IDBI Bank Limited vs Kanakadhara Ventures Private Limited

Orders pronounced vide separate orders. Petition is admitted.

PER: SHRI NARENDER KUMAR BHOLA MEMBER (TECHNICAL)

The present petition is filed by IDBI Bank Limited/ financial creditor alleging that the Corporate Debtor/ Kanakadhara Ventures Private limited has defaulted in its payments to the extent of Rs. 61,64,69,052.97 (Rupees Sixty One Crores Sixty Four Lakhs Sixty Nine Thousand Fifty Two and Ninety Seven Paisa only). Hence this petition is filed under Section 7 of Insolvency and Bankruptcy Code, 2016, read with Rule 4 of Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, seeking commencement of Corporate Insolvency Resolution Proceedings (CIRP) against the Corporate Debtor, granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.

The facts apropos to the Petition, in brief are:-

The Corporate Debtor is a private Limited Company which is engaged in the business of execution of turn-key projects.

The Corporate Debtor was granted various Loans under diverse loan and security agreements entered into and executed between Corporate Debtor and consortium of Banks comprising of Punjab National Bank (Lead Bank), Union Bank of India, bank of Baroda, Andhra Bank and IDBI Bank and the Corporate Debtor defaulted in its payments to the extent of Rs. 61,64,69,052.97.

The Corporate Debtor defaulted in payment of interest and the principal instalments of loans and further failed to clear the overdue amounts under the Loans to the Financial Creditor. Subsequently, the loans were classified as Non-Performing Asset (NPA) by the Financial Creditor on 30.12.2014 in the books of accounts of the Financial Creditor.

Pursuant to above, the Financial Creditor issued notice U/s 13 (2) of SARFAESI Act dated 29.05.2015 for which the Corporate Debtor failed to reply. Subsequently, original Application for Recovery of debts was filed jointly by the Financial Creditor along with Punjab National Bank, Andhra Bank and Bank of Baroda before Hon'ble Debts Recovery Tribunal, Hyderabad vide OA No. 978 of 2016 against the Corporate Debtor which is pending adjudication.

Union Bank of India and three other Banks of Consortium issued possession notice dated 16.01.2016 u/s 13 (4) of SARFAESI Act.

An amount of Rs. 61,64,69,052.97 remains unpaid as on 10.10.2018 to the Financial Creditor. It is the case of Financial Creditor that in spite of repeated requests Corporate Debtor failed to service the debt. Hence, this Petition.

Counter is filed by Corporate Debtor refuting the averments made in the Petition and contested as under:-

The Corporate Debtor has at the outset did not deny the averments made by the petitioner/ financial creditor. However, the corporate debtor has attributed such default to difficulties arising out in execution of projects on account of delays due to non-receipt of payments from its clients.

The Consortium of Banks and the Corporate Debtor entered into “Security Agent Agreement” and it contains various terms and conditions to be followed by all Financial Creditors including IDBI/the petitioner herein.

Apart from Working Capital Consortium Agreement and Security Agency Agreement, the Financial Creditors as well as the Corporate Debtor executed a Memorandum of Entry for extension of Mortgage as a security to the working capital limits, a joint Deed of Hypothecation in favour of all the financial creditors, a Memorandum of confirmation of pari-pasu Agreement with all the Financial creditors including IDBI, a guarantee agreement etc. Further a general counter indemnity was executed between the Corporate Debtor and Punjab National Bank as Lead Bank. Since several documents were executed by the Consortium of Banks with the Corporate Debtor several issues were involved and they were to be dealt with considering the legal obligations.

