State Bank Of India vs M/S Bharath Infra Exports And Imports ... on 28 November, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
TA No. 38 of 2021
in
Company Appeal (AT) (Ins.) No. 80 of 2021
(Under Section 61(1) of the Insolvency and Bankruptcy Code, 2016)
(Arising out of the Impugned Order dated 22.12.2020 in
CP(IB) No. 112/BB/2019, passed by the `Adjudicating Authority',
`National Company Law Tribunal', Bengaluru Bench)
In the matter of:
M/s. State Bank of India
State Bank Bhavan
Madame Cama Road
Nariman Point
Mumbai - 400021 ..... Appellant
v
M/s. Bharath Infra Exports
and Imports Ltd.,
3rd Floor, Gold Tower,
No.50, Residency Road,
Bengaluru - 560025 ..... Respondent
Present:
For Appellant : Mr. Sandeep Sethi, Senior Advocate
For Mr. V.M. Kannan, Mr. Sanjay Kapoor, and
Ms. Mega Karnwal, Advocates
For Respondent : Mr. Balaji Srinivasan and Ms. Garima Jain,
Advocates
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
Page 1 of 74
ORDER
(Virtual Mode) Justice M. Venugopal, Member (Judicial):
IA No. 1284 / 2021 in Comp. App (AT) (INS) No.80 / 2021 (TA No.38 / 2021):
The Petitioner / Respondent / Corporate Debtor, has filed IA No.1284 of 2021 in Comp. APP (AT) (INS) No.80 of 2021, seeking permission from this `Tribunal', to file additional documents: (a) True Copy of the Board Resolution dated 25.06.2014 (b) True Copy of the File Sample Applications filed by Mr. B. Nageswara Rao, the Authorised Signatory of the `Respondent / Company' for `opening of LCs', with the `Appellant / Bank', subsequent to the `Board Resolution dated 25.06.2014', on the ground that these documents are very vital documents for arriving at a just and proper decision of the `Appeal', with a view to find out the truth.
2. According to the Respondent / Appellant / Bank / Financial Creditor, the two additional documents, sought to be produced by the `Petitioner / Respondent / Corporate Debtor', are only a ruse to delay and derail the proceedings of the instant `Appeal'. Further, the documents sought to be produced, in any event, does not save the `Petitioner / Respondent / Corporate Debtor', from the only conclusion that there is a TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 `Default' of a `Financial Debt' and the `Corporate Insolvency Resolution Process', ought to be initiated `qua' the `Petitioner / Respondent / Corporate Debtor'.
3. In view of the fact that the Petitioner / Respondent / Corporate Debtor, has come out with a plea that the two additional documents sought to be produced in IA No.1284 of 2021 in Comp. APP (AT) (INS) No.80 of 2021 are very much vital and of great relevance to the matter at hand, to find out the truth and for arriving a just and proper decision in the instant `Appeal', this `Tribunal', in furtherance of `substantial cause and justice', allows the IA No.1284 of 2021 in Comp. APP (AT) (INS) No.80 of 2021, but without costs.
JUDGMENT (Virtual Mode) Justice M. Venugopal, Member (Judicial):
Company Appeal (AT) (INS) No. 80 of 2021:
Background:
4. The Appellant / Bank has preferred the instant Company Appeal (AT) (INS) No. 80 of 2021 (TA No. 38 of 2021), as an `Aggrieved Person', on being dissatisfied with the `impugned order' dated 22.12.2020 in CP(IB) No.112/BB/2019, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Bengaluru Bench). TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
5. The `Adjudicating Authority', while passing the `impugned order' in CP(IB) No.112/BB/2019, filed by the `Appellant / Petitioner / Financial Creditor', under Section 7 of the I & B Code, 2016, read with Rule 4 of I & B (AAA) Rules 2016, among other things at Paragraphs 32 to 41, had observed the following:
32. ``The Corpora7te Debtor has contended that the entire Rs.45 crore of cash credit facilities as on 07.10.2016 and entire LC payment of Rs.259,23,56,889 was paid by it from 01/04/2015 to 13/10/2016 leaving no demand payable by it, after which date no new LCs were issued by the Bank. On a perusal of the Ledger Account filed by the Petitioner it is seen that as on 01.04.2015 the total credit in the Corporate Debtor's account was Rs.41,80,76,866 whereas as on 14.10.2016 the same stood at Rs.510,17,53,095.
Thus, the Corporate Debtor was given credit for having paid amounts totalling Rs.468,36,76,229 during the period. However, despite these payments, the account shows that as on 14.10.2016 there was still a debit balance of Rs.19,30,64,577.86 against the Corporate Debtor, whereas it claims that as on this date all the dues had been cleared. This needs to be reconciled. In fact as mentioned earlier even after 14.10.2016 there are numerous debit entries appearing as Withdrawal Transfer due to which the debt as per this account has increased to Rs.123,53,90,795.03, apparently on account of the LC facilities availed in the earlier periods. Each of these entries needs to be verified and reconciled.
33. In view of the completely opposite stands taken by the two sides, the determination of the nature of the debit entries would require matching of the bills raised by the Financial Creditor on account of LC facilities, with the entries appearing in the Corporate Debtor's CC account maintained in the Bank. It will also have to be ascertained whether all the bills raised are undisputed as regards the payments released by the bank, amounts repaid by the Corporate Debtor, calculation of LC charges and TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 interest levied etc. This position clearly needs to be reconciled through a process of entry by entry scrutiny of the accounts of the Corporate Debtor from 2012 to 2016 as against the LC and other charges levied and payments made / adjusted. This would also require comprehensive scrutiny and reconciliation with the Bank records, available correspondence and decisions taken with regard to the settlement / golden handshake etc.
34. The above gap could be either on account of the Corporate Debtor's perception that when it cleared the loan in 2012 and paid Rs.10.63 crore and adjusted its FDRs in 2016, its entire Working Capital Account got liquidated. Alternatively, the charges levied by the Financial Credit towards LC charges etc. were incorrectly charged as against the facilities actually availed and full credit was not given for the same. But it does appear strange to us that when the loan and other facilities availed from the CC Account had been entirely paid on the above two occasions, as it appears from the accounts, still huge debit balance still remains. If this is on account of the LC charges, then it appears even more surprising since the Non fund based facility itself was a maximum of Rs.112.22 crore in 2015. Even if fully utilised, the amounts payable against this facility would be for the LC charges and interest for the late settlements, if any (though the Corporate Debtor asserts that it has fully paid the same from 2012 till 2016). But the debt claimed by the Financial Creditor itself is more than the LC limit. This needs to be examined and reconciled.
35. However, at this point we may mention that the Corporate Debtor's plea that the accounts maintained by the Financial Creditor are one sided and incorrect, cannot be accepted as the Corporate Debtor has itself relied upon the entries in the Ledger maintained by the Bank in pointing out specific payments made by it. The payments it claims to have made are appearing in these very accounts, such as the payment of Rs.10.63 crore referred to earlier, and seen on our cursory examination, it cannot choose to reject the accounts or accept the same at its convenience. For example, each entry in a bank customer's account, when payment or withdrawal TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 are made mostly by cheque would be entered in the Day Book both at the time of presentation as well as its clearance, in different banks or branches. In electronic transfer every entry made by the customer of the Bank gets logged into the system which can be audited and verified. The difference could be on account of incorrect or excessive charges, missing credits and pre-closure and settlements not given effect. These need to be verified.
36. The Corporate Debtor has repeatedly challenged before different authorities such as the DRT, NCRC, the Banking Ombudsman, and before different Hon'ble Courts, as also before this Tribunal, but the proceedings have not concluded. Before the NCRC, NeSL clarification and in the Court the Financial Creditor has itself stated that the problem is complicated and complex, requires examination of elaborate evidence and can be sorted out in a Civil Court only. It also appears improbable that the Financial Creditor would have further agreed to enhance the working capital facilities from Rs.85 crores to RS.157.22 crores, out of which Rs.45 crore was cash credit and Rs.112.22 crores was letter of credit (LC Limits), on 23.03.2015 if at that point of time, there was a huge outstanding debt and if there was a default in clearing the same by the Corporate Debtor. Subsequently also the AGM in his letter dated 14.10.2016 stated ``...... look forward to your continued patronage...'', as mentioned by the Corporate Debtor in his objections, indicating that the debt had been cleared or that the FC had no further issues of recovery with the Corporate Debtor with regard to recovery of debt.
37. On the other hand, we also find that during the hearing on 19.06.2019 the MD of the Respondent Corporate Debtor stated that if any dues were payable in spite of all the payments made, then he can settle the dues, provided the correct amount is worked out after proper reconciliation.
38. We also find from the objections filed by the Corporate Debtor that the Corporate Debtor is not an insolvent company that has lost its substratum, cannot engage in business and earn revenue, or pay its debts. As mentioned by the Corporate Debtor, it had stocks and TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 receivables of around Rs.138 crore, the market value which was around Rs.215 crore. It is stated to be holding stocks and receivables, personal guarantees and immovable assets worth around Rs.406 crore, the present value of these is more than Rs.500 crore. These claims have not been opposed by the Financial Creditor. The valuation reports submitted by the Financial Creditor with the Petition corroborate this claim, at least in respect of immovable properties.
39. We may add that we have to take notice of the impact of the present financial distress caused by the global Novel Corona virus pandemic necessitating a nationwide lockdown in the last about 8 months that has paralysed businesses across the country. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy, on 24.03.2020 the minimum threshold of default was increased from Rs. 1 Lakh to Rs. 1 Crore etc. Modifications and suspension of various provisions of the Code have been initiated so that companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP, else in the present scenario they may end up in liquidation and lose value further, which is not the objective of the Code. IBC itself has been suspended. Debts are being restructured as per Government guidelines. In this scenario, it cannot be ascertained as to what value the assets of the Corporate Debtor and its running business would have in the open market so as to attract a viable resolution applicant and whether it would be a fruitful exercise to push the Corporate Debtor into CIRP.
40. We find that in the latest appeal decided by the Hon'ble NCLAT in Brig. E. S. Krishnamurthy & Ors. Vs M/s. Bharath Hi- Tech Builders Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 699 of 2020, dated 30.07.2020, this aspect was considered and it was held that:
``.......... we take judicial notice of the fact that normal business operations have been adversely affected by the imposition of lockdown due to outbreak of COVID-19 which has been declared pandemic. Even after unlocking, the pace TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 of business operations is far from normal. In these circumstances, some concession has to be given in adherence to the timelines set in terms of the impugned order. Be that-as-it-may, this situation may also have to be addressed by the Adjudicating Authority, if approached by a claimant whose claim has not been settled so far. It is not in dispute that the resolution of disputes relating to claims, more particularly Allottees in Housing Projects, has to be given primacy and pushing the Corporate Debtor into liquidation would only be the last option.'' The Corporate Debtor in the instant case is also into business related to Infrastructure Development on which the hard earned income of hundreds / thousands of home buyers stands invested and is at stake.
41. In view of the foregoing, we are not satisfied that a case has been made out by the Financial Creditor for initiating CIRP against the Corporate Debtor, as of now. The disputes raised, the lack of clarity of the actual figures of debt, if any, and whether after the settlements offered by the Corporate Debtor and the payments made since 2012, and its belief that its entire CC account of Rs.45 crore had been liquidated after the payment of Rs.10.63 crore and adjustment of its FDs, require a detailed scrutiny and audit of the demand raised on account of both Fund based and Non-Fund based facilities and the amounts paid / settled, which cannot be conducted in these summary proceedings. We may mention here that this Tribunal is not a dispute resolution forum. If any disputes exist on the issues mentioned above, which appear to be present, they will have to be sorted out in some other forum. Also, in view of the present economic scenario compelling a liberal approach by the Government and suspension of IBC, the Corporate Debtor's willingness to pay any dues once the entries are reconciled, and given also the fact that the Corporate Debtor claims to be a solvent company catering to the infrastructure sector, we direct that the Financial Creditor shall reconcile the figures and thereafter may consider approaching this Tribunal for initiating a CIRP against TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 the Corporate Debtor, if it is otherwise as per the provisions of the Code.'' and disposed of the main CP(IB) No. 112/BB/2019, by making the observations / directions, Viz.;
(i) The Financial Creditor shall reconcile entry by entry the accounts maintained by it with the bills raised / transactions undertaken in respect of all the Working Capital Facilities provided to the Corporate Debtor.
