Bank of India vs MP Agro BRK Energy Foods Pvt Ltd

TP(IB)/200/MP/2019

Old CP (IB) 548 of 2018

(An application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016) In the matter of MP Agro BRK Energy Foods Private Limited Bank of India UG 2,3,4 Om Gurudev Complex Scheme No. 540, Opp. Rajshri Appollo Hospital, Vijay Nagar, Indore Madhya Pradesh - 452010 …Applicant/Financial Creditor VERSUS MP Agro BRK Energy Foods Private Limited CIN: U15410MP2007PLC019486 Plot No. 71(B&C) Industrial Area No. 1, A.B. Road, Dewas, Madhya Pradesh – 455001.

…Respondent/Corporate Debtor Order pronounced on 02.05.2025

For the Applicant/FC : Ms. Darshana Baghel, Advocate For the Respondent/CD : Mr. Sanyat Lodha, Advocate O R D E R

(Per: BENCH)

This is an application filed on 22.10.2018 by Bank of India (hereinafter referred to as “the Applicant/ Financial Creditor”) against MP Agro BRK Energy Foods Private Limited (hereinafter referred to as “the Respondent/Corporate Debtor”) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC, 2016”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against the Respondent/Corporate Debtor, to appoint Interim Resolution Professional (hereinafter referred to as “IRP”) and declare the moratorium for having defaulted payment of its outstanding dues Rs. 11,57,89,697/-[Principal 10,43,09,697 + Interest Rs. 1,14,80,000].

The application is affirmed by Mr. Sridhar Seshadri, Authorized officer of the Financial Creditor, who is authorized under Authority letter marked as Annexure-B.

Perusal of of Part-I of the Form-1 indicates that the Applicant/Financial Creditor is a Bank. The registered office of the Financial Creditor is situated at UG 2,3,4 Om Gurudev Complex, Scheme No. 540, Opp. Rajshri Appollo Hospital, Vijay Nagar, Indore, Madhya Pradesh - 452010.

Perusal of Part-II of the Form-1 reveals that the Respondent/Corporate Debtor is MP Agro BRK Energy Foods Private Limited (CIN: U15410MP2007PLC019486). The date of incorporation is 26.04.2007. The registered office of the Respondent/Corporate Debtor is situated at Plot No. 71(B&C), Industrial Area No. 1, A.B. Road, Dewas, Madhya Pradesh -455001.

Perusal of Part-III of the Form-1 reveals that the Applicant/Financial Creditor initially nominated the name of Ms. Teena Sarawat Pandey, having Registration No. IBBI/IPA-001/IP-P00652/2017-18/11126 under section 13 (1)(c) of the Code to act as Interim Resolution Professional (IRP). Later, vide order dated 24.03.2023, the proposed IRP was replaced through I.A. 89(MP)/2023 with Ms. Chaya Gupta due to the original IRP‟s conflict of interest, having Registration No. IBBI/IPA-002/IP-N00984/2020-2021/13133. (Email: [email protected]) under section 13 (1)(c) of the Code to act as Interim Resolution Professional (IRP). She has filed her written communication annexed with the Petition as Form-2 as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Her AFA is valid up to 30.06.2025 as per data available on the official website of the IBBI ibbi.gov.in.

She has filed her written communication annexed with the Application as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Perusal of Part-IV of the Form-1 reveals that the Applicant/Financial Creditor has granted various credit facilities and the total amount in default is claimed to be Rs. 11,57,89,697/- including interest. The date of default is mentioned as 30.09.2017.

It is stated that the copy of notice dated 06.11.2017 under Section 13(2) of the SARFAESI Act and possession notice dated 17.09.2018 for existence of the financial debt, the amount and date of default and the same is annexed as Annexure-I.

The application filed under Section 7 of the IBC, 2016 was admitted by this Adjudicating Authority vide order dated 05.03.2020 for initiation of CIRP against the Corporate Debtor. The said order was challenged by the Corporate Debtor by filing an appeal before the Hon‟ble NCLAT. Following which vide order dated 14.11.2022, the Hon‟ble NCLAT remanded the matter back to the NCLT to consider the objections as raised by the Corporate Debtor with regard to „classification of credit facility as NPA‟. The relevant part of the order dated 14.11.2022 of Hon‟ble NCLAT is reproduced here as under:-

