LIC Housing Finance Limited vs Butta Infrastructure Private Ltd

Per: SHRI BHASKARA PANTULA MOHAN MEMBER (JUDICIAL)

The petitioner/ LIC HFL was incorporated on 19.06.1989. It has registered office at Mumbai and has its regional office at Bangalore, as described in the cause title.

The respondent/ Messrs Butta Infrastructure Pvt Ltd was incorporated on 24.01.2017. It has its registered office at Hyderabad, as described in the cause title.

The petitioner/ Financial Creditor is a financial institution involved in providing long term finance to persons engaged in the business of construction of houses/ flats for residential purpose and to be sold by them. The Financial Creditor is also involved in providing long term finance to individuals for purchase or construction of house or flat for residential purpose/ repair and renovation of existing flat/ houses and other purpose.

The present application is filed by the financial creditor/ LIC HFL against the Corporate Debtor/ Messrs Butta Infrastructure Pvt Ltd for the default occurred on 15.01.2019 in respect of (i) Loan Account No.411900013926 amounting to Rs.145,00,00,000 and (ii) Loan Account No.411900013927 amounting to Rs.165,00,00,000. The amount claimed to be in default as on 30.07.2020 including interest was Rs.364,54,26,112/- (Rupees three hundred and sixty four crores fifty four lacs twenty six thousand one hundred and twelve 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 admission of the petition, initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.

The respondent/ Corporate Debtor had approached the Financial Creditor vide applications (ANNEXURES-1A and 1B) seeking loans for the purpose of rental discounting, and the Financial Creditor had approved the following loans vide Credit Sanction Letters dated 26.03.2018 (ANNEXURES-2A and 2B) :

Loan Agreements were notarised on 28.03.2018 (ANNEXURES-3A and 3B), pursuant to which the Financial Creditor and the Corporate Debtor had mutually agreed to hold the securities and additional securities as detailed in para 7(i) and (ii) of the petition. The borrowers have offered to mortgage in favour of LIC HFL with respect to properties as described in Memorandum of Deposit of Title Deeds dated 20.04.2018 (ANNEXURES-4A and 4B).

Tripartite Agreements (ANNEXURE-16A and 16B) were entered into between the borrower, lessee/ licensee and the LIC HFL for deposit of rent/ licence fee/ charges or any kind of remittance from the lessee/ licensee in respect of property in favour of LIF HFL. Said Tripartite Agreement was notarised on 28.03.2018.

Escrow Agreement (ANNEXURE-15) was entered into and executed on 07.06.2018 and notarised on 28.03.2018, between:

The entire loan amount of Rs.310,00,00,000 was disbursed by the Financial Creditor / LIFHFL, to enable the Corporate Debtor to close the existing loan accounts of the Corporate Debtor with (a) Andhra Pradesh State Financial Corporation, and (b) Central Bank of India and a part of the loan amount was disbursed to the Corporate Debtor/ company. Disbursement schedule and names of beneficiaries of the loan proceeds are furnished in para 9 (page 15) of the petition.

Power of Attorney (ANNEXURE-6A and 6B) was executed by Messrs Butta Infrastructure Pvt Ltd and others (the borrowers) in favour of LIC HFL. It was notarised on 28.03.2018. By virtue of the said PoA, the borrowers have appointed the Financial Creditor as Attorney for the purpose of collecting/ receiving all the receivables every month from the lessee/ licensee till loan and all other interest, costs, expenses and other monies payable as per the loan agreement has been repaid in full by the respondent/ Corporate Debtor.

The borrower has paid dues upto 15.01.2019 and thereafter dues have not been paid. The Financial Creditor has issued Demand Notices dated 08.02.2019 (ANNEXURE-21A), 08.02.2019 (ANNEXURE-21B) and 08.11.2019 (ANNEXURE-22). Since the borrowers have failed to repay the dues the petitioner is left with no option other than approaching the Tribunal under section 7 of the I&B Code.

MEMORANDUM DATED 28.01.2021 FILED BY THE FINANCIAL CREDITOR SUBMITTING ADDITIONAL DOCUMENTS.

By way of the Memo the petitioner submitted that the Corporate Debtor had addressed communication dated 21.01.2021 (ANNEXURE-B to the Memo) to the Corporate Office of the Financial Creditor at Mumbai seeking assistance of the Financial Creditor in arriving at One Time Settlement (OTS). The said letter does neither specify any amount for OTS, nor any time frame within which it proposed to pay the amount. Besides the said letter dated 21.01.2021 ought to have been addressed to the Regional Office at Bangalore rather than Corporate Office of the Financial Creditor at Mumbai.

