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Judgment
ORDER
Per: Cmde Siddharth Mishra, Member (Technical)
The Court congregated through hybrid mode.
The Ld. Counsels of both the parties were heard.
The instant Application has been filed by CENTRAL BANK OF INDIA hereinafter referred to as the ‘Financial Creditor/FC’ against ZENITH ERECTORS P. LTD, hereinafter referred to as the ‘Corporate Debtor/ CD’ under Section 7 of the Insolvency and Bankruptcy Code, 2016, for brevity, ‘I&B Code’ to initiate a corporate insolvency resolution process in the case of M/s Zenith Erectors Private Limited.
Facts in a Nutshell
M/s. Zenith Erectors Private Limited, the CD was incorporated on July 22, 1998 and is involved in Manufacture of structural metal products, tanks, reservoirs and steam generators.
. The FC sanctioned credit limits initially in 2001 which was lastly enhanced on 21.12.2012. The CD executed the security documents in favour of the Applicant and enjoyed the Fund Based and Non Fund Based Limits .
The account of the CD became irregular and was treated as a Special Mention Account (SMA 0) under the RBI guidelines on 06.03.2013. The account was thereafter classified as Non Performing Asset on 04.06.2013.
The Applicant filed an application on 31.03.2015 under Section 19 of the Recovery of Debts and Bankruptcy Act 1993 being OA no. 145 of 2015 before the Debts Recovery Tribunal II, Kolkata claiming a sum of Rs. 26,31,61,111/-as on 31-03-2015. The same is pending for adjudication.
The applicant had initiated action under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. The CD challenged the actions of the applicant by filing an application under Section 17 of the SARFAESI Act being SA no. 1209 of 2014 before the Debts Recovery Tribunal II, Kolkata which is pending for adjudication.
The CD has admitted and acknowledged its liability to the bank in its Audited Balance Sheet for the years 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023.
SUBMISSIONS OF THE LD. COUNSEL ON BEHALF OF THE PETITIONER
It is submitted that the letters of sanction issued by the FC to the CD reflect that the limits were repayable with interest. Instalments due on Term Loan was also detailed and the CD had accepted the terms of sanction.
That the challenge of the CD to the restructuring before the Hon'ble High Court has already been decided against them.
The account of the CD became irregular and was treated as a Special Mention Account (SMA 0) on 06.03.2013. The account of the CD was ultimately classified as Non Performing Assets (NPA) on 04.06.2013 as per the Guidelines of Reserve Bank of India.
The applicant filed an application on 31.03.2015 under Section 19 of the Recovery of Debts and Bankruptcy Act 1993 being OA no. 145 of 2015 before the Debts Recovery Tribunal II, Kolkata claiming a sum of Rs. 26,31,61,111/-as on 31-03-2015. The same is pending for adjudication.
That the applicant had initiated action under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. The CD challenged the actions of the applicant by filing an application under Section 17 of the SARFAESI Act being SA no. 1209 of 2014 before the Debts Recovery Tribunal II, Kolkata which is pending for adjudication.
Further, the CD has admitted and acknowledged its liability to the bank in its Audited Balance Sheet for the years 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023. The CD has admitted Long Term Borrowings from the FC under the heading Secured Loans.
SUBMISSIONS OF THE LD. COUNSEL ON BEHALF OF THE RESPONDENT
It is submitted that an application made under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, is not maintainable, as the applicant doesn't come under the meaning of "Corporate Applicant" under section 5(5) of the I&B Code. It is a "Financial Creditor" within the meaning of Section 5(7) of the Act and should be treated as such. Thus, the application ought to have been filed under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
That under the Section 13(3A) of the SARFAESI Act, 2002, the CD made a representation and tried to restructure and reschedule the accounts, with completely bona fide intentions, however, financial creditor acknowledged it but did not accept the same.
That there has been an outstanding debt of Rs. 18,47,81,010/- as on 31.03.2015, which was declared as Non-Performing Assets on 04.06.2014.
It is denied that a sum of Rs.112.92 Crores or any other sum is due or payable by the Corporate Debtor to the Financial Creditor as alleged. It is reiterated that due to the pandemic situation, the Corporate Debtor was in a very difficult situation as the business was hampered gravely, however the Corporate Debtor is ready to pay the due amount.
