IDBI Bank Ltd. vs M/s. Cheema Papers Limited

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

As both the IA No. 1286/2024 and CP (IB) 131/CHD/CHD/2023 are interlinked, we decide them through this common order.

The present IA has been filed by the Applicant-M/s Cheema Papers Limited (Respondent in CP (IB) 131/CHD/CHD/2023) under Rule 11 of NCLT Section 7(1) of the Insolvency and Bankruptcy Code, 2016, praying to keep the proceedings in CP (IB) 131/CHD/CHD/2023 in abeyance and defer adjudication of the petition in view of the pending talks of settlement as also in view of letter dated 17.05.2023.

Per contra, the Respondent herein IDBI Bank Limited (Financial Creditor in CP (IB) 131/CHD/CHD/2023) has submitted that there was no OTS proposal of the Corporate Guarantor Cheema Papers Limited pending with them. IDBI Bank Limited has filed a Compliance Affidavit dated 05.06.2024 pursuant to the orders of this Adjudicating authority dated 27.05.2024, which reads thus:

Thus, by filing the aforesaid affidavit, the Respondent/Financial Creditor has stated, in no uncertain terms, that no OTS proposal is pending consideration with IDBI Bank Limited pertaining to M/s Cheema Papers Ltd., which neither forwarded any valid OTS proposal nor deposited any demand drafts with IDBI Bank Ltd. as on 27.05.2024. In view of the above, this Bench finds the submissions and contention made by or on behalf of the Respondent regarding pendency of a valid OTS proposal purely a delay tactic and misleading.

In view of the above, we did not find any justification to keep the proceedings in CP (IB) 131/CHD/CHD/2023 in abeyance and defer adjudication further.

Hence, the present IA-1286/2024 is dismissed.

The present application has been filed by IDBI Bank Ltd. (for brevity, the “Applicant”) 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 M/s Cheema Papers Ltd. (for brevity, the “Corporate Guarantor”).

The Corporate Guarantor namely, M/s Cheema Papers Limited is a Company incorporated on 26.05.1988 under the provisions of the Companies Act, 1956 with CIN U21012UR1988PLC009679 having its registered office at 9 KM Stone, Bazpur Road, Kashipur, Uttarakhand – 244713, which is within the jurisdiction of this Tribunal. The Authorized Share Capital of the Corporate Guarantor Company is Rs. 7,32,13,750/-, and the Paid-up Share Capital is Rs. 7,03,20,000/-, as per the master data annexed with the application.

It is averred by the Applicant that the Corporate Debtor executed Foreign Currency Loan (FCL) Agreement in favour of the Applicant amounting to SF 10.64 million (Rs. 2630 Lakhs Approximately). To Secure the Foreign Currency Loan sanctioned by the Petitioner Financial Creditor in favour of the corporate debtor; one Mr. Hardyal Singh Cheema, Harbhajan Singh Cheema, Amarjit Singh Cheema, Pratap Singh Cheema (personal guarantors) and M/s Cheema Paper Boards Private Limited (Later rechristened as M/s. Cheema Papers Limited (the corporate Guarantor herein) and M/s. Cheema Paper Mills Private Limited executed irrevocable an un-conditional Deed of Guarantee, to re-pay forthwith, on demand, without demur, any amount payable by the Borrower i.e. Corporate Debtor under the Loan Agreement.

Later, the Corporate Debtor approached the Applicant for conversion of its Foreign Currency Loan into Single Currency Pool Facility to re-pay the loan in rupee equivalent of the sanctioned facility i.e. SF 10.64 million, which was duly accepted by the Applicant while executing an Amendatory Agreement dated 31.03.2000. Thereafter, the liabilities of the Corporate Debtor were restructured in the year 2002 and 2004 and certain reliefs & concession were granted.

