M/s. Indian Overseas Bank vs M/s. Sri Lakshminarasimha Oil Mills Private Limited

The Respondent Company is engaged in manufacturing food stuffs viz., Soya Meal, Organic Soyabean Meal, Hipro Soya Meal, Soyabean Powder for Food Industry, Nutri Soya Granules and Soyabean Full Fat Meal etc.

That the Corporate Debtor in order to improve their business activities approached the Financial Creditor initially in the year 2009 and availed Term Loan of Rs.12 Crores for construction of Building, Civil Works and for purchasing and erecting Plant & Machinery and created charge over their Block Assets of the Company followed by Equitable Mortgage of Factory Land, vide Credit Sanction Advice Dt.03.02.2010.

The Corporate Debtor further availed Cash Credit facility of Rs.11 Crores and also Letter of Guarantee for an amount of Rs.40 Lacs apart from renewing their Term Loan of Rs.12 Crores and created first charge of their entire Block Assets of the Company including Equitable Mortgage of Factory Land, Building and Machinery, vide Credit Sanction Advice Dt.21.10.2010.

The Corporate Debtor also availed further credit facilities from the Financial Creditor viz., Cash Credit facility of Rs.22.66 Crores (Fresh Limit), Term Loan of Rs.9 Crores (Review of Original Limit), Term Loan of Rs.6.26 Crores (Fresh Limit), Term Loan of Rs. 18.76 Crores (Fresh Limit) for Working Capital and Funded Interest Term Loan of Rs. 1.28 Crores (Fresh Limit), vide Credit Sanction Advice Dt.10.10.2013.

The Corporate Debtor in all availed credit facilities to the tune of Rs.57,96,00,000/- (Rupees Fifty Seven Crores Ninety Six Lacs Only) from the Financial Creditor.

The Corporate Debtor represented by its Managing Director Ranga Ashok has executed the loan documents from time to time in Corporate M.D., capacity and as a Guarantor in his personal capacity. Further, the Corporate Debtor after availing various credit facilities failed to re-pay the loan amounts and despite providing several opportunities and sufficient time, failed to discharge its due liability.

The CD used to purchase the raw material Soya Beans from various farmers and traders numbering about 129 supply creditors.

The Corporate Debtor commenced its production and started the manufacturing of Soya Cake and Soya Oil from the month of December, 2010. Then due to severe crunch in the working capital funds, the unit stopped its production from April, 2012.

At this juncture, the CD had approached the Indian Bank and took in-principle sanction from them on 03.01.2012 for joining the consortium with the FC. Purely due to ulterior motives, the FC did not cooperate with the Indian Bank and kept them away from supporting the CD. This conduct of the FC was despite their knowledge that the realizable liquidation value of the CD was never more than 10%. The credit facilities availed by the CD from the FC were classified on 31.03.2012 as Non-Performing Asset (NPA).

The Financial Creditor had reviewed and restructured the credit facilities irrationally on 10.10.2013 after the unit had already suffered protracted and irrevocable financial stress. It granted a Cash Credit limit of Rs.22.66 Crores comprising a sub-limit of Rs.11.66 Crores under KCC within the CC limit. It also reduced the earlier Term Loan limit from Rs.12.00 Crores to Rs.9.00 Crores and made it repayable in 36 quarterly instalments with initial moratorium of 12 months. Simultaneously, the overdues of Rs.6.26 Crores in the Term Loan were transferred to a separate WCTL-1 which was made repayable in 36 quarterly instalments with initial moratorium of 12 months. Similarly, the overdues of Rs.18.76 Crores in the Cash Credit account were transferred to a separate WCTL-2 which was made repayable in 36 quarterly instalments with initial moratorium of 12 months. The overdue interest of Rs.1.28 Crores in the Term Loan was transferred to a separate FITL Account which was made repayable in 6 quarterly instalments with initial moratorium of 12 months. All these accounts attract the same rates of interest as the original limits used to attract. The restructuring of the CD's credit facilities done by the FC were nothing but bifurcating the existing accounts without any fund advantage to the CD. The repayment was not matching with the cash-flow and fund-flow. The DSCR was arrived defectively by the FC to suit the requirements of other inspection and audit. Thus, there was fresh inflow of Rs.11.66 Crores only which was quite negligible as against the real requirement.

