Canara Bank Limited vs M/s. SLS Power Limited

The Corporate Debtor is a Company incorporated on 14.12.1998 under the provisions of the Companies Act, 1956 bearing CIN: U40109AP1998PLC030682. As per the Master Data annexed with the Application, the Authorised Share Capital of the Corporate Debtor is Rs.9,00,00,000/- and the Paid-up Share Capital is Rs.8,97,19,620/-. The registered office of the Corporate Debtor is situated at Sy. No.202/A2, Ashok Nagar, Navalok Gardens, Nellore, Andhra Pradesh-524002.

The Corporate Debtor approached the Financial Creditor for the credit facilities. The Financial Creditor sanctioned credit facilities by virtue of Letter of Sanction dated 30.11.2015 aggregating to Rs.23.25 crore (Rs.9.60 crore towards working capital facilities, Rs.5.00 crore towards non-fund based credit limits and Rs.8.65 crore towards term loan) to the Corporate Debtor by taking over the existing term loan and working capital limits from Indian Renewable Energy Development Agency Limited (IREDA) and the then Andhra Bank (now merged and known as Union Bank) at the rate of interest of BR+3.25 + 0.25 tenor premium.

Towards the aforementioned sanction, the Corporate Debtor executed the following documents:

After sanction of the credit facilities, the loan account was classified as Non-Performing Asset (NPA) on 02.07.2018 and a demand notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was issued on 20.07.2018.

The Financial Creditor filed Original Application numbered as 659/2019 before the Hon'ble Debts Recovery Tribunal (DRT) at Visakhapatnam, which is currently pending. Meanwhile, the Corporate Debtor filed Securitization Application SA No. 382/2018 before the Hon’ble DRT, which was allowed in favour of the Corporate Debtor.

All securities mentioned in preceding paragraphs and annexed with the Application continue to be valid and in force.

The loan account was classified as NPA on 02.07.2018, after that the Corporate Debtor submitted One-Time Settlement (OTS) letters dated 02.06.2020, 06.01.2023, 23.05.2023, 23.02.2024 to the Financial Creditor, which would amount to acknowledgement of the debt thereby extending the limitation period. Thus, the present case is well within the limitation.

The account-wise amount claimed to be in default along with the rate of interest computed up to 31.03.2025 is Rs.62.55 crore as below:

As per Part-IV of Form 1 of the Application, the total amount of debt granted, dates of disbursement, the amount claimed to be in default and the date on which the default occurred are given hereunder:

The Corporate Debtor, SLS Power Limited (M/s. Sri Lakshmi Sridevi Power Limited), a limited company incorporated under the provisions of Companies Act, 1956, is engaged in the business of power generation. It commenced operations in 2001 with a capacity of 6 MW. The power project was set up with a total cost of Rs.25.00 crore and the plant & machineries were financed by the IREDA. On 15.02.2000, the IREDA sanctioned loan assistance of Rs.18.72 crore for setting up the plant and as the unit remained regular in its loan repayments, the IREDA further sanctioned Rs.11.51 crore to renovate, repair, and extend the life of the existing machinery. In addition, the Corporate Debtor availed loans from the State Finance Corporation and Andhra Bank, all of which were serviced promptly. Subsequently, the Financial Creditor took over the loans extended by IREDA and Andhra Bank.

On 31.08.2015, the Corporate Debtor addressed a letter to the Financial Creditor, offering as collateral only land admeasuring Ac. 16.29 cents along with buildings and plant and machinery of the power plant located within the corporation limits of Nellore, in the name of SLS Power Limited. The Financial Creditor accepted this collateral as per the Process Note dated 03.09.2015 bearing Reference No. 376/RON/SLS/LAS/2015.

Accordingly, the Financial Creditor sanctioned a term loan of Rs.8.65 crore and working capital facility of Rs.9.60 crore in addition to non-fund based limits in the form of inland letter of credit/ bank guarantee for Rs.5.00 crore, aggregating to a total of Rs.23.25 crore, as per the sanction letter dated 30.11.2015. However, the sanction terms also covered properties not offered as collateral and the Corporate Debtor addressed a letter dated 02.12.2015 requesting modification in the sanction terms and conditions regarding the release of original documents pertaining to properties not mortgaged, as those documents were already with the Financial Creditor following the loan takeover from Andhra Bank. Despite repeated written requests dated 12.05.2016, 15.06.2016, and 11.08.2016, along with oral reminders, the Financial Creditor failed to return the said documents.