(ii) It shall be verified whether all the payments made by the Corporate Debtor were given credit and offers made by the Corporate Debtor for settlement were given effect to in the accounts as requested, provided the same were accepted in principle by the Bank.
(iii) In carrying out the above, the disputes other than the above verifications shall not be considered, unless they have the effect of varying the debt, if any. Examination of the debt shall be strictly as per the meaning assigned to the term ``debt'' in the Code, 2016.
(iv) The above scrutiny should be completed jointly with the Corporate Debtor in a time bound manner and as expeditiously as possible.
(v) Liberty is granted to the Financial Creditor to file a fresh Petition after completing the above reconciliation and scrutiny, if so required.
(vi) The disposal of this Petition shall not take away from the Financial Creditor / Petitioner the right to pursue recovery of the debt in other forums, where its ceases are in different stages of adjudication.'' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Appellant's contentions:
6. The Learned Counsel for the Appellant / Bank submits that the `Adjudicating Authority' (`Tribunal'), Bengaluru Bench, while passing the impugned order in Company Appeal (AT) (INS) No. 80 of 2021 dated 22.12.2020 in CP(IB) No.112/BB/2019, had failed to appreciate that an `Application', under Section 7 of the I & B Code, 2016, was to be admitted in a time bound manner, for the purpose of initiating `Corporate Insolvency Resolution Process' of the Corporate Debtor, all the more, when the `Default' of a `Financial Debt' is `more than Rs. 1 Lakh, which exists, in the instant case, on hand'.
7. It is represented on behalf of the Appellant, that the `Adjudicating Authority', had passed an `erroneous order', in directing an `Audit', of the `Amounts Due', and `liable to be paid', by the `Respondent', which is clearly outside the ambit of the ingredients of Section 7 of the I & B Code, 2016.
8. The Learned Counsel for the Appellant points out that the `Adjudicating Authority', is not empowered at the `pre-admission stage', to venture into matters, in respect of the `Value of the Assets of the Corporate Debtor', or its `Business', or the possibility of attracting a `Viable Resolution Plan', under the Code.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
9. Advancing his argument, the Learned Counsel for the Appellant takes a stand that, while dealing with an `Application', under Section 7 of the I & B Code, 2016, an `Adjudicating Authority', cannot take into account of `any purported defence of the Corporate Debtor', that its `Assets' far in `Excess' of the `Underlying `Financial Debt' in `Default'.
10. The other contention projected on the side of the Appellant / Bank is that the `Adjudicating Authority', had failed to appreciate that the Appellant / Bank, had continued to honour the `Letter of Credit Payments', to the `Beneficiaries' of the `Respondent', on the respective `due dates', and hence, the Respondent's contention that it had discontinued the `availing of LC Services', is to be discarded at the initial stage itself.
11. The Learned Counsel for the Appellant proceeds to point out that an `Adjudicating Authority', cannot render a `Finding', that the `Corporate Debtor', is not an `Insolvent Company', or that it had not lost its `Substratum' in exercise of its powers under Section 60 of the I & B Code, 2016.
12. Expatiating his contention, the Learned Counsel for the Appellant comes out with an emphatic plea, that the `alleged willingness of the `Corporate Debtor' to pay off the `Outstanding Financial Debt', is not a TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 ground for an `Adjudicating Authority', to refuse `initiation of CIRP', against the `Corporate Debtor'.
13. According to the Appellant, the `Adjudicating Authority', had not borne in mind that when the `Default of a Financial Debt of Rs.1 Lakh is there, then, the Admission of an `Application' / `Petition', under Section 7 of the I & B Code, 2016, is an automatic one.
14. The Learned Counsel for the Appellant submits that the `Jurisdiction', of an `Adjudicating Authority', is `Confined' firstly, to ascertain an existence of a `Default', which it must perform within 14 days, as per Section 7 (4) of the I & B Code, 2016. In this connection, the Learned Counsel for the Appellant relies on the decision of the Hon'ble Supreme Court of India in Innoventive Industries v. ICICI Bank (2018) 1 SCC at Page 407, wherein at Paragraph 30, it is observed as under:
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.'' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
15. The Learned Counsel for the Appellant refers to the decision of the Hon'ble Supreme Court of India in E.S. Krishnamurthy v. Bharath Hi- Tech Builders (P) Ltd., reported in (2022) 3 SCC at Page 161, Spl Pgs :
177 & 179, wherein at Paragraphs 31 & 34, it is observed as under:
31. ``On a bare reading of the provision, it is clear that both, clauses (a) and (b) of sub-section (5) of Section 7, use the expression ``it may, by order'' while referring to the power of the Adjudicating Authority. In clause (a) of sub-section (5), the Adjudicating Authority may, by order, admit the application or in clause (b) it may, by order, reject such an application. Thus, two courses of action are available to the Adjudicating Authority in a petition under Section 7. The Adjudicating Authority must either admit the application under clause (a) of sub-section (5) or it must reject the application under clause (b) of sub-section (5). The statute does not provide for the Adjudicating Authority to undertake any other action, but for the two choices available.
34. The Adjudicating Authority has clearly acted outside the terms of its jurisdiction under Section 7(5) of the IBC. The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7 (5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.''
16. It is projected on the side of the Appellant that the approach of the `Adjudicating Authority', in ordering `Reconciliation / Forensic Audit' of the `Debt' & `Default', claimed by the `Financial Creditor', would defeat the `intent' behind the `enactment of the I & B, Code 2016' and in short, TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 the directions given by the `Adjudicating Authority' (vide paragraph 42 of the `impugned order'), are against the `spirit of the Code', and against the well settled `principle of Law'.
17. Moreover, on facts, such a direction, issued by the `Adjudicating Authority', is an uncalled for one, because of the fact that the `Appellant', had produced before the `Adjudicating Authority', the following `Records':
`(A) The `CIBIL Report', which clearly had recorded the existence of `Debt', by the Respondent.
(B) The `Statement of Accounts of the Respondent', evidencing the `Default'.
(C) The `National E-Governance Services Ltd.' Certificate, where `Liability' / existence of `Debt', of the Respondent/ Company, is established.
(D) The Respondent had repeatedly Acknowledged the `Debt' / subject `Letter of Credits', in their Statements dated 07.10.2016 and 09.11.2016.
(E) The Respondent had also admitted and Acknowledged, the `Debt' owed to the `Appellant', on account of the `Devolvement of Letter of Credits' in their (i) Balance Sheets
(ii) Financial Statements / (iii) Annual Returns; (a) Balance Sheet for the year 2015-2016 (b) Balance Sheet for the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 year 2016-2017 (c) Annual Return for the year 2017-2018 (F) The Respondent had admitted the `Devolvement of Letter of Credits', in their Letter dated 03.11.2016, stating, as under:
``You are simply pressurising only for the payments of devolved LCs and you are pressurising for the payment of devolved LCs dated 20/10/16, 26/10/16, 3/11/16, which is impractical and further on 14.11.2016, stating that ``The non-payment of LCs from 20/10/16 to till date is only due to banks arbitrary decisions in increasing LC margins from 10% to 15%''
18. The submission of the Appellant / Bank is that the Respondent, is in `Default' of the `Debt', arising out of the `Devolvement of Letters of Credit', and the aforesaid document clearly exhibit the same. In this regard, the stand of the `Appellant / Bank' is that, the `Adjudicating Authority', does not have any jurisdiction, to enter into the merits of the matter i.e., the `Adjudicating Authority', is not to examine the each and every aspect of `Default'.
19. The Learned Counsel for the Appellant refers to the decision of the Hon'ble Supreme Court of India in M/s. Tarapore & Co. Madras v. V.O. Tractors Export, Moscow & Another, reported in (1969) SC Page 233 at Spl Pg: 239, wherein at paragraph 12, it is observed as under:
"It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of a confirmed credit, and it is TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 then the duty of the buyer to procure Iris bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotiating bank, to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents. The contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued; and as between the seller and the bank, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bills of exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute. Thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment therefor; and, conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective."
20. According to the Appellant, the Respondent had availed `Letters of Credits', before 07.10.2016 (from 28.07.2016 to 05.10.2016) which were all honoured later, on their respective due dates (from 20.10.2016 to 26.12.2016). In this regard, according to the `Appellant', a `Letter of Credit', is an `Unconditional Promise', to pay to the `Beneficiary' of the `Respondent', in as much as the `Respondent', had availed the `Facilities' / `Letters of Credit', to be honoured by the `Bank', on the `Due Dates', TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 unconditionally, the `Respondent' cannot turn around and state that the `Letters of Credits', were not availed by it.
21. The Learned Counsel for the Appellant points out that the Respondent in their numerous letters, had `Acknowledged' the `Devolvement of Letters of Credits', especially, in its `Letter dated 03.11.2016. Further, on each of the covering schedule of the `Bill Lodgement', there is a `Counter Signature along with the Company Seal' of the Respondent.
22. The Learned Counsel for the Appellant submits that Mr. D.C. Mohan, was authorised by the Respondent, to sign the `Documents', related to `Letters of Credit' and he had signed on the subject `Ten Letters of Credits Document'. The other `Seven Letters of Credits', which were opened between the period from 17.01.2015 to 03.02.2015, were duly signed by the authorised signatory, Mr. D.C. Mohan and which were honoured and paid by the `Respondent / Corporate Debtor', `without any objections'.
23. The Learned Counsel for the Appellant proceeds to point out that the instant `Section 7 Application', under the I & B Code, 2016, was filed before the `pandemic' and there is no prohibition for initiating `Corporate Insolvency Resolution Process', against the `Respondent'. TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
24. The Learned Counsel for the Appellant contends that the facts of the instant case, are completely different from the decision of the Hon'ble Supreme Court of India in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (vide Judgment dated 12.07.2022 in Civil Appeal No. 4633 of 2021), because of the fact, in the present case, the `Appellant / Bank', by means of numerous documents had exhibited that the `Respondent / Corporate Debtor', is clearly an `Insolvent', and unable to pay its `Debt', its operations are shut with no possibility of payment, and that apart, there are no expected significant receivables, in future, as in Vidarbha's case. Appellant's Decisions:
25. The Learned Counsel for the Appellant relies on the decision of the Hon'ble Supreme Court of India in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., reported in (2007) 8 SCC at Pages 110 & 111, wherein, it is observed as under:
``While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. In the matter of invocation of a bank guarantee or a letter of credit, it is not open to the bank to rely upon the terms of the underlying contract between the parties. The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. Since a bank guarantee or a letter of credit is an independent and a separate TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit.'' (Paras 14, 15 and 10) The Courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit. There are two exceptions for grant of an order of injunction to restrain the enforcement of an unconditional bank guarantee or a letter of credit; (i) fraud of an egregious nature committed in the notice of the bank which would vitiate the very foundation of the guarantee or letter of credit and the beneficiary seeks to take advantage of the situation; and (ii) injustice of the kind which would make it impossible for the guarantor to reimburse himself or would result in irretrievable harm or injustice to one of the parties concerned. Except under these circumstances, the courts should not readily issue injunction to restrain the realisation of a bank guarantee or a letter of credit.'' (Paras 14, 10 and 11)
26. The Learned Counsel for the Appellant / Bank cites the decision of the Hon'ble Punjab & Haryana High Court in Indo Swiss Time Ltd. v Umrao & Ors., reported in AIR (1981) Punjab 213, to urge his plea that `if there is a direct conflict between the decisions of the Hon'ble Supreme Court of India, rendered by two equal benches, the `Court', must follow the Judgment which appears to lay down the Law more elaborately and more accurately and that mere incidence of time - whether Judgment is earlier or later could hardly be relevant'.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
27. The Learned Counsel for the Appellant / Bank seeks in aid of the decision of the Hon'ble Supreme Court of India in Sesh Nath Singh & Anr. V. Baidya Bati Sheoraphuli Co-operative Bank Ltd. & Anr. (2021) 7 SCC at Page 313 at Spl Pg: 345, wherein at paragraphs 86 & 87, it is observed as under:
86. ``An Adjudicating Authority under the IBC is not a substitute forum for a collection of debt in the sense it cannot reopen debts which are barred by law, or debts, recovery whereof have become time-barred. The adjudicating authority does not resolve disputes, in the manner of suits, arbitrations and similar proceedings.