The unit recommenced its production from September, 2013. As things stand thus, the CTO, Jagitial issued Notice u/s 29 of the AP VAT Act, 2005 on 18.11.2013 for Rs.1,73,72,769/-. Thereafter, the DCTO, Jagitial issued distraint order on 18.01.2014 attaching the factory properties which is still subsisting.

The CD paid a total interest of Rs.20,90,41,050/- (Rupees Twenty Crores, Ninety lakhs, Forty One thousand and Fifty only) from its internal generation and other sources comprising an amount of Rs.1,17,124/- for 2009-10; Rs.2,16,50,201/- for 2010-11; Rs.4,12,33,705/- for 2011-12; Rs.3,67,99,019/- for 2012-13; Rs.6,25,76,684/- for 2013-14 and Rs.4,66,64,317/- for 2014-15 excluding the amounts adjusted by the FC out of cash Credit Limit standing in the name of the CD.

In contravention of Proviso to Rule 3(1) of the Security Interest (Enforcement) Rules, 2002, the FC published the Demand Notice dated 03.03.2015 issued u/s 13(2) of the SARFAESI Act, 2002 for Rs.56,91,72,719/- though the CD and the claimed guarantors/mortgagors took service of the same duly. This has resulted in sudden dip of the reputation of the promoters, the guarantors and the mortgagors of the CD. This half-hearted and damaging exercise was not continued with further measures to achieve logical conclusions.

The FC lodged OA No.206/2016 before the DRT-I, Hyderabad on 12.02.2016 for recovery of Rs.65,02,46,275.86 Paisa with future interest @ 16.70% p.a. from 01.02.2016. This could not be contested for various practical reasons which are beyond the control and comprehension of the defendants. The OA was allowed ex parte on 27.11.2018.

Thus, the unit suffered from under-finance since beginning. It was constrained to avail the under-finance from the FC as it was in the middle of executing the project without any opportunity to resort to another lender for rational appraisal of the unit. The gross under-finance led to underutilization of the installed capacity whose income generation was insufficient to meet the interest costs and the repayment of instalments. The unit might have worked with 30% capacity utilization on an average.

The approach of the FC since beginning was only to grant matching limits to the collateral security and not as per the requirements, projections and performance of the unit.

The FC had claimed that the CD was deliberately avoiding to pay Rs.110,73,95,325/- which is averred as the reason to approach this Hon'ble Tribunal u/s. 7 of the Code. This averment reveals the oblique motive of the FC. The FC revealed that they are not for "debt resolution" but are for "debt recovery". The CD is disputing the extent of liability claimed by the FC. The CD never came in the way of the FC in realizing their dues from the CD. The CD is protecting the assets of the unit at their cost which is supposed to be the responsibility of the FC.

A. That the Respondent/Corporate Debtor at the time of availing limits has agreed to the terms and conditions of the Sanction Advices of the Applicant/Financial Creditor and further assured by its Undertaking Letter Dt.17.03.2010 that they shall exclusively deal/route all the business transactions of the Company through the Applicant/Financial Creditor. But the Respondent/Corporate Debtor has failed to keep its assurance/undertaking and routed their business transactions through other banks by adopting dubious methods.

B. That the Respondent/C.D, after availing the various Term Loans and Cash Credit facilities, failed to re-pay the instalments in time and neglected the account from becoming irregular. The Applicant/Financial Creditor from time to time reminded the Respondent/C.D, to regularise its loan accounts from classification of NPA. The Respondent/C.D, has neglected the reminders for regularisation of its loan accounts that led to declaring the loan accounts of the Respondent/C.D, as NPA on 31.03.2012.

C. The Respondent/C.D, cannot compare the limits advanced to it with other Banks. The averment that one can draw a wide contrast between the realistic appraisal by other Banks and the alleged arbitrary appraisal of the Respondent/C.D, by the Applicant/Financial Creditor, cannot be accepted and such comment by the Respondent/C.D, is vehemently opposed. The Respondent/C.D, having availed various credit facilities to the tune of Rs.58 Crores from the Applicant/Financial Creditor for establishing the Unit at Tatipalli Village, Jagitial Mandal of Karimnagar District, failed to run the Unit for various reasons best known to it. The Respondent/C.D, having committed gross violations in paying taxes to the Government, the Government by initiating punitive action, seized the Unit. The Respondent/C.D, has not only committed de-fault in paying its dues to the Applicant/Financial Creditor, but also erred in paying the taxes to the Authorities.

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 the Securitisation 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 the possession of the corporate debtor.