Bank Of Baroda vs Subi Chemicals Private Limited

Per Se : Dr. Deepti Mukesh, Member (Judicial)

The Present Application is filed on 11.09.2020 under section 7 of Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC, 2016’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) by the financial creditor Bank of Baroda (for brevity ‘Applicant’), with a prayer to initiate the Corporate Insolvency process against Subi Chemicals Private Limited (for brevity ‘Corporate Debtor’).

The applicant is a body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 having CIN: U99999MH1911PLC007676 and having its Head Office at Baroda Bhavan, Alkapuri, R.C. Dutta Road, Vadodara, Gujarat and a Branch Office amongst other places known as Regional Stressed Assets Recovery Branch, Baroda Sun Complex, Ghod Dod Road, Surat 395 007. The applicant is in the Banking business providing various types of financial facilities including business loans, personal loans, consumer loans, loan against property, home equity loans, term loan etc.

The corporate debtor is a private limited company, incorporated under the provisions of The Companies Act, 1956 on 19.08.1992, duly registered with Registrar of Companies, Ahmedabad with CIN: U24231GJ1992PTC018170 and having registered office at 509, Jeevan Deep Complex, Nr. Sub-Jail, Ring Road, Surat 395 003, Gujarat State. The Authorized share capital of the corporate debtor is Rs. 2,00,00,000/- and paid up share capital is Rs. 1,79,85,000/-.

It is submitted by the applicant that various credit facilities were sanctioned to M/s. Sarthak Creation Private Limited (hereinafter referred to as “Borrower”) in the year 2008 which were renewed/extended/enhanced from time to time on the strength of the security documents not only executed by the Borrower but also the guarantors who executed guarantee deeds dated 28.06.2010 in the name of the corporate debtor and M/s. Subi Dyestuff Private Limited. Due to default in payment of loan amount to the applicant, the account of Borrower was declared as NPA (non-performing asset) in the Books of the applicant on 11.12.2013 and the said default continues thereafter, till date. Total amount claimed to be in default as on 29.02.2020 is Rs. 122,57,11,577/-. The amount of loan extended by the applicant from time to time to the Borrower was guaranteed from time to time by way of execution of corporate guarantees by two separate corporate entities 1) M/s. Subi Dyestuff Private Limited & 2) M/s. Subi Chemicals Private Limited as corporate guarantors. The two above named companies came to be amalgamated under the provisions of Section 391 to 394 of the Companies Act, 1956 by order dated 04.03.2013 and 25.03.2013 in Company Petition No. 254/2012 connected with Company Petition No. 363/2012 passed by Hon’ble High Court of Gujarat, copy of the said order in scheme of Amalgamation is filed.

It is further submitted by the applicant that the term “Financial Debt” which is envisaged under Section 5 (8) of the Insolvency and Bankruptcy Code, 2016 is an inclusive definition which means “a debt along with interest, if any, which is disbursed against the consideration for time value of money”. It includes any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5 (8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5 (8), and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). In the instant case, the applicant is having direct engagement in the functioning of the Borrower, M/s. Sarthak Creation Private Limited. While the Borrower had passed resolution dated 06.12.2013 resolving that the present corporate debtor, M/s. Subi Chemicals Private Limited stands as guarantor providing guarantee in favour of the applicant for securing financial assistance to be disbursed by the applicant to the Borrower and further resolving that the corporate guarantee is to secure the aggregate of credit facilities sanctioned to the Borrower. The corporate guarantee dated 06.12.2013, in point 3, the present corporate debtor unconditionally, absolutely and irrevocably guarantees as under:

Clause (i) of Section 5 (8) of Code which includes the financial debt to be: “the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause”

It is further submitted that since the corporate debtor has duly executed the corporate guarantee as per their company board resolution with board of directors resolving that they are liable to pay money in the default of the Borrower, M/s. Subi Chemicals Private Limited, the present corporate debtor cannot now look back and refute the liability in respect of guarantee.

It is submitted by the applicant that a total sum of Rs. 66.17 crores were granted to the Borrower, M/s. Sarthak Creation Private Limited details of which are given below:

On account of non-payment of secured debts, the financial creditor issued a notice dated 19.11.2015 under Section 13 (2) of the SARFAESI Act, 2002 calling upon Borrower, M/s. Sarthak Creation Private Limited and the corporate guarantor, M/s. Subi Chemicals Private Limited to pay Rs. 65,71,89,119.32 including interest upto 30.09.2015. Thereafter, the applicant issued legal notice dated 27.01.2016 to the Borrower, M/s. Sarthak Creation Private Limited, personal guarantors and corporate guarantor, present corporate debtor M/s. Subi Chemicals Private Limited.

