Asset Reconstruction Company (India) Limited vs Uniworth Textiles Limited

Per: Smt. Bidisha Banerjee Hon’ble Member (Judicial)

The Court congregated through a hybrid mode.

Ld. Counsel appearing on behalf of the parties were heard in extenso.

This Petition numbered Company Petition (IB) No. 1593/KB/2018 was dismissed by this Adjudicating Authority on 10.07.2023 as time barred.

The Order was assailed before the Hon’ble NCLAT and the following order was passed by the Hon’ble NCLAT, reversing the Order of this Adjudicating Authority in the following words:

The matter was heard extensively, and supplementary affidavit and written notes of arguments were filed by parties.

This Tribunal, in view of the Order of the Hon’ble NCLAT is bound to reflect on the limitation aspect. Hence, we proceed as under.

In 1992, the ICICI Bank Ltd. (“ICICI”) and Industrial Finance Corporation of India Limited (“IFCI Ltd.”) sanctioned various loan facilities to Uniworth Textiles Ltd. the “Corporate Debtor” (CD in short). To that effect, Various Term Loan Agreements were executed by ICICI and IFCI Ltd. in favour of the Corporate Debtor, since 1992.

Long thereafter in 2004 on account of erosion of net-worth of the Corporate Debtor, proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”) were initiated by the Corporate Debtor before the Board for Industrial and Final Reconstruction (“BIFR”).

Vide Deed of Assignment dated 31.03.2004 and 12.01.2007, ICICI and IFCI Ltd. respectively assigned the loan account of the Corporate Debtor to Asset Reconstruction Company (India) Limited (“ARCIL”), the Financial Creditor (or FC) herein.

The account of Corporate Debtor was declared as NPA on 31/08/2007. (Pages 14 to 21 of Vol – 1 of the Supplementary affidavit).

On 20.11.2007, The FC issued a Demand Notice under Section 13(2) of SARFAESI Act to the Corporate Debtor (Pages 14 to 21 of Vol – 1 of the Supplementary affidavit).

Subsequently, the FC issued a notice under Section 13(4) of the SARFAESI Act and took over the possession of the assets of the Corporate Debtor.

On 22.05.2013 The Appellate Authority for Industrial and Financial Reconstruction (“AAIFR”) in an appeal against an order dated 14.03.2011 (by which BIFR had directed for change of management), abated the reference filed by the Appellant under SICA with regard to the proceedings which were initiated by the Corporate Debtor before BIFR.

On 05.09.2014 The FC filed an Original Application bearing No. 162/2014 before the Ld. DRT, Nagpur against the Corporate Debtor under Section – 19 of the Recovery of Debts and Bankruptcy, 1993 (“RDDBFI Act”).

Vide a letter dated 19.09.2016, 5 companies including the Corporate Debtor, made a One-Time Settlement offer (“OTS offer”) to the FC for an amount of INR 75 Crore, a copy whereof is furnished with the note that specifically mentions the name of the Corporate Debtor as well as the nature of the debt and shows that the parties have entered into a company wise settlement.

On 11.11.2016, Vide a letter (Page 246-249 of Vol – 1 of the Forum – 1), Uniworth Group (including the Corporate Debtor) acknowledged the debt owed to the FC and specifically admitted that as a part of the OTS Settlement, the Corporate Debtor was liable to pay INR 21 Crores.

The authorized representative of the Corporate Debtor and other group companies issued a letter dated January 22, 2018, to the FC acknowledging that NOCs and personal guarantees would be discharged post full and final payment of outstanding dues of the Corporate Debtor, and mentioned in the said letter, that a further payment of INR 1.10 Crores was made towards outstanding dues as per the terms of the OTS offer.

The authorized representative of Tristar Intercontinental Private Limited (group company of the Uniworth Group) issued an e-mail on February 28, 2018, to the FC, admitting that dues amounting to INR 21 Crores and INR 60 Lakhs as a delayed payment that remained pending on behalf of the Corporate Debtor.

The Appellant issued a letter dated November 28, 2018, for revocation of the terms of settlement due to non-compliance and default in the payment on part of the Corporate Debtor.

Due to continuous default by the Corporate Debtor, the FC preferred this Petition numbered CP (IB) No. 1593/KB/2018 under Section 7 of IBC for approximately INR 205 Crores.

