National Company Law Appellate Tribunal
Manmohan Singh Jain vs State Bank Of India on 22 November, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI
(APPELLATE JURISDICTION)
Company Appeal (AT) (CH) (INS) No. 97 of 2021
(Under Section 61 of the Insolvency and Bankruptcy Code, 2016)
Arising out of the Order dated 27.04.2021 in IBA/45/2020 passed
by the Adjudicating Authority, (National Company Law Tribunal,
Division Bench-II, Chennai Bench)
In the matter of:
Mr. Manmohan Singh Jain
AH- 216, 2nd Street, 8th Main Road,
Shanthi Colony, Anna Nagar,
Chennai - 600 040.
Shareholder and Suspended -
Director of Kiran Global Chems Limited ...Appellant
V
1.M/s. State Bank of India
Stressed Assets Management Branch,
Red Cross Building, 2nd Floor, No-32,
Montieth Road, Egmore, Chennai. ...Respondent No.1
2.M/s. Kiran Global Chems Limited
(Represented by Interim Resolution Professional)
No.42, New Avadi Road, Kilpauk, Chennai-10. ...Respondent No.2
Present:
For Appellant : Mr. Aalok Jagga, Advocate
and Mr. R. Swarnavel, Advocate
Mr. R. Ramkumar, Advocate
For Respondent No.1/Caveator: Mr. Satish Parasaran, Sr. Advocate
For Mr. Vipin Warrier, Advocate
Comp App (AT) (CH) (INS) No. 97 of 2021
Page | 1
For Respondent No.2 : Mr. S. Sathiyanarayanan, Advocate
Coram : Mr. Justice M. Venugopal Member (J)
Mr. Kanthi Narahari Member (T)
JUDGMENT
(VIRTUAL MODE) Per: Kanthi Narahari Member (T)
1) The present Appeal is filed aggrieved by the Order dated 27th April 2021 passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench-II, Chennai) in IBA/45/2020, whereby the Adjudicating Authority admitted the application and initiated the Corporate Insolvency Resolution Process (CIRP).
Appellant's Submissions :-
2) The Learned Counsel for the Appellant submitted that the Appeal is preferred by a shareholder of the 'Corporate Debtor' holding 50.210% of shares and also a Suspended Director of the 'Corporate Debtor'. He submitted that the Respondent herein i.e. the State Bank of India filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the 'Adjudicating Authority' for initiation of 'CIRP' against the Corporate Debtor on the ground that the Corporate Debtor had defaulted in repaying an amount of Rs.52,28,93,796/-.
3) It is submitted that the 'Impugned Order' passed by the Learned 'Adjudicating Authority' has created an inequitable and legally unsustainable position that the 'Corporate Debtor' resultantly suffered a huge financial and Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 2 business losses along with adversely affecting the lives of families of around 500 workers of MSME Unit.
4) It is submitted that the Learned 'Adjudicating Authority' without appreciating the mandate of law including the debt on which the default occurred, the 'letter of law' as well as law settled by the Hon'ble Supreme Court of India.
5) It is submitted that the 'Corporate Debtor' had availed Working Capital credit facilities under Working Capital Arrangement Consortium Agreement from Consortium of Banks i.e. State Bank of India, Axis Bank Ltd., IDBI Bank Ltd. and Karur Vysya Bank Limited along with executing joint consortium documents with consortium of banks. The 1st Respondent was leader of consortium and Axis Bank Ltd. was second leader of this Consortium of Banks. All securities were pledged/hypothecated in favor of Consortium of Banks with pari passu charge of each consortium bank member, without providing any exclusive security to Respondent or other consortium bank for securing working capital consortium advances with IDBI and KVB as member banks, as also mentioned in fact sheet enclosed along with application by the Respondent bank.
6) It is submitted that the working capital facilities availed from consortium banks, turned irregular and resultantly were declared as Non-Performing Assets (NPA) along with starting recovery proceedings against the Corporate Debtor by consortium through State Bank of India, in the capacity as authorized lead lender of consortium. Notice under Section 13(2) of SARFAESI Act, 2002 was issued by the Bank for demanding outstanding debt of consortium amounting to Rs.128,45,69,581.34 along with giving reference therein of joint consortium Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 3 security documents executed jointly with the consortium by the Corporate Debtor and guarantors along with mentioning wrong date of Non-Performing Assets (NPA) as 27-11-2018, instead of correct date of NON-PERFORMING ASSETS (NPA) i.e. 10-02-2017, when account became NON-PERFORMING ASSETS (NPA) first with Axis Bank Limited as evident from the following:
Name of the Bank Date of NPA
AXIS Bank Ltd. 10.02.2017
IDBI Bank Ltd. 31.05.2018
State Bank of India 27.11.2018
Karur Vysya Bank Ltd. 10.01.2019
7) The Learned Counsel for the Appellant submitted that the main grievance
in the appeal is that the Respondent did not mention the date of default in the Form-1 Part IV besides various other deficiencies in the Form-1. Despite giving opportunity by the Hon'ble 'Adjudicating Authority', the Respondent has not inclined to cure the defect in the Form. The Hon'ble 'Adjudicating Authority', in its order dated 27.04.2021, observed and concluded that the application is defective, but still admitted the application and further observed that one of the Consortium of banks i.e. Axis Bank has claimed the date of default as on or before 12.11.2016.