The liabilities of the Corporate Debtor were further restructured in June, 2005, March 2006 and July 2006 envisaging re-scheduling of principal outstanding of Rupee Term Loan (RTL) and rupee tied Foreign Currency Loan, reduction in interest rate and conversion of existing Funded Interest Term Loan, deferred interest, and Non-Convertible Debentures into Cumulative Redeemable Preference Shares. The Corporate Debtor again approached the Applicant and other lenders for re-structuring of its liabilities under Corporate Debt Restructuring (CDR) in December, 2008 for comprehensive restructuring. In Dec 2010, CD was declared sick by BIFR and the Petitioner was declared as operating agency. In the meantime, on 18.03.2013, the corporate debtor approached the Applicant for settlement of dues by way of OTS which was approved. However, the company failed to pay the money and OTS was revoked. the Corporate Debtor submitted proposal with the Applicant Financial Creditor for restoration/ extension of OTS which was approved on 12.02.2015 and the LOA was issued on 12.02.2015. 9. The Corporate Debtor paid the initial amount as mentioned in LOA, however failed to pay the entire OTS amount. Hence, the restoration of OTS was revoked by Applicant vide its letter dated January 11, 2016 and the CDR-EG in its meeting held on 22.01.2016 approved the exit of the Applicant Financial Creditor from the CDR with immediate effect and original dues have been restored in the system of the Applicant Financial Creditor. It has been averred that due to default in payments, the Account of the Corporate Debtor could be classified as NPA on 31.12.2008.

Letter for recall of assistance was issued on 23.03.2017 and corrigendum was issued on 31.05.2017. Letter for invocation of guarantees was issued on 31.05.2017. Notice under Section 13(2) of SARFAESI Act was issued on 15.09.2017. The Respondent Corporate Guarantor has acknowledged the debt in its Audited Financial Statement/Balance Sheet for the F.Y. 2019-20 signed on 08.12.2020. Subsequently, the Petitioner filed an OA No. 1258/2021 (IDBI Bank vs Cheema Spintex Ltd., Cheema Papers Limited and others) before the Ld. Debt Recovery Tribunal-II, Chandigarh. As the said OA is having debt of more than Rs. 100 Crore, the DRT-II, Chandigarh transferred the same to DRT-II, Delhi, where the same is pending adjudication.

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

As per Part IV of the application (ibid), the Applicant has claimed an outstanding “financial debt” of Rs. 254,95,95,389.88 and relied on 31.05.2017 as the “date of default”. It has been added that the Account of the Corporate Debtor became NPA on account of default on 31.12.2008. It is further submitted Letter for recall of assistance was issued on 23.03.2017 and corrigendum was issued on 31.05.2017. Letter for invocation of guarantees was issued on 31.05.2017 calling upon the Corporate Guarantor to pay forthwith the amount due to IDBI Bank. However, the respondent Corporate Guarantor failed to make the payment.

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

Copy of Balance Sheets (page 499-521);

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

On issuance of notice, the Respondent filed its reply dated 14.05.2021 and Written Submissions dated 22.05.2024 stating mainly the following:

The present application filed by the Applicant is barred by limitation. The date of default could not be taken from the recall notice dated 23.03.2017 as the Corporate Debtor defaulted much prior to the year 2017.

There is no authorization in favour of the signatory of the present petition. Page 37 reflects certificate dated 21.03.2023, which is apparently not an authorization and commences with the word "certify". It allegedly certifies that Atul Deep Gupta, Deputy General Manager of IDBI Limited, is authorized to file the present application in terms of the delegation of powers dated 17.03.2020. The said alleged delegation is placed by applicant at page 39. At Sr.No.4, the power of DGM is to maintain applications with NCLT in case of individuals. The instant case does not pertain to individuals. Sr.No.1 pertains to authority for filing applications against Corporate Debtor which does not include DGM. Consequently, certificate dated 21.03.2023 at page 37, stating that signatory is authorized to maintain the present petition, is unsustainable.

No guarantee Agreement for the alleged debt and alleged default of the Corporate Debtor has been placed on record to the claimed extent.

The Applicant has claimed change of name from Cheema Paper Boards Private Limited to Cheema Papers Limited. There is no statutory document on record to substantiate this contention. There is nothing on record to reflect acquisition of alleged liabilities of the former in favour of latter.

