M/s. Indiabulls Housing Finance Limited vs M/s. Mantri Developers Private Limited

The Financial Creditor is one of India’s largest housing finance Company and provides housing finance, including home loans regulated by the Reserve Bank of India. The Corporate Debtor is a part of the Mantri Group of Companies engaged in the real-estate business in Bangalore.

It is stated that the Petitioner sanctioned an aggregate loan to the tune of Rs.579,20,00,290/- under the five loan agreements. The aggregate disbursed loan amount under all these agreements is Rs.574,20,00,290 (Rupees Five Hundred and Seventy-Four Crores Twenty Lakhs Two Hundred and Ninety Only) mentioned in Form-1 along with the date of default as per Form-1 is stated as 01.01.2022.

The details of each loan agreements are as follows:

Loan Account No. S000239539: The Applicant sanctioned a loan of Rs. 135 Crores to the Corporate Debtor on 29.08.2016 for construction and development of residential projects. The Applicant sanctioned the loan on the terms and conditions of the sanction letter dated 29.08.2016, and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. The Applicant & Corporate Debtor, accordingly, executed the Loan Agreement dated 16.09.2016 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed a sum of Rs. 130 Crores to the Corporate Debtor in five tranches on 28.09.2016, 15.12.2016, 26.12.2016, 06.01.2017 and 09.02.2017.

Loan Account No. HL29000028: The Applicant sanctioned a loan of Rs. 78,75,00,000/- to the Corporate Debtor and Mr. Sushil Mantri (co-borrower) on 22.03.2019 for construction / acquisition of immovable property or such other purpose as may be approved by Lender. The Applicant sanctioned the loan on the terms and conditions of the sanction note dated 22.03.2019, and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. Accordingly, the Applicant, Corporate Debtor and Mr. Sushil Mantri executed the Loan Agreement dated 28.03.2019 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed the entire sum of Rs. 78,75,00,000/- on 30.03.2019.

Loan Account No. HL29000030: The Applicant sanctioned a loan of Rs. 78,75,00,000/- to the Corporate Debtor and Mr. Sushil Mantri on 22.03.2019 for construction / acquisition of immovable property or such other purpose as may be approved by Lender. The Applicant sanctioned the loan on the terms and conditions of the sanction note dated 22.03.2019, and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. Accordingly, the Applicant, Corporate Debtor and Mr. Sushil Mantri executed the Loan Agreement dated 28.03.2019 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed the entire sum of Rs. 78,75,00,000/- on 30.03.2019.

Loan Account No. S000241174: Indiabulls Commercial Credit Limited (‘ICCL’) had sanctioned a loan of Rs. 160,00,00,000/- to the Corporate Debtor on 05.08.2019 for construction and development of residential projects / reimbursement of cost incurred for residential projects. The ICCL sanctioned the loan on the terms and conditions of the sanction letter dated 05.08.2019, and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. ICCL and Corporate Debtor, accordingly, executed the Loan Agreement dated 21.08.2019 thereby accepting and acknowledging their respective obligations thereunder. Subsequently, the loan was assigned by ICCL to the Financial Creditor herein. The Applicant disbursed a sum of Rs.142,72,50,000/- to the Corporate Debtor on 24.10.2019.

Loan Account No. S000241175 (earlier LAN 240922 of ICCL) The Applicant sanctioned a loan of Rs. 150,00,00,000/- to the Corporate Debtor (and co-borrower, M/s. Mantri Castles Private Limited) on 05.08.2019 for construction and development of residential projects / reimbursement of cost incurred for residential projects. The Applicant sanctioned the loan on the terms and conditions of the sanction letter dated 05.08.2019 and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. The Applicant and Corporate Debtor and Mantri Castles Private Limited, accordingly, executed the Loan Agreement dated 21.08.2019 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed a sum of Rs. 138,97,50,290/- to the Corporate Debtor on 24.10.2019.