Shorn of unnecessary details, the Respondent No. 1 („Financial Creditor‟) filed the Application in Form-1 of the Code on 22.10.2018 and mentioned in Part IV of the Application that the default had occurred on 30.09.2017 when the account of Respondent No. 2 („CD‟) was declared as an NPA. Counsel for the Appellant has submitted that the Appellant is a MSME. Before the Application under Section 7 could have been filed, the Reserve Bank of India („RBI‟) issued a circular to all the Banks NBFCs which are regulated by the RBI that it has been decided that the exposure of Banks/NBFCs classified as Micro Small Medium Enterprise under the Micro Small Medium Enterprise Development („MSME Act, 2006‟), shall continue to be classified as a standard Asset in the books of the Banks and NBFC subject to certain conditions in which one of the conditions was that the account of the Borrower was standard as on 31.08.2017 and that the aggregate exposure including Non Fund Based facilities of the Banks and NBFC to the Borrowers does not exceed 250 Million as on 31.08.2018. According to the Appellant, the Borrower‟s account was standard on 31.08.2017 as it was declared NPA on 30.09.2017 and that the Borrowing was only to the extent of Rs.11Crs./- approximately which is far less than the threshold of 250 Million as on 31.08.2018.

It is further submitted that the account of the Appellant was made operational and a certificate was issued by Respondent No. 1 on 17.04.2018 which read as hereunder:

Following the NCLAT Order, this Adjudicating Authority after taking into consideration all the issues, again admitted the present application vide order dated 04.04.2024 for initiation of CIRP against the Corporate Debtor.

The order dated 04.04.2024 was again challenged by the corporate debtor before Hon‟ble NCLAT, wherein the Hon‟ble NCLAT vide order dated 26.04.2024 remanded the matter to the Adjudicating Authority, thereby setting aside the order dated 04.04.2024. The relevant part of the order dated 26.04.2024 of Hon‟ble NCLAT is reproduced here as under:-

This Adjudicating Authority has re-examined the evidence and contentions, as directed by the Hon‟ble NCLAT vide orders dated 14.11.2022 and 26.04.2024, focusing on the existence of debt and default. The Financial Creditor, vide its additional affidavit filed on 22.10.2024, submitted responses to the objections raised by the Corporate Debtor. The relevant part thereof is reproduced here as under: -

e. The Corporate Debtor had on several occasions, during the pendency of this petition, offered various Settlement Proposal and the Applicant Financial Creditor has always showed its support to that effect. However, the last OTS proposal also failed on account of non-compliance of the terms and conditions of the Settlement Scheme. The Letter of rejection addressed by the Applicant dated 07.10.2019, is produced at Annexure R-16, page 544, by the respondent Corporate Debtor.

f. The total outstanding amount due and payable by the Corporate Debtor is to the tune of Rs. 11,57,89,697/- as on the date of filing the Application under Section 7 of IBC 2016 plus further interest. That the outstanding debts have not been repaid till date and the same are due and payable. g. The Applicant Bank has submitted copy of the following documents in supports of their claim.

 Loan Sanction Documents from 2014 to 2017 (Annexure D)

 Acknowledgment of debt (Annexure D)

 List of Properties mortgaged (Annexure F)

 Certification of Registration of Mortgage (Annexure F)  Search Reports (Annexure F)

 CIBIL Report of Corporate Debtor (Annexure G)

 Bank Statement as per Bankers Book Evident Act, 2002 (Annexure H)

 Notices under Section 13(2) of the SARFAESI Act, 2002 (Annexure I)

 Notices under Section 13(4) of the SARFAESI Act, 2002 (Possession Notice) (Annexure I)

The Corporate Debtor has also filed its reply on 23.10.2024 and 18.02.2025 on the additional affidavit of the applicant. The main grievance of the Corporate Debtor onto this Adjudicating Authority‟s earlier orders were that while deciding the application the Adjudicating Authority had not considered its objection that the account of Corporate Debtor could not have been declared as NPA and as such the Corporate Debtor could not have been considered as having defaulted in payment of its account.

a. The applicant has failed to produce or placed any document/evidence on record which goes to show that the respondent‟s account was declared NPA on 30.09.2017.