The Financial Creditor vide its letter dated 28.01.2021 (ANNEXURE 'C' to the Memo) has pointed out to the Corporate Debtor that its letter dated 21.01.2021 did not offer any firm commitment regarding amount and time frame within which the Corporate Debtor proposes to pay the amount under OTS. As such the proposal to settle the loan accounts is incomplete and inconclusive.

MEMORANDUM DATED 10.02.2021 FILED BY THE FINANCIAL CREDITOR SUBMITTING ADDITIONAL DOCUMENTS.

It is submitted that the Corporate Debtor has offered OTS proposal vide communication dated 01.02.2021 (ANNEXURE-A to this Memo), by which the Corporate Debtor has offered to pay Rs.110 crores to the Financial Creditor within two months from the date of acceptance, as against the existing default amount of Rs.364 crores as on 30.07.2020.

The said OTS amount has not been accepted by the Financial Creditor and the same has been communicated to the Corporate Debtor vide letter dated 06.02.2021 (ANNEXURE-B to this Memo).

It is submitted by the Corporate Debtor that the Corporate Debtor has sent representation dated 20.07.2020 (Page 95 of the Rejoinder of the FC). The said representation has been rejected by the FC vide letter dated 20.07.2020 (Page 97 of the Rejoinder of the FC). The Corporate Debtor has mortgaged as security high value properties which two times the value of the loan taken.

It is further submitted that the Corporate Debtor suffered huge loss on account of various reasons, viz. demonetisation, GST, etc. Overdues have accumulated due to mismatch of cash flows in Meridian Education Society. (para 4).

It is submitted that the Corporate Debtor had been paying its dues regularly and even according to the Financial Creditor the Corporate Debtor has paid EMIs upto January 2019, thereafter requested to waive off penal interest, etc. (para 5)

It is further submitted that COVID-19 pandemic inasmuch as the lessees and other business liabilities are not making any payment and business associates are incurring huge losses as the people. (para 9)

It is further submitted that the Union Government as well as State Government have issued notifications mandating social distancing and other COVID-19 protocol. The restrictions on travel, etc. have affected the business of the Corporate Debtor. It takes years to overcome such losses.

The Corporate Debtor submitted that dismissal of the Corporate Debtor's pleas simpliciter will be against the principles of natural justice.

It is submitted that the Corporate Debtor having availed the loan amount of R.310,00,00,000, failed to adhere the loan repayment schedule as per Clause 2.6 of the Loan Agreement and had committed several defaults. The Corporate Debtor was liable to pay monthly instalments to the Financial Creditor on or before 15th day of every month. However, the Corporate Debtor has paid its over-dues almost irregularly upto 15.01.2019. Thereafter the claim amount is in default and interest is getting accrued on the same with every passing day. Statement of Loan accounts in respect of Account No.411900013926 and Account No. No.411900013927, as on 10.12.2020 are at ANNEXURES A1 and A2 to this Rejoinder. Said Statement of Loan Accounts reveals that most of the payments made by the Corporate Debtor through cheques were dishonoured. Apart from cheques the Corporate Debtor made meagre amount of payments through Bank Transfer. Thus, it is clear that the Corporate Debtor had wilfully defaulted in paying its monthly instalments in order to defraud the Financial Creditor.

It is submitted that the events narrated by the Corporate Debtor as reasons for the liquidity crunch and hardships faced by it are irrelevant as such events occurred either much prior to the date of loan sanctioned/ disbursed or much later to the Corporate Debtor being declared as NPA by the Financial Creditor.

It is submitted that the Corporate Debtor claims to be a registered Private Limited Company under the Companies Act, 1956. However, as per the MCA Master Data (ANNEXURE-24, page 449 of the petition), it is a company registered on 24.01.2017, which means it is a company registered under Companies Act, 2013 and not under Companies Act, 1956. It is presently an Active non-compliant.

It is submitted that the loan amount of Rs.310,00,00,000 for rental discounting was sanctioned to the Corporate Debtor based on the following considerations:

It has become evident that the Corporate Debtor while availing the loan had knowingly concealed the information regarding waiver of lease amount for a period of 5 years until 31.03.2021 vide Board Resolution dated 05.04.2017. Lease Agreements have been cancelled by the Corporate Debtor without consent of the Financial Creditor vide Cancellation Deed dated 06.09.2019. Writ Petition No.5052 of 2020 and 5048 of 2020 were filed before the Hon'ble High Court of Telangana seeking injunction against possession notice issued by the Financial Creditor under SARFAESI Act, 2002. Copies of the said Writ Petitions are at ANNEXURES 'D' and 'E'.