8) It is submitted that the fact was intentionally suppressed by the Respondent while filing their application under Section 7 of the Insolvency and Bankruptcy Code, 2016 to revive the otherwise time barred debt. It is submitted that the Section 7(5)(a) of the Code specifically lays down that if there is a default and if the application is complete and there is no Disciplinary Proceedings pending against the proposed Resolution Professional it may, by order admit such Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 4 Application by the 'Adjudicating Authority'. However, as per Section 7 Sub Section 5(b) states that 'default' has not occurred or the Application under Sub Section 2 is incomplete or any Disciplinary Proceeding is pending against the proposed Resolution Professional, it may by order, reject such application. The Proviso states that, provided that the 'Adjudicating Authority' shall before rejecting the application under Clause (b) of Sub Section 5 give a Notice to the applicant to rectify the defect in its application within 7 days of receipt of such notice from the 'Adjudicating Authority'.
9) The Learned Counsel submitted that as stated supra, the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was filed on 19.12.2019, while so, the Respondent Bank stated different dates of Non-Performing Assets (NPA) in the application i.e. in Volume II Page 531, Paragraph 5 and at Page 533 under Schedule 'A' Table, the Respondent has shown Non-Performing Assets (NPA) date as 27.11.2018 and on the other hand, in the fact sheet relating to details of debt Point 49, the respondent had shown the Non-Performing Assets (NPA) date to be 28.11.2018, therefore it is defective.
10) The Learned Counsel submitted that the Appellant filed a detailed counter dated 20th January 2021 before the Hon'ble Adjudicating Authority stating that the application filed by the 1st Respondent is defective and the date of default was not mentioned in the application submitted by the Financial Creditor i.e. 1 st Respondent herein before the Hon'ble National Company Law Tribunal which amounts to defect in Petition. In Page No.3 Para 4 of the Petition, against the Column regarding details of amount claimed to be default and debt on which default occurred, the 'Financial Creditor' i.e. the 1st Respondent herein was Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 5 intentionally ignored to mention the date of default with an intention to circumvent the Provision of law. It is submitted that the application filed under Section 7 of the I&B Code the Respondent is an effort to revive the debt.
11) It is submitted that the date of default is crucial to determine the date when the cause of action occurred, the Learned Counsel also relied upon the Rule 4 of the Insolvency and Bankruptcy Code (Application to 'Adjudicating Authority') Rules, 2016 to show that the application under Section 7 of the IBC should be in Form-1 as prescribed in the said Rules. The present Appeal is filed challenging the order of the Adjudicating Authority on the facts and laws and among other grounds stated in para 9 of the grounds of appeal.
12) It is submitted that the 'Adjudicating Authority' failed to appreciate in Para 37 of the Hon'ble Supreme Court Judgment in Civil Appeal No.2734 of 2020 passed in Laxmi Pat Surana v. Union Bank of India and Anr. wherein the Hon'ble Supreme Court held that the date of default is not the date of Non-Performing Assets (NPA). It is submitted that much prior to the date of Non-Performing Assets (NPA) the date of default occurred and for the purpose of determining law of limitation the actual default is to be taken into consideration for the purpose of counting the period of limitation not the Non-Performing Assets (NPA). The Application filed by the 1st Respondent herein is time barred. Further the Learned Counsel stated that the Hon'ble Adjudicating Authority failed to consider the grounds raised by the Appellant in their Counter Affidavit filed before the NCLT.
13) Further it is submitted that the Hon'ble Adjudicating Authority has ignored the Judgment of Shri B Prashanth Hegde v SBI & Anr. Passed by the NCLAT on Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 6 14.10.2020 in Company Appeal (AT)(Ins) No. 68 of 2019, wherein the same fact of no date of default being entered by the same bank was pointed out in the application in para 16 of the order and thereby not noting that the same nationalized bank was a deliberate non-complier of IBC Code and NCLT Rules, 2016. However, the Hon'ble Adjudicating Authority did not take into consideration even this aspect also. Further the Respondent Bank in order to discharge the onus of removing the defects which is apparent from the following finding in the 'Impugned Order' viz. "In spite of bringing this to the notice of the applicant and the counsel for the applicant, we do not find any reason as to why the applicant does not want to rectify the mistake in the column regarding non- mentioning of date of default."
14) The Learned Counsel for the Appellant relied upon the Judgment of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC and the relevant paragraph is 24, 25, 46. The Learned Counsel for the Appellant submits that Hon'ble Supreme Court held that while holding that the timelines in Section 7(5) are not mandatory, however the defect is still to be removed i.e. the application is to be complete.
