National Company Law Appellate Tribunal
G.Sundaravadivelu vs Indian Overseas Bank on 27 June, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
Company Appeal (AT) (CH) (INS.) No. 143 of 2022
(Under Section 61 (1) of the Insolvency and Bankruptcy Code, 2016)
(Arising out of the `Order' dated 13.04.2022 in
IBA /49 /2019, passed by the `Adjudicating Authority',
(`National Company Law Tribunal', Special Bench - II, Chennai)
In the matter of:
Mr. G. Sundaravadivelu
Suspended Director of
INMA International Limited
Residing at No. 39,
Sundareswaran Kovil Street,
Mylapore, Chennai - 600004 .... Appellant
v.
Indian Overseas Bank
Rep. by its Assistant General Manager,
Cathedral Branch,
No. 762, Anna Salai,
Chennai - 600002 ..... 1st Respondent /
Financial Creditor
INMA International Limited
Through its Interim Resolution
Professional,
Mudappallur Varieth Gangadharan
No. 341, 6th Floor, Khaleel,
Shirazi Estate (Fountain Plaza)
Pantheon Road, Egmore,
Chennai - 600008 ..... 2nd Respondent /
Corporate Debtor
Present:
For Appellant : Mr. J. Sivanandaraaj, Senior Advocate
For Mr. Bharadwaja Ramasubramaniam
Advocate
Comp. App (AT) (CH) (INS) No. 143 of 2022
Page 1 of 85
For Respondent No. 1 : Mr. F.B. Benjamin George, Advocate
For Respondent No. 2 : Mr. B. Thilak Narayanan, Advocate
JUDGMENT
(Physical Mode) Justice M. Venugopal, Member (Judicial):
Introduction:
The Appellant has preferred the instant Comp. App (AT) (CH) (INS.) No. 143 of 2022, on being dissatisfied with the `impugned order' dated 13.04.2022 in IBA / 49 / 2019 (Filed by the `1st Respondent / Financial Creditor / Bank / Petitioner'), under Section 7 of the I & B Code, 2016, r/w Rule 4 of the I & B (AAA) Rules, 2016, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai).
2. While passing the `impugned order', dated 13.04.2022 in IBA / 49 / 2019 (Filed by the `1st Respondent / Financial Creditor / Bank / Petitioner' - under Section 7 of the I & B Code, 2016, r/w Rule 4 of the I & B (AAA) Rules, 2016), the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai), among other things, at Paragraph Nos. 6 to 16, had observed the following:
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 2 of 85
6. ``It was submitted by the Learned Counsel for the Applicant that the Financial Creditor had caused demand notice dated 27.01.2015, under SARFAESI, Act to the Corporate Debtor with the request to pay a sum of Rs.16,51,98,135.20/- (Rupees Sixteen Crore Fifty-One Lakh Ninety-Eight Thousand One Hundred Thirty Five and Twenty Paise only) as the outstanding amount as on date of notice together with future interest thereon at the contractual rate. Since, the Corporate Debtor has not replied to the demand notice the Financial Creditor had taken possession of the property mortgaged on 28.07.2015 and issued possession notice to the Corporate Debtor, against which the Corporate Debtor has not taken any action, which shows the Corporate Debtor has no grievance against the action of the Financial Creditor.
7. Thereafter, the Corporate Debtor had requested the Financial Creditor to stop the e-auction process vide letter dated 31.12.2015 and to consider the one-time settlement proposed in the letter dated 27.1.2015. Pursuant to the Financial Creditor permitted the Corporate Debtor to operate the account within the existing limit of Rs.11.25 crore (Rupee Eleven Crore Twenty-Five Lakh only) subject to the payment of Rs.5.57 crore (Rupees Five Crore Fifty-
Seven Lakh only) along with the approximate interest of Rs.25 lakh (Rupees Twenty-Five Lakh only) on or before 10.01.2016.
8. It was further submitted that the Financial Creditor has not accepted the OTS proposal of the Corporate Debtor and advised the Corporate Debtor to pay the amount immediately. In turn, the Corporate Debtor has filed S.A. No. 20 of 2016, before the DRT - III, Chennai and obtained an order (13.01.2016) against the Financial Creditor to stay all proceedings pursuant to the sale notice dated 19.12.2015, subject to the condition that the CD has to remit Rs.1 Crore to the credit of the loan account on or before 24.01.2016 and a further sum of Rs.3.5 crore (Rupees Three Crore Fifty Lakh only) to the credit of the loan account on or before 10.02.2016.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 3 of 85
9. It was further submitted that the Corporate Debtor has complied with the above order, but failed to pay the balance amount as undertaken. After that, the Corporate Debtor requested for OTS Rs.14 crore (Rupees Fourteen Crore only) as offered earlier vide letter date 22.08.2016, which was again denied by the Financial Creditor.
10. It was further submitted that the Corporate Debtor nowhere denied availment of the loan and classification of the loan as NPA and in the series of communication exchanged between the Financial Creditor and the Corporate Debtor, the former demanded to pay the outstanding.
11. It was further submitted that the Corporate Debtor had filed the writ petition WP No.1421 of 2017, against the Financial Creditor regarding mistakes in the CIBIL report which were also dismissed by the Hon'ble High Court of Madras after rectifying the mistake in the report. In such circumstances, the Financial Creditor preferred this application and sought initiation of CIRP against the Corporate Debtor for the non-payment of the outstanding amount of Rs.14,08,75,444.17/- (Rupees Fourteen Crore Eight Lakh Seventy-Five Thousand Four-Hundred Forty- Four and Seventeen Paise only).
12. On the other hand, the Learned Counsel Appeared on behalf of the Corporate Debtor submitted in the counter that the application OA No.633 of 2016 filed by the Financial Creditor and the Securitization Application filed by the Corporate Debtor were pending before the DRT - II, Chennai Bench.
13. It was further submitted that in the writ petition WP No. 1421 of 2017, the Hon'ble High Court of Madras has given liberty to the Corporate Debtor to claim damages against the Financial Creditor for the mistake the made in the CIBIL score of the Corporate Debtor.
14. Subsequently, the Corporate Debtor filed a counterclaim in C.C. No.6 of 2018 in OA No.633 of 2016 before DRT - II Chennai, Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 4 of 85 wherein vide order dated 30.05.2019. DRT held that the Financial Creditor is not entitled to any interest for the financial facilities sanctioned to the Corporate Debtor from the date of sanction till the date of filing OA No.633 of 2016 and directed the Financial Creditor to adjust the payment made by the Corporate Debtor towards the principal amount from the date of sanction of the financial facilities till the date of the order and if there was any balance in the principal amount, the Financial Creditor is entitled to recover that with the interest at the rate of 6% per annum. The key issue is on the rate of interest.
15. It was further submitted that as per the order passed by the DRT-II Chennai vide order dated 30.05.2019, in C.C.No.6 of 2018 and OA No.633 of 2016 there are no dues or outstanding payable by the Corporate Debtor to the Financial Creditor and hence sought dismissal of this application.
16. It was further submitted by the Learned Counsel for the Corporate Debtor in the written submission that in the appeal preferred by the Financial Creditor against the above said DRT order, the DRAT, Chennai vide its order dated 14.11.2019, held that the Financial Creditor herein is entitled for 9% rate of interest on due amount from the sanction till realisation of the credit facility and rejected the counterclaim of the Corporate Debtor. Aggrieved by the order of DRAT the Corporate Debtor had filed WP No.33396, 33398 & 33399 of 2019 before Hon'ble High Court of Madras wherein interim injunction has been granted in favour of Corporate Debtor in the order dated 04.12.2019, which was further extended and still in force.'' and ultimately, came to the conclusion that the `debt and default', is clear from para 9, and admitted the `Application', under Section 7 of the I & B Code, 2016, appointed an `Interim Resolution Professional', and declared `Moratorium', etc. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 5 of 85 Background Facts:
3. The Learned Counsel for the `Appellant' / `Suspended Director' of the `Corporate Debtor' (`INMA International Limited'), submits that the `2nd Respondent' / `Corporate Debtor', had availed `MCC Facility', to the tune of Rs.13 Crores, for which, an `Account', was opened (vide No. 010902000970864). Moreover, the `2nd Respondent' / `Corporate Debtor', had executed `Loan Document', and mortgaged `Properties', worth Rs.32 Crores. Also that, the `2nd Respondent' / `Corporate Debtor', had defaulted in making payments to the `1st Respondent', as its `Vendor', defaulted in their payments. Besides this, in terms of the `Demand Notice', dated 27.01.2015, issued by the `1st Respondent / Bank', to the `2nd Respondent' / `Corporate Debtor', the `2nd Respondent' / `Corporate Debtor's Account', was declared as a `Non Performing Asset', on 30.12.2014.
4. According to the Appellant, the 1st Respondent / Bank, had directed the 2nd Respondent / Corporate Debtor, to clear the `Due Outstanding', and that the 2nd Respondent / Corporate Debtor, had approached various Banks, including the `New India Co-operative Bank', for taking over the `Loan', by clearing the `Dues', payable to the 1st Respondent / Bank.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 6 of 85
5. It is the version of the Appellant that the 1st Respondent / Bank, had misused the `Collateral', provided by the `2nd Respondent / Corporate Debtor', and wanted to ensure that the `Loan', is not serviced so that the mortgaged properties can be sold in auction at a throw away price to the land sharks who have a mutual beneficial understanding with the `Bank' officials.
6. The Learned Counsel for the Appellant points out that the `1st Respondent / Bank / Financial Creditor', made a `false reporting' of a `non-existent account to Credit Information Bureau of India Ltd (CIBIL) which showed the dues of the `Corporate Debtor' at Rs.32 Crores when the actual dues were only about Rs.14 Crores. Therefore, the `Corporate Debtor', approached the High Court praying for CBI Investigation and while passing Orders on 13.11.2017 in W.P. No. 1421 of 2017, the Hon'ble High Court held that the Bank was at fault in making the incorrect reporting to CIBIL and though CBI Investigation is not required the `Corporate Debtor', was entitled to proceed against the `Financial Creditor', for damages in `Torts' and hence, the `Corporate Debtor', had filed a `counterclaim' for Rs.30 Crores in O.A. No. 633 of 2016, on the file of Debt Recovery Tribunal - II, Chennai.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 7 of 85
7. The Learned Counsel for the Appellant submits that on 10.09.2018, the 1st Respondent / Bank, filed an `Application', in IBA/49/2019, before the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai - under Section 7 of the I & B Code, 2016, r/w Rule 4 of the I & B (AAA) Rules, 2016), against the `Corporate Debtor', claiming a Sum of Rs.14,08,75,444.17/-.
8. According to the Appellant, the `Debt Recovery Tribunal - II, Chennai, has passed `Common Final Orders', on 30.05.2019, in O.A.No. 633 / 2016, filed by the `1st Respondent / Bank', and in `counterclaim' No. 6 of 2018, filed by the `Corporate Debtor', holding that the `1st Respondent / Bank', is entitled to recover only the `Principal Amount' from the `Corporate Debtor' and that in view of the wrong reporting to CIBIL which had caused loss to the Corporate Debtor, that the `1st Respondent / Bank', is not entitled to charge any interest in the `Loan Account'.
9. The Learned Counsel for the Appellant, submits that the 2nd Respondent / Corporate Debtor, had made payments in excess to the tune of about Rs.2 Crores to the `1st Respondent / Bank', as per the Debt Recovery Tribunal's Final Order, dated 30.05.2019. However, the 1st Respondent / Bank, disputed the same and filed a Statement of Accounts Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 8 of 85 before the `National Company Law Tribunal', Chennai, in IBA/49/2019 on 03.08.2019 stating that, still a Sum of about Rs.52,93,874.05/- is due even as per the Final Order of the Debt Recovery Tribunal - II, Chennai.
10. The Learned Counsel for the Appellant, brings to the notice of this `Tribunal', that the `Corporate Debtor', had made the payment of Rs.52,93,875/- to the `1st Respondent / Bank', without prejudice to its rights, on 21.08.2019 and from the date of `Non Performing Asset', the `2nd Respondent / Corporate Debtor', had paid a Sum of Rs.14.13 Crores and therefore, the entire amount as held to be payable and claimed to be payable by the `1st Respondent / Bank', has been paid in full and there is no `aspect of default', on the part of the `2nd Respondent / Corporate Debtor'.
11. The Learned Counsel for the Appellant submits that being dissatisfied with the `Final Order' of the `Debt Recovery Tribunal - II, Chennai, dated 30.05.2019, the `1st Respondent / Bank', had preferred `Appeals', before the `Debt Recovery Appellate Tribunal', Chennai, in RA No. 110 and 111 of 2019, and the `Corporate Debtor', had also preferred an `Appeal', as against the `Dismissal' of the `counterclaim', in RA No.138 of 2019. In fact, on 14.11.2019, the Debt Recovery Appellate Tribunal, Chennai, had passed Final Orders, dated 14.11.2019, holding Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 9 of 85 that the `Financial Creditor', is entitled to charge `Interest', on the `Loan Accounts', from the date of `Sanction', @ 9% and thereby modifying the `Final Order' of the `Debt Recovery Tribunal', to that extent and affirmed the `Dismissal' of the `Counterclaim', filed by the `Corporate Debtor'.