The petitioner has dismissed as false the submissions made by the Corporate Debtor in para 5 regarding payment of dues regularly till January 2019. Such a statement is misrepresentation of facts. It is submitted that on one hand the Corporate Debtor has waived off the lease amount payable by the lessee without knowledge of the Financial Creditor and on other hand claiming non-receipt of rentals from the lessee. [para (e)]

The petitioner submitted that the Corporate Debtor has written three letters dated 16.03.2020, 16.05.2020 and 20.07.2020 requesting issuance of NOC for Kukatpally property, reduction of interest rate, rescheduling the instalments and waiver of penal interest. Each of those letters were replied by the Financial Creditor vide letters dated 17.03.2020, 20.05.2020 and 20.07.2020. The Financial Creditor agreed to issue in-principle NOC for sale of Meridian School subject to payment of Rs.35.08 crores to the Financial Creditor towards service of loan account before 29.07.2020. However, the said condition was never fulfilled by the Corporate Debtor.

The Financial Creditor had taken symbolic possession of all the properties mortgaged with the Financial Creditor vide Possession Notice dated 10.02.2020. However, Meridian Educational Society (lessee) had obtained interim stay against the said possession vide order dated 05.03.2020 passed in IAs by the Hon'ble High Court of Telangana (ANNEXURES G1 and G2).

The written arguments are almost reiteration of what has been stated in Counter dated 09.12.2020 by the Corporate Debtor. The points reiterated broadly are:

- (v) The Corporate Debtor has mortgaged properties of high value as security, which are two times the value of the loan. - (vi) COVID-19 pandemic is cited as major reason for liquidity crunch seriously affecting the business of the Corporate Debtor.

Finally it is submitted by the Corporate Debtor that dismissal of the pleas raised by the Corporate Debtor will be against the principles of natural justice.

We have heard the learned counsel for the Financial Creditor as well as the learned counsel for the Corporate Debtor through videoconference. The Corporate Debtor has filed Counter and Written Arguments. The Financial Creditor has filed Rejoinder to the Counter. Summary of Written Submissions on both the sides is stated supra. The present petition is filed against the Corporate Debtor under section 7 of the I&B Code to initiate CIRP.

The case of the Financial Creditor is that it had disbursed loan vide two loan accounts, viz. (i) Loan Account No.411900013926. Amount disbursed: Rs.145,00,00,000 and (ii) Loan Account No.411900013927. Amount disbursed: Rs.165,00,00,000. Disbursement Table is at ANNEXURE-10 (page 337). Total amount disbursed was Rs.310,00,00,000.

It is the case of the Financial Creditor that as on 30.07.2020 an amount of Rs.364,54,26,112/- is in default. Chart explaining the total debt payable by the Corporate Debtor is at ANNEXURE-14 (page 356).

We have examined the following documents:

- (a) Loan Agreements notarised on 28.03.2018 (ANNEXURES-3A and 3B), by which the Financial Creditor and the Corporate Debtor had mutually agreed to hold the securities and additional securities as detailed in para 7(i) and (ii) of the petition.

The borrowers have offered to mortgage in favour of LIC HFL with respect to properties as described in Memorandum of Deposit of Title Deeds dated 20.04.2018 (ANNEXURES-4A and 4B).

Tripartite Agreements (ANNEXURE-16A and 16B) were entered into between the borrower, lessee/ licensee and the LIC HFL for deposit of rent/ licence fee/ charges or any kind of remittance from the lessee/ licensee in respect of property in favour of LIF HFL.

Escrow Agreement (ANNEXURE-15) entered into and executed on 07.06.2018 and notarised on 28.03.2018, between:

- The FC/ LIC HFL (referred to as 'lender') FIRST PART and

- (a) CD. M/s Butta Infrastructure Pvt Ltd.,

- (f) M/s Butta Convention Services Pvt Ltd.,

- (g) M/s Meridian Edutech Solutions Pvt Ltd.,

- (h) Mr. Neelakanta Shiva and

- (i) Ms. Butta Renuka

- (jointly referred to as 'borrowers') SECOND PART, and

- Central Bank of India (the escrow agent) THIRD PART.

