LIC Housing Finance Ltd vs Ishwar Constructions Pvt. Ltd.

Per: - Kuldip Kumar Kareer, Member (Judicial)

This is an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called "Code") read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 filed by LIC Housing Finance Ltd. (hereinafter referred to as “Applicant” or "Financial Creditor") seeking initiation of Corporate Insolvency Resolution Process (CIRP) of M/s. Ishwar Constructions Ltd. (hereinafter referred to as "Corporate Debtor"). The Applicant states in Part IV of its application that the Corporate Debtor has committed a default of INR 76,94,08,589.50/- (Rupees Seventy-Six Crores, ninety – Four Lakhs, Eight Thousand, Five Hundred and Eighty-Nine, and Fifty paise only) in repayment of total outstanding debt, out of which the principal sum of loan in default is stated to be INR 52,42,49,980/-. The date of default, as stated in Part IV of the application, is 1^st November, 2020.

The Corporate Debtor which was incorporated on September 11, 1981, is engaged in the business of construction and development of properties in Pune.

On the request of the Corporate Debtor and certain other Co-borrowers, LIC HFL sanctioned Loan facility upto Rs. 95,00,00,000/-(Rs. Ninety-Five Crores Only) to an association of persons being River Residency Developers by way of sanction letter dated 18.09.2018 for the purposes of construction of residential project named “River Residency Phase IV) located at Gat No. 90 Mouje Chikli, Taluka Haveli, Pune 412114.

The Corporate Debtor and other co-borrowers accepted the sanction letter who are jointly and severally liable to repay the loan in accordance with the terms and conditions contained in the sanction letter dated 18.09.2018 and loan agreement dated 05.10.2018.

As a security for the loan amount disbursed by the Financial creditor, River Residency Developers comprising of the Corporate Debtor along with the other Co Borrowers executed an Indenture of Mortgage dated 25.10.2018 in favour of the Financial creditor and created a registered mortgage of certain secured assets.

The loan amount has also been secured by personal guarantees executed by Mr. Anand Navratan Jain, Mr. Ishwar Parmar, Mrs. Manjusha Parmar.

The loan availed by the Corporate Debtor is payable with interest at current rate 13.30% floating per annum linked to project LHPLR. The Corporate Debtor have also agreed to pay additional interest at 6.00% in case default is committed in the repayment as per terms of the loan agreement.

The Corporate Debtor has defaulted in repayment of loan on 01.11.2020 and is continues to be in default. The total outstanding amount as on 01.03.2023 is Rs. 76,94,08,589.50/- including interest. Hence the Petition.

The Corporate Debtor submits in the reply that around May 2010, an Association of Persons (AOP) by the name of “River Residency Developers” was formed for the construction of the Residential Project named “River Residency”.

The AOP River Residency Developers approached the Financial Creditor for availing a credit facility to the extent of Rs. 95 Crores.

The entire financial assistance advanced by the financial creditor was directly disbursed only in the bank account of the AOP. No money was ever transferred into the bank account of the Corporate Debtor.

It is submitted that that the Corporate Debtor was forced to sign on the standard form of Agreement prepared by the Financial Creditor as per the terms of the sanction letter. It is further submitted that there was no intention between the parties to establish any relationship of lender and a borrower and the Corporate Debtor was merely forced to sign on a standard form of Agreement without any scope of deviation. Therefore, there is no debt and default as per section 5(8) of the Insolvency and Bankruptcy Code, 2016. As the requirements of Section 5(8) of the Code are not met, the present petition is liable to be dismissed against the Corporate Debtor.

We have heard the Counsel for parties and gone through the record.