However, the ultimate object of an application under Section 7 or 9 IBC is the realisation of a 'debt' by invocation of the Insolvency Resolution Process. In any case, since the cause of action for initiation of an application, whether under Section 7 or under Section 9 IBC, is default on the part of the Corporate Debtor, and the provisions of the Limitation Act 1963, as far as may be, have been applied to proceedings under the IBC, there is no reason why Section 14 or 18 of the Limitation Act would not apply for the purpose of computation of the period of limitation.
87. To quote V. Sudhish Pai from his book Constitutional Supremacy - A Revisit:
"Judgments and observations in judgments are not to be read as Euclid's theorems or as provisions of statute. Judicial utterances/pronouncements are in the setting of the facts of a particular case. To interpret words and provisions of a statute it may become necessary for Judges to embark upon lengthy discussions, but such discussion is meant to explain not define. Judges interpret statutes, their words are not to be interpreted as statutes."
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
28. The Learned Counsel for the Appellant / Bank falls back upon the decision of the Hon'ble Supreme Court of India in M/s. Tarapore & Co., Madras v. M/s. V.O. Tractors Export, Moscow & Anr., reported in (1969) 1 SCC, Pages 233 & 234, wherein it is observed as under:
``...... an irrevocable letter of credit is a mechanism of great importance in International Trade and so the autonomy of an irrevocable letter of credit is entitled to protection. Any interference with that mechanism is bound to have serious repercussions on the International Trade of the country and the courts ought not to interfere with that mechanism except under very exceptional circumstances. In this view, the Supreme Court set aside the temporary injunction granted by the Trial Court.
Though the Supreme Court does not ordinarily interfere with interim orders, in this case it interfered because legal principles of great importance affecting International Trade were involved.''
29. The Learned Counsel for the Appellant points out the Judgment of this `Tribunal' in Comp. App (AT) (INS.) No. 1303 of 2019 dated 22.05.2020 (Three Member Bench) in Allahabad Bank v. Poonam Resorts Limited (2020) SCC Online, NCLAT 1068, wherein at paragraph 8, it is observed as under:
8. ``The dictum of law propounded by the Hon'ble Apex Court is loud and clear. The Adjudicating Authority cannot travel beyond the letter of law and the dictum of the Hon'ble Apex Court.
The satisfaction in regard to occurrence of default has to be drawn by the Adjudicating Authority either from the records of the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 information utility or other evidence provided by the 'Financial Creditor'. The Adjudicating Authority cannot direct a forensic audit and engage in a long drawn pre-admission exercise which will have the effect of defeating the object of the 'I&B Code'. If the 'Financial Creditor' fails to provide evidence as required, the Adjudicating Authority shall be at liberty to take an appropriate decision. If the application is incomplete, it can return the same to the 'Financial Creditor' for rectifying the defect. This has to be done within 7 days of the receipt of notice from the Adjudicating Authority. However, the 'I&B Code' does not envisage a pre- admission enquiry in regard to proof of default by directing a forensic audit of the accounts of the 'Financial Creditor', 'Corporate Debtor' or any 'financial institution'. Viewed thus, the impugned order cannot be supported. Application under Section 75 of the 'I&B Code' on behalf of the 'Corporate Debtors' cannot be permitted to frustrate the provisions of the 'I&B Code' when the matter is at the stage of admission. Section 75 is a penal provision which postulates an enquiry and recording of finding in respect of culpability of the Applicant regarding commission of an offence. The same cannot be allowed to thwart the initiation of 'Corporate Insolvency Resolution Process' unless in a given case forgery or falsification of documents is patent and prima facie established.''
30. The Learned Counsel for the Appellant, refers to the Judgment of this `Tribunal' in Comp. App (AT) (INS) No. 441 of 2019 dated 06.09.2019, (2019) between Vineet Khosla v. Edelweiss Asset Reconstruction Company Ltd. & Ors., 2019 SCC Online NCLAT 487, wherein at Paragraphs 14 & 15, it is observed as under:
14. ``When the same matter was taken up before the Hon'ble the Supreme Court of India vide Judgement dated 31st August, 2017 -
(2018) 1 SCC 407, it was observed in para - 28 of the Judgement as under:-
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 "28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial 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. 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 Company Appeal (AT) (Ins) No.441 of 2019 authority shall then communicate the order passed to the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be."
15. From the above, it is clear that at the stage of admission of Application under Section 7, the requirement is to give limited Notice and the considerations would be to see whether or not satisfaction by Adjudicating Authority could be reflected on the basis of Sub-Section (5) of Section 7. If there is a financial debt, which is more than Rs.1 Lakh and there is a default and if the Application is complete, the Application would have to be admitted. The Corporate Debtor is entitled to point out that a default has not occurred in the sense that the 'debt' which may include a disputed claim is not due. Corporate Debtor may point out that the debt is not due by showing that it is not payable in law or in fact.''
31. The Learned Counsel for the Appellant relies on the Judgment of this `Tribunal', in Pondicherry Extraction Industries Pvt. Ltd. v. Bank of Baroda, 2021 SCC Online NCLAT 13, wherein at Paragraphs 11 & 12, it is observed as under:
11. ``Firstly, we have considered what are the requirements for admitting an application under Section 10 of I & B Code. For this purpose, it is useful to refer the judgment of this appellate tribunal in Unigreen Global Pvt. Ltd. (Supra). In this judgment, it is held that:
``20. Under both Section 7 and Section 10, the two factors are common i.e., the debt is due and there is a default. Sub- section (4) of Section 7 is similar to that of sub-section (4) of Section 10. Therefore, we hold that the law laid down by the Hon'ble Supreme Court in ``Innoventive Industries Ltd. (Supra) is applicable for Section 10 also, wherein the Hon'ble Supreme Court observed as ``The moment the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 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.
xxxx xxxx xxxx
12. With the aforesaid, the moment the Adjudicating Authority is satisfied that there is a debt and a default has occurred, the application must be admitted unless it is incomplete. Section 10 of I & B Code does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the information as required to be submitted in Form 6 of Adjudicating Authority Rules.''
32. The Learned Counsel for the Appellant refers to the Judgment dated 27.05.2021 of this `Tribunal' in Manasi Indrajit Wadkar v. Union Bank of India & Anr., 2021 SCC Online NCLAT 176, wherein at Paragraph 14, a reference is made to Paragraph 92 of the Judgment of Hon'ble Supreme Court of India in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd., which runs as under:
92. ``In other words, the provisions of the Limitation Act would apply mutatis mutandis to proceedings under the IBC in the NCLT/NCLAT. To quote Shah J. in New India Sugar Mill Limited v. Commissioner of Sales Tax, Bihar, ``It is a recognised rule of interpretation of statutes that expression used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the Legislature.'' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Respondent's Submissions:
33. The Learned Counsel for the Respondent submits that in Vidarbha Industries case, the Hon'ble Supreme Court of India, had noted that the Existence of a `Financial Debt' and `Default', in payment thereof, only gave the `Financial Creditor', the right to `Apply' for an initiation of `Corporate Insolvency Resolution Process' and that the `I & B Code, 2016', intended on conferring a `Discretion', with the `Tribunal', to `Admit' or `Reject' an `Application', filed under Section 7 of the Code, 2016, by a `Financial Creditor', thereafter. Also, according to the Respondent, the Hon'ble Supreme Court had observed that the `Tribunal' has a `Discretionary Power', under Section 7 (5) (a) of the I & B Code, 2016, to keep an `Admission' of an `Application' of a `Financial Creditor', in abeyance as per decision of the Hon'ble Supreme Court of India in Vidarbha Industries Power Ltd. v. Axis Bank Limited (Civil Appeal No. 4633 / 2021 dated 12.07.2022 - vide Paragraphs 75 to 77).
34. According to the Respondent, it is a `solvent company', paying all taxes, statutory payments, salaries to the Employees, Phone Bills, Electricity Bills, etc., without any default and also cleared all the payments of the Appellant / Bank, as on 07.10.2016, itself. TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
35. Furthermore, the Respondent / Company had stopped its Operations of its `CC Account' and transacted around Rs.384 Crore, through its `Current Account in the Appellant's Bank', itself. That apart, the Respondent / Company till date, has got `Receivables' worth of Rs.138 Crore from its Customers. The `Market Value of the Assets of the Respondent / Company', is Rs.215 Crore. The present Value of the Assets of the Respondent / Company, `Personal Guarantees of the Directors' and the `Value of the Mortgage Properties', put together is around Rs.500 Crore.
36. According to the Learned Counsel for the Respondent / Company, there is no `Debt' and `Default' in the Account of the Respondent / Company. Further, based on the Financial Strength, Assets and Track Record of the Respondent / Company, the Appellant / Bank had sanctioned the `Working Capital Facilities', to the Respondent / Company in the following manner:
S.No. Date Sanctioned
Working Capital
Facilities (Rs.)
1 18.05.2009 50 crores
2 22.11.2010 65 crores
3 07.03.2012 97.50 crores
4 23.03.2015 157.22 crores
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
37. According to the Respondent, the `Appellant / Bank', had illegally transferred Rs.2,03,00,000/- (Rupees Two Crores Three Lakhs only) from the Respondent's Account to the `SBI Life Insurance Company Ltd.', without any cheque / consent of the Respondent and later, the Respondent / Company had filed a `Criminal case against the Appellant', and its Officials and a `First Information Report', was registered.
38. It is represented on behalf of the Respondent that when the Respondent / Company had requested for the `Refund' of the aforesaid sum with interest, as a counterblast, the `Appellant' / `Bank' had arbitrarily renewed the `Working Capital Facilities', as per Letter dated 05.10.2016 by irrationally increasing the `Letter of Credit Margin', from 10% to 15% and also illegally modified the `Terms of other Facilities', against the `Reserve Bank of India' norms.
39. The Learned Counsel for the Respondent points out that the Respondent /Company, had requested for a `Golden Hand Shake', through its Letter dated 06.10.2016 and payment of Rs.10,63,00,000/- to the Bank and after the said payment, the outstanding balance of the Respondent Account was only Rs.8,77,41,619/- which is evident from the True Copy of the Ledger Account dated 07.10.2016 of the Respondent / Corporate Debtor in State Bank of India (Appellant / Bank) - vide Page 45 of the objection dated 08.04.2021 of the Respondent (Diary No. 26690 TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 dated 09.04.2021), the Respondent further requested the appellant vide its letter dated 07.10.2016 to adjust the said outstanding CC balance of Rs.8,77,41,619/- from the Respondent's FD a/c of Rs.11,19,53,633/- in order to clear the `entire outstanding payment', and to transfer Rs.110 Crores LC facilities to `South Indian Bank'.