No resolution has been appended along with the alleged deed of guarantee dated 23.07.1997. The said document is also incomplete.

During the arguments, Ld. counsel for the Corporate Guarantor contended that an OTS proposal is pending consideration with the Applicant IDBI Bank Ltd. and in this regard, relied upon letter dated 17.05.2024 written by IDBI Bank Ltd. to Corporate Guarantor.

In rebuttal, the Applicant filed a Rejoinder dated 19.04.2024 to the reply filed by the Corporate Guarantor and written submissions dated 24.04.2024 stating mainly the following:

The application has been filed u/s 7 of IBC, 2016 for a defaulted amount of Rs. 254,95,95,389.98 outstanding as on 01.03.2023 against Corporate Debtors/ Corporate Guarantors including the M/s Cheema Papers Ltd., who stood as corporate guarantor in the loan account of M/s Cheema Spintex Ltd., the Principal Borrower/Corporate Debtor.

The principal borrower could not maintain the account properly, thus the Applicant Financial Creditor issued Letter for Recall of Assistance dated 23.03.2017 giving 15 days’ time to the Principal Borrower M/s. Cheema Spintex Limited.

The main borrower had acknowledged the debt due to IDBI in Audited Financial Statements for FY2018-19 and FY2019-20 which are enclosed at Annexure 39 (Pg no.499-521) of the CIRP petition. Moreover, the corporate guarantor i.e. Cheema Papers Ltd. has acknowledged the guarantee given to principal borrower on page no 37 of its Audited Financial Statements as on March 31, 2023 which is enclosed at Annexure-42 of the Rejoinder. The limitation period is further extended by the OTS request letters dated 16.02.2023, 16.03.2023 and e-mail dated 14.12.2023 from the main borrower which is enclosed at Annexure A-40 (Pg no.522-529) in the Section 7 petition.

It is mentioned that the present corporate guarantor has duly signed the irrevocable guarantee agreement (Annexure-15 pg no. 205-218) in which it has been clearly stated (Pg no.210 para 22) that the guarantor affirms any balance confirmation or acknowledgment of debt by the main borrower shall be deemed to have been made by the present corporate guarantor (i.e. M/s Cheema Papers Ltd to M/s Cheema Spintex Ltd.) itself. Letter for invocation of guarantees was issued on 31.05.2017 calling upon the Corporate Guarantor to pay forthwith the amount due to the Applicant IDBI Bank.

The Debt is never disputed by the corporate guarantor in its reply. Rather it has taken frivolous grounds that the petitioner financial creditor had charged extra interest but did not ever dispute the fact that the amount defaulted is above the threshold limit u/s 4 of IBC, 2016. It is settled law that while admitting an application under Section 7 of the IBC, existence of Debt and Default needs to be examined. The Hon'ble Apex Court in the matter of M. Suresh Kumar Reddy Vs Canara Bank & Ors. held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section.

Lastly, in compliance to the order dated 27.05.2024 of this Tribunal, the Applicant IDBI Bank has filed an affidavit on 29.05.2024 confirming that there is no OTS proposal pending consideration with the IDBI Bank Limited as on 27.05.2024 pertaining to Cheema Papers Limited, as Cheema Papers Limited neither forwarded any valid OTS proposal nor deposited any demand draft with IDBI Bank Limited as on 27.05.2024.

We heard the submissions of both parties and perused the pleadings on record, including the Written Submissions filed by the Applicant. The Corporate Guarantor in its defence has mainly contended that (a) the present application filed by the Applicant is barred by limitation, (b) there is no proper authorization to file the Application, (c) no guarantee Agreement for the alleged debt and alleged default of the Corporate Debtor has been placed on record to the claimed extent, and (d) OTS proposal is pending consideration with IDBI Bank Ltd. Further, during the arguments, the Ld. Counsel on behalf of the Respondent took an additional plea that the Corporate Guarantor did not receive the Letter of Invocation of Guarantee dated 31.05.2017.

