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TMI Blog2025 (4) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... C.P.(IB) No.1593/KB/2018. By the impugned order, the Adjudicating Authority has admitted the Section 7 petition filed by the Financial Creditor admitting 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. The salient facts of the case which are relevant to be noticed for deciding this appeal are as briefly outlined below : * ICICI Bank and IFCI Ltd. sanctioned certain loan facilities to the Corporate Debtor-Uniworth Textiles Ltd. ("UTL" in short). * In the year 2004, proceedings under Sick Industrial Companies Act, 1985 (SICA) was initiated by the Corporate Debtor. The account of Corporate Debtor was declared NPA on 31.08.2007. * The loan of ICICI and IFCI was assigned in favour of the Asset Reconstruction Company (India) Ltd. ("ARC" in short) on 31.03.2004 and 12.01.2007 respectively. The SICA proceedings were however abated by the Appellate Authority (AAIFR) in 2013. * On 05.09.2014, the ARC had filed an Original Application No. 162 of 2014 before the DRT for initiation of SARFAESI proceedings. On 04.12.2018, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was contested by the Corporate Debtor in their letter dated 14.12.2018, the Adjudicating Authority erroneously misconceived this letter to be an acknowledgement of debt and default. Thus, rather than endeavouring to examine the facts to undertake determination of the issue of debt and default, instead, the Adjudicating Authority has summarily concluded the issue of debt and default. It was also stated that even though the amount due in terms of the GSA exceeded Rs 1 Cr., the Section 7 petition was not maintainable, since the claim of the ARC arose on account of default in payment of settlement amount which was not in the nature of financial debt as defined under the provisions of IBC. The nature and character of outstanding liability on account of violation of the GSA proposal had altered the character of the original debt. Furthermore, since both the parties had entered into a GSA, the original debt had ceased to exist and therefore the ARC was estopped from claiming the original amount of debt. It was also contended that while for the purposes of considering the issue of limitation, an acknowledgement in the Balance sheet can be construed as an admission of the jural relationship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be discharged has neither been denied. In such circumstances, merely by contesting that the revocation of GSA was unilateral and that there was breach of settlement obligations by the Financial Creditor, is not sufficient ground for disallowance of the Section 7 application. 5. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. 6. The short issue for our consideration is whether in the given set of facts and circumstances, the Adjudicating Authority was correct in holding that the Financial Creditor-ARC has been able to set out a case of debt and default above the threshold level and that the Section 7 application was maintainable for the original amount of debt prior to the GSA. 7. The first issue for our consideration is whether there was a debt and default by the Corporate Debtor qua ARC which had arisen on account of the breach of the GSA. 8. It is the case of the Appellant that the Adjudicating Authority had wrongly admitted the Section 7 application filed by the ARC basis the purported failure of the GSA and alleged default in payment of settlement amount as claimed by ARC. Submission was pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies, the amount payable under the terms of settlement is more than 1 crore which crosses the minimum threshold. 18.3 The Corporate Debtor has duly acknowledged that the terms of settlement stands revoked. ....... 20.2 The issues voiced by the Corporate Debtor with regard to group settlement and not individual company settlement has been adequately dealt with by the Hon'ble NCLAT. Hon'ble NCLAT in no uncertain terms has held that it is an individual company wise settlement, and the view stands affirmed by the Hon'ble Supreme Court too. 20.3 The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted." 11. When we look at the material on record, it is pertinent to note that it was the Corporate Debtor which had made the offer for the GSA to the ARC on 19.09.2016 in view of their financial constraints and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other related/ associated company during the course of the settlement period and the same shall be adhered by Arcil as well. We shall withdraw and so shall Arcil after satisfactory completion of the settlement process. * Further after full and final payment of Rs. 75.00 crore Arcil shall issue No Dues Certificate for all the companies mentioned above except Uniworth Apparels Limited and will release all personal and corporate guarantee/s extended in respect of above companies. As it was earlier conveyed to your goodselves that the condition of the business is deteriorated. Further the units are only working on demand based condition and due to the same the assets have started getting deteriorated. We urge you to consider this sympathetically. With a lot of difficulty we have stretched the offer to Rs. 75.00 crore. Hope to hear positively from your end and resolve the matters amicably. For Uniworth Group ( Emphasis supplied ) 12. A bare reading of this letter makes it amply clear that in terms of this offer of settlement, only after a full and final payment of Rs. 75 cr was made by the Corporate Debtor that the ARC was required to issue NDCs for all the companies ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Texprint Overseas Ltd) to pay the outstanding amount as on September 26, 2018 of Rs. 795,61,06,937/- i.e. total dues of Uniworth Textiles Ltd being Rs. 402,05,64,202/- and total dues of Texprint Overseas Ltd being 393,55,42,735/- on or before November 23, 2018 failing which Arcil shall pursue legal action for recovery of the outstanding dues under applicable laws. Yours faithfully, Jigar Dalal Vice President" (Emphasis supplied) 14. From a reading of the above letter, it is clear that the ARC has in clear and unambiguous terms stated that NDCs have been issued for those companies whose settlement amount has been paid while the amounts payable by Uniworth Textiles Ltd of Rs. 21.40 crore as per terms of GSA had still not been paid. The letter also clearly stated that if payments were not made by 23.11.2018, ARC would proceed with legal action for recovery of the outstanding dues against the Corporate Debtor. 