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Judgment
[ Per: Bench ]
The instant Petition is filed by M/s. IDBI Bank Limited / Financial Creditor alleging that M/s. Speck Systems Limited /Corporate Debtor had defaulted an amount of Rs.112,39,08,447.15 (Rupees One Hundred Twelve crores Thirty Nine Lakhs Eight Thousand Four Hundred Forty Seven and paise fifteen only) inclusive of interest as on 01.09.2018 in respect of various facilities availed by the Corporate Debtor from time to time. The Date of Default is 31.03.2013. The Workings for Computation of amount and days of default is shown as Exhibit 'F' at page no.32 of the application. Hence, this petition is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), R/w Rule 4 of Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, seeking admission of the petition and initiation of Corporate Insolvency Resolution Process against the Corporate Debtor, M/s. Speck Systems Limited granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.
The averments of the petition filed by the Petitioner/Financial Creditor in brief are described hereunder:
It is averred that the Financial Creditor initially sanctioned an amount of Rs.15.00 crores to the Corporate Debtor, vide Sanction Letter dated 02.03.2007. Subsequently, at the request of the Corporate Debtor Additional Working Capital Facilities were sanctioned by revising the existing limits on various dates viz. 24.03.2008, 12.07.2008 and 23.12.2009.
When the Corporate Debtor failed to repay the amount due, it approached the Financial Creditor expressing its inability to repay the principal amount and other monies, and requested to restructure the debts due. The request of the Corporate Debtor was duly considered by the Financial Creditor and given certain reliefs and concessions under Corporate Debt Restructuring (CDR) Mechanism by way of re-schedulement of principal amount subject to certain terms and conditions and executed Master Restructuring Agreement on 29.06.2011 between the Corporate Debtor and all other lender banks. Inspite of the concessions and other reliefs granted by the Financial Creditor under CDR Mechansim, the Corporate Debtor failed to comply with the terms and conditions of reschedulement and the Financial Creditor revoked the reliefs and concessions sanctioned to the Corporate Debtor.
It is averred that the Financial Creditor issued a Demand Notice dated 28.08.2015 by demanding to pay the debt amount of Rs.65,55,12,628.15 as on 30.07.2015 to the Corporate Debtor, under Section 13(2) of the SARFEASI Act. A copy of the Notice is shown as Annexure-IV of the application. However, even on service of demand notice, the Respondent failed to repay the due amounts. But the Corporate Debtor has issued Balance Confirmation Letters dated 23.04.2014 and 30.04.2015 to Financial Creditor which are shown as Annexure-III of the application.
The averments of the Preliminary Counter filed by the Respondent /Corporate Debtor in brief are described hereunder:
It is averred that the present Company Petition is not maintainable on the ground that it is barred by limitation. The Financial Creditor alongwith other banks have advanced loans by way of various credit facilities and on account of default, the Loan Account of Corporate Debtor was classified as Non-Performing Asset (“NPA”) before the year 2015. The Petitioner has filed the present Company Petition in November, 2018, after three years of the declaration of account as NPA. As such, the present company petition is barred by limitation.
It is also averred that the Hon’ble Supreme Court and Hon’ble NCLAT on various occasions has held that any petition filed under Section 7 of IBC, 2016 after three years of NPA is not maintainable and barred by limitation. Therefore, on this ground alone, the present company petition is liable to be dismissed in the interest of justice. A copy of the letter dated 17.07.2015 issued by the Financial Creditor to the Corporate Debtor is shown as Annexure-1 of the counter.
It is also averred that the present petition is devoid of merits and is contrary to the provisions of the Insolvency & Bankruptcy Code, 2016 and hence not maintainable.
The averments of the Rejoinder dated 08.06.2021 filed by the Petitioner / Financial Creditor in brief are described hereunder:
It is averred that the Corporate Debtor is indebted to pay a sum of Rs.112,39,08,447.15 inclusive of interest upto 31.08.2018 in respect of various facilities availed by the Corporate Debtor from time to time. Inspite of giving various opportunities to the Corporate Debtor, the Corporate Debtor has failed to regularize its loan accounts. Consequent to which the loan account was classified as NPA as on 31.03.2013. It is also averred that the Corporate Debtor has acknowledged its liability by executing the Balance Confirmation Letters from time to time and lastly on 30.04.2015. In addition to this, the Corporate Debtor has acknowledged its liability towards the dues of the Financial Creditor including other lenders of the Corporate Debtor in its Financial Statements for the period from 01.04.2014 to 31.03.2019.