The corporate debtor filed affidavit in reply inter alia stating that:

 Alleged claim does not fall within the four corners of the financial debt and the respondent does not owe any such debt.

 The date of default is the date of declaration of account of the original Borrower Sarthak Creation Private Ltd. (now in liquidation) as non-performing account and the NPA was declared on 11.12.2013 while the present application is filed on 11.09.2020, hence, the present application is barred by law of limitation.

 The application is filed for alleged recovery and as an arm twisting process. Therefore, proceedings to be initiated against the applicant under Section 65 of the IB Code, 2016.

 The present application is filed essentially for recovery of alleged debt and the averments as made in the application and affidavit clearly demonstrate that the applicant has undertaken different alleged measures including SARFAESI, 2001 against the Borrower company, filed original application before DRT, Ahmedabad for recovery against the Borrower and alleged corporate guarantor, which is pending.

 The account of the original Borrower company which is now in liquidation was declared as Non Performing since 11.12.2013, hence the date of default is 11.12.2013.

The applicant filed rejoinder inter alia stating that:

 The applicant had extended credit facilities to M/s. Sarthak Creation Pvt. Ltd. (borrower) initially in the year 2008 which were renewed/extended/enhanced from time to time at the request of the Borrower and on the strength of the security documents executed not only by the Borrower but also by the corporate guarantors namely; M/s. Subi Chemicals Pvt. Ltd. and M/s. Subi Dyestuff Pvt. Ltd.

 The corporate debtor herein (resultant merger of company upon M/s. Subi Dyestuff Pvt. Ltd. with it) was a corporate guarantor and in that capacity of corporate guarantor, it was called upon by the applicant to repay the debt guaranteed by it on behalf of the borrower repayable to

 The corporate debtor M/s. Subi Chemicals Pvt. Ltd. is a merged/ amalgamated resulting company where another entity corporate guarantor namely M/s. Subi Dyestuff Pvt. Ltd. which too executed corporate guarantees on the above referred dates got merged in present corporate debtor vide Hon’ble High Court of Gujarat order dated 04.03.2013 and 25.03.2013, which are on record.

 In light of above, the two companies as a single amalgamated company known as M/s. Subi Chemicals Pvt. Ltd., corporate guarantee dated 06.12.013 was executed by M/s. Subi Chemicals Pvt. Ltd. for the entire loan amount of Rs. 66.17 crores as on 06.12.2013 repayable together with interest and other charges, copy of which is on record.

 Corporate guarantee dated 06.12.2013, under point No. 11 clearly brings out that “The Guarantors shall not in the event of the liquidation of the Borrower prove in competition with Bank of Baroda in liquidation proceedings”. Further, under point No. 13, it is brought out that “This guarantee shall not be wholly or partially satisfied or exhausted by any payments made to or settled with Bank of Baroda by the Borrower and shall be valid and binding on the guarantors and operative until repayment in full of all moneys due to Bank of Baroda under the loan agreements”.

 Point No. 3 of the corporate guarantee stipulates that “in the event of any default on the part of the Borrower in payment/repayment of any of the moneys referred to above, or in the event of any default on the part of the Borrower to comply with or perform any of the terms, conditions and covenants contained in the loan agreements, the guarantors shall, upon demand, forthwith pay to Bank of Baroda without demur all of the amounts payable by the borrower under the loan agreements”

 Point No. 15 of the guarantee stipulates that “This guarantee shall be a continuing one and shall remain in full force and effect till such time the Borrower repays in full the loans together with all interest, liquidated damages, commitment charges, premia on prepayment or on redemption, cost expenses and other moneys that may from time to time become due and payable and remain unpaid to Bank of Baroda under the loan agreement”.

 It is thus abundantly clear that the corporate guarantor virtually acquired the status of the corporate Borrower upon commitment of default after demand/legal notice was served amongst others on the corporate guarantor by the advocate of the applicant vide notice dated 27.01.2016.

10 The applicant filed written submissions inter alia reiterating the contentions raised in the application.

The corporate debtor has not filed written submissions.

As per directions of the Bench, the applicant filed chronology of each document executed by the borrower namely Sarthak Creation Pvt. Ltd. and corporate debtor herein namely Subi Chemicals Pvt. Ltd. in order to show the extension of limit from time to time.

The applicant filed additional affidavit enclosing therewith copies of the following documents:

The corporate debtor filed additional affidavit inter alia stating that the applicant has failed to show that the application is within limitation period. Acknowledgement of debt cannot extend the limitation period. Application filed under Section 10 cannot be considered as acknowledgement of debt. The applicant is a going concern and is discharging its obligation towards statutory and contractual dues in the ordinary course of business and the accounts of the respondent is regular with its bankers and there is no reasons or justification to trigger CIRP.

