M/s. Indiabulls Housing Finance Limited vs M/s. Mantri Infrastructure 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.600,00,00,000 /- under two loan agreements. The aggregate disbursed loan amount under these agreements is Rs.590,00,00,000/-(Rupees Three Hundred Crores 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.S000239536: The Applicant sanctioned a loan of Rs.300,00,00,000/-(Rupees One Three Hundred Crores Only ) to the Corporate Debtor 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 26.09.2016 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed a sum of Rs.290,00,00,000/- to the Corporate Debtor.

Loan Account No.S000241142: The Applicant sanctioned a loan of Rs.300,00,00,000 /- to the Corporate Debtor for construction and development of residential projects on the terms and conditions of the sanction letter dated 16.12.2019 and on the basis of the securities extended by the Corporate Debtor (and other obligors) stipulated thereunder. Accordingly, the Applicant and Corporate Debtor executed the Loan Agreement dated 31.12.2019 thereby accepting and acknowledging their respective obligations thereunder. The Applicant disbursed a sum of Rs.300,00,00,000 /- to the Corporate Debtor.

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 two 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.

Further, the Applicant also separately issued two separate notices dated 03.01.2022 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 and called upon the Corporate Debtor to pay the outstanding dues under each loan account.

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.480,65,49,787/- 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 two 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 Infrastructure Private Limited (MIPL) approached the Financial Creditor for availing a loan facility for development and execution of Projects promoted by it. MIPL applied for two loans of Rs.300,00,00,000/- each. Pursuant to the same, the Petitioner issued sanction letters dated 29.08.2016 and 31.12.2019, approving disbursal of a sum as sought by the respondent. MIPL 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, MIPL’s projects’ timelines were severely affected and also faced cash flow issues. Also, relying upon the assurances of Petitioner, MIPL introduced a marketing scheme which facilitated the customers to buyback with pre-EMI interest payments for their Project. The said scheme was introduced for the purpose of increasing the sales and revenue for the commercial benefit of MIPL. However, MIPL 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 MIPL u/s 13(2) of the SARFAESI Act, 2002 seeking for repayment of entire outstanding amount. Thereafter, MIPL 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.

It is contended that the Petitioner is providing further financial facilities after filing of the above proceedings, therefore, 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.

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.22,64,76,360/- (wrongly mentioned as Rs. 8,19,03,626/- by the respondent) 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.

Further, a memo was filed by the corporate debtor vide Dy.No.325 dated 17.01.2023, stating that the corporate debtor has made payments of INR 580 Crores, towards its liability on the corporate debtor stands discharged and the current proceedings are infructuous.

The Financial Creditor had sanctioned and disbursed the following Two 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, 15.11.2022, 09.02.2023 and 16.03.2023 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.480 Crores, which is more than the threshold limit.

The corporate debtor has contended that the Applicant has entered into (i) Debenture Trust Deed with IDBI Trusteeship Services Limited and (ii) during the pendency of these proceedings, an Option Agreement with M/s. Wisdomworld Projects Private Limited (“WWPL”) whereunder WWPL was entitled to call upon and require the Respondent to purchase from WWPL the option Debentures subject to the conditions contained therein. Thus, it is the case of the corporate debtor that if the applicant did not trust the liquidity of the corporate debtor it would not have entered into the latter Option Agreement. In response thereto, it is submitted that,

the transaction with WWPL and IDBI Trusteeship Limited arise out of a different set of loan transactions;

therefore, this submission neither has any bearing in the present proceedings, nor is it a testament to the corporate debtor’s liquidity-the lack of which has been established by its inability to repay the loans of the Applicant.

In support of its submissions, the Petitioner has 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.