loss suffered by Respondent No. 1 due to inability of the Corporate Debtor to repay the dues. When the TL-2 was executed voluntarily and was never challenged at any stage and the Corporate Debtor had even voluntarily made interest payment at the agreed rate of interest, it does not lie in their mouth to contend that the TL-2 was signed under undue influence, duress or coercion. As regards the contention that Respondent No. 1 being an ARC could not have given a loan, it is submitted that that this argument of the Appellant is misconceived since RBI guidelines of 22.04.2009 clearly enunciated that restructuring of loans can be undertaken by Securitisation Companies/Reconstruction Companies as one of the measures allowed for realisation of their dues. Further, it is pointed out that the Corporate Debtor had never raised the issue of RBI guidelines for not permitting additional funding when submissions and pleadings were made before the Adjudicating Authority. 7. We have duly considered the arguments advanced by the Learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet of the Corporate Debtor for FY 2019-20 and the Independent Auditor's Report attached thereto also clearly indicate the two Term Loans separately. Moreover, the Respondent No. 1 has filed the Section 7 application in respect of TL-2 of 07.02.2014 and hence the NPA date of 31.03.2016 is only applicable. Even the Demand Notice issued under Section 13(2) of the SARFAESI Act on 14.08.2019 by the Respondent No. 1 to the Corporate Debtor clearly indicated that the Demand Notice was issued in respect of TL-2 of Rs 3.40 Cr.. 10. Before we delve into making our analysis, it may be pertinent to notice how the limitation issue has been treated by the Adjudicating Authority. The relevant extracts from the impugned order are as reproduced below: "13. It is pertinent to mention that the Corporate Debtor has acknowledged the liability in its letter dated 8.05.2017. Further, as per the Balance Sheet of the Corporate Debtor for the Financial Year 2019-20, both the Term Loans along with the unpaid interest amount were shown under the head Other- Current Liabilities of the Corporate Debtor. As per Section 18 of the Limitation Act, 1963, a fresh period of limitation shall be computed fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clauses of the TL-2 have been placed at Annexure-VI of APB is reproduced below: Term Loan Agreement This Loan Agreement is made at Jodhpur on this 7 day of February, 2014 ...... ...... WHEREAS The Obligors have requested Phoenix Trust to settle/restructure the liabilities and dues in respect of the Assigned Debt (defined hereunder) and upon mutual discussions, the Parties have recorded the terms and conditions of the settlement/restructuring, inter-alia, in the Memorandum of Compromise (defined hereunder). As a part of the terms and conditions of the restructuring/ settlement, the Obligors have also requested the Lender for additional funding for the purpose of achieving effective restructuring as above by reviving the operations of the Borrower. The Lender, at the request of the Obligors, has agreed to extend financial assistance upto an amount of Rs.3,40,00,000/- (Rupees Three Crores and Forty Lakhs Only) ("New Loan" and more particularly defined hereunder) for the Purpose mentioned hereinbelow and subject to the terms and conditions set out in this Agreement and such other documents in relation thereto executed/to be executed by and between the Lender and the Obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginning from the date of such default until the payment of the same; and (b) no further Interest or penal interest/Default Interest as aforesaid shall be charged from the date of such default. The Borrower acknowledges that all sums payable under the Facility Documents by way of Default Interest are reasonable and that they represent genuine pre-estimates of the loss incurred by the Lender in the event of non-payment or default by the Borrower. The Borrower acknowledges that the New Loan provided under this Agreement is for a commercial transaction and waives any defences available under usury or other laws relating to the charging of interest. 