It is stated that Union Bank of India and Punjab National Bank have filed two separate OAs bearing 2381/2017 and 978/2016 respectively before Hon’ble DRT without following the terms and conditions of various agreements. Out of 8 projects undertaken by Corporate Debtor, only 4 projects were completed and new that the pending projects could not be cleared due to non-payment of amounts from the client viz Uttar Pradesh Rajakiya Nirman Nigam Limited (UPRNNL) to the tune of Rs. 80 crores. Further the Financial Creditor at the instance of UPRNNL paid the bank guarantee amount and invoked the Bank Guarantee to the tune of Rs. 70 crores and Rs.80 crores of pending dues and interest thereon comes to an amount more than the total dues of all the banks including financial creditor.

It is stated that proposal for one time settlement (OTS) with all the banks including the Petitioner herein is under active consideration and that without considering the OTS, the Financial Creditor filed this petition.

It is the case of Corporate Debtor that all the banks including the Financial creditor advanced loan to the tune of Rs.188 crores out of which the Petitioner herein advanced loan of Rs. 35 crores for all the projects.

It is stated that this Tribunal does not have the jurisdiction to entertain this petition in view of the fact that the consortium agreement which is the main agreement with all the banks including the Financial Creditor herein was executed at Bangalore.

It is stated the efforts of the Corporate Debtor for infusion of private funds could not materialise due to demonetization. Further the assurances given by UPRNNL to return the invoked bank guarantee did not work out.

The Petitioner failed to file any supporting documents to substantiate its allegations made at page 19 of the Petition with regard to estimated realizable sale value of secured assets as per the valuations carried out during 2016 to 2018.

The alleged default pleaded by the Financial Creditor by referring to its notice dated 04.01.2019 is fabricated one as the show cause notice bearing No. IDBI/NMG-Hyd/199/Kanakadhara/2018-19 is dated 08.08.2019 purportedly served on the Corporate Debtor calling for the Corporate Debtor's submissions before the Banks Identification Committee in accordance with RBI Circular when the month of August 2019 has not yet approached.

The alleged default as stated by the Financial Creditor and the report of the review committee holding that the Corporate Debtor committed wilful default is not correct to invoke petition under Section 7 of IBC, 2016.

It is stated that an Arbitral award was passed on 10.03.2017 by Arbitrator appointed to resolve the dispute. Further proceedings under Ref. No. 548/ PM/ UPRNN/R.Nagar/BLR/2015 dated 24.02.2015 is pending recovery.

The Corporate Debtor denied the allegations of Financial Creditor that it committed wilful default. The Managing Director of the Corporate Debtor stated to have taken all efforts and participated in the meetings conducted by the banks and updated the progress at every level.

Rejoinder is filed by Financial Creditor reiterating the averments made in the Petition and countering the objections raised by the Corporate Debtor in its counter:

The OTS proposal submitted by the Corporate Debtor was on 23.03.2019 much after the Petition was filed in this Tribunal by Financial Creditor on 19.11.2018 and that the OTS proposal was onerous, arbitrary and unacceptable as the amount offered was very low.

Since the registered office of the Corporate Debtor is located at Hyderabad, the Financial Creditor has jurisdiction to file the Petition before this Tribunal.

It is stated that the multiple issues placed by the Corporate Debtor in their counter are remotely connected to the present proceedings. As such urged this Tribunal to admit the Petition.

We have heard the Counsel for Financial Creditor and Counsel for Corporate Debtor. The Learned Counsel for Financial Creditor would contend that the Financial creditor has filed voluminous documents to establish that various types of loans were sanctioned to the Corporate Debtor from time to time and further Financial Creditor is able to establish that the Corporate Debtor committed default of outstanding balance of Rs. 61,64,69,052.97. The Learned Counsel for Financial Creditor relied on the following documents:

The Learned Counsel contended that Financial Creditor and other creditors of Corporate Debtor jointly filed OA No. 978/2016 against Corporate Debtor before Debt Recovery Tribunal (DRT) and the said case is pending adjudication. However, it does not bar the Financial Creditor to initiate action against Corporate Debtor under Section 7 of Insolvency & Bankruptcy Code. The Learned Counsel contended that the accounts of Corporate Debtor was treated as Non-performing Asset with effect from 30.12.2014 and OA was filed on 21.07.2016 and as such present petition is within the period of limitation.

