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TMI Blog2025 (5) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 passed by the National Company Law Tribunal, Mumbai Bench (Court-III) ('Adjudicating Authority') in C.P. (IB)-641(MB)/C-III/2022. 2. Intec Capital Limited who is the Financial Creditor and a Non-Banking Financial Company (NBFC) is the Respondent No.1 herein. M/s Shivani Flexipack Limited who is the Corporate Debtor through its Interim Resolution Professional is the Respondent No.2 herein. Mr. Madan B Vaishnawa who is the Interim Resolution Professional is the Respondent No.3 herein. M/s Polygraph Printing Technologies Limited who is the supplier of machinery to the Corporate Debtor is the Respondent No.4 herein. 3. The Appellant challenged the admission of the Corporate Debtor into the Corporate Insolvency Resolution Process ('CIRP') under the Code arising after Respondent No.1'sfiling of a Section 7 application (C.P. (IB) 641(MB)/C-III/2022) before the Adjudicating Authority which led to the Impugned Order dated 28.11.2023. 4. It has been brought out that the Corporate Debtor, M/s. Shivani Flexipack Limited (Respondent No.2), was engaged in manufacturing flexible packaging materials. It is also stated that the Respondent No.1 (NBFC), acted as the Financial Creditor by ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve charge, by way of hypothecation, was created over three (3) Lamination Machines 1000MM (Lami Plus 2000 series)-for a total value of Rs. 1,66,40,134. 9. The Appellant submitted that the Respondent No. 1, in violation of the agreed terms and without any written or oral instructions, prematurely disbursed the entire pending loan amount of Rs. 1,21,40,024 to the Respondent No. 4 on 27.12.2012, despite the loan agreement mandating disbursement only upon fulfilment of specific conditions thereby breaching the loan agreement's terms. The Appellant submitted that this premature disbursement has caused material prejudice to the Appellant's rights under the agreement. 10. The Appellant submitted that following the ban on Gutkha/pan Masala products in July 2012, and in light of the fact that the originally ordered machineries had not been delivered, Respondent No. 2 requested changes in the technical specifications and issued a fresh Purchase Order based on new quotation No. PPTL/CONT/DOMT/12-13/049/07-2012 dated 10.07.2012 to the Respondent No. 4 for the supply of one Rotogravure Printing Press - 1000 mm - 8 Color (Orion 1000 series) (hereinafter "said revised machineries"). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Hon'ble High Court of Delhi by filing O.M.P. (COMM) 232/2018 along with IA 7282/2018 under Section 34 of the Arbitration and Conciliation Act, 1996; pursuant to this challenge, the Hon'ble High Court has, by order dated 24th May 2018, stayed the enforcement of the award, subject to the condition that Respondent No. 2 deposits 50% of the awarded amount with the registry of the Court. The Appellant submitted that, at the relevant time, Respondent No. 2 was suffering severe financial losses and, consequently, was unable to comply with the direction of the Hon'ble High Court of Delhi to deposit 50% of the awarded amount as a precondition for stay of the arbitral award. Despite this financial constraint, Respondent No. 2 made a further effort to challenge the High Court's order by filing Special Leave Petition (C) No. 24085/2018 before the Hon'ble Supreme Court of India. The Supreme Court, however by its order dated 17.09.2018, dismissed the petition but granted Respondent No. 2 an additional four weeks to make the required deposit. However, even within the extended period, Respondent No. 2 was unable to deposit the amount due to the persistent lack of funds in the company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole Arbitrator without scrutinizing the merits of the arbitral award or addressing critical procedural irregularities, including the Arbitrator's reliance on a Proforma Invoice/Quotation as purported proof of claim or asset creation, despite the Appellant's consistent assertion that the underlying transaction had been lawfully terminated and communicated to Respondent No. 1 prior to the arbitration proceedings. Further, the Appellant submits that Respondent No. 1 intentionally excluded Respondent No. 4 from all proceedings, despite disbursing the loan amount of Rs. 1,21,40,024/- directly to Respondent No. 4 in violation of the loan agreement. 19. The Appellant submitted that the Adjudicating Authority erred in passing the Impugned Order and admitting the Corporate Debtor into the CIRP under Section 7 of the Code despite the absence of any claim, debt due, or default in payment by the Corporate Debtor towards the Respondents, thereby failing to satisfy the essential requirements for admission of a Section 7 application as mandated by law. 20. Concluding his arguments, the Appellant requested this Appellate Tribunal to set aside the Impugned Order and allow his appeal. 21. Per con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 17.09.2018. However, Respondent No. 2 (through its Suspended Board/Appellant) failed to comply with the Hon'ble Supreme Court's directive. 25. The Respondent No. 1 submitted that there have been cross complaints by the Appellant and the Respondent No.1 on criminal matters for their transactions, which are still pending and but do not vitiate the rights of the Respondent No.1 to file the application under section 7 of the Code. 26. The Respondent No.1 submitted that the Adjudicating Authority, vide its impugned order dated 28.11.2023, admitted the petition filed under Section 7 of the Code thereby appointing Respondent No. 3 as the Interim Resolution Professional for the Corporate Debtor. 27. The Respondent No. 1 submitted that the Corporate Debtor entered into an agreement with Respondent No. 4 for the supply of machinery, and subsequently, the Corporate Debtor availed a loan from Respondent No. 1 for the purpose of purchasing said machinery. As per the terms outlined in the loan agreement, the loan amount was to be disbursed according to the specific instructions provided by the Corporate Debtor. 