40. It is the version of the Respondent / Company, the `Appellant' had not responded to the request made by the Company and hence, filed W.P.No.63350-51 of 2016 (GM) against State Bank of India on 09.12.2016, seeking a direction to the `Bank', to issue a `No Objection Certificate', to migrate to the other `Bank', etc., and further, a complaint in CC No.2973 / 2017, was filed by the Respondent / Company, before the `National Consumer Dispute Redressal Commission', New Delhi, for a `Claim' of Rs.1,300 Crore, towards `Loss and Damages', caused due to the `Illegal Debits' and `Arbitrary acts' of the `Bank'. Later, the Respondent / Company was forced to withdraw both the cases, with a `Liberty' to file the same matters, in the `Appropriate Courts', and `liberty' was granted.
41. The Respondent / Company had filed a `Counter Claim' in O.A. No.725 / 2018, before the `Debt Recovery Tribunal', Bangalore, for a `Claim' of Rs.1,300 Crores against the `Loss & Damages', caused to the Respondent / Company, because of the `Illegal' and `Fraudulent' acts of TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 the Appellant / Bank and its Officials and the same is pending for determination.
42. The stand of the Respondent / Bank is that, after clearing the entire `Credit Facilities', the Respondent had stopped its `Business Transactions' with Loan Account No.30770234121, had operated only `Current Account' Bearing No.32528232072' and received Rs.384 Crores from its Customers from 7.10.2016 to till date.
43. Further, if at all, the `Debt' and `Default' is true, as alleged by the Appellant / Bank, the Respondent / Company would not have remitted such a huge sum, in its `Current Account and the Bank', could have adjusted the said amount, towards `Alleged Dues', if any.
44. The Learned Counsel for the Respondent / Company contends that `there is no signature of any of the Directors or any Authorised Person of the Respondent / Company', in the photocopies of `Six Letter of Credits' and the purported `Claim' of the `Appellant / Bank', is disputed by the `Respondent / Company'. Moreover, the Respondent / Company had produced a copy of the Board's Resolution dated 25.06.2014, which was issued in favour of Mr. B. Nageswara Rao, the then, Accounts Manager of the Respondent / Company along with `Five Sample LC Applications' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 which were operated only by the said Mr. B. Nageswara Rao, later to 25.06.2014, and the same was `Attested', by the `Bank'.
45. It is projected on the side of the Respondent / Company that it had not at all authorised `any other person', other than the said Mr. B. Nageswara Rao to operate the said `Letters of Credits' in the `Appellant / Bank', subsequent to 25.06.2014, and the `LC documents', produced by the Appellant / Bank do not bear the signature of the said Rao, which clearly establishes that the said photocopies of `Letters of Credit', are `Forged' and `Fabricated'. In short, the `Appellant / Bank', is claiming the whole `Debt' and `Default', based on the aforesaid photocopies of the created / concocted / forged and purported `Letters of Credit'.
46. The Learned Counsel for the Respondent / Company points out that a `Forensic Audit Report', submitted by `Ernst and Young' was a `biased' and an `arbitrary' one, because the `Forensic Audit Company', itself mentions in its `Report', that the accuracy and authenticity of all the information, furnished by the `Appellant / Bank' could not be confirmed, since it had solely relied upon the documents and informations submitted by the `Appellant / Bank'. Therefore, it is the contention of the Respondent / Company that `CIBIL Report', prepared on the footing of such a `Forensic Report', cannot be a `Valid' one.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
47. According to the Respondent / Company, when the sanctioned amount is Rs.20 Crores and the Principal and Interest outstanding is ZERO, the Appellant / Bank had not given any explanation as to how the Appellant / Bank had arrived at the `Outstanding Sum and Over Due'.
48. The Learned Counsel for the Respondent points out that the NeSL Records discloses that the `Debt', is disputed by the `Respondent / Company' and recorded that ``the company had cleared the entire CC and LC facilities as on 07.10.2016 itself and requested the bank to transfer its account to SIB. Thereafter, the company has not obtained any CC or LC facilities from the Bank. Hence, there is no `Debt' or `Default', exist in the company's account as alleged by the bank''.
49. The Learned Counsel for the Respondent points out that since the Appellant / Bank had made false allegations against the alleged `Debt' and `Default', the `Defamation case', was filed against the Appellant / Bank and its Officials, including the then Chairman and Managing Director Mr. Rajinesh Kumar and the same is pending for determination in CC No. 1863 of 2019, on the file V ACMM, Court, Bangalore.
50. According to the Respondent / Company, cases are pending for decision(s), before the `Courts' / `Tribunals', which runs as under:-
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Sl. CASE No. IN THE COURT OF No. 1 Criminal Petition Hon'ble High Court of Karnataka, Bangalore 2 Criminal Petition Hon'ble High Court of Karnataka, Bangalore 3 Criminal Petition Hon'ble High Court of Karnataka, Bangalore 4 Criminal Petition Hon'ble High Court of Karnataka, Bangalore 5 CC No. 1863/2019 Hon'ble 5th ACMM Court, Bangalore 6 Crime No. 185 / Hon'ble 4th ACMM Court, Bangalore 7 Counter Claim Hon'ble DRT, Bangalore O.A.No.725 /2018 BLR/10/2019 10 W.P.No.5711/2020 Hon'ble High Court of Karnataka, Bangalore
51. The Learned Counsel for the Respondent raises an arguments that the case of the Appellant / Bank, is hit by the `Rule of Acquiescence' and `Rule of Estoppel' and hence, requires an elaborate evidence and a `Trial' in O.A. No. 725 of 2018, Also that, there is a serious `Dispute' between the Appellant / Bank and the Respondent before the other Courts and in fact, it is clear case of `Forgery', `Manipulation' of alleged `Letter of Credits', in question.
52. The submission of the Learned Counsel for the Respondent is that, the facts and circumstances of the instant case, clearly prove that there exists a serious `Dispute' in regard to the alleged `Debt' and `Default' and on the footing that `Multiple Cases', are pending before the `Courts' / TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 `Tribunals', for an `Adjudication'. Therefore, on the side of the Appellant / Bank, a request is made before this `Tribunal', to dismiss the instant `Appeal', filed by the Appellant with heavy costs in the interest of `Justice' and `Equity'.
Respondent's Citations:
53. The Learned Counsel for the Respondent refers to the Judgment of the Hon'ble Supreme Court of India in Vidarbha Industries Power Ltd. v. Axis Bank Limited (vide Civil Appeal No. 4633 of 2021 dated 12.07.2022), wherein at paragraphs 75 to 77 & 88, it is observed as under:
75. ``Significantly, Legislature has in its wisdom used the word 'may' in Section 7(5)(a) of the IBC in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor but has used the expression 'shall' in the otherwise almost identical provision of Section 9(5) of the IBC relating to the initiation of CIRP by an Operational Creditor.
76. The fact that Legislature used 'may' in Section 7(5)(a) of the IBC but a different word, that is, 'shall' in the otherwise almost identical provision of Section 9(5)(a) shows that 'may' and 'shall' in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary.
An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor.
77. On the other hand, in the case of an application by a Financial Creditor who might even initiate proceedings in a representative capacity on behalf of all financial creditors, the Adjudicating Authority might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor.
88. The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative.''
54. The Learned Counsel for the Respondent cites the decision of this `Tribunal' in Park Energy Pvt. Ltd. v. Syndicate Bank & Anr. 2020 SCC Online NCLAT 637, wherein at Paragraphs 12 & 29, it is observed as under:
12. ``While referring to Section 7 of the IBC and also which has been interpreted by the Hon'ble Supreme Court in Innoventive Case TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 (Supra) where it has been categorically held that default on the part of the Corporate Debtor sine qua non of an application under Section 7. 'Default' is defined in section 3 (12) as non-payment of debt when whole or any part of instalment of the amount of debt has become due and payable and is not paid by the debtor or the Corporate Debtor as the case may be.
29. We have carefully perused the record of the case, argument advanced on behalf of the parties and gone through the written submissions. Taking aforesaid facts and circumstances, we are of the view that Ld. Adjudicating Authority have failed to consider the vide Diary No. 18698 dated 06.02.2020 whereby refer to the minutes of the consortium meeting dated 18 th September, 2018 the Syndicate Bank (Respondent No. 1) agreed to open further LCs in favour of the Appellant as the Appellant was going through cash difficulties and also agreed to restore the sanctioned limits of the Appellant. The LC limits to the extent of Rs. 46.50 Crores and further it was agreed that the amount which have been deposited in TRA, the amount will be paid to Respondent No. 1 after opening the TRA.
The Syndicate Bank (Respondent No. 1) constitutes a miniscule 1.64% of total outstanding debt of BVPL and PNB was a lead bank of consortium.
The Respondent No. 1 has only 1.64% stake of the total value of debt owed by the Corporate Debtor to all the Financial Creditors.
The Ld. Adjudicating Authority failed to consider the certificate issued by S.K. Gulecha & Associates, Chartered Accountants dated 05.02.2020 Annexure-37 at page 18 of the Additional Documents which has not been denied by the Respondent No. 1. The relevant portion of certificate of Chartered Accountants is as under:-
"we also certify that the collection amount of Rs. 962.92 crores credited to the account of Punjab National Bank TRA-
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 0343002100540705 for the period from 1st July, 2018 to 30th June, 2019. Month wise collection details are herewith."
The Ld. Adjudicating Authority also failed to consider the letter dated 27.12.2018 written by the Chief Manager, Punjab National Bank to the Syndicate Bank (Respondent No. 1) whereby refer to the minutes of the consortium meeting dated 18 th September, 2018 the Syndicate Bank (Respondent No. 1) agreed to open further LCs.
On 06.09.2018, Punjab National Bank (lead bank) made request to the Respondent No. 1 to permit the Appellant to utilize the LC limits to the extent of frozen limit of Rs. 46.50 Crores and it was also agreed that the amount of Syndicate Bank will be paid from TRA account but instead of complying the aforesaid decision taken in the meeting, the Respondent No. 1 declared the amount of NPA from retrospective effect from 30.06.2018 to the tune of Rs. 32,22,50,660.16/-.
Despite the request of the Punjab National Bank (lead bank) vide letter dated 27.12.2018 the Respondent No. 1 failed to comply the decision taken on meeting dated 05.12.2018 and filed an Application under Section 7 of the IBC which was mechanically allowed by the Ld. Adjudicating Authority.
The Ld. Adjudicating Authority overlooked the facts and also Judgment of the Hon'ble Supreme Court in the case of Innoventive Industries Ltd. Vs. ICICI Bank & Anr. (2018) 1 SCC 407.
In the face of ample and weighty evidence on record, it cannot be said that the Corporate Debtor is under no obligation to discharge its liability in respect of the 'Financial Debt' payable to the 'Financial Creditor' but the mere fact of debt being due and payable in law is not enough to justify initiation of Corporate Insolvency Resolution Process at the instance of Financial Creditor unless it establishes default on the part of the Corporate Debtor in regard to the debt. The onus of proof of default on the part of Corporate Debtor lies on the Financial Creditor and it has to TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 demonstrate that default has occurred on account of failure on the part of Corporate Debtor to discharge its liability.