During the course of the arguments, the Counsel for the Petitioner has argued that in this case, the factum of existence of debt and its default by the Corporate Debtor has been established on record. In this regard, it has been pointed by the counsel for the petitioner that in the loan agreement dated 05.10.2018, the Corporate Debtor is a party as a co-borrower along with the M/s River Residency Developers and Trade Centre Developers and Builders Pvt. Ltd. According to the Counsel for the Petitioner the loan agreement was executed between M/s River Residency Developers, Ishwar Construction Pvt. Ltd. (‘the Corporate Debtor’) and Trade Centre Developers and Builders Pvt. Ltd. Counsel for the Petitioner, has further pointed out that the entity M/s River Residency Developers is described as Associations of Persons comprising of the Corporate Debtor i.e. Ishwar Construction Pvt. Ltd., Trade Centre Developers and Builders Pvt. Ltd. along with Darshana Parmar Jain, Anand Navratan Jain and Ishwar Parmar. The Counsel for the Petitioner has further contended that the Corporate Debtor was one of the entities which formed the AOP called Rivers Residency Developers. Therefore, it cannot be said that the loan was advanced to a different entity and not to the Corporate Debtor.

Counsel for the Petitioner has further pointed out that as per the terms and conditions of the agreement, interest was payable on monthly basis from the date of first disbursement and there was a moratorium of 30 months so far as the instalments of principal are concerned. According to the counsel for the petitioner, the Corporate Debtor committed default in payment interest from 01.02.2020, as is evident of statement of accounts Exhibit-H annexed with the petition. Therefore, it cannot be said that the present petition in barred under Section 10A of the Code.

On the other hand, the counsel for the Corporate Debtor has argued that the petition is barred under Section 10A of the Code. In this regard, the counsel for the corporate debtor has pointed out that in part IV of the petition, the petitioner has mentioned the date of default as 01.11.2020 which clearly falls within Section 10A period, and therefore, the petition is liable to be dismissed on this ground alone. Counsel for the Corporate Debtor has further argued that even otherwise no loan was advanced or disbursed to the Corporate Debtor and therefore, there cannot be any question of any liability on the corporate debtor as no loan is shown to have been advanced or disbursed to the Corporate Debtor. The Counsel for the Corporate Debtor has further submitted that loan, if any, was advanced and disbursed to River Residency Developers Pvt. Ltd. and not to the Corporate Debtor.

We have weighed the contentions raised by the counsel for the parties and have also carefully gone through the record

So far as the contention that no loan was advanced or disbursed to the Corporate Debtor is concerned, the same is not factually correct. It is evident from the sanction letter Exhibit-C dated 18.09.2018 that the Corporate Debtor is a co-borrower along with M/s Trade Centre Developers and Builders Pvt. Ltd. Even in the loan agreement dated 05.10.2018, the Corporate Debtor is a party along with M/s River Residency Developers and Trade Centre Developers and Builders Pvt. Ltd. So far as the entity M/s River Residency Developers is concerned, as stated above, the said entity is an Association of Persons (AOP) comprising of the Corporate Debtor i.e. Ishwar Construction Pvt. Ltd., Trade Centre Developers and Builders Pvt. Ltd. and the individual promoters namely Darshana Parmar Jain, Anand Navratan Jain and Ishwar Parmar. Therefore, it does not lie in the mouth of the Corporate Debtor that the loan in question was advanced and disbursed to some other entity and not to the Corporate Debtor. It is evident that the Corporate Debtor is a part and parcel of the said AOP. Apart from that, as is evident from the loan agreement, the Corporate Debtor is also recorded as a co-borrower along with the AOP and Trade Centre Developers Pvt. Ltd. Therefore, it cannot be said by any stretch of imagination that no loan was advanced or disbursed to the corporate debtor or that it was disbursed only to the AOP which cannot be said to be an entity alien to the Corporate Debtor as the latter very much forms part of the said entity.

As regards the objection raised by the counsel for the Corporate Debtor that the petition is barred under Section 10A of the Code, it is worth mentioning that no such plea has been raised in the reply filed on behalf of the corporate debtor. Even otherwise, as per the terms and conditions of the loan agreement dated 05.10.2018, the interest on the loan was repayable immediately after disbursement. However, there was a moratorium period of 30 months so far as the repayment of principal part of the loan is concerned. In this connection, reference can be made to Schedule-II annexed with the loan agreement which shows that the repayment of principal was to start from 01.04.2021. As regards the interest, as per clause 2.2.1 of the loan agreement dated 05.10.2018, the interest was payable from the date of first disbursement. In this connection, a further reference can be made to the statement of account Exhibit-H which shows that the corporate debtor started paying instalments of interest with effect from 01.10.2018 and continued to pay the same till 01.01.2020. It is further evident from the statement of account (Exhibit-H) that the first default in respect of interest took place only on 01.02.2020 and thereafter no payment on account of interest were made on behalf of the corporate debtor. Therefore, it is evident that the first default on account of interest took place on 01.02.2020 which is not covered by Section 10A of the Code.