12. The Learned Counsel for the Appellant, points out that the 2nd Respondent / Corporate Debtor, in respect of the `Common Order', passed by the Debt Recovery Appellate Tribunal, Chennai, dated 14.11.2019, had filed W.P. Nos. 33396, 33398 and 33399 of 2019, before the Hon'ble Madras High Court, along with a Miscellaneous Petition, seeking for an `Order' of `Interim Injunction', restraining the `1st Respondent / Bank', from taking any coercive steps, against the `2nd Respondent / Corporate Debtor', or its `Properties', pending disposal of the main Writ Petition.
13. The Learned Counsel for the Appellant, takes a stand that the Hon'ble Madras High Court, after taking into account of the `Application', filed under Section 7 of the I & B Code, 2016 in IBA/49/2019, that was pending before the `National Company Law Tribunal', Chennai, and the `Common Order' of the `Debt Recovery Appellate Tribunal', dated 14.11.2019, in RA No. 110 & 111 of 2019 and RA No. 138 of 2019, was pleased to grant an `Order of Interim Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 10 of 85 Injunction', as prayed for, till 20.01.2020, by an `Order' dated 04.12.2019, and later, was pleased to extend the same, until `further Orders', by an Order dated 28.02.2020. As such, the `Interim Order', as granted by the Hon'ble Madras High Court, is still in force.
14. The Learned Counsel for the Appellant, comes out with a plea that the 1st Respondent / Bank, had assailed the Debt Recovery Appellate Tribunal's Final Order dated 14.11.2019, contending that the Interest Awarded is low in WP Nos. 3412, 3419 & 3427 of 2020.
15. The Learned Counsel for the Appellant, submits that in W.P. No. 33396 of 2019, the Hon'ble High Court had granted the widest protection to the Petitioners, by an `Order of Injunction', restraining the 1 st Respondent from initiating any coercive actions against the Petitioners in the Writ Petition, effectively suspends the 1st Respondent's right to seek recovery against certificate and by preventing them from proceeding with the `National Company Law Tribunal's proceedings'. Hence, `Recovery Certificate', was not issued, as per Section 19 (22) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and `Liability', if any, was not crystallised in `Law' and therefore, in `Law' and in `Fact', no `Liability' existed.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 11 of 85
16. The Learned Counsel for the Appellant contends that the `Adjudicating Authority', had erroneously admitted the `Application', through the `impugned order', dated 13.04.2022, at the instance of the `1st Respondent / Bank', without determining, whether any `Debt', is `Due and Payable'. Also that, the `Adjudicating Authority', had not even ascertained, whether any `Debt' existed, and instead presumed the `existence of Debt'.
17. According to the `Appellant', the whole decision, was based on a `Stale One Time Settlement Offer', provided by the `2nd Respondent / Corporate Debtor', which was filed in the year 2016, when the `2nd Respondent / Corporate Debtor', had paid huge sums of money, subsequently in numerous proceedings, including the Proceedings, before the `Adjudicating Authority', and thus mentioned in the `Affidavits', filed by the `1st Respondent / Bank', before the `Adjudicating Authority', and in fact, had cleared the `Entire Liability' (pending determining of the `Actual Liability', albeit), and this fact, was taken note of, by the Hon'ble High Court in its Order dated 04.12.2019. However, the `Adjudicating Authority' / `Tribunal', had failed to consider the subsequent repayments, that cleared the `Entire Liability', and other factors, such as the `Financial Position' of the `Corporate Debtor'.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 12 of 85
18. The Learned Counsel for the Appellant submits that in Contempt Petition No. 1260 / 2022, the Hon'ble High Court recorded the earlier `Order', and an `Undertaking' of the `1st Respondent / Bank', to maintain `Status Quo', until `further orders'.
19. The grievance of the Learned Counsel for the Appellant, is that, despite the `Interim Order' dated 04.12.2019 of the Hon'ble High Court and an `Undertaking', not to take coercive steps against the `Appellant' and the `2nd Respondent / Corporate Debtor', while the matter is pending before the `Tribunal', the `1st Respondent / Bank', took steps, to secure an `Order of Admission', in the `I & B Code proceedings', and through the `Resolution Professional', took over the Management and Possession of the Official Premises of the `2nd Respondent / Corporate Debtor'.
20. The plea of the Appellant, is that, because of the interdiction of the Hon'ble High Court's Order dated 04.12.2019, restricting the 1 st Respondent / Bank's right of `Recovery', the `2nd Respondent / Corporate Debtor's Resolution Professional', appointed on 13.04.2022, on the purported basis of the `1st Respondent / Bank's Subsisting Right to Recover', cannot be heard to countenance the binding nature of the High Court's Order dated 04.12.2019, on the `Resolution Professional / 2nd Respondent'.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 13 of 85
21. The Learned Counsel for the Appellant proceeds to point out that because of the continuance of the Order dated 04.12.2019 and the suspension of the 1st Respondent's right of `Recovery' vis-à-vis, the `Corporate Debtor', the `Order', admitting `IBA/49/2019', as on 13.04.2022 (during the operation of the Interim Order dated 04.12.2019 and when the 1st Respondent / Bank's right of recovery vis-à-vis, among other things, the `Corporate Debtor', was suspended / interdicted, is without jurisdiction and in `Breach' of the `High Court's Order', since admittedly the 1st Respondent / Bank, as on 13.04.2022, had a right to `recover' the `Debts', stated to be given to the `Corporate Debtor', as no `Debt' or `Default' exists.
22. In effect, the contention advanced on behalf of the Appellant is that, the Petition in IBA/49/2019, on the file of the `Adjudicating Authority' / `Tribunal', could not have been and ought not to have admitted on 13.04.2022 or any other date after 04.12.2019, when the Order of the Hon'ble High Court, interdicting the `1st Respondent / Bank's right to recover, continued and further that the Appellant has filed the instant `Appeal', being dissatisfied with the `impugned order', dated 13.04.2022 in IBA/49/2019, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai). Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 14 of 85 Appellant's Submissions:
23. The Learned Counsel for the Appellant, contends that the 2nd Respondent / Corporate Debtor, had paid amounts, in excess of Rs.1.63 Crores (as on 21.08.2019), upon being declared `Non Performing Asset', and much before the `impugned order', came to be passed on 13.04.2022.
As a matter of fact, the `2nd Respondent / Corporate Debtor', had paid a Total Amount of Rs.14.13 Crores and this amount has to be adjusted to the `Principal', in terms of the cumulative reading of the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal's Orders.
24. The Learned Counsel for the Appellant, contends that where in a Petition, the Sum indicated as `Amount Due', is admittedly and wholly paid prior to an `Order on Admission', the same automatically renders the Petition under Section 7 of the Code infructuous since, there would not be any amount due (and, therefore, no default), requiring initiation of `Corporate Insolvency Resolution Process' in terms of Section 7(5) of the Code.
25. The Learned Counsel for the Appellant, points out that as per the `Debt Recovery Tribunal' and `Debt Recovery `Appellate Tribunal' Orders', all the payments, made by the `Corporate Debtor', have to be adjusted, as against the `Principal' and the `remaining amounts', are liable Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 15 of 85 to be charged with `Simple Interest @ 9% per annum', and also that, the aforesaid `Orders', are assailed before the Hon'ble Madras High Court, wherein, `Interim Orders of Protection', in favour of the `Corporate Debtor', and the `Appellant', were passed. Therefore, in `Law', and on `Facts', there is no `Debt' and `Due' payable.
26. The Learned Counsel for the Appellant submits that, as on date, the `Due and Default', is contingent upon the outcome of the said `Writ Proceedings' and the subsequent `crystallisation of liability', by issuing the `Recovery Certificate', as per `Final Orders'. As such, it is the stand of the Appellant, it is premature to arrive at a conclusion that there is a `Debt and Default'.
27. The Learned Counsel for the Appellant, strenuously contends that admitting the main Company Petition in IBA/49/2019, against the `2nd Respondent / Corporate Debtor', is a coercive step and in `Breach' of the `Interim Order', dated 04.12.2019.
28. The Learned Counsel for the Appellant, projects an argument that the `Adjudicating Authority / Tribunal', had not appreciated that, as per Sections 14, 17(1), 18(1)(f) and 20(2)(c), among other things, that the `initiation' of `Insolvency Proceedings', against the `Corporate Debtor', amount to coercive steps, when there was `Specific Orders' of the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 16 of 85 `Hon'ble High Court', directing that `no coercive steps', ought to be taken against the `2nd Respondent / Corporate Debtor', and also the `Promoters' of the `Corporate Debtor'.
29. The Learned Counsel for the Appellant, points out that the `Adjudicating Authority', has passed the `impugned order', without proper appreciation of the coercive nature of the `I & B Code' Mechanism and the `Law'.
30. The Learned Counsel for the Appellant, submits that the `Order' dated 09.09.2022, made in CRP No. 1783 of 2022 (filed in respect of the Order dated 29.04.2022, refusing to grant `Interim Stay', in this `Tribunal', in the subjective Appeal), by the Hon'ble Madras High Court, in `dismissing', the `Petition', as `Withdrawn, does not in any manner preclude the `Appellant, canvassing the grounds therein, in the instant `Appeal'.
31. The Learned Counsel for the Appellant, takes a plea that in as much as the 1st Respondent / Bank, has made substantial recoveries, during the pendency of `Legal Proceedings', and until the `impugned order', and since the `1st Respondent / Bank, had pursued the `Petition', in IBA/49/2019 (filed under Section 7 of the I & B Code, 2016), despite, any `Order of Injunction', dated 04.12.2019, passed against it, by the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 17 of 85 Hon'ble High Court, it is clear that, Petition under Section 7 of the I & B Code, 2016, filed by the 1st Respondent / Bank, to the `Fraudulent and Malicious initiation of proceedings', and on this score, the `impugned order', dated 13.04.2022, passed by the `Adjudicating Authority' / `Tribunal', in IBA/49/2019, is to be set aside and accordingly, the main `Petition', is to be `dismissed'.
Appellant's Decisions:
Hon'ble Supreme Court's Decisions:
32. The Learned Counsel for the Appellant cites the decision of the Hon'ble Supreme Court of India in Innoventive Industries Limited v. ICICI Bank & Anr., reported in (2018) 1 SCC Page 407, at Spl. Pg. 410, wherein, at Paragraph 28, it is observed as under:
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. A debt may not be due if it is not payable in law or in fact.''
33. The Learned Counsel for the Appellant refers to the Judgment of the Hon'ble Supreme Court of India in Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund (earlier known as Kotak India Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 18 of 85 Venture Limited) & Ors., reported in (2021) 6 SCC Page 436, at Spl. Pgs. 439, 449, 451, 453, 454 and 442, wherein, at Paragraphs 14 & 15, 18, 21, 26, 27 & 34, it is observed and held as follows:
14 & 15. ``Section 7 IBC contemplates that in order to trigger an application thereunder, there should be in existence four factors: (i) there should be a 'debt' (ii) 'default' should have occurred (iii) debt should be due to 'financial creditor' and (iv) such default which has occurred should be by a 'corporate debtor'. On such application being filed with the compliance required under Sections 7 (1) to (3) IBC, a duty is cast on the Adjudicating Authority to ascertain the existence of a default if shown from the records or on the basis of other evidence furnished by the financial creditor, as contemplated under Section 7(4) IBC.
18. In that circumstance, though Dr. Singhvi has referred to the evolution of IB Code after all earlier legal process had failed to give the rightful place to the creditor; which is sought to be achieved by the IB Code, it cannot be said that by the procedure prescribed under the IB Code it means that the claim of the creditor if made before the NCLT, more particularly under Section 7 of IB Code is sacrosanct and the corporate debtor is denuded of putting forth its version or the contention to show to the Adjudicating Authority that the default has not occurred and explain the circumstance for contending so. In fact, in the very decision relied on by both the parties in the case of Innoventive Industries Limited2, this court while considering the scope of the various provisions under the Act and while referring to the procedure contemplated in a petition under Section 7 of the IB Code, which is also extracted supra reads thus: (SCC p. 438, para 28) "28. ... It is at the stage of Section 7(5), where the Adjudicating Authority is to be satisfied that 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."
21. ``In such circumstances if the adjudicating authority finds from the material available on record that the situation is not yet ripe to call it a default, that too if it is satisfied that it is profit making company and certain other factors which need consideration, appropriate orders in that regard would be made; the consequence of which could be the dismissal of the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 19 of 85 petition under Section 7 IBC on taking note of the stance of the corporate debtor.
26. The underlying principle laid down by the Supreme Court in a number of decisions is that the reference to the triggering of a petition under Section 7 IBC to consider the same as a proceedings in rem, it is necessary that the adjudicating authority ought to have applied its mind, recorded a finding of default and admitted the petition. On admission, third-party right is created in all the creditors of the corporate debtors and will have erga omnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering of a proceeding in rem. Hence, the admission of the petition for consideration of the Corporate Insolvency Resolution Process is the relevant stage which would decide the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the triggering of the insolvency process.
