Canara Bank vs ARS Energy Private Limited

This is an Application filed by CANARA BANK (hereinafter the “Financial Creditor”) against ARS ENERGY PRIVATE LIMITED (hereinafter the “Corporate Debtor”) under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking to initiate Corporate Insolvency Resolution Process against the Corporate Debtor.

In Part-I of the Application, it is stated that the Financial Creditor viz., Canara Bank is a Banking Company constituted under the Banking Companies Acquisition and Transfer Undertakings Act, 1970. The Corporate Debtor herein viz., ARS Energy Private Limited was incorporated under the Companies Act, 1956 on 19.09.1990 with CIN:U40100TN1990PTC032178.In Part-II of the Application, the Registered office of the Corporate Debtor is stated to be D-109, 4^th Floor, LBR Complex, Chintamani, Anna Nagar East, Chennai – 600 102.

In Part III of the application, the Financial Creditor has proposed one Ms.Ramanathan Bhuvaneshwari, with Registration No: IBBI/IPA-002/IP-N00306/2017-2018/10864 as an “Interim Resolution Professional” of the Corporate Debtor. The Written Consent of the IRP is appended at Page Nos.2838-2843 of the Application typeset.

In Part-IV of the Application, it is stated that a total sum of Rs.110,57,11,831.97 (Rupees One Hundred and Ten Crores Fifty Seven Lakhs Eleven Thousand Eight Hundred and Thirty One and Ninety Seven Paise) is the amount claimed by the Financial Creditor as the Financial debt, due and payable by the Corporate Debtor. Further the date of default for the various accounts is as follows:

A table setting out the computation of the default amount is as under:

Part – V of the Application discloses the details of the documents which have been filed by the Financial Creditor to prove the existence of a ‘Financial debt’.

It is stated that the Corporate Debtor herein had approached the Financial Creditor and other Consortium of Banks (4 others, Bank of Baroda, State Bank of India, Punjab National Bank and HDFC Bank) for availing financial assistance by way of Working Capital Overdraft, GECL 2.0, GECL 2.0 Extn Term Loan, amongst other facilities. After mutual negotiations, the Financial Creditor along with the consortium of banks sanctioned the Term Loans and other Facilities. The credit facilities sanctioned by financial creditor (Canara Bank) are herein below:

It is stated that as the Corporate Debtor failed to honour the commitments, the Financial Creditor along with the other consortium members, recalled the facilities. Accordingly, the accounts of the Corporate Debtor in the books of accounts of the Applicant were classified as a Non-Performing Asset.

It is stated that the Corporate Debtor had secured the loans by way of executing Memorandum of Deposit Title Deeds in addition to other securities created in favour of the Applicant /Financial Creditor.

It is stated that as the Corporate Debtor subsequently committed default in repayment of the credit facilities availed by it and in 'addition to committing breach of several of the terms and conditions as agreed upon, the Applicant/Financial Creditor was constrained to recall the loan facilities, while demanding for repayment of the outstanding dues, with all concessions and sacrifices revoked. It is stated that the Applicant /Financial Creditor issued notice dated 20.09.2023 to the Corporate Debtor demanding payment.

It is stated that the Corporate Debtor also acknowledged its liability on the following dates and documents;

It is stated that the Corporate Debtor has committed default in repayment of the said credit facilities availed by it. Even after several requests and demands made, the Corporate Debtor has failed to repay the said loan amounts. The total amount from the Corporate Debtor as on 31.08.2023 due and payable to the Applicant/Financial Creditor is as below:

It is stated that the Corporate Debtor was originally incorporated as ARS Metals Limited on 19.09.1990 and registered with the Registrar of Companies, Tamil Nadu with the objectives of carrying on business in steel and energy business.

It is stated that vide order dated 19.12.2014 of Hon’ble Madras High Court, ARS Metals Private Limited demerged and the steel business of ARS Metals private Limited was transferred to ARS Steels and Alloy International Private Limited.

It is stated that consequent to this, on 12.02.2015, the name of 'ARS Metals Private Limited' was changed to ARS Energy private Limited.

It is stated that the Corporate Debtor was promoted by Mr. Ashwani Kumar Bhatia having vast experience in the field of steel and energy generation. The Corporate Debtor is in the business of power generation through coal-fired thermal power plant, using Indonesian (imported) coal. Mr. Ashwani Kumar Bhatia and Mr. Rajesh Bhatia are the directors of the Corporate Debtor and herein after collectively referred to as Promoter Directors'.

It is stated that the Corporate Debtor has set up a state of the art coal based captive-power plant at Chithurnatham village, Gummidipoondi Taluk, Tiruvallur District, Tamil Nadu which has the capacity to generate 60 MW energy (Power Plant). The Corporate Debtor also installed 230 KV dedicated transmission line to a TNEB (Tamil Nadu Electricity Board) substation 7.5 km away from the Power Plant. The Corporate Debtor had been servicing customers with A+ credit rating.