As regards the principal is concerned, the repayment thereof was to start with effect from 01.04.2021, as per Schedule-II annexed with the petition. After the default in respect of the principal amount, the petitioner issued recall notice dated 16.09.2021 to all the three co-borrowers including the Corporate Debtor. It is clearly mentioned in the recall notice that principal amount was outstanding with effect from 01.05.2021 and due to non-payment, the account has been classified as NPA and, therefore, the entire outstanding loan along with the other relevant dues was being recalled.

From the above referred facts, it emerges that default in respect of interest part of the loan, in fact, took place on 01.02.2020. Though the date of default in the petition as well as the recall notice dated 16.09.2021 is mentioned as 01.11.2020, the same cannot be considered to be the correct date of default. In our considered view, the petitioner cannot be non-suited merely because he has mentioned a wrong date of default in the petition. Even otherwise the default in respect of interest part of the loan was not acted upon by the petitioner who issued the recall notice dated 16.09.2021 only when the default was committed in respect of the principal part of loan amount as well. Therefore, looking at the case any angle, the petition cannot be held to be barred under Section 10A of the Code as there is absolutely no evidence available on record that the default either on account interest or principal took place during the said period covered under section 10A of the Code.

No other pointed have been raised on behalf of the corporate debtor. Even otherwise, from the facts and circumstances of the present case as well as the documents placed on record, it stands proved on record that the corporate debtor availed loan and committed default in repayment thereof and further that the petition under Section 7 has been filed within the period of limitation.

As result of discussion, we find the present petition to be a fit case for admission under Section 7 of the Code. It is ordered accordingly in the following terms.

The petition bearing CP(IB)-336/MB/2023 filed by LIC HOUSING FINANCE LIMITED, the Financial Creditor, under Section 7 of the IBC, 2016 read with rule 4(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor M/s. Ishwar Construction Private Limited is hereby admitted;

Mr. Vijay Pitamber Lulla, an Insolvency Professional having registration No. IBBI/IPA-001/IP-N00323/2017-2018/10593, having his office at 201 Satchitanand Building, 2^nd floor, 12^th Road, Khar (West), Mumbai-400052 and having email id vijayplulla@rediffmail.com ; is hereby appointed as Interim Resolution Professional to carry out the functions as mentioned under IBC, the fee payable to IRP/RP shall comply with the IBBI Regulations/ Circulars/Directions issued in this regard. The IRP shall carry out functions as contemplated by Sections 15,17,18,19,20,21 of the IBC.

The Financial Creditor shall deposit a sum of INR 5,00,000/- (Rupees Five Lakhs only) with the IRP towards the initial CIRP costs by way of a Demand Draft drawn in favour of the Interim Resolution Professional appointed herein, immediately upon communication of this Order.

There shall be a moratorium under Section 14 of the IBC, in regard to the following:

a. 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;

b. Transferring, encumbering, alienating or disposing of by the Corporate Debtor 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 Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002;

d. The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.

Notwithstanding the above, during the period of moratorium: -

a. The supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period;

b. That the provisions of sub-section (1) of section 14 of the IBC shall not apply to such transactions as may be notified by the Central Government in consultation with any sectoral regulator;

The moratorium shall have effect from the date of this order till the completion of the CIRP or until this Tribunal approves the resolution plan under sub-section (1) of section 31 of the IBC or passes an order for liquidation of Corporate Debtor under section 33 of the IBC, as the case may be.

Public announcement of the CIRP shall be made immediately as specified under section 13 of the IBC read with regulation 6 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

During the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

The Registry is directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the IRP by Speed Post and email immediately, and in any case, not later than two days from the date of this Order.

A copy of this Order be sent to the Registrar of Companies, Maharashtra, Pune, for updating the Master Data of the Corporate Debtor.