That the CD has been always willing to repay its dues and FC has recovered an amount of Rs. 43 lakhs by selling the property through private treaty while the said applications show cases an outstanding sum of Rs. 26,31,61,111/-.
That no default has occurred due to failure of payment of the interest as well as principal by the CD. The computation as shown for the alleged amount of default is false and frivolous.
It is further submitted that the notice dated 06.07.2021 attached to their applications shows that the Corporate Debtor had assured complete payment by 30.06.2020 which is untrue.
That the FC has approached this Tribunal as a recovery tool to recover its alleged dues which is not permitted under the Code and the present application filed by the Financial Creditor is mala fide and motivated.
COUNTER ARGUMENTS OF REPLY AFFIDAVIT
The Rules are framed to support the Act/Code. The principal provisions for filing are in the Code. The Rule only supplements the same. Rules are the procedural aspect which supports the substantive law in the Sections contained in the Code.
Proceedings under the SARFAESI Act are distinct and different from application under Section 7 of the IBC. Bank is under no obligation to accept the offer for restructuring when the CD has not made any concrete proposal for the same.
The CD during argument contended that admission was only for approximately Rs. 25.00 crore and not for the present claim. The admitted sum is the amount when the account was classified as NPA. The present claim of the FC is of the NPA amount together with applicable interest as on 18.05.2024. Reference is made to Paragraph 5 pg 3, paragraph 7 pg 4 and paragraph 16 page 6 of the Reply Affidavit.
The Balance Sheet relied on by the bank is only for the purpose of limitation of the Section 7 application. The said documents have not been used in any other forum.
That the CD has not controverted the Record of Default annexed to the petition. The CD has admitted the dues to the bank in the Balance Sheet.
Further the sanction letters and disbursement have not been denied. The contents in the Statement of Account has not been denied.
We have heard the Ld. Counsels of both the parties and perused the documents on record.
ANALYSIS AND FINDINGS
We find that the CD in Para 3 of its Reply Affidavit while challenging the maintainability of this Application under Rule 7 has admitted the Petitioner as the Financial Creditor within Secion 5 (7) of the I&B Code.
We discern that the application has been filed under Section 5(7) of the I&B Code instead of Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Rules are framed to support the Code. The principal provisions for filing are in the Code. The Rule only supplements the same. Rules are the procedural aspect which supports the substantive law in the Sections contained in the Code.
That the CD has never denied its liability and the same has been acknowledged by the CD in para 5 of the Reply Affidavit.
Further the CD admitted that there has been an outstanding debt of Rs. 18,47,81,010/- as on 31.03.2015 and its accounts were declared as Non-Performing Assets on 04.06.2014.
We find that the CD has evasively denied the sum of Rs.112.92 Crores payable to the FC. Though the amount of debt is disputed but as long as the debt is above the threshold limit and is due, the application is maintainable.
At this juncture, we would like to rely on the decision of Hon’ble NCLAT as referred by the Ld. Counsel for the Financial Creditor in Rajesh Kedia vs. Phoenix ARC P. Ltd reported in 2022 ibclaw.in.280 NCLAT, wherein it was held as under:
In so far as the contention of the Appellant qua the quantum of payment of debt is considered, we are of the earnest view that the same does not fall for consideration before the Adjudicating Authority at the stage of 'admission' of the Application under Section 7 of the Code. The only requirement is that the minimum outstanding debt should be more than the threshold amount provided for under the Code. The actual amount of 'Claim' is to be ascertained by the Resolution Professional after collating the 'Claims' and their verification which comes at a later stage. Keeping in view all the afore noted reasons, this Tribunal is satisfied that there is an admission of 'debt' and 'default' as defined under the Code and we do not find any illegality or infirmity in the Impugned Order dated 07/10/2021, passed by the Learned Adjudicating Authority.
Further we would like to refer to the decision of the Hon’ble Supreme Court of India in Innoventive Industries Ltd. v. ICICI Bank reported in (2018) 1 SCC 407 wherein the Hon’ble Apex Court has observed that the moment the “debt” is due and “default” on part of the corporate debtor is satisfied, the application must be admitted. The Hon’ble Apex Court has held that:
“27.The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins....’
