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Judgment
Per: Mr V.P. Singh, Member (J)
ORDER
The Petitioner/Applicant viz. ‘Bank of Baroda’ (hereinafter as Financial Creditor) has furnished Form No. 1 under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter as Rules) in the capacity of “Financial Creditor” on 16.10.2018 by invoking the provisions of Section 7 of the Insolvency and Bankruptcy Code (hereinafter as Code) against ‘Chamber Construction Pvt. Ltd.’ (from now on as ‘Corporate Debtor’). The registered address of the Corporate Debtor is stated to be RNA Corporate Park, Next to Collector’s Office, Kalanagar, Bandra (East), Mumbai.
In the requisite Form, under the head “Particulars of Financial Debt” the total amount of Debt granted is stated to be ₹45 Crores, and the amount claimed to be in default is ₹16.03 Crores as on 30.09.2018. The loan account of the corporate Debtor was declared as NPA on 31.08.2016.
This Petition is originally filed by Dena Bank. However, it is noted that a merger of Vijaya Bank and Dena Bank with Bank of Baroda has taken place vide Government Notification dated 02.01.2019 w.e.f 01.04.2019. Hence, this petition is now amended, and the name of Dena Bank is substituted by Bank of Baroda as the Applicant/Financial Creditor.
The Financial Creditor submits that Dena Bank had provided a term loan under Dena Bank Mortgage Scheme to the tune of ₹45 Crores to the Corporate Debtor. The term loan was granted under the issuance of a sanction letter dated 06.11.2009. The loan facility was secured by a registered mortgage deed dated 24.11.2009 by which the Corporate Debtor mortgaged 13 flats to the Financial Creditor.
The loan was further secured by the Letter of Guarantee dated 24.11.2009 given by the directors of the Corporate Debtor. Further, on 02.03.2010, a deed of rectification was executed between the Corporate Debtor and the Financial Creditor as the Corporate Debtor wrongly mortgaged one flat (Flat No. 3602 instead of Flat No. 3502 of “R.N.A. Mirage” Building).
The said term loan facility was converted into an Overdraft Facility against Mortgage Limit for the balance ₹30 Crores and was approved by the Bank on 20.09.2010. The mortgage deed for enhancement states that ₹15 Crores was already repaid by the Corporate Debtor.
On 30.09.2013, the Financial Creditor approved the renewal of Overdraft Limit of ₹25.50 Crores at the interest rate of 13.50% p.a. On 31.03.2015, the Financial Creditor approved the review of Overdraft Limit of ₹18 Crores. The Corporate Debtor failed to repay the financial debt advanced to it, and its loan account was classified as NPA on 31.08.2016.
The Financial Creditor issued a notice under the SARFAESI Act on 04.11.2016 to the Corporate Debtor to which no reply was received. SARFAESI proceedings are pending till date.
The Financial Creditor has produced on record the Bank statement for the period from 24.09.2010 to 03.10.2018, and the amount due reflected therein is ₹11,22,58,221.53. The Financial Creditor has given a computation of the claim amount by adding 14.85% current rate of interest, 4.33% amount of interest due and 0.47% penal interest, thus totalling to the outstanding of ₹16.03 Crores as on 30.09.2018. This amount corroborates the amount claimed to be in default by the Financial Creditor. It is submitted by the Petitioner that the petition is complete in all respects and all the procedural formalities have complied, fee. Hence, this Petition/Application may be Admitted for the initiation of the CIRP.
The counsel for the Corporate Debtor has filed an affidavit in reply to this petition. The Corporate Debtor has made a threefold submission in this regard. The first and foremost contention of the Corporate Debtor is that Mr Subhasish Sarkar, General Manager, Dena Bank has issued a general Power of Attorney dated 23.11.2013 in favour of Shri Naik Vikas Anand to file this petition. However, the Financial Creditor has not placed on record any Board Resolution authorising Mr Subhasish Sarkar to have issued a power of attorney. Hence, it is stated that this petition is filed without a proper authority letter.
The next contention of the Corporate Debtor is that the Financial Creditor has not placed on record the certificate of registration of the proposed Interim Resolution Professional. Hence, it is stated that the petition is incomplete and ought to be rejected.
The Corporate Debtor further states that the “claim” of the Financial Creditor is not maintainable under the I&B Code. The argument of the Corporate Debtor is that the Financial Creditor foreclosed the rights of the Corporate Debtor towards the mortgaged properties under provisions of the SARFAESI Act. After that, the Financial Creditor took the physical possession of the mortgaged properties and issued auction notice for several times for its sale. Hence, the Corporate Debtor’s right to redeem its properties upon payment of the debt of the secured creditor stands abrogated. Therefore, the Corporate Debtor states that it is discharged of all its liabilities in respect of mortgage and the Financial creditor has closed its right of recovering any amount from the Corporate Debtor. Therefore, there is no “claim” of the Financial Creditor against the Corporate Debtor.
The Corporate Debtor further goes on to say that the Financial Creditor has sufficient security to realise its dues and hence the initiation of I&B Code proceedings is used as an arm twisting tactic by the Financial Creditor.
On going through the pleadings made and after hearing the arguments of both the sides, it is important to deal with the contentions of the Corporate Debtor before going into the veracity of the Financial Creditor’s claim.
The foremost argument of the Corporate Debtor that General Manager of Dena Bank Mr Subhasish Sarkar is not authorised to issue Power of Attorney in favour of Shri Naik Vikas Anand in the absence of any Board/Special Resolution, is not maintainable due to the legal maxim “Omnia Praesumunutur rite et solemniteressaacta” i.e. “All acts are presumed to be rightly and regularly done”. If the Corporate Debtor is contending that Mr Subhasish Sarkar has wrongly issued a power of attorney in someone’s favour, the onus lies on the Corporate Debtor to establish that a power of attorney issued is wrong in law/without authorisation. However, no such contention has been made by the Corporate Debtor. Alleging that a document, which is produced on record, is invalid, does not make it invalid, unless backed by substantive evidence. Hence, we hold that the Petition is filed by Shri NaikVikasAnand who is authorised to file the present petition vide Power of Attorney dated 23.11.2013.