b. Entire case setup by the Financial Creditor in the application u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) is that of default having occurred on 30.09.2017 basis the declaration of the Term Loan Account of the Corporate Debtor as NPA with the consequent NPA declaration of the two Cash Credit Accounts without producing any document on record to show that the account was declared as NPA on the said date. It is settled law that the date of default or the nature of default cannot be altered or pleaded beyond what is stated in the Section 7 Application. In the pleadings and at the time of oral submissions before this Hon‟ble Tribunal, the only case set up by the Applicant Bank is that of NPA declaration as the basis of claiming default. As such, it is humbly submitted that any other subsequent pleadings, affidavits or submissions qua any other purported default, being unsupported by pleadings, are wholly untenable and not liable to be considered by this Hon‟ble Tribunal. [Innoventive Industries Ltd. vs. ICICI Bank & Anr. (2018) 1 SCC 407 Para 28; Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (2020) 5 SCC 1 Para 24.1, 34, 35; Next Education India Pvt. Ltd. vs. K2 Techno Services Private Limited (2021) SCC Online NCLAT 105 Para 23]

c. As regards the alleged NPA declaration, it is a matter of fact that the said three accounts were in operation, banking and standard pre- as well as post- 30.09.2017 and both credit and debit entries were continuously permitted from the same. Memorandum dated 05.08.2017 prepared for sanction/approval of ZLCC with respect to Respondent‟s account clearly shows that the account was standard, operational and banking, and not NPA, in the month of August, 2017.

d. Minutes of the ZLCC meeting dated 13.09.2017 (Pg. 30-33 of Section 7 Application) as communicated vide letter dated 16.10.2017 (Annexure D Pg. 29 of Section 7 Application), after considering memorandum dated 05.08.2017 clearly point towards the account being standard, and not NPA, and being eligible for the loan and cash credit facilities.

e. As per the ZLCC Meeting minutes, account was standard and was contemporaneously recommended for extension of credit to the tune of Rs. 966.68 lacs (subsequently revised to Rs. 955.42 lacs). Thus, the Bank cannot now submit to the contrary to claim that the account was contemporaneously also declared NPA as on 30.09.2017.

f. Notably, under the same ZLCC meeting minutes, the Bank has artificially sought to reduce the credit limits of the Corporate Debtor‟s account and such unilateral actions on the part of the Bank cannot form the basis of default on the part of the Corporate Debtor for the purposes of the IBC.

g. The following aspects/admissions on the part of the Bank are clearly made out from the aforementioned communication dated 16.10.2017, ZLCC recommendation dated 13.09.2017 and the memorandum dated 05.08.2017:

The Respondent was a profit making company with projected revenue and profit growth

h. The entire stand of the Applicant Bank on the issue of NPA clearly appears to be a mala fide stand unsupported by the contemporaneous material on record. The said aspect is further evident from the factual events that transpired post the said date of 30.09.2017, as described hereunder.

j. It is a matter of record as submitted during the course of the hearing that as a matter of practice and banking instructions, the Term Loan Account was all throughout serviced by way of payments being made from the Cash Credit Accounts and the responsibility and power of taking the money from the cash credit account for servicing the term loan account was that of the Financial Creditor / Applicant Bank itself.

k. Specifically, an amount of Rs. 33,72,643.04/- was credited in Cash Credit Account No. 881030110000033 and Rs. 3,33,18,262.12/- in Cash Credit Account No. 890130110000135 between 01.09.2017 to 30.11.2018. As such, while there were sufficient credit entries and deposits into the Cash Credit Accounts, the Applicant Bank of its own volition chose not to debit the said accounts for servicing of the Term Loan facility. The said deposits were more than sufficient to service any pending instalments that may have been due at any point in time.

l. Applicant Bank had complete knowledge that the accounts of Respondent are operational as Respondent itself had vide letter dated 21.03.2018 informed the Applicant about the credit and debit of Rs. 1,50,53,273.50/- and Rs. 1,49,53,232.72/- respectively till 21.03.2018.

m. As such, it was up to the Bank to appropriate the same towards pending loan instalments and interest if any and no default can be said to have occurred on the part of the Corporate Debtor for the failure of the Bank in this regard.

n. Further, Corporate Debtor was permitted to withdraw money from the cash credit accounts all the way up to November, 2018 which could not have been the case had the accounts actually been declared NPA on 30.09.2017 as per the case sought to be projected by the Bank in the Section 7 Application.

o. To this effect, the Bank had itself also given a certificate dated 17.04.2018 bearing no. VIJ/ADV/2018- 19/1 clearly stating the factum of continuing banking operations in the account maintained by the Corporate Debtor with the Bank. By way of the certificate dated 17.04.2018 the Bank had certified that Account No.890130110000135 in the name of the M/s MP Agro BRK Energy Foods Limited is operational and banking with our branch. The certificate further states that “the account can transact (receive and withdraw) maximum INR of Rs.99999999999999.99 on a single transaction as per RBI guidelines and adhering to KYC norms through clearing/transfer/RTGS/NEFT.” Therefore, it is clear from the said certificate the account of the Respondent was standard and operational as on 17.04.2018 and no default had arisen in fact or in law.

