Corporation Bank (Now Union Bank Of India) vs Jindal Speciality Textile Ltd.

PER: SH. L. N. GUPTA, M(T) & SH. HARNAM SINGH THAKUR, M(J)

Corporation Bank, now Union Bank of India (for brevity, the “Applicant”) has filed the present application under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency process against Jindal Specialty Textile Limited (for brevity, the “Respondent”).

The Respondent namely, Jindal Specialty Textile Limited is a Company incorporated on 27.05.2008 under the provisions of the Companies Act, 1956 with CIN U17100PB2008PLC031968 having its registered office at Mandiala Kalan, P.O. Bija, Tehsil Khanna, Ludhiana, Punjab- 141412, which is within the territorial jurisdiction of this Tribunal. The Authorized Share Capital of the Respondent Company is Rs. 5,00,00,000/-, and the Paid-up Share Capital is Rs.4,95,00,000/-, as per the Master Data annexed with the application.

It is averred by the Applicant in the application that the total debt granted/ disbursed to the Respondent amounts to Rs. 28,10,00,000/-, the details of which are mentioned below:

The detailed particulars of the unpaid Financial Debt including the total amount of default and the date of default as claimed by the applicant are mentioned in Part IV of the application, which reads thus:

Thus, as per Part IV of the application (ibid), the Applicant has claimed an outstanding “financial debt” of Rs. 52,21,54,637/- and relied on 29.04.2012 as the “date of default”. The Applicant has also stated that thereafter, the loan was restructured on 27.09.2012. Further, on account of default, the Account of the Respondent Company was classified as NPA on 30.09.2014, and thereafter, on 14.11.2014, the Applicant Bank issued the notice under Section 13(2) of SARFAESI Act, calling upon the respondent and other obligors to pay the defaulted amount.

To buttress its plea, the Applicant has relied on the following documents:

Based on abovesaid facts and the documents (ibid), the Applicant has prayed for the initiation of CIRP against the Respondent company.

On issuance of the notice, the Respondent filed its reply dated 29.11.2019 and subsequently, Written Submissions dated 16.04.2024 contending mainly the following:

The present CP is barred by limitation. The applicant has placed on record, a recovery certificate of DRT dated 24.10.2017 and the date of filing is stated to be 11.03.2019. Therefore, correct date of default is required to be determined to examine the argument regarding limitation. There cannot be two dates of default. On Page 12, the date of default is 29.04.2012, whereas on page 39, the date of default is 01.07.2014 and NPA date is 30.09.2014. The petition does not disclose which is the correct date of default.

The Power of Attorney dated 01.03.2001 attached with the petition, with which the Bank contends that the signatory has the power to act on behalf of the Bank, was prepared in 2001 whereas the IBC into existence in Dec. 2016.

The Bank has not taken consent of the other members of the Consortium. Vide Email dated 25.09.2018, sent by Head Office-IBC of Corporation Bank to their Branch, it is mentioned that the competent authority in the Credit Approval Committee of the Board meeting held on 20.09.2018, has sanctioned the proposal to initiate CIRP in the account of the Respondent, after taking into confidence the other consortium members. However, the other Creditor M/s JM Financial ARC, has not been taken into consideration. The consent of the other Creditors, which is holding 83.33 % of the total credit exposure, has not been availed by the applicant. The present petition could not have been filed without the consent of the majority Creditors.

Perusal of the certificate of Bankers' Books Evidence Act reveals that there is no date attached to the same. Therefore, certificate attached to the statement of account cannot be said to be in statutory compliance of Section 2(8) or Regulation 2-A of the CIRP Regulations, 2016.

In rebuttal, the applicant Bank has filed a Rejoinder dated 02.03.2021 to the reply filed by the Respondent and also, written submissions dated 15.03.2023 stating mainly the following:

Since the cause of action is continuing in nature and hence, the present Application is not time barred at all. Further, the Corporate Debtor had acknowledged the debt on 23-02-2015 and thereafter, Original Application (OA) No. 2629 of 2017 (Old OA No. 649/16), for which the Recovery Certificate was issued on 16.10.2017. In a recent judgment in Vashedo R. Bhojwani Vs. Abhuudaya Co-operative Bank Ltd. & Anr, the Hon'ble Supreme Court held that once the Recovery Certificate is issued, the period of limitation triggers from the issuance of Recovery Certificate. Therefore, it is vehemently stated that the present case is not time barred as the Recovery Certificate was issued in the year 2017 on the acknowledged debt and in the OA filed based on the actual debt due. The proceedings before the Recovery Officer are continuing.