As per order of the Bench, the corporate debtor filed short note on limitation stating that:

 The credit facilities sanctioned to the borrower, M/s. Sarthak Creation Private Limited in the year 2008 and thereafter upon enhancement in the limits, documents were executed in the year 2010, 2011, 2012, and 2013 were guaranteed by the corporate guarantor, M/s. Sub Chemicals Private Limited.

 The corporate guarantor passed a Board Resolution dated 03.12.2012 and resultantly executed corporate guarantee deed dated 06.12.2013 being the final corporate guarantee document on behalf of the borrower.

 The borrower as well as the corporate guarantor both executed and acknowledged the debt on 19.04.2010, 28.06.2010, 31.12.2011, 21.08.2012, 22.02.2013, 06.12.2013 and lastly they had executed and acknowledged the debt on 25.05.2015.

 After execution of the deed of guarantee dated 06.12.2013, the account classified as NPA on 11.12.2013 whereafter the applicant in its capacity as a lender crystallised the liability and issued demand notice dated 19.11.2015 under Securitisation Act, 2002. Against the said notice borrower for itself and also on behalf of guarantor filed objection on 11.01.2016 also showing interest in an amicable settlement. Thereafter, the applicant issued legal notice through advocate on 28.01.2016, which was also replied by the borrower for itself and on behalf of the corporate guarantor on 29.02.2016 inter alia exploring possibilities of one-time settlement proposal (OTS). Thereafter, on 13.12.2016, the applicant filed Original Application No. 67/2017 before DRT, Ahmedabad against the borrower and also against the corporate guarantor showing them as the defendants therein responsible to pay the crystallised debt of Rs. 61,85,23,199/-with other related amounts as narrated therein jointly and severally which is pending for adjudication.

 Well within the period of three years commencing from 25.05.2015 as stated above, the borrower submitted an application under Section 10 of IB Code, 2016 against the financial creditor being CP No. 85/10/NCLT/AHM/2017 which came to be decided by NCLT, Ahmedabad on 30.08.2017.

The applicant has separately filed copies of the following judgements relied upon by it during the arguments.

As per Form 1, part IV, the corporate debtor is in default of total Rs. 122,57,11,577/- (Rupees one hundred twenty-two crores fifty-seven lacs eleven thousand five hundred seventy-seven only) as on 29.02.2020. Taking into consideration the date of classification of the account as non-performing asset in the books of the financial creditor and subsequent developments like one-time settlement proposals moved by the borrower and corporate guarantor, the last such acknowledgement of debt being 27.12.2018, the present application filed on 11.09.2020 is within limitation.

The registered office of the corporate debtor is situated in Surat, Gujarat State and, therefore, this Tribunal has jurisdiction to entertain and try this application.

Heard the submissions and perused the documents on record. The points of consideration are:

The facts of debt by the original borrower and the existence of corporate guarantee are not denied by the respondent corporate guarantor. The acknowledgement of debt and OTS proposals bring the debt within limitation.

In light of the above discussions, it is evident that the debt is due and payable and default has occurred. The present application is complete in terms of Section 7 (5) of the Code. The applicant is entitled to claim its dues, establishing the default in payment of the financial debt beyond doubt. In light of the above facts and records, the present application is admitted and CIRP is ordered to be initiated against the corporate debtor.

The applicant has proposed the name of Mr. Nimai Shah as Insolvency Resolution Professional, who is hereby appointed as IRP of corporate debtor having registration number IBBI/IPA-001/IP-P-00154/2017-18/10323 having office at 605-606-607, Silver Oaks, Near Mahalaxmi Char Rasta, Paldi, Ahmedabad 380 007, Gujarat State subject to the condition that no disciplinary proceedings are pending against him. Specific consent of the IRP in Form 2 along with disclosures as required under IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is filed, which is on record.

We direct the Financial Creditor to deposit a sum of Rs. 2.00 lacs (Rupees two lacs only) with the Interim Resolution Professional, namely Mr. Nimai Shah to meet the expenses for performing functions assigned to him in accordance with regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within one week from the date of receipt of this order by the Financial Creditor. The amount however be subject to adjustment by the Committee of Creditors, as accounted for by Interim Resolution Professional, and shall be paid back to the Financial Creditor.

As a consequence of the application being admitted in terms of Section 7(5) of IBC, 2016, moratorium as envisaged under the provisions of Section 14 (1) shall follow in relation to the Corporate debtor, prohibiting actions 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(4) of the Code shall remain in force.

A copy of the order shall be communicated to the applicant, IRP and the corporate debtor. A copy of order along with complete copy of application be served to IRP by the applicant within 7 days of order. In addition, a copy of the order shall also be forwarded to IBBI for its records and taking steps for updating the Master Data of the corporate debtor in MCA portal and shall forward the compliance report to the Registrar, NCLT.