It is stated that the Corporate Debtor's Power Plant is one of the classes of its kind and has created value addition to cater to the needs of the public in power generation and has a long-time vision of being a pioneer in the line of activity.

It is stated that by way of Common Loan Agreement dated 08.04.2011, a consortium of Banks led by the Applicant, agreed to lend term loans to the then-existing entity of the Corporate Debtor.

It is stated that subsequently, due to various refinancing, in respect of the Term Loans, four Supplementary Common Loan Agreements were entered into between the lenders and the Corporate Debtor on various dates, i.e. 09.05.2013, 19.11.2015, 11.04.2016 and 29.06.2017. As per the supplementary loan agreements, Andhra Bank exited from the consortium of banks and its facilities were taken over by the Bank of Baroda and the Applicant. Subsequently, Punjab National Bank exited from the consortium and Punjab National Bank's outstanding was transferred to HDFC Bank which was inducted into the consortium.

It is stated that the Corporate Debtor had approached the State Bank of India and the Oriental Bank of Commerce to refinance the Loans. State Bank of India and Oriental Bank of Commerce agreed to refinance the existing term loans pursuant to which the new consortium of lenders stood reconstituted i.e. Canara bank, Bank of Baroda, HDFC Bank, State Bank of India and Oriental Bank of Commerce. The Oriental Bank of Commerce merged with the Punjab National Bank in the year 2020.

It is stated that the Corporate Debtor availed financial assistance from the consortium of lenders, which was proposed to be used, inter alia, to meet part of the Project cost and for working capital requirements of the Power Plant pursuant to the following facility agreements entered into amongst the Corporate Debtor and the Lenders

It is stated that the Corporate Debtor was demonstrating consistent growth, sustained improvement in profitability, and was consistent in promptly repaying the financial dues. The key financial highlights relating to performance of the Corporate Debtor up to F.Y 2022-2023 are as follows:

It is stated that the Corporate Debtor is heavily reliant on imported coal for the operation of its Power Plant, as it forms part of the key raw-material. Coal is an important commodity having economic value and the Price of Coal for the last 10 years is shown as under:

It is stated that the above chart clearly establishes that from 2014 to 2021, the purchase price of coal ranged from a minimum of USD 43.60 to a maximum of USD 49.39 per ton, including ocean freight charges of USD 7.50 per ton. Without factoring in freight, the coal price ranged from USD 36.10 to USD 41.89 per ton. Unfortunately, the coal prices increased in an unprecedented manner during the year 2021-2022, and it followed a consistently upward trajectory, rising from USD 44.54 per ton to USD 179.85 per ton. The unprecedented increase in coal prices was about 300% rise during the peak of prices with no significant declines during this period;

It is stated that as a result, the entire industry was impacted by this unprecedented surge in coal prices, and these events were beyond the control of the Corporate Debtor or its promoters. Around 8 thermal power plants which were dependent on coal were shut down.

It is stated that the Corporate Debtor kept the Applicant and the other consortium members apprised of the fact that the unprecedented increase in the price of the imported coal, along with the severe shortage in supply, caused widespread disruptions across the industry. The Corporate Debtor also met with the Applicant and the other consortium members at regular intervals and proposed plans to restructure the credit facilities availed by the Corporate Debtor.

It is stated that the Corporate Debtor in a meeting with the consortium of banks held on 29.12.2023 informed the consortium of banks about the force majeure events which included the unprecedented surge in coal prices.

It is stated that the Corporate Debtor has displayed its sincerity in the payment of debt / loans availed throughout until the COVID pandemic hit viz., January 2020. It is stated that the lockdown was imposed in March 2020. Inter-alia in view of the above, the Corporate Debtor's Power Plant was shut down from 27.03.2022 due to unprecedented increase in coal prices, and scarcity of coal in domestic as well as international markets.

It is stated that the Corporate Debtor in a meeting with the consortium of banks held on 24.06.2022 had informed as follows:

a. That the Power Plant was shut down from 28.03.2022;

b. That the Corporate Debtor would incur losses if it would resume operation of its Power Plant in the current market scenario;

c. That the Corporate Debtor was trying alternatives like changing boiler configuration to adopt Dolachar coal blend mix and enhanced captive usages; and

d. The Corporate Debtor was unable to commit on resuming operation of Power plant due to highly volatile coal prices and non-revival of tariff by TANGEDCO to industrial consumers.

It is stated that the Corporate Debtor in a meeting with the consortium of banks held on 21.07.2022 had informed as follows:

a. That there was no visibility in coal prices coming down in the near future;

b. The Promoters of the Corporate Debtor with the help of its group Company had been supporting Corporate Debtor in meeting commitments to the lenders; and

c. Therefore, the Promoter Director proposed restructuring of the facilities in the said meeting

It is stated that the Corporate Debtor's expense in operating and maintaining its Power Plant were three-fold:

a. Firstly, expenses relating to the import of coal which is primary raw material to keep its power plant active. For this the Corporate Debtor had relied on the credit facilities it obtained from the Consortium of Banks;

b. Secondly, was the expenses relating to keeping the Power Plant operative; and

c. Thirdly, out of the revenue generated from operating its Power Plant, the Corporate Debtor had to service the loans.