27. The course to be adopted by the adjudicating authority when an arbitration application seeking reference to arbitration is filed in a pending Section 7 IBC application, before it is admitted and is therefore not yet an action in rem, is as follows: As per Section 238 IBC, the IBC shall override all other laws. Hence, notwithstanding the fact that the alleged corporate debtor has filed an application under Section 8 of the A & C 1996 for reference to arbitration, independent consideration of the same dehors the application filed under Section 7 IBC and materials produced therewith is not permissible. The adjudicating authority is duty bound to advert to the material available before it as made available along with the application under Section 7 of IBC by the financial creditor to indicate default along with the version of the corporate debtor. This is for the reason that, keeping in perspective the scope of the proceedings under IBC and there being a timeline for the consideration to be made by the adjudicating authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. In that view, even if an application under Section 8 of the 1996 Act is filed, the adjudicating authority has a duty to advert to contentions put forth on the application filed under Section 7 of IB Code, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the adjudicating authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 20 of 85
34. In the present case, it would be premature at this point to arrive at a conclusion that there was default in payment of any debt until the said issue is resolved and the amount repayable by Indus Biotech Pvt. Ltd. to KIV with reference to equity shares being issued is determined. In the process, if such determined amount is not paid it will amount to default at that stage. Therefore, if the matter is viewed from any angle, not only the conclusion reached by the adjudicating authority, NCLT insofar as the order on the petition under Section 7 IBC at this juncture based on the factual background is justified but also the prayer made by Indus Biotech Pvt. Ltd. for constitution of the Arbitral Tribunal as made in the petition filed by them under Section 11 of the A & C Act, 1996 before the Supreme Court, is justified.''
34. The Learned Counsel for the Appellant, refers to the decision of the Hon'ble Supreme Court of India in Ebix Singapore Pvt. Ltd. v. CoC, Educomp Solutions & Anr., reported in (2022), 2 SCC Page 401, at Spl. Pg. 496, wherein, at Paragraph 130, it is observed as under:
130. ``..... A Resolution Applicant, as a third party partaking in the insolvency regime, seeks to acquire the business of the Corporate Debtor without the entirety of its debts, statutory liabilities and avoiding certain transactions with third parties. These benefits are a function of the coercive mechanisms of the IBC which enable a third party to acquire the assets of a Corporate Debtor without its liabilities, for a negotiated amount of the debt that is owed by the Corporate Debtor. Typically, resolution amounts envisage payment of a fraction of debt that is owed to the creditors and the business is acquired as a going concern with its employees.....'' [Emphasis supplied]
35. The Learned Counsel for the Appellant, falls back upon the Judgment of the Hon'ble Supreme Court of India in Vinay Yadav v. Anita Jindal & Anr., (vide Civil Appeal No. 7600 of 2022 dated 21.11.2022), wherein, it is observed as under:
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 21 of 85 ``Having heard learned senior counsel for the appellant and having perused the material placed on record as also having gone through the cited decisions in E.S. Krishnamurthy and Ors. v. Bharath Hi-Tecch Builders Private Limited:
(2022) 3 SCC 161 and Innoventive Industries Limited v. ICICI Bank and Anr : (2018) 1 SCC 407, which have been duly taken into consideration by the National Company Law Appellate Tribunal, we are satisfied that the view as taken by the Appellate Tribunal, particularly with reference to the factual matrix of the present case, is a just and proper view of the matter, more particularly with reference to the latest view of this Court as reflected in Vidarbha Industries Power Limited v. Axis Bank Limited: (2022) 8 SCC 352.
No case for interference being made out, this appeal stands dismissed. Pending application also stands disposed of.'' Appellate Tribunal's Decision:
36. The Learned Counsel for the Appellant, refers to the Judgment of this `Tribunal', dated 04.08.2022, in the matter of Anita Jindal v. M/s. Jindal Buildtech Private Limited & Anr. (vide Comp. App (AT) (INS.) No. 512 of 2021), wherein, at Paragraphs 10, 11, 12, 13, 14, 16 and 17, it is observed as under:
10. ``The argument of the Learned Counsel for the Appellant that the Notification dated 24.03.2020 issued by the Central Government increasing the threshold to Rs.1 Crore/- is retrospective in nature and is applicable to this case, is untenable as we are of the view that the amounts claimed pertain to the period prior to the date of Notification. We also do not wish to delve into the other submissions of the Appellant regarding the nature of transactions, absence of Financial Contract, non-registration of debt with the information utility whether interest at 18% per annum was ever concluded between the parties except for reference in the legal Notice issued by the second Respondent. This Tribunal is of the earnest view that taking into consideration the facts and circumstances of the attendant case on hand, the issue with respect to Admission of Section 7 Petition is required to be decided on the touchstone of the ratio of the Hon'ble Supreme Court in 'Vidarbha Industries Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 22 of 85 Power Limited' Vs. 'Axis Bank Limited', 2022 SCC OnLine SC 841, wherein the Hon'ble Apex Court has observed as follows:
"55. When an application is filed under Section 7(2) of the IBC, the Adjudicating Authority (NCLT) is required to ascertain the existence of a default from the records of the information utility or any other evidence furnished by the financial creditor under sub-section (3) of Section 7 of the IBC, within 14 days of the date of receipt of the application.
56. Section 7(5)(a) of the IBC, on which much emphasis has been placed both by Mr. Gupta and Mr. Mehta, provides that where the Adjudicating Authority (NCLT) is satisfied that a default has occurred and the application under sub-Section (2) of the IBC is complete and there is no disciplinary proceeding against the proposed Resolution Professional, it may by order, admit such application. If default has not occurred, or the application is incomplete, or any disciplinary proceeding is pending against the proposed Resolution Professional, the Adjudicating Authority (NCLT) may reject such application in terms of Section 7(5)(a) of the IBC, but after giving the applicant opportunity to rectify the defect.
57. Both, the Adjudicating Authority (NCLT) and the Appellate Tribunal (NCLAT) proceeded on the premises that an application must necessarily be entertained under Section 7(5)(a) of the IBC, if a debt existed and the Corporate Debtor was in default of payment of debt. In other words, the Adjudicating Authority (NCLT) found Section 7(5)(a) of the IBC to be mandatory. The Adjudicating Authority (NCLT) was of the view that Section 7(5)(a) did not admit any other interpretation, with which the Appellate Tribunal (NCLAT) agreed.
58. The Appellate Tribunal (NCLAT) affirmed the finding of the Adjudicating Authority (NCLT) that the Adjudicating Authority was only required to see whether there had been a debt, and the Corporate Debtor had defaulted in making the repayments. These two aspects, when satisfied, would trigger Corporate Insolvency. Since the Adjudicating Authority (NCLT) did not consider the merits of the contention of the Respondent Corporate Debtor, the only question in this appeal is, whether Section 7(5)(a) is a mandatory or a discretionary provision. In other words, is the expression 'may' to be construed as 'shall', having regard to the facts and circumstances of the case.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 23 of 85
59. Referring to the judgment of this Court in Swiss Ribbons (supra), the Adjudicating Authority (NCLT) held that the imperativeness of timely resolution of a Corporate Debtor, who was in the red, indicated that no other extraneous matter should come in the way of expeditiously deciding a petition under Section 7 or under Section 9 of the IBC.
60. There can be no doubt that a Corporate Debtor who is in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters.
61. The Adjudicating Authority (NCLT) found the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition. Disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance. The question is whether an award of the APTEL in favour of the Corporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms of the Award, a sum of Rs. 1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor. The answer, in our view, is necessarily in the negative.
62. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management.
63. As pointed out by Mr. Gupta, Legislature has, in its wisdom, chosen to use the expression "may" in Section 7(5)(a) of the IBC. When an Adjudicating Authority (NCLT) is satisfied that a default has occurred and the application of a Financial Creditor is complete and there are no disciplinary proceedings against proposed resolution professional, Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 24 of 85 it may by order admit the application. Legislative intent is construed in accordance with the language used in the statute.
64. The meaning and intention of Section 7(5)(a) of the IBC is to be ascertained from the phraseology of the provision in the context of the nature and design of the IBC. This Court would have to consider the effect of the provision being construed as directory or discretionary.
65. Ordinarily the word "may" is directory. The expression 'may admit' confers discretion to admit. In contrast, the use of the word "shall" postulates a mandatory requirement. The use of the word "shall" raises a presumption that a provision is imperative. However, it is well settled that the prima facie presumption about the provision being imperative may be rebutted by other considerations such as the scope of the enactment and the consequences flowing from the construction.
66. It is well settled that the first and foremost principle of interpretation of a statute is the rule of literal interpretation, as held by this Court in Lalita Kumari v. Government of Uttar Pradesh If Section 7(5)(a) of the IBC is construed literally the provision must be held to confer a discretion on the Adjudicating Authority (NCLT)".....
"83. The Adjudicating Authority (NCLT) failed to appreciate that the question of time bound initiation and completion of CIRP could only arise if the companies were bankrupt or insolvent and not otherwise. Moreover the timeline starts ticking only from the date of admission of the application for initiation of CIRP and not from the date of filing the same.
84. In Swiss Ribbons (supra) this Court considering the vires of the IBC observed as follows:--
"43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a "default"
occurs. The Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 25 of 85 basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected."
85. The judgment of this Court Swiss Ribbons (supra), which was rendered in the context of a challenge to the vires of the IBC, does not consider the question of whether Section 7(5)(a) of the IBC is mandatory or discretionary. It is well settled that a judgment is a precedent for the question of law that is raised and decided. The language used in a judgment cannot be read like a statute. In any case, words and phrases in the judgment cannot be construed in a truncated manner out of context"....
....................................................................................................
"91. We are clearly of the view that the Adjudicating Authority (NCLT) as also the Appellate Tribunal (NCLAT) fell in error in holding that once it was found that a debt existed and a Corporate Debtor was in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the IBC."
................................................................................................
(Emphasis Supplied)
11. In the instant case, proceedings under NI Act, 1881 commenced in the Year 2017; Section 7 Application was filed, on 10.11.2018, the 'Corporate Debtor' paid an amount of Rs.67,90,000/- before the Trial Court to compound one of the cases on 09.09.2019 and which led to the closure of Case No. 1505/2017; the second Respondent accepted an interest at 6% per annum before the Trial Court. This Tribunal vide Order dated 30.11.2021 recorded the submission of the Appellant that they are ready and willing to pay the second cheque amount of Rs.30,50,000/- and to show their bona fide have annexed the Demand Draft at Page 101 of the Appeal Book. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 26 of 85
12. Learned Sr. Counsel appearing for the second Respondent submitted that the total debt including interest due @18% p.a. is Rs.87,76,100/- till 26.03.2021, which is the date of initiation of the CIRP. Learned Sr. Counsel for second Respondent strenuously argued that the amount lent is a 'Financial Debt' and that the second Respondent is a 'Financial Creditor' and the debt is acknowledged in the books of accounts and hence the Adjudicating Authority was right in admitting the Section 7 Application, keeping in view the admitted 'debt' & 'default'. Reliance was placed on the Judgements of the Hon'ble Supreme Court in 'Innoventive Industries Ltd.' (Supra) and 'Orator Marketing Pvt. Ltd.' (Supra). While, we find force in the submissions of the Ld. Sr. Counsel that there is 'debt' and a 'default' what should also be examined is whether the intent for initiation of CIRP is 'Recovery' or 'Resolution.'
13. It is pertinent to mention that the second Respondent in para 14 of their Reply and in para 40 of their objections have never refuted the submission of the Appellant that 'the 'Corporate Debtor' 'is a going concern' and a viable unit and has great commercial prospects... and that the 'Corporate Debtor' in their Reply dated 07.08.2019 have clearly stated that they had the bona fide intention of returning the pending amount'. The case of the Second Respondent is that despite being a viable unit, the Appellant has defaulted in paying these amounts. Having accepted interest at 6% per annum, it is the case of the Appellant that the second Respondent is now claiming an interest at 18% per annum. Be that as it may, the Adjudicating Authority, is not a 'debt collection forum'. The Hon'ble Supreme Court in a catena of Judgements has held that IBC tackles 'Insolvency and Bankruptcy' and that it is not the objective of the IBC that CIRP should be initiated to penalise a Solvent Company for non- payment of dues. The scope and objective of IBC is to bring about 'Resolution' of an Insolvent Debtor and is definitely not a 'Recovery Proceeding'.
14. The Preamble of IBC is carefully worded to describe the spirit and objective of the Code to be 'Reorganisation' and 'Insolvency Resolution', specifically omitting the word 'Recovery'. The Parliament has made a conscious effort to ensure that there is a significant difference between 'Resolution' and 'Recovery'. The Hon'ble Supreme Court has time and again observed that the fundamental intent of IBC is 'maximising the value of assets' in the process of 'Resolution'. In 'Mobilox Innovations Private Limited' Vs. 'Kirusa Software Private Limited', (2018) 1 SCC 353, the Hon'ble Apex Court has examined in detail the United Nations Legislative Guide on Insolvency, in which the IBC finds its roots. Any Application to commence CIRP can be denied when the Creditor is using Insolvency as an inappropriate substitute for Debt Recovery Procedures. If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 27 of 85 solvent entity and is a going concern, the question of 'Reorganising' or 'Resolution of the Company' does not arise. This Tribunal in 'Binani Industries Limited' Vs. 'Bank of Baroda & Anr.', Company Appeal (AT) (Ins.) No. 82 of 2018, has differentiated between 'Recovery' and 'Resolution' and has observed that IBC is not a Recovery Proceeding. 'Recovery' dispossesses the 'Corporate Debtor' of its assets while a Resolution is an effort to keep it afloat. Further, this Tribunal in 'Asset Advisory Services' Vs. 'VSS Projects', CP (IB) No. 96/7/HDB (2017), and also in 'Praveen Kumar Mundra' Vs. 'CIL Securities Ltd.', 2019 SCC OnLine NCLAT 334, has noted that CIRP cannot be initiated with fraudulent and malicious intent 'for any purpose other than the Resolution of Insolvency or Liquidation' and therefore it is clearly covered under Section 65 of the Code.