15) Further the Learned Counsel submitted that the Hon'ble Adjudicating Authority failed to consider that in the absence of application is complete as per the mandatory clause which is most critical i.e. (date of default) without the said mandatory fulfillment of clause the application is incomplete. The mandatory of the most critical part i.e. date of default which is apparent from the following finding in the Impugned Order dated 27.04.2021 of the Hon'ble Adjudicating Authority. The relevant paras are reproduced hereat:
Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 7 "7. On perusal of Part-IV of the application submitted by the Financial Creditor at Sr. No.2 pertaining to date of default etc., the following sentence appears "Amount defaulted by Corporate Debtor is Rs.52,28,93,796/- (Rupees Fifty Two Crore Twenty Eight Lakh Ninety Three Thousand Seven Hundred and Ninety Six only) as on 30.11.2019 with further interest and other charges less recoveries, if any". Further in para 8 of the order which is extracted hereunder, the Hon'ble Adjudicating Authority observed as under:
"8. It appears that the said date 30.11.2019 is not the date of default but it is the date in which the said sum is due to the Financial Creditor. Except this description, date of default is not mentioned and some correction is seen to have made which has not been authenticated. Therefore, we hold that date of default is omitted from the relevant Column. On a query, the learned counsel for the Financial Creditor has stated that the date of default is date of NPA i.e. 27.11.2018. The learned Counsel for the Corporate Debtor, however maintained that the date of default is 12.11.2016. While reserving the order, this Adjudicating Authority had given opportunity for filing their respective written submissions in order to substantiate their arguments. In the above application, the "date of default" in the relevant column has not been deliberately typed by the applicant. It is also brought to the notice of this Adjudicating Authority, which the counsel for the Applicant has not mentioned even in the written submission. However, the date of default has been mentioned in the pleadings of the application. It is important that date of default ought to be mentioned in the column Part-IV of the application as per the NCLT Rules, 2016. It is clearly in violation of the same. It is very unfortunate to know that a nationalized banker with a huge outstanding Rs.52,28,93,796/- due and payable and the respondent admitted debt and default, the applicant bank ought to take bare minimum requirement of filling up the application in the proper format. In spite of bringing this to the notice of the applicant and the counsel for applicant, we do not find any reason as to why the applicant does not want to rectify the Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 8 mistake in this column regarding 'date of default'. This raises a question in the mind, whether are there any collusion between the applicant and the respondent? Be that as it may, since the 'date of default' mentioned in the pleadings and also in the documents enclosed along with this application this Adjudicating Authority in spite of the above observation, allows this application.
9. The learned counsel for the respondent further states that the 'date of default' was long before NPA and thereby multiple default has occurred. Hence, counsel for the respondent states that the right to file this application is in the first date of default i.e. on 12th November, 2016 wherein Axis Bank, one of consortium banker has declared NPA. However, the respondent also states that he petitioner is a lead banker in the consortium of other bankers and the loan was sanctioned as the consortium and the amount due to the Axis Bank declared as NPA on 10 th February 2017 and therefore this application is hopelessly barred by limitation."
16) Further the Learned Counsel for the Appellant submitted that the Hon'ble Adjudicating Authority erroneously allowed the application on wrong presumption that the date of default is mentioned in pleadings, whereas the Respondent Bank and the counsel have misrepresented and mislead the Adjudicating Authority that the date of Non-Performing Assets (NPA) is date of default as observed in Para 6 of the Impugned Order.
17) It is submitted that the date of default and date of Non-Performing Assets (NPA) are entirely two different actions. The Learned Counsel for the Appellant also relied upon Section 137 of the Limitation Act, 1963 which states that the Limitation period starts from the date when the right to apply first accrues. In the present case, the date of Non-Performing Assets (NPA) was taken into consideration as 'date of default'. The first 'date of default' was 12.11.2016 even before as such, the limitation for filing an application under Section 7 of Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 9 Insolvency and Bankruptcy Code, 2016 has already expired in the month of November 2019, whereas the application under Section 7 was filed on 19.12.2019 i.e. after the expiry of limitation period i.e. three years. Therefore, the Section 7 application ought not to have been admitted by the Hon'ble Adjudicating Authority.
18) The Learned Counsel for the Appellant prayed that this Bench to allow the appeal and dismiss the application filed under Section 7 by the 1 st Respondent herein.
RESPONDENT'S SUBMISSIONS:
19) The Learned Counsel appearing for the 1st Respondent filed a detailed Reply to the Appeal and submitted that the Respondent filed the application before the Learned Adjudicating Authority under Section 7 for initiation of CIRP against the 'Corporate Debtor' who committed default in repaying the amount of Rs.52,28,93,796/-.
20) It is submitted that the Respondent No.1 Bank extended various credit facilities to the Corporate Debtor and on 16.02.2007, credit facilities were enhanced to the limit of Rs.18 Crores and further enhanced to Rs.57.97 Crores as on 26.09.2009.
21) The Respondent being leader of the consortium issued a sanction letter dated 02.02.2010 for modification of existing credit facilities which was acknowledged by the Corporate Debtor as per the terms and conditions therein.
