Amit Kumar Kolay vs Bank Of India & Anr.

NARESH SALECHA, MEMBER (TECHNICAL)

The present Appeal i.e., Company Appeal (AT) (Insolvency) No. 161 of 2023 has been filed against the Impugned Order dated 10.01.2023 passed by the National Company Law Tribunal, Kolkata Bench, Court-I, Kolkata (in short ‘Adjudicating Authority’) in CP (IB) No. 623/ KB/ 2020 where the application of the Respondent No. 1- Bank of India ( in short ‘Financial Creditor’) under Section 7 of the Insolvency & Bankruptcy Code, 2016 (in short ‘Code’) was admitted and the Corporate Insolvency Resolution Process (in short ‘CIRP’) was initiated.

Mr. Amit Kumar Kolay is the Appellant herein who was the Designated Partner of Suryadeep Multipurpose Cold Storage LLP (in short ‘Corporate Debtor’)

Heard the Counsel for the Parties and perused the records made available including the cited judgements.

The undisputed fact of the case is that the around 2012, the Corporate Debtor requested for credit facilities including the terms loan, cash credit facility and bank guarantee for an overall limit of Rs. 8.01 Crores from the Respondents which was sanctioned on 26.09.2012. It has been brought out that this overall credit facilities limit was enhanced/ renewed/ modified from time to time, based on the request of the Corporate Debtor and finally overall limit was sanctioned on 26.09.2019 of Rs. 20.78 Crores comprising of Terms Loan – I, Term Loan – II, cash credit limit and bank guarantee.

The Appellant stated that while utilising the credit facilities, business of the Corporate Debtor suffered due to recession and poor market conditions and therefore, the Corporate Debtor could not meet its liability towards the Respondents.

The Appellant also mentioned that the Corporate Debtor is MSME entity and is entitled to get benefit of restructuring of its loan accounts in terms of RBI Circular dated 17.03.2016 and according to the Corporate Debtor approached the Respondent for restructuring.

It is the case of the Appellant that after restructuring, the debt was not due on alleged default dates claimed by the Respondent, as such the admission of Section 7 application by the Adjudicating Authority was illegal and perverse.

It is also the case of the Appellant that the date of default has not been correctly reflected in the application filed under Section 7 of the Code by the Respondents and therefore, the application should have been summarily rejected.

The Appellant also stated that the letter of restructuring dated 30.03.2019 clearly indicated that the repayment schedule was to commence from December 2019 and was to end in march 2029 with moratorium period of 7 months and the interest was to be served on monthly basis as and when applied with regard to FITL, WCTL-I and WCTL-II facility, the repayment was to commence from May 2020 and end with 12 months moratorium period.

The Appellant pleaded that despite such clear terms of restructuring of loan accounts, the Respondent deliberately classified the loan accounts of the Corporate Debtor as Non-Performing Assets (in short ‘NPA’) on 30.09.2019 even when the repayment schedule, according to restructuring letter dated 30.03.2019, could commence only in December 2019. The alleged NPA on 30.09.2019 was incorrect and illegal since the repayment was to commence only in December 2019.

The next argument of the Appellant is regarding wrong date of defaults used by the Respondent. The Appellant stated that the Respondent is absolutely unclear about the date of default, as at one place the Respondent mentioned the date of default as 01.06.2019, whereas at another place he has mentioned the date of default as 01.04.2019 and therefore, only on this ground, the Impugned Order deserve to be set aside.

The Appellant amplified that the Adjudicating Authority has failed to note that once the loan account has been restructured on 30.03.2019 the account was automatically upgraded same day and thus the account could not have been declared as NPA unless the subsequent stipulated period got over on account of default.

The Appellant argued that servicing of monthly interest was also covered under moratorium of 7 months so the same could arise only from December 2019 and not any time before, hence the Impugned Order is wrong and unlawful.

The Appellant stated that in interim period after restructuring approval on 30.03.2019, the Corporate Debtor made certain payments of interest on its own, reflecting the Corporate Debtor’s good intentions which cannot be held against it presuming as acknowledgment of debts.

The another plea taken by the Appellant is regarding CIBIL Report which was enclosed by the Respondent along with the application filed under Section 7 of the Code before the Adjudicating Authority, whereas it can be found that loan account mentioned by the Respondent in the applications were standards till August 2019.