16. Though the aforesaid Section does not expressly mention 'Debt Recovery Action' under 'for any purpose other than resolution of insolvency..', keeping in view the factual occurrence of the events of this particular matter, we hold that the 'intent' may not be a 'malafide intent', but is nevertheless a fundamental attempt to obtain an edge/ advantage / an upper hand in 'recovering their dues'. At this juncture we place reliance on the judgment of The Hon'ble Madras High Court in 'S.T. Sahib' Vs. 'Hasan Ghani Sahib', 1956 SCC OnLine Mad 344', wherein the Hon'ble High Court has examined the word 'malice' and observed that 'malice' would mean 'inappropriate' and wrongful motive to use the law in a manner other than its 'legally appointed and appropriate purpose'. The Hon'ble Madras High Court has further observed that a wrongful motive need not be a mala fide intent, it could simply be an attempt to attain an advantage.
17. This Tribunal is of the ernest view that seeking to initiate CIRP, in the factual matrix of the attendant case, is only with an intention for 'Recovery' of their dues and opposes the very spirit, point and purpose of the Code. We hold that 'A Recovery Proceeding' of this nature does fall within the scope and ambit of the words 'for any purpose other than Resolution', as defined under Section 65 (1) of the Code. Having regard to the facts and circumstances of the case on hand, this Appeal is allowed and the Order of the Adjudicating Authority is set aside. In effect, Order(s) passed by Ld. Adjudicating Authority appointing 'Interim Resolution Professional', declaring moratorium, freezing of account and all other Order(s) passed by Adjudicating Authority pursuant to the Impugned Order, are set aside. We are conscious of the fact that pursuant to an interim direction of this Tribunal, the constitution of the CoC has remained stayed. The Adjudicating Authority will now close the proceedings. The first Respondent Company is released from all the rigours of Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 28 of 85 law and is allowed to function independently through its Board of Directors with immediate effect.'' 1st Respondent / Bank's Submissions:
37. The Learned Counsel for the `1st Respondent / Bank' contends that among other things, resting upon the `Immovable Security Assets', belonging to the `Promoters' of the `2nd Respondent / Corporate Debtor', and of some `Third Party Guarantors', the `2nd Respondent / Corporate Debtor', had availed various `Credit Limits', from the `1st Respondent / Bank'. As a matter of fact, in the course of said transaction, through a `Sanction Letter', dated 27.09.2013, the `1st Respondent / Bank', had increased the `Cash Credit Limit', from Rs.10/- Crores to Rs.13/- Crores and reduced the `Letter of Credit Limit', from Rs.10/- Crores to Rs.6/-
Crores.
38. According to the Learned Counsel for the 1 st Respondent / Bank, in terms of `Revised Sanction', the `2nd Respondent / Corporate Debtor', was expected to reduce the `Cash Credit Limit', sanctioned for the `Execution of Overseas Project', by paying Rs.25 Lakhs every month, till the `Limit', is brought down to Rs.8 Crores and that the `Revised Limits', were availed by the `2nd Respondent', on 30.09.2013, after executing the `Loan Documents'. Also, that the `Guarantors', had extended their Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 29 of 85 `Personal Guarantee', to the said `Loans', by executing and delivering the `Continuing Personal Guarantee Deeds', on 30.09.2013, for an `aggregate amount' of Rs.19/- Crores, to and in favour of the `1st Respondent / Bank'.
39. The Learned Counsel for the 1st Respondent / Bank, points out that under the `Inland Letters of Credit Limit of Rs.6 Crores', the `1st Respondent / Bank', had issued `Letters of Credit', to the material suppliers of the `2nd Respondent', to purchase `raw materials', required for `processing'. In terms of the `Agreement', upon supplying the materials to the `2nd Respondent / Corporate Debtor', the `supplier', has to submit the `bills', and the `2nd Respondent / Corporate Debtor', has to arrange for `sufficient funds', in its `Cash Credit Account', for `honouring' the said `bills', by the `Bank'.
40. The Learned Counsel for the 1st Respondent / Bank, submits that in the event of `Insufficiency of Funds', in `Cash Credit Account', on the `due date of bill', the `1st Respondent / Bank', would `debit', the said `Account', and make the payment of the `bill', by utilising the said `Letter of Credit Limit', the 2nd Respondent / Corporate Debtor, had purchased materials from various `Parties', and although, the 2nd Respondent / Corporate Debtor, was very much aware of the `due dates' of the said Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 30 of 85 `bills', the 2nd Respondent / Corporate Debtor, had failed to arrange for funds, as a result of which, several bills, drawn under various `Inland Letters of Credit', devolved necessitating the `1st Respondent / Bank', to debit the `Cash Credit Limit', and to make the payment, to the `suppliers'.
41. It is represented on behalf of the 1st Respondent / Bank that the 1st Respondent / Bank, made the payment of Rs.5,94,36,318/- to the suppliers and it resulted in `Overdrawal of the Cash Credit Account'. Indeed, the 2nd Respondent / Corporate Debtor', had failed to regularise the said Account, by paying the `Sum' overdrawn, in excess of the `Sanctioned Limit', and further that, the `Accounts', became a `Non Performing Asset', and was so classified, on 30.12.2014. In fact, a sum of Rs.14,13,87,217.60/-, was due, as on 11.09.2016 in the `Loan Account' of the 2nd Respondent / Corporate Debtor, and that, the `1st Respondent / Bank', had filed the Original Application No. 633 / 2016, on the file of the Debt Recovery Tribunal - II, Chennai, under the provisions of Section 19 (22) of the RDDBFI Act, 1993, to recover the amount of Rs.14,13,87,217.60 along with Interest at the Contractual Rate of 15.70% per annum M.R.
42. According to the 1st Respondent / Bank, it invoked the `SARFAESI Act, 2002', by issuing a `Demand Notice', dated 27.01.2015, which was Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 31 of 85 followed by a `Possession Notice', and a `Sale Notice, issued under the `Act'. In reality, the `2nd Respondent / Corporate Debtor', came forward, to settle the `Dues', under `One Time Settlement', and because of the fact that the `Offers', were very `low', they were `rejected'. The 2nd Respondent / Corporate Debtor, gave a Letter dated 27.11.2015, offering to pay a sum of Rs.14 Crores, by way of `One Time Settlement', and paid a sum of Rs.2 Crores, by the 1st Respondent / Bank, had rejected the said `Offer', and credited the amount of Rs.2 Crores into the `Loan Account' of the 2nd Respondent / Corporate Debtor, as `part recovery', and it has been communicated to the 2nd Respondent / Corporate Debtor, on 16.12.2015.
43. The Learned Counsel for the 1st Respondent / Bank brings it to the notice of this `Tribunal', that the 1st Respondent / Bank brought the `Secured Assets', of the `Guarantors of the 2nd Respondent / Corporate Debtor', for `Sale', and issued a `Sale Notice', on 19.12.2015, determining the `Date of E-Auction', on 19.01.2016, which was challenged in SA No. 20 / 2016, before the Debt Recovery Tribunal - III, Chennai, by the 2nd Respondent / Corporate Debtor. An `Interim Order' (in the said `Application'), was passed by the said `Tribunal', on 13.01.2016, on condition, to `Deposit a sum of Rs.4.5 Crores in two Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 32 of 85 instalments, by expressing their willingness to settle the entire `Dues', by way of `One Time Settlement', by 31.03.2016, and that the `Conditional Order', was complied with, but the `Undertaking', to settle the `Loan Account', was not `honoured'.
44. It is the version of the 1st Respondent / Bank, during the course of the Hearing of `SARFAESI' Application, the 2nd Respondent / Corporate Debtor', had alleged that in view of the `CIBIL Report', exhibiting the `Outstanding Sum', as Rs.32 Crores, as against the `Dues', was only a sum of Rs.16 Crores only, they were unable to seek, takeover of their `Loan Account', but the said `Application' bearing No.20 / 2016, came to be dismissed on 09.09.2016, wherein the Debt Recovery Tribunal - III, Chennai, made the following observation:
``Whereas Ld. Counsel appearing for the respondent bank has demonstrated that the account number relating to the borrower is properly described in the CIBIL report it appears that there is another account number which is duplicated in the information furnished and which has been since clarified as on 29.12.2015, which information is ensured to have been updated by the CIBIL report by removing duplicated account thereby showing the actual balance and amount due from the appellants herein and their classification of the account as sub-standard in view of their continuous default. It is not out of place to mention that the second account which the appellants are referring as the duplicated account is in standard form and the over dues are not reflected to that the appellants herein. The clarification is very much available in the typed set documents filed by the appellants, which is filed as appeal document and does require further clarification thereto. Even otherwise, considering the appellants contentions regarding the issue of exhibiting of Rs.32 Crores as overdue is only for a period of 30 days wherein there are no searches made by anybody to establish that appellants suffered any damage over the same and Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 33 of 85 notwithstanding the said issue, respondent bank has immediately taken steps to bring on record that the dues of appellant are correctly reflected in the CIBIL report ....'' ``At this juncture, Ld. Counsel appearing for the appellants submits that the appellants are not willing for any further litigation and are looking up only for settlement of the issue and if the respondent bank is furnishing the correct and exact statement of account of money due upto 30.09.2016 by calculating correct rate of interest from the date of NPA, the appellants shall be able to remit the same within a period of two months.
The respondent bank is ready with statement of accounts and had served copy of the same to the Ld. Counsel appearing for the appellants confirming therein the outstanding due as on 11.09.2016 so as to enable the appellants to discharge the debts in terms of their undertaking as detailed above.
Ld. Counsel appearing for the respondent bank has demonstrated its actions through counter and typed set of documents that the procedure as laid down under the Act has been completely followed and there are no infirmities which the appellants could establish in the procedure adopted by the respondent bank in issuance of the subject sale notice. Even otherwise, the subject sale notice has become infructuous for want of bidders.
From the above discussion, except for the quantum of money to be paid by the appellants, on an extended time, there are no infirmities established in issuance of the sale notice by the respondent bank in its lawful course of recovery. As the appellants failed to establish any infirmities in the procedure adopted, this SA is liable to be dismissed.''
45. The Learned Counsel for the 1st Respondent / Bank, adverts to the Filing of W.P. No. 1421 of 2017, filed by the 2nd Respondent / Corporate Debtor, seeking `Mandamus', to take on file the said `Complaint', and to investigate the matter, and that the Writ Petition, was dismissed on 13.11.2017, whereby and whereunder at Paragraphs 21 to 23, it is observed as under:
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 34 of 85
21. ``Apparently, in this case, a dispute has arose and the communication between the parties since 21/11/2005 till 30/03/2016 centres around the dispute and the settlement of the said dispute. Despite rectification of the duplicate entries, if the writ petitioner is under the impression that the duplication is not innocuous error crept inadvertently but, with intention to cause wrongful loss to the company, it is always open to the writ petitioner to seek damages under the common law remedy.
22. From the records, it appear that neither RBI nor the IOB nor CBI could find any prima facie material in the complaint given by the writ petitioner to infer any wilful omission or false statement knowing furnished by IOB officials. In such circumstances, this court is not inclined to entertain this writ petition seeking mandamous.
23. In the result, the Writ Petition fails and accordingly, the same is dismissed.
However, it is open to the writ petitioner, if so advised, to resort relief under common law procedure.''
46. The Learned Counsel for the 1st Respondent / Bank, contends that in O.A. No. 633 of 2016, filed by the `1st Respondent / Bank', the `2nd Respondent / Corporate Debtor', had filed a `Reply', admitting the `Borrowing', and consequent `Liability', however, praying to exclude the interest for the period during which the double entry was reflected in the records of CIBIL. Subsequently, the 2nd Respondent / Corporate Debtor, filed a `Counterclaim Petition', bearing No. CC 6 / 2018, seeking an amount of Rs.30 Crores, as `Damages', on account of the `duplicate entry', in the `CIBIL Records'. Also, for the purpose of claiming `Damages', the 2nd Respondent / Corporate Debtor, had relied on certain remarks, made by the Hon'ble High Court, in its Order dated 13.11.2017 Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 35 of 85 in WP No. 1421 / 2017 and in fact, the `2nd Respondent / Corporate Debtor, had neither pleaded any `actual loss', nor produced any document to prove such `Loss'.
47. The Learned Counsel for the 1st Respondent / Bank, points out that the 1st Respondent / Bank, in its `Reply', to the `counterclaim', opposing the same among other things, based on the ground that it was `Barred by Limitation'. Indeed, in the said `Reply', the 2nd Respondent / Corporate Debtor', had mainly relied on the `inadvertent mistake', crept in the `CIBIL Report', to make the `counterclaim', as a counter blast, to the `Claim' of the 1st Respondent / Bank.