A Consortium Agreement was executed by the 'Corporate Debtor' and Joint Deed of Hypothecation on 05.02.2010 was also executed. As stated supra, the 'Corporate Debtor' defaulted in repaying the above said amount in violation of the agreed terms the amount became as Non-performing Asset (NPA) on 27.11.2018 as per Section 13(2) of the SARFAESI Act, 2002. Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 10
22) The Corporate Debtor failed to take steps to regularize the same. The Respondent had issued legal notice calling the advances on 21.05.2019 to the Corporate Debtor which ended no response. The 'Corporate Debtor' jointly and severally liable to pay a sum of Rs.52,28,93,796/- as on 30th November 2019 with interest. It is submitted that Section 7 Application filed by the 1 st Respondent evinces that the application was filed on occurrence of default of debt, due solely to the 1st Respondent herein. Whereas the documents evidencing such debt due to this Respondent including tabulation of dues payable and individual statement of accounts certified under Bankers Books Evidence Act, balance confirmation and revival letter issued by the Corporate Debtor to the Respondent admitting the expenses that debt was produced along with Section 7 Application.
23) It is submitted that the Corporate Debtor has admitted such debt and default. The averments made in OA filed before Debt Recovery Tribunal has no bearing the proceeding under the Insolvency and Bankruptcy Code. The OA was filed before the Debts Recovery Tribunal for and on behalf of Consortium, while Section 7 Application was filed by the 1st Respondent herein individually for debt due to it as provided by Section 7 of the Insolvency and Bankruptcy Code. The date of Non-Performing Assets (NPA) stated by this Respondent and found by the Hon'ble Adjudicating Authority is correct under the scheme of Insolvency and Bankruptcy Code.
24) The Learned Counsel submitted that as per the applicable RBI directives the 1st Respondent declared Non-Performing Assets (NPA) by virtue amount due to it and cannot fall back on the Non-Performing Assets (NPA) declared by another consortium lender i.e. Axis Bank. The provisions of Insolvency and Bankruptcy Code enables this Respondent to file a fresh application under Section Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 11 7 and this Respondent can only rely upon the date of Non-Performing Assets (NPA) as declared by it.
25) Further the Learned Counsel submitted that there is no deliberate intention not to disclose date of default, the date of default has been stated in the pleadings forming part of Form-1. The Hon'ble Adjudicating Authority has satisfied itself with the application which is complete and thereby the Hon'ble Adjudicating Authority also admitted after satisfying that the default has occurred and the application is complete. It is to be held that Form-1 provides for adding additional information for proving the date of default as required and as such the details enclosed/attached along with Form-1 which are liable to be construed as an intrinsic part of Form-1 application.
26) It is submitted that the date of default in respect of Axis Bank's debt is irrelevant as the application filed by this Respondent is in respect of debt under the Working Capital Consortium i.e. for a sum of Rs.52.28 Cores, which arrangement entitles each of the banks to independently enforce its rights arising therefrom. In any event, if the date of default in respect of Axis Bank debt is taken into consideration in as much as there has been a subsequent acknowledgment of liability on 16.08.2018, which extends the period of limitation under Section 18 of the Limitation Act, 1963.
27) The Learned Counsel further submitted that the date of Non-Performing Assets (NPA) was stated in Para 49 of the pleadings forming part of Form-1. The Hon'ble Adjudicating Authority found that date of default is mentioned in the pleadings and also in the documents enclosed along with Section 7 application as observed in Para 8 of the Impugned Order. The additional facts in proof of date and default stated in the attachments/enclosures is a requirement under Form-1 and as such which forms the intrinsic part of the Section 7 Application. Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 12
28) The Learned Counsel for the Respondent further submitted that the Appellant has sought to raise hypothetical objection which is also unsustainable in law and a desperate attempt to escape the consequences of this admitted default. Even in the Judgment in Sh. B. Prashanth Hegde v SBI & Anr relied upon by the Appellant, failure to state the date of default was not fatal to the Financial Creditor's case. In that case, the application was dismissed as the same was hopelessly time barred on merits of that case unlike the instant case. Even assuming without admitting that this Respondent failed to mention the date of default in Form-1, it is a settled position of law that non-mentioning of date of default is only a curable defect. The Hon'ble Adjudicating Authority in Para 8 of the Impugned Order categorically found that the date of Non-Performing Assets (NPA) is 27.11.2018. Further the Hon'ble Supreme Court in M/s. Surendra Trading Co. v M/s.Juggilal Kamlapat Jute Mills Co. Ltd. and ors. Civil Appeal No.8400 of 2017 dated 19th September 2017 held that it will be for the Adjudicating Authority to decide as to whether sufficient cause is shown in not removing the defects beyond the period of 7 days and once the Adjudicating Authority is satisfied that such a case is shown, only then it would entertain the Application on merits. It is clear from the Impugned Order that the Hon'ble Adjudicating Authority based on the pleadings and the oral submissions made by this Respondent was satisfied that sufficient cause is shown for not removing the defects and hence proceeded with admitting the application on merits. Further, the Hon'ble Adjudicating Authority has satisfied itself that ingredients of Section 7(5)(a) is satisfied in toto.
29) The Learned Counsel for the Respondent further submitted that the Hon'ble Adjudicating Authority has entered a finding with respect to default only after a detailed discussion and application of mind. The Hon'ble Adjudicating Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 13 Authority has not ignored the Judgment of the Hon'ble Supreme Court in Laxmi Pat Surana v Union Bank of India. The position discussed in the above Judgment is the case of default in the context of filing of Section 7 application for default by Corporate Guarantor and not Principal Borrower. It is settled position that the limitation starts running from declaration of NPA in the case of borrower.