In the instant case, Corporate Debtor has been subjected to restructuring of credit facilities and the operations of the bank account of the Corporate Debtor are regulated by the 'Punjab National Bank Consortium Inter-se Agreement' dated 17th December, 2015, which has to be read in juxtaposition with 'Trust Retention Account (TRA) Agreement' dated 26th July, 2016. Under the arrangement of debt restructuring, the Corporate Debtor's deposit would go to the TRA account and it is not open to the Corporate Debtor to discharge its liability on account of financial debt to various lenders without the approval of the Lead Bank i.e. Punjab National Bank. It transpires from the record that information in this regard has already been given by the Corporate Debtor to the Lead Bank that the Financial Creditor - Syndicate Bank i.e. Respondent No. 1 has expressed its intention to trigger Corporate Insolvency Resolution Process against it unless payments are released. However, the Lead Bank has conveyed to Respondent No.1 that it shall have to issue a Letter of Credit before release of payment by the Corporate Debtor but Respondent No. 1 - Syndicate Bank (Financial Creditor) did not comply. It further appears from record that the stake of Respondent No. 1 - Syndicate Bank (Financial Creditor) barely extends to 1.64% of the total debt. Viewed in this context, the only conclusion deducible from record is that the default cannot be attributed to the Corporate Debtor as the money deposited with the TRA Account was already available for release but its release was regulated in terms of the 'Punjab National Bank Consortium Inter-se Agreement' r/w 'Trust Retention Account (TRA) Agreement'. May be the Lead Bank was not justified in insisting upon issue of Letter of Credit as a precondition for release of payment in favour of Respondent No.1, but that does not in any manner be read as an act of default on the part of Corporate Debtor who has, in compliance of the terms of the aforesaid agreements made over its entire collection in the TRA Account as per terms of the Agreement. It would therefore be difficult to hold that a default has occurred on the part of the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Corporate Debtor. Non-release of money out of the entire collection of Corporate Debtor does not render the Corporate Debtor liable for default who has performed his part of the contract. The fault lies somewhere else. In the inter-se dispute of Financial Creditors, Respondent No. 1 may have faced discrimination as regards release of money from TRA Account but that would not render the Corporate Debtor accountable for default.
In these circumstances, triggering of Corporate Insolvency Resolution Process at the instance of Respondent No. 1 is unwarranted. This is not the case where the Corporate Debtor is invoking Inter Creditor Agreement to wriggle out of its liability. The Corporate Debtor having performed his part of the contract by placing its entire collection in the Trust Retention Account (TRA) in accordance with the terms of the agreement cannot be said to be in default. Release of the amount due to Respondent No. 1 in terms of the 'Punjab National Bank Consortium Inter-se Agreement' read together with Trust Retention Account (TRA) Agreement is an in house contractual arrangement inter-se the Creditors for which the Corporate Debtor cannot be blamed. Initiation of Corporate Insolvency Resolution Process in the facts and circumstances, as noticed, cannot be appreciated as the same falls foul of the mandate of Section 7 of the I & B Code. Viewed thus, the impugned order cannot be supported. The Appeal, therefore, needs to be allowed.''
55. The Learned Counsel for the Respondent, refers to the Judgment of this Tribunal, in Export Import Bank of India v. CHL Ltd., 2019 SCC Online NCLAT 25, wherein at paragraphs 22 and 24, it is observed as under:
22. ``The 'principal borrower' has already made representations to the Appellant for reconciliation of account but the Appellant has TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 not come forward to reconcile till date. Only upon this reconciliation, the Appellant is entitled to demand the recalculated interest component from the 'principal borrower', if any or adjust any surplus amount which have been received by the Appellant. If in the event, the 'principal borrower' fails to pay the interest component, if any, as per the fresh demand made on reconciliation, only then the Appellant will be entitled to invoke the 'corporate guarantee' of the Respondent in terms of specific and contingent contract between the Appellant and the Respondent.
24. There is another aspect, which disentitles the Appellant to proceed in the present appeal. The process under the 'I&B Code', once set in motion, is irreversible and leads to exceptional and serious consequences. If the appeal is allowed that would mean suspension of the Board of Directors of the 'Corporate Guarantor', appointment of 'Interim Resolution Professional', so on and so forth. A running business, which has made no default, would be put under resolution process. On the other hand, if the 'principal borrower' pays the amount, if any, found payable upon reconciliation of accounts, it would confirm that there never existed any debt which is due and payable or defaulted by the 'Corporate Guarantor'. The actions that would follow on allowing of this appeal cannot be reversed and the 'Corporate Guarantor' cannot be compensated in any manner.''
56. On behalf of the Respondent, the `Judgment', of this `Tribunal' in Aaj Finance & Credit Limited v. Keltech Infrastructure Ltd. (2020) SCC Online NCLAT 412, is referred to before this Tribunal, wherein at Paragraph 7, it is observed as under:
7. ``In a transaction of loan, Parties may agree to convert the relationship into that of Builder Buyer. Nothing prohibits the Parties. The latest admitted document between the Parties is the Agreement Dated 01.10.2016 as of Buyer- Seller. In an Application TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 under Section 7 of Insolvency and Bankruptcy Code, 2016 it is not possible in the summary jurisdiction to enter into detailed analysis at the instance of a party that real transaction is different. Such exercise may be possible in a suit when there is dispute regarding the real nature of transaction. This however, is not possible in summary proceeding under Insolvency and Bankruptcy Code, 2016, the main object of which is not recovery of money but to see if Resolution of a Corporate Debtor is necessary.''
57. The Learned Counsel for the Respondent falls back upon the decision of the Hon'ble Supreme Court of India, in Radha Exports (India) Pvt. Ltd. V. K.P. Jayaram, reported in 2020 (10) SCC at Page 538, wherein at Paragraph 39, it is observed as under:
39. ``There are, as observed above cogent records including letters signed by the Respondents 1 and 2 which evince that on 6-10-2007, Respondent2 resigned from the Board of the Appellant Company and at that time the Respondent2 requested the Appellant Company to treat the share application money of Rs.90,00,000 as share application money of Mr. M. Krishnan and to issue shares for aforesaid value to Mr. M. Krishnan. The amount was to be treated as a personal loan from Respondent2 to Mr. M. Krishnan.
A personal Loan to a Promoter or a Director of a company cannot trigger the Corporate Resolution Process under IBC. Disputes as to whether the signatures of the Respondents are forged or whether records have been fabricated can be adjudicated upon evidence including forensic evidence in a regular suit and not in proceedings under Section 7 IBC.''
58. The Learned Counsel for the Respondent relies on the Judgment of this `Tribunal' in Vijaykumar v. Gopalsamy Ganesh Babu 2020 SCC Online NCLAT 936, wherein at paragraph 7, it is observed as under:
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
7. ``Considering the object of IBC which is resolution and that effort should be made to revive the Corporate Debtor rather than to eliminate the same, we find that this is a fit case for us to exercise inherent powers under Rule 11 of National Company Law Appellate Tribunal Rules, 2016 (NCLAT Rules, 2016 - in short), to do justice. It is necessary to set aside the Liquidation Order as well as the CIRP proceedings.''
59. The Learned Counsel for the Respondent points out the decision relating to the case of Rajkumar v. Debts Recovery Appellate Tribunal & Ors., reported in II (2004) BC (DB), wherein it is observed as under:
``no presumption in law that bank documents and bank officers are always truthful and citizens or borrowers are always false or liars. Their documents shall be subjected to strict proof of law of evidence.'' Discretion:
60. The word `Discretion', is a certain `Latitude' / `Liberty', bestowed by the `Statute' or `Rules', to a `Judge', as distinguished from `Ministerial' or `Administrative Officer', in deciding matters that are brought before him.
61. Indeed, the `Discretion', must be governed by a `Rule', not by `Humour' and it must not be `Vague and Fanciful', but, `Legal and Regular' one. The term, `Discretion', implies `vigilant care', `caution' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 and `utmost circumspection', and imposes a heavy responsibility on the `Person' / `Authority', who exercises the same.
62. `A `Judicial Discretion', is to be regulated resting upon known `Rules of Law', and not just `Caprice' or `Whim' of an `Individual', for whom it is given', as opined by this `Tribunal'. No wonder, the `Discretion', is to be exercised, as per `Common Sense', and according to `Justice', and if there is a `Miscarriage', in the exercise of the same, it can be reviewed, by the `Appropriate Authority' concerned. Application under Sec.7 of I & B Code, 2016:
63. It is relevantly pointed out that filing of an `Application' under Section 7 of the I & B Code, 2016, it to be considered by an `Adjudicating Authority', on its own merits, taking into consideration of the relevant materials on record.
64. Under the I & B Code, 2016, the `Shift' is from `inability to pay', to an `existence of Default'. Although, a `Debt', is disputed, if the `Sum' is `more than Rupees One Lakh', an `Application' under Section 7 of the Code, is `per se maintainable'.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
65. In reality, the period of 14 days, which is permitted to an `Adjudicating Authority', to render a `Decision', is only `Directory' and not a `Mandatory' one.
66. A `Corporate Debtor', is entitled to point out that a `Default', had not occurred Viz., that `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 Fact'. The `Adjudicating Authority', is not enjoined with any duty, to determine the `Sum of Default'.
67. It is to be remembered that in `Law', an `Adjudicating Authority' need not go into detail of `Fabrication' and `Forgery' of `Documents', for the purpose of consideration of an `Admission' of an `Application'. A mere pendency of a `Civil Suit', between the Parties, is no ground to `Reject' an `Application', filed under Section 7 of the I & B Code, 2016.
68. In fact, the reason for the `Inability of the Corporate Debtor', to pay its `Debt', is not required to be looked into / gone into by an `Adjudicating Authority', in a Summary Proceedings, under the I & B Code, 2016. An `Adjudicating Authority', is not a `Civil Court', to determine the `Contract', between the `Parties'. TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Analysis:
69. Before the Adjudicating Authority, the Appellant / Petitioner / Financial Creditor, had filed an application in `Form I', to initiate `Corporate Insolvency Resolution Process', under Section 7 of the I & B Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In the said application, under `Part IV' (`Particulars of Financial Debt'), the amount of `Debt' granted was mentioned as Rs.113,37,61,348.78 (Rupees One Hundred Thirteen Crores Thirty Seven Lakhs Sixty One Thousand Three Hundred and Forty and Seventy Eight Paise only). Further, the details are mentioned as under:
Facility Limit (Outsta) A. Fund Based Stanb by Line of Credit 0.00 B. Non Fund Based Letter of Credit 110.00 Bank Guarantee 0.00 Forward Contract 0.26 Sub Total 110.26 (A+B)
70. As a matter of fact, the amount claimed to be in `Default', was Rs.146,93,93,281.78 (Rupees One Hundred Forty Six Crore Ninety Three Lakh Ninety Three Thousand Two Hundred Eighty One and Seventy TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Eight Paise only) 31/01/2019 as on which includes Principal Rs.113,37,61,348.78 (Rupees One Hundred Thirteen Crore Thirty Seven Lakh Sixty One Thousand Three Hundred Forty Eight and Seventy Eight Paise only) and interest of Rs.33,56,31,933 (Rupees Thirty Three Crore Fifty Six Lakh Thirty One Thousand Nine Hundred Thirty Three only).
Account No. Principal Amount Interest (Cr.) Total Outstanding
(Cr.) (Cr.)
30770234121 Rs.113.38 33.56 146.93
71. It is pointed out that the `Date of Default', was 20.10.2016 (Account became irregular) and the `Date of Non Performing Asset' as on 17.01.2017. Furthermore, the Appellant / Bank, had obtained a `copy of confirmation of `Deposits of Title Deeds' dated 21.05.2009, 07.01.2011, 20.03.2012 and 04.06.2015 from the Respondent / Corporate Debtor. Also, the `Appellant / Bank', had obtained the `Copy of Memorandum' confirming the extension of `Deposit of Title Deed' dated 06.01.2011, 19.03.2012, 29.03.2012, 25.03.2015.
72. The Respondent / Corporate Debtor had executed an `Agreement of Hypothecation of Goods & Assets in Form C.2 dated 21.05.2009' and further that a `Supplemental Agreement for Hypothecation of Goods & Assets' for increase in the overall limit in Form C.2-A dated 06.01.2011, 19.03.2012 and 25.03.2015 was also secured from the Respondent and TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 copy of these were filed as `Exhibits' by the `Appellant / Bank', mentioning the same in the `Application', filed under Section 7 of the Code. Apart from these, the copies of Certificate of Registration of Charge, issued by the Registrar of Companies (along with relevant forms for creation of charge before the `RoC') was also annexed, as an `Exhibit', and the copies of `Valuation Report' in respect of the properties, mentioned in the `Application', were annexed as an `Exhibit' in the `Application'.