It is stated that the Corporate Debtor used to import Indonesian coal as a fuel to operate its Power Plant. As a standard business practice, the Corporate Debtor usually places an order of approximately 75,000 to 80,000 metric tonnes single vessel of coal in a single tranche to make the procurement cost-effective. The Corporate Debtor used to open letters of credit in advance to place an order for the import of coal from Indonesia.

It is stated that since the Power plant was non-operational since 27.03.2022, there was no cash flow available with the Corporate Debtor to meet the operational expenses on monthly basis. The Corporate Debtor's operational expenses include expenses incurred towards the upkeep of the Power Plant in order to be ready for operations at any point of time.

It is stated that the Managing Director of the Corporate Debtor in a meeting with the consortium of banks held on 25.07.2022 had presented a plan for restructuring of its credit facilities. It is stated that the restructuring plan was rejected for the following reasons:

a. Sale of the coal stock was allegedly sufficient to meet the entire commitments to the lenders in FY2022-23 and why the restructuring plan did not contemplate the same:

b. The challenges faced by the Corporate Debtor were temporary in nature;

c. The entire commitments towards lenders during the year FY 2022-23 was Rs.45.00 Crore which allegedly could be met through a mixture of measures such as part disposal of stock, advance from customers with whom and infusion of promoters support.

It is stated that without any support from the consortium members, the Corporate Debtor's promoters infused the following substantial funds from its group company named ARS Steels Private Limited inter-alia to keep the account regular and to meet with the operational expenses of the Power Plant:

It is stated that the Managing Director of the Corporate Debtor in a meeting with the consortium of banks held on 22.08.2022 presented another restructuring plan.

It is stated that the Corporate Debtor's Managing Director in the meeting with the Consortium members dated 22.08.2022 apprised the Applicant and the consortium members that the Corporate Debtor would resume operations by November, 2022.

It is stated that on 29.08.2022, Canara Bank illegally declared the Corporate Debtor's loan account as NPA. This illegal declaration of Corporate Debtor's loan account as NPA acted as a deterrent as the Corporate Debtor could not obtain further funds from the sanctioned amount that was required for operations. Hence, it was impossible for the Corporate Debtor to commence operations by November, 2022. The Banks neither considered the Corporate Debtor's restructuring proposal nor did it provide the Corporate Debtor an opportunity to resume the operations in the Power Plant.

It is stated that the Managing Director of the Corporate Debtor in a meeting with the consortium of banks held on 30.08.2022 that given all the force majeure events, the Corporate Debtor requires restructuring of the credit facilities as this is the only way to resume operations. The Managing Director of the Corporate Debtor in the said meeting stated as follows:

a. Other than the amounts already sanctioned by the Consortium, no additional funds was sought by the Corporate Debtor under the proposed restructuring

b. The promoters will infuse the margin as required under the RBI's restructuring guidelines;

c. The consortium members will not face any haircut on the outstanding debt; and

d. The Corporate Debtor is agreeable to including a Right of Recompense clause, which would allow the consortium to recover any waived or reduced amounts at a later stage if the company's financial health improves.

It is stated that while the Corporate Debtor and its promoters had placed various revised proposals for consideration, the Banks refused to consider the same. As a matter of fact, the Applicant and consortium members started insisting Corporate Guarantee from the other group company of the Corporate Debtor and also to mortgage assets of the group Company of the CD for the purpose of disbursement and continuing the loan accounts.

It is stated that the Consortium, in its meeting dated 23.12.2022, appointed a forensic auditor, Kansal Singla and Associates ('Forensic Auditor), to conduct a forensic audit of the Corporate Debtor. The Corporate Debtor provided a reply dated 06.03.2023, giving a para-wise answer to the Forensic Auditor's observations placed before the Consortium. The findings of the said Forensic Audit were discussed in the Consortium meeting held on 18.03.2023, attended by 17 members, including the forensic auditor and 16 representatives from the respective banks in the Consortium. The following are the relevant extracts of the minutes of the Consortium Meeting dated 18.03.2023:

It is stated that the Consortium, in its meeting dated 18.03.2023, based on the report of the Forensic Auditor, unanimously held that this was a case of 'No Fraud'. It is stated that to that date, the Consortium did not provide ARS Energy with a copy of the findings in respect of the Forensic Audit Report. The Applicant vide its mail dated 17.04.2023, sent a different version of the minutes of the Consortium Meeting dated 18.03.2023, which did not include any of the extracts referred to in the earlier paragraphs of the Reply. These extracts included an unanimous agreement among the Consortium members that this was a case of 'No Fraud’.