Per Contra, the Applicant has annexed various documents to prove the existence of debt and default as listed in Para 6 of this order, viz, Foreign Currency Loan Agreements, relevant sanction letters, Deeds of Guarantee (dated 09.08.1995, 23.07.1997, 18.07.2001), Loan Recall Notice dated 23.03.2017, Letter of Invocation of Guarantee dated 31.05.2017, Notice under Section 13(2) SARFAESI dated 15.09.2017; and Acknowledgement letters of debt towards IDBI Bank. The Applicant has averred that the present corporate guarantor has duly signed the irrevocable guarantee agreement, in which it has been clearly stated that the guarantor affirms any balance confirmation or acknowledgment of debt by the main borrower shall be deemed to have been made by the corporate guarantors including M/s Cheema Spintex Ltd. itself.

At the outset, we would like to examine Whether the present Application is filed within limitation period or not. We notice that, in the instant case, the Application was filed on 31.03.2023, whereas the date of default relied upon by the Applicant is 07.04.2017. We are conscious of the fact that date of default in the case of a Guarantor is counted from the date of Invocation of Guarantee, which in the present case is 31.05.2017. This implies that the application filed on 31.03.2023 is much beyond expiry of the limitation period of 03 years on 30.05.2020. However, we are cognizant of the fact that due to Covid-19, the Hon’ble Supreme Court extended the period of limitation vide its order dated 10.01.2022 in “Suo Motu Writ Petition (C) No. 3 of 2020”, the relevant extracts of which reads thus:

Further, the Hon’ble NCLAT in the Company Appeal (AT) (Insolvency) No. 936 of 2021 in the matter of “M/s. Essjay Ericsson Private Limited vs. M/s. Frontline (NCR) Business Solutions Pvt. Ltd” dated 10.01.2022, specifically held that:

In the normal circumstances, the limitation of the present Applicant would have expired on 30.05.2020, however, in view of the directions passed by Hon’ble Supreme Court (Supra), the Applicant has got the benefit of the extended limitation period, as per which it had 90 days from 01.03.2022 to file the present application. This takes us to 30.05.2022. Further, from the record, we find that the Respondent/Corporate Guarantor has itself acknowledged the debt in its Audited Financial Statement/Balance Sheet on record (page 130 of Rejoinder) for the period from 01.04.2022 to 31.03.2023 (F.Y. 2022-23), the relevant extract of which reads thus:

Thus, in nutshell, the position regarding limitation, which emerges is summarised below:

In terms of the aforesaid analysis, we find the present Application, being filed on 31.03.2023, well within the Limitation period.

Now, we would like to examine the contention of the respondent that there is no proper authorization to file the Application. In this context, we refer to “the Delegations of Powers & the Authority Letter” placed on record by the Applicant Bank, which reads thus:

The Applicant bank has also placed on record, the following Specific authorization letter on Page 193 in its Rejoinder:

Thus, on perusal of the documents (ibid), this Bench observes that the Application has been filed by the duly authorized person and there is no infirmity in this regard.

Now, we proceed to examine the next objection of the Respondent regarding no guarantee Agreement for the alleged debt and default of the Corporate Debtor placed on record to the claimed extent. In this context, we refer to the relevant excerpts of the “Irrevocable Guarantee Agreement (Annexure-15 pg no. 205-218)” placed on record by the Applicant Bank, which reads thus:

Thus, on perusal of the clause 22 of the Guarantee Agreement (ibid), this Bench observes that the Corporate Guarantor has duly signed an irrevocable guarantee agreement, in which it has been clearly stated that the guarantor affirm, confirm and declare that any balance confirmation and/or acknowledgment of debt by the main borrower shall be deemed to have been made/ or given by or on behalf of the Guarantors itself and shall accordingly be binding upon the Guarantors. Even otherwise, liability of the Corporate Guarantor M/s. Cheema Papers Ltd. is joint, several and co-extensive to the liability of Principal Borrower, which is already under CIRP. Thus, we find the contention raised by the Respondent in this regard devoid of merit.