The Learned Counsel further contended that the objections raised by Corporate Debtor are not tenable. The Counsel contended that the main contention of Corporate Debtor that it is entitled to receive money from other agency which new is not at all a ground for not admitting the petition filed by Financial Creditor. The amount of Corporate Debtor if lying with any other entity is not relevant to the Petition. The Counsel contended that the Financial Creditor filed this Petition before this Tribunal on 19.11.2018 whereas the OTS proposal was submitted by the Corporate Debtor vide its letter dated 23.03.2019 to the Lead Bank only after receiving notice of the present petition. The OTS proposal stands rejected. The Counsel contended that the registered office of the Corporate Debtor is located in Hyderabad and therefore, this Tribunal has jurisdiction to entertain the present petition against the Corporate Debtor. Therefore, it is not correct to say this Tribunal has no jurisdiction to entertain the petition. The counsel contended that till date no investor came forward to which the Corporate Debtor was heavily relying upon. The Counsel contended that the Corporate Debtor has not raised any tenable objections and that petition is liable to be admitted since Petitioner is able to establish debt and default.

On the other hand, the Learned Counsel for Corporate Debtor would contend that the Corporate Debtor is yet to receive an amount of Rs. 80 crores and also the amount covered by Bank Guarantee from Uttar Pradesh Rajakiya Nirman Nigam Limited (UPRNNL). The Counsel contended that in any event if any order is passed, then Corporate Debtor will not be in a position to recover its lawful amount from other agency and thereby Corporate Debtor will be deprived of settling the claims of all the banks. OTS proposal with all the banks is under consideration. However, Financial Creditor hurriedly approached the Tribunal and filed the Petition. The Counsel contended that Corporate Debtor has not committed any act of insolvency. Thus, Counsel prayed the Petition to be rejected.

The Corporate Debtor has not raised any tenable objections with regard to the debt and default. The OTS proposal was rejected. Even assuming the Corporate Debtor is entitled to receive some money from other agency which is not by itself a ground to reject the Application. In a petition filed under Section 7 of the Code, the Adjudicating Authority to see whether there is a debt and if so whether it is defaulted. In this case, the Corporate Debtor did not raise serious objections with regard to debt due by it to the Financial Creditor. It is not the case of Corporate Debtor that there is no amount due to the Financial Creditor by it. The Corporate Debtor raised other grounds which are not relevant to decide the petition filed by Financial Creditor. The limited question for consideration is whether the Financial Creditor is able to establish the debt and further able to establish default. Mere pendency of petition before DRT is not a ground to reject the present petition. The provisions of the Code prevails over the provisions of any other enactment.

The Financial Creditor has filed voluminous documents along with petition consisting of five volumes. The Financial Creditor filed all the necessary documents along with petition to establish debt as well as default. The Financial Creditor suggested the name of Interim one Resolution Professional, who filed his consent in Form-2. The Petition is therefore liable to be admitted.

Hence, the Adjudicating Authority admits this Petition under Section 7 of IBC, 2016, declaring moratorium for the purposes referred to in Section 14 of the Code, with following directions:-

The Bench hereby prohibits 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 assets 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 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;

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

That 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.

That the order of moratorium shall have effect from 22.11.2019 till the completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under Sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, whichever is earlier.

That the public announcement of the initiation of Corporate Insolvency Resolution Process shall be made immediately as prescribed under section 13 of Insolvency and Bankruptcy Code, 2016.

That this Bench hereby appoints Shri B. Naga Bhushan, #R/o 1-1-380/38, Ashok Nagar Extension, Hyderabad, Telangana- 500020 having Registration No. IBBI/IPA-001/IP-P00032/2016-2017/10085 as Interim Resolution Professional to carry the functions as mentioned under the Insolvency & Bankruptcy Code.

Accordingly, this Petition is admitted.