Bank Of India Limited vs Pranav Construction Systems Private Limited

Per: Justice P. N. Deshmukh, Member (Judicial)

This is a Company Petition filed under section 7 (“the Petition”) of the Insolvency and Bankruptcy Code, 2016 (IBC) by Bank of India Limited ("the Financial Creditor or FC"), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Pranav Construction Systems Private Limited ("the Corporate Debtor or CD").

The CD is a Public company limited by shares and incorporated on 10.09.2003 under the Companies Act, 1956, with the Registrar of Companies, Maharashtra, Mumbai. Its registered office is at Plot No. C-10, T.T.C. Industrial Eastate, M.I.D.C. Pawane, Koperkhairne, Navi Mumbai– 400705. Therefore, this Bench has jurisdiction to deal with this petition.

The FC submits that by way of sanction letter dated June 21, 2010, the FC had sanctioned aggregate credit facility of Rs. 25,00,00,000/- in favor of the CD. (Annexure – E @ page 36-45 of CP)

Subsequently, a working capital consortium agreement dated January 6, 2011 was executed between FC, Axis Bank and CD, wherein working capital facility of Rs. 27,00,00,000/- was granted to the CD. The exposure of FC was Rs. 20,00,00,000/- (Annexure – F @ page 46-67 of CP). Apart from the above referred working capital facility, CD had availed term loan facility of Rs 5,00,00,000/- from the FC.

Thereafter, first supplementary working capital consortium agreement dated August 24, 2013 was executed between FC, Axis Bank, Bank of Baroda, Thane Bharat Sahakari Bank (“Consortium Lenders”) and CD, wherein the credit limits were revised to Rs. 56,50,00,000/-. The exposure of FC was enhanced to Rs. 27,00,00,000/- (Annexure – H @ page 80-91 of CP). The term loan account was closed as on date of execution of first supplementary working capital consortium agreement.

In view of failure of CD to meet its debt obligations, the terms of the credit facilities were restructured by the FC vide letter dated March 19, 2015. Thereafter, the same was made a part of the second supplementary working capital consortium agreement dated June 4, 2016 executed between the Consortium Lenders and CD, wherein the credit limits were revised to Rs. 86,63,00,000/-. The exposure of FC was enhanced to Rs. 47,02,00,000/-. (Annexure – K @ page 137-151 of CP).

The CD defaulted in repayment of the credit facilities and the account of the CD was declared as NPA with effect from March 31, 2015. (page 8 r/w Annexure -O @ page 193 of CP).

In view of the defaults in repayment of facilities, the FC issued notice under Section 13(2) of SARFAESI Act, 2002 on May 26, 2017, to which there was no response by the CD. The FC also issued a demand letter dated March 7, 2019 demanding repayment of the outstanding amounts, which was also not responded to by the CD. (Annexure O @page 192-196 of CP and Annexure S @page 203-215 of CP).

In fact, by revival letters dated June 4, 2016 and June 11, 2019, the CD has confirmed the outstanding amounts payable under the credit facilities. (Exhibit – C @ page 306-307 of Rejoinder).

Thus, the essential conditions of existence of a ‘debt’ and ‘default’ are satisfied in the present case and the present Petition deserves to be admitted on such admission of debt and default by the CD.

The outstanding amount due and payable by the CD to the FC as on September 5, 2019 is Rs. 53,30,63,341.49 (page 8 of CP r/w Annexure D @page 28 of CP).

The FC submits that the Petition is within the period of limitation as explained below:

A. DEBT IS ACKNOWLEDGED IN WRITING IN THE BALANCE SHEET THEREBY EXTENDING PERIOD OF LIMITATION 13. The account of the CD was classified as NPA with effect from March 31, 2015 and the default is a continuing default. (page 8 of CP).

The debt has been acknowledged by the CD in, inter alia, its balance sheet for the year ending on March 31, 2018. The said fact is also averred in the Petition. (page 8 r/w page 337-338 of CP).

In the case of Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Anr. (2021) 6 SCC 366, the Hon’ble Supreme Court of India has now settled that admission of a debt in the balance sheet signed by the CD would amount to an acknowledgement of such debt, thereby giving rise to a fresh period of limitation under Section 18 of the Limitation Act,1963. (Refer paragraphs: 8, 9, 16,21 and 22 to 33).