5. SECURITY (i) Security (a) The Borrower agrees and undertakes that the New Loan together with all New Loan Dues thereunder shall be secured by the New Loan Security. (b) The Borrower shall satisfy the Lender that wherever necessary, the particulars of the charge, in respect of the Secured Properties, as may be applicable, have been duly registered with the Sub-Registrar of Assurances and/or appropriate Governmental Authorities." ( Emphasis supplied ) 13. It is also the contention of the Respondent No. 1 that it was the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 43-55). Mention of the "New Loan" of Rs 3.40 Cr. also finds place in the Memorandum relating to Deposit of Title Deeds 07.02.2014 (pages 56-65 Additional Affidavit of Respondent No.1), Deed of Hypothecation dated 07.02.2014 (pages 66-75 of Additional Affidavit of Respondent No.1), declaration and undertaking for creation/extension of mortgage dated 07.02.2014 (pages 76-78 of Additional Affidavit of Respondent No.1) all mention about the "New Loan". Even the Recall Notice dated 29.04.2017 relates only to the TL-2 of Rs 3.40 Cr. as may be seen at pages 79-82 of the Additional Affidavit wherein the interest amount has been shown as Rs 1.65 Cr. and the total outstanding shown as Rs 5.05 Cr. Interestingly, even in their communications with Respondent No.1 dated 05.05.2017 and 11.12.2017 which we shall deal with in details later, we notice that the Corporate Debtor has made a distinction between the TL-1 and the TL- 2 of Rs 3.40 Cr. Even the communication dated 31.05.2022 as placed at page 248 of Appeal Paper Book ('APB' in short), we notice that the Corporate Debtor has sent a Onetime Settlement (OTS) proposal to the Respondent No. 1 wherein again a clear distinction has been drawn by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arred as against the submission made by the Respondent No.1 that this standpoint of the Appellant lacks foundational basis. 17. Coming to the impugned order which has already been extracted above, we find that the Adjudicating Authority has noted that since the Corporate Debtor has acknowledged their liability in their letter dated 08.05.2017 and in the Balance Sheet of the Corporate Debtor for the Financial Year 2019-20, in terms of Section 18 of the Limitation Act, 1963, a fresh period of limitation shall be computed from the date of acknowledgement. 18. When we look at the factual matrix of the present case, we find that in terms of the repayment schedule of the TL-2 of 07.02.2014, the repayment was to end on 31.12.2017. The account of the Corporate Debtor for this Term Loan was declared as NPA on 31.03.2016. Calculating three months prior to the date of NPA, the date of default works out to be not later than 31.12.2015. The Section 7 application was filed on 09.01.2021 which is clearly beyond three years from the date of default. What therefore needs to be seen is whether the Respondent No. 1 has effectively substantiated the argument canvassed by them that the debt and defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dues. 2. To provide a bank guarantee of Rs. 25,00,000/- in favour of Jodhpur Development Authority, Jodhpur so we can obtain final approved plan from Jodhpur Development Authority, Jodhpur which will help to submit revised repayment schedule for the term loan. 3. To provide assistance in to find out suitable investors/buyers for our project so we can take necessary steps to pay your dues amount as earliest as possible. 4. To provide some additional time to make arrangement for making payment of your dues. We regularly realised about heavy cost of fund which is very risky for our company and our project. Yours truly, For Karni Developer and Construction ( Emphasis supplied ) Even though this letter makes reference to inability to pay the settlement amount as agreed in terms of MoC of 03.12.2013, nevertheless, there is a clear mention of postponement of the Recall Notice against TL-2 of Rs 3.40 Cr. 20. We find yet another letter addressed by the Corporate Debtor on 11.12.2017 to the Respondent No. 1 admitting the debt and default in respect of TL-2 of Rs 3.40 Cr. In the said letter, the Appellant have themselves drawn a clear distinction between the TL-1 by way of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement dated 07.02.2014 from Phoenix ARC Private Limited and company is in default for instalments of Rs 5.25 Crore from 01.04.2015 to 31.03.2016, Rs 8.38 Crore from 01.04.2016 to 31.03.2017 and Rs 6.28 Crore from 01.04.2017 to 31.03.2018 (which is after adjusting of Rs 1,59,34,415 on account of loan returned vide demand draft totalling to Rs 19.91 Crore. (Emphasis supplied) 22. We have already seen that in the above letters dated 05.05.2017 and 11.12.2017, the Corporate Debtor has acknowledged debt and default after making a distinction between the TL-1 and the TL-2 of Rs 3.40 Cr. There is also a clear acknowledgment of TL-2 in the balance sheet of the Corporate Debtor for FY 2019-20. Furthermore, in view of the documents like the TL-2 Agreement, Amendment Agreements, Letters of Personal Guarantee, Memorandum relating to deposit of Title Deeds, Recall Notice dated 29.04.2017 