HDFC Bank Limited vs Madhuvan Tieup Pvt Ltd.

ORDER

“HDFC Bank Limited (for brevity, the “Applicant”/“Applicant Bank”) has filed the present petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity, the “IBC, 2016”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s Madhuvan Tieup Private Limited (for brevity, the “Respondent”).

2.

The Respondent namely, M/s Madhuvan Tieup Private Limited is a Company incorporated on 28.03.1996 with CIN U51909DL1996PTC264255 under the provisions of the Companies Act, 1956 having its registered office at House No. 28, Pocket-1, Paschim Purl, Delhi- 110063, which is within the jurisdiction of this Tribunal. The Authorized Share Capital of the Respondent Company is Rs.12,00,00,000/- and the Paid-up Share Capital of the Company is Rs.2,84,26,700/- as per Master Data.

3.

It is stated by the Applicant that the Respondent furnished requisite Board Resolutions dated 01.06.2017 and 12.05.2018 and on the request of Respondent, the Applicant Bank granted the following credit/loan facilities to Respondent vide Sanction Letters dated 31.05.2017 and 11.05.2018:

4.

The particulars of the unpaid financial debt claimed and the date of default are mentioned in Part IV of the application, which is reproduced below:

5.

Evidently, as per Part IV of the Application, the Applicant has claimed the debt of Rs. 80,78,16,596.11/- as of 19.12.2022, besides accrued interest since 20.12.2022. Further, the Applicant has relied on 27.12.2019 as the date on which the default occurred and the account of CD became NPA.

6.

The Applicant has relied upon the following documents to prove the existence of financial debt –

i)

Copy of the duly Audited Balance Sheet of the Corporate Debtor for the year ending on 31.03.2018;

ii) Copy of the notice dated 28.07.2020 issued under Section 13(2) Of the SARFAESI Act, 2002 along with the Reply given by Mr. Gurmeet Singh Matharoo and the response of Applicant Bank and Postal Receipts;

iii) Copy of Loan Recall cum Demand Notice dated 01.08.2020 along with postal receipts and tracking report; and

iv) Copy of Board Resolution in favour of Mr. Anirudh Bhargav.

7.

Based on the aforesaid facts and documents, the Applicant has prayed for the initiation of CIRP against the Respondent.

8.

On issuance of the notice, the Respondent filed its reply stating that –

8.1

The present application has been filed for the purpose of recovery and not for seeking a Resolution of the Corporate Debtor/Respondent. The Applicant Bank has already initiated action under SARFAESI proceedings which are under challenge before DRT, which has ordered status quo in respect of the properties of the borrower.

8.2

There is no record of Information Utility annexed and therefore, the application is barred by Section 215 of IBC, 2016.

8.3

The present application is barred by Section 10A of IBC, 2016 and the date of default relied upon by the Applicant is erroneous.

8.4

The Applicant Bank has clubbed more than one loan account, which is not permissible. 9. We heard the submissions of both sides and perused the documents placed on record including the written submissions filed by the parties. The respondent has raised certain objections opposing the present Application.

10.

It is contended by the respondent that the present application has been filed for the purpose of recovery and not for seeking resolution of the respondent. It is further stated that the Applicant Bank had also initiated the SARFAESI proceedings against the respondent attempting to sell its properties. It is stated that the sale notice dated 26.12.2022 was stayed by the Hon’ble Debt Recovery Tribunal vide its order dated 12.04.2023, the relevant extracts of which reads thus :

11.

Per contra, the Applicant Bank has contended in its written submissions that the properties of the respondent/Corporate Debtor were not mortgaged and were not the subject matter of the SARFAESI proceedings. The properties, which are the subject matter of the SARFAESI proceedings, are of the Corporate Guarantors namely, Bezel Motors Pvt. Ltd., Morning Maidens Pvt. Ltd and Mountain Meadows Holidays Pvt. Ltd.

12.

In view of the clarification (ibid) given by the Applicant Bank, it becomes clear that the properties of the respondent/Corporate Debtor are not the subject matter of the SARFAESI proceedings, whose sale notice has been stayed by DRT. In our view, even otherwise, there is no bar on the Applicant Bank to initiate action under IBC, 2016 besides invoking SARFAESI proceedings. Hence, we do not find any merit in this objection of the Respondent.

13.

The next objection taken by the Respondent is that there is no record of Information Utility filed with the present application, which is mandatory as per Section 215 (2) of IBC, 2016. In response to the aforesaid contention, it is stated by the Applicant Bank in its written submissions that debt and default have not been denied by the Applicant.