Further, the Dargamitta Branch of the Financial Creditor, where the credit limits were sanctioned, also issued a letter dated 07.06.2016 to the Regional Office, Nellore, vide Ref. No. 208/3462/SLS/2016, seeking release of the original documents not offered as collateral. The Financial Creditor informed the Corporate Debtor that such documents would be returned only upon approval from higher authorities. Out of the total land of Ac. 16.29 cents offered, Ac. 13.43 cents were registered under Mortgage Deed dated 07.05.2016 (Document No. 1914/2016, SRO Nellore) and 03.06.2016 (Document No. 970/2016, SRO Indukurpet) through deposit of title deeds. The remaining Ac. 2.86 cents could not be registered due to technical issues at the Sub-Registrar Office.

The Corporate Debtor, being a biomass power producing company, supplied electricity to APTRANSCO, suffered significant financial distress due to a reduction in Power Purchase Agreement (PPA) rates by the Government and a sharp rise in fuel costs, which severely impacted the viability of biomass plants across Andhra Pradesh. Beginning in early 2016, the Corporate Debtor’s operations declined drastically due to a market slump, and therefore, it could not continue to operate. With finances critically strained, the Corporate Debtor requested the Financial Creditor to release original documents of properties not given as collateral, so as to enable it to mortgage/sell such assets to raise funds and resume power generation activities.

Subsequently, the Corporate Debtor’s loan account was classified as NPA on 02.07.2018 by the Financial Creditor and a demand notice under section13(2) of the SARFAESI Act was issued by the Financial Creditor on 20.07.2018 demanding full repayment. The Corporate Debtor submitted objections on 17.09.2018, but the Financial Creditor failed to respond within 15 days as mandated by Section 13(3A) of the SARFAESI Act. Ignoring the objections, the Financial Creditor issued a possession notice on 06.10.2018 under Section 13(4) of the SARFAESI Act, prompting the Corporate Debtor to file S.A. No.382 of 2018 before the Hon’ble DRT, Visakhapatnam along with two IAs bearing No.1838 of 2018 (seeking a stay on all the SARFAESI proceedings) and No.1839 of 2018 (requesting return of original title deeds of unsecured assets).

While S.A. No.382 of 2018 was pending, the Financial Creditor, then Syndicate Bank (since merged with Canara Bank), submitted a Memo dated 01.11.2018 before the DRT, withdrawing the possession notice issued on 06.10.2018. The memo clarified that the possession notice had been issued inadvertently, prior to the disposal of objections under Section 13(3A) of the SARFAESI Act.

As per the Memo, the Corporate Debtor was required to deposit an amount of Rs.50 lakh within 15 days from the date of release of the unsecured documents by the Financial Creditor. The remaining outstanding amount was to be paid in equal monthly installments, starting from March 2019, up to 31.12.2019, to be credited into the Financial Creditor’s account by the end of each month. The DRT also restrained the Financial Creditor from initiating any action against the scheduled properties of the Corporate Debtor until 31.12.2019. The order further provided that only in the event of default in any monthly installment, the Financial Creditor would be entitled to proceed in accordance with law. The Corporate Debtor did not fail to pay any such installments as stipulated under the Hon'ble DRT's order. The DRT further directed the Financial Creditor to release the unsecured documents identified in the Corporate Debtor’s memo, along with copies of the memoranda of deposit of title deeds dated 07.05.2016 and 03.06.2016, which were unrelated to the mortgaged assets.

However, the Financial Creditor challenged the DRT's order by filing Writ Petition No.3153 of 2019 before the Hon’ble High Court of Andhra Pradesh. The Hon’ble High Court suspended the DRT’s order and issued notice to the Corporate Debtor. As on date, the said Writ Petition is still pending adjudication before the Hon’ble High Court at Amaravati.

Further, the Corporate Debtor reiterated its willingness to fulfil the payment obligations and various OTS proposals, including the one before the DRT, remain pending. Therefore, unless the Hon’ble High Court finally adjudicates the matter or the Corporate Debtor fails to comply with the DRT’s payment schedule, no amount can be said to be legally due.

Despite these facts, the Financial Creditor has approached this Adjudicating Authority with unclean hands. The instant Application is neither bona fide nor maintainable, as the alleged debt is not yet due and the Petitioner is not a NPA in terms of applicable law.

