Aditya Birla Finance Limited vs Siti Jind Digital Media Communications Private Limited

PER: MAHENDRA KHANDELWAL, MEMBER (JUDICIAL)

This is an application filed by M/s Aditya Birla Finance Limited (for brevity "Financial Creditor/Applicant") under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code/IBC") for initiating Corporate Insolvency Resolution Process “CIRP” against M/s Siti Jind Digital Media Communications Private Limited (for brevity "Corporate Debtor/Respondent") for the alleged default in repayment of loan of Rs. 5,00,00,000/- (Rupees Five Crores only).

The Corporate Debtor is a Company having its registered office at F-1, J Block Market, Ashok Vihar, Phase-I, North West Delhi, New Delhi-110052. Since the registered office of the respondent corporate debtor is in New Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under subsection (1) of Section 60 of the Code.

Applicant submitted that the Financial Creditor addressed a Credit Arrangement Letter dated 7 February 2020 to the Corporate Debtor and the Corporate Debtor's co-borrower, Siti Networks Limited ("Co-borrower") offering to extend the requested Rupee Term Loan aggregating to INR 5,00,00,000 ("Term Loan/Facility") to the Corporate Debtor.

Applicant further submitted that a Facility Agreement dated 26 February 2020 was executed by and between the Financial Creditor and Corporate Debtor along with SNL as a Co-borrower wherein the Financial Creditor agreed to extend a Term Loan aggregating to INR 5,00,00,000 to the Corporate Debtor at an interest rate of 11% Per Annum.

Applicant submitted that the Loan Amount of Rs. 5 Crore was disbursed by the Financial Creditor to to the Corporate Debtor on dated 02.03.2020, 03.03.2020 and 03.06.2020 respectively.

Applicant further submitted that as per the agreed Equated Monthly Installment “EMI's", inserted in the Facility Agreement dated 26 February 2020, Corporate Debtor had to make a payment of an amount of Rs. 19,39,096/- as on 31.03.2022, however the Corporate Debtor defaulted in making the payment of said amount on 31.03.2022. However, the Corporate Debtor paid Rs. 15,00,000 on 29.04.2022 out of Rs. 19,39,096/, thus an amount of Rs. 4,39,096 remained in default even then. Applicant further submitted that the Clause 19 of the Facility Agreement dated 26.02.2020 clearly mentioned that in case of an Event of Default, the Financial Creditor has the option to recall the loan. Once the loan is recalled, then the Corporate Debtor is obligated to pay the balance due immediately. Thereafter, as per the above said Agreement the Financial Creditor vide Loan Recall Notice dated 24.05.2022 recalled the subject loan and called upon the Corporate Debtor to pay the amount of Rs. 4,65,56,658/- as immediately due and payable, which Corporate Debtor failed to repay and stopped servicing the loan. Thus, the default which had commenced on 31.03.2022.

Applicant submitted that the Corporate Debtor did not respond to the Recall Notice and did not cure the events of default in accordance with the Facility Agreement. No further payments have been made (whether towards the installments or the monthly interest components) by the Corporate Debtor under the Facility Agreement. Hence, the present Application by the Financial Creditor against the Corporate Debtor for initiating Corporate Insolvency Resolution Process under Section 7 of the IBC is filed.

Consequent to the notice issued by this Tribunal, the Respondent filed its reply and submitted that all the averments, statements, submissions, grounds, contentions or allegations made by the Applicant are baseless, misconceived and false, and hence, are denied in entirety.

Respondent further submitted that the intent of the Applicant behind initiating the present proceedings under Section 7 of Code is merely to "recover its dues" and is no-where linked to the effort of resolution of an insolvent company which is against the provisions/intent and objects of the Code. Respondent submitted that as the present proceedings have not been initiated for resolution of insolvency therefore, the same is barred under Section 65(1) of the Code and ought to be dismissed in limine.

Further the Respondent submitted that even after the alleged date of default i.e. 31.03.2022 as mentioned by the Applicant in the instant Application, the Respondent had made a payment of Rs. 15,00,000/- on 29.04.2022 and the said amount has been admittedly received and appropriated by the Applicant even after the purported declaration of default thus, rendering the present petition not maintainable.

The Respondent submitted the Loan Recall Notice were sent by the Applicant in favour of two entities namely the Corporate Debtor and the Co-borrower, i.e. Siti Networks Limited (SNL). The Applicant submitted that that the Arbitration clause has been invoked against the co-borrower in respect of which proceedings are pending before the Hon'ble Delhi High Court under Section 9 of Arbitration and Conciliation Act, 1996.