It is stated that the Consortium recognized the incipient distress that the account was going into and the fact that the same was arising out of the factors beyond the Corporate Debtor's control.

It is stated that the Corporate Debtor submitted its restructuring proposal on 19.04.2023. It is stated that the same was received by the Consortium only because this was the case where the entire consortium unanimously agreed that it is a case of 'No Fraud

It is stated that the salient features of the restructuring plan dated 19.04.2023 were as under:

It is stated that this Plan was considered by the consortium in its meeting held on 19.04.2023 and the consortium expressed concerns about several aspects of the Plan.

It is stated that the Corporate Debtor then gave à revised restructuring plan on 21.07.2023 with the following salient features:

It is stated that this was considered at the Consortium meeting dated 21.07.2023 and concerns about the restructuring plan were raised only on three issues:

i Whether the unsustainable debt should be converted into Equity or debt instrument?

It is stated that the Corporate Debtor then worked very hard and came up with a revised Restructuring Proposal on 13.09.2023 addressing all of these specific issues. Unfortunately, the Consortium took the decision to reject all attempts to restricting the financial assets without reference to the revised proposal dated 13.09.2023.

It is stated that the Consortium's decision to proceed for recovery is also vitiated by its failure to take note of the fact that the Corporate Debtor is involved in the power sector which is a highly regulated sector. The Corporate Debtor, being a Power Generating company, has no control over various elements, including the supply of coal, the price of coal and freight charges for the import of coal, all of which are regulated by the governments of various countries. The Applicant has declared the Corporate Debtor's loan account as NPA without considering sectoral issues and ground realities affecting different sectors.

It is stated that the Applicant / Canara Bank has initiated Multiple Proceedings against the Corporate Debtor, Corporate Guarantors and Personal Guarantors before different forums for the same cause of action, only as a means for recovery and building pressure for releasing the payments.

It is stated that the consortium members including the Applicant filed an application O.A 6 of 2024 under Section 19 of the RDB Act on 8.12.2023 before the Hon'ble DRT, against the Corporate Debtor, Corporate Guarantors and Personal Guarantors to recover the debt allegedly owed by the Corporate Debtor.

It is stated that the Applicant herein filed an application CP(IB) 99 of 2024 on 16.02.2024 before the Tribunal for initiating CIRP against the Corporate Debtor.

It is stated that on 30.04.2024, State Bank of India filed an application before the Tribunal for initiating CIRP against the Corporate Debtor; and

It is stated that State Bank of India also filed applications CP(IB) 115 of 2024, CP(IB) 116 of 2024, and CP(IB) 117 of 2024 before the Tribunal against the Leading Estates Limited, BGS Credit Private Limited and East Delhi Leasing Private Limited, who have their registered office at New Delhi, under Section 7 of the Code.’

It is stated that the Applicant has also filed Application CP(IB) 57 of 2024 and CP(IB) 58 of 2024 before this Tribunal to initiate the Insolvency Resolution Process against the Personal Guarantors, who are residents of New Delhi.

It is stated that the Applicant and State Bank of India have initiated multiple proceedings against the corporate debtor in different forums. It is stated that this Application is to initiate CIRP against an otherwise solvent and viable company which committed the default due to force majeure events beyond the control of the Corporate Debtor and the Application ought to be dismissed inter-alia on the following grounds:

a. That the Applicant sanctioned a GECL 2.0 Extension Loan of Rupees. 5.08 Crores to the Company on 05.01.2022. The Repayment Schedule of the said loan provided a moratorium of 12 months from the date of the first disbursement. The first disbursement of the GECL 2.0 Extension Loan was on 05.01.2022 and from 20.01.2022 to 19.01.2023 the said loan was not due and repayable on account of the moratorium. However, the Applicant has claimed under Part-IV of the Application that the Corporate Debtor had allegedly defaulted payment of the GECL 20 Extension Loan on 20.10.2022, during which there was a moratorium on the said loan and the same was not repayable.

b. On page 9 of the application, the authorized officer of the applicant has incorrectly certified that he is fully qualified and permitted to act as an Insolvency Resolution Professional under the Insolvency and Bankruptcy Code, 2016, along with its associated rules and regulations. Instead, he should have certified that the proposed Interim Resolution Professional, as mentioned on page 4 of the application, is fully qualified and permitted to act as an Insolvency Resolution Professional in accordance with the same code and regulations

c. The Applicant ought to have taken into record the commercial hardships and unforeseen circumstances beyond the control of the Corporate Debtor. In spite of which the Corporate Debtor used all its reasonable efforts to keep the Power Plant operational.

d. Though, Section 7(1) of the Code inter-alia provides that the financial creditor may jointly file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority, the other members of the Consortium have chosen not to file an application before this Tribunal probably for the reasons mentioned in this Application.

