Ritesh Kumar Agrawal vs India Factoring And Finance Solutions ... on 4 July, 2023

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National Company Law Appellate Tribunal

Ritesh Kumar Agrawal vs India Factoring And Finance Solutions ... on 4 July, 2023

1. This Appeal by Suspended Director of the Corporate Debtor-Arcons Infrastructures and Constructions Pvt. Ltd. has been filed challenging Order dated 11.11.2022 passed by National Company Law Tribunal, Mumbai Bench, Court-I (hereinafter referred to as "The Adjudicating Authority") admitting Section 7 Application of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "The Code") filed by the Respondent No.1-M/s. India Factoring and Finance Solutions Pvt. Ltd.

2. Brief facts of the case necessary to be noticed for deciding this Appeal are:-

a. Respondent No.1-M/s. India Factoring and Finance Solutions Pvt.

Ltd., the Financial Creditor is a company engaged in the business Company Appeal (AT) (Insolvency) No. 1476 of 2022 -3- of providing factoring services to business entities in India under the aegis of Factoring Regulation Act, 2011.

b. The Corporate Debtor -M/s Arcons Infrastructures and Constructions Pvt. Ltd. entered into an Agreement for construction of check post with IL&FS Transport and Network Limited (ITNL in short). The Corporate Debtor approached the Financial Creditor for availing financial assistance to meet their working capital requirements. A Facility Letter dated 04th July, 2018 was issued by Financial Creditor to Corporate Debtor. In pursuance of the Facility Letter, a Factoring Agreement dated 05th July, 2018 was executed between the Financial Creditor and Corporate Debtor. The Corporate Debtor also drew a bill of exchange dated 09.07.2018 on ITNL for an amount of Rs. 4,90,90,654/- in favour of Financial Creditor which was due to be honoured on or before 05.01.2019.

The bill of exchange was drawn against receivables due and payable to the corporate debtor by ITNL. INTL failed to honour the bill of exchange therefore in view of the said default, the Financial Creditor issued a notice dated 07.01.2019 calling upon them to pay total amount of Rs. 4,46,55,873.64/- with further interest at the rate of 14.50 % p.a.. The Financial Creditor in exercise of right under Factoring Agreement issued notice dated 07.01.2019 calling upon the Corporate Debtor to pay above amount.

c. Corporate Debtor admitted the debt. Corporate Debtor made certain payments. All due debt having not been paid by Respondent No. 2, Company Appeal (AT) (Insolvency) No. 1476 of 2022 -4- Financial Creditor filed an Application under Section 7 of the Code on 25th March, 2019 before the NCLT, Mumbai.

d. In the Application, financial creditor claimed an amount of Rs. 4,52,13,711/- as on 28.11.2019. Reply was filed to Section 7 Application by the Corporate Debtor contesting the claim of the Financial Creditor. The Reply stated that applicant has right to recover the monies solely from ITNL. Liability under Factoring Agreement being payable by ITNL, Application under Section 7 is not maintainable.

e. The Adjudicating Authority after hearing the parties vide order dated 11.11.2022 admitted Section 7 Application. Aggrieved by which order, this Appeal has been filed.

3. The Appeal was heard by this Tribunal on 07.12.2022. Appellant offered to deposit the entire amount of Rs. 4,52,13,711/-. On 07.12.2022 following order was passed by this Tribunal:

"07.12.2022: Learned Counsel for the Appellant submits that the Appellant is ready to deposit the entire amount of Rs.4,52,13,711.60/- in the name of Respondent No. 1. He submits that the Demand Draft has already been prepared and he is ready to deposit before the Registrar of this Tribunal.

2. Learned Counsel for the Appellant is permitted to deposit the Demand Draft of the same amount drawn in the name of "The Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi" within a week.

3. Learned Counsel for the Appellant further submitted that there was no recourse provided, which is clear from Company Appeal (AT) (Insolvency) No. 1476 of 2022 -5- the letter dated 04.07.2018 which is brought on record at page no. 117 of the paper book. Submission needs scrutiny.

4. Issue notice. Requisites along with process fee be filed within three days. Reply be filed by the Respondents within three weeks. Rejoinder be filed within two weeks thereof.