Respondent submitted that trigger of default by the applicant against the Respondent was due to the purported defaults of the co- borrower i.e. SNL and not for the default of Respondent. Further submitted that the Applicant issued a Notice of Recall dated 24.05.2022 which is addressed to both the Respondent and co- borrower and when a Petition under Section 7 is filed against a co-borrower (i.e the Respondent) on account of another co-borrower's default in respect of unconnected facilities, the same is clearly an evidence of the fact that the Section 7 Application has been filed for reasons other than resolution and is barred under Section 65 of the Code.

It is submitted that the Applicant has relied upon the documents in which reference has been made regarding a different Loan amount and the Loan Recall notice has been sent regarding a different Loan amount which has triggered the event of default according to the Applicant. The said actions of the Applicant further depicts that the Applicant is admitting that the actions of the Respondent and co- borrower i.e. SNL are interlinked.

It is further submitted by the Respondent that the Section 7 Petition is liable to be dismissed on the ground that the Facility Agreement dated 26.02.2020 entered into, inter-alia between the Applicant, Siti Networks Limited, the Respondent as Lender and Facility Agent on which the Applicant has relied upon is not maintainable as it has insufficient stamping. The Facility Agreement involves a transaction of loan amounting to Rs. 5 Crores and upon that Stamp duty of Rs 200 is paid which is considerably under stamped and against the provisions of the Stamp Act. Thus, in light of the fact that there is a pre-existing dispute with respect to a purported default of a co-borrower, incorrect computation of default and other issues mentioned above the instant petition deserves dismissal with exemplary costs.

That the Financial Creditor through his rejoinder denies all statements, averments, allegations, contentions and submissions in the Reply. Further the Applicant submitted that the Applicant has been constrained to file the Petition in view of continuing defaults of the Corporate Debtor in discharging its payment obligations under the Loan Facility Agreement. The default of 31 March 2022 is only one of the first instances of default and cannot be construed as the sole or the only instance of default committed by the Corporate Debtor, however, even a singular instance of default is sufficient for initiation of insolvency resolution proceedings.

The Applicant through its Rejoinder denied the contention of the Respondent that the default of 31 March 2022 was rectified/cured by the Respondent in its subsequent payment of INR 15,00,000 on 29 April 2022. Applicant Further submitted that not a single payment has been made by the Corporate Debtor since 29 April 2022 either as of the date of filing of the Petition or thereafter.

Further the Respondent denied that the Petition is not maintainable due to the pendency of proceedings initiated by the Applicant against SNL under Section 9 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). It is submitted by the Applicant that the said proceeding pertains to an entirely unrelated and unconnected transaction between the Applicant and SNL under a completely different loan facility extended to SNL.

Applicant submitted that the insufficient stamping is not only curable but also does not prevent admission of a petition under Section 7 of the Code, so long as there is substantial proof of disbursal of the loan in question and its utilization by the Corporate Debtor.

We have heard Ld. Counsels for the applicant as well as the Ld. Counsel for the Respondent and perused the averments made in the application, counter affidavit and rejoinder. The relevant documents annexed with the submissions have also been examined. We have also perused the copy of Facility Agreement executed between the both parties and Co-borrower on 26.02.2020.

In order to affirm that this petition falls within the ambit of Section 7, we need to see whether there is a “debt” owed to the Financial Creditor and whether there is a “default” with respect to such debt.

In the present case, the Financial Creditor and the Corporate Debtor along with the Co-Borrower entered into a Facility Agreement dated 26.02.2020 (copy of which is annexed as Annexure A-7 with the present Petition). In accordance with the Facility Agreement the Financial Creditor has disbursed the amount to the Corporate Debtor on 02.03.2020, 03.03.2020 and 03.06.2020. Further, the Financial Creditor has placed on record, its Supplementary Affidavit dated 17.05.2023, which is certificate of disbursal. Furthermore, the Corporate Debtor in its reply affidavit dated 06.12.2022 has admitted in Para 20 of the reply that it owes a debt towards the Financial Creditor. Therefore, one essential ingredient with respect to Section 7, that there has been a “debt”, stands substantiated.

The subsequent essential requirement of Section 7 of the IBC is to ascertain whether there is a 'default' with respect to such debt.