48. According to the 1st Respondent / Bank, since the 2nd Respondent / Corporate Debtor', had committed `Default', and it was not in a position to pay off its `Dues', on 16.10.2018, the 1st Respondent / Bank, had filed an IBA/49/2019 (under Section 7 of the I & B Code, 2016), to trigger the `Insolvency Resolution Process', against the `2nd Respondent / Corporate Debtor', and on 30.11.2018, the 2nd Respondent / Corporate Debtor, came out with an `Offer', to pay a sum of Rs.11.46/- Crores, under `One Time Settlement', which was accepted by the 1st Respondent / Bank, and communicated to the `2nd Respondent / Corporate Debtor', on 21.03.2019, Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 36 of 85 but the 2nd Respondent / Corporate Debtor, had not honoured the said `One Time Settlement'.
49. The Learned Counsel for the 1st Respondent / Bank, brings it to the notice of this `Tribunal', that in May 2019, the OA 633 / 2016 and Counterclaim No. 6 / 2018, were taken up together for `Hearing', by the Debt Recovery Tribunal - II, Chennai, under a `Common Order', was passed on 30.05.2019. In fact, the Debt Recovery Tribunal, found that the Bank had proved its `Claim', against the 2nd Respondent / Corporate Debtor, but in regard to the `counterclaim', the Debt Recovery Tribunal, came to a conclusion that the Hon'ble High Court, had found the 2 nd Respondent / Corporate Debtor, is entitled for `Damages', on account of duplicate entry in the `CIBIL Report', which took place, on account of the mistake of the officials of the `1st Respondent /Bank', and as a result of which, the `2nd Respondent / Corporate Debtor', could not get loans from New India Co-operative Bank. Therefore, the `Tribunal', held that the 2nd Respondent / Corporate Debtor', is entitled to get `Waiver', of the whole interest, from the `Date of Sanction of the Loan', in the `Original Application', till the date of filing of the same and that the said Interest Sum, was treated as `Compensation' / `Damage Sum', to the `Corporate Debtor'. Further, the `counterclaim', was partly allowed, treating the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 37 of 85 aforesaid interest concession, given to the `2nd Respondent / Corporate Debtor', as `Compensation', in `lieu' of `counterclaim' of Rs.30,00,00,000/-.
50. The Learned Counsel for the 1st Respondent / Bank points out that the Bank had preferred an `Appeal' in RA No.110 / 2019, before the `Debt Recovery Appellate Tribunal', wherein, a `relief', to set aside the `Order' of `Debt Recovery Tribunal', dated 30.05.2019 in OA No. 633 of 2016, so far as it relates to the exclusion of Interest portion, from the `Date of Sanction, in the `Loan Accounts' of the `2nd Respondent / Corporate Debtor', was sought for. Likewise, an `Appeal' in RA No. 111 / 2019, was preferred against the `Order' of the `Debt Recovery Tribunal' dated 30.05.2019, made in counterclaim No. CC 6 / 2018, and the 1st Respondent / Bank, took the pleas, in the said `Appeals' (a) the Debt Recovery Tribunal, failed to note that the borrower is bound to pay the dues as per the contract terms (b) That in the case of un-liquidated damages the Claimants shall plead and prove the extent of damages which the 2nd Respondent / Corporate Debtor failed to (c) that no evidence either in the form of documentary or in the form of oral evidence was produced to prove any damage (d) That the Debt Recovery Tribunal erroneously found that the Hon'ble High Court held that the 2nd Respondent / Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 38 of 85 Corporate Debtor suffered loss and therefore permitted them to claim damages (e) A hypothetical remark made by the High Court in its order was misread by the 2nd Respondent / Corporate Debtor deliberately, and the `Tribunal', had committed an `error', in holding that the said observation is a `Finding'. Besides the above, the 2nd Respondent / Corporate Debtor, had challenged the `Common Order', dated 30.05.2019, made in CC No. 6 / 2018, through an `Appeal' No. 138 / 2019.
51. The Learned Counsel for the 1st Respondent / Bank, points out that the aforesaid `Appeals', filed before the Debt Recovery Appellate Tribunal, were `Heard', together and they were `Disposed of', on 14.11.2019 and that the `Appellate Tribunal', in Para 11 of its `Order', had observed the following:
``On 24/11/2015 while CIBIL report was generated, outstanding due amount against company was shown to be Rs.32,11,31,188/- whereas actual due was Rs.15,76,56,258/-. Had it been a mistake of only disclosing the account number in 15 digits or 17 digits, then there should have been no change in the figure of dues ...... The Bank furnished wrong information on CIBIL Report whether deliberately or inadvertently, but it has caused loss and damage to the borrowers to the extent they found it difficult to approach some other bank to take loan to the tune so that dues of the bank can be repaid.'' Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 39 of 85
52. The Learned Counsel for the 1st Respondent / Bank, comes out with a plea that the pleadings in WP No. 1421 of 2017, were filed as `Documents', before the Debt Recovery Appellate Tribunal, to show how the dual entry, got reflected in `CIBIL Reports', and by adverting to the `CIBIL Data', the 2nd Respondent / Corporate Debtor, demonstrated that from 07.10.2013 to 16.11.2016, no one had applied for report and obtained the same and hence, there was no occasion for any financial institution to decline the loan to the 2nd Respondent / Corporate Debtor on account of the said alleged duplicate entry.
53. The Learned Counsel for the 1st Respondent / Bank, points out that the Debt Recovery Appellate Tribunal, overlooking the aforesaid submissions, on an erroneous finding, modified the `Order' of the ` Debt Recovery Tribunal' dated 30.05.2019 and granted `Simple Interest', at 9% per annum from the `Date of Sanction', till the `Date of Realisation', in `Full', instead of `Awarding the Contractual Rate of Interest', and further that, the `Interest Concession', given by the `Debt Recovery Appellate Tribunal', on an erroneous appreciation of facts, worked out to Rs.8.80/- Crores and that the 2nd Respondent / Corporate Debtor, as per the `Order' of the `Debt Recovery Appellate Tribunal', was liable to pay Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 40 of 85 to the `1st Respondent / Bank', an amount of Rs.3,55,32,235.80/-, as on 14.11.2019.
54. The Learned Counsel for the 1st Respondent / Bank, submits that being dissatisfied with the aforesaid `Order' of the Debt Recovery Appellate Tribunal, had filed the WP No. 3412 / 2020, 3419 / 2020 and 3427 / 2020, on the file of the Hon'ble Madras High Court and that the 2nd Respondent / Corporate Debtor, challenged the `Award' of `Simple Interest' at 9% per annum, passed by the Debt Recovery Appellate Tribunal, from the `Date of Sanction of the Loan', by filing Writ Petition No. 33396 of 2019, 33398 of 2019 and 33399 of 2019, and `two Interim Applications', WMP No. 33866 of 2019 and WMP No. 33867 of 2019, were filed, praying for an `Ad-interim Injunction', restraining the 1st Respondent / Bank, from taking any coercive steps against the `Petitioners', in the said `Writ Petition', and praying for `Stay' of the `Order', dated 14.11.2019 in RA No. 110, 111 and 138 of 2019, on the file of the `Debt Recovery Appellate Tribunal', and the Hon'ble High Court, granted an `Ad-interim Order of Injunction', restraining the 1st Respondent / Bank, from taking `any coercive steps, against the Properties of the Petitioners', in the said Writ Petition, but the `Order' of the `Debt Recovery Appellate Tribunal', was not `Stayed'. Therefore, it is Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 41 of 85 the plea of the 1st Respondent / Bank, that the amount decided by the `Debt Recovery Appellate Tribunal', against the `2nd Respondent / Corporate Debtor', as `Due', still subsists.
55. The Learned Counsel for the 1st Respondent / Bank puts forward a plea that although the 2nd Respondent / Corporate Debtor, had paid the `Dues', calculated in terms of the `Order' of the Debt Recovery Tribunal of a sum of Rs.52,93,874.05/-, the said 2nd Respondent / Corporate Debtor, had not chosen to pay the `Dues', as calculated, in terms of the `Order' of the `Debt Recovery Appellate Tribunal', of a sum of Rs.3,55,32,235.80/-, as on 14.11.2019.
56. The Learned Counsel for the 1st Respondent / Bank, points out that the 2nd Respondent / Corporate Debtor, had falsely claimed that the `Dues', as per the `Order' of the `Debt Recovery Tribunal', was paid and the sum `Due', to the 1st Respondent / Bank, is disputed and sought the dismissal of the `Application'. Moreover, in the `Memo', dated 25.02.2022, the 1st Respondent / Bank, before the `Adjudicating Authority' / `Tribunal', had categorically mentioned that though, in the `counterclaim', preferred by the `2nd Respondent / Corporate Debtor', the Debt Recovery Tribunal, had directed the 1st Respondent / Bank, not to charge `Interest', from the `Date of Sanction' and the said `Interest Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 42 of 85 Concession', was directed to be treated as `Compensation', towards `counterclaim', in `Appeal' bearing RA No. 138 of 2019, etc., the said order was modified by the Debt Recovery Appellate Tribunal, directing the 2nd Respondent to pay the principal amount due with `Simple Interest', at the rate of 9% per annum from the `Date of Sanction'.
57. According to the Learned Counsel for the 1st Respondent / Bank, the Bank through a `Memo', filed on 01.03.2022, placed before the `Adjudicating Authority' / `Tribunal', the necessary fact to the effect, that in terms of the Debt Recovery Appellate Tribunal's Order', the sum in `Default', which was recoverable from the 2nd Respondent / Corporate Debtor, as on 14.11.2019, was an amount of Rs.3,55,32,238.80/- and that the `Sum in Default', as on 01.03.2022, was Rs.4,29,94,004/-.
58. The Learned Counsel for the 1st Respondent / Bank submits that, as per the Order of the Debt Recovery Appellate Tribunal, the `Dues', as on 01.03.2022, was a Sum of Rs.4,29,94,004/- which is over and above the `Threshold Amount', specified under the I & B Code, 2016, to admit the `Application'.
59. To put it precisely, the `Adjudicating Authority / Tribunal', had admitted the main Section 7 Application (IBA/49/2019), by taking into all attendants facts and circumstances of the case, through an `Order' dated Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 43 of 85 13.04.2022 and further that the `Order' of the `Debt Recovery Tribunal' got merged with the `Order' of the Debt Recovery Appellate Tribunal, and therefore, the `Order' of the `Debt Recovery Tribunal', is `no more in existence', as on date. That apart, as on 14.11.2019, in terms of the `Order' of the Debt Recovery Appellate Tribunal, a sum of Rs.3,55,32,235.80/- was `Due' and the fact of the matter is, the `Order' of the `Debt Recovery Appellate Tribunal', was not `Stayed'.
60. The Learned Counsel for the 1st Respondent / Bank points out that the `2nd Respondent / Corporate Debtor', had not secured an `Order', restraining the `Adjudicating Authority / Tribunal', from proceeding with the `Petition', in IBA/49/2019 nor it obtained a `Stay of the Order', dated 14.11.2019, of the Debt Recovery Appellate Tribunal. Added further, the `Appellant', had initiated `Contempt Proceedings', against the `Senior Executive' of the `1st Respondent / Bank', through `Contempt Petition No. 1260 of 2022', before the Hon'ble High Court, alleging `Breach of the Order', dated 04.12.2019, in WMP No. 33866 of 2019 in WP No. 33396 of 2019, which was extended until further Orders. As a matter of fact, if the `Appellant', is of the view that by proceeding with `IBA/49/2019', the 1st Respondent / Bank, had committed the `Contempt of Court', the `Appellant', is free to proceed with the `Contempt Petition', Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 44 of 85 and in short, the `Appellant', is not entitled to get the `Order of Admission', dated 13.04.2022, set aside, on the said ground.
1st Respondent's Decisions:
Hon'ble Supreme Court's Decisions:
61. The Learned Counsel for the 1st Respondent / Financial Creditor cites the decision of the Hon'ble Supreme Court of India in Innoventive Industries Limited v. ICICI Bank and Anr., reported in (2018) 1 SCC 407, at Spl. Pgs. 429, 431-432, 437-438 and 439, wherein, at Paragraphs 18, 20, 27, 28 and 30, it is observed as under:
18. ``There are two sets of definition sections. They are rather involved, the dovetailing of one definition going into another. Section 3 defines various terms as follows:
"Sec. 3(6) "claim" means--
(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;
(10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;
(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 45 of 85 (12) "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 repaid by the debtor or the corporate debtor, as the case may be;
(13) "financial information", in relation to a person, means one or more of the following categories of information, namely:--
(a) records of the debt of the person;
(b) records of liabilities when the person is solvent;
(c) records of assets of person over which security interest has been created;
(d) records, if any, of instances of default by the person against any debt;
(e) records of the balance sheet and cash flow statements of the person; and
(f) such other information as may be specified.
20. Under Section 4 of the Code, Part II applies to matters relating to the insolvency and liquidation of corporate debtors, where the minimum amount of default is rupees one lakh. Sections 6, 7 and 8 form part of one scheme and are very important for the decision in the present case. They read as follows:
"6. Persons who may initiate corporate insolvency resolution process.
- Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter.
7. Initiation of corporate insolvency resolution process by financial creditor. - (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 46 of 85 (3) The financial creditor shall, along with the application furnish--
(a) record of the default recorded with the information utility or such other record or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).