14.

At this juncture, we refer to the judgment of the Hon’ble High Court of Calcutta passed in the matter of “Univalue Projects Pvt. Ltd. Versus The Union of India & Ors.” W. P. No. 5595 (W) of 2020, dated 18.08.2020, the relevant extracts of which reads thus –

“b)

I am of the view that financial creditors can rely on either of the modes of evidences at hand to showcase a financial debt, that is, either a record of default from the IU OR any other document as specified which showcases the existence of a financial debt. Such other documents may belong to any of the four classes of documents stated in sub-regulation 2(b) of Regulation 8 of the CIRP, 2016 or as the Supreme Court has observed in Swiss Ribbons (P) Ltd. (supra), all the eight classes of documents stated in Part-V to Form-1 appended with the AA Rules, 2016.

c)

Based on sub-paragraph (b) above, it may therefore be inferred that Section 215 of the IBC, 2016 is not mandatory in nature.”

Thus, in terms of the Judgment (supra), Section 215 of IBC 2016 is not mandatory in nature and therefore, we do not find any merit in the objection on this account raised by the respondent.

15.

The next objection taken by the Respondent is that the present application is barred under Section 10A of IBC, 2016. It is contended that the major chunk of default was committed by the Respondent from 25.03.2020 to 25.03.2021. Further, the date of default is also faulty. It is contended by the Respondent that the date of default has to be taken from the date when the debt actually became due and payable and not from the date of NPA.

16.

Per contra, the Applicant Bank has stated that it classified the account of the Respondent as NPA on 27.12.2019 and reckons this date as the date of default. In this regard, it has relied on the judgment of the Hon’ble Supreme Court passed in the matter of “Laxmi Pat Surana vs. Union Bank of India and Others" [AIR 2021 SC 1707], wherein the following was held-

“37.

Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 of the Code.....”

17.

In terms of the aforesaid Judgment (supra), we do not find any illegality in the Applicant Bank relying on the date of NPA i.e., 27.12.2019 as the date of default. Further, since this date of default is not falling within the Section 10A period, therefore, we are unable to accept the plea of the respondent that the application is barred by Section 10A of IBC 2016.

18.

The Respondent has raised another objection that the present application is not maintainable since it has clubbed three different term loans and the same cannot be adjudicated under Section 7 Application. In support of its submission, it has relied on the Judgment of Hon’ble NCLAT passed in the matter of “International Road Dynamics South Asia Pvt. Ltd. vs. Reliance Infrastructure Limited”; Comp (At) (Ins) 72/ 2017, the relevant contents of which reads thus:

"10.

We are of the view that different claim(s) arising out of different agreements or work Order; having different dates of default, cannot be clubbed together for alleged default of debt, the cause of action is being separate. For the said reasons, we hold that the joint application preferred by appellant under Section 9 is defective, as distinct from incomplete; and, was not maintainable.”

19.

Evidently, the above-referred Judgment is not applicable to the facts of the present case as those observations were made in the context of the different claim(s) arising out of different agreements, being the subject matter of Section 9 Application, whereas the present application has been filed under Section 7 of IBC, 2016.

20.

Accordingly, we find no tenable objections raised by the Respondent as to why the CIR Process shall not be initiated against it.

21.

In the given facts and circumstances, the present Application being complete and the Applicant/Financial Creditor having established the default on the part of the respondent in making payment of its 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:

“(a)

The institution of suits or continuation of pending suits or proceedings against the Respondent including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b)

Transferring, encumbering, alienating or disposing of by the Respondent any of its assets or any legal right or beneficial interest therein;

(c)

Any action to foreclose, recover or enforce any security interest created by the Respondent in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d)

The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Respondent.”

“29.11.2024: This order shall dispose of I.A No. 1090 of 2024 filed in CA (AT) (Ins) No. 895 of 2024 by which the Applicant/Appellant has requested for recalling of the order dated 25.01.2024 by which the aforesaid appal was dismissed.

2.

Shorn of unnecessary details, the present appeal has been filed against the order dated 05.07.2023 by which the application filed by HDFC Bank Limited under Section 7 of the Code has been admitted.

3.

The positive case set up in this appeal by the Appellant is that the Appellant is the NBFC, therefore, the application under Section 7 was not maintainable. In order to prove the same, he has attached a certificate of registration (annexure A3) issued on 11.02.2003 at Kolkata by the Department of Reserve Bank of India (RBI).