28. The Respondent No. 1 submitted that both the sole Arbitrator an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed period. Despite the award attaining finality, the Corporate Debtor failed to discharge its liability and remained in financial distress, compelling Respondent No. 1 to initiate the Corporate Insolvency Resolution Process by filing an application under Section 7 of the Code as the unpaid award amount constitutes a crystallized debt and default under the Code. 31. The Respondent No. 1 submitted that, as held by the Hon'ble Supreme Court in Innoventive Industries Limited vs. ICICI Bank and Anr. [(2018) 1 SCC 407] and M Suresh Kumar Reddy vs. Canara Bank and Ors., as well as by this Appellate Tribunal in a series of judgments, the sole criterion for admission of an application under Section 7 of the Code, 2016, is the existence of a default in respect of a financial debt. The Adjudicating Authority is required only to ascertain whether a financial debt exists and whether a default has occurred; if so, the application must be admitted unless it is incomplete, or there is a pending disciplinary proceeding against the proposed resolution professional. Thus, an application under Section 7 can only be rejected on the limited grounds that: (i) no default has occurred, (ii) the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seless. The purported letter dated 18.11.2011 relied upon by the Appellant is fabricated, and the Appellant could not give any proof thereof. The Respondent No.1 submitted that this contention was specifically rejected by the sole Arbitrator, who found no evidence to establish that the letter dated 18.11.2011 was ever communicated to the Answering Respondent. On the contrary, it is on record that by communication dated 18.01.2012, the Corporate Debtor expressly instructed the Respondent No.1 to disburse an amount of Rs. 1,21,40,024 to the account of Respondent No. 4, M/s Polygraph Printing Technologies, and the balance loan amount of Rs. 45,00,110 to the account of the Corporate Debtor. Therefore, the plea of the Appellant alleging breach of the loan agreement in the disbursement process is wholly without merit and stands disproved by the documentary evidence and the findings of the Arbitrator. 35. The Respondent No. 1 submitted that the report submitted to the Metropolitan Magistrate, Borivali relied upon by the Appellant clearly establishes that the Corporate Debtor initially placed an order with Respondent No. 4 for three "Lamination Machines" and availed the loan from the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor began incurring losses of approximately Rs. 25 lakhs per month from October 2012 due to the government-imposed ban on guthka/pan masala in July 2012, which led to the dishonouring of cheques issued to the Respondent No.1. Under the loan agreement, the Respondent No.1 held a first and exclusive charge over the machinery, and accordingly, instructed Respondent No. 4 not to deliver the machinery only after the Corporate Debtor defaulted on its repayment obligations. Such action was fully in accordance with the terms of the loan agreement and standard lending practices, which allow the lender to protect its security interest in the event of default. 37. Concluding his pleadings, the Respondent No.1 requested this Appellate Tribunal to dismiss the appeal with cost. 38. The Respondent No. 4 submitted that it, M/s Polygraph Printing Technologies Ltd., is a leading manufacturer based in Mumbai, India, specializing in the production of Flexographic Printing Machines, Rotogravure Printing Machines, and Lamination Machines. 39. The Respondent No. 4 submitted that in the instant matter, Respondent No. 2 (M/s Shivani Flexipack Ltd.) placed its first purchase order for three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectly identifies the jurisdictional limitations of the Adjudicating Authority in addressing the Appellant's claims, which pertain to contractual or civil disputes unrelated to the insolvency proceedings under the Code. The referred paraph reproduced herein bellow: "21. The dispute, between the Corporate Debtor and the Manufacturer to whom the loan amount was disbursed on the instructions of the Corporate Debtor, cannot be a ground to scuttle the proceedings under section 7 of the Code as long as debt and default is proved. If the Respondent has not received the machines for which payment was made to the Machine Manufacturer, then the remedy against the Manufacturer lies elsewhere and not before the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. Under the Code, the Adjudicating Authority has to merely examine whether there is 'debt' and 'default'." 44. The Respondent No.4 reiterated that the machines remain in its possession in a dismantled state and asserts that their dispatch could have been made upon receipt of the outstanding amount of Rs.45,08,111 from the Corporate Debtor. The Respondent No.4 stated that non-delivery of machinery is attributed sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will also look into whether the Arbitral Tribunal Award dated 21.02.2018 could tantamount to financial debt in terms of Code. 50. From the facts noted from the pleading, of all parties noted by us in all discussions earlier,we observe that the money indeed was disbursed by the Financial Creditor to the Corporate Debtor as well as to supplier of the machinery i.e., Respondent No. 4 based on the instruction of the Corporate Debtor. It is also fact that the total money disbursed was more than Rs. 1 Crore. We observe that the Corporate Debtor vide letter dated 18.01.2012 advised the Financial Creditor to disbursed an amount of Rs. 45,11,110/- to the account of the Corporate Debtor and Rs. 1,12,40,024/- in favour of Respondent No. 4. The necessary documentations have been annexed in the appeal. Thus, the money was paid as a loan by the Respondent No.1/Financial Creditor to the Corporate Debtor /Respondent No. 2 and therefore it is clearly established that the said amount meet the threshold criteria as stipulated under Section 7 of the Code. 51. Now, we have to see whether there has been default or not. In this connection, we note that the Respondent No.1/Financial Creditor issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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