As per section 6 of the code, we being the Financial Creditor of the company can initiate the CIRP. Since the amount that is due against the respondent stands at Rs. 52,21,54,637/-, the initiation of CIRP is well within the ambit of law. It is most relevant to state that a huge amount of public money is on stake since the Corporate Debtor is constantly running away from his liability of paying off the dues to the Financial Creditor.

Whereas, the date of default is 29-04-2012 and the NPA date is 30-09-2014. It is most pertinent to mention here that the cause of action is continuing in nature and hence, the Application cannot be time barred.

We heard the submissions of both parties and perused the pleadings on record, including the Written Submissions filed by both parties. The Respondent in its defence has mainly contended that a) the present petition is barred by limitation; (b) the petition does not disclose the correct date of default as at Page 12, the date of default is 29.04.2012, whereas at page 39, the date of default is 01.07.2014 and NPA date is 30.09.2014; (c) there is no specific authorisation to file the present petition as the Power of Attorney attached with the petition is dated 01.03.2001; and (d) the Applicant Bank has not taken consent of the other members of the Consortium. The present petition could not have been filed without the consent of the majority Creditors.

Per Contra, the Applicant has annexed various documents to prove the existence of debt and default as mentioned in Para 6 of this order. During the hearing, the Ld. Counsel for the Applicant referred to the Applicant Bank’s Credit sanction letters, notice under Section 13(2) SARFAESI dated 14.11.2014, Acknowledgment of Debt by the Respondent dated 23.02.2015; and Recovery Certificate issued by the DRT-III, Chandigarh in OA No. 2629 of 2017.

At the outset, we would like to examine the respondent’s first contention that the present Application is barred limitation. As we have noted above, in Part IV of the Application, the Applicant has relied on 29.04.2012 as the “date of default”. The Applicant has also stated that thereafter, the loan was restructured on 27.09.2012. Further, on account of default, the Account of the Respondent Company was classified as NPA on 30.09.2014, and thereafter, on 14.11.2014, the Applicant Bank issued the notice under Section 13(2) of SARFAESI Act, calling upon the respondent and other obligors to pay the defaulted amount.

During the arguments, the Applicant also referred to the Acknowledgment of Debt by the Respondent dated 23.02.2015 for the specific purpose of limitation. The same is reproduced below for the sake of immediate reference:

Further, during the course of arguments, the Applicant also referred to the “Recovery Certificate” dated 24.10.2017 issued by the DRT-III, Chandigarh vide order dated 16.10.2017 in OA No. 2629 of 2017 (page 04-15 of Compliance Affidavit dated 15.04.2024). The relevant extracts of the said Recovery Certificate No. 2265 of 2017 (which was taken on record vide order dated 16.04.2024) are reproduced below for an immediate reference:

On perusal of the aforesaid documents and pleadings, we find that the present application filed by the Applicant Bank is well within the limitation period in the following manner:

In view of the aforesaid discussion, we find that the present application filed by the Applicant Bank is well within the limitation period and maintainable.

Now, we examine the second contention of the Respondent that the Application does not disclose the correct date of default as on Page 12, the date of default is 29.04.2012, whereas on page 39, the date of default is 01.07.2014 and date of NPA is 30.09.2014. As we have noted above in para 5, in Part IV of the Application, though the Applicant has clearly relied on 29.04.2012 as the “date of default”, we are aware that in terms of the recent judgement dated 25.04.2024 of Hon’ble NCLAT’s in Company Appeal (AT) (Ins) No. 1589 of 2023 Milind Kashiram Jadhav vs State Bank of India & Anr., the date of NPA classification too can be taken as the valid "Date of Default" for initiating insolvency proceedings. The conclusions of judgement of Hon’ble NCLAT (Supra) reads thus:

Thus, in terms of the judgement (supra), the date of NPA classification serves as the valid "Date of Default" for initiating insolvency proceedings, and therefore, the Respondent’s contention that the petition itself does not disclose the correct date of default stands negated.

Now, we would like to examine the respondent’s third contention that the Petition is not maintainable because it has not been filed by the duly authorised person i.e. there is no specific authorisation to file the present petition as the Power of Attorney attached with the petition is dated 01.03.2001. In this backdrop, we refer to the document placed by the Applicant Bank i.e. “Power of Attorney” dated 01.03.2001, which reads thus:

Further, the Applicant Bank has also placed on record the Circular Resolution dated 12.12.2017, which reads as follows:

Thus, on perusal of the Power of Attorney read with the Circular Resolution dated 12.12.2017 of the Applicant Bank, this Bench finds no merit in the contention raised by the respondent in this regard.