Meanwhile on 04.12.2018, the Ld. DRT allowed the OA in favour of the FC and issued a Decree.

The FC claims that between 31.03.2007 and 31.03.2019, the Corporate Debtor has unequivocally acknowledged its debt in the balance sheets and the corresponding notes to accounts inter alia for financial years ending 31.03.2007, 31.03.2008, 31.03.2009, 31.03.2010, 31.03.2011, 31.03.2012, 31.03.2013, 31.03.2014, 31.03.2015, 31.03.2016, 31.03.2017, 31.03.2018, 31.03.2019 which has extended the limitation under Section 18 of the Limitation Act.

This Adjudicating Authority, vide its order dated 17.03.2020 had dismissed the Company Petition filed by the Appellant under Section 7, on the ground that the claim of the Appellant was time barred in terms of the provisions of the Limitation Act, 1963 (“Limitation Act”) and therefore, was not payable in law.

On 10.07/2023, the Hon’ble NCLAT remanded the matter back for fresh consideration. But none the less Hon’ble NCLAT has adjudicated the issue regarding Limitation inter alia holding that the Petition is not barred by limitation, thereby leaving no scope to readjudicate on limitation. The Hon’ble Supreme Court of India was also pleased to dismiss the Civil Appeal filed by the Corporate Debtor herein against the order passed by The Hon’ble NCLAT.

The debt and default are adequately acknowledged though.

The Financial Creditor by way of its supplementary affidavit has brought out the Acknowledgement of debt and default by the CD in its Balance Sheets from 2006-2007 to 2017-2018. The same is reproduced hereunder:

Placing the above it is contended that the Corporate Debtor has acknowledged its debt in each annual report and acknowledged the fact that the debt along with the underlying security has been assigned to the Financial Creditor. The dues of the secured lenders were admitted by the Corporate Debtor regarding the claim and security as mentioned in the chart.

Reference is drawn to Section 25(3) of Indian Contract Act, 1872 as reproduced verbatim herein below for clarity.

Placing the above, it is submitted that in the present case, on 19.09.2016, five companies including the Corporate Debtor proposed an OTS offer of INR 75 Crores, which mentioned that the said sum is being paid as a consideration towards the settlement of all dues acquired by the Corporate Debtor from the assignee banks who had assigned their debts in favour of the Financial Creditor. The letter specifically mentions the name of the Respondent as well as the amount of debt. The Corporate Debtor having acted in terms of the letter dated 19.09.2016 has in fact promised to pay the FC the amount due and outstanding. The same amounts to an acknowledgement of debt and promise to pay with respect to Section 25(3) of the Indian Contract Act, 1872.

Further that on 11.11.2016 as in Pages 246 to 249 of Volume II of Form – I the authorized representative of Corporate Debtor wrote to the FC making part payments towards the OTS offer. The letter specifically mentions the nature of the debt and unequivocally admits the debt of the Corporate Debtor towards the Appellant. Further the said letter mentions

The FC would assert that as on date, an amount of INR 51.10 Crore has been received by the FC against the OTS offer. This extends limitation in terms of Section 19 of the Limitation Act, 1963.

At this juncture Ld. Sr. Counsel for the CD would vociferously bounce back stating as under:

The letter dated November 8, 2016, inter-alia shows that settlement was done of 5 different companies being namely a) Uniworth Ltd. b) Uniworth Textiles Ltd. c) Uniworth International Ltd. d) Indoworth India Ltd. e) Textprint Overseas Ltd. and the offer was Rs. 75 crores.

The details regarding company wise payment payable are mentioned in letter dated September 19, 2016, being the first settlement letter issued by CD which finds mention in the letter dated November 8, 2016.

The Payment Schedule as per letter dated September 19, 2016, is as under:

The said letter dated September 19, 2016, was handed over during course of argument and also forms part of appeal paper book being page no. 259 Annexure A-7 before Hon’ble NCLAT.

The letter dated November 8, 2016 (as in page 25 of the rejoinder affidavit) has been duly signed by all the 5 companies individually and not as a group.

The Financial Creditor issued the letter dated November 22, 2018, revoking the settlement but gave credit to all the payments received (being total amount of Rs. 51.10 crores) in accordance with the letter dated September 19, 2016. Yet the Financial Creditor through the revocation settlement letter mentioned that due to non-payment, the OTS stood revoked and / or the terms of settlement, recalled and the Corporate Debtor was called upon to pay Rs. 402,05,60,202 (reference is drawn to pages 33-34 of rejoinder affidavit).