5. List the Appeal on 24.01.2023.

In the meantime, no further steps be taken in pursuance of the impugned order dated 11.11.2022."

4. In pursuance of above order, the Appellant has already deposited the aforesaid amount.

5. Learned Counsel for the Appellant submitted that Factoring Agreement dated 05th July, 2018 indicate that agreement was on no recourse basis. It is submitted that agreement being on no recourse basis there is no financial debt within meaning of Section 5(8)(e) of the Code. He submits that Financial Creditor was to recover the amount only from ITNL and the Adjudicating Authority committed error in admitting Section 7 Application of the Code. It is further submitted that appellant in the Appeal has offered to deposit the amount of Rs. 4,52,13,711/- being the amount claimed as default. It is submitted that Financial Creditor to provide an undertaking that any amount received from ITNL received by Financial Creditor shall be transferred to corporate debtor.

6. Learned Counsel for Respondent refuting the submissions of Learned Counsel for the Appellant submits that Appellant in the Appeal has pleaded that Appellant is ready to settle the claim for an amount of Rs. 4,52,13,711/-. Appellant having expressly admitted the readiness to Company Appeal (AT) (Insolvency) No. 1476 of 2022 -6- pay the outstanding dues it should not be allowed to assail the Order admitting Section 7 Application. The amount of Rs. 4,52,13,711/- was inclusive of Principal and Interest thereon at the rate of 14.50 % p.a. on the date of filing of the Company Petition. If the Appellant is ready and willing to pay said amount, nothing prevented the Appellant to make the payment before/prior filing of Company Petition. It is submitted that facility letter specified the interest rate, penalty interest. Facility letter further provided that the Financial Creditor will have recourse to the Corporate Debtor for receivables in respect of recourse condition. Definition of Recourse in the Factoring Agreement is a right of the Financial Creditor to require Corporate Debtor at any time forthwith upon notice, to pay to Respondent No. 1 an amount qua to the prepayment amount remaining unpaid. The submission of Appellant that the factoring agreement was with no recourse basis is incorrect. When the debt and default is proved, petition is bound to be admitted. The Corporate Debtor has admitted and acknowledged the debt and default.

7. We have considered the submissions of Learned Counsel for the parties and have perused the record.

8. The first submission which has been advanced by Learned Counsel for the Appellant is that amount which is subject matter of Section 7 Application is not a Financial Debt within the meaning of Section 5(8)(e) of the Code. Section 5(8)(e) provides as follows:

"Section 5: Definitions.

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -7- (8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes-

(a)........

.....

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

......."

9. The above provision clearly indicates that receivables sold or discounted other than any receivables sold on nonrecourse basis is covered with the definition of Financial Debt. The submission of the Appellant is that the agreement between the parties was agreement for non-recourse basis. For considering the above submission, we need to look into the Factoring Agreement which has been entered into between the parties on 05th July, 2018. The Factoring Agreement clause 1.1. contains definition clauses. Expression "Recourse" have been defined and Recourse Date has also been defined in following manner:

""Recourse": means the right of India Factoring to require the Client at any time, forthwith upon notice, to pay to India Factoring an amount equal to the prepayment amount remaining unpaid in respect of any Approved Receivable, in addition to the amounts specified in Clause 13 of this Agreement; ""Recourse Date": means the date (if any) specified in paragraph 14 of the Schedule as such;"

10. Clause 12 of Factoring Agreement deals with "recourse and credit protection". Clause 12.1 and 12.1.1 provides as follows:

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -8- "12.1 Where Creditor Protection is zero, India Factoring shall have the right of Recourse against the Client in respect of:

12.1.1 each Receivable remaining unpaid after the Recourse date;"

11. Clause 12.1 itself indicates that India Factoring shall have the right of recourse against the client. The client as per Factoring Agreement is Arcons Infrastructures and Constructions Pvt. Ltd. The clause 12 as noted above in the definition of recourse clearly indicates that agreement between the parties was not any agreement which may be called as agreement of non recourse basis. Thus, the Financial Debt which is covered by Factoring Agreement is clearly covered within meaning of Section 5(8)(e) of the Code and the Financial Creditor was entitled to being recourse.

12. We thus do not find any substance in the submission of Learned Counsel for the Appellant that Factoring Agreement was non-recourse agreement.