“28.… the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, ...”
We find that in the instant case, there is an existence of financial debt and the application has been filed within the limitation period. In view of the discussions extracted above, we admit Section 7 application bearing Company Petition (IB) No. 309/KB/2020 and order the initiation of Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor by the following Orders:
Accordingly, we order the initiation of Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor by the following orders:
The Application filed by Central Bank of India (Financial Creditor), under Section 7 of the Insolvency & Bankruptcy Code, 2016, is hereby, admitted for initiating the Corporate Insolvency Resolution Process in respect of Zenith Erectors P. Ltd.(Corporate Debtor).
As a consequence of this Application being admitted in terms of Section 7 of the I&B Code, moratorium as envisaged under the provisions of Section 14(1) of the Code, shall follow in relation to the Respondent/(CD) as per clauses (a) to (d) of Section 14(1) of the Code. However, during the pendency of the moratorium period, terms of Section 14(2) to 14(3) of the Code shall come into force.
Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016, prohibits the following, as:
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;
Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its asset 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 (54 of 2002);
The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.
[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances 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 supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during the moratorium period.
The provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
The Applicant has proposed the name of Rajnandan Kumar [Registration no: IBBI/IPA-001/IP-P-02721/2022-23/14161, phone no. 9831151505 the “IRP”. We have perused that there is a written communication, annexed as Annexure B, to the Application as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. There is a declaration made by him that there are no disciplinary proceedings pending against her with ICAI Institute of Insolvency Professionals. In addition, further necessary disclosures have been made by “Rajnandan Kumar” as per the requirement of the IBBI Regulations. Accordingly, she satisfies the requirement of the Section 7(3)(b) of the code. Hence, we appoint Rajnandan Kumar as the Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the I&B Code subject to submission of a valid Authorisation of Assignment in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016. The fee payable to IRP or the RP, as the case may be, shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the I&B Code.
In pursuance of Section 13 (2) of the Code, we direct the IRP or the RP, as the case shall cause a public announcement immediately with regard to the admission of this application under Section 7 of the Code and call for the submission of claims under Section 15 of the Code. The public announcement referred to in Clause (b) of sub-section (1) of Section 15 of Insolvency & Bankruptcy Code, 2016, shall be made immediately. The expression immediately means within three days as clarified by Explanation to Regulation 6 (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
During the CIRP period, the management of affairs of the Corporate Debtor shall vest in the IRP or the RP, as the case may be, in terms of Section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this Order, in default of which coercive steps will follow. There shall be no future opportunities in this regard.
The Interim Resolution Professional is also free to take police assistance to take full charge of the Corporate Debtor, its assets and its documents without any delay, and this Court hereby directs the concerned Police Authorities and/or the Officer-in-Charge of Local Police Station(s) to render all assistance as may be required by the Interim Resolution Professional in this regard.
The IRP or the RP, as the case may be shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.
The Financial Creditors shall be liable to pay to IRP a sum of Rs. 3,00,000-/-(Rupees Three Lakh Only) as payment of his fees as advance, as per Regulation 33(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which amount shall be adjusted at the time of final payment. The expenses relating to the CIRP are subject to the approval of the Committee of Creditors (CoC).
In terms of sections 7(5) and 7(7) of the Code, the Registry of this Adjudicating Authority is hereby directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional by Speed Post and through email immediately, and in any case, not later than two days from the date of this Order.
Additionally, the Registry of this Adjudicating Authority shall serve a copy of this Order upon the Insolvency and Bankruptcy Board of India (IBBI) for their record and also upon the Registrar of Companies (ROC), West Bengal, Kolkata by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.
The Resolution Professional shall conduct CIRP in time-bound manner as per Regulation 40A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.
The IRP/RP shall be liable to submit the periodical report including the minutes of the CoC of the Corporate Debtor, with regard to the progress of the CIRP in respect of the Corporate Debtor to this Adjudicating Authority time to time.
The order of moratorium shall cease to have effect as per Section 14(4) of the I&B Code.
The certified copy of this order, if applied for, be supplied to the parties, subject to compliance with all requisite formalities.
Post the matter on 10.07.2025 for filing the Periodical Progress Report by the IRP/RP.