National Company Law Appellate Tribunal
Neelkanth Township And Construction ... vs Urban Infrastructure Trustees Ltd on 11 August, 2017
11. THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL.
COMPANY APPELLATE JURISDICTION
••.0.
Company Appeal (AT) (Insolvency) No. 44 of 2
(arising out of Order.dated 21st April2017 passed by NCLT, Mumbai
Bench, Mumbai In C.P.No. 69/I&BP/NCLT/MAH/2017
•:Ne.elnth Township and Construction.
Pvt. Ltd. .Appellant
Vs..
Uban Infrastructure Trustees Limited Respondent
Present: For Appellants: Dr. UK.Chaudhaty, Senior Advocate
with Mr. Kush Chaturveda, Ms Anshula Grover, Ms
Chaitrika Pathi, Mr. Aman Uarma, Mr. Saket Mone and
Mr. Bimanshu Vij, Advocates.
For Respondents: Mr. Jaideep Gupta, Sr. Advocate with
Mr. Arif Doctor, Ms. Surekhararnan: and Anuj .Sharma,
Advocates. .
JUDGEMENT
SUDHANS.0 JYOTI. MUKHOPADRAYA,J.
This appeal has been preferred by Appellant/ Corporate Debtor against order dated 2 1t April 2017 passed by Learned Adjudicating Authority, (National Company Law Tribunal), Mumbai Bench, Mumbai, in C P No 69/l&BP/NCLT/MAH/2017. By the impugned order Learned Adjudicating Authority entertainedthe application preferred by the Respondent Financial Creditor .uiider Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as 'I & B Code'), admitted the application and ordered moratorium with further order appoint an Insolvency Resolution Professional and passed consequential directions.
Learned Counsel, for the Appellant-Corporate Debtor assailed the impugned order mainly, on the:.following grounds: -
The application filed by Respondent under Section 7 is. 4efectie. and not complete. as it was not accompanying the documents, as mandàthd by sub-section (3) of. Section 7 of the 'I & B Code'.
(ii) The application under section .7 is tinie barred, as the debt..
.
claimed related to the years 2011, 2.012 and 2018.
(iii) That the 'default of debt' as claimed by Respondent. .has not been admitted by the Corporate Debtor. and (iv That the Respondent is. not a 'Financial Creditor', but an .Itivestor. Learned counsel for the appellant . submitted that an application by a 'Financial. Creditor' under Section 7 can only be filed when it is.furnished with the documents..provided under Sub-section (3).. of SectiOn 7 and none other, namely (a) a record of the default as recorded with the information utility (b Such other record or evidence OI..default as may be specified. .4. The expression "such other record .01 evidence of default" as may be, specified can only be such record or evidence as is specified by the insolvency and Bankruptcy Board of India (hereinafter referred to as "the Board") under Cf sub-section 2(f) of Section 240 of & B Code'. Reliance was also placed. on definition of the word "specified" as defined under Section 3(32) of the 'J&B Code' Learned .counsel for the appellant placed reliance on decision of this Appellate Tribna1 in 'Smart Timing Steel Limited Vs. National Steel & Agro Industries Ltd."": Company Appeal (AT)(Iris) No. 28 of 2017 to suggest that the provision of sub-section .3(a) of SectiOn 7 is mandatory.
was also. submitted that it was .th• Of the inso1venc and Bankruptcy Board of India (In short "Doard") to specify Regulations and in absence of the same the proceeding under Section 7 of 18& B Code' cannot be initiated.
7. In support of the second contention it was submitted that the time barred debt cannot be enforced by filing an application for Corporate Insolvency Resolution Process The claim of the 'Financial Creditor', is completely time. barred as the debenture certificates were due for redemption as far back as in the years 2011, 2012 and. 2013 respectively. Consequently, the application filed by the Financial Creditor' in the.year 2017 is hopelessly time barred.
It was next submitted that the respondent does not come within the Irneaning of "Financial Creditor" as defined in sub-section (7) read with sub- section(8) of Section 5. of the 'I & B code'. No 'financial debt' is owed to the Respondent.