That the Corporate Debtor has replied to the letter of revocation dated November 22, 2018, by its letter dated December 14, 2018 (as in page 35 of the rejoinder affidavit).

The Ld. Sr. Counsel for FC retorts saying that the contents of the letter of revocation dated November 22, 2018, has not been denied by the CD. It has acted in terms of the letter of revocation dated November 22, 2018, by requesting the FC to hand over the no-due certificate for the two companies for which payment was made in accordance with the letter dated September 19, 2016. Therefore, the submission with regard to no default and that time is not the essence of contract and that the settlement is still on does not stand as the terms of the letter of revocation dated November 22, 2018, were accepted by the Corporate Debtor.

It is submitted that letter dated June 19, 2016, finds mention in the Hon’ble NCLAT order dated 10.07.2024 at page 35, where Hon’ble NCLAT

Further that the Hon’ble Supreme Court of India held that “In view of the peculiar facts and circumstances of the case, including the factum that the One Time Settlement Proposal was moved by a group of companies, of which the appellant – Uniworth Textiles Limited is also a member, and the Debt Recovery Tribunal has passed the decree on 04.12.2018. we do not find any good ground and reason to interfere with the impugned judgement and hence the present appeal is dismissed”.

Thus, the Corporate Debtor’s obligation was to pay the remaining sum of Rs. 63 Crores 75 lakh by February 25, 2017, however the same was not paid. The Financial Creditor has duly issued NOC to two Companies who has made payment. Hence there cannot be a reciprocal obligation until and unless the Corporate Debtor discharged its/their obligation.

We have heard Ld. Sr. Counsels for parties and perused records.

Analysis:

The CD in its own balance sheet of 2018-2019 have acknowledged default in payment of dues to the financial creditor and have also acknowledged that loans have become due for repayment as in Page No. 835 of the Supplementary Affidavit Vol-IV.

Against the Settlement offered for an amount of Rs. 75 crores for 5 group Companies, the amount payable under the terms of settlement is more than 1 crore which crosses the minimum threshold.

The Corporate Debtor has duly acknowledged that the terms of settlement stands revoked.

Hind Construction Contractors v. State of Maharashtra (1979) 2 SCC 449 This judgement does not come to the aid of the Corporate Debtor, as it relates to building contacts which is not the case here.

Arosan Enterprises Ltd. v. Union of India and Another (1999) 9 SCC 449 This judgement also relates to building contacts which is not the case here. In the instant case the Corporate Debtor has agreed to the cancellation of the terms of settlement vide the letter dated December 14, 2018. Hence, time as the essence of contract does not apply in the instant case.

Kailash Nath Associates v. Delhi Development Authority and Another (2015) 4 SCC 136 relates to forfeiture of earnest money and compensation and liquidated damages which has no relevance in the instant case.

We would further note that:

The grounds taken by the Corporate Debtor have no relevance in the instant matter as the Corporate Debtor has acknowledged its debt and stated default in no uncertain terms.

The issues voiced by the Corporate Debtor with regard to group settlement and not individual company settlement has been adequately dealt with by the Hon’ble NCLAT. Hon’ble NCLAT in no uncertain terms has held that it is an individual company wise settlement, and the view stands affirmed by the Hon’ble Supreme Court too.

The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted.

In the aforesaid backdrop this Company Petition deserves to be Admitted.

In terms of the foregoing discussion, we ALLOW the application bearing Company Petition (IB) No. 1593/KB/2018 filed under Section 7 of the I&B Code, and accordingly, we order the initiation of Corporate Insolvency Resolution Process (CIR Process) in respect of the Corporate Debtor by the following Orders:

The Application filed by Asset Reconstruction Company (India) Limited (Financial Creditors), under Section 7 of the Insolvency & Bankruptcy Code, 2016, is hereby, ADMITTED for initiating the Corporate Insolvency Resolution Process in respect of Uniworth Textiles Limited (Corporate Debtor).

As a consequence of this Application being admitted in terms of Section 7 of the I&B Code, moratorium as envisaged under the provisions of Section 14(1) of the Code, shall follow in relation to the Respondent/(CD) as per clauses (a) to (d) of Section 14(1) of the Code. However, during the pendency of the moratorium period, terms of Section 14(2) to 14(3) of the Code shall come into force.

Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016, prohibits the following, as:

The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during the moratorium period.

The provisions of sub-section (1) of the Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

The Applicant previously proposed the name of “Mr. Sudip Bhattacharya”, as the “IRP” at the time of filing the petition. However, through IA (I.B.C) 1921/KB/2023, the Applicant has prayed for changing the proposed IRP, as it has been decided in course of their internal review process.

In pursuance of the request of changing the name of proposed IPE, the concerned IA is allowed.

Therefore, in pursuance of the above submission, M/s. Kanchansobha Debt Resolutions Advisors Private Limited, Registration No. IBBI/IPE/-0059/IPA-1/2022-23/50037, Address – Unit No. 1507, 15^th Floor, B wing, ONE BKC Plot No C-66, G-Block, BKC, Bandra (East), Mumbai-400051, is hereby appointed as the IPE. We have perused that there is a written communication and consent of IPE in Form 2 with Affidavit, annexed as letter D at pages 36-38 to the petition, as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. There is a declaration made by him that there are no disciplinary proceedings pending against him with the Board or IIIP of ICAI. In addition, further necessary disclosures have been made by “M/s. Kanchansobha Debt Resolutions Advisors Private Limited” as per the requirement of the IBBI Regulations. Accordingly, he satisfies the requirement of Section 7(3)(b) of the code. Hence, we appoint “M/s. Kanchansobha Debt Resolutions Advisors Private Limited” as the Insolvency Professional Entity of the Corporate Debtor to carry out the functions as per the I&B Code subject to submission of a valid Authorisation of Assignment in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016. The fee payable to IPE, as the case may be, shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IPE shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the I&B Code.

In pursuance of Section 13 (2) of the Code, we direct the IPE, as the case shall cause a public announcement immediately with regard to the admission of this application under Section 7 of the Code and call for the submission of claims under Section 15 of the Code. The public announcement referred to in Clause (b) of sub-section (1) of Section 15 of the Insolvency & Bankruptcy Code, 2016, shall be made immediately. The expression immediately means within three days as clarified by Explanation to Regulation 6 (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

During the CIR Process period, the management of affairs of the Corporate Debtor shall vest in the IPE, as the case may be, in terms of Section 17 of the I&B Code. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IPE within one week from the date of receipt of this Order, in default of which coercive steps will follow. There shall be no future opportunities in this regard.

The Insolvency Professional Entity is also free to take police assistance to take full charge of the Corporate Debtor, its assets and its documents without any delay, and this Court hereby directs the concerned Police Authorities and/or the Officer-in-Charge of Local Police Station(s) to render all assistance as may be required by the Interim Resolution Professional in this regard.

The IPE, as the case may be, shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIR Process in respect of the Corporate Debtor.

The Financial Creditors shall be liable to pay to IPE a sum of Rs. 3,00,000/- (Three Lakhs Only) as payment of his fees as advance, as per Regulation 33(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which amount shall be adjusted at the time of final payment. The expenses relating to the CIRP are subject to the approval of the Committee of Creditors (CoC).

In terms of sections 7(5) and 7(7) of the Code, the Registry of this Adjudicating Authority is hereby directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional by Speed Post and through email immediately, and in any case, not later than two days from the date of this Order.

Additionally, the Registry of this Adjudicating Authority shall serve a copy of this Order upon the Insolvency and Bankruptcy Board of India (IBBI) for their record and also upon the Registrar of Companies (RoC), to whom the company is registered with, by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.

The Resolution Professional shall conduct CIRP in a time-bound manner as per Regulation 40A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.

The IPE shall be liable to submit the periodical report including the minutes of the CoC of the Corporate Debtor, with regard to the progress of the CIR Process in respect of the Corporate Debtor to this Adjudicating Authority from time to time.

The order of moratorium shall cease to have effect as per Section 14(4) of the I&B Code.

Post the Company Petition on 16 December, 2024 for filing the Periodical Progress Report by the IPE as appointed herein.

The IA (I.B.C) /1921 (KB) 2023 in Company Petition (IB) No. 1593/KB/2018 is thus allowed of accordingly.

Certified copies of this order, if applied for with the Registry of this Adjudicating Authority, be supplied to the parties upon compliance with all requisite formalities