p. It is a matter of record as aforementioned that the accounts of the Respondent were permitted to credit and debit entries all throughout, till as late as November, 2018 and as such, the question of the account being NPA does not arise, in view of the contemporaneous documents, stand and conduct of the Bank itself.

q. The Corporate Debtor is admittedly an MSME engaged in manufacture of essential commodities and has remained a going concern with ongoing business all throughout the period since the original order admitting the Corporate Debtor to insolvency to this date.

r. There was no default in fact or in law and the alleged classification of the Corporate Debtor‟s account was contrary to the circulars issued by the Reserve Bank of India. Among the various circulars and guidelines issued from time to time on classification of MSME accounts the RBI circular dated 07.02.2018 directed schedule banks and NBFCs to provide relief for MSME borrowers registered under the GST. As per the said circular the account of the registered MSMEs were to continue to be classified as a standard asset and were not to be classified as an NPA on the basis of a 90 and 120 days‟ delinquency period and the respondent herein was covered by the same. Thus alleged classification of respondents account as NPA on 30.09.2017 was contrary to the circular of RBI and, therefore, it is correct to say that the respondent was not in default as on 30.09.2017.

s. RBI‟s circular being beneficial in nature inasmuch as it prevents the accounts of the MSMEs from becoming stressed/non-performing assets, has to be given retrospective effect.

t. Without prejudice, it is for the first time that the Applicant Bank is seeking to purportedly rely upon the Circular to state that the classification of the Respondent‟s account is in compliance with condition (iv) of the circular. In view of the limited remand order by the NCLAT as quoted above, it is not open to the Bank to factually argue and plead afresh at this stage that one of the conditions was not met under the said circular, when the same was not the case of the Applicant Bank in the first round before the Hon‟ble NCLT or in the Appeal before the Hon‟ble NCLAT.

u. The Applicant herein has neither previously claimed before this Hon‟ble Tribunal or the Hon‟ble NCLAT nor informed the Respondent that the account of the Respondent is not standard as on 31.08.2017 and the account of the Respondent was overdue as on 01.09.2017. This is the first time that the Applicant Bank has pleaded the same and therefore, the same ought to not to be allowed to be relied upon placed on record. As a matter of fact, the Applicant herein had never claimed or raised any demand on the Respondent with respect to overdue amount prior to the alleged classification of Respondent‟s account as NPA, which itself militates against the aforesaid submission on the part of the Applicant Bank qua non-compliance with condition (iv). Even otherwise, any default in terms of condition (iv) could only be after the 6-month window envisaged therein and not a prior, as pleaded in the present Section 7 Application i.e. from 30.09.2017.

w. Without prejudice to the above, even otherwise, the amounts as alleged were not “overdue”. Further, without prejudice, the Corporate Debtor fulfilled all the conditions under the said circular including condition (iv) of the said circular which provides for a 6-month window to make payments. As aforementioned, sufficient credit entries came into the cash credit account during 01.09.2017 up to 31.03.2018 for servicing any amounts due as instalments under the term loan account.

y. The document placed on record by applicant itself shows that the account of the respondent was operational and payments in an out of the account were made before and after 30.09.2017 and the account of the respondent were also not frozen after alleged declaration of respondents account as NPA.

z. Record clearly shows that the Bank also withdrew its notices and proceedings under SARFAESI as many as 4 times. Further proceedings sought to be re-initiated by the Bank under SARFAESI have been stayed by the High Court.

aa. Without prejudice, the amounts due under the loan and cash credit facilities cannot be said to be overdue and in default for the purposes of IBC as the term loan account was to be serviced only in terms of the instalments due from time to time and entries towards the same were to be taken by the Bank from the cash credit account, without any intervention from the Corporate Debtor.

bb. Without prejudice, even otherwise, the entire term loan account and cash credit account does not become due in case of a minor amount remaining due under the said accounts.