It is averred that the Hon'ble Supreme Court of India in Civil Appeal No.323 of 2021 in the matter of Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and another and other batch matters pronounced on 15.04.2021 has categorically held that the “acknowledgement of debt in the balance sheets/financial statements of the Corporate Debtor extends the period of limitation”. Thus, the present petition is well within the period of limitation since after execution of the last Balance Confirmation Letter dated 30.04.2015, the Corporate Debtor has itself acknowledged the debt to be paid to the Financial Creditor in its Annual Balance Sheets / Financial Statements for the period from 01.04.2014 to 31.03.2019.
It is averred that the Financial Creditor alongwith State Bank of India had filed O.A.No.1352/2017 (Old O.A.No.188/2016) before the Hon'ble Debt Recovery Tribunal-2, Hyderabad and the same is pending for adjudication. It is also averred that besides filing the said O.A., the Financial Creditor has filed the instant petition against the Corporate Debtor before this Adjudicating Authority on 09.11.2018.
The Financial Creditor had filed Memos on various dates viz. 15.04.2019 07.05.2019, 25.06.2019, 28.08.2019, 28.11.2019, 03.12.2019, 19.12.2019, 12.02.2020, 27.01.2020, 21.02.2020 indicating rejection of OTS proposals received from the Corporate Debtor and also adjournment of hearings for giving opportunities for submitting the suitable OTS proposals by the Corporate Debtor. The Corporate Debtor had also filed Memos on various dates viz. 14.08.2019, 19.12.2019, 06.01.2020, 27.01.2020, 04.08.2021 seeking time to pay the due amount and to adjourn the matter. The very act of approach by the Corporate Debtor to settle the dues under OTS also amounts to acknowledgement of debt.
It is also averred that the preliminary counter alleging the point of the limitation without denying its liability towards the Financial Creditor under this Rejoinder is frivolous and vexatious and the same is aimed to get of the proceedings by hook or crook and defeat the claim of the Financial Creditor.
It is averred that the present petition CP(IB) No.6/7/HDB/2019 filed on 09.11.2018 is well within the period of limitation and the petition filed by the Financial Creditor needs to be admitted and CIRP should be initiated against the Corporate Debtor since the Financial Creditor deals with the public money.
We have heard the Learned Counsel for Financial Creditor and the Learned Counsel for Corporate Debtor, and have also perused the record. In the instant case, the Corporate Debtor has not controverted the existence of 'Financial Debt' and 'default' but has raised the following grounds for rejection of the instant application:
That the Financial Creditor has not filed record of default alongwith the instant application from the Information Utility.
That the instant application has been filed without proper authorisation by the Board of the Financial Creditor.
That the Financial Creditor has not filed declaration form as mandated under Regulation 3(2) of the CIRP Regulations, 2016; and
That the instant application is barred by limitation and therefore cannot be acted upon by the Adjudicating Authority.
Ground No. i, ii and iii are technical in nature. The 1st ground that the Financial Creditor has not filed record of default with the Information Utility alongwith the instant application is not a good ground for rejecting the instant application in view of the Hon'ble Supreme Court's Judgement in Surendra Trading Company vs. J.K.Jute Mills 2017(16) SCC 143 and in Pioneer Urban Land and Infrastructure Limited vs. Union of India 2019(8) SCC 416. In the light of both these judgements, it is clear that no adverse consequences would follow if a Financial Creditor has furnished any other evidence of default other than record of default from an Information Utility, as the procedural provision under Section 7(3)(a) of the Code can only be construed as directory in nature.
As regards the ground of lack of proper authorisation by the Board of Financial Creditor, we have perused the authorisation document enclosed alongwith the instant application and the same appears to be in order.
The third technical ground taken by the Corporate Debtor is that the Financial Creditor has not filed declaration as mandatory under Regulation 3(2) of the CIRP Regulations, 2016 alongwith the application. Regulation 3(2) stipulates that a Resolution Professional shall make disclosures at the time of his appointment and thereafter in accordance with the Code of conduct. It is clear that such disclosures cannot be made before the appointment of the Resolution Professional. It is seen that the consent of the IRP has been filed alongwith the instant application in Form-2. It is sufficient for filing the application. Therefore, this ground also fails.
The main challenge made by the Corporate Debtor to the instant application is that the instant application was filed after three years of the default taking place and is, therefore, barred by limitation. The Corporate Debtor has relied on the Hon'ble Supreme Court Judgement in Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Private Limited 2020 15 SCC 1 wherein it was held that any application filed under section 7 of the Insolvency & Bankruptcy Code, 2016 after three years of declaration of NPA shall not be maintainable being barred by limitation. It is further stated by the Corporate Debtor that acknowledgement of debt in Balance Sheets by the company will not extend the limitation period.