(5) 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
(b) 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:
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 seven days of receipt of such notice from the adjudicating authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate--
(a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor;
(b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.
8. Insolvency resolution by operational creditor.- (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 47 of 85 unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor--
(a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b) the repayment of unpaid operational debt--
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.
Explanation.--For the purposes of this section, a "demand notice"
means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred."
27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 48 of 85 operational debt is owed and an operational debt under Section 5 (21) means a claim in respect of provision of goods or services.
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 sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.
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 Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 49 of 85 satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.''
62. The Learned Counsel for the 1st Respondent / Bank, relies on the decision of the Hon'ble Supreme Court of India in Swiss Ribbons Private Limited v. Union of India and Ors., reported in (2019) 4 SCC Page 17 at Spl. Pgs. 70, 71 & 74, wherein, at Paragraphs, 52, 55(c) and 63, it is observed as under:
``Notice, hearing and set-off or counterclaim qua financial debts
52. This Court, in Innoventive Industries6 stated as follows: (SCC pp. 437 -39, paras 27-30) ``27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of ―debt, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a ―claim and for the meaning of ―claim, we have to go back to Section 3(6) which defines ―claim to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor.
A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 50 of 85
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 sub- section (7), the Adjudicating Authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.
29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 51 of 85 arbitration proceedings, which is pre-existing--i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.
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.''
55. Apart from the record maintained by such utility, Form I appended to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, makes it clear that the following are other sources which evidence a financial debt:
(a) Particulars of security held, if any, the date of its creation, its estimated value as per the creditor;
(b) Certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company);
(c) Order of a court, tribunal or arbitral panel adjudicating on the default; .......'' xxxxxxxxxxxxxxx
63. Equally, counterclaims, by their very definition, are independent rights which are not taken away by the Code but are preserved for the stage of admission of claims during the resolution plan. Also, there is nothing in the Code which interdicts the corporate debtor from pursuing such counterclaims in other judicial fora. Form C dealing with submission of claims by financial creditors in the CIRP Regulations states thus:
``FORM C SUBMISSION OF CLAIM BY FINANCIAL CREDITORS [Under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016] Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 52 of 85 [Date] From [Name and address of the financial creditor, including address of its registered office and principal office] To The Interim Resolution Professional/Resolution Professional, [Name of the Insolvency Resolution Professional / Resolution Professional] [Address as set out in public announcement] Subject: Submission of claim and proof of claim.
Madam/Sir, [Name of the financial creditor], hereby submits this claim in respect of the corporate insolvency resolution process of [name of corporate debtor]. The details for the same are set out below:
Relevant Particulars Name of the financial creditor.
Identification number of the financial creditor (If an incorporated body, provide identification number and proof of incorporation. If a partnership or individual provide identification records* of all the partners or the individual).
Address and email address of the financial creditor for correspondence.
Total amount of claim (including any interest as at the insolvency commencement date).
Details of documents by reference to which the debt can be substantiated.
Details of how and when debt incurred.
Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 53 of 85 Details of any security held, the value of the security, and the date it was given.
Details of the bank account to which the amount of the claim or any part thereof can be transferred pursuant to a resolution plan.
List of documents attached to this claim in order to prove the existence and non-payment of claim due to the financial creditor.
(Signature of financial creditor or person authorised to act on his behalf) [Please enclose the authority if this is being submitted on behalf of the financial creditor].
Name in BLOCK LETTERS Position with or in relation to creditor Address of person signing * PAN number, passport, AADHAAR Card or the identity card issued by the Election Commission of India.
DECLARATION I, [Name of claimant], currently residing at [insert address], do hereby declare and state as follows:
1. [Name of corporate debtor], the corporate debtor was, at the insolvency commencement date, being the ............ day of ............
20......, actually indebted to me for a sum of Rs. [insert amount of claim].
2. In respect of my claim of the said sum or any part thereof, I have relied on the documents specified below:
[Please list the documents relied on as evidence of claim].
3. The said documents are true, valid and genuine to the best of my knowledge, information and belief and no material facts have been concealed therefrom.
4. In respect of the said sum or any part thereof, neither I, nor any person, by my order, to my knowledge or belief, for my use, had or received any manner of satisfaction or security whatsoever, save and except the following:
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 54 of 85 [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim].
5. I am / I am not a related party of the corporate debtor, as defined under Section 5(24) of the Code.
6. I am eligible to join committee of creditors by virtue of proviso to Section 21(2) of the Code even though I am a related party of the corporate debtor.
Date:
Place: (Signature of the claimant)
VERIFICATION
I, [Name] the claimant hereinabove, do hereby verify that the contents of this proof of claim are true and correct to my knowledge and belief and no material fact has been concealed therefrom.
Verified at ... on this ...... day of ........., 20...
(Signature of claimant) [Note: In the case of company or limited liability partnership, the declaration and verification shall be made by the director/manager/secretary/designated partner and in the case of other entities, an officer authorised for the purpose by the entity.]''
63. The Learned Counsel for the 1st Respondent / Bank, refers to the decision of the Hon'ble Supreme Court of India in Radha Exports (India) Private Limited v. K.P Jayaram & Anr., reported in (2020) 10 SCC Page 538 at Spl. Pgs. 550 & 551, wherein, at Paragraph 32 & 35, it is observed as under:
32. `` The proposition of law which emerges from Innoventive Industries Ltd.6 is that the Insolvency Resolution Process begins when a default takes place. In other words, once a debt or even part thereof becomes due and payable, the Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 55 of 85 resolution process begins. Section 3(11) defines 'debt' as a liability or obligation in respect of a claim and the claim means a right to payment even if it is disputed. The Code gets triggered the moment default is of Rs.1,00,000/-
or more. Once the Adjudicating Authority is satisfied that a default has occurred, the application must be admitted, unless it is otherwise incomplete and not in accordance with the rules.......''
35. It was for the applicant invoking the Corporate Insolvency Resolution Process, to prima facie show the existence in his favour, of a legally recoverable debt. In other words, the respondent had to show that the debt is not barred by limitation, which they failed to do.''
64. The Learned Counsel for the 1st Respondent / Bank, refers to the Judgment of the Hon'ble Supreme Court of India in Kotak Mahindra Bank Limited v. A. Balakrishnan & Anr., (vide Civil Appeal No. 689 of 2021, dated 30.05.2022), wherein, at Paragraphs 24 to 27, 85 & 86 it is observed as under:
24. ``While considering the said issue, this Court was also called upon to consider other issues. The first one was, as to whether the application under Section 7 of the IBC could be held to be barred by limitation, though the Corporate Debtor had subsequently acknowledged its liability within a period of 3 years prior to the date of filing of the petition under Section 7 of the IBC, by making a proposal for a one−time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts. The second issue that was considered in the case of Dena Bank (supra) was, as to whether a final judgment and decree of the DRT in favour of the financial creditor, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action to the financial creditor to initiate proceedings under Section 7 of the IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the certificate of recovery. The third issue was, as to whether the Adjudicating Authority had the power to permit amendment of pleadings or to permit filing of additional documents in a petition filed under Section 7 of the IBC.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 56 of 85
25. Though all these issues have been elaborately considered by this Court in the case of Dena Bank (supra), we would only be concerned with the issue, as to whether the issuance of the Recovery Certificate in favour of the "financial creditor" would give rise to a fresh cause of action to initiate proceedings under Section 7 of the IBC. This Court in the said case after considering various provisions of the IBC as well as the earlier judgments of this Court has observed thus:
"99. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 IBC is three years from the date of accrual of the right to sue, that is, the date of default. In GauravHargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd. [Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd., (2019) 10 SCC 572 : (2020) 1 SCC (Civ) 1] authored by Nariman, J. this Court held : (SCC p. 574, para 6) "6. ... The present case being "an application" which is filed under Section 7, would fall only within the residuary Article 137."
100. In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] , this Court speaking through Nariman, J. held : (SCC p. 664, para 42) "42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application."
101. In Jignesh Shah v. Union of India [Jignesh Shah v. Union of India, (2019) 10 SCC 750 : (2020) 1 SCC (Civ) 48] this Court speaking through Nariman, J. reiterated the proposition that the period of limitation for making an application under Section 7 or 9 IBC was three years from the date of accrual of the right to sue, that is, the date of default.
102. In Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd. [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158 : (2019) 4 SCC Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 57 of 85 (Civ) 308] this Court rejected the contention that the default was a continuing wrong and Section 23 of the Limitation Act, 1963 would apply, relying upon Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, 1959 Supp (2) SCR 476 : AIR 1959 SC 798]."
26. This Court further went on to observe thus:
"136. A final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorising the creditor to realise its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the recovery certificate.
*** **** ***
141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid."
[emphasis supplied]
27. It could thus be seen that this Court in the case of Dena Bank (supra) in paragraphs 136 and 141, has in unequivocal terms held that once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate. It has further been held that issuance of a certificate of recovery in favour of the financial creditor would give rise to a fresh cause of action to the financial creditor, to initiate proceedings under Section 7 of the IBC for initiation of the CIRP, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 58 of 85
85. To conclude, we hold that a liability in respect of a claim arising out of a Recovery Certificate would be a "financial debt" within the meaning of clause (8) of Section 5 of the IBC. Consequently, the holder of the Recovery Certificate would be a financial creditor within the meaning of clause (7) of Section 5 of the IBC. As such, the holder of such certificate would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate.
86. We further find that the view taken by the two−Judge Bench of this Court in the case of Dena Bank (supra) is correct in law and we affirm the same. We further find that in the facts of the present case, the application under Section 7 of the IBC was filed within a period of three years from the date on which the Recovery Certificate was issued. As such, the application under Section 7 of the IBC was within limitation and the learned NCLAT has erred in holding that it is barred by limitation.''
65. The Learned Counsel for the 1st Respondent / Bank, refers to the decision of the Hon'ble Supreme Court of India in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy & Anr., reported in (2021) 10 SCC at Spl Pg. 374, wherein, at Paragraphs 82 to 86, it is observed as under:
82. ``IBC has overriding effect over other laws. Section 238 of the IBC provides that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any other instrument, having effect by virtue of such law.
83. Unlike coercive recovery litigation, the Corporate Insolvency Resolution Process under the IBC is not adversarial to the interests of the Corporate Debtor, as observed by this Court in Swiss Ribbons Private Limited v. Union of India14.
84. On the other hand, the IBC is a beneficial legislation for equal treatment of all creditors of the Corporate Debtor, as also the protection of the livelihoods of its employees/workers, by revival of the Corporate Debtor through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the Corporate Debtor to its creditors. It only segregates the interests of the Corporate Debtor from those of its promoters/persons in management.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 59 of 85
85. Relegation of creditors to the remedy of Coercive litigation against the Corporate Debtors could be detrimental to the interests of the Corporate Debtor and its creditors alike. While multiple coercive proceedings against a Corporate Debtor in different forums could impede its commercial/business activities, deplete its cash reserves, dissipate its assets, moveable and immoveable and precipitate its commercial death, such proceedings might not be economically viable for the creditors as well, because of the length of time consumed in the litigations, the expenses of litigation, and the uncertainties of realisation of claims even after ultimate success in the litigation.
86. It is, therefore, imperative that the provisions of the IBC and the Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats the purposes of the Act.''
66. The Learned Counsel for the 1st Respondent / Bank, adverts to the Judgment of the Hon'ble Supreme Court of India in Tech Sharp Engineers Pvt. Ltd. v. Sanghvi Movers Limited (vide Civil Appeal No. 296 of 2020, dated 19.09.2022), at Paragraphs 17 to 19, it is observed as under:
17. ``When an appeal is filed against an order rejecting an application on the ground of limitation, the onus is on the Appellant to make out sufficient cause for the delay in filing the application. The date of enforcement of the IBC and/or the date on which an application could have first been filed under the IBC are not relevant in computation of limitation. It would be absurd to hold that the CIRP could be initiated by filing an application under Section 7 or Section 9 of the IBC, within three years from the date on which an application under those provisions of the IBC could have first been made before the NCLT even though the right to sue may have accrued decades ago.
18. The fact that an application for initiation of CIRP, may have been filed within three years from the date of enforcement of the relevant provisions of the IBC is inconsequential. What is material is the date on which the right to sue accrues, and whether the cause of action continuous.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 60 of 85
19. The pendency of the proceedings in a parallel forum, invoked by the Respondent, is not sufficient cause for the delay in filing an application under Section 9 of the IBC. By the time the application was filed, the claim had become barred by limitation.''
67. The Learned Counsel for the 1st Respondent / Bank, seeks in aid of the decision of the Hon'ble High Court of Delhi in Zee Entertainment v. Indusind Bank Ltd. & Anr., reported in (2022) SCC OnLine Del. 2858, whereby and whereunder, at Paragraphs 6, 31 to 35, it is observed as under:
6. ``On 25th February, 2021, learned Predecessor Division Bench directed that no coercive action be taken against the Appellant - Zee till the next date of hearing. The order dated 25 February, 2021 is reproduced hereinbelow:
``Issue notice to the respondents.
Mr. Diwakar Maheshwari, the learned counsel accepts notice for respondent No. 1. Ms. Ritwika Nanda, the learned counsel accepts notice for respondent No. 2. They seek time to get instructions and to file the replies. Replies, if any, be filed before the next date of hearing.