cc. Furthermore, it has been placed on record that the Bank had in the past as well charged exorbitant/excessive interest and thereafter reverted entries to the credit of the account towards such interest to the amount of Rs. 5,16,372.78/- on 05.05.2015 [@ Page 441/Application] and Rs. 8,67,936/- on 30.03.2016 [@ Page 455/Application] totalling Rs. 13,84,308.78/-. Bank Statements from Chartered Accountants clearly reflect an overcharging of interest to the tune of Rs. 51,97,373/- which further needs to be adjusted and cannot be claimed to have been due as on 30.09.2017.

dd. Similarly, the amounts paid by third parties/corporate debtors during the process of restructuring of the accounts during the contemporaneous period from November, 2017 to March, 2018 to the tune of Rs. 42 lakhs approx., which has not been returned by the Bank, and has been appropriated as such, also needs to be adjusted against the claimed dues by the Bank.

ee. Seen thus, there was even otherwise no default on the part of the Corporate Debtor of the amounts due as on 30.09.2017 and any amounts/instalments alleged to be due (Rs. 13,20,491/- as claimed by the Applicant Bank in its subsequent Affidavits before this Hon‟ble Tribunal along with the amount due under the ad-hoc facility) could have been easily satisfied with the aforementioned credit amounts, reversal of interest entries, third party payments retained by the Bank etc. all of which were obligations of the Applicant Bank without anything further being required to be done by the Respondent. It is settled law that “due” is not equivalent to “default” under the IBC. As such, there was no default on the part of the Respondent such as would require the invocation of the provisions of the IBC for declaration of the Respondent as insolvent.

ff. The “entire loan and cash credit facility” as on 30.09.2017 could not have been said to be overdue or under default as what is due under the said facilities is merely the installments as clearly reflected from the ZLCC meetings minutes. The same is also the admitted position of the Bank and no submissions to the contrary were made during the course of hearing before the Hon‟ble Tribunal. In fact, no response to the contrary was so much as offered on behalf of the Bank to a specific query to this effect by the Hon‟ble Tribunal. As such, even otherwise, the amount in “default” as claimed in Form 1 of the Section 7 Application is wholly without basis in pleadings, fact or law. As such, the present Section 7 Application is liable to be rejected on that ground as well.

gg. In the context the learned counsel had also drawn our attention to the two cash Credit Accounts (A/c Nos. 881030110000033 and 890130110000135) and the Term Loan Account No. (881070210000008) and submitted that the various receivables of the respondent company was being deposited/credited into those Cash Credit accounts and the instalment due as regards term loans were being paid of through transfer/withdrawal entries from those Cash Credit accounts. In the context he stated that as per the normal practice the bank officials on their own would give effect to such transfer/withdrawal entries from Cash Credit accounts to the term loan account and that the same was being done but then in the year of 2017 at some point of time they had not transferred/withdrawal the amount from Cash Credit to the term loan account and created an artificial situation of default in respect of its term loan accounts. On this the learned counsel for the applicant/Financial Creditor submitted that the due instalments in respect of term loan was recovered through the Cash Credit accounts till the closing negative balance (overdraft amount) was within the limits granted against those cash credit accounts. Both the learned counsels had referred to the relevant entries in all these accounts.

We have heard the counsels from both sides and have perused the records. On basis of the Pleadings and submissions of both sides, the issues for determination are as under: -

(A). Whether there exists a “financial debt” under Section 5(8) of the IBC owed by the Corporate Debtor to the Financial Creditor?

(B). Whether the Corporate Debtor has committed a “default” under Section 3(12) of the IBC, 2016, with respect to the financial debt in the Term Loan and Cash Credit Accounts as on the NPA date (30.09.2017), accepted as the date of default?

(C). Whether there was a default on the date of classification of the Corporate Debtor‟s account as an NPA on 30.09.2017.

(D). Whether the application under Section 7 is maintainable, given that disputes about the NPA classification are immaterial?

(E). Whether the application under Section 7 of the IBC, 2016, is maintainable and within the period of limitation?

Under Section 5(8) of the IBC, 2016, a financial debt is defined as a debt along with interest, if any, disbursed against the consideration for the time value of money. The Applicant has provided loan sanction documents (Annexure D), acknowledgement of debt, and a statement of accounts certified under the Bankers‟ Books Evidence Act, 1891, establishing that term loans and cash credit facilities were disbursed to the Corporate Debtor. The mortgages created as security are evidenced by Annexure F.

The Corporate Debtor does not dispute availing the credit facilities or executing the loan agreements. The CIBIL report (Annexure G) and bank statements (Annexure H) further corroborate the existence of a financial debt. The total amount claimed, Rs.11,57,89,697/-, includes principal and interest, satisfying the definition of financial debt under the IBC, 2016.