Under Clause 3 of the Loan Agreements, the Corporate Debtor shall, inter alia, pay / repay the entire Loan and interest thereon to the Lender in such manner as agreed / specified by the Lender from time to time and/or as per the Repayment Schedule.

However, the Corporate Debtor (and all its Obligors) has failed to comply with the provisions of the Loan Agreements. The Corporate Debtor’s failure to make payments / timely payments of the Borrower’s Dues (or any part thereof, including interest) to the Applicant on the specified due dates under the Loan Agreements constitutes, inter alia, an Event of Default under Clause 12 of the Loan Agreement.

Accordingly, Applicant issued five separate notices dated 29.12.2021 with respect to each loan account under respective Loan Agreement(s) recalling the loan amounts thereunder, demanding outstanding amounts and giving notice of / for sale, disposing of, transfer, grant, conveyance, and / or assignment of any / all of the securities provided in favour of the Applicant by the Borrower-Corporate Debtor (‘Loan Recall Notices’).

Further, the Applicant also separately issued five separate notices dated 03.01.2022 / 04.01.2022 u/s 13(2) of the SARFAESI Act, 2002 for each loan account through which the Applicant intimated the Corporate Debtor that the respective loan accounts have been declared as NPA 03.10.2021 / 04.12.2021 (as the case maybe for the respective loans) and called upon the Corporate Debtor to pay the outstanding dues.

However, neither the Corporate Debtor, nor its co-borrowers and / or guarantors, have made any payment of the outstanding amounts to the Applicant, till date. Accordingly, the total default amount of Rs.456,68,73,538/- including interest, TDS, Non-SCC charges, penal charged, etc. is due and payable by the Corporate Debtor to the Applicant i.e. there is a debt and default. Hence, the present Application.

Copies of the Loan Agreements, including its amendments, waivers.

Copies of loan recall notices dated 29.12.2021 issued by the Applicant to the Corporate Debtor recalling the loan amount and demanding payment of outstanding dues forthwith;

Copies of five notices u/s 13(2) of SARFAESI Act, 2002;

Copy of Statement of Account;

Copy of Foreclosure Statement;

Copies of Memorandum of Entry;

Copies of Deed of Hypothecation;

Copies of certificates of registration of the abovementioned subsisting charges of the Corporate Debtor, as well as the CERSAI certificates.

In the year 2016, the Corporate Debtor-M/s. Mantri Developers Private Limited (MDPL) approached the Financial Creditor for availing a loan facility for development and execution of Projects, mainly ‘Mantri Centrium’ and ‘Mantri Webcity’. MDPL applied for a loan to the tune of Rs.176 Crores. Pursuant to the same, the Petitioner issued a sanction letter approving disbursal of a sum of Rs.176 Crores. After the issuance of sanction letters dated 29.08.2016, 22.03.2019 and 05.08.2019, MDPL furnished the requisite documents as sought by the Petitioner and requested to immediately execute the Loan Agreement. The Financial Creditor came forward to execute the Loan Agreements on 26.09.2016 and 31.12.2019. In terms of the Agreement, Loan Accounts were also created by the Financial Creditor in the name of the Corporate Debtor.

It is contended that due to the inordinate delay on the Petitioner’s part in disbursement of the loan amount, MDPL’s projects’ timelines were severely affected and also faced cash flow issues. Also, relying upon the assurances of Petitioner, MDPL introduced a marketing scheme which facilitated the customers to buyback with pre-EMI interest payments for their ‘Mantri Webcity’ Project. The said scheme was introduced for the purpose of increasing the sales and revenue for the commercial benefit of MDPL. However, MDPL incurred losses running to crores of rupees because of delay in disbursal of loan by the Petitioner.

On 03.01.2022, the Petitioner issued a notice to MDPL u/s 13(2) of the SARFAESI Act, 2022 as well as a notice dated 03.01.2022 under the Code seeking for repayment of entire outstanding amount. Thereafter, MDPL issued a reply to those notices refuting and disputing the claims of the Petitioner in unequivocal terms and bringing to light the true state of affairs.