4.

However, the plea of the Appellant was not accepted by this Court on the ground that in an affidavit dated 22.01.2024, filed by AR of the HDFC Bank Limited it was contended that RBI has given information under the Right to Information Act, 2005 to the effect that:-

“Was the Company by the name of Madhuvan Tie up Pvt. Ltd. (CIN No. U51909DL1996PTC264255), registered as NonBanking Financial Company (NBFC) with the RBI on 11.02.2003? The RBI has answered this query in the following terms: “The NBFC- Madhuvan Tie up Pvt. Ltd. (CIN No. U51909DL1996PTC264255) is not registered with RBI as an NBFC. The list of NBFCs registered with RBI is available on the website and can be accessed using the linkhttps://rbi.org.in/Scripts/BS NBFCList.aspx.”

5.

The Respondent had also attached a list of almost thousand pages in which the name of the Appellant as NBFC was conspicuously absent. As a result thereof, the appeal was dismissed.

6.

In the present application, the appellant/applicant has averred that the certificate of registration as NBFC by the RBI was delivered pursuant to the order passed by the Hon’ble High Court of Delhi in Writ Petition No. 298 of 2024.

7.

Since, there was an issue as to whether the Appellant was the NBFC at the time when the application was filed under Section 7, therefore, an order was passed on 18.10.2024 to seek information from the RBI itself in this regard. The order dated 18.10.2024 is reproduced as under:-

“In this appeal, the Appellant has alleged that it is a Nonbanking financial company (NBFC), therefore, the application filed under Section 7 is not maintainable against it. The Respondent produced the information derived under the Right to Information Act,2005 from the RBI, New Delhi according to which the Appellant is not registered as NBFC by the RBI and on the basis of which the appeal filed by the Appellant was dismissed. The Appellant has now filed the application for recalling of the order dated 25.01.2024 by way of I.A. No. 1090 of 2024 and has submitted that pursuant to a writ petition filed by the Appellant before the Hon’ble Delhi High Court, the Reserve Bank of India, has handed over the certificate of the registration as NBFC of the Appellant dated 11.02.2003. However, it transpired in the hearing dated 19.09.2024 as to whether the certificate appended by the Appellant as Annexure A3 was ever cancelled by the RBI? Counsel for the Appellant has filed an affidavit dated 14.10.2024 of the appellant in which he has averred that the certificate of NBFC as Annexure A3 has never been cancelled by the RBI. Since the issue involved in the main appeal as to whether the Appellant is a NBFC to whom the certificate has been issued by the RBI or not and there are two set of evidence before us one filed by the Respondent, obtained under the RTI from the RBI, New Delhi in which he has been informed that the Appellant is not a NBFC and on the other hand, the Appellant has produced the certificate as Annexure A3 which is alleged to have been given to the Appellant during the proceeding before the Hon’ble Delhi High Court, therefore, in order to arrive at a just conclusion about the aforesaid fact as to whether the Appellant was NBFC at the time when the application was filed under Section 7, it would be just and expedient to seek the information from the RBI itself, therefore, the registry is directed to send copy of this order to RBI, New Delhi through its regional director, office at, 6, Sansad Marg, New Delhi, 110001. The Reserve Bank of India is also requested to provide a concreate information in this regard, by recruiting some concerned official, on the next date of hearing. Adjourned to 29th November, 2024.”

8.

Pursuant to the aforesaid order, Mr. Ramesh Babu has appeared alongwith the officials of the RBI. Mr. Ramesh Babu has submitted that after the order dated 25.01.2024 was passed, the person who had sought the information, namely, Bhim Sain Jain was duly informed that the RBI had issued the certificate to the Appellant in terms of Section 45-1A of RBI Act, 1934. The Text of the said order is also reproduced as under:-

9.

The Appellant has also attached with the application list of NBFC registered with the RBI as on 30.06.2024 dated 10.10.2024 in which the Appellant has been recorded as registered NBFC as serial no. 4697. The said entry is also reproduced as under:-

11.

Counsel for Respondent as well as Counsel appearing for RBI have conceded the aforesaid facts and admitted that the appellant is a NBFC.

12.

Thus, in view of the aforesaid facts and circumstances, the application is hereby allowed and the order dated 25.01.2024 is recalled, restoring the appeal no. 895 of 2023 to its original number alongwith interim order which was passed by this Tribunal on 18.07.2023 to the effect that impugned order shall remain stayed.

13.

Since, we have disposed of the application, therefore, the RBI which is not a party in the appeal is hereby discharged. List this appeal for hearing on 11th December, 2024.”

“6.

Today, during the course of hearing, Counsel for the Appellant has submitted that the order in the application under Section 7 was reserved on 13.06.2023. The Appellant filed an application after the order was reserved on 03.07.2023 for brining on record the certificate of NBFC issued by RBI, however, the Tribunal allowed the application under Section 7 on 05.07.2023 without taking into consideration the certificate issued by the RBI to the Appellant.

7.

Be that as it may, the fact remains that the issue as to whether the Appellant being a NBFC, as certified by the regulator, namely, RBI is saved from the proceedings of the Code? In this regard, Counsel for the appellant has submitted that no application under Section 7 can be filed against the CD. Thereafter, he has referred to various definitions in order to justify that the Appellant being a NBFC cannot be proceeded against in terms of Section 7 of the Code. In this regard, Counsel for the Respondent has submitted that Section 3(17) also provides that "financial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator which is of course the RBI in this case. It is further submitted that the appellant has to prove by leading evidence, if already not led, that whether it has, being authorised to act as NBFC, been engaged in the business of providing financial services.

8.

We have heard Counsel for the parties and perused the record with their able assistance.

9.

As a matter of fact, the issue regarding the appellant being NBFC and it’s effect has never been before the Ld. NCLT for the purpose of seeking dismissal of the application filed under Section 7 by the Respondent. There is no dispute that the appeal is a continuation of the original proceedings but since the Appellant has to prove, by leading evidence, if already not led, that it had been engaged in providing financial services, for challenging the application filed under Section 7, therefore, we find it just and expedient to set aside the impugned order and remand the matter back to the Ld. NCLT, keeping the issue open as to whether the application under Section 7 filed by the Respondent is maintainable against the present appellant in case the Appellant is a NBFC? 10. The parties shall appear before the Ld. NCLT on 28th March, 2025.

11.

It is needless to mention that the Ld. NCLT shall provide at least two opportunities to the parties to lead evidence, if any, if it is not on record to prove their case that the Appellant has been engaged in the business of providing financial services as contemplated under Section 3(16 & 17) of the code.

12.

With these observations, the present appeal is allowed and the impugned order is set aside. I.As, if any, are hereby closed.

13.

Before parting, we also observe that while allowing this appeal, we have not touched the merit of the case in any manner.”

“(16)

“financial service” includes any of the following services, namely: –

(a)

accepting of deposits;

(b)

safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so;

(c)

effecting contracts of insurance;

(d)

offering, managing or agreeing to manage assets consisting of financial products belonging to another person;

(e)

rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of––

(i)

buying, selling, or subscribing to, a financial product;

(ii)

availing a financial service; or

(iii)

exercising any right associated with financial product or financial service;

(f)

establishing or operating an investment scheme;

(g)

maintaining or transferring records of ownership of a financial product;

(h)

underwriting the issuance or subscription of a financial product; or

(i)

selling, providing, or issuing stored value or payment instruments or providing payment services;

(17)

“financial service provider” means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator;”

“(15)

“financial product” means securities, contracts of insurance, deposits, credit arrangements including loans and advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately, or any other instrument as may be prescribed;”

“29A. Persons not eligible to be resolution applicant. –

(c)

[at the time of submission of the resolution plan has an account,] or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) 3 [or the guidelines of a financial sector regulator issued under any other law for the time being in force,] and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to nonperforming asset accounts before submission of resolution plan:

[Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor.

Explanation I.- For the purposes of this proviso, the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 5 [or completion of such transactions as may be prescribed], prior to the insolvency commencement date.

Explanation II.— For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;]”

“(a)

The institution of suits or continuation of pending suits or proceedings against the Respondent including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b)

Transferring, encumbering, alienating or disposing of by the Respondent any of its assets or any legal right or beneficial interest therein;

(c)

Any action to foreclose, recover or enforce any security interest created by the Respondent in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d)

The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the Respondent.”

“Mr. Umesh Gupta, IRP (Registration No. IBBI/IPA-001/IP-P00848/2017-18/11431) shall take charge of the CIRP of the Corporate Debtor with immediate effect and would take steps as mandated under the IBC specifically under Section 15, 17, 18, 20 and 21 of IBC, 2016 read with extend provisions of IBBI (Insolvency Resolution of Corporate Persons) Regulations, 2016.”