30) Further, the Learned Counsel for the Respondent submitted that there is no legal bar for filing a separate application under Section 7 by the 1st Respondent herein as the Respondent No.1 is a Body Corporate carrying on the business of Banking and as such is regulated by RBI, a Financial Sector Regulator. It is submitted that the applicable RBI directives bind this respondent to declare Non- Performing Assets (NPA) of an overdue account and cannot fall back on the NPA declared by a Consortium Lender (RBI Master Circular RBI/2015-16/101 dated 1st July 2015).
31) The Learned Counsel further submitted that the application filed by the 1 st Respondent is within three years from the date of Non-Performing Assets (NPA), hence it is within the period of limitation. It is also evident form the balance confirmation filed by this respondent and along with this reply and revival letter was issued within three years from the date on which the subject matter account of the Corporate Debtor was declared as Non-Performing Assets (NPA) by this Respondent. As such, the same would give rise to a fresh period of limitation, in so far as they contain an acknowledgement of debt along with a promise to pay. The appellant has conveniently suppressed the existence of the balance confirmations and revival letters which would amount to acknowledgement of debt for the purpose of Section 18 of the Limitation Act, which further extends period of limitation. The Appellant has not even produced the entire set of documents forming part of Section 7 Application including balance confirmation Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 14 and revival letters despite heavily pressing on the argument that the application is barred by limitation. This Respondent has produced herewith the balance sheet of the appellant for the financial year ended on 31.03.201 whereby the debt is acknowledged for the purpose of Section 18 of the Limitation Act.
32) The Learned Counsel submitted that the Impugned Order does not suffer from any legal infirmity. In view of the submissions as made by this Respondent the appeal filed by the Appellant is devoid of merits and liable to be dismissed.
33) Accordingly, it is prayed that the Appeal may be dismissed. Appraisal/Analysis
34) Heard the Learned Counsel for the Appellant and the Respondent perused the documents, pleadings and reliances placed in support of their case. After analyzing the pleadings, the only issue felt for consideration is whether the appellant has made out any prima-facie case to allow this Appeal.
35) The contention of the Learned Counsel for the Appellant that the date of default has not been mentioned in the Form-1 filed before the 'Adjudicating Authority', therefore the application filed under Section 7 is defective and the same ought not to have admitted by the 'Adjudicating Authority'.
36) We have gone through the Impugned Order passed by the Adjudicating Authority, the Adjudicating Authority at Para 8 observed as under:
"8. It appears that the said date 30.11.2019 is not the date of default but it is the date in which the said sum is due to the Financial Creditor. Except this description, date of default is not mentioned and some correction is seen to have made which has not been authenticated. Therefore, we hold that date of default is omitted from the relevant column. On a query, the learned counsel for the Financial Creditor has stated that the date of default is date of NPA i.e. 27.11.2018. The Learned Counsel for the Corporate Debtor, however maintained that the date of default is Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 15 12.11.2016. While reserving the order, this Adjudicating Authority had given opportunity for filing their respective written submissions in order to substantiate their arguments. In the above application, the "date of default" in the relevant column has not been deliberately typed by the applicant. It is also brought to the notice of this Adjudicating Authority which the counsel for the Applicant has not mentioned even in the written submission. However, the "date of default" has been mentioned in the pleadings of the application. It is important that "date of default" ought to be mentioned in the Column Part-IV of the application as per the NCLT Rules, 2016. It is clearly in violation of the same. It is very unfortunate to know that a nationalized banker with a huge outstanding Rs.52,28,93,796/- due and payable and the respondent admitted debt and default, the applicant-bank ought to take bare minimum requirement of filling up the application in the proper format. In spite of bringing this to the notice of the applicant and the counsel for applicant, we do not find any reason as to why the applicant does not want to rectify the mistake in this column regarding "date of default". This raises a question in the mind, whether are there any collusion between the applicant and the respondent? Be that as it may, since the "date of default" mentioned in the pleadings and also in the documents enclosed along with this application, this Adjudicating Authority in spite of the above observation, allows this application.
9. The learned Counsel for the respondent further states that the "date of default" was long before Non-Performing Assets (NPA) and thereby multiple default has occurred. Hence, counsel for the respondent states that the right to file this application is in the first date of default i.e. on 12 th November 2016 wherein Axis Bank, one of consortium banker has declared Non-Performing Assets (NPA). However, the respondent also states that the petitioner is a lead banker in the consortium and the amount due to the Axis Bank declared as NPA on 10th February 2017 and therefore this application is hopelessly barred by limitation."
37) Taking into consideration the decision of the Hon'ble Supreme Court in Civil Appeal No.9198 of 2019 in the matter of Sesh Nath Singh & Anr. V Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 16 Baidyabati Sheoraphuli Co-operative bank Ltd. & Anr. reported in, whereby the Hon'ble Supreme Court held that the Limitation Act would apply to the Proceedings under the Insolvency and Bankruptcy Code before the National Company Law Tribunal and National Company Law Appellate Tribunal's and relying upon the Judgment, the Adjudicating Authority admitted the application and initiated CIRP Proceedings.