Furthermore, in the notices issued by Petitioner under the SARFAESI Act, to the Corporate Debtor, the date of defaults is mentioned as 04.12.2021. However, in the present proceedings the date of default is stated as 01.01.2022. The Financial Creditor has provided different dates of default for the loan accounts.

The Financial Creditor has advanced loans not just to the Corporate Debtor, but also to Mr. Sushil Mantri and Mantri Castles Pvt. Ltd., who are the co-borrowers. The Financial Creditor has filed the current proceedings, only against the Corporate Debtor and not against the co-borrowers.

There is no bar in the Code for filing simultaneously two applications u/s 7 of IBC against the Principal Borrower as well as the Corporate Guarantor or against both the Guarantors. The Financial Creditor herein has also instituted CP (IB) No.92/2022 u/s 95 of the Code, against Mr.Sushil Mantri, the Personal Guarantor, who has a substantial shareholding in the Corporate Debtor. An IRP has been appointed in the said matter and moratorium has been imposed. Therefore, the Petition cannot be admitted owing to the fact that a moratorium has been imposed on the assets of the Personal Guarantor.

It is mandatory for a Financial Creditor to submit financial information to an Information Utility. However, in the present case, the Financial Creditor has failed to comply with the provisions of the Code.

It is contended that the Financial Creditor sanctioned loans towards construction for Mantri Webcity, Mantri Centrium and Mantri Central. As a security for the above loan, the above three Projects were mortgaged to the Financial Creditor. Subsequently, the Financial Creditor forced the Corporate Debtor to enter into an Agreement to Sell for Mantri Webcity and Mantri Centrium, units which were already mortgaged to the Financial Creditor. Furthermore, the Financial Creditor also forced the Corporate Debtor to execute a MoU whereby, the Financial Creditor agreed to pay to the Corporate Debtor, a sum of Rs.189,70,86,000/-, as consideration, by purchasing 116,500 sq. ft. of leasable area of Mantri Central Project, which was already mortgaged to the Financial Creditor, against construction loan of the same Project. The Financial Creditor disbursed money against the Agreement to Sell and used the said money towards payment of interest and principal against the project loan to prevent the loan from slipping into NPA, thereby evergreening their loan. Proceeds from Agreement to Sell were distributed by the Financial Creditor to the Escrow Account controlled by them and adjusted the same against their loan on the same day, thereby rotating the money, to avoid the loan account from slipping into NPA, even though the Corporate Debtor’s Projects were stalled.

It is contended that the Petitioner is providing further financial facilities after filing of the above proceedings are by their own conduct admitting that the Mantri conglomerate is not in any financial distress.

It is contended that though the Financial Creditor has been discussing the possibility of a settlement and various settlement agreements were agreed between parties, none of them materialised and that it has instituted the present proceedings only with a view to gain leverage in the settlement talks, with the Corporate Debtor.

Mantri Infrastructure Private Limited (MIPL) had issued 5,800 secured, unrated, unlisted, redeemable and non-convertible debentures of face value of Rs.10 Lakhs each, issued in a dematerialized form at par, in a single series aggregating upto Rs.580 Crores to M/s. Wisdomworld Projects Private Limited (WWPL) for cash on a private placement basis, which were constituted under a Debenture Trust cum Mortgage Deed dated 09.11.2022, executed between the MIPL and IDBI Trusteeship Services Ltd. On 09.11.2022, the Financial Creditor having already initiated proceedings u/s 7 of the Code, entered into an Option Agreement with WWPL, whereby WWPL was entitled to call upon and require the Financial Creditor to purchase from WWPL the Option Debentures subject to terms and conditions therein. If the Financial Creditor was of the belief that CD didn’t have liquidity, they wouldn’t have entered into such an agreement with WWPL.