9. .:Counsel for the Appellant further submitted that 'Debenture Certificates' forming basis of claim of the Respondent do not fall within the definition of 'financial debt' as provided under sub-section (8) of Section 5 of the 'I & B Code' A plain reading of the definition of 'financial debt' makes it apparent that it is the debt which is only if disbursed against the consideration for time value of money. Therefore, there has to be a consideration flowing from the advance of money which is at par with the time value of money. Since the 'debenture certificates' issued to the Respondent were carrying zero interest and another was carrying only one percent interest, the same were not issued against consideration for time value of money, as envisaged under sub-section
(a) of Section 5. The debenture certificates were purchased bylRespondent only by way of an investment, and do not come within the meaning of 'financial debt'..
10 Learned Counsel for the appellant also placed reliance on definition of "debt" as defined under sub-section (1.1.) of Section 3 of the '1 & B Code' It was further contended that there is pendency of proceedings. between the parties as the 'Financial Creditor' has already invoked arbitration against the 'Corporate Debtor' for the same cause of action which is an admitted fact
11. In reply Learned Counsel appearing on behalf of the respondent submitted that in absence of the Regulations framed by the Board, the statutes (I & B Code) cannot be made ineffective, having come into force since 15th December 2016 Reliance, was also placed on Insolvency and Bankruptcy (Adjudicatmg Authority Rules, 2016) (hereinafter referred to as Adjudicatoiy Rules) framed by the Central Government, under section 239 of the 'I & B Code! 12 Learned Counsel for the respondent submitted that the Balance Sheet of 'Corporate Debtor' was noticed by Learned Adjudicating Authority, before admitting the case Reliance was also placed on Regulation 8(2) and To C"
of Insolvency andBankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) ReguIatioiis 2016 (hereinafter referred to 'Corporate Person'), Regulation 20.1:6.
13. The question to be determined is whether in absence of record of default as recorded with the information utility or any other "record or evidence of default" specified by the Board, an application under Section 7 is maintainable or not?
14. Process of initiation of Insolvency .Resclu•tiOh process by a financial creditor is provided in Section 7 (if the I & B Code As per sub-section (1) of Section 7 of the..1 & B Code, the trigger for filing of an application by a financial creditor before the Adjudicating Authority is when a default in respect of any financial debt has occurred Sub-section (2) of Section 7 provides that the financial creditor shall make an application in prescribed form and manner and with prescribed documents, including "record of the default" recorded with the information utility of such other record or evidence of default as may be specified"
15. 'Once the application is flied by the 'Fi4;cia1 Creditor' with the Adjudicating Authority, the Adjudicating Authority, within 14 days of the receipt of the application under sub-section (2) of Section 8 required to ascertain the existence of default from the records of an information utility or on. the basis of Other evidence furnished by the 'fiiancial creditO? under sub- section (3)(a) of Section 7 .16 'Financial Creditor' along with, the ap.plicati:n. required to be furnished information and other facts as prescribed under sub-section (3) of Section 7 Where the Adjudicating Authority is satisfied that a default has occurred and; the application under sub-section (2) is complete, and there are no disciplinary proceedings pending against the proposed resolution professional, it can admit such application and in case the application is incomplete, required to provide 7 days' time to complete the record and on failuie is to dismiss the application 17 The aforesaid facts are to be considered from the procedure for initiation:
of corporate insolvency resolution process by 'financial creditor' as mandated under Section 7 of 'I & B Code', and quoted below--
A financial creditor either by itself orjointly 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, adefault includes a default in respect of afinancial 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.