The OTS proposal is still pending before the Financial Creditor for its approval. Therefore, until both the OTS proposal and the Writ Petition are adjudicated, the debt cannot be considered due.

Moratorium under Section 14 (1) for prohibiting all of the following, namely:

The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgement, 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 the possession of the Corporate Debtor.

It is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;

The provisions of sub-section of section 14(1) shall not apply to such transactions, agreements or other arrangement, as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; and also to a surety in a contract of guarantee to a corporate debtor.

The supply of essential goods or services to the Corporate Debtor, as may be specified, shall not be terminated or suspended or interrupted during moratorium period, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances, as may be specified.

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

The term of appointment of Mr. Chinnam Poorna Chandra Rao shall be in accordance with the provisions of Section 16(5) of the Code, subject to his written consent to be filed within 7 days of this order;

In terms of Section 17 of the Code, from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs shall vest with the IRP and the officers and the managers of the Corporate Debtor shall report to the IRP, who shall be enjoined to exercise all the powers, as are vested with the IRP and strictly perform all the duties as are enjoined on the IRP under Section 18 and other relevant provisions of the Code, including taking control and custody of the assets, over which the Corporate Debtor has ownership rights recorded in the balance sheet of the Corporate Debtor, etc. as provided in Section 18(1)(f) of the Code. The IRP is directed to prepare a complete list of the inventory of assets of the Corporate Debtor;

The IRP shall strictly act in accordance with the Code, all the rules framed thereunder by the Board or the Central Government and in accordance with the Code of Conduct governing his profession and as an Insolvency Professional with high standards of ethics and moral;

The IRP shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the CIRP in terms of Section 13(1)(b) read with Section 15 of the Code calling for the submission of claims against Corporate Debtor;

The IRP/RP shall prepare the Audited Financial Statements as on date of the CIRP and shall submit before the CoC for consideration.

The IRP/RP shall also ensure that all the assets appearing in the Financial Statements on the CIRP date have been considered in the valuation report. The IRP/RP shall send individual communication through post or electronic means along with a copy of public announcement to all the creditors as per last available books of accounts / financial statements on the CIRP date of Corporate Debtor as prescribed under Regulation 6A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The Corporate Debtor, its Directors, personnel and the persons associated with the management shall extend all cooperation to the IRP in managing the affairs of the Corporate Debtor as a going concern and extend all cooperation in accessing books and records as well as assets of the Corporate Debtor;

In view of the above mandatory provisions, the suspended Directors of the Board will ensure that the books of accounts for the eight previous financial years preceding the date of this order be made available to the IRP/RP within 15 days of the initiation of the CIRP order. The Statutory Auditor is also directed to share the records maintained by him in the course of the audit of the accounts of the Corporate Debtor for the period of three years prior to the date of initiation of this CIRP order within the same period of 15 days.

In case of any non-cooperation by the Suspended Board of Directors or the Statutory Auditors, the IRP/RP may take the help of the police authorities to enforce this order. The concerned police authorities are directed to extend help to the IRP/RP in implementing this order for retrieval of relevant information from the systems of the Corporate Debtor, the IRP/RP may take the assistance of Digital Forensic Experts empanelled with this Bench for this purpose. The Suspended Board of Directors is also directed to hand over all user IDs and passwords relating to the Corporate Debtor, particularly for government portals, for various compliances. The IRP is also directed to make a specific mention of non-compliance, if any, in this regard in his status report filed before this Adjudicating Authority immediately after a month of the initiation of the CIRP.

The IRP/RP is directed to approach the Government Departments, Banks, Corporate Bodies and other entities with request for information/documents available with those authorities/institutions/others pertaining to the Corporate Debtor, which would be relevant in the CIRP. The Government Departments, Banks, Corporate Bodies and other entities are directed to render the necessary information and cooperation to the IRP/RP to enable him to conduct the CIRP as per law.

The IRP shall, after collation of all the claims received against the Corporate Debtor and the determination of the operational position of the Corporate Debtor constitute a Committee of Creditors and shall file a report, certifying constitution of the Committee to this Adjudicating Authority on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the Committee within seven days of filing the report of constitution of the Committee;

The IRP is directed to send a regular progress report to this Adjudicating Authority every fortnight.