It is also contended that there is no valid Board Resolution of the Financial Creditor produced with the Petition. The Board Resolution produced with the Petition besides being seemingly fabricated, does not speak of anything wherein they have resolved to initiate IBC proceedings amid the settlement which was almost finalised and it is a mere authorization letter.

Furthermore, the interest charged by the Petitioner is unwarranted and in contravention to the terms of the Agreement. The claims of the Petitioner to the tune of Rs.235,65,49,226/- is arbitrary and without any lawful basis.

Although the Corporate Debtor is willing to make payments towards the debt by realising the values of the additional securities, the Financial Creditor is not willing to release the additional securities and allow the Corporate Debtor to make necessary payments. Since, there is no default, or debt or much less a financial debt as defined under the Code, mere recovery attempts made by the Financial Creditor ought not to be entertained. Hence, the foremost ingredient of ‘Financial Debt’ is absent since the disbursal is not against the consideration for time value of money.

The relationship between the Parties is governed by loan agreements which provide for resolution of disputes by arbitration, after attempts by discussion fail. The Agreements contain arbitration clause which bind the Parties. The Financial Creditor has not invoked the Arbitration Clause but filed the proceedings before this Tribunal prematurely.

In support of its contentions, the Respondent had relied upon the following decisions:

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353;

Amber Joshi v. Noble Co-operative Bank Ltd. & Anr., (2019) SCC OnLine NCLAT 1047;

Palogix Infrastructure (P) Ltd. v. ICICI Bank Ltd., (2017) SCC OnLine NCLAT 266;

Rushabh Civil Contractors Pvt. Ltd. v. Centrio Lifespaces Ltd., (2020) SCC OnLine NCLT 7213;

Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352;

Jaypee Infratech Ltd. v. Axis Bank Ltd., (2020) 8 SCC 401.

The Financial Creditor had sanctioned and disbursed the following Five Loan facilities to the Corporate Debtor (CD). The details of all such Loan Agreements along with date of defaults are given hereunder:

A breakup of the outstanding financial debt is as below:

CD availed loan facilities from the Financial Creditor against payment of interest. The loan facilities were availed for purposes of construction, development or acquisition of immovable property for residential projects etc., and hence these loans were availed as consideration for the time value of money. The CD was required to repay the entire loan amount and interest thereon as per the re-payment Schedule contained in the Loan Agreements.

Under the Loan Agreements, non-payment of dues constitutes an ‘Event of Default’. The consequence of it is that the Financial Creditor had the right to cancel / recall the entire loan amount. In view of the CD’s non-payment of dues under the Agreements, Loan Recall Notices were issued to the CD to repay the entire outstanding dues, within three days. However, the CD defaulted in repayment thereof. Accordingly, this Petition contains the key ingredients for admitting the CD into CIRP.

As regards the Arbitration Clause, it is stated that there is no ‘dispute’ about the CD’s default in payment of outstanding dues to the Financial Creditor. The default is (i) established by the loan accounts being declared NPAs and (ii) admitted by the Corporate Debtor in its reply to the Petition stating that the CD proposed an OTS / Settlement to the Financial Creditor for the outstanding financial dues. The very fact that a settlement was offered by the Corporate Debtor to the Financial Creditor constitutes an admission of liability to pay. Thus, there is no ‘dispute’ to be referred to arbitration. Moreover, the Hon’ble Supreme Court has settled the position in the case of Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund & Ors. (2021) 6 SCC 436, in which it was held that the Adjudicating Authority was duty bound to first decide the application u/s 7 of the Code if there was a debt and a default; even when an application u/s 8 of the Arbitration Act was pending.

As regards the settlement discussions, the fact that the CD has offered an OTS itself constitutes an admission of the debt and the default by the CD. Moreover, the Corporate Debtor had sought adjournments before this Tribunal on 02.08.2022, 30.09.2022 and 15.11.2022 on account of settlement discussion. However, there has been no reasonable settlement offered by the Corporate Debtor to the Financial Creditor, till date.