e. The Corporate Debtor, in the meetings held with the consortium, had time and again stated that the Corporate Debtor faced an unprecedented situation, which was purely a force majeure event. The Corporate Debtor has a longstanding relationship with the bankers, and the Corporate Debtor maintained a 20-year record of recovery by promptly servicing the loans. Due to force majeure events such as COVID-19 and the Russian-Ukraine war, there was unprecedented rise in the price of coal and shortage in supply of coal as set out in detail in this Reply.

f. The Consortium members including the Applicant in their meeting dated 21.07.2023 unanimously agreed to pursue recovery actions including initiating CIRP of the Corporate Debtor. That the Applicant has filed this Application to initiate CIRP against the Corporate Debtor as a substitute for recovery procedure, solely for the purpose of the debt recovery, despite the fact that the Corporate Debtor was a solvent entity and is a going concern before the force majeure events.

g.In fact, the Consortium members, including the Applicant, had been contemplating approaching this Tribunal as early as 22.08.2024, even before the Corporate Debtor's loan account was notified as Non-Performing Asset. Hence, the entire basis of the Applicants Company Petition is flawed, as the intention of the Consortium in approaching this Tribunal is solely for the purpose of the debt recovery.

h. The Applicant's act of refusing the Corporate Debtor revised Restructuring Proposal on 13.09.2023 addressing the specific issues raised in the Consortium meeting dated 21.07.2023 further establishes that the Applicant's was not inclined towards resolution of the Corporate Debtor and the intention of the Applicant was to initiate recovery proceedings against the Corporate Debtor;

j.That the Applicant and consortium members failed to recognise the tireless efforts taken by the Corporate Debtor, despite the occurrence of force majeure events, to float the business of the Corporate Debtor, including but not limited to as promoters consistently infusing further capital into the Corporate Debtor, during the times of financial distress, aggregating to asum of Rs. 49.06 Crores from 2018-21 to July 2024.

k. This very action of the Corporate Debtor's promoters was to ensure that the plant and the machinery installed therein (which are part of the assets hypothecated to the Applicant and other consortium members) do not turn obsolete, and this further proves that the Corporate Debtor was prepared to restart its operations in full capacity/full swing provided the other factors beyond its reasonable control became favourable.

l. That the Applicant ought to have noticed that the temporary closure of its factory was attributable to the impact on coal prices due to the then ongoing Russia-Ukraine War and, therefore, the Corporate Debtor was unable to run its power plant.

m. The Applicant failed to recognize that the then ongoing international trade situation in terms of the ban on the import of coal from Australia to China and the impact caused to the Corporate Debtor's business as the Corporate Debtor was dependent on imported coal to run its Power Plant and this coal was imported primarily from Indonesia

n. That the Applicant failed to take on record that the rate of coal during the first half of 2023 was so high that it made the Corporate Debtor's business plans non-viable. The Applicant and the other consortium members were made aware ahead of time of the facts, and the Applicant failed, by rejecting the assurance given by the Corporate Debtor and its promoters that the Corporate Debtor was fully ready to restart the power plant's operations.

In view of the above, the Corporate Debtor has prayed that this Tribunal may dismiss this application.

The Applicant has filed the documents vide S.R.No.6192 dated 19.12.2024 as under:

The Respondent has also filed the documents vide S.R.No.6132 dated 17.12.2024 as under:

The Corporate Debtor has filed the Written Submissions vide S.R.No.198 dated 10.01.2025. It is stated that the Corporate Debtor has utilized only the Principal amount of the sanctioned facilities, leaving the Corporate Debtor sanctioned limits of Rupees 124 Crores that remain unutilized. During the time of financial distress, the Corporate Debtor in good faith had refrained from utilizing Rs.124 crores and sought the assistance of the consortium to revive its business and get back on its feet. (Paras 3 and 8 of FC's Demand Notice dated 20.09.2023 at Page No: 2812, Volume 17 of Application).

It is stated that Corporate Debtor’s Promoters have infused funds into the company for a cumulative value of Rs.155.47 crores (approx.) from the date of inception. This includes the Promoter's infusion of funds through ARS Steels Private Limited to the tune of Rs.49.06 Crores during the period from 2018 to July 2024. The majority was spent during the force majeure period to maintain the Power Plant. (Para 24 at page no:11 of the Corporate Debtor 's reply dated 22.11.2024).

It is stated that the Financial Creditor and the consortium members had sanctioned credit facilities under GECL 2.0 Scheme to the Corporate Debtor to the tune of Rupees 38.30 Crores. (Working Capital Term Laon GECL 2.0 Extension loan agreement dated 30.03.2022 at Volume 5 and Volume 6 of the Application at Page nos: 866 to 895). The principal amount in respect of the said facilities were to be repaid by the Corporate Debtor in 48 months door-to-door tenor commencing from the date of disbursement after a moratorium period as tabled below (Schedule III of (Working Capital Term Loan GECL 2.0 loan agreement dated 30.03.2022 at Volume 6 of the Application at Page nos: 893):

It is stated that during the moratorium of the said facilities intended for the Corporate Debtor to restart its operations and revive its business, the Account of the Corporate Debtor was declared as NPA. Due to this, the Corporate Debtor was deprived of its drawing power and the very facilities granted by the Financial Creditor and the consortium members to revive the business operations.