As per the Facility Agreement dated 26.02.2020 the parties are agreed upon a Equated Monthly Installment “EMI”, in which the Corporate Debtor had to make a payment of an amount of Rs. 19,39,096/- as on 31.03.2022, the Corporate Debtor in its reply affidavit dated 06.12.2022, in Para 10 has admitted the default in making the payment of said amount on 31.03.2022 and paid Rs 15,00,000 on 29.04.2022. At this juncture it is important to referred the case of Innoventive Industries Ltd. Vs. ICICI Bank Ltd (2018) 1 SCC 407, where it was held as below:

Further, the relevant clauses of Facility Agreement dated 26.02.2020 as shown below:

The clause 2.2 of the Facility Agreement makes it clear that the liability of the Corporate Debtor and its Co-borrower towards the Loan Facility Agreement dated 26.02.2020 is joint and several. Further, a co-joint reading of Clause 19, Clause 19.5 and Clause 19.19, leads to an interpretation that if any of the Borrowers (Corporate Debtor or SNL) are unable to pay the loan or admitted in writing its inability to pay any of its financial indebtedness as they mature or when due, that will constitute an Event of Default. Further, in case if there is an Event of Default, the Financial Creditor may recall the present loan with 1 (one) Business Days’ notice to the Corporate Debtor and it would become due & payable.

Coming to the factual matrix of the present case, pursuant to the Facility Agreement dated 26.02.2020, the Applicant had disbursed the Loan Amount of Rs.5,00,000,000/- to the Corporate Debtor in 3 tranches, i,.e., Rs.2,00,00,000/- disbursed on 02.03.2020, Rs.2,00,00,000/-disbursed on 03.03.2020, Rs.1,00,00,000/- disbursed on 03.06.2020. It is an admitted fact that the Corporate Debtor was regular in repayment of the Loan as per the prescribed repayment schedule. However, M/s. Siti Network Limited (Corporate Debtor's Co-borrower) in its various letters/disclosures dated 02.01.2022, 31.01.2022, 03.03.2022, 31.03.2022, 30.04.2022, 01.06.2022 and 2.07.2022 made to the NSE and BSE had admitted in writing its inability to pay its financial indebtedness in respect of loans availed from the Financial Creditor as well as other loans availed from other Banks and financial institutions. In view of the Event of Default as specified in Clause 19.5 (i) & (ii) taking place, the Financial Creditor recalled the loan vide Loan Recall notice dated 24.05.2022, wherein the Financial Creditor seeks its repayment as being immediately due and payable and the same was duly received by the Corporate Debtor. After, the receipt of the Loan Recall Letter dated 24.05.2022 the Corporate Debtor had stopped servicing the loan.

Further, on perusal of the Loan Recall Notice dated 24.05.2022, we find that the Loan Recall Notice dated 24.05.2022 categorically by referring to Clause 19.5 of the Loan Facility Agreement had stated that “Since Siti Networks Limited (basis various disclosures about payment defaults to the Stock Exchanges) is already in default with its lenders, an Event of Default has occurred under the terms of the Financing Documents”. Further, it is evident that, in the Loan Recall Notice dated 24.05.2022, a clear reference is made to default made by SNL with its lenders as per the disclosure made to the Stock Exchange.

Now, coming back to our findings on the point in controversy, i.e., “whether there exists a default in respect of the loan sanctioned to the Corporate Debtor vide Facility Agreement dated 26.02.2020”? , on considering the conspectus of facts, this Adjudicating Authority is of the considered view that the Applicant is in default in repayment of the loan amount of Rs.4,62,54,279/- pursuant to the Loan Recall Notice dated 24.05.2022 issued to the Corporate Debtor on the occurrence of Event of Default as specified in Clause 19.5 of the Facility Agreement. The entire loan was recalled as per clause 19.19 (consequences of event of default) and the said loan was not repaid by the Corporate Debtor. The Applicant in Cl.2 of Part-IV of Form 5 of the Application had mentioned the date of Default as 31.03.2022.

