M/s. KKR India Asset Finance Limited vs M/s. Mantri Developers Private Limited

Per: Ajay Kumar Vatsavayi, Member (Judicial)

The present petition is filed, under section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity 'IBC'/Code), r/w. Rule 4 of the I&B (Application to Adjudicating Authority) Rules 2016, by M/s. KKR India Asset Finance Limited (for brevity 'Financial Creditor/Petitioner') inter alia seeking to initiate Corporate Insolvency Resolution Process in respect of M/s. Mantri Developers Private Limited (hereinafter referred as 'Corporate Debtor/Respondent/MDPL'). The contents of the Application are supported by an affidavit dated 31.08.2021 filed by Mr. Rakesh Bajaj, Authorised Representative of the Financial Creditor.

The Corporate Debtor, namely, M/s. Mantri Developers Private Limited was incorporated on 06.12.1990 with CIN: U70102KA1990PTC027924 having its registered office at #41, Vittal Mallya Road, Bengaluru - 560011, which falls within the territorial jurisdiction of this Adjudicating Authority. The Authorised Share Capital of the Respondent/Corporate Debtor is Rs.110,00,00,000/- and the Paid-Up Share Capital is Rs.46,19,33,000/-.

The present application has been filed by the Financial Creditor against the Corporate Debtor in respect of the default amount of Rs.101,20,25,989/- (Rupees One Hundred and One Crore Twenty Lakhs Twenty Five Thousand Nine Hundred and Eighty Nine Only) as on 31.08.2021.

The Financial Creditor is a public limited company registered with the Reserve Bank of India as a non-deposit taking, systematically important Non-banking Financial Company (NBFC). Smarthomes Developers (India) Pvt Ltd. ('SDPL') is a special purpose vehicle company incorporated by MDPL and Jasmine Enterprises Pvt Ltd. ('JEPL').

It is stated by the Petitioner that on 07.05.2016, SDPL availed a term loan facility of Rs.145,00,00,000/- (Rupees One Hundred Forty Five Crores Only) from the Financial Creditor and the Borrower (SDPL) and Lender (KKR India Asset Finance Limited) entered into a loan agreement dated 07.05.2016 in respect of the same. On 07.05.2016 MDPL executed a deed of corporate guarantee in favour of Security Trustee i.e. IL&FS Trust Company Ltd, guaranteeing payment of amounts due from SDPL under the Facility. Thereