Cosmos Co-Operative Bank Limited vs Shubhada Tool Industries Private Limited

[PER: K. R. SAJI KUMAR, MEMBER (JUDICIAL)]

This Company Petition No. C.P. (IB) 729/MB/2022 (Application) was filed on 09.02.2022 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (AAA Rules) by Cosmos Co-Operative Bank Limited, the Financial Creditor (FC), through Mr. Sanjay Rajaram Sawant, General Manager of the FC for initiating Corporate Insolvency Resolution Process (CIRP) in respect of Shubhada Tool Industries Private Limited, the Corporate Debtor (CD). 1.2 The total amount of default alleged is Rs.37,59,92,550.55/- (Thirty-Seven Crore Fifty-Nine Lakh Ninety-Two Thousand Five Hundred Fifty Rupees and Fifty-Five Paise) as on 04.02.2022 including further interest and the amount of Rs. 58,336/- as legal expenses. It is based on default in repayment of loans for Rs. 43,45,00,000/- sanctioned by the FC to the CD in the form of various credit facilities during the period of 09.06.2014 to 16.03.2017. 1.3 The date of default as mentioned in Part IV of the Application is 31.10.2017 i.e., the date on which the CD's Loan Accounts were classified as Non-Performing Asset (NPA) by the FC. Since the CD defaulted in payment of its outstanding dues, the FC prays that Corporate Insolvency Resolution Process (CIRP) may be initiated in respect of the CD under Section 7 of the IBC.

It is submitted that the FC is a Multi-State Banking Institution established and registered under the Multi-State Co-Operative Societies Act, 2002, while the CD is a private company, engaged in the business of manufacturing agricultural equipment, etc. For business purposes, the CD sought credit facilities from the FC pursuant to which the FC sanctioned the amount of Rs. 22,70,00,000/- as cash credit facility, term loans and Letter of Credit in favour of the CD vide Sanction Letter dated 09.06.2014. As per the said Sanction Letter, the rate of interest on the credit facility was 13% per annum and the additional interest of 1% was to be charged in the event of non-compliance or partial compliance. The CD executed several documents for securing the aforesaid credit facilities.

The FC placed the following documents on record:

It is submitted that the said Mortgaged Property was earlier mortgaged to the State Bank of India by M/s. Indo Unique Flame Limited. However, upon the latter's request, the State Bank of India gave its consent for mortgaging the aforesaid Mortgaged Property in favour of the FC by the CD vide Release Deed of the said Mortgaged Property dated 10.11.2014. The estimated market value and fair market value of the CD's Mortgaged Property and the machinery are Rs. 2,96,62,000/- and Rs. 10, 33,90,000/- respectively. This was based on the Valuation Reports dated 19.02.2016 and 01.03.2017 prepared by M/s N.A. Chandak & Associates and Mr. Rameshchandra J. Karwa respectively.

The FC further submitted that the CD passed the Board Resolution dated 28.02.2017 seeking credit facilities from the FC. Pursuant to this, the FC sanctioned Rs. 12,75,00,000/- in CD's favour vide Sanction Letter dated 16.03.2017 bearing Letter No- Central Region/52/2017-18.

However, the CD failed to repay the outstanding dues to the FC resulting the FC notifying CD's Loan Account as NPA on 31.10.2017.

It is further submitted that upon its failure and inability to repay the outstanding dues, the CD sought restructuring of its credit facilities from the FC through its Board Resolutions dated 22.03.2018; 05.03.2019; and 17.10.2019. This led to execution of the Restructuring Agreement dated 31.03.2018 between both the parties.

On account of CD's failure to repay the outstanding dues, the FC issued notice dated 03.12.2018 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for repayment of Rs. 24,29,86,072.69/- as on 30.11.2018 within 60 (Sixty) days from the receipt of the said notice. However, there was no response from the CD, pursuant to which the FC took physical possession of the said Mortgaged Property vide its Possession Notice dated 23.08.2019 under Section 8(1) of the SARFAESI Act. The FC placed copy of the Possession Notice dated 23.08.2019 along with the Panchnama dated 23.08.2019 and the Paper Publications dated 28.08.2019 in newspapers i.e., 'Indian Express' (English) and 'LokSatta' (Vernacular).

The default of the CD is continuing in nature and the present Application is filed within the limitation period in terms of the decision of the Hon'ble Supreme Court's in In Re: Cognizance for Extension of Limitation., [M.A. No. 21 of 2022 in M.A. No. 665 of 2021 in Suo Motu Writ Petition (C) No. 3 of 2020] for excluding the period from 15.03.2020 to 15.10.2021 for the purpose of calculating limitation. Since the above said amount remains to be unpaid and the CD failed to comply with its obligations towards the FC, the FC prays that CIRP may be initiated in respect of the CD.

The Service Affidavit dated 08.07.2022 and 22.08.2022 filed by the FC shows that the notices regarding date of hearing as well as service of the present application were delivered to the CD vide the FC's emails dated 09.02.2022; 05.07.2022; and 20.08.2022, as well as its written notice dated 23.06.2022. However, the CD failed to appear before this Adjudicatory Authority.

The Ld. Counsel for the FC submitted that the notice dated 23.06.2022 was sent to the registered office of the CD as per the records of the Ministry of Corporate Affairs but it was returned unserved with the remark "Address ok But no such person" as per the Postal Track Report. The FC hand-delivered the Section 7 Application and notice dated 05.08.2022 to the CD's Authorised Representative on 11.08.2022, which is evident from the CD's endorsement on the FC's notice dated 05.08.2022. However, despite personal service of the notice along with the emails issued by the FC on different occasions, the CD neither appeared before this Bench nor filed any reply or other document.

Since the CD remained unrepresented in spite of the above, it was set as ex-parte on 23.03.2023. Hence, we proceeded to deal with the matter based on the available material on record.

We have perused all the documents and pleadings and also heard the Ld. Counsel for the FC.

The only issues involved in the matter is (i) Whether the present Application is filed within the period of limitation; (ii) Whether there is existence of financial debt and default by the CD.

As regards issue (i), we find that despite several opportunities granted by this Bench to the CD to represent itself or file any affidavit in reply or other document for presenting its case on merits, the CD chose not to avail itself of the opportunities provided to it. As a result, the CD was set ex-parte on 23.03.2023, which is reflected in the daily orders dated 03.10.2023; 22.11.2023; 13.12.2023; and 30.01.2024. The date of default mentioned in Part IV of the Application is 31.10.2017, i.e., the date on which the FC classified the CD's Loan Account as NPA. However, we observe that the actual date of default should be taken as 31.07.2017, which is three months prior to the declaration of CD's account as NPA. In normal case, the Application ought to have been filed on or before 31.07.2020, i.e. within three years from the date of default. The present Application is actually filed on 09.02.2022. On the face of it, the said Application seems to be barred by limitation on account of the said Application being filed after expiry of three years from the date of default. However, upon perusal of documents and as submitted by the Ld. Counsel for the FC regarding the extension of limitation due to COVID-19 granted by the Hon'ble Apex Court, we find that the extended limitation period for filing the Application expired during the period between 15.03.2020 to 28.02.2022. Now, applying the law laid down by Hon'ble Supreme Court in In Re: Cognizance for Extension of Limitation (Supra), period from 15.03.2020 up to 28.02.2022 should be excluded. The last date for filing the Application being 31.07.2020, fell between 15.03.2020 and 28.02.2022. This Application was filed on 09.02.2022 and hence, is within the period of limitation as excluded by the Hon'ble Supreme Court.

Apropos the issue regarding existence of financial debt, upon perusal of the documents, we find that upon the CD's request, the FC had granted/sanctioned/enhanced various credit facilities from time to time. The CD availed of the credit facilities, but failed to repay the dues on time. Further, the FC also issued Section 13(2) notice under SARFAESI Act on 03.12.2018, thereby recalling and demanding outstanding dues of Rs. 24,29,86,072.69/- as on 30.11.2018. Pursuant to issuance of SARFAESI notice, the FC had taken physical possession of the said Mortgaged Property of the CD at Nagpur on 23.08.2019 and had even made newspaper publication on 28.08.2019. However, there was no response from the CD to the FC's SARFAESI notice or the possession notice. In fact, the Master Data of the CD shows the charge vide ID No. 10533818, which was created in FC's favour for Rs. 22,70,00,000/- on 11.11.2014. This matches with the Certificate of Registration of Charge dated 04.12.2014 issued by the RoC. This shows that there is no dispute over the nature of financial debt and default in repayment of the same by the CD. Hence, the issue No. (ii) is also decided in favour of the FC.

From the above, it is clear that financial debt amounting to more than Rs.1,00,00,000/- (One Crore Rupees) is due and payable by the CD to the FC herein and is not paid, and hence, the CD has defaulted in payment of debt within the definition of Section 5(8) of the IBC. Considering the facts and law as discussed above, this Bench is of the view that in such circumstances, it is imperative that CIRP is only to be initiated in respect of the CD.

The FC has thus successfully demonstrated and proved the debt and default in this case. Therefore, we are of the considered view that this Application is complete and satisfies all the necessary requirements for admission under Section 7 of the IBC.

The FC has proposed the name of Mr. Atul Rajwadkar, a registered Insolvency Professional having Registration Number- IBBI/IPA-001/IP-P00152/2017-18/10321 as the Interim Resolution Professional (IRP), to carry out the functions as mentioned under the IBC. The proposed IRP has provided his written consent in Form 2 as required under Rule 9(1) of the AAA Rules along with a copy of his Certificate of Registration and valid Authorisation for Assignment (AFA) which are placed on record.

In view of the above, this Application bearing C.P. (IB) No. 729/MB/2022 under Section 7 of the IBC, filed by Cosmos Co-Operative Bank Limited, the FC, for initiating CIRP in respect of Shubhada Tool Industries Private Limited, the CD is admitted.

We further declare moratorium u/s 14 of the IBC, with consequential directions as follows:

I. We prohibit-

II. That the supply of essential goods or services to the CD, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.

III. That 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 section 31(1) of the IBC or passes an order for the liquidation of the CD under section 33 thereof, as the case may be.

IV. That the public announcement of the CIRP shall be made in accordance with the provisions of the IBC, the Rules and Regulations made thereunder.

V. That this Bench hereby appoints Mr. Atul Rajwadkar, a registered Insolvency Professional having Registration Number- IBBI/IPA-001/IP-P00152/2017-18/10321 and e-mail- [email protected], having valid AFA up to 30.06.2025 as the Interim Resolution Professional (IRP) to carry out the functions under the IBC. The fee payable to IRP/RP shall be in accordance with the Regulations/Circulars issued by the IBBI.

VI. During the CIRP Period, the management of the CD shall vest in the IRP or, as the case may be, the RP in terms of Section 17 or Section 25, as the case may be, of the IBC. The officers and managers of the CD shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

VII. In exercise of the powers under Rule 11 of the NCLT Rules, we order the FC to deposit a sum of Rs.5,00,000/- (Five Lakh Rupees) with the IRP to meet the initial CIRP cost, if demanded by the IRP to fund initial expenses on issuing public notice and inviting claims, etc. The amount so deposited shall be interim finance and paid back to the FC on priority upon the funds available with IRP/RP. The expenses, incurred by IRP out of this fund, are subject to approval by the Committee of Creditors (CoC).

VIII. A copy of this Order be sent to the Registrar of Companies, Mumbai Maharashtra, for updating the Master Data of the CD.

IX. Registry is directed to immediately communicate this Order to the FC, the CD and the IRP by way of e-mail and WhatsApp.

X. The Registry is directed to communicate this order to the Insolvency and Bankruptcy Board of India forthwith for information and record.

XI. Compliance report of the order by Designated Registrar is to be submitted today.

Sd/- SANJIV DUTT MEMBER (TECHNICAL)

Sd/- K. R. SAJI KUMAR MEMBER (JUDICIAL)

Counsel for Applicant has tendered the copy of the order pointing out an error crept on page 1 of the order pronounced on 17.01.2024. He requests that the errors may be ordered to be rectified.

Having heard the Counsel for Applicant, we find it appropriate to order rectification of mistakes as under:

In the result, it is hereby ordered that the Order in C.P. (IB) No. 729/MB/2022 shall be read with the rectification as ordered above.

Sd/- SANJIV DUTT MEMBER (TECHNICAL) (AJ)

Sd/- K. R. SAJI KUMAR MEMBER (JUDICIAL)