The entire loan amount of Rs.310,00,00,000 was disbursed by the FC/ LICHFL, to enable the Corporate Debtor to close the existing loan accounts of the Corporate Debtor with (a) Andhra Pradesh State Financial Corporation, and (b) Central Bank of India and a part of the loan amount was disbursed to the Corporate Debtor / company. Disbursement schedule and names of beneficiaries of the loan proceeds are furnished in para 9 (page 15) of the petition.

Power of Attorney (ANNEXURE-6A and 6B) was executed by Messrs Butta Infrastructure Pvt Ltd and others (the borrowers) in favour of LIC HFL. By virtue of the said PoA, the borrowers have appointed the FC as Attorney for the purpose of collecting/ receiving all the receivables every month from the lessee/ licensee till loan and all other interest, costs, expenses and other monies payable as per the loan agreement has been repaid in full by the respondent/ Corporate Debtor.

The aforesaid documents amply prove the loan amount disbursed by the FC to the Corporate Debtor and the liabilities of the Corporate Debtor towards the FC.

The borrower has paid dues upto 15.01.2019 and thereafter dues have not been paid. The FC has issued Demand Notices dated 08.02.2019 (ANNEXURE-21A), 08.02.2019 (ANNEXURE-21B) and 08.11.2019 (ANNEXURE-22). However, the borrower has failed to pay the dues.

The Corporate Debtor has sent representation dated 20.07.2020 (Page 95 of the Rejoinder of the FC). The said representation has been rejected by the FC vide letter dated 20.07.2020 (Page 97 of the Rejoinder of the FC).

The Corporate Debtor offered OTS proposal vide its letter dated 21.01.2021. However, the FC vide its letter dated 28.01.2021 (ANNEXURE 'C' to the Memo) has pointed out to the Corporate Debtor that its letter did not offer any firm commitment regarding amount and time frame within which the Corporate Debtor proposes to pay the amount under OTS. As such the proposal to settle the loan accounts is incomplete and inconclusive.

The Corporate Debtor has again offered OTS proposal vide communication dated 01.02.2021 (ANNEXURE-A to the Memo), offering to pay Rs.110 crores to the FC within two months from the date of acceptance, as against the existing default amount of Rs.364 crores as on 30.07.2020. Nevertheless the FC vide its letter dated 06.02.2021 (ANNEXURE-B to this Memo) has turned down the said offer.

We however, observe that the lessee, namely, Meridian Educational Society has preferred Writ Petitions No.5052 of 2020 and 5048 of 2020 along with IAs for interim directions before the Hon'ble Telangana High Court and the Hon'ble High Court has been pleased to stay the impugned Possession Notice until further orders.

We observe that the Corporate Debtor has not disputed the debt, although the Corporate Debtor has voiced difficulties in repayment of debt due to various reasons cited by it. All the above prove that there is no dispute with regard to the debt as well as default.

It is true that in an application filed under section 7 of the I&B Code, the Tribunal has to see whether debt and default exist. It is not in dispute that the Financial Creditor disbursed loans under two accounts and there is default. Other contentions raised by the learned counsel for the Corporate Debtor with regard to Demonetisation, GST, COVID-19, etc. cannot be entertained since the Financial Creditor is able to establish the debt and default. After going through the documents filed by the petitioner we are of the view that the petition is liable to be admitted against the Corporate Debtor. The petition is accordingly 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 the date of this order till 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 Krishna Komaravolu, having Registration No.IBBI/ IPA-002/ IP-N00562/ 2017-18/ 11699, as Interim Resolution Professional, whose contact details are: e-mail ID : [email protected] Mobile No. : 9010226641, 7337340177 Address : Komaravolu Krishna H.No.7-1-214, Flat No. 409 Vamsikrishna Apartments Dharam Karam Road, Ameerpet Hyderabad, West Marredpally, Telangana, 500016. as Interim Resolution Professional to carry out the functions as mentioned under the Insolvency & Bankruptcy Code.

Proposed IRP filed Form-2 issued by the Institute of Insolvency Professionals. Authorisation for Assignment is valid till 06.01.2022. This information is also available in IBBI Website. Thus, there is compliance of Regulation 7A of IBBI (Insolvency Professionals) Regulations, 2016, as amended. Therefore, the proposed IRP is fit to be appointed as IRP since the relevant provision is complied with.

Registry of this Tribunal is directed to send a copy of this order to the Registrar of Companies, Hyderabad for marking appropriate remarks against the Corporate Debtor on website of Ministry of Corporate Affairs as being under CIRP.

Accordingly, this Petition is admitted.