73. The Appellant / Bank had filed `Statement of Accounts', as on 31.01.2019 in regard to Account No.30770234121 along with IT Certificate under the Bankers' Book of Evidence Act, 1891. Further, the copy of the `Deed of Guarantee', for overall limit in Form C4 dated 21.05.2009. Also, the copy of `Deed of Guarantee' for overall limit in Form C 4 dated 21.05.2019, copy of `Supplemental Deeds of Guarantee', in Form C.4-A dated 06.01.2021, 19.03.2012, Copy of `Supplemental Deed of Guarantee' for an increase in overall limit in Form C.4-A by the Company dated 25.03.2015, `Copy of Certificate of Registration' for `Modification of Charge Form CHG-1 dated 25.03.2015', Search Report on the charges on the Assets of the Respondent / Bharath Infra Exports & Imports Ltd., as on 24.10.2017, Copy of OA No.725 / 2018, filed before TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 the `Debts Recovery Tribunal', Bengaluru, against the Corporate Debtor were also filed together with Section 7 Application by the Bank.
74. The Respondent / Corporate Debtor, in its objections to CP (IB) No. 112 / BB / 2019, had averred among other things that when it questioned the `Illegal Debits', as a counterblast, the `Appellant / Financial Creditor', had indulged in committing further illegalities, with a mala fide intentions, to project the `Corporate Debtor' has defaulted and debited alleged `OD Penal Interest', from the Account of the Corporate Debtor, with an `ulterior motive', to spoil all the Credentials of the `Corporate Debtor' and to block the `Corporate Debtor' to move to other Bank.
75. According to the Respondent, the `Illegal Debits' of purported `OD Penal Interest', for five months from 31.01.2016 to 31.05.2016, are as under:
(i) Rs.92,550/- on 31.01.2016
(ii) Rs.1,25,025/- on 29.02.2016
(iii) Rs.1,22,270/- on 31.03.2016
(iv) Rs.1,00,738/- on 30.04.2016
(v) Rs.1,16,438/- on 31.05.2016
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 and in short, the `Total Sum of Rs.5,57,021/- is debited from the Corporate Debtor's Account without any `Default' or `Irregularity' of the `Corporate Debtor'. In this regard, a specific contention was raised by the Respondent / Corporate Debtor, in the `Counter Claim', filed before the `Debts Recovery Tribunal' in OA No. 725 of 2018.
76. On behalf of the Respondent, it is brought to the notice of this `Tribunal', that the `Appellant / Financial Creditor', had debited 0.30% as `Acceptance Charges', which was not applicable to `Bills' drawn under Branches own `Letter of Credits'. Furthermore, the `Appellant / Bank', had charged Rs.4,24,634/- towards the LC Opening of Rs.7,68,57,500/-. On 20.02.2016, the Bank had also charged Rs.2,90,148/- on 25.02.2016 towards LC Opening of Rs.7,50,82,500/-. These aspects, were raised in the Counter Claim in OA No. 725 of 2018, on the file of the `Debts Recovery Tribunal'.
77. It is the specific plea of the Respondent that the Appellant / Bank, had failed to produce the `Sanction Letter' for the `Debt' of Rs.130.26 Crores, proof of execution of documents and the date of Disbursement for the said Sanction Amount. Further, the `Disputed Entries' in regard to the `Statement of Account', in which, certain `Illegal Debits', were made by the `Bank's Officers', cannot be construed as `Financial Debt', as per `Law'.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
78. The Respondent takes a stand that the `essential ingredients of Insolvency', do not attract the `Appellant / Bank', to file an `Application', under Section 7 of the Code, since, the `Valuation' of Corporate Debtor's Assets were adequate to discharge the `Alleged Debts' in the event of Appellant / Petitioner / Financial Creditor / Bank succeeded to prove its `Claim'.
79. The Financial Creditor had filed the main CP (IB) No. 112 / BB / 2019 with a `malicious intent', attracting Section 65 of the I & B Code, 2016. Because of the `Illegal Demand' of `Free Closure Charges' and because of the `Arm Twisting Method of the Bank', the Respondent / Corporate Debtor could not avail the sanctioned facility of Rs.210 Crore from South Indian Bank. Also that, when the Corporate Debtor had demanded the Appellant / Bank to refund Rs.2.03 Crore with Interest, along with other `Illegal Debits', the `AGM' of the Bank wrote a Letter on 05.10.2016, addressed to the Senior Area Manager of SBI Life Insurance Co. Ltd. for Closure of SBI Life Insurance Policy and refund the aforesaid amount to the Corporate Debtor.
80. Indeed, the AGM of the Appellant / Bank had `Renewed' / `Revived' the `Working Capital Facilities' on the same date evening, as per Letter dated 05.10.2016 and irrationally increased the `LC Margin TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 from 10% to 15%', and withdrawn Rs.20 Crores EPC Facilities and modified the other terms of the said facilities against the `Reserve Bank of India' norms.
81. On behalf of the Respondent, it is pointed out before this `Tribunal' that the `Financial Creditor' neither co-operated for the `Golden Hand Shake', as requested by the `Corporate Debtor', through its Letters dated 06.10.2016 and 07.10.2016 nor issued any further `Letter of Credits' to the `Corporate Debtor' from 13.10.2016. However, the Corporate Debtor, had paid the `Letter of Credits' of payment till 13.10.2016, without any delay / Default with an intention to keep up its reputation. Moreover, the Corporate Debtor had cleared of entire Rs. 45 Crore of Cash Credit Facilities as on 07.10.2016 and it is evident from the Bank Records that the entire payment of Rs.259,23,56,889/- was paid by the Corporate Debtor from 01.04.2014 to 13.10.2016. There was no `Default' or `Dues', from the `Corporate Debtor', as on 13.10.2016, when there was no `Letter of Credit' issued by the `Financial Creditor', after 13.10.2016.
82. The contention advanced on behalf of the Respondent is that, the `Application' filed by the Appellant / Financial Creditor was a premature one and in any event, the Appellant / Bank is not entitled to get its Section 7 Application, filed before the `Adjudicating Authority', to be admitted, TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 for initiating `Corporate Insolvency Resolution Process', since it had indulged in misuse and abuse of different `Judicial Forums'.
83. The Appellant / Bank in its `Rejoinder' dated 13.04.2021 (in CA AT INS No. 80 of 2021 (TA No. 38 of 2021), had mentioned that the Respondent had addressed numerous communications pursuant to the `Sanction' / `Grant of Credit Facilities' dated 05.10.2016 and in fact, a `Letter of Credit' is an unconditional promise to pay the `Beneficiary' of the `Respondent'. Furthermore, the Respondent had availed the `Facilities / LC' to be honoured by the Appellant / Bank, on the due dates unconditionally, and therefore, it is not open to the Respondent to take a contra position that the said `Letter of Credits', were not availed by it. Moreover, the specific Counter Signature along with Company Seal of the Respondent on each of the covering `Schedule of the Bill Lodgement', was made by the Respondent', and as such, the plea of the Respondent that `Letter of Credits' were not countersigned by the `Authorised Person' of the `Respondent / Corporate Debtor', is an `incorrect' and `baseless' one.
84. To fortify the stand of the Appellant / Bank that LCs' availed by the Respondent before 07.10.2016 were all honoured subsequently, on the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 due dates, the following details, will belie the stand point of the Respondent, and the same runs as follows:
Date of LC Number Bill Reference Date of Amount
Issuance Number Devolve-
ment
28.07.2016 0505316LC0000737 0505316LU0001096 20.10.2016 12,05,40,000.00
03.08.2016 0505316LC0000758 0505316LU0001120 26.10.2016 10,05,32,000.00
10.08.2016 0505316LC0000766 0505316LU0001158 03.11.2016 7,64,56,800.00
18.08.2016 0505316LC0000792 0505316LU0001175 08.11.2016 7,59,64,800.00
24.08.2016 0505316LC0000813 0505316LU0001196 15.11.2016 10,87,97,600.00
03.09.2016 0505316LC0000839 0505316LU0001233 24.11.2016 10,76,82,400.00
16.09.2016 0505316LC0000854 0505316LU0001273 05.12.2016 11,22,46,525.00
22.09.2016 0505316LC0000889 0505316LU0001303 13.12.2016 10,49,27,200.00
28.09.2016 0505316LC0000902 0505316LU0001321 19.12.2016 10,24,67,200.00
05.10.2016 0505316LC0000919 0505316LU0001354 26.12.2016 10,84,04,000.00
85. According to the Appellant / Bank, the Respondent / Corporate Debtor was availing `Credit Facilities' from the Bank from the year 2009 onwards and the availability of certain `Board Resolution' dated 25.06.2014 or any subsequent thereto would have no relevance to the determination of `Default', by the `Respondent / Corporate Debtor'.
86. In the Section 7 Application (Form I of the Code), under Part IV (`Particulars of Financial Debt'), it was mentioned that the `Amount' claimed to be in `Default' was Rs.146,93,93,281.78 as on 31.01.2019, on which, includes Principal of Rs.113,37,61,348.78 and interest of Rs.33,56,31,933. The Total Outstanding was Rs.146.93 Crore and the Date of Default on 20.10.2016 when the `Account' of the `Respondent / Corporate Debtor', became an irregular one. The Date of NPA was on TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 17.01.2017. A perusal of the `CIBIL Report' of the `Appellant / Bank' shows that the `Borrower / Delinquent Outstanding', was Rs.1,13,37,61,349/-. Further, the Statement of Account of the Appellant / Bank, in respect of the Respondent / Corporate Debtor from 02.12.2015 to 31.12.2016, shows that the `Balance' was Rs.1,23,53,90,795.03.
87. A perusal of the Certified `Extract' of the `Resolution' of the `Board of Directors', that took place on 01.09.2009, indicates that Mr. D.C. Mohan, `Bank Director' of the `Respondent / Corporate Debtor / Company' was authorised to sign and execute the following documents, in connection with the `utilisation of LC Limit sanctioned', by State Bank of India, Bangalore City Branch, J.C. Road, Bangalore - 560002:
(a) Letter / Application / Bond paper for opening of LC in favour of Suppliers and Acceptance of B/E etc.
(b) Periodical Stock / Receivables statements as required by the Bank.
(c) Regular Correspondence with the bank to know the Balances, seek Clarification.
88. A perusal of the contents of Letter dated 07.10.2016, addressed by the `Respondent / Corporate Debtor', to the State Bank of India, Bangalore, on the subject `Statement of Hypothecated Assets as on 30.09.2016' (Ref: Our CC A/c No. 30770234121 - CIF 85442690612), TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 indicates that the `Authorised Signatory' of the Respondent / Corporate Debtor, had mentioned that the following documents were enclosed:
1 Statement of Hypothecated Assets as on 30.09.2016 2 Closing Stock Statement as on 30.09.2016 3 Sundry Debtors Invoices Outstanding Statement as on 30.09.2016 4 Sundry Creditors Invoices Outstanding Statement as on 30.09.2016 5 X VAT - BNG Returns for AUG - 2016 6 Cash Flow for Projections 7 Accrued Liability towards Acceptance of Bills - as on 30.09.2016
89. Likewise, `Statement of Hypothecated Assets as on 31.10.2016', was sent by the Respondent / Corporate Debtor's Authorised Signatory through Letter dated 09.11.2016 to the `Appellant / Bank'. Further, the `Chairman and the Managing Director' of the Corporate Debtor, had addressed a Letter dated 21.10.2016, enclosing the Balance Sheet of the Respondent / Corporate Debtor for the Financial Year 2015-2016. As a matter of fact, in the `Notes to Financial Statement for the year ended
31.03.2016', under the Caption `Total of Short Term Borrowings' (`Particulars'), the following was mentioned:
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Particulars 31.03.2016 31.03.2015 Security details, Interest Rate & Repayment terms SBI 8,05,27,411 7,19,87,039 Interest rate : 11.05% Security included with other Credit Facilities extended by SBI Primary Security of Hypothecation of all Stocks, receivables and Other Current Assets Collateral Security.