(3). The financial creditor shall, along with the appljOation, frrnish-
(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 nsb1Ütio,t professional, it may, by order, admit such application, or (I,) 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"
I It is well settled that rules of procedure are to be construed not to frustrate or obstruct the process of adjudication under the substantive provisions of law A procedural provision cannot override or affect the substantive obligation of the adjudicating authority to deal with applications under Section 7 merely on the ground that Board has not stipulated or framed Regulations with regard to sub-section 3(a) of Section T. The language of Section 240, whereby Board havebeemempow6te&to. frame reguiátionSis; clear at the said regulation should be consistent with the 1 & B' Code and the es made thereunder by the Central Government.. In exercise of power conferred by Section 239 read with Sections 7, 8, 9 and 10 of the 'I & B code, the Central Government framed the rules known as "Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as 'Adjudicating Authority Rules, 2016). As per Rule 41, a Financiai Creditor' required to apply itself O.r jointly in an application :Under Section 7 in terms of Formj .attac:hed thereto. Part V of Form-? deals with particulars of 'Financial Debt' (documents, record and evidence: of defaült, as quoted below..-
PART V PARTICULARS OF FINANCIAL DEBT( DOCUMENTS, RECORDS AND EVIDENCE OF DEr'AUL27• PARTICULARS OF SECURITY HELD,: IF ANY, THE.DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR. ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS COMPANY) 2, PARTICULARS OF AN ORDER OF .A COURT, TRUNAL OR ARB1TRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTAcHA COPY OF THE ORDER) RECORD OF DEFAULT WITH THE INFORMATION UTILITY, ANY (ATTACH A COPY OF SUCH RECORD)
4. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL OR LETTER OF ADMINISTRATION, OR COURT DECREE (AS MAYBE APPLICABLE), UNDER THE I1VfjL1W SUCCESSION ACT, 1925 (10 OF 1925) (ATTAcHA COPY)
5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH A COPY) .6. A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREbi1:; INFORMATION COMPANY (ATTACH A COPY) Z. COPIES OF ENTIRES IN A BANKERS BOOK LW ACCORDANCE WITH THE BANKERS BOOKS. EVIDENCE ACT, 1891 (18 OF 1891)
8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT"
20.. The rules framed by the Central Government Section 2 having prescribed the aocuments, i ecord and evidence of default as noticed above, we hold that in absence of regulation framed by the Board relating to record of default recorded with the information utility or other record of evidence of default specified, "the documents", 'record' and 'evidence of default'prescribed at Part V of Form- 1, of the Adjudicatory Rules 2016 will hold good to decide the default of debt for the purpose of Section 7 of the 'I &.B Code' 21, We further hold that .the"Reguiatiøns framed bythe Board'..bêing: subject, to the provisions of 'I & B Code' and rules framed by the Central Government under Section 239, 'Part V of Form - 1' of Adjudicating Authority Rules, 2016 framed by Central Government relating to 'documents', 'record' and 'evidence of defailt', will override the regulations, if framed by the Board and if inconsistent with the Ride Howeer, it is always open to Board to prescribe additional records in support of default of debt, such as records of default recorded with the information utility or such other record or evidence of default in addition to the records as mentioned in Part V of Form-1. 10 22 At this stage, it: is pertinent to note that the Board has also framed Insolvency Resolution Process for Corporate Persons, Regulations, 2016 ('Corporate Persons Regulation' for short). It has come into force since Notification dated 30th November 2016 was issued Regulation 8 of 'Corporate Persons Regulation', 2016 relate to claims by 'Financial Creditor' Regulation 11(2) relates to existence of debt due to 'Financial Creditor', which is to be proved on the basis documents mentioned therein and quoted below -
"8 Claims by financial creditors (1) A person claiming to be afinancial creditor of the corporate debtor shall submit proof of claim to the interim resolution professional in electronic form in Form C of the Schedule Provided that such person may submit supplementary documents or clarifications in support of the claimbefore the constitution of the committee.
(2) The existence of debt due to the financial creditor may be proved, on the basis of-
(a) the records available with an information utility, if any;
or lb) other relevant documents, including -
(i) a financial contract supported by financial statements as evidence of the debt;
(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor, ii.
(iii) financial statements àhoivihg that the debt has not been repaid; or
(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any."
23. .. o 'Form - C' attached to the Regulation relates to proof of Claim 'Financial Creditor' whereunder at Serial No. 10, the Financial Creditor' is supposed to refer the list of documents in proof of claim in order to prove the existence and non-payment of claim dues to the 'Operational Creditor' erefore, the stand of the appellant that the Board has not framed any Regulations, relating to clause (a) of sub-section (3) of Section 7, cannot be accepted.