List on 5 April, 2021.
In the meanwhile, as an ex parte ad interim relief, we direct that no further coercive steps shall be initiated against the appellant by the respondent Bank, insofar as the dispute in question is concerned, till the next date of hearing.''
31. Therefore assuming that IBC proceeding initiated by Respondent No.1 -
bank is not a recovery proceeding, one will have to examine if IBC proceeding initiated by Respondent No. 1 - bank is violative of order dated 25 February, 2021.
32. In the opinion of the Court, order dated 25 February, 2021only restrains the Respondent No.1 - bank from initiating coercive steps against Appellant - zee. It is settled law that IBC proceeding is neither coercive nor adversarial to the interest of corporate debtor and guarantor. The Supreme Court in Swiss Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 61 of 85 Ribbons Private Limited v. Union of India, (2019) 4 SCC 17, has held as under:-
``28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14, is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timeline within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through, its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.'' (emphasis supplied)
33. In Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy (supra) the Supreme Court has held as under:-
`83. Unlike coercive recovery litigation, the corporate insolvency resolution process under the IBC is not adversarial to the interests of the corporate debtor, as observed by this Court in Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India].
84. On the other hand, the IBC is a beneficial legislation for equal treatment of all creditors of the corporate debtor, as also the protection of the livelihoods of its employees / workers, by revival of the corporate debtor through the entrepreneurial skills of persons other than those in its management, who failed to clear the dues of the corporate debtor to its creditors. It only segregates the interests of the corporate debtor from those of its promoters / persons in management.
(emphasis supplied) Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 62 of 85
34. Consequently, initiation of IBC proceeding by Respondent No.1- bank does not constitute a coercive step against the Appellant - Zee and is therefore not prohibited by virtue of the orders dated 25th February, 2021 and 03rd December, 2021 passed by this Court.
THE TERM `RECOVERY' USED IN THE ORDER DATED 3rd DECEMBE, 2021 IS A GENERIC TERM TO INCLUDE ANY OR ALL LEGAL REMEDIES AVAILABLE TO THE RESPONDENT NO. 1 - BANK UNDER APPLICABLE LAWS TO REALISE THE AMOUNT DUE TO IT
35. This Court is in agreement with the submission of Dr. Singhvi that the term `recovery' used in the order dated 03rd December, 2021 is a generic term to include any or all legal remedies available to the Respondent No.1 - bank under applicable laws to realise the amount due to it. After all, the ultimate object of IBC is resolution of insolvency, where commencement of insolvency is determined by occurrence of a payment default and the resolution is achieved through recovery of dues of financial creditors from the proceeds of resolution.''
68. The Learned Counsel for the 1st Respondent / Bank, refers to the Judgment of the Hon'ble Supreme Court of India, dated 11.05.2023, in M. Suresh Kumar Reddy v. Canara Bank & Ors., (vide Civil Appeal No.7121 of 2022), whereby and whereunder, at Paragraphs 12 & 13, it is observed as under:
12. ``A Review Petition was filed by the Axis Bank Limited seeking a review of the decision of Vidarbha Industries1 on the ground that the attention of the Court was not invited to the case of E.S. Krishnamurthy2. While disposing of Review Petition by Order dated 22nd September 2022, this Court held thus:
"The elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 63 of 85 To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes."
13. Thus, it was clarified by the order in review that the decision in the case of Vidarbha Industries1 was in the setting of facts of the case before this Court. Hence, the decision in the case of Vidarbha Industries1 cannot be read and understood as taking a view which is contrary to the view taken in the cases of Innoventive Industries3 and E.S. Krishnamurthy2. The view taken in the case of Innoventive Industries3 still holds good.'' Gist of 2nd Respondent / Resolution Professional's Report:
69. The `2nd Respondent / Resolution Professional', took over the `Corporate Debtor', from the former `Interim Resolution Professional'.
Further, as soon as the `2nd Respondent', took charge of the `Corporate Debtor', replacing former `Interim Resolution Professional', the `Suspended Director' of the `Corporate Debtor', had issued `Contempt Notices', dated 25.10.2022 and 28.10.2022, requiring the `2nd Respondent', to exhibit restraint, in the `Corporate Insolvency Resolution Process', of the `Corporate Debtor', as the same amounts to `breach' of the `Order', passed by the Hon'ble Madras High Court on 04.12.2019 and also brought to the knowledge of the 2nd Respondent, the `Order', passed by the Hon'ble Division Bench in Contempt Petition on 12.10.2022. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 64 of 85
70. According to the 2nd Respondent, till now, the `Suspended Directors' of the `Corporate Debtor' (including the `Appellant'), had refused to co-operate with the `2nd Respondent', by not providing the necessary records, to enable the 2nd Respondent, to make `Statutory Compliances', and seeking co-operation from the `Suspended Directors' of the `Corporate Debtor', the 2nd Respondent is contemplating an `Application', under Section 19 (2) of the I & B Code, 2016.
71. The Learned Counsel for the 2nd Respondent, brings it to the notice of this `Tribunal', that the 2nd Respondent, had conducted the `3rd Committee of Creditors Meeting', on 29.10.2022, after duly complying with the necessary procedures. As a matter of fact, the Representatives of the 1st Respondent / Bank, attended the said Meeting, in which, among other issues, a `Proposal', to approach the `Ld. Adjudicating Authority' / Tribunal', seeking exclusion of 131 days from 08.06.2022 to 16.10.2022, being the `timeline', after the `Resolution', was passed by the `Committee of Creditors', to `replace;' the `Interim Resolution Professional', till the date on which, the `Order', was passed by the `Adjudicating Authority' / `Tribunal', appointing the `2nd Respondent', as the `Resolution Professional' of the `Corporate Debtor', was made available, thereby enabling to take charge of the `Corporate Debtor', came up for Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 65 of 85 `discussion / deliberation', and it was resolved that the 2nd Respondent, ought to approach the `Hon'ble Adjudicating Authority', in seeking exclusion of the aforesaid `timeline', from the `Corporate Insolvency Resolution Process' Period.
72. The Learned Counsel for the 2nd Respondent, points out that in Cont. Petn. No.1260 / 2022, filed by the `Suspended Directors', before the Hon'ble Madras High Court, a submission was made that the 2nd Respondent, was taking steps to `alienate' the `Property', in issue', and by an `Order', dated 28.11.2022, the Hon'ble Division Bench of the Hon'ble High Court, had directed the `Parties' concerned, to maintain `Status Quo', as on date, with regard to the `alienation' of the `Property'.
73. On behalf of the 2nd Respondent, it is brought to the fore on 05.12.2022, the `4th CoC Meeting', took place and on 06.12.2022, the `Adjudicating Authority' / `Tribunal', was pleased to `dismiss' the `Time Exclusion Petition', filed by the 2nd Respondent, but a `liberty', was granted to the 2nd Respondent, to move for an extension of `Corporate Insolvency Resolution Process' Period. A `Revision', was filed before the Hon'ble High Court, and the same is pending consideration.
74. Apart from that, in the `5th Committee of Creditors Meeting', on 05.01.2023, it was noted that since the `Corporate Insolvency Resolution Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 66 of 85 Process' Period of 180 days got lapsed by 10.10.2022, it was proposed to approach the `Adjudicating Authority' / `Tribunal', seeking an extension of time, for the `maximum Corporate Insolvency Resolution Process Period of 330 days', the `Committee of Creditors' with `100% Vote Share', had voted in favour of the said `Resolution', and an `Application', seeking `Extension' of `Corporate Insolvency Resolution Process', was being filed.
75. The Learned Counsel for the 2nd Respondent, points out that because of the inaction of the `Former Interim Resolution Professional', there was no progress in the `Corporate Insolvency Resolution Process' of the `Corporate Debtor', and because of the non-cooperation of the `Suspended Directors' of the `Corporate Debtor', the `Applicant', is not in a position to make `Statutory Compliances'.
I & B Code, 2016:
Claim:
76. Section 3 (6) of the Code, defines `Claim' meaning;
(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 67 of 85
(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured. Corporate Debtor:
77. Section 3 (8) of the Code, defines `Corporate Debtor' meaning, `a corporate person who owes a debt to any person'.
Creditor:
78. Section 3 (10) of the Code, defines `Creditor' meaning, `any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder'. Debt:
79. Section 3 (11) of the Code, defines `Debt' meaning, `a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt'.
Default:
80. Section 3 (12) of the Code, defines `Default' meaning, `non- payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1[paid] by the debtor or the corporate debtor, as the case may be'.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 68 of 85 Financial Creditor:
81. Section 5 (7) of the Code, defines `Financial Creditor', meaning, `any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to'. Financial Debt:
82. Section 5 (8) of the Code, defines `Financial Debt', meaning, `a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes-
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold on non-recourse basis;
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
1
[Explanation. - For the purposes of this sub-clause, -
(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 69 of 85
(ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub- clause (a) to (h) of this clause;'.
83. Where a certain `Debt', is owed by a `Corporate Debtor', to a `Financial Creditor', in respect of `repayment of Sum', received by a `Corporate Debtor', the `Debt', can be classified as `Financial Debt', under Section 5 (8) of the Code.
Financial Position:
84. Section 5 (9) of the Code, defines `Financial Position', meaning, `in relation to any person, means the financial information of a person as on a certain date'.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 70 of 85 Section 7 Application (u/n. I & B Code):
85. Indeed, the right to `apply', under section 7 of the Code, accrues to a `Person / Entity', only when it came into force. An `Application', under Section 7 of the I & B Code, 2016, is only `maintainable', by a `Financial Creditor'.
86. Further, a `Person', `opting to file / preferring' of `Insolvency Proceedings' of the I & B Code, 2016, will be his / its `conscious decision', who is `entitled', to `file such an Application / Petition', and to that extent, a `Creditor', cannot be `restricted', from filing such an `Application', in accordance with `Law', as opined by this `Tribunal'.
87. The provisions of I & B Code, 2016, can be invoked even when it is known to the `Financial Creditor', that there is no possibility of keeping the `Company', as a `Going Concern'.
88. It is not the `Property', which is at the foundation of the `Code', it is the `Cash Liquidity', which is the basis for triggering the `Corporate Insolvency Resolution Process'.
89. A mere `Dispute', about the quantum of payment does not affect the right of a `Financial Creditor'. Unlike, Section 9 of the I & B Code, 2016, there is no `ambit' of raising a `Dispute', as far as Section 7 Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 71 of 85 Application of the I & B Code, 2016, is concerned, where `Debt and Default', is established.
90. Under Section 7 of the I & B Code, an `Applicant', has to prove an `existence of Debt', due from the `Corporate Debtor'. Undoubtedly, the `Corporate Debtor' or its `Directors', can point out that the `Debt', is not payable by the `Corporate Debtor' in `Law' and in `Fact'.
91. An `Adjudicating Authority', under the I & B Code, 2016, is not a `Court of Law', and it does not decide a `Money Claim' or `Suit', in a `Summary Manner'.
92. An `Application', under Section 7 of the Code, 2016, is to be considered by an `Adjudicating Authority', on its own merits, taking into `consideration of Records'.
93. As a matter of fact, an `Adjudicating Authority', is not to ascertain the `Quantum of Default', like how much Sum is really due to the `Financial Creditor'?
94. Under the I & B Code, 2016, the shift is from `inability to pay', to an `existence of Default'. The circumstances under which a `Corporate Debtor', could not repay the `Financial Debt', need not be taken as a defence in a proceeding, under the I & B Code, 2016.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 72 of 85
95. What is essential is to exhibit that the `Debtor', had committed a `Default', after the `Debt', had become `Due' and `Payable', by a `Debtor' and no more.
96. It is pointed out that the pendency of proceedings before the `Debt Recovery Tribunal', is not a bar, for the `Financial Creditor', to initiate an action against the `Corporate Debtor'. That apart, an `Adjudicating Authority', need not wait for the decision of `Debt Recovery Tribunal', while rendering its findings.
Construing of Judgments:
97. It must aptly be borne in mind that the Hon'ble Supreme Court in the Order dated 22.09.2022 in Review Petition (Civil) No. 1043 of 2022 in Civil Appeal No. 4633 of 2022, in the matter of Axis Bank Limited v. Vidarbha Industries Power Limited, had observed the following:
``The elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case.'' Discretion:
98. In fact, `Discretion', must be governed by `Rule, not by `Humour', and it must not be a `fanciful', `vague' and an `arbitrary' one, but a legal Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 73 of 85 and regular. Also the word `Discretion', implies a `vigilant circumspection and care'. Moreover, if a `Legislature', concedes a wide discretion, then, a heavy responsibility is `imposed', as per decision AIR 1933 Sind. Page 49.