The CD has acknowledged its liability in writing in the balance sheet on March 31, 2018, i.e. within a period of three years from the date of NPA. Under Section 18 of the Limitation Act, 1963, a fresh period of limitation shall be computed from the time when the acknowledgment was made/signed. Thus, in the instant case, fresh period of limitation shall be computed from the date on which the acknowledgment was made in the balance sheet i.e. March 31, 2018.

In addition and without prejudice to the acknowledgement under its balance sheet, the CD has also admitted/acknowledged the debt under various OTS proposals sent to the FC, thereby giving rise to a fresh period of limitation. (page 308-325 of Rejoinder)

As stated above, the NPA was declared on March 31, 2015. The CD addressed a letter dated June 4, 2016 (page 306 of Rejoinder) acknowledging the debt, thereby extending the period of limitation for a further period of three years i.e. till June 4, 2019. The CD issued OTS proposals on March 20, 2019 and May 23, 2019 (page 308 & 312 of Rejoinder), which shall be construed as an acknowledgement of debt thereby extending the period of limitation for a further period of three years thereon.

The captioned petition is filed on November 4, 2019, which is admittedly within the period of three years from the date of OTS proposals. Hence, considering the acknowledgement of debt under the OTS proposals addressed by CD, the present Petition is within the period of limitation.

The CD vide Additional Affidavit in Reply dated February 2, 2022 has raised a grievance that the FC has refused to accept the OTS proposals offered by the CD from time to time. The CD has also averred that it has filed a writ petition before the Hon’ble Bombay High Court seeking a writ of mandamus against the FC to favorably consider the OTS proposal in favor of the CD (See @page 3-5 r/w page 8 of Additional Affidavit).

The FC submits that the CD, on various occasions, had submitted OTS proposals which were duly rejected by the FC in its commercial wisdom. By a letter dated October 18, 2021, the FC rejected the last OTS offer inter alia on the ground that the OTS amount was very less considering the underlying security value and overall possibility of recovery thereon. Thus, the FC, had taken a prudent decision in its commercial wisdom to reject the OTS proposal. (See Exhibit H @page 23 of Additional Affidavit).

The Hon’ble Supreme Court in Bijnor Urban Cooperative Bank Limited v. Meenal Agarwal 2021 SCC OnLine SC 1255 has held in paragraph 28 to 30 as below:

Thus, in view of the settled principle of law as propounded above, the CD cannot compelled to accept an OTS offer. The FC, taking into account the value of the security interest and the overall possibility of recovery of outstanding amounts, has not accepted the OTS proposals of the CD in its commercial wisdom. Thus, the objection of the CD in relation to non-acceptance of OTS proposals is meritless and deserves to be disregarded.

With respect to the writ petition filed before the Hon’ble Bombay High Court, the FC submits that the CD has failed to obtain any interim orders from the Hon’ble High Court. Even otherwise, once a grievance is raised before the Hight Court there is no occasion for the CD to raise the same grievance before this Hon’ble Tribunal. In view thereof, the pendency of proceedings before the High Court is not relevant for deciding the present Petition.

The outstanding debt was acknowledged time and again by the CD evinced as hereinunder:

ii) Revival letters dated June 4, 2016 and June 11, 2019;

iii) Letters for OTS proposals including letters dated March 20, 2019, May 23, 2019, August 14, 2019 and September 5, 2019. Thus, the CD has admitted the factum of debt and default in repayment of outstanding amounts.

The Petition has not been filed within 3 years from the date of default / declaration of NPA. The Petitioner had declared the account of the CD as NPA on February 16, 2016 w.e.f. March 31, 2015. Thus, the date of default/NPA for calculating the limitation starts from March 31, 2015 and the Petition was filed on October 31, 2019. The cause of action, the right to sue accrued in favour of the Applicant on March 31, 2015. The period of 3 years under Article 137 of the Limitation Act, 1963 has thus expired on March 31, 2018. The Petition has been filed on October 30, 2019 after the expiry of limitation.

The Petition is framed and filed by Bank of India Limited and the Petition is signed by one Mr. Manoj Kumar Gupta claiming to be authorised signatory / assistant general manager of the Bank of India Limited. However, the resolution annexed is of Bank of India and not Bank of India Limited thus, there is no valid resolution to initiate IBC proceedings against the CD (Refer to Exhibit A at page 23 of the Petition read with para no. 2 of the Reply dated January 22, 2020 of the CD).