24.. The next ground taken on behalf of the appellant is that the claim of the respondent is barred by limitation, as the Debentures were matured between the year 2011 - 2013 is not based on Law There is nothing on the record that Limitation Act, 2013 is applicable to I & B Code Learned Counsel for th appellant also failed to lay hand on any of the provision of I & B Code to suggest that the Law of Limitation Act, 1963 is applicable The I & B Code, 2016 is not An Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default of debt and having continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted.
25 Next question arises is whether the respondent come within the meaning of 'Financial Creditor' or not,.
• 6. For determination of the.aforesaid is$ue, it is desirable to notice meaning Of "Financial Creditor', as defined in sub-section (7) of Section 5 of 'I & B Code', and quoted hereunder:
"(7 'financial creditor" means any person to whom a financial debt is. owed and includes aperson to whom such debt has been legally, assigned or transferred to
27. 'Financial Debt' means a debt, along with interest, if any, which is. ;disbursed against the consideration of time value and money as defined in sub- sectiOn (8) of Section 5, as quoted below: -
"Sec.5. Definitions in this Part, unless the context otherwise requires, (8) 'financial debt" means a debt alongwith interest, if :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 acceptaru:.
'; under . ..y acceptance credit facility or its, de-materialised equivalent;
(c) any amount raised pursuant to.: any iwte purchase facility or the issue of bonds, notes; debentures, loan stock or any similar instrument;
fd, the amount of any liability in . respect of any lease or hire purchase contract which is deemed as. a finance or-
r capital. lease under the Indian Accounting Standards or capital such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold :on nonrecourse basis;
(f) any amount raised under any other transactiort, including any forward . sale or purchase agreement,, having the commercial effect f a:borrowing;
(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 •o 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-clauses (a) to(h) of this clause,b
28. Clause (c) of sub-section (8) of Section '5 deals with any amount raised. pursuant to any note purchase facility or the issue of bonds, notes:
debentures, loan stock or any similar instrument.,
29. From the aforesaid provision, we find that the debentures come within meaning of 'Financial Debt' as defined in Clause ( I sub-section (8) Section. S. .3 Debt' is defined in :.ijb-sectjon (11) of Section 3 means:
"(11) "debt" me a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt"
31. It is admitted that the appellant is debenture holder. The Respondent- 'Corporate Debtor' also pleaded that the appellant is Investor From the relevant facts as we noticed above, we find that the Respondent- 'Corporate Debtor has a liability and obligation in respect of amount which is due to the debenture holder from the 'Corporate Debtor', including 'Financial Debt' 1 e the amount due on maturity of debentures 3 The 'default' means non-payment of debt as defined in sub-section 12 of Section 3, as below: -.
"(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"
33 The fact as pleaded 'and not disputed by Respondent - 'Corporate Debtor' that the 'debenture holder' (Appellant) and amount matured in the year 2011, 2012 and 2013 has not been paid Thus, we find there is a default as defined under section 3(12) of the I & B Code The. 'CorporateDebtor' had a liability and.obli'gatiori in: respect of claim of respondent which includes the 'Financial Debt', including those come within. clause (c) of sub-section (8) of Section 5 As per the agreement, the same was liable to be paid from the date of maturity along with interest, if any and the same having not paid, the default of debt is apparent.
This apart we find that the amount Of debt and. interest, as shown: b appellant was to be disbursed: against consideration: for time value of the. money. Therefore, it cannot be stated that debentures on maturity do not come Within the purview i9f amount payable against the consideration for the time vain..of the money.
35 In, the albresaid background, the Learned Adjudicating Authority having admitted the application under Section 7, the application being complete, no interference is called for
36. In .absence of any merit the appeal is dismissed. However, in the facts and circumstances, there shall, be no order as to cost.
Balvinder Singh) Justice S.J. Mukhopadhaya
Member (Technical)1. Chairperson.
NEW DELHI
August, 2017