38) The Learned Counsel for the Appellant contended that the above Judgment in the matter of Sesh Nath Singh & Anr. V Baidyabati Sheoraphuli Co-operative bank Ltd. & Anr. is out of context and the Learned Adjudicating Authority ought not to have relied upon the said Judgment. However, we are inclined to discuss the instant appeal on its merit, leaving it open to deliberate upon the decisions of the Hon'ble Supreme Court. It is contended by the Learned Counsel for the Appellant that there is no finding on the point of omission of date of default in Part 4 of Form-1. In this regard, the Adjudicating Authority in Para 8 of the order was of the view that date of default has been mentioned in the pleadings of the application and observed that the date of default ought to be mentioned in the prescribed column of Part IV of the application as per the NCLT Rules, 2016.
39) Insolvency and Bankruptcy Code and Rules thereof prescribes for filing of an application by the Financial Creditor either by itself or jointly to initiate the Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code. However, the Financial Creditor need to file application in a prescribed Form as per Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Rule 4 of the said rules a Financial Creditor may file an application under Section 7 of the Code in Form-1 accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 17 Regulations, 2016. In Form-1 Part-I prescribes particulars of applicant, Part II prescribes particulars of Corporate Debtor, Part III prescribes particulars of proposed Interim Resolution Professional, Part IV prescribes particulars of financial debt and Part V prescribes particulars of financial debts (documents, records and evidence of default). We have also perused the application in Form- 1 filed before the Adjudicating Authority wherein it is stated in Part IV Col.II against the amount claimed to be in default and the date on which default occurred (attached the workings for competition of amount and dates of default in tabular form), the Financial Creditor, (the Respondent herein) filled the same as "Amount defaulted by the Corporate Debtor is Rs.52,28,93,796 as on 30th November 2019 that the further interest and no other charges, less recovery if any. The tabulation of dues and individual statement of accounts, in respect of each facilities duly certified under the Bankers Books of Evidence Act, includes in Annexure-I. From the above column it is seen that the respondent mentioned the amount in default further there is no date mentioned in this particular column regarding occurrence of default. However, Col.8 of Part V in Form I which provides that "List of other documents attached to this application in order to prove the existence of financial debt, the amount and date of default". It is seen that the respondent herein has enclosed fact sheet relating to details of debt granted and default made by the Corporate Debtor. The date of NPA is mentioned as 28.11.2018, however the Learned Counsel for the Respondent contended that there is a typographical error that instead of 27.11.2018 by mistake the date has been mentioned as 28.11.2018 and from many other documents, the date of default is shown as 27.11.2018 in support of the said date of default, there are other documents filed to establish the date of default is 27.11.2018.
Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 18
40) It is also evident from the SARFAESI Notice issued under Section 13(2) by the Financial Creditor dated 28.01.2019 to the Corporate Debtor in schedule 'A' at Page 701 of Appeal Paper Books, Column I, the Financial Creditor Bank, the date of Non-Performing Assets (NPA) shown as 27.11.2018. Further the OA filed before the DRT-II at Chennai by the Consortium of Banks in the list of Non- Performing Assets (NPA) in respect of R1 it is shown as 27.11.2018. Therefore, it is evident that the date of default is 27.11.2018, though it did not mention in Part IV of Form-1. However, from the pleadings and documents, it is evident that the date of default is 27.11.2018. Further in Column 8 of Part V in Form-1, the applicant is entitled to attach documents along with Form to prove the existence of Financial Debt, the amount and date of default. Therefore, we presume that the applicant, Financial Creditor complied with the procedure as prescribed in Form-
1.
41) The Learned Counsel for the Appellant submitted that the non-mentioning of the date of default is fatal in admitting the application under Section 7 of the Act, since it is a Directory as per the decision of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC. We would like to reiterate the Provision of Law with regard to the instant issue i.e. Section 7 (5)(a) and (b). Sub Section 5(a) reads thus, where the Adjudicating Authority is satisfied that:
(a) a default has occurred and the application under sub section 2 is complete, and there is no disciplinary proceedings pending against the proposed Resolution Professional, it may, by order, admit such application; or Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 19
(b) default has not occurred or the application under sub section 2(2) is incomplete or any disciplinary proceeding is pending against the proposed Resolution Professional, it may by order, reject such application.
Provided that the Adjudicating Authority shall, before rejecting the application under clause b of sub section 5, give a notice to the applicant to rectify the defect in his application within 7 days of receipt of such notice from the Adjudicating Authority.
(c) From the Provision of Law it is clear that if there is a defect/incompletion in the application, the Adjudicating Authority before rejecting shall give a notice to the applicant to rectify the defect in his application within 7 days of receipt of such notice from the Adjudicating Authority. The Learned Counsel for the Appellant submitted that as per Sub Clause (b) of Sub Section 5 of Section 7 the respondent /Financial Creditor has not complied with the said mandate and therefore the application ought to have been rejected. In this regard, we would like to emphasize the decision of the Hon'ble Supreme Court in Innovative Industries Ltd. v. ICICI Bank and Anr. reported in (2017) AIR SC 4084. The Hon'ble Supreme Court while dealing with Section 7 at Para 28 has categorically held that '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 the default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the Application to rectify the notice within 7 days from the date of notice from the Adjudicating Authority".