The next contention of the Corporate Debtor that there is no “claim” in existence against the Corporate Debtor due to the publication of e-auction notice for sale of mortgaged assets stands answered by the judgement of the Hon’ble Supreme Court in the case of “M/s Hindon Forge Pvt. Ltd. &Anr. V. The State Of Uttar Pradesh through District Magistrate, Ghaziabad &Anr. [Civil Appeal No. 10873 of 2018], wherein it was held that,
“It is clear, therefore, that statutorily, under section 13(6) though only the lesser right of taking possession, constructive or physical, has taken place, yet the secured creditor may, by lease, sale or assignment, vest in the lessee or purchaser all rights in the secured assets as if the transfer has been made by the original owner of such a secured asset. This aspect of the matter does not appear to have been noticed in the aforesaid judgement. The ultimate conclusion in the said judgement is, however, correct, as a secured creditor remains a secured creditor even after possession is taken over as the fiction contained in section 13(6) does not convert the secured creditor into the owner of the asset, but merely vests complete title in the transferee of the asset once transfer takes place in accordance with Rule 8 & 9 of the 2002 Rules”.
Therefore, the publication of the e-auction notice for sale of mortgaged assets does not close the secured creditor’s right of recovering the amount from the Corporate Debtor under the same law or any other law in force.
Further, the contention of the Corporate Debtor that the Financial Creditor should invoke the security to realise its dues before coming to NCLT does not hold much water given Section 176 of the Contract Act, 1872, which provides that:
“176. Pawnee's right where pawnor makes default:
If the pawnor makes default in payment of the debt, or performance, at the stipulated time, of the promise, in res pect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor”.
Hence, the secured creditor can opt for any of the options available, be it filing a suit to recover its dues or be it an invocation of securities given. In National Securities Clearing Corporation Ltd. V. Prime Broking Company (India) Ltd. [2016 SCC Online Bom 4501], Order dated 28.06.2016, it was held that:
“Even otherwise, I find that the law as far as Section 176 of the Contract act, 1872 is concerned, is quite well settled. The law, as I understand it, is that a pledger cannot compel a pledgee to exercise the power of sale as a means of discharge or to satisfy the debt. The Pledgor’s rights are only (i) in case the pledgee exercised the power of sale, to insist that it should be honestly and properly done and the sale proceeds applied to the debt; (ii) in case the pledgee did not exercise the power of sale, then the pledgor can redeem the pledge on payment of the debt or such part of it that has remained unpaid; and (iii) in case the sale was improperly exercised, to get damages caused thereby.”
A similar view was taken by the Hon’ble Madras High Court in the matters of S.L. Ramaswamy Chetty V. M.S.A.P.L. Palaniappa Chettiar, [AIR 1930 Mad 364] and Rani Leasing & Finance Limited V. Sanjay Khemani[2015 SCC Online Cal 450].
Therefore, this contention of the Corporate Debtor also stands rejected.
The Corporate Debtor committed default in repayment of the loan amount to the original lender, and hence it’s Loan account was declared as NPA. SARFAESI proceedings were also initiated by the Assignor in respect to the same debt, and they are pending till date. The Assignee’s Bank statements as on 28.06.2017 and further computation of interest on the amount due substantiate the claim of the Financial Creditor. The relevant mortgage documents, loan sanction documents etc. have been produced on record and duly perused by this Bench.
In the light of above facts and circumstances, the existence of debt and default is reasonably established by the Financial Creditor as a major constituent for admission of a petition under section 7 of the I&B Code.
The Petitioner has proposed the name of Mr Rajender Kumar Girdhar, a registered insolvency resolution professional having Registration Number [IBBI/IPA-003/IP-N00048/2017-18/10396] as Interim Resolution Professional, to carry out the functions as mentioned under I&B Code, and given his declaration; no disciplinary proceedings are pending against him.
The Application under sub-section (2) of Section 7 of I&B Code, 2016 is complete. The existing financial debt of more than rupees one lakh against the corporate debtor and its default is also proved. Accordingly, the petition filed under section 7 of the Insolvency and Bankruptcy Code for initiation of corporate insolvency resolution process against the corporate debtor deserves to be admitted.
ORDER
This petition filed under Section 7 of I&B Code, 2016, against the Corporate Debtor for initiating corporate insolvency resolution process is at this moment admitted. We further declare moratorium u/s 14 of I&B Code with consequential directions as mentioned below:
I. That this Bench as a result of this prohibits:
the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
the recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate debtor.
II. That the supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.
III. That the provisions of sub-section (1) of Section 14 of I&B Code shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
IV. That the order of moratorium shall have effect from the date of this Order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 of I&B Code or passes an order for the liquidation of the corporate debtor under section 33 of I&B Code, as the case may be.
V. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of I&B Code.
VI. That this Bench at this moment appoints Mr Rajender Kumar Girdhar, a registered insolvency resolution professional having Registration Number [IBBI/IPA-003/IP-N00048/2017-18/10396]as Interim Resolution Professional to carry out the functions as mentioned under I&B Code, fee payable to IRP/RP shall comply with the IBBI Regulations/Circulars/Directions issued in this regard.
The Registry is at this moment directed to immediately communicate this order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional even by way of email or WhatsApp. Compliance report of the order by Designated registrar is to be submitted today.