The Corporate Debtor‟s contention that overcharged interest (Rs.51,97,373/-) and unadjusted third-party payments (Rs.42.00 lakhs) reduce the debt is unsupported by conclusive evidence. The alleged overcharged interest of Rs. 51,97,373/-, supported by bank statements from 2015 and 2016 (Annexure H, Pages 441, 455), pertains to reversed entries and does not affect the default as on 30.09.2017. The Corporate Debtor has not provided evidence of ongoing overcharging post-2016. Further, the third-party payments lack documentation to prove their applicability to the debt. Thus, the existence of a financial debt is established. Further, even if there is a substance in the claim of the Corporate Debtor, it might only affect the quantum of debt, but it will not make any difference because the amount of debt in any case is not less than Rs 1,00,00,000, the threshold required under section 4 of the IBC, 2016.

Section 3(12) of the IBC, 2016 defines default as the non-payment of a debt, in whole or part, when due and payable. The Applicant‟s case is based on defaults in the Term Loan Account (No.881070210000008) due to non-deposit of Instalments and Cash Credit Accounts (Nos.881030110000033 and 890130110000135) due to overdraft beyond sanctioned limits and irregular repayments, which led to NPAs on 30.09.2017. The Corporate Debtor challenges the NPA classification and denies a default, citing operational accounts and the Applicant‟s failure to appropriate funds.

The Applicant claims a default of Rs.11,57,89,697/- as on 30.09.2017, when the account was classified as an NPA. The statement of the Term Loan Account (No. 881070210000008) shows no significant repayments after Rs. 1,000/- on 03.09.2017, and overdue amounts from 01.09.2017 remained unpaid within 180 days, as required by RBI guidelines. CIBIL reports (Annexure G), confirming non-payment, further corroborate the default.

The Corporate Debtor‟s primary defence is that the NPA classification was invalid, negating the default. It relies on the RBI Circular dated 07.02.2018, which allowed MSME accounts to remain standard if the account was standard on 31.08.2017 and the exposure did not exceed Rs. 250 million on 31.01.2018. The Corporate Debtor claims its account was standard on 31.08.2017, supported by the ZLCC memorandum dated 05.08.2017 and minutes dated 13.09.2017. Deposits in Cash Credit Accounts (Rs. 33,72,643.04/- and Rs. 3,33,18,262.12/-) were sufficient to service the Term Loan, and the Applicant‟s failure to debit these accounts created an artificial default.

However, the Applicant counters that the The NPA classification on 30.09.2017 predates the RBI Circular dated 07.02.2018, which is prospective in nature and does not apply to classifications made prior to its issuance, as no retrospective effect was mandated by the RBI, and the account was not eligible for restructuring due to technical non-viability and persistent irregularities. The statement of accounts shows overdue installments from 01.09.2017, and the Corporate Debtor failed to clear these within the 180-day window provided by the circular. The ZLCC minutes, while noting the account‟s satisfactory conduct, also reflect a reduction in credit limits, indicating financial stress.

The Corporate Debtor‟s reliance on the certificate dated 17.04.2018, stating the account was “operational,” is misplaced. The Applicant clarifies that the certificate was issued at the Corporate Debtor‟s request and did not alter the NPA status. RBI guidelines permit limited transactions in NPA accounts under specific conditions, and the certificate‟s reference to unlimited transactions appears to be a standard format rather than a reclassification of the account as standard.

The Corporate Debtor‟s argument that the Applicant failed to debit cash credit accounts to service the term loan is also untenable. While the practice of debiting cash credit accounts existed, the Applicant submits that such debits were limited to the sanctioned overdraft limits. The cash credit accounts‟ statements show credits but also reflect negative balances, indicating that the available funds were insufficient to service the term loan instalments without exceeding the limits. The Corporate Debtor‟s failure to ensure sufficient funds or instruct specific debits cannot shift the responsibility to the Applicant.

The Corporate Debtor‟s contention that the entire loan amount cannot be considered in default is incorrect. Under the loan agreements, a default in instalment payments accelerates the entire debt, as reflected in the SARFAESI notice dated 06.11.2017 demanding Rs. 10,66,21,000/-. The Hon‟ble Supreme Court in Innoventive Industries Ltd. vs. ICICI Bank & Anr. [(2018) 1 SCC 407, Para 28] held that a default, even in part, triggers Section 7 of the IBC, provided the debt exceeds Rs. 1 crore, as is the case here.