The Appellant argued that it would be travesty of justice if the accounts of the Corporate Debtor are declared as NPA one day after restructuring which will hit the Corporate Debtor, a MSME entity, adversely which is not intent of the Code.

The Appellant reiterated that considering the payment schedule mentioned in the restructuring sanction letter as well as supplemental term loan agreements, the payment could have commenced from December, 2019 and at best alleged the default could have been taken place only after 30 days from 01.12.2019, thus the date of default as claimed by the Respondent could not have been before January, 2020 and NPA therefore, could not have taken place before April 2020.

The Appellant assailed the Impugned Order which failed to appreciate that in view of moratorium having been imposed by the letter of restructuring dated 30.03.2019 which was subsisting in September 2019 therefore the question of any default having occurred in September 2019 cannot and does not arise.

Concluding his argument, the Appellant stated that the Appeal should be allowed and the Impugned Order should be set aside since there was no debt and the alleged date of defaults are misleading and incorrect.

Per Contra, the Respondent refuted all the averments made by the Appellant treating these to be as misleading, mischievous, frivolous and without any substantial basis.

The Respondent gave the sequence of various events of credit facilities granted by him to the Corporate Debtor since 2012 and indicated that the Respondent always facilitated the Corporate Debtor in order to help the Corporate Debtor to sustain financially.

The Respondent vehemently denied that the Respondent intended to take the Corporate Debtor into the CIRP illegally and mentioned that the various restructuring proposals were approved by the Respondent, based on the request of the Corporate Debtor.

The Respondent submitted that despite his accommodation and flexibility, the Corporate Debtor failed miserably, time and again, to meet its financial obligations and to protect his rights, being custodian of public money, the Respondent was left with no alternative but to file the application under Section 7 of the Code before the Adjudicating Authority.

The Respondent gave the details of various restructuring proposals and supplemental loan agreements along with the details of FITL, WCTL-I and WCTL-II .

The Respondent clarified that in terms of restructuring sanction letter, there was moratorium of payment of instalments towards principal amount, however, the interest on existing terms loan was to continue as usual.

The Respondent mentioned that the Corporate Debtor failed to pay the interest amount towards the said term loans as well as the cash credit facilities, due to which the loan account of the Corporate Debtor were classified as NPA on 30.09.2019 in terms of RBI Prudential Norms.

The Respondent submitted that the Appellant is unnecessarily trying to mislead this Appellate Tribunal by incorrect and wrong interpretation of the terms and conditions of restructuring sanction letter dated 30.03.2019 qua the moratoriums servicing of interest.

The Respondent strongly pleading that sanction letter is absolutely clear with specific clauses which provided that “interest will be served on monthly basis as and when applied” which makes it certain and specific that there was no moratorium on interest payments and the interest was to be paid on monthly basis.

The Respondent submitted that the Appellant, although knew the exact terms and conditions and its meaning/implications, however, due to wrong intentions for not making payments, took shelter of so-called assumed misinterpretations of moratorium on interest portion.

The Respondent brought out that although the Corporate Debtor failed to meet terms and conditions as contained in the restructuring sanctioned letter dated 30.03.2019 but the Corporate Debtor in fact approached the Respondent again in 2020 vide its letter dated 19.10.2020 i.e., during pendency of the said company petition bearing CP/IB/623/KB/2020 and admitted to the default on its part as well as classification of account as NPA on 30.09.2019 and requested for further restructuring of credit facilities which demonstrate that the objections raised by the Appellant in the present Appeal are “sham argument” and only afterthought.

The Respondent submitted that the Corporate Debtor defaulted in repayment of outstanding dues resulting in classification of its accounts as NPA on 30.04.2018, however, on payment of over due amount by the Corporate Debtor, the said loan accounts were upgraded to standard category.

The Respondent also submitted that the Corporate Debtor again failed to maintain its financial discipline and defaulted from June 2018 onwards resulting in classification of its account again on 30.09.2018 as NPA, however, on payment of the over due amount by the Corporate Debtor, the said accounts of the Corporate Debtor were again regularised as standard accounts.

The Respondent further submitted that yet again the Corporate Debtor failed to meet its repayment obligations which resulted the loan accounts to be classified as “Special Mention Account” (in short SMA) which converted to SMA-I on 28.02.2019 with over due amount of Rs. 40 Lakhs in Terms Loan-I, Rs. 66 Lakhs in Term Loan-II and Rs. 20 Lakhs in Cash credit facilities.