Discussions:
99. Before the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai), the `1st Respondent / Bank / Financial Creditor', had filed an `Application', seeking to initiate `Corporate Insolvency Resolution Process', against the `2nd Respondent / Corporate Debtor' / `M/s. INMA International Limited' (under Section 7 of the I & B Code, 2016, read with Rule 4 of the I & B (AAA) Rules, 2016, and in `Part - IV' of `Form I' of the `Application', under the Column `Total Amount of Debt Granted', it was mentioned that the `Corporate Debtor', has lastly availed `MCC Facility', to the tune of Rs.13 Crores (combination of existing clean CC of Rs.5 Crores and CCH limit of Rs.8 Crores) with permission to avail `LC' as sub limit to an extent of Rs.3 Crores and `Inland Letter of Credit', to the tune of Rs.6 Crores (renewal with reduction), based on `Sanction Letter', dated 27.09.2013.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 74 of 85
100. Indeed, the amount claimed to be in `Default', by the `2 nd Respondent / Corporate Debtor', was Rs.14,08,75,444.17/- towards MCC Facility as on 15.10.2018 and with future interest at contracted rate payable to the Indian Overseas Bank. Statement of Accounts in respect of each facilities, with Certificates, as required under the `Banker's Books Evidence Act'.
101. Before the `Adjudicating Authority' / `Tribunal', the `2nd Respondent / Corporate Debtor', had filed a `Counter', to IBA/49/2019 (filed by the 1st Respondent / Bank / Financial Creditor), among other things, stating that the `mutual liabilities' and `obligations', were finally determined by the `Jurisdictional Tribunal', namely `Debt Recovery Tribunal - II', Chennai, through its `Order', dated 30.05.2019, in OA No. 633 / 2016 and CC No. 6 / 2018.
102. The stand of the 2nd Respondent / Corporate Debtor, before the `Adjudicating Authority' / `Tribunal' was that `there were no `Dues', payable by the `Corporate Debtor' to the `Financial Creditor', for that the 2nd Respondent / Corporate, had repaid the `Amounts', in excess of the Principal Amount borrowed, it is the Financial Creditor has to `Repay', such overpaid monies to the `Corporate Debtor'.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 75 of 85
103. According to the 2nd Respondent / Corporate Debtor, it sofar paid an amount of Rs.18,22,51,624/- to the 1st Respondent /Bank / Financial Creditor, and after adjusting such payments to the Principal Amount, it is the `1st Respondent', that has to `Repay', to the `Corporate Debtor', an excess payments, made by the Corporate Debtor. When there is no `Liability', on the 2nd Respondent / Corporate Debtor, towards the 1st Respondent / Bank / Financial Creditor, the present Application, filed by the 1st Respondent / Bank / Financial Creditor, is not `maintainable' and to be `dismissed in limine'.
104. The clear cut stand of the 2nd Respondent / Corporate Debtor is that, in the teeth of the `Final Order', passed by the `Debt Recovery Tribunal - II', Chennai, there are `no Dues or Outstandings', payable by the `Corporate Debtor', to the `1st Respondent / Bank / Financial Creditor', and therefore, the present `Application', is not at all `maintainable'.
105. The 2nd Respondent / Corporate Debtor, in its Written Submissions to IBA/49/2019 (filed before the `Adjudicating Authority' / `Tribunal'), took a plea that the `Corporate Debtor'/ (2 nd Respondent in `Appeal, had made payments, in excess to the tune of about Rs.2/- Crores, to the 1st Respondent / Financial Creditor / Bank, as per the Debt Recovery Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 76 of 85 Tribunal's Final Order dated 30.05.2019, but the 1 st Respondent / Bank / Financial Creditor, had disputed the same and filed a `Statement of Accounts', before the `Adjudicating Authority', on 03.08.2019, mentioning that `Still a sum of about Rs.52 Lakhs, was Due', as per the `Final Order' of the `DRT - II', Chennai, in `OA No. 633 / 2016', and a `Counterclaim' No. 6 / 2018'.
106. It is represented on behalf of the 2nd Respondent / Corporate Debtor that, it had effected the payment of Rs.52 Lakhs to the `1st Respondent / Bank / Financial Creditor', without prejudice to its rights on 21.08.2019. That apart, from the `Date of Non Performing Asset', the 2nd Respondent / Corporate Debtor, had paid an amount of Rs.14.13 Crores, and as such the whole amount, was paid in `full' and this no `Event of Default', on the part of the `2nd Respondent / Corporate Debtor'.
107. The other contention of the 2nd Respondent / Corporate Debtor, is that, in view of the `Order of Injunction', granted by the Hon'ble Madras High Court, against the `1st Respondent / Bank / Financial Creditor', preventing it, in taking any coercive steps, against the `2nd Respondent / Corporate Debtor' or their `Properties', pending `disposals' of the `Writ Petitions', and they cannot proceed any further in the main IBA/49/2019 Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 77 of 85 which, if `proceeded with', will be in `Contempt' of the `Orders' of the `Hon'ble High Court'.
108. To be noted, that according to the 1st Respondent / Bank, as per the `Order' of the `Debt Recovery Appellate Tribunal', the `2nd Respondent / Corporate Debtor', was `liable', to pay to the `Bank', a sum of Rs.3,55,32,235.80/-, as on 14.11.2019.
109. Before the `Adjudicating Authority' / `Tribunal', the `1 st Respondent / Bank / Financial Creditor', had filed a `Memo', on 01.03.2022, stating that as per the `Order' of the `Debt Recovery Appellate Tribunal', the `Amount in Default', which was recoverable from the 2nd Respondent, as on 14.11.2019, was a sum of Rs. Rs.3,55,32,235.80/- and that the `Amount in Default', as on 01.03.2022, was Rs.4,29,94,004/-.
110. On behalf of the Appellant, it is pointed out before this `Tribunal' that Section 7 (2) of the I & B Code, 2016, requires the `1st Respondent / Bank / Financial Creditor', to submit in the `Specified Form', and as per ingredients of Section 7 (5) (b) of the Code, where an Application is `incomplete', the same is liable to be `rejected'. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 78 of 85
111. Besides the above, it is represented on behalf of the Appellant that the 1st Respondent / Bank / Financial Creditor, had suppressed the date of `Default' (Viz. 30.12.2014) in Form-I, since the failure to `Declare / Disclose' the `Sum' and `Date of Default', would render the whole `Application', incomplete and thus, liable to be `rejected', as per Section 7 (2) of the Code.
112. The `Plea' of the Appellant is that, the `Adjudicating Authority' / `Tribunal', had exercised its `Discretion', without any basis and inspite of abundant material produced before it, elaborating that (a) there being no amount in default; (b) there being no valid debt being demonstrated by the 1st Respondent (c) the conduct of the 1st Respondent in creating dubious accounts in the name of the CD leading to the CD making a counter claim against the 1st Respondent; and (d) the interim order of the High Court of Madras dated 04.01.2020, recording prima facie case in favour of the CD in its challenge against the DRAT's order dated 14.11.2019 and affording `interim protection', which continues till date.
113. According to the 1st Respondent / Bank / Financial Creditor, the `Liability of the `2nd Respondent / Corporate Debtor', as on 15.11.2019, in terms of the `Order', of the `Debt Recovery Appellate Tribunal', was Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 79 of 85 3,55,32,235.80/- and the `Liability', as on 01.03.2022 was Rs.4,29,94,004/-.
114. Furthermore, it is the stand of the 1st Respondent / Bank / Financial Creditor, that they are `entitled, to recover the dues together with contractual rate of interest'. If the said rate of interest is applied the amount that would be recovered as on 30.05.2019 itself was Rs.12,88,56,263.18/-.
115. At this stage, this `Tribunal', pertinently points out that `in a `Proceeding' (Filed under Section 7 of the I & B Code, 2016, by a Petitioner / Financial Creditor), an `Adjudicating Authority' / `Tribunal', is not concerned with the `Dispute'/ `Controversy', between the `Respondent / Corporate Debtor' and the `Petitioner / Financial Creditor', as regards the `quantum'. Ofcourse, when a `Claim' is made, it is for the `Resolution Professional', to `quantify' the `Claim Sum', to be paid.
116. An `Adjudicating Authority / Tribunal', under I & B Code, 2016, is necessarily to ascertain as to whether, there is any `Default', and whether the `Liability of the `Respondent / Corporate Debtor', is more than the `Limit', prescribed under the Section 4 of the Code. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 80 of 85
117. Although, the `Debt', is `Disputed', if the said `Sum', is more than the `Amount', specified under Section 4 of the I & B Code, 2016, an `Adjudicating Authority / Tribunal', has to admit the Section 7 Application of the I & B Code, 2016, and the said `Application', cannot be `rejected', merely on technical grounds.
118. No wonder, an `Adjudicating Authority' / `Tribunal', is to exercise its `Judicial Discretion', in dealing with an `Application' (Filed under I & B Code, 2016), in accordance with `Law', and based on facts, evidence and circumstances of the given case.
119. It is not out of place for this `Tribunal', to relevantly make a significant mention that not only the `Corporate Debtor', had filed WP Nos.33396, 33398 & 33399 of 2019, before the Hon'ble Madras High Court, challenging the `Order', passed by the `Debt Recovery Appellate Tribunal', but, also the `1st Respondent / Bank / Financial Creditor', had filed WP No. 3412 / 2020, 3419/2020 and 3427 / 2020 (seeking to displace the `Orders of Tribunal', pertaining to the `award of lesser interest') and a crystalline fact of the matter is that the `Order' of the `Debt Recovery Appellate Tribunal', has not been `Stayed', and therefore the `amount', decided by the `Debt Recovery Appellate Tribunal', remains, in the considered opinion of this `Tribunal'. Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 81 of 85
120. Coming to the `Plea' of the `Counterclaim(s)', it is to be pointed out that they are `independent rights', and there is no `fetter', enjoined upon the `Corporate Debtor', to pursue the same in other `Judicial Fora', if it so desires / advised.
121. In regard to the `Plea' of the Appellant that against the `Senior Executive of the 1st Respondent / Bank', Contempt Petition No. 1260 of 2022, is pending (Filed by the Appellant), in regard to the alleged Violation of the Order dated 04.12.2019 in WMP No. 33866 of 2019 in WP No. 33396 of 2019, passed by the Hon'ble Madras High Court and later extended, until further `Orders', on 28.02.2020, it is for the `Appellant', to take a call in the matter, as he deems fit and proper, because of the fact that `Contempt Proceeding', is not a `Dispute', between the `Parties', and the `Proceeding', is primarily between the `Court', and the `Contemner', as per decision in State of Maharashtra v. Mahboob S. Allibhoy & Another, AIR 1996 SC 2131.
122. In the case on hand, before this `Tribunal', although, on the side of the Appellant, a reference is made to the `Order' dated 04.12.2019 of the Hon'ble Madras High Court in WMP No. 33866 of 2019 in WP No. 33396 of 2019, whereby and whereunder, an `Order of Ad-interim Injunction', as prayed for, till 21.01.2020, was granted, and it was made Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 82 of 85 clear that till the `Disposal' of the `Writ Petition', the `Writ Petitioners', shall not `create any Third Party Rights', in respect of the `Properties, in question', this `Tribunal', is of the earnest opinion that there was no `embargo' upon the `Adjudicating Authority' / `Tribunal', in not `Proceeding with the IBA/49/2019' (Filed by the `1st Respondent / Bank / Financial Creditor').
123. One cannot remain in oblivion of a vital fact that the `Order' of the `Debt Recovery Tribunal', between the `Parties', indeed, merged with the `Order' of the `Debt Recovery Appellate Tribunal', dated 14.11.2019, and on 15.11.2019, a Sum of Rs.3,55,32,235.80/- was `due and payable', being in `Default', and the same was not `paid', by the `Corporate Debtor', according to the `1st Respondent / Financial Creditor / Bank'.
124. The prime fact to be taken note of in repelling the plea of the `Appellant' that the `Liability', has not crystallised in a definite manner is that a `Final Order', came to be passed by the `Debt Recovery Appellate Tribunal', as per Section 19 (20) r/w. Section 22 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It cannot be gainsaid that the `Order' of a `Court' / `Tribunal', determining the `Default', is a Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 83 of 85 `cementing platform', evidencing `Financial Debt', as opined by this `Tribunal'.
125. Be that as it may, as far as the present case is concerned, considering the fact that the `Due' of the `2nd Respondent / Corporate Debtor', is more than the `Threshold Limit' of `Rs.1 Lakh', under Section 4 of the I & B Code, 2016, and the same is to be `paid', both in `Law' and in `Fact', this `Tribunal' without any `haziness', comes to a cocksure conclusion that the `aspect of Debt and Default', committed by the `2nd Respondent / Corporate Debtor', is proved to its subjective satisfaction. Therefore, the `1st Respondent / Bank / Petitioner', has rightly initiated the `Corporate Insolvency Resolution Process', by filing `IBA/49/2019', before the `Adjudicating Authority' / `Tribunal' (under Section 7 of the I & B Code, 2016), and the same was rightly `admitted', by the `Adjudicating Authority' (`National Company Law Tribunal', Special Bench - II, Chennai), through an `Order' dated 13.04.2022, exercising its `Judicial Discretion', based on the `attendant facts and circumstances of the case', which is free from any `legal infirmities'. Viewed in that perspective, the instant `Appeal' fails.
Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 84 of 85 Disposition:
In fine, the instant Comp. App (AT) (CH) (INS.) No. 143 of 2022 is `Dismissed'. No costs. The connected pending IA No. 330 of 2022 (`For Stay') is Closed.
[Justice M. Venugopal] Member (Judicial) [Shreesha Merla] Member (Technical) 27 / 06 / 2023 SR / NG Comp. App (AT) (CH) (INS) No. 143 of 2022 Page 85 of 85