The Corporate Debtor‟s reliance on the RBI Master Circular on NPA dated 01.04.2023 is misplaced, as it is prospective and inapplicable to the NPA classification in 2017. Further, the Corporate Debtor has not provided evidence of non-compliance with CRILC reporting requirements as per the RBI Circular dated 11.09.2013, which was applicable at the time

The withdrawal of the SARFAESI notice on 06.04.2022 and the High Court‟s stay on subsequent proceedings do not negate the default, as they pertain to enforcement actions, not the existence of the debt or default. The Corporate Debtor‟s MSME status and on-going business operations are irrelevant to the determination of default under Section 7, which focuses solely on debt and default. The Adjudicating Authority has discretion to examine the existence of a default, but disputes extraneous to non-payment (e.g., NPA classification) are immaterial if debt and default are established. (Vidarbha Industries Power Ltd. vs. Axis Bank Ltd. [(2022) 8 SCC 352]).

The Corporate Debtor‟s reliance on Cash Credit deposits is misplaced. The primary obligation was to repay the Term Loan, and the Applicant‟s practice of debiting Cash Credit Accounts was contingent on available limits. The Corporate Debtor provides no evidence that the Cash Credit Accounts had unutilized limits sufficient to cover the Term Loan instalments.

The Cash Credit Account statements show that the Corporate Debtor exceeded sanctioned overdraft limits. Irregular repayments and overdraft beyond limits constitute a default under Section 3(12), as the Corporate Debtor failed to maintain the account within agreed terms.

The certificate dated 17.04.2018 and operational status until November 2018 do not negate the default. Banking practice allows limited transactions in NPA accounts to facilitate recovery or operations within restricted limits. The certificate is a procedural formality and does not reclassify the account as standard.

The deposits cited by the Corporate Debtor, while substantial, were insufficient to regularize the accounts, as the overdraft remained beyond sanctioned limits. The Applicant‟s evidence of irregular transactions and NPA classification is consistent with a default.

The Corporate Debtor‟s objections regarding the NPA classification (e.g., RBI Circular dated 07.02.2018, lack of CRILC reporting, ZLCC documents) are even otherwise immaterial, as the Adjudicating Authority‟s role under Section 7 is to verify debt and default, not the procedural validity of the NPA classification. The NPA date of 30.09.2017 is accepted as the date of default, supported by the Applicant‟s statement of accounts (Annexure H), which confirms non-payment of dues. The Corporate Debtor‟s claim that no evidence of NPA classification was provided is untenable, as the burden to disprove the default lies with the Corporate Debtor, which it has failed to do.

The Corporate Debtor‟s obligation was to ensure repayment of the Term Loan and maintain Cash Credit Accounts within sanctioned limits. The Applicant‟s practice of debiting Cash Credit Accounts was not mandatory, and the Corporate Debtor provides no evidence of sufficient unutilized limits.

The deposits (Rs.33,72,643.04/- and Rs.3,33,18,262.12/-) were insufficient to regularize the Cash Credit Accounts or clear Term Loan dues, as evidenced by the Applicant‟s statements. The default persists regardless of the Applicant‟s appropriation decisions.

The Corporate Debtor‟s claims of overcharged interest (Rs. 51,97,373/-) and unadjusted payments (Rs. 42 lakhs) relate to the quantum of debt, which may be addressed during claim verification in the CIRP but do not disprove the existence of a default exceeding Rs. 1 crore. (Swiss Ribbons Pvt. Ltd. vs. Union of India (2019) 4 SCC 17).

The withdrawal of the SARFAESI Notice dated 06.11.2017 reflects settlement attempts, not an admission of no default. IBC proceedings are independent of SARFAESI actions. The Corporate Debtor‟s MSME status and ongoing business operations, while relevant for resolution planning under Section 29A of the IBC, are immaterial to the determination of default under Section 7, which focuses solely on debt and default. CIRP aims to preserve operations. Thus, the Corporate Debtor‟s objections regarding interest, SARFAESI withdrawals, and MSME status do not negate the defaults in the Term Loan and Cash Credit Accounts.

Thus, a default exists in the Term Loan Account as well as in the Cash Credit Accounts, as the Corporate Debtor failed to repay instalments in the Term Loan Account and exceeded sanctioned limits of the Cash Credit Accounts, and failed to regularize repayments as evidenced by the account statement. Further, there was a default on the date of NPA on 30.09.2017. We are of the view that the law requires the occurrence of a default, and the same is established by the Applicant. The main defence of the Corporate Debtor questioning the NPA based on the RBI Circular or certificates issued does not support its case. It has not been proved that a default had not occurred.