The Respondent elaborating that at the request of the Corporate Debtor regarding One Time Settlement (in short ‘OTS’), the Respondent agreed to restructure the credit facilities of the Corporate Debtor vide sanction letter dated 30.03.2019 as per terms and conditions mentioned therein which was in accordance with notification of RBI for MSME Sector-Restructuring of Finance – dated 01.01.2019.

The Respondent clarified that the Corporate Debtor had executed two supplemental terms loan agreement dated 30.03.2019 w.r.t. Term Loan-I and Term Loan- II thereby admitting and acknowledging to pay interest of the term loan accounts in terms of sanction letter dated 30.03.2019 at agreed rate of interest of @11.15% p.a to be paid on monthly basis.

The Respondent also submitted that the Corporate Debtor also failed to pay interest on cash credit account and default agreed on 20.04.2019.

The Respondent submitted that due to continued failure of the Corporate Debtor, the demand notice dated 04.02.2020 was sent to the Corporate Debtor calling him to pay Rs. 19,21,23,253/-. However, despite giving flexibility of 14 days for such repayment, the Corporate Debtor failed to make any payment and thereafter the Respondent was constrained to file Section 7 application before the Adjudicating Authority.

Concluding the arguments, the Respondent submitted that the Impugned Order has taken into account all the facts and legal position into consideration and there was no ambiguity regarding defaults or date of default and as such the defence of the Appellant are moon shine defence.

The Respondent requested this Appellate Tribunal to dismiss this Appeal with exemplary costs.

We have already noted all the facts regarding the relationship between the Corporate Debtor and the Financial Creditor i.e., the Respondent as such, we would like to take these facts on record and not reiterate the same for the purpose of brevity.

It is undisputed fact that various credit facilities were granted by the Respondent to the Corporate Debtor from time to time including the restructuring of loans and supplemental loan agreements were signed by the Corporate Debtor. Thus, the amount of debt is undisputed, therefore, we shall not go into these aspects.

The defence has been taken by the Appellant as the Designated Partner of Suryadeep Multipurpose Cold Storage LLP, the Corporate Debtor, is two fold, namely, (i) there was no default as debt was not due to be paid by the Corporate Debtor and (ii) there was unclear and uncertain dates of default for which the application was filed by the Respondent under Section 7 of the Code hence the Section 7 application should not have been the admitted.

We have through the letter of the Corporate Debtor dated 19.10.2020 written to the Respondent, where the Corporate Debtor again requested the Respondent to help them by restructuring of unpaid interest and loan for next ten years. In this letter, the Corporate Debtor admitted its default in repayment of principal amount & interest and acknowledged the fact of its NPA as on 30.09.2019.

From this letter, it is quite clear that the Corporate Debtor had no doubt about the debt due on account of both principal amount and interest and resultant default by the Corporate Debtor.

We have also taken into consideration the vital letter dated 30.09.2019 of the Respondent to the Corporate Debtor for restructuring of credit facilities of the Corporate Debtor, which makes it clear that there was no moratorium on payment of interest.

Similarly we note from the supplemental loan agreements dated 30.03.2019 that the moratorium was only on principal amount and not on interest.

We would like to go into Bank Statement for the Corporate Debtor maintained by the Respondent for both the loan accounts. These are as under :-

From above statements, it is quite clear that the Corporate Debtor kept paying few instalments of interest to the Respondent during alleged moratorium period of interest as claimed by the Appellant as such plea of the Appellant about moratorium on interest payment is not tenable in view of above bank statements.

We have gone through one time policy guidelines dated 15.01.2019 on MSME restructuring of the Respondent Bank applicable to all MSME customers including the Corporate Debtor herein.

It is also worth mentioning that restructuring letter of the Respondent dated 30.03.2019 was in accordance with their policy letter.

From various documents noted above, we observe that the Corporate Debtor requested for restructuring benefit being MSME and the Respondent sanctioned the same vide sanction letter dated 30.03.2019 as per their guidelines dated 15.01.2019 applicable to all MSME including the Corporate Debtor. We have taken into consideration the pleadings of the parties and note that for restructured Funded Interest Terms Loan ( in short ‘FITL’) and Working Capital Term Loan ( in short ‘WCTL’), moratorium was indeed allowed, however the said moratorium was only for principal amounts and not for interests whereas the Appellant has taken the plea that the moratorium was blanket for both principal amount as well as for the interest component and therefore, the moratorium was absolute.