As regards the objection raised by the Respondent that the Financial Creditor delayed the disbursal of loan amount to the Corporate Debtor, it is stated that the CD has never raised this objection during the term of the loan or objected at the time of purportedly delayed disbursement. The aforementioned Table [at para 6(a) above] establishes that there isn’t any delay in the disbursement of the loan amounts. The amounts were disbursed in time starting within one month from the date of sanction, hence, there was no dilution of the time value of money. This was reiterated in the table reproduced by the Applicant.

As regards the contention raised by the Respondent that it was forced to enter into Loan Agreements with unilateral terms, it is stated that it was the CD who approached the Financial Creditor for availing loan facilities and accordingly, the Financial Creditor sanctioned several loan facilities as per the terms of sanction letter, which were accepted by the CD with its own free will, without any force or coercion. Hence, once the Parties have voluntarily signed on agreed terms of an Agreement, without any coercion or threat, they cannot deny their obligations under the Agreement.

As regards the interest issue raised by the Respondent, it is stated that the interest being charged by the Financial Creditor is within the contours of the Loan Agreements. As per the re-payment schedule and Schedule-I of the Loan Agreements, the CD had an obligation to pay interest to the Financial Creditor from time to time. With regard to Loan Recall Notices issued under the SARFAESI Act, it is stated that the issuance of the notice cannot be contended to be premature as the Notice was issued in terms of the provisions of the Loan Agreement, and the right to recall arose as soon as the default occurred.

As regards the contention that the Financial Creditor is still offering to extend loan facilities to the Mantri Group of Companies, it is stated that the Financial Creditor has not been extending further loan facilities to the Mantri Group after it has defaulted on the Financial Creditor’s loan repayment obligations. Further, the supply of additional securities by the Corporate Debtor to the Financial Creditor was in compliance of its obligations under the Loan Agreement.

As regards the contention that the Petitioner not filed the information of the default with the information utility, it is submitted that as per Section 7(3) of the Code, a Financial Creditor is required to furnish the record of default with the information utility “or such other record or evidence of default as may be specified”. With regard to the allegation that the Applicant is in the practice of evergreening its loans, it is stated that the CD apart from making a vague allegation, has failed to substantiate the same with cogent reasons or relevant documents. Moreover, the CD has failed to make reference to any law / rule that has been violated.

The Corporate Debtor raised an objection with respect to admission of insolvency proceedings against Sushil Mantri in Indiabulls Housing Finance Ltd. v. Sushil Mantri, CP (IB) No.92 of 2022. However, this objection does not warrant any consideration in view of the fact that CP (IB) No.92 of 2022 is filed by a different financial creditor, namely, Indiabulls Commercial Credit Limited and therefore, the CP arises out of separate loan agreements. Therefore, the CD herein is in default for an amount of Rs.458 Crores, which is more than the threshold limit.

In support of its submissions, the Petitioner had relied upon the following decisions:

Kotak Mahindra Bank Limited v. Kew Precision Parts Private Limited & Ors., (2022) 9 SCC 364;

Tata Consultancy Services Limited v. SK Wheels Private Limited, (2022) 2 SCC 853;

Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund & Ors., (2021) 6 SCC 436;

Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors., (2011) 5 SCC 532;

E.S. Krishnamurthy v. Bharat Hi-Tecch Builders Private Limited, (2022) 3 SCC 161;

Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17;

Bharti Defence and Infrastructure Limited v. Edelweiss Asset Reconstruction Company Limited, CA (AT) (Ins) 71 of 2017;

Univalue Projects Pvt. Ltd. v. Union of India & Ors., (2020) SCC OnLine Cal 1452;

Indiabulls Housing Finance Limited v. Hanumesh Realtors Private Limited, CP (IB) 3164/IB&BP/MB/2018;

Indiabulls Housing Finance Limited v. Mithiya Developers Private Limited, CP (IB) 3243/IB&BP/MB/2018;

Sandeep Garg & Anr. V. DMI Finance Pvt. Ltd., CA (CA) (Ins.) 321 of 2021.