Further, the Applicant has established a default exceeding Rs.1.00 Crore, satisfying the threshold under Section 7 of the IBC, 2016.

The application under Section 7 of the IBC, 2016, is filed in the prescribed Form-1, supported by requisite documents, including loan agreements, bank statements, and notices under the SARFAESI Act, 2002. The Applicant‟s authorized officer has affirmed the application, and the proposed IRP has provided written consent, complying with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Further, the Debt & Default is established and proven even on the given date of NPA as above.

The application is within the limitation period under Article 137 of the Limitation Act, 1963, which prescribes three years from the date of default. The default occurred on 30.09.2017, as evidenced by the NPA classification and non-payment of instalments (Annexure H). The application, filed on 22.10.2018, is within the three-year period under Article 137 of the Limitation Act, 1963. Additionally, the last credit entry on 31.08.2018 (Annexure H) acknowledges the debt, further extending the limitation period under Section 18 of the Limitation Act

The Corporate Debtor‟s contention that the Applicant‟s subsequent affidavits introduce new grounds for default is incorrect. The additional affidavit dated 22.10.2024 elaborates on the NPA classification and responds to the Corporate Debtor‟s objections, consistent with the original pleadings in Form-1. The Hon‟ble NCLAT‟s remand order dated 26.04.2024 directed a re-examination of the debt and default, which the Applicant has addressed through existing and additional evidence.

Thus, the application is maintainable and within limitation.

The Applicant has established the existence of a financial debt of Rs.11,57,89,697/- owed by the Corporate Debtor, supported by loan documents, bank statements, and a CIBIL report. The Corporate Debtor defaulted on its repayment obligations, as evidenced by the term loan account statement showing overdue instalments from 01.09.2017, leading to default on 30.09.2017.

The Corporate Debtor‟s objections regarding the NPA classification period are untenable. The RBI Circular dated 07.02.2018 provides relief for MSME accounts, but disputes regarding its applicability are immaterial, as the focus is on debt and default. Further, the RBI Circular dated 07.02.2018 does not apply retrospectively, and the Corporate Debtor failed to meet its conditions. Master Circular on NPA dated 01.04.2023 and Circular dated 11.09.2013 mandate NPA classification procedures, but procedural disputes are irrelevant if non-payment is established. Section 7(5) mandates admission if a default is established, the application is complete, and no disciplinary issues exist with the IRP. The Applicant‟s conduct, including the certificate dated 17.04.2018 and limited account operations, does not negate the default status.

The Corporate Debtor‟s claims of overcharged interest, unadjusted payments, and the Applicant‟s failure to debit cash credit accounts lack evidentiary support and do not disprove the default.

The application is maintainable, filed within the limitation period, and complies with procedural requirements under the IBC, 2016.

In view of the above findings, this Adjudicating Authority is satisfied that the Applicant has proved the existence of a financial debt and a default exceeding Rs. 1 crore, warranting the initiation of CIRP against the Corporate Debtor under Section 7 of the IBC, 2016.

The objections raised by the Corporate Debtor are dismissed as being without merit, as they fail to disprove the debt or default.

Hence, the Application filed under section 7(2) of the Insolvency and Bankruptcy Code for initiation of corporate insolvency resolution process against the Respondent/Corporate Debtor deserves to be admitted.

Accordingly, in light of the above facts and circumstances, it is, hereby ordered as under:-

a. 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;

b. Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;

c. 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2022;

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

e. The provisions of sub-Section (1) shall however, not apply to such transactions, agreements as may be notified by the Central Government in consultation with any financial sector regulator and to a surety in a contract of guarantee to a Corporate Debtor.

The IRP is expected to take full charge of the corporate debtor‟s assets, and documents without any delay whatsoever. He is also free to take police assistance in this regard, and this Court hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.

The IRP shall also serve a copy of this order to the various departments such as Income Tax, GST (centre), State Trade Tax, Provident Fund etc. who are likely to have their claim against Corporate Debtor as well as to the trade unions/employees associations so that they are informed of the initiation of CIRP against the Corporate Debtor timely.

Accordingly, this Application TP(IB)/200/2019 old CP(IB)/548/MP/2018 is hereby admitted. A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.