The fourth objection raised by the Respondent is that the Bank has not taken consent of the other members of the Consortium, and therefore, the present petition could not have been filed without the consent of the majority Creditors in the Consortium. Whereas the Applicant Bank has argued that as per the code, a Financial Creditor can initiate the CIRP against a Corporate Debtor/Respondent, which has defaulted in paying a debt that has become due and payable but not repaid. Here, we refer to Section 7 (1) of the IBC, 2016 which reads as follows:

(Emphasis placed)

In this context, we refer to the judgment in Ferro Alloys Corporation Ltd. V. Rural Electrification Corporation Ltd. Company Appeal (AT) (Insolvency) No. 92 of 2017, in which the Hon’ble NCLAT has held that Consortium of Banks have no role to play at the time of the admission of the application under Section 7 of the Code. The relevant para of the judgement reads thus:

(Emphasis placed)

Thus, from a bare perusal of the provision under Section 7 of IBC, 2016 read with the judgement (supra) of Hon’ble NCLAT, it can be inferred that a Financial Creditor either by itself or jointly, with other financial creditors can file a Section 7 application. Moreover, admittedly the corporate debtor has offered one-time settlement to the Applicant Bank and also made a part-payment towards the OTS scheme (which failed as per the Applicant Bank), therefore, the Corporate Debtor is estopped by its own act and conduct to take this plea. Thus, we find no force in the contention of the Respondent that the Applicant Bank could not have filed the present petition without the consent of the other consortium members and hence, rejected.

Furthermore, from the pleadings and record of proceedings, we notice that the Respondent Company itself had proposed to the Applicant Bank for a one-time settlement of its dues. Even on the last date of hearing, the Ld. Counsel for the Respondent submitted that part-payment of Rs. 04 Crore approximately, as per the OTS has been paid to the Bank, however, the Bank maintained that OTS has failed. We are aware that an offer of OTS itself in terms of the judgment of the Hon’ble Supreme Court in “Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy and Anr.” is an acknowledgment of debt. The relevant para of the judgment (supra) dated 04.08.2021 reads thus:

(Emphasis placed)

Thus, in terms of the abovementioned discussion, we find that the petitioner Bank has been able to successfully establish the debt and default beyond doubt on the part of the Respondent in repayment of its financial debt.

In the sequel to the above and the given facts and circumstances, the present Application being complete and the Applicant having established the default on the part of the Respondent in payment of the Financial Debt for an amount being above the minimum threshold limit, the present Application is admitted in terms of Section 7(5) of the IBC and accordingly, the Moratorium is declared in terms of Section 14 of the Code. As a necessary consequence of the Moratorium in terms of Section 14(1) (a), (b), (c) & (d), the following prohibitions are imposed, which must be followed:

As proposed by the Applicant, this Bench appoints Mr. Ashish Agarwal as IRP having Registration No. IBBI/IPA-001/IP-P00688/2017-18/11165 Email ID: [email protected] subject to the condition that no disciplinary proceedings is pending against the IRP so named and disclosures as required under IBBI Regulations, 2016 are made by him within a period of one week of this Order. This Adjudicating Authority further orders that:

Mr. Ashish Agarwal, as an IRP having Registration No. IBBI/IPA-001/IP-P00688/2017-18/11165, Email ID: [email protected] is directed to take charge of the CIRP of the Respondent with immediate effect. The IRP is further directed to take the steps as mandated under the IBC specifically under Sections 15, 17, 18, 20, and 21 of IBC, 2016.

The Applicant is directed to deposit Rs.5,00,000/- (Five Lakhs) only with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as to be duly accounted for by IRP and shall be paid back to the Applicant.

A copy of this Order shall immediately be communicated to the Applicant Bank, the Respondent Company, IBBI, the IRP named above by the Court Officer/Registry of this Tribunal.

Accordingly, the present petition stands admitted and disposed of accordingly.

Now, we deal with IA No. 846/2023. This application has been filed by the Applicant - JM Financial Asset Reconstruction Company Ltd Limited under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 praying to intervene in CP (IB) No.108/Chd/Pb/2019 and permit to assist the Tribunal. As in the instant case the rights of the Applicant being adversely impacted. Per contra, the Petitioner in CP (IB) No.108/Chd/Pb/2019 has opposed the application on the ground that the Applicant herein has no locus standi to file the present application, merely by submitting an offer of Rs. 4 Crore only against the outstanding payment of Rs. 52,21,54,637/- against the Corporate Debtor.

In this context, we refer to the judgment of the Hon’ble Principal Bench NCLT, New Delhi in Company Petition No. (IB)-264/(PB)/2023 Go Airlines (India) Limited, in which the issue of third party intervention has been discussed at length. The relevant para of the judgment (supra) reads thus:

(Emphasis added)

(Emphasis added)

In view of the aforesaid discussion, we find that the Applicant has no locus to intervene in the CP (IB) No.108/Chd/Pb/2019.

Accordingly, the IA No. 846/2023 is dismissed.