It is stated that the Corporate Debtor 's Managing Director had informed that the Power Plant was shut down on 27.03.2022 due to abnormal coal prices and post-COVID disruptions that caused industry-wide stress (Para 3 of the MOM dated 24.06.2022 at page no: 1028, Volume no:6 of the Application). The Corporate Debtor's management has been trying alternatives like changing configuration of Power Plant's boiler to adopt Dolachar coal blend mix and enhance the Power Plants captive usage. The change in configuration involved a capital expenditure of Rs.3.50 Crores which the Corporate Debtor has invested through its own funds. Corporate Debtor’s MD also agreed to provide the Financial Creditor and the consortium members a concrete plan of action by 15.07.2022.

It is stated that Corporate Debtor’s MD informed the consortium in their meeting dated 22.08.2022 that Corporate Debtor would resume operations from November 2022. (Para 2 of the MOM dated 22.08.2022 at Page no: 1035 Volume no:6 of the Application). It is stated that all the lenders unanimously insisted on resuming operations immediately to prevent the account from slipping into NPA before the restructuring plan is implemented (Para 12 of the MoM dated 22.08.2022 at page no: 1037, Volume no: 6 of the Application). Financial Creditor and the consortium members agreed to allow operations in the Corporate Debtor's loan account with a maximum cap of Rs. 50 Lakhs per month for the Corporate Debtor inter-alia to meet statutory dues, salaries to employees and to keep the plant in preservation mode. (Para 14 of the MOM dated 2022 at Volume no:6 of the Application).

It is stated that the Financial Creditor and consortium members had agreed in principle to restructure the facilities subject to respective banks' internal guidelines and policy, subject to inter-alia that all restructuring requirements of RBI including signing of Inter Creditor Agreement, Pledge of Shares by the Corporate Debtor, Forensic Audit for last 3 years, Technological Economic Viability Study report, RP 4 rating (minimum) shall mandatorily be complied with by the Corporate Debtor (Para 16.2 of the MOM dated 30.08.2022 at page no 1043, Volume no:6 of the Application).

It is stated that a meeting of the Consortium members was convened and held on 18.03.2023, wherein the Forensic Auditors report was discussed in detail (MOM dated 18.03.2022 at Page no:1061, Volume no:6 of the Application).

To support its submissions, the Corporate Debtor filed a compilation of Judgements vide S.R.No. 6194 dated 19.12.2024 and has relied on the Hon’ble Supreme Court Judgement in the case of Vidharbha Industries Power Ltd vs Axis Bank Ltd (2022 8 SCC 352) where it was held as under :

The other Judgements relied on by the Corporate Debtor in support of its contentions are as follows;

Heard the submissions of both the parties and perused the documents on record.

The applicant has filed the written submissions vide S.R.No.197 dated 10.01.2025. It is seen that the applicant had issued a communication on 23.09.2022 to the Corporate Debtor bringing to its attention that it has failed to meet the various loan repayments undertaken by it and accordingly requested the Corporate Debtor to pay its outstanding dues. (Annexed @ Page No. 43 of the Affidavit filed by the Applicant on 18.12.2024). As the Corporate Debtor failed to pay the amounts due and payable to the various lenders including this Applicant herein, all accounts of the Corporate Debtor maintained with the Applicant herein were classified as NPA with effect from 28.09.2022. This fact was duly communicated to the Corporate Debtor vide letter dated 29.09.2022 (Annexed @Page No. 45 of the Affidavit filed by the Applicant on 18.12.2024). In the same communication dated 29.09.2022, it was also brought to the attention of the Corporate Debtor that the default has been committed by the Corporate Debtor with effect from 30.06.2022 qua this Applicant and accordingly all of its accounts slipped into NPA.

It is seen from the application that the Applicant had also issued a demand notice under Section 13(2) of the SARFAESI Act, 2002, on behalf of itself and other lenders calling upon the Corporate Debtor to pay the outstanding amounts. The Corporate Debtor vide letter dated 18.11.2022 provided unsubstantiated grounds for not maintaining the financial discipline and not paying the amounts due and payable to the Applicant. In sudden volte face, and in contradiction to the earlier communication dated 07.11.02022 and 11.11.2022, the Corporate Debtor in its communication dated 18.11.2022, questioned the classification of its' accounts as NPA without any basis. (Annexed @ Volume 17 Page No. 2820 of the Application).