We have taken into account that the loan accounts of the Corporate Debtor were classified as NPA on 30.04.2018 due to defaults by the Corporate Debtor, however, these accounts were regularised as standard loan accounts after payment of overdue interest and the principal amount by the Corporate Debtor.

We have also seen from the documents placed before us that the Corporate Debtor had acknowledged the credit facilities in their financial statements for the financial year 2018-19 and also issued the confirmation letter to the Respondent thereby admitting the debt.

As regard, the different date of default as alleged by the Appellant, both the parties during the pleadings before us, brought out that the Adjudicating Authority had asked the Respondent to file a supplemental affidavit which was filed on 16.04.2019 where the Respondent elaborated that the Corporate Debtor committed first default in 2018 the loan accounts of the Corporate Debtor were classified as NPA on 30.04.2018, however, on payment of over due amount the account of the Corporate Debtor were upgraded to the standard category. We also take into account that the Corporate Debtor again defaulted and accounts of the Corporate Debtor were classified as NPA which were regularised after part payment of over due amount. Similarly, the Corporate Debtor once again defaulted and his loan accounts were classified as SMA-I on 28.08.2019 and subsequently loan accounts were restructured on 30.03.2019. In the supplementary affidavit, the Respondent further elaborated that the loan accounts of the Corporate Debtor were last classified as NPA on 30.09.2019.

Thus, we note that the loan accounts, although were declared as sub-standard accounts or NPA on different dates, however on making payments by the Corporate Debtor, these loan accounts of the Corporate Debtor were regularised as standard accounts in terms of RBI Prudential Norms as well as banks policy. Therefore, the arguments of the Appellant about different dates indicated as default dates by the Respondent is not convincing.

We also take into consideration that the Corporate Debtor has executed supplemental term loans agreements on 30.03.2019 where it was categorically agreed to pay interest followed by restructuring of the loan account of the Corporate Debtor.

We observe after going through the Clause 3.3 and Clause 2.1.2 (ii) of the RBI Prudential Norms which states that even if interest remain overdue for a period of more than 90 days, the said loan account shall be classified as NPA and cash credit is to be treated as out of order if the outstanding balance remains continuously in excess of sanction limit.

The Corporate Debtor, having not deposited the interest from time to time, defaulted and outstanding balance remained continuously in excess of sanction limit, entitling the Respondent bank to classify the loan accounts of the Corporate Debtor as NPA.

As regard the arguments of CIBIL Report, it has been clarified that the account was standard till August 2019 and irregularity happened in September, 2019 when the account became sub-standard and the same is dully reflected in CIBIL Report.

Therefore, we do not find any strength in the arguments of the Appellant regarding alleged wrong date of defaults which has been consciously elaborated in the Impugned Order.

As regard the issue of no default by the Corporate Debtor as claimed by the Appellant, we note from the restructuring sanction letter dated 30.03.2019 that for Term Loan-I and Term Loan-II, the instalments would start from December 2019 and end on March 2029 with the moratorium for 7 months and restructured FITL, WCTL-I and WCTL-II were to commence on May 2020 with 12 months moratorium. Significantly we have observed from the restructuring sanction letter dated 30.03.2019 as well as from the pleadings that the restructuring letter clearly stipulated that “interest will be served monthly basis as and when applied” which is quite clear that there was no concept of moratorium for interest and the moratorium was applicable only on principal amount.

We have already taken into consideration the supplemental loan agreements of the Corporate Debtor where the following has been mentioned.

Thus, the grounds of the Appellant that there was no default whatsoever is not found to be true in view of various loans agreements, restructuring approvals letters, supplemental terms loan agreements, various statement of accounts provided by the banks w.r.t to the Corporate Debtor. There was clear default on the part of the Corporate Debtor to the Respondent Bank.

We do not find any error in the Impugned Order which has gone into details of all the facts and came to the clear conclusion that there has been default on the part of the Corporate Debtor.

In fine the Appeal fails and stand dismissed. No Costs. Interlocutory Application(s), if any, are Closed.