Personal Guarantee of Mr. Dayananda, Managing Director, Other Directors.
Corporate Guarantee of M/s. Bharath Infra-Tech Pvt. Ltd.
90. The Respondent / Corporate Debtor's Standalone Financial Statements for the period from 01.04.2016 to 31.03.2017, is filed by the Appellant / Bank's side, to show that the `Respondent / Corporate Debtor', had admitted and acknowledged the `Debt', owed to the `Bank', on account of the `Devolvement of Letter of Credits', in their `Balance Sheets' / `Annual Returns'.
91. The `Annual Return', for the Financial Year from 01.04.2017 to 31.03.2018, in respect of the `Respondent / Corporate Debtor', is filed before this `Tribunal', on behalf of the Appellant / Bank, to show that the Respondent had admitted and acknowledged the `Debt', owed to the `Bank'.
92. In fact, in the Letter dated 06.10.2016, the Respondent / Corporate Debtor, through its Chairman & Managing Director, addressed to the Asst. General Manager, State Bank of India, J.C. Road Branch, TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 Bangalore, on the subject (a) Renewal of Credit Facility for the F.Y. 2016-17 (b) SBI Life Insurance Policy of Rs.2 Crores (c) Excess debit of LC Charges (d) `Debit of OD penalties', without any irregularity in the account and under the Caption `Reference', relating to (i) Credit Facility, BIEIL Letter dated 05.03.2016 and your reply dated 5/10/2016 (ii) SBI Life BIEIL Letter dated 05.04.2016 (iii) Excess debit of LC charges BIEIL Letter dated 28.02.2014 (iv) Wrong debit on our account as OD penalty, letter dated 7.4.2016 and 1.6.2016, had among other things mentioned that `..... we are surprised to see the bank is demoralising our business by putting all new clauses as stated in your letter dated 5.10.2016, which makes it highly impossible for us to conduct the business. We understand that the bank may have had bitter experiences with a few clients, but by controlling good clients account with these kind of impractical conditions the business cannot run smooth. We finally try to bring to your notice that we have an extremely good track record in the bank and we have a self financial disciplines and the same is proved from the last 7-8 years. We proudly say there is not even a single day delay in the interest payments or the LC payments or any charges of the bank.
After having around 500 crores of LC transactions and 850 + crore turnover, not even a single devolvement has occurred in the past 7-8 years, that is from the first date of operation. We request you to depute a TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 proper team to evaluate the strength of the company, after evaluating if the bank feels we are a good client the bank can continue business with us, if not, we are very much open to go for multi banking with the consent of the bank or a golden hand shake, but without any further delay credit all the extra charges which is debited from our account as stated above which can help in smooth settlements.''
93. In the aforesaid Letter dated 06.10.2016, of the Respondent / Corporate Debtor, addressed to the Appellant / Bank, it was mentioned that the Respondent / Corporate Debtor is having a `Sanction' of Rs.157.22 Crore Credit Facilities through the Bank's Sanction Letter dated 23.03.2015, etc.
94. Besides the above, the Respondent / Corporate Debtor in its Letter dated 03.11.2016, addressed to the `Asst. General Manager' of the Appellant / Bank, on the subject `Regarding opening of LCs on Bharath Infra Exports and Imports Limited (with reference to Bank's Letter dated 20.10.2016, 02.11.2016 and 03.11.2016 and the Respondent's Letter dated 06.10.2016, 13.10.2016, 18.10.2016, 25.10.2016 and 27.10.2016) had stated as under:
``Since it is very difficult for us, to recover payments from our customers due to the incomplete supply of their respective orders, we requested many times to open our LC's at 10% Margin, as per the terms of the sanction letter which is in force. But without TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 opening LC's on our suppliers, you are pressurising for the payment of devolved LC's Dated 20.10.16, 26.10.16 and 3/11/16, which is impractical. Please note that we are doing business from last 7 to 8 years with you, in this tenure, we have never delayed our Payment of LC's or Interest of C.C. even for an hour. The Devolvement of LC's arised a week after refusal to open our LC dated 13/10/2016, though our account was very much regular on the said date and there was a clear LC balance available in our account. We request you once again to refer our above said Letters which clearly communicated why we were not able to increase LC Margin from 10% to 15%, and how our business came to halt due to the Non-issual of LC's on our suppliers.''
95. The stand of the Respondent / Corporate Debtor that the Appellant / Bank, had submitted the Information relating to the Loan Account of the Respondent / Corporate Debtor in `NeSL website' and it furnished the `Information' on 21.05.2019, stating that the `Sanction Amount', was `Rs.20 Crores', `Principal Outstanding' is `ZERO' and `Interest Outstanding' is `ZERO', but the `Total Outstanding Amount' shows that Rs.113,37,61,348/- and the `Amount Overdue', was Rs.93,37,61,348/-.
96. In this connection, the plea of the Respondent / Corporate Debtor is that, the `Debt' of the `Appellant / Bank', is disputed, and in the objections of the Respondent dated 08.04.2021, it was mentioned that `the company has cleared the entire CC and LC facilities as on 07.10.2016 itself and requested the bank to transfer its account to SIB. Thereafter, the company has not obtained any CC or LC facilities from the bank'. Hence, TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 there is `no debt or default exists in the company's account as alleged by the bank'.
97. In short, the stand of the Respondent /Corporate Debtor is that there is no `Legally Recoverable Debt', in the Account of the Respondent / Company.
98. The Respondent / Corporate Debtor in its `Objections', before this `Tribunal', in the instant CA (AT) (CH) (INS) No. 80 of 2021, had inter alia observed that the `Appellant / Bank', has not produced cogent, corroborative and substantial evidence as per `Law', relating to the alleged `Letters of Credit' and in fact, the Appellant / Bank, had arbitrarily `Renewed' the `Working Capital Facilities', through Letter dated 05.10.2016 by irrationally increasing `Letter of Credit Margin', from `10% to 15%' and also `Illegally Modified', the terms of the other `Facilities' against `Reserve Bank of India' norms, which is not accepted by the `Respondent / Corporate Debtor'.
99. According to the Respondent / Corporate Debtor, when the `Forensic Audit' company itself states that the `Accuracy' and `Authenticity' of all the information, provided by the `Appellant /Bank', could not be confirmed, then the `CIBIL Report', prepared on the basis of such `Report', is not a `Valid' one, etc. TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
100. The contention of the Respondent /Corporate Debtor is that the `Tribunal', had disposed of the main `Petition' CP(IB) No.112/BB/2019, filed by the `Appellant / Bank', by issuing `Directions', for a detailed `Joint Scrutiny' and `Reconciliation of Accounts' and the `Demands', raised by the `Appellant / Bank', in a timebound manner and as expeditiously as possible. Further, in the instant case on hand, no `Debt' exists, if it is not liable to be paid in `Law'.
101. Not resting with the above, the Respondent / Corporate Debtor in their `Objection', filed before the `Tribunal', (dated 09.4.2021, vide Diary No.26690 has averred that `the Respondent, has resources and is also willing to pay any such `Outstanding Amount', which arises after `Reconciliation' and `Scrutiny' of Accounts.
102. A perusal of the contents of the Letter of the Appellant / Bank dated 18.05.2009, addressed to the Respondent / Corporate Debtor mentions that the `Sanction of Rs.50 Crore Credit Facilities' (Cash Credit Proposed Limit Rs.10.00 Cr., Total FBWC NFB Rs.10.00 Cr., Letter of Credit Rs.40.00 Cr., Total Non-Fund Based Rs.40.00 Cr. and in all Rs.50.00 Cr. (Fund & Non-Fund Based)', subject to terms and conditions, therein.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
103. An `Agreement of Loan', for Overall Limit in Form C.1, was dated 21.05.2009, was executed by the Respondent / Corporate Debtor / Borrower and the Appellant / Bank. The Letter for Grant of Individual Limits dated 21.05.2009 was executed by the Chairman & Managing Director and the Director of the Respondent / Corporate Debtor, wherein the Overall Limit of Rs.50,00,00,000/- was mentioned.
104. On 23.03.2015, the `Revised Sanction Letter' of the `Appellant / Bank', was issued to the Respondent / Corporate Debtor, in respect of the Credit Facilities, wherein, it was mentioned that the `Existing Limit Total (FB + NFB)' Existing as Rs.9000.00 Lakhs and the Proposed was Rs.15722.00 Lakhs. The Sanction of this `Credit Facility' is subject to the terms and conditions mentioned in the Letter dated 23.03.2015 of the Bank. A `Supplemental Agreement' dated 25.03.2015, was executed by the Respondent / Corporate Debtor and the Appellant / Bank for an increase in Overall Limit.
105. The Appellant / Bank through its Asst. General Manager, had addressed a Letter dated 05.10.2016, in which, it was mentioned that the `Competent Authority' had accorded `Sanction / Approval', as under:
``(a) Continuation of fund based working capital limits (FBWC - CC) of Rs.20.00 crores and non fund based working capital limits (NFB LC) of Rs.110.00 crores at the existing levels till 31.10.2016;
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
(b) Cancellation of existing FBWC (EPC/FBD) limits of Rs.20.00 crores;
(c) Sanction of a FBWC (EPC/FBD) limits of Rs.3.00 crores as a sub limit of FBWC (CC) limit;
(d) Continuation of NFBWC limit (Foreign LC) of Rs.20.00 crores as a sub limit of NFBWC (Inland LC) at the existing level till 31.10.2016 ;
(e) Continuation of forward contract / Derivative limit with reduction from existing levels of Rs.2.22 crore to Rs.0.26 crore.
(f) Substitution of personal guarantee of Mr. Thimma Reddy BN, father of Managing Director of the company with Mr. Bharat Dayanand and with personal guarantee of legal heirs of Late Mr. Thimma Reddy.
(g) Increase in LC margin from existing 10% to 15%;
The above facilities were sanctioned with the following conditions:
(i) No further investments in Associates and Subsidiaries to be made without prior approval of the Bank;
(ii) Completion of proper due diligence on suppliers;
(iii) Penal Interest is applicable for delay in submission of audited balance sheet.''
106. On 04.11.2016, the Appellant / Bank, had informed the Managing Director of the Respondent / Corporate Debtor, in regard to the `Devolvement of LCs : irregularity in Cash Credit Account'.
107. On 28.11.2016, the Appellant / Bank's Asst. General Manager, had inter alia mentioned that the present Balance in Respondent's Account TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 was Rs.78,94,20,873.03, it was irregular by Rs.58,94,20,873.03. The Account was irregular from 20.10.2016 and the irregularity was continuing, despite the Bank's repeated requests for Regularisation.
108. The Appellant / Bank, had filed OA No. 725 of 2018, before the Debts Recovery Tribunal, Bengaluru, against the Respondent / Corporate Debtor and others (Defendants), wherein, the Bank had claimed a Total Sum of Rs.131,32,38,186.78 from the Defendants, requiring them, to pay the `Outstanding Sum' with `Interest' and `Penal Interest'.
109. In fact, as per Account Extract as on 21.03.2018, for a Sum of Rs.131,32,38,186.78, it was mentioned in OA No. 725 of 2018, by the `Bank' that the `Interest' was debited at 13.05% p.a., including `Penal Interest' of 2% p.a. with `Monthly Rests', from 01.01.2017 to 21.03.2018.
Further, the classification of the Loan Amount of the Respondent / Corporate Debtor as `Non-Performing Asset', was on 17.01.2017.