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42) In this regard, this 'Tribunal' would like to emphasize that the Financial Creditor has filed sufficient proof of documents as evidence showing the date of default committed by the Corporate Debtor and the Adjudicating Authority has taken into consideration the same and admitted the Application. Even as per Clause 8 of Part V in Form 1 the Form prescribes the list of other documents to be enclosed/attached along with the application in order to prove the existence of financial debt, the amount and date of default. As discussed above, the Financial Creditor enclosed documents showing the date of default and existence of debt by producing the documents which have not been disputed by the Corporate Debtor. Even the OA filed by the Consortium of Banks before the DRT expressly show the date of default shown by the Financial Creditor. Therefore, this 'Tribunal' is of the view that the Financial Creditor has shown the date of NPA by providing the documents which is an evidence admissible in law.
43) In this regard, the Judgment of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC is relevant to show that the Provisions of Section 7 (5) are directory in nature as held by the Hon'ble Supreme Court in Para 25.
44) The next contention of the Learned Counsel for the Appellant is that there is a consortium banks and as per the said consortium, the first date of default and date of Non-Performing Assets (NPA) is of the Axis Bank i.e. the date of NPA is 10.02.2017. As per the RBI Framework for revival and rehabilitation of Micro, Small and Medium Enterprises (MSME) dated 17th March 2016, as per Clause 2.1 the identification by Banks or Creditors regarding a loan account of MSME terms comes into a NPA, the Banks or the Creditors should identify incipient Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 21 stress in the account by creating three sub categories and the special mention account (SMA) category as given in the table below.
SMA Sub-Categories Basis for classification
SMA-0 Principal or interest payment not
overdue for more than 30 days but
account showing signs of incipient
stress (Please see Annex-1)
SMA-1 Principal or interest payment overdue
between 31-60 days
SMA-2 Principal or interest payment overdue
between 61-90 days.
On the basis of the above, it is submitted that before declaring NPA if there is a continuous default for more than 90 days the Banks/Financial Creditors may declare the Corporate Debtor's account as NPA. Therefore, the Learned Counsel for the Appellant submitted that the date of NPA cannot be taken into consideration for the purpose of default as defined in Section 3(12). Section 3(12) defines date of default means non-payment of debt when whole or any part or 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. The Learned Counsel for the Appellant heavily relied upon the Judgment of the Hon'ble Supreme Court in the matter of Laxmi Pat Surana v Union Bank of India and Anr. reported in 2021 SCC online SC 267. The Hon'ble Supreme Court after analyzing the earlier decisions of the Hon'ble Supreme Court summed up the position in the following words at para 37 "32. When Section 238-A of the Code is read with the above noted consistent decisions of this Court in Innoventive Industries, Jignesh Shah, Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 22 Vashdeo R Bhojwani, Guarav Hargovindhbai, Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore:
1) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation;
2) that CIRP is not intended to be adversarial to the Corporate debtor but is aimed at protecting the interests of the corporate debtor;
3) that intention of the Code is not to give a new lease of life to debts which are time-barred;
4) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years form the date when right to apply accrues;
5) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that he right to apply under the Code accrues on the date when default occurs;
6) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and
7) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and
8) an application under section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application."
45) It is a settled law that Article 137 of the Limitation Act, 1963 applicable to Section 7 for the purpose of initiation of CIRP against the Corporate Debtor and therefore, three years period from the date when the right to apply accrues.
Further, the Hon'ble Supreme Court in re Laxmi Pat Surana held at para 42 of the Judgment that Section 7 comes into play when the Corporate Debtor commits default. Section 7 consciously uses the expression default-not the date of notifying the loan account of the Corporate persons as NPA. Further, the Hon'ble Supreme Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 23 Court is of the view that, the date of default is not the date of NPA. The Learned Counsel for the Appellant submitted that the first date of default of the Axis Bank is 10.02.2017 and if 90 days prior to the date of NPA is to be taken into consideration as per the Master Circular of the RBI, the actual date of default is 12.11.2016 and applying the law of limitation i.e. Section 137 of Limitation Act, 1963, the application filed by the Respondent herein on 19.12.2019, which is beyond period of three years and the application is liable to be dismissed on the ground of barred by limitation.
46) This 'Tribunal' is bound by the decisions of the Hon'ble Supreme Court being the Law of the Land and also with respect to the above settled position of law with regard to applicability of law of limitation to the Provisions of the Code particularly with respect to default as defined in Section 3(12) and the provisions of Section 7(5) (a) and (b) of IBC as held by the Hon'ble Supreme Court in the above decision. The Bone of Contention of the Learned Counsel for the Appellant is that the first default of Consortium of Bank i.e. Axis Bank is to be taken into consideration for the purpose of triggering CIRP against the Corporate Debtor. Findings:-
47) This 'Tribunal' deal with the issues as raised by the Learned Counsel for the Appellant, the facts of the present case and law applicable to it. In the present Appeal, though the first date of NPA is with respect to Axis Bank i.e. 10.02.2017.