The next contention of the Respondent made during the hearing that the OTS proposal is pending consideration with IDBI Bank Ltd., [though not pleaded by Respondent in its Reply to the present petition], has already been examined in this order while dealing with IA No. 1286/2024. From the affidavit filed by the Financial Creditor IDBI Bank, this Bench found that no valid OTS proposal of the Respondent/ Corporate Guarantor Cheema Papers Ltd is pending with them. Hence, we find the submission regarding pendency of a valid OTS proposal misleading and therefore, rejected.

Now, we examine the next contention that the Corporate Guarantor did not receive the Letter of Invocation of Guarantee dated 31.05.2017. In this regard, the Petitioner has pleaded that it had issued letter of Invocation of Guarantee dated 31.05.2017 to the Guarantors including the Respondent/ Corporate Guarantor of the Principal Borrower and called upon them to pay forthwith an amount aggregating to Rs. 97,79,71,717/- together with further interest thereon w.e.f. 01.03.2017. The Applicant has placed the “SARFAESI Notice dated 15.09.2017 on record, which reads thus:

Thus, we find that Copy of the Notice issued under SARFAESI Act by the Applicant Bank is marked to the Respondent/Corporate Guarantor herein.

Further, it has been pleaded by the Financial Creditor that it has filed an OA No. 1258/2021 (IDBI Bank vs Cheema Spintex Ltd., Cheema Papers Limited and others) before the DRT-II Chandigarh. As the said OA is having debt of more than Rs. 100 Crore, the DRT-II, Chandigarh transferred the same to DRT-III, Delhi, where the same is pending adjudication. Since, the Respondent-Cheema Paper Limited is a party to the OA pending in DRT-III Delhi, the last order in TA/522/2022 dated 04.06.2024 of DRT III New Delhi, available in public domain, reads thus:

Thus, on perusal of the document (ibid), this Bench observes that Respondent/ Corporate Guarantor (Defendant No.7 in the case) has been served through paper publication. Hence, the Corporate Guarantor is deemed to be served of the invocation of guarantee notice and cannot take plea of being unaware of that. Moreover, as detailed while dealing with the IA No. 1286/2024 and, also in next paragraph, when CD itself has offered OTS proposal to the Applicant Bank, it can be safely inferred that the Corporate Guarantor is well aware of and has acknowledged invocation of guarantee.

Furthermore, from the pleadings as well as, as argued by the Respondent during the hearing, the Respondent/ Corporate Guarantor, vide its letter dated 09.05.2024 addressed to the General Manager IDBI Bank Ltd. (annexed at page No. 8 of IA No. 1286/2024), had made an offer of OTS to the Applicant Bank (though incomplete as per the Affidavit filed by the Bank), which reads thus (quality of the copy annexed is poor but legible and also a true copy is placed on record):

Thus, this Bench finds that the Respondent Corporate Guarantor i.e., M/s Cheema Papers Limited itself had sent a letter on 09.05.2024 stating therein that they principally agree to the terms and conditions for the OTS-Scheme applicable to the Corporate Guarantor and give their consent for the said OTS; which, offer of OTS, 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 acknowledgments of debt. The relevant para of the judgment (supra) dated 04.08.2021 reads thus:

Thus, we find that the Respondent Corporate Guarantor has duly acknowledged the debt and default.

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

In the sequel to the above and the given facts & circumstances, the present Application being complete and the Applicant having established the default on the part of the Corporate Guarantor 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. Nipan Bansal as IRP having Registration No. IBBI/IPA-001/IP-P00039/2017-18/10100 Email ID: irp@parshotamandassociates.com 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:

Since, M/s. Cheema Spintex Ltd., the Principal Borrower has already been admitted into CIRP for the same debt vide order dated 17.05.2024 of this Adjudicating Authority, the RP would ensure that the total recovery from the CIR Process of the Principal Borrower and its Guarantors including M/s. Cheema Papers Ltd., Corporate Guarantor herein, shall not exceed the total amount of debt of the Principal Borrower/Guarantors for the debt due and payable.

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, Respondent/Corporate Guarantor, the Principal Borrower M/s. Cheema Spintex Ltd., IBBI, and the IRP named above by the Court Officer/Registry of this Tribunal.

The Application is admitted and disposed of accordingly.