110. On 22.05.2018, the `Appellant /Bank', had issued a Section 13 (2) SARFAESI Notice to the `Respondent / Corporate Debtor', wherein the `Name of Persons', who had given `Personal Guarantees', were mentioned etc. In the said Notice, an `Outstanding Amount' as on 18.05.2018 was mentioned as Rs.134,06,06,749/- plus Interest and Expenses from 19.05.2018.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
111. It transpires that the Appellant / Bank, had issued a Section 13 (4) Notice dated 05.11.2016, under the SARFAESI Act, 2002, seeking Possession of Properties, mortgaged to the Bank, detailed in the Schedule given.
112. A perusal of the Paragraph 33 of the `impugned order' dated 22.12.2020 in CP(IB) No. 112/BB/2019, passed by the `Adjudicating Authority', (`National Company Law Tribunal', Bengaluru Bench), indicates that because of the contra stand taken by the two sides, the `Adjudicating Authority', had opined that the `Determination of the nature of the Entries, would require matching of the Bills raised by the Financial Creditor (Appellant / Bank) on account of LCs Facilities, with the Entries appearing in the `Corporate Debtor's CC Account', maintained in the `Bank', etc.'.
113. The `Adjudicating Authority' at Paragraph 34 of the `impugned order', in CP (IB) No. 112/BB/2019, had proceeded to observe that the `Debt, claimed by the `Financial Creditor', itself, is more than the LC Limit' and this needs to be examined and reconciled.
114. Significantly, the `Adjudicating Authority', at Paragraph 37 of the `impugned order', had observed that `during the Hearing on 19.06.2019, the MD of the Respondent / Corporate Debtor stated that if any dues are TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 payable inspite of all the payments made, then, he can settle the dues, provided the Correct Amount is worked out, after proper reconciliation'.
115. Besides the above, the `Adjudicating Authority, at Paragraph 39 of the `impugned order', had observed that `......we have to take notice of the impact of the present financial distress caused by the global Novel Corona virus pandemic necessitating a nationwide lockdown in the last about 8 months that has paralysed businesses across the country. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy, on 24.03.2020, the minimum threshold of default was increased from Rs.1 Lakh to Rs.1 Crore etc. Modifications and suspension of various provisions of the Code have been initiated so that companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP, else in the present scenario they may end up in liquidation and lose value further, which is not the objection of the Code. IBC itself has been suspended. Debts are being restructured as per Government guidelines. In this scenario, it cannot be ascertained as to what value the assets of the Corporate Debtor and its running business would have in the open market so as to attract a viable resolution applicant and whether it would be a fruitful exercise to pus the Corporate Debtor into CIRP'. TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
116. Suffice it for this `Tribunal', to point out that the `Adjudicating Authority' in the `impugned order' at Paragraph 41, had observed that the `Disputes raised, the lack of clarity of the actual figures of debt, if any, and whether after the settlements offered by the Corporate Debtor and the payments made since 2012, and its belief that its entire CC account of Rs.45 crore had been liquidated after the payment of Rs.10.63 crore and adjustment of its FDs, require a detailed scrutiny and audit of the demands raised on account of both Fund based and Non-Fund based facilities and the amounts paid/settled, which cannot be conducted in these summary proceedings, etc.'.
117. It is to be pointed out that just because there are cases pending relating to Criminal Petition No.9481 of 2018, Criminal Petition No. 852 of 2019, Criminal Petition No.1573 of 2019, Criminal Petition No.3014 of 2019, CC 1863 of 2019, Crime No.185 of 2018, Counter Claim OA No. 725 of 2018, SA 444 of 2018, before the DRT, Bangalore, FIR No. CBI/BSFB BLR/10/2019, before the CBI Court, WP No.5711 of 2020 for determination concerning `alleged debt', `defaults', `wrong debits', `siphoning off money', `forgery' and `fraud', etc., against the concerned, the Section 7 Application of the I & B Code in CP(IB) No.112/BB/2019, on the file of the `Adjudicating Authority', cannot be dismissed on the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 ground there exists a `Dispute' in the amount of Debt, between the Parties, as opined by this `Tribunal'.
118. It is to be remembered that the `Right' to `Apply' under Section 7 of the I & B Code, 2016, accrues to the Bank when the I & B Code, 2016, came to force. The amounts borrowed by the Respondent / Corporate Debtor from the Appellant / Bank is a undoubtedly a `Debt' due and payable in fact and in `Law'.
119. The pendency of proceedings before the Debts Recovery Tribunal in `Law', is not a `Bar' for the `Petitioner / Financial Creditor / Bank to initiate Corporate Insolvency Resolution Process against the Respondent / Corporate Debtor, in the considered opinion of this `Tribunal'. Also that, an `Adjudicating Authority', is not required to go into the details of fabrication and forgery of documents, etc., admitting an `Application', under Section 7 of the Code.
120. As per Section 7 (4) of the Code, an `Adjudicating Authority' (`Tribunal'), is `to ascertain an existence of a Debt', within 14 days. In fact, as per Section 7 (5) (a) of the Code, an `Adjudicating Authority', is either to `Admit' an `Application' or `Reject' the `Application', as per Section 7 (5) (b) of the `Code'.
TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
121. As far as the instant case is concerned, the Respondent / Corporate Debtor had committed the `Default of the Debt', arising on `Devolvement of Letters of Credits', and in fact, the Respondent / Corporate Debtor's Statement of Accounts (from 02.12.2015 to 31.12.2016; 01.01.2017 to 21.03.2018 and the Total Due as on 31.01.2019, evidences the `Default' in respect of Account No.30770234121). Also, the `CIBIL Report', clearly exhibits the `existence of Debt', by the Respondent / Corporate Debtor.
122. The Respondent / Corporate Debtor had acknowledged the `Debt' / `subject Letters of Credits', in their Statements dated 07.10.2016 and 09.11.2016. The Balance Sheet for the years 2015-2016, 2016-2017, 2017-2018 of the Respondent / Corporate Debtor unerringly points out the `Admission' and the `Acknowledgement' of `Debt', to be paid to the `Appellant / Bank', on account of the `Devolvement of Letters of Credits'.
123. In reality, the Respondent / Corporate Debtor, in its Letter dated 03.11.2016, had `Admitted' the `Devolvement of Letters of Creditors', among other things mentioning that the `Non-Payment of LCs' from 20.10.2016 to till date, is only due to the Bank's arbitrary decisions in increasing `LC Margins from 10% to 15%'. Therefore, this `Tribunal' TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 unhesitatingly holds in an `unambiguous and categorical term', that the `Respondent / Corporate Debtor', is in `Default' of `Debt' arising on `Devolvement of Letters of Credit', as evidenced from the `Documents / Material Papers' of the `Appellant / Bank', which is an adverse circumstance, against the `Respondent / Corporate Debtor'.
124. In the instant case on hand, the `Adjudicating Authority', (Tribunal), in the `impugned order' dated 22.12.2020 in CP(IB) No. 112/BB/2019, had issued directions (vide Paragraph 42), to the Appellant / Bank / Financial Creditor to reconcile `Entry by Entry', the Accounts maintained by it, with the `bills raised'/`transactions' undertaken, in respect of all the Working Capital Facilities, provided to the Corporate Debtor, etc., which are beyond the Power and Jurisdiction of the `Adjudicating Authority'.
125. On going through the `impugned order', passed by the `Adjudicating Authority' dated 12.02.2020, (NCLT, Bengaluru Bench) in CP (IB) No. 112 / BB/2019, this `Tribunal', is of the cocksure opinion that the `Adjudicating Authority', had committed an `error', in traversing upon the merits of the matter and he is not supposed to examine / go into the each and every aspects of the `Default', much less in issuing directions to the Parties to `Reconcile' / `Scrutinise' the `Default', with TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 reference to `Entry by Entry' with the Accounts, maintained by the `Appellant / Bank', with the `Bills raised / Transaction undertaken, in respect of all the `Working Capital Facilities', provided to the `Respondent / Corporate Debtor'.
126. In so far as the plea of the Respondent / Corporate Debtor that `Letters of Credits' were not countersigned, this `Tribunal', points out that on each of the covering `Schedule of the Bill Lodgement', there is a counter signature together with the Company Seal of the Respondent / Corporate Debtor (vide Volume II of the Appeal at Pages 291, 301, 308, 315, 325, 327, 348, 365, 375, 391, 405 and 417). As such, the contra plea taken on the Respondent / Corporate Debtor is negatived by this `Tribunal'.
127. Coming to the aspect of `Letters of Credits', were not countersigned by the Authorised Representative (Dr. D.C. Mohan) of the Respondent / Corporate Debtor, this `Tribunal', pertinently points out that from 17.01.2015 to 03.02.2015, the Seven LCs were opened and signed by the said Dr. D.C. Mohan (Authorised Signatory) and they were honoured and paid by the Respondent, without any demur. In short, the said Dr. D.C. Mohan (Authorised Representative), had signed the subject Ten LC Documents. In short, through the `Board Resolution', the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 `Authorised Signatory' Dr. D.C. Mohan was authorised by the Respondent / Corporate Debtor, to sign the Documents pertaining to the `Letters of Credit'. Therefore, the contra plea taken on behalf of the Respondent / Corporate Debtor, is `unworthy of acceptance'.
128. One cannot brush aside the prime fact that the `Letters of Credits', were availed by the Respondent / Corporate Debtor from 28.07.2016 to 05.10.2016 and they were honoured later on their respective due dates. In Law, the Appellant / Bank, is duty bound to honour the `Letters of Credits', subject to its terms. When the fact of the matter is, that the Respondent / Corporate Debtor had availed the `Letters of Credits Facilities', to be honoured by the Appellant / Bank, then, the topsy turvy plea taken on behalf of the Respondent / Corporate Debtor that the said `Letters of Credits', were not availed by it, falls to the ground.
129. Be that as it may, this `Tribunal', in the light of foregoing detailed qualitative and quantitative deliberations, on a careful consideration of respective contentions, considering the facts and circumstances of the instant case, in an integral and conspectus manner and on going through the `impugned order' dated 22.12.2020 in CP(IB) No. 112/BB/2019, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Bengaluru Bench), comes to a consequent conclusion that the TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 `exercise of discretion', by the `Adjudicating Authority', in not `Admitting', the Section 7 Application in CP (IB) No. 112/BB/2019, filed by the `Appellant / Bank' and `Issuing Observations / Directions' (as mentioned in the Paragraph 42 of the `impugned order'), is not based on `sound legal principles' (especially, in the teeth of the `Appellant / Bank' through several documents, had exhibited that the `Respondent / Corporate Debtor', was unable to pay its `Debt' with no possibility of payment and its operations were shut) and they are clearly unsustainable in the `eye of Law'. Hence, this `Tribunal', is perforced to `interfere' with the `impugned order' dated 22.12.2020 in CP(IB) No.112/BB/2019, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Bengaluru Bench) and sets aside the same, to prevent an `aberration of justice' and to promote `substantial cause of justice'. Conclusion:
130. In fine, the `Adjudicating Authority', (`National Company Law Tribunal', Bengaluru Bench), is directed to `Restore' the CP(IB) No.112/BB/2019 (filed by the `Appellant / Bank'), to `Admit' the same, by initiating `Corporate Insolvency Resolution Process', under I & B Code, 2016, and the Regulations made thereunder, against the `Respondent / Corporate Debtor', and to proceed further, in the manner TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021 known to `Law' and in accordance with `Law', within 10 days from the date of this Judgment.
With the abovesaid observations and directions, the instant Company Appeal (AT) (INS.) No. 80 of 2021 (TA No.38 of 2021) stands disposed of. No costs. IA No. 176 of 2021 (`For Stay') is closed.
[Justice M. Venugopal] Member (Judicial) [Kanthi Narahari] Member (Technical) 28/11/2022 SR/TM TA No. 38 of 2021 in Company Appeal (AT) (Ins.) No. 80 of 2021
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