However, the RBI circulars/Directives provides filing of independent application by the Financial Creditor i.e. the SBI before the Adjudicating Authority (NCLT) under Section 7 of the IBC. Accordingly, the Applicant the 1st Respondent herein filed application under Section 7 of the IBC for initiating the CIRP against the Corporate Debtor independently taking into the date of NPA/default and the amount of debt and default. There is no dispute with regard to the existence of Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 24 debt and default committed by the Corporate Debtor. However, there is only an objection raised with respect to omission to mention the date of default in Part IV of Form 1 filed before the Adjudicating Authority. It is evident from the records that the date of NPA of the SBI is 27.11.2018 and the application filed by the Financial Creditor on 19.12.2019 even if the 90 days period prior to NPA is taken into consideration for the purpose of deciding default as per the Judgment of the Hon'ble Supreme Court in Re Laxmi Pat Surana, the application is within the period of limitation. Further, this 'Tribunal' hold that omission to mention date of default in Col.2 Part IV in Form 1 is not fatal to the application. As we are of the view that as per Col.8 of Part V in Form 1 regarding particulars of Financial Debt documents, records and evidence of default to be attached, the Financial Creditor has shown sufficient documentary evidence to establish the date of NPA i.e. 27.11.2018 and the Adjudicating Authority has taken note of the same and admitted the application. This 'Tribunal' do not find any illegality in admitting the application.
48) This 'Tribunal' have also perused the agreement dated 05.02.2010 of the consortium banks. In Page 72 Volume I of Respondent Typed set Papers Article I Para 4 states that "The rights signed application of each of the said Banks are several and failure of any one or more than of the said banks to perform its or their application in respect of the said banks does not relieve or absolve the other members of the Bank consortium of the borrower of their or its received applications. Further in Article 5 at Page 92 Sub Clause 3 it is stated that the Borrower hereby agrees to pay to each of the said banks as may be directed by the said banks, all of us, charges and expenses (actually incurred as between attorney and claim) incurred by the said banks or any of them for the preservation Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 25 protection and perfection of the security agreed to be created and/or for admitted to actual realization or enforcement thereof".
49) In this regard, the Learned Counsel for the Appellant vehemently contended that as per the master circular (prudential arms of income recognition, asset classification and provision pertaining to advances Clause 2.1 specifies Non-Performing Assets (NPA) Clause 2.1.2 of Non-Performing Assets (NPA)is a loan or an advance where
(i) Interest or instalment of principal remained overdue for a period of more than 90 days in respect of term loan.
To say actual default to be taken into consideration 90 days prior to date of NPA.
50) Further, this 'Tribunal' are of the view that debt of Axis Bank is irrelevant as the application filed by the Respondent No.1, SBI is in respect of its debt under the Working Capital Consortium for a sum of Rs.52.28 Crores and the said arrangement entitles each of the case independently enforced its rights arising therefrom, this 'Tribunal' also seen the acknowledgement given by the Corporate Debtor dated 16.08.2018 whereby the Corporate Debtor clearly admitted as under
in page 534 of Vol.3 Respondent's Type Set of Papers:
"We do hereby acknowledge for the purpose of Section 18 of the Limitation Act, 1963 and in order to preclude any question being raised on limitation regarding our liability to your Bank and the Member Banks for the payment of the outstanding amounts in respect of the present as well as future indebtedness and liabilities under the said action credited amounts or other amounts together with interest, compound interest, additional interest, liquidated damages, cost, charges, expenses and other money in terms of the said Working Capital Consortium Agreement, our liability shall remain in full force that of related securities, agreements and obligations as mentioned therein."
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51) In view of the above acknowledgement dated 16.08.2018 given by the Corporate Debtor the period of limitation also can be extended under Section 18 of the Limitation Act, 1963 and the Hon'ble Supreme Court in Laxmi Pat Surana held that: "a subsequent acknowledgement to extend the limitation, being a fresh date of default of date. Even taking into consideration, the limitation period of three years from 16.08.2018, the application filed on 19.12.2019 is well within the period of limitation.
52) Further the Learned Counsel for the Appellant relied upon the Judgment of the Hon'ble Supreme Court in Surendra Trading Co. v Juggilalkamlapat Jute Mills Co., 2017 85 taxmann.com 372 SC to show that the timelines under Section 7(5) of the Insolvency and Bankruptcy Code are not mandatory however the defect has still to be removed. As stated above, the Respondent/Financial Creditor had stated the date of default in the pleadings and in other documents which the Corporate Debtor has received and acknowledged, therefore as held supra the non-mentioning of the date of default in Col. IV is not fatal to the application and on the sole ground, the application cannot be rejected mere taking a technical impediment as held by the Hon'ble Supreme Court that 'it is only a directory'. Conclusions :-
53) For the aforesaid reasons, this Tribunal is of the firm opinion that the Appeal is devoid of merits and liable to be dismissed. Accordingly, the same is dismissed. No Orders as to Cost.
[Kanthi Narahari] [Justice M. Venugopal] Member (Technical) Member (Judicial) Chennai 22.11.2021 SE Comp App (AT) (CH) (INS) No. 97 of 2021 Page | 27