and Section 13(2) Demand Notice under SARFAESI Act, we find that there is sufficient evidence to prove the existence of debt and default. The balance sheet of the Corporate Debtor for FY 2019-20 and the Independent Auditor's Report attached thereto clearly indicate both the Term Loans along with unpaid int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank seeking clarifications whether acquisition of financial assets by one SC/RC from another SC/RC will be in conformity with the provisions of SARFAESI Act/ guidelines issued by the Bank in the matter. Further, certain SC/RCs have desired to know if the SC/RCs can deploy their funds for the purpose of restructuring of acquired loans to enable them to realise their dues. 2. The issues were examined and our response is as under: (i) A Securitisation Company/Reconstruction Company is neither a 'bank' in terms of provisions of Section 2(1)(c) of SARFAESI Act, 2002 nor a 'financial institution' in terms of provisions of Section 2(1)(m) of the said Act. Therefore, acquisition of financial assets by one SC/RC from another SC/RC will not be in conformity with the provisions of SARFAESI Act, 2002. (ii) 'Restructuring of loans by SC/RC' is one of the measures allowed to be undertaken by SC/RCs for realisation of their dues. As such, there is no bar on SC/RCs deploying their funds for undertaking restructuring of acquired loan account with the sole purpose of realizing their dues. Chief General Manager In-Charge Apart from there being no bar, we also notice that it was the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tulip Hotels case supra, though the Settlement Agreement which provided for 22% interest had already been revoked, yet the Financial Creditor was trying to enforce the said rate of interest. The Corporate Debtor having signed the TL-2 dated 07.02.2014, the terms of the same have become binding. Having signed the TL-2 and adhered thereto without challenging the same, the Corporate Debtor cannot now raise the issue of legality or validity of the Term Loan Agreement. Moreover, when the TL-2 was executed voluntarily and was never challenged at any stage and the Corporate Debtor had even voluntarily made interest payment at the agreed rate of interest, we do not find much force in the contention of the Appellant of the applicability of the Tulip Hotels ratio. We do not find that the issue of rate of interest was pressed before the Adjudicating Authority. It is well settled that while dealing with a Section 7 application neither the Adjudicating Authority nor the Appellate Authority is expected to interfere with the terms of contract entered into between the concerned parties. All that is required to be seen is whether the debt and default is proven without adjudicating on whether the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TS, RECORDS AND EVIDENCE OF DEFAULT) THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH A COPY) Annexure-A1: Copy of certificate issued by Reserve Bank of India. Annexure-A2: Board Resolution dated 27.10.2020. Annexure-A3: Term Loan Agreement dated 07.02.2014 duly affixed on stamp paper vide serial No. 404486 of Rs. 25,000 /- Annexure-A4: First Amendment agreement dated 30.06.2014. Annexure-A5: Second Amendment agreement dated 29.12.2014. Annexure-A6: Letter of Personal Guarantee Dated 07.02.2014 executed by Sh. Suresh Chauhan, Sh. Kamlesh Chauhan and Smt. Madhubala Chauhan. Annexure-A7: Memorandum relating to Deposit of Title Deeds dated 07.02.2014 Annexure-A8: Deed of Hypothecation dated 07.02.2014. Annexure-A9: Declaration and Undertaking for creation/extension of Mortgage executed by Smt. Madhubala Chouhan dated 07.02.2014. Annexure-A10: Recall Notice dated 29.04.2017 issued to the Corporate Debtor and Guarantors. Annexure-A11: Notice dated 14.08.2019 U/s 13(2) of the SARFAESI Act, 2002. From the list of documents placed in the Part-V, we notice that the Adjudicating Authority had substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to commit the Corporate Debtor into insolvency. The Hon'ble Apex Court in the case of M/s Innoventive Industries Ltd. v. ICICI Bank in C.A. Nos. 8337-8338 of 2017 has laid down the guiding principles to admit or reject an application filed under Section 7 of the IBC. It may be relevant to notice the relevant paragraph of this judgment which is as follows: "30. On 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." 31. On the question as to whether debt and default was adequately demonstrated before the Adjudicating Authority, basis the records made available before it, the Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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