On perusal of the record, it is seen that in the Annual Balance Sheets for the period from 01.04.2015 to 31.03.2016, 01.04.2016 to 31.03.2017, 01.04.2017 to 31.03.2018 and 01.04.2018 to 31.03.2019, Long Term Borrowings / Secured Loans are reflected and notes indicating that long term loans outstanding and repayable on demand include loans from IDBI, SBI and ICICI Bank are incorporated which indicates acknowledgement of debt by the Corporate Debtor. Hon'ble Supreme Court in their judgement in the matter of Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and another in Civil Appeal No.323 of 2021 held that entries made in the Corporate Debtor's Balance Sheets amount to acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act. More recently, Hon'ble Supreme Court have in their judgement dated 04.08.2021 in the case of DENA BANK (NOW BANK OF BARODA) Vs. C. SHIVKUMAR REDDY & ANOTHER, in Civil Appeal No.1650 of 2020 held as under:
"141.Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act. In Gaurav Hargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court had no occasion to consider any proposal for One Time Settlement. Be that as it may, the Balance Sheets and Financial Statements of the Corporate Debtor for 2016-2017, as observed above, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the Appellant Bank in May 2017. The NCLT rightly admitted the application by its order dated 21st March 2019.
142.To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgment of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years."
In view of the categorical judgements of Hon'ble Supreme Court supra laying down the Law as above on the issue of acknowledgement of debt and extension of period of limitation, the ground of limitation taken by the Corporate Debtor also fails.
From the record it is seen that the Corporate Debtor during the instant proceedings has averred on various occasions that it is trying to settle the financial debt with the Financial Creditor and proposal for One Time Settlement (OTS) is pending with the Financial Creditor. From the written submissions filed both by the Financial Creditor and the Corporate Debtor, it appears that the latest proposal made by the Corporate Debtor on 04.03.2021 to seek for OTS has been rejected by the Financial Creditor vide their reply on 06.03.2021. Subsequently, the Corporate Debtor has issued another letter revising its earlier proposal. However, the same has not been accepted by the Financial Creditor.
During the instant proceedings, the Corporate Debtor had filed an application IA 510/2019 dated 24.06.2019 seeking six weeks' time for settlement of debt with the Financial Creditor. The said IA has now becomes infructuous as more than two years have elapsed thereafter while hearing on the CP was going on and therefore this IA does not require adjudication at this stage and is disposed of accordingly.
In view of the facts as discussed above, we are of the view that the Financial Creditor has placed before us adequate evidence to establish the debt and default on the part of the Corporate Debtor. We also observed that the application is filed within the extended period of limitation based on acknowledgement of debt by the Corporate Debtor in the form of Balance Confirmation letters dated 23.04.2014 and 30.04.2015 as well as their Annual Balance Sheets for the period from 01.04.2014 to 31.03.2019 as well as various Memos filed by the Corporate Debtor during the instant proceedings seeking time to settle the debt through OTS proposals being submitted to the Financial Creditor. This Adjudicating Authority is, therefore, inclined to admit the instant application filed under Section 7 of the IBC, 2016.
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 the 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;
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, concessions, clearances or a similar grant or right during the moratorium period.
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 the date of this Order 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 Financial Creditor proposed the name of Mr. Raghu Babu Guntur as Interim Resolution Professional and he has given his consent in Form-2 and as per IBBI website, his Authorisation for Assignment (AFA) is valid upto 13.12.2021. Accordingly, this Adjudicating Authority appoints Mr. Raghu Babu Guntur as Interim Resolution Professional, having Registration No. IBBI/IPA-002/IP-N00025/2016-2017/10053, email id: raghu@ezresolve.in, as Interim Resolution Professional to carry out the functions as mentioned under the Insolvency & Bankruptcy Code, 2016.
The Petitioner is directed to deposit a sum of Rs.2,00,000/- (Rupees Two Lakhs Only) with the Interim Resolution Professional within three days from the date of this Order to meet out the expenses and his fee to perform the functions assigned to him in accordance with regulation 6 of IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The initial expenditure incurred by IRP shall, however, be subject to the approval by the Committee of Creditors, in its first meeting.
That the Public announcement of Corporate Insolvency Resolution Process shall be made immediately as specified under section 13 of the code.
Registry to send a copy of this order to the Registrar of Companies, Hyderabad for appropriately changing the status of Corporate Debtor herein on the MCA-21 site of Ministry of Corporate Affairs.
The CP(IB) No.6/7/HDB/2019 and IA 510/2019 stand disposed of accordingly.