During the hearing the applicant has placed a RBI Circular dated 08.05.2023. The clause 2.2.2 of the circular reads as under:

It is seen from the application that the Corporate Debtor had acknowledged its debt by way of execution of various documents which are tabulated hereunder:

With respect to the contention of wrongful classification of accounts of the Corporate Debtor as NPA with effect from 29.09.2022, the applicant in its written submissions has stated that the Applicant has classified the accounts of the Corporate Debtor as per the mandate issued by RBI vide master circular RBI/2011-12/66 dated 01.07.2011 and in consonance with the Circulars issued by the RBI, wherein an asset has to be classified as NPA borrower wise and not facility wise. (Annexed @ Page No. 68 of the Affidavit filed by the Applicant on 18.12.2024). Considering that the default was committed by the Corporate Debtor with respect to the Working Capital Facilities on 30.06.2022, all accounts of the borrower/Corporate Debtor were classified as NPA with effect from 28.09.2022. The Corporate Debtor, in terms of its earlier communications dated 07.11.2022 and 08.11.2022, having accepted its account slipping into NPA and not questioning the same before the appropriate forum, cannot now by way of a defence, question the classification. The requisite to maintain an application under Section 7 as held by the Hon’ble Supreme Court in the case of Laxmi Pat Surana Vs. Union Bank of India & Anr. MANU/SC/0221/2021 and the Hon’ble NCLAT in the case of Edelweiss Asset Reconstruction Company Limited Vs. Perfect Engine Components Pvt. Ltd. MANU/NL/1043/2022, is the occurrence of default and when it occurred and not with respect to the date of classification of the Corporate Debtors’ account as NPA. As stated above, such an issue ought to have canvassed before Appropriate Authority and cannot be raised under the guise of the counter filed before this Tribunal. Dehors the above, the Applicant unequivocally submits that the account of the borrower has been classified as NPA in consonance to the guidelines issued by the RBI and hence is valid.

In relation to contention of the corporate Debtor that there is no default committed by it in view of the period of Moratorium with respect to the repayment of loan facilities, we find that the said statement is not only self-contradictory to the communications made by them above but is also highly misconceived for the following reasons:

a. As stated above, the Corporate Debtor availed 4 loan facilities. With respect to the Working Capital facilities and Term Loan facilities, there is no stipulation for moratorium period and consequently the argument of the Corporate Debtor is flawed.

b. With respect to the GECL 2.0 and GECL 2.0 extension, as the business of the borrower underwent stress due to Covid-19 Pandemic, the said facility was approved by the Government of India for the purpose of meeting the exigency circumstance during the Covid period. Furthermore, GECL 2.0 Moratorium has already ended, hence there was no moratorium period applicable as on date.

c. In this context, the Applicant had issued a letter dated 05.11.2022 for the purpose of GECL 2.0 extension scheme. As per the said sanction letter, it was made explicitly clear that the terms and conditions of the sanction, including any moratorium period, if any, would be subject to the circulars/ guidelines issued by RBI from time to time. The relevant portion of the sanction letter dated 05.01.2022, filed by the Respondent/Corporate vide the index of documents filed by the Corporate Debtor on 09.12.2024 at page number 9 is extracted hereunder for ease of reference:

d. As stated above, as per the circular, the account of the Corporate Debtor should be classified as NPA borrower wise and not account wise. Since, the Corporate Debtor had committed default with respect to the Working Capital Facilities on 30.06.2022, all accounts were classified as NPA with effect from 28.09.2022. The Corporate Debtor thereafter did not pay the outstanding due with respect to all the 4 loan accounts and committed default as per the table extracted herein above in Paragraph 1.

e. Therefore, the Corporate Debtor cannot use the feeble argument of there being a moratorium when the Corporate Debtor itself had contributed to the various defaults and its accounts being classified as NPA.

The applicant has denied the contention of the Corporate Debtor that due to the force majeure events, the Corporate Debtor could not maintain the financial discipline, and hence could not repay the Applicant the defaulted amounts. Such an argument cannot be made especially in a Section 7 Application. This is in light of the decision of the Hon’ble Supreme Court in the case of Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors. MANU/SC/0408/2017, wherein it was held that commercial impossibility or hardship amongst other grounds, cannot be a bar in performing contractual obligations, which is what the Corporate Debtor is intending to project before this Tribunal. The above principle has been upheld in several other judgments. Furthermore, in the event such an argument on grounds of force majeure is sought to be brought by the Respondent/ Corporate debtor, it should have been done before the appropriate Civil Court. Additionally, it is also the legislative intent to exclude only the period stipulated in Section 10A and not for defaults committed either prior or post that period. In the present case, all defaults committed by the Corporate Debtor do not fall within the period stipulated in Section 10A, hence, this is the reason why the force majeure ground cannot be raised by the Respondent/ Corporate Debtor.