Petitioner has unreasonably rejected OTS under own BOI OTS 2020 Scheme is acting unreasonable and abusing the process of the Code:

The Applicant which is part of consortium of banks by virtue of an Inter-se Agreement dated July 4, 2016, had wrongfully classified the account of the CD as a Non-Performing Asset (NPA) on February 16, 2016 w.e.f. March 31, 2015.

Since, the classification of the account NPA, the CD have approached the Applicant 10 times for restricting of the account however, OTS proposal were rejected by the Applicant. It is thus evident that the CD has made sincere efforts for settlement but were rejected by the Applicant.

In-fact, an BOI OTS Scheme 2020 was launched by the Applicant and by letter dated September 11, 2020, the CD was approached by the Applicant intimating to the CD that they are eligible for one time settlement whereby the Applicant informed CD that the tentative settlement amount is Rs. 21.30 Crore and indicated that the OTS will be processed only after payment of deposit of minimum 5% application money. (Exhibit A of the Additional affidavit in reply of the CD dated February 2, 2022).

The CD indicated their consent to submit to the OTS Proposal under the Bank Scheme and as proposed by the Applicant, agreed to pay the amount of Rs.21.30 Crore (Exhibit B of the Additional affidavit in reply of the CD dated February 2, 2022).

Accordingly, CD made a payment of the amount of Rs.1,51,10,000/- paid on March 24, 2021 towards 5% of the total OTS amount of Rs.21,30,00,000/- and sought confirmation from Applicant for sanction of the OTS Proposal (Refer to Exhibit C of the Additional affidavit in reply of the CD dated February 2, 2022). However, the same was rejected by the Applicant without any rational behind it. (Refer to Exhibit D of the Additional affidavit in reply of the CD dated February 2, 2022).

After discussion again the CD had submitted two OTS proposals for INR 18,12,00,000/- (Eighteen Crore Twelve Lac) vide letter dated August 10, 2021 and the said OTS was further revised by the CD pursuant to the discussion with DGM of the Applicant to INR 21,14,00,000/- (Twenty One Crore Fourteen Lac) (Exhibit F & G of the Additional affidavit in reply of the CD dated February 2, 2022). However, the same came to be rejected vide Applicant letter dated October 18, 2021 (Exhibit H of the Additional affidavit in reply of the CD dated February 2, 2022).

In view of the arbitrary and unreasonable action of the Applicant in rejecting the OTS proposal, which was as per its own BOI OTS 2020 Scheme, the CD has filed a Writ Petition before the Hon’ble Bombay High Court seeking a writ of mandamus against the Applicant to accept the OTS proposal which is sub-judice. (Exhibit I of the Additional affidavit in reply of the CD dated February 2, 2022). The CD had tried to settle the matter with the Applicant in terms of their own BOI OTS 2020 Scheme however, it is the Applicant who have been ignoring the OTS proposals.

Assuming that the CD is ultimately out to liquidation, the maximum realizable value of the mortgaged properties as per the Bank’s Valuation is Rs.57,74,96,000/-. Applicant’s charge over the mortgaged properties is only to the extent of 46.92% and as per the terms of the Scheme quantum of OTS should be 70% of the realizable value of the mortgaged property which indicated that the CD was obligated to offer Rs. 18,96,72,786.24/-. Despite the above calculations, the CD have offered an amount more than stipulated amount to Rs. 21.30 Crore. (para 17 of the Exhibit I (writ petition) to the Additional affidavit in reply of the CD dated February 2, 2022).

The OTS 2020 is an OTS Scheme introduced to maximize the recoveries and keep the NPAs at low level and in view of the said OTS 2020, Applicant approached the CD intimating it is eligible under the BOI OTS 2020 (Refer to Exhibit A of the Additional Affidavit in Reply of the CD) and pursuant to which the CD submitted an OTS proposal and submitted initial payment of 5% (Refer to Exhibit B and Exhibit C of the Additional Affidavit in Reply of the CD). The Applicant is fully aware that the CD is fulfilling the eligibility criteria under BOI OTS Scheme and still the Applicant has taken a ‘U turn’ for the best reason known to them and rejected the OTS proposal of the CD without assigning any rational behind it. OTS Scheme which is given by the Applicant itself if is not respected by the Applicant itself then the OTS Scheme shall lose it sanctity (Exhibit D of the Additional Affidavit in Reply of the CD). Hence, the judgment of Bijnor Urban Cooperative Bank Limited v. Meenal Agarwal [MANU/SC/1258/2021] is not applicable to the present case as it is which deals with the borrower who are not meeting the eligibility criteria under OTS Scheme. The Hon’ble Supreme Court has observed that “...the grant of benefit under the OTS is always subject to the eligibility criteria mentioned under the OTS Scheme and the guidelines issued from time to time.” (para 11 of page 9).