The main contention of the Corporate Debtor is that the Loan Recall Notice dated 24.05.2022 is bad in law. But curiously, the Corporate Debtor has not brought any challenge against the said Recall Notice. No evidence, of any challenge in a court of appropriate jurisdiction has been placed on record before us. Since, the legal validity of the Loan Recall Notice cannot be adjudicated by this Adjudicating Authority in its summary jurisdiction, the best case of the Corporate Debtor before us would be on account of dispute raised that the recalled debt was not due and payable, when it was recalled, and that the CIRP could not be initiated against the Corporate Debtor as it is a solvent company. Reliance has also been placed by the Corporate Debtor on Hon’ble Supreme Court’s judgement in 'Vidarbha Industries Power Ltd. v Axis Bank Ltd.' [(2022) 8 SCC 352] to state that the instant application under Section 7 of the Code, 2016 is not maintainable against the Corporate Debtor which is a solvent Company.

In view of the above and taking into into account the fact of the case and not payment of the loan amount on recall notice, we observed that not payment of EMI/Installment amount by the Corporate Debtor is a default which is defined section 3(12) of IBC. Therefore, another major essential ingredient of Section 7 i.e., “default” with respect to the debt stand substantiated.

At this juncture, it is important to refer to landmarks judgment of the Hon’ble Supreme Court in “Innoventive Industries Limited v. ICICI Bank and Another” where it was held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the Application under Section 7 of I & B Code, 2016. The relevant extract of the said judgment is reproduced hereunder as:

More recently, Hon’ble Supreme Court have reiterated in Suresh Kumar Reddy v. Canara Bank & Ors. [Civil Appeal No. 7121 of 2022] as under:-

From the perusal of aforesaid facts, it is clear that the applicants are Financial Creditors and the debt owed to them by the Corporate Debtor is a Financial Debt, and there has been a default, as stipulated in Sections 3(12), 5(7) and Section 5(8) of the IBC.

The allegation of pre-existing dispute in the instant case is irrelevant and pending cannot be a ground to reject an application under Section 7 of the IBC Code and therefore, a pre-existing dispute cannot be a subject matter of Section 7 IBC, though it may be relevant under Section 9 of IBC.

That the allegation of the present petition being barred by Section 65 of the IBC is being examined in I.A. 4980/2023 in CP (IB) No. 686/ND/2022.

The present petition made by the Financial Creditor is complete is all respects as required by law. The Petition established that the Corporate Debtor is in default of a debt due and payable and that the default is more than the minimum amount stipulated under Section 4(1) of the Code, stipulated at the relevant point of time. We are of the view that since this Petition was filed on 12.04.2023, and the debt owed to the Financial Creditor is an amount of Rs.4,62,54,279/- meets the threshold of Rs. One Crore.

In light of the above observation, we admit the instant Application i.e CP No. (IB)-686/ND/2022 and initiates the Corporate Insolvency Resolution Process against the Corporate Debtor i.e. M/s Siti Jind Digital Media Communications Private Limited with immediate effect.

Sub-section (3) (b) of Section 7 mandates the Financial Creditor to furnish the name of an Interim Resolution Professional(“IRP”). In compliance thereof the applicant has proposed the name of Mr. Harvinder Singh for appointment as Interim Resolution Professional having Registration No. (IBBI/IPA-001/IP-P00463/2017-2018/10806). The Proposed IRP has a valid AFA which is valid upto 10.05.2024. Accordingly, this Adjudicating Authority, hereby appoints Mr. Harvinder Singh to act as Interim Resolution professional. He shall take such other and further steps as are required under the statute, more specifically in terms of Section 15, 17 and 18 of the Code and file his report within 30 days before this Bench.

In pursuance of Section 13 (2) of the Code, we direct that public announcement shall be made by the Interim Resolution Professional immediately (3 days as prescribed by Explanation to Regulation 6(1) of the IBBI Regulations, 2016) with regard to admission of this application under Section 7 of the Insolvency & Bankruptcy Code, 2016.

We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:

It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3) (b) of the Code.

The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations. It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day to day affairs of the ‘Corporate Debtor’. In case there is any violation committed by the ex-management or any preferential/undervalued/tainted/illegal transaction by ex-directors or anyone else, the Interim Resolution Professional shall make an application to this Adjudicating Authority with a prayer for passing an appropriate order. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor’ as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

The office is directed to communicate a copy of the order to the Financial Creditor, the Corporate Debtor, the Interim Resolution Professional and the Registrar of Companies, NCT of Delhi & Haryana at the earliest possible but not later than seven days from today. The Registrar of Companies shall update its website by updating the status of ‘Corporate Debtor’ and specific mention regarding admission of this petition must be notified to the public at large.

Let copy of the order be served to the parties