The applicant has stated that there is no question of equity while dealing with Applications under the Code, as held by the Hon’ble Supreme Court in the case of E.S. Krishnamurthy vs M/S Bharath Hi Tech Builders Pvt. Ltd. MANU/SC/1249/2021, in the case supra, it is held as follows:

The Applicant has relied on a catena of decisions of the Hon’ble Supreme Court that even assuming but not conceding that there is a period of moratorium with respect to the GECL facilities, considering there being no moratorium in the Working Capital and Term Loan Facilities, which comprise of the significant portion of the default amount (over Rs.79 Crores), which default amount is beyond the threshold limit prescribed under Section 4 the Code, the present Application will have to be admitted. The decisions placed by the Applicant are as follows:

The Hon’ble Supreme Court in the case of M. Suresh Kumar Reddy vs Canara Bank 2023 8 SCC 387 in para 11 has held as follows:

Definitions. In this Code, unless the context otherwise requires-(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;" Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Section 7 IBC must follow. If NCLT finds that there is a debt, but it has not due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application.

In view of the above said judgment it is clear that there is a debt and due on the part of the Corporate Debtor. Hence, the contention of the Corporate Debtor with respect to no debt and default will not hold water.

Vide order dated 09.12.2024, this tribunal recorded as under;

It is evident from the above order that the Respondent had made a Settlement proposal and the same was turned down by the Financial Creditor. It is thus manifestly clear that the Respondent has admitted the debt.

The Applicant has also placed on record the default certificate/report procured by him from NeSL, where the amount of debt and default are reported. The relevant pages of the report of NeSL are placed at page nos. 1689 to 1738 of the petition which reflects the status as ‘authenticated’.

It has been ruled by the Hon’ble NCLAT in Vipul Himlatal Shah vs. Teco Industries in Company Appeal (AT) (Insolvency) No. 470 of 2022 [(2022) ibclaw.in 379 NCLAT], that the report of information utility (NeSL) is sufficient evidence to arrive at the conclusion qua the amount of debt and default. Para 16 of the order reads as under:

On a careful perusal of the application along with the supporting documents placed by the Financial Creditor as tabulated above in para 76 of this order, we are of the view that there is a debt and default on the part of the Corporate Debtor. The Applicant has rightly classified the account as NPA and the default is not impacted by Moratorium.

It is relevant to extract the letter dated 23.09.2022 issued by the Applicant to the Corporate Debtor declaring the account as NPA:

In view of the facts as stated supra and also in view of the ‘financial debt’ which is proved by the Financial Creditor and the ‘default’ being committed on the part of the Corporate Debtor, this Tribunal is left with no other option but to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor.

The issue as to the classification of the account of the Corporate Debtor as NPA as illegal or unlawful cannot be decided by this forum. The Corporate Debtor ought to have challenged the same before the appropriate forum.

The Hon’ble Supreme Court in the matter of Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy and Anr; (2021) 100 SCC 330 while dealing with the acknowledgment of debt under Section 18 of the Limitation Act, 1963 in respect of the dues appearing in the Balance Sheet, has held in para 118, 124, 125 and 139 as follows:

The Hon’ble Supreme Court in the case Innoventive Industries Limited -Vs- ICICI Bank & Anr., (2018) 1 SCC 407 has held that Tribunal is required to see whether there is a ‘debt’ which is due and payable under the law and whether the default is more than Rupees One Lakh (now Rupees One Crore). The moment the default amount exceeds rupees one crore, this Tribunal is required to initiate a Corporate Insolvency Resolution Process as against the Corporate Debtor.

For the aforesaid reasons and Judgements cited supra, this Tribunal orders to initiate Corporate Insolvency Resolution Process in respect of the Corporate Debtor viz, ARS Energy Private Limited.

The Financial Creditor has proposed the name Ms.Ramanathan Bhuvaneshwari, with Registration No: IBBI/IPA-002/IP-N00306/2017-2018/10864 (email: bhoona.bhuvan@gmail.com)) as the Interim Resolution Professional (IRP) who has also filed her consent in Form – 2.Upon verification from the IBBI website, it is seen that the Authorization for Assignment is valid up to 31.12.2025. The proposed IRP who is appointed shall take forward the process of Corporate Insolvency Resolution of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15,17,18 of the Code and file her report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.

As a consequence of the Application being admitted in terms of Section 9 (5) of the Code, the moratorium as envisaged under the provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor:

However, during the pendency of the moratorium period in terms of Section 14(2) (2A) and 14(3) as extracted hereunder:

The duration of the period of moratorium shall be as provided in Section 14(4) of the Code and for ready reference reproduced as follows:

Based on the above terms, the Application stands admitted in terms of Section 7 (5) of IBC, 2016 and the moratorium shall come in to effect as of this date. A copy of the Order shall be communicated to the Financial Creditor as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named who is figuring in the list of Resolution Professionals forwarded by IBBI be also furnished with copy of this Order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.