CD is a Solvent Company, going concern and have working employees:

The CD is a going concern and the average annual turnover of the CD is Rs. 11 Crore. The CD has 155 employees working with them and has an operational profit. The Petitioner has filed this Petition to put pressure on the CD and for the recovery of the alleged outstanding amount which is against the objective of the Code. The Hon’ble Supreme Court in the case of Sesh Nath Singh and Ors. v. Baidyabati Sheoraphuli Co-operative Bank Ltd. and Ors. [MANU/SC/0205/2021] observed that in the case of Mobilox Innovation Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. [MANU/SC/1196/2017] the Supreme Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. (Refer to para no. 29 at page 5). No purpose would be achieved by sending the CD into the corporate insolvency resolution process.

We have heard the arguments of FC and CD and perused the records.

We also consider the facts of the case in the lights of the Order passed by Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Ors. Vs. Union of India & Ors. [Writ Petition (Civil) No. 99 of 2018] upholding the Constitutional validity of IBC, the position is very clear that unlike Section 9, there is no scope of raising a ‘dispute’ as far as Section 7 petition is concerned. As soon as a ‘debt’ and ‘default’ is proved, the adjudicating authority is bound to admit the petition.

The CD raised contention that application is barred by Limitation as NPA date is March 31, 2015 but Hon’ble Supreme Court squarely covered this issue in various judgements relied by the FC. Hon’ble Supreme Court while dealing with issue of Limitation hold that Limitation should be counted afresh from acknowledgement. The CD had acknowledged the debt vide OTS and Balance Sheet.

Upon perusal of records, this Bench is of the considered opinion that there is no dispute regarding the CD owes money to the FC.

The FC has proposed the name of Mr. Kamal Kishor Gurnani, Registration No. IBBI/IPA-001/IP/P-01463/2018-2019/12338, as the Interim Resolution Professional of the CD. He has filed his written communication in Form 2 as required under rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 along with a copy of his Certificate of Registration.

The application made by the FC is complete in all respects as required by law. It clearly shows that the CD is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the CD.

It is, accordingly, hereby ordered as follows: -

The petition bearing CP (IB) 3923/MB/C-I/2019 filed by Bank of India Limited, the FC, under section 7 of the IBC read with rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (CIRP) against Pranav Construction Systems Private Limited [CIN: U29246MH2003PTC142133], the CD, is admitted.

There shall be a moratorium under section 14 of the IBC, in regard to the following:

The institution of suits or continuation of pending suits or proceedings against the CD 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 CD 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 CD in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002;

The recovery of any property by an owner or lessor where such property is occupied by or in possession of the CD.

Notwithstanding the above, during the period of moratorium:-

The supply of essential goods or services to the CD, if continuing, shall not be terminated or suspended or interrupted during the moratorium period;

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

The moratorium shall have effect from the date of this order till the completion of the CIRP or until this Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 of the IBC or passes an order for liquidation of CD under section 33 of the IBC, as the case may be.

Public announcement of the CIRP shall be made immediately as specified under section 13 of the IBC read with regulation 6 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Mr. Kamal Kishor Gurnani, Registration No. IBBI/IPA-001/IP/P-01463/2018-2019/12338, having address at Flat No. 1301, Building No. 23, E Palazzio CHS Limited, MHADA Housing Society, Powai, Mumbai - 400076, Email: [email protected], is hereby appointed as Interim Resolution Professional (IRP) of the CD to carry out the functions as per the IBC. The fee payable to IRP or, as the case may be, the RP shall be compliant with such Regulations, Circulars and Directions issued/as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the IBC.

During the CIRP Period, the management of the CD shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the CD shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

The FC shall deposit a sum of Rs.2,00,000/- with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC).

Registry is directed to communicate this Order to the FC, the CD and the IRP by Speed Post and email immediately, and in any case, not later than two days from the date of this Order.

IRP is directed to send a copy of this Order to the Registrar of Companies, Maharashtra, Mumbai, for updating the Master Data of the CD. 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.