13. We have noticed above that Appellant at the outset offered to deposit amount of Rs. 4,32,13,711/- which was deposited under orders of this Tribunal on 07.12.2022. The submission which has been pressed by Learned Counsel for the Respondent is that while deciding the Application filed by the Financial Creditor and delaying the matter, the corporate debtor intend to absolve itself from liability to pay the interest at the rate of 14.5 % p.a. It is submitted that amount which was claimed in Section 7 Application was amount which was payable as on 28th Company Appeal (AT) (Insolvency) No. 1476 of 2022 -9- January, 2019. The Financial Creditor is entitled to payment of entire financial debt including interest at least upto that date.

14. We have considered the above submissions and perused the record. Appellant having expressed willingness to make the payment of Principal Amount as claimed in Section 7 Application, we are inclined to give an opportunity to the Appellant to make the payment. Part-IV of the Section 7 Application gives the details of financial debt as claimed in the Application. Part IV which gives the details of amount as claimed to be debt and default is as follows:

"

2 Amount claimed to The total amount claimed to be in default and be in default by the the date on which Corporate Debtor is Rs.

             the         default    4,52,13,711.60/-            (Rupees
             occurred    (attach    Four Crores Fifty Two Lakhs
             the   working    for   Thirteen        Thousand        Seven
             computation       of   Hundred and Eleven only)

amount and dates as on 28.02.2019. The said of defaults in amount in default arises out tabular form) of the bills of exchange dated 09.07.2018 for amounts of Rs.

4,90,90,654/- (Rupees four crores ninety laksh ninety thousand six hundred and fifty four only). The amount demanded via legal notice dated 07.01.2019 was Rs.

4,46,55,874.64. However Company Appeal (AT) (Insolvency) No. 1476 of 2022 -10- the Respondent thereof repaid a sum of Rs.

                                   2,21,730 and Rs. 2,73,195
                                   on         15.01.2019            and
                                   17.01.2019            respectively,
                                   After        adjusting          such
                                   repayments                  though
                                   including        the       interest,
                                   penalties etc the total sum
                                   due and payable towards
                                   the     Facilities    granted     as
                                   recorded in FIU statement
                                   amounts               to          Rs.
                                   4,52,13,711.60             (Rupees
                                   Four crore fifty two lakhs
                                   thirteen     thousand           seven
                                   hundred and eleven only) as
                                   on 28.01.2019.
                                   The bill of exchange dated
                                   09.07.2018           became      due
                                   and payable on 05.01.2019.
                                   The dates on which the
                                   default occurred qua the
                                   Respondent are the dates
                                   when the right of recourse in
                                   respect of the aforesaid bills
                                   of exchange was exercised
                                   against the Respondent vie
                                   legal notice i.e. 07.01.2019.

15. From aforesaid statement in Section 7 Application, it is clear that amount of Rs. 4,52,13,711/- was amount as due on 28.01.2019. The Company Appeal (AT) (Insolvency) No. 1476 of 2022 -11- Adjudicating Authority found the said amount due and payable, we see no reason to take any different view. We however are of the view that Financial Creditor will be entitled for payment of debt due along with interest at least till the insolvency commencement date i.e. 11.11.2022. In view of what has been stated above, we dispose of this Appeal with following directions:

(i) The amount of Rs. 4,52,13,711.60/- under order of this Tribunal dated 07.12.2022 deposited, be paid to Respondent No. 1;

(ii) In addition to aforesaid payment of Rs. 4,52,13,711.60/-, the Appellant shall also make payment of simple interest at the rate of 14.50% p.a. till insolvency commencement date i.e. 11.11.2022 which payments shall be made to Respondent No. 1 within a period of 3 months from today;

(iii) In event, the Appellant fails to comply to the direction no. (ii) as above, the Adjudicating Authority shall consider to proceed further with the Insolvency Resolution Process of the Corporate Debtor;

      (iv)    Parties shall bear their own costs.


                                                    [Justice Ashok Bhushan]
                                                                Chairperson



                                                             [Barun Mitra]
                                                         Member (Technical)
NEW DELHI
04th July, 2023

Basant

Company Appeal (AT) (Insolvency) No. 1476 of 2022

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