15. The receipt of the letter of 22.11.2018 was acknowledged by the Corporate Debtor on 14.12.2018 which letter is as reproduced below: "December 14 2018 Dear Mr. Dalal, This has reference to your letter No. BGVII/NS/FY 19/2738 dated November 22 2018. We wish to inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. No Section 7 application could have therefore been maintained on grounds of violation of the GSA. The Adjudicating Authority had committed a grave error in permitting the ARC to enforce the GSA by allowing them to file a Section 7 petition. In support of their contention, reliance has been placed on the judgment of this Tribunal in the matter of Amrit Kumar Agarwal Vs Tempo Appliances Pvt. Ltd. in CA(AT)(Ins)No. 1005 of 2020 and Trafigura India (P) Ltd. Vs TDT Copper Ltd. in CA(AT)(Ins)No.742 of 2020. 18. Rival submission was made by the Respondent that even if a Settlement Agreement between the parties failed, the Financial Creditor is not barred from filing a Section 7 application on the basis of original financing documents. The GSA having failed in the instant case, the ARC was well within its rights to file the Section 7 application. In support of their contention, reliance has been placed on the judgement of this Tribunal in Priyal Kantilal Vs IREP Credit Capital Pvt. Ltd. in (CA)(AT)(Ins) No. 1423 of 2022. 19. Before we proceed to answer whether the Section 7 application in its present form as filed by ARC was maintainable or not, we may first begin by looking at the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgement of this Tribunal in Amrit Kumar Agarwal supra which has been relied upon by the Appellant has also been discussed. The relevant portions of the said judgement is as extracted hereunder : "12. The judgement which has been relied by Learned Counsel for the Appellant "Amrit Kumar Agrawal" (supra) was a case where section 7 application was filed on the ground of default in payment of settlement agreement where the court held that default in payment of settlement agreement does not constitute a financial debt. The facts of the present case are clearly distinguishable. Present is not a case where Section 7 Application has been filed only on the ground of default in the settlement agreement rather section 7 application has been filed on the basis of original financial debt which was extended by the Financial Creditor to the Corporate Debtor. The mere fact that in earlier company petition, consent terms was arrived, which consent terms was breached by the corporate debtor, the financial debt which was claimed by the financial creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Corporate Debtor at best suffices to establish the jural relationship between the Corporate Debtor and Financial Creditor for the purposes of limitation. But mere acknowledgment of debt in Balance sheet is not sufficient for the purposes of considering a Section 7 application as admission of debt under Section 7 is required to be clear, unambiguous, unqualified and unequivocal. It was submitted that the Annual Reports in the Balance sheet of the Corporate Debtor clearly show that the Corporate Debtor had contested the liability. It was pointed out that in some of the Annual Reports of the Corporate Debtor, there is a specific denial of any liability qua the ARC. The Annual Reports contain the following remarks: "The Company has disputed the repayment of due. The loss and damages caused to the borrower by the lender is much more than the amount lent. Hence, the figures of the borrowed amount shown in the balance sheet after due adjustments with the said loss and damages may result in entitlement to recover substantial amount from the lender. Under these facts and circumstances, the figures of borrowed amount in this balance sheet cannot be considered as admission, if any, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e note of the letter of the Corporate Debtor dated 11.11.2016 where it was admitted that the terms and conditions of the Original Loan Agreement executed with the financial institutions whose debt had been acquired by ARCIL would cease and come to an end only on payment of full settlement consideration of Rs.75 Cr. The said letter is as reproduced hereunder : 11th November 2016 To, Mr. Vinayak Bahuguna The CEO & Managing Director, ARCIL, Subject : - Payment towards settlement of entire dues of Uniworth Limited, Uniworth Textiles Limited, Uniworth International Limited, Indoworth India Limited and Texprint Overseas Limited and their respective Guarantors (collectively referred to as "Uniworth Group") Reference : - (i) Our Letter, inter alia, dated 19.09.2016 and subsequent discussions held in various meetings between the parties. (ii) Your Letter No. BGVI/AD/FY17/2189 Dated 08/11/2016 recording in principal approval and settlement of dues of Uniworth Limited, Uniworth Textiles Limited, Uniworth International Limited, Indoworth India Limited and Texprint Overseas Limited and their respective Guarantors Dear Sir, This refers to the captioned subject. Please find enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction of the full and final claim of the financial creditor in terms of the settlement agreement. The ARC in their letter of 22.11.2018 as at para 13 supra had clearly pointed out that the amounts payable by the Corporate Debtor was Rs. 21.40 cr. There has been no specific denial that this amount was not due nor has any proof been submitted of payments to the tune of Rs. 21.40 cr. having been made. Even though the Corporate Debtor has challenged maintainability of the Section 7 petition on the ground that the breach of GSA cannot revive the original debt but nowhere has it denied debt and default. The event of default is therefore a glaring fact. Moreover, the DRT decree clearly establishes debt and default. Even though the order of DRT has been appealed against, the order of the DRT has not been stayed by the DRAT. This does not in any way obliterate the fact that debt qua the ARC subsists. More significantly, when the DRT decree passed on 04.12.2018 has been noticed also by the highest court of the land in Civil Appeal No.6175/2023, it does not lie in the mouth of the Appellant to state that this decree has not been referred to by the Adjudicating Authority in coming to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial 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 sub-section (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 and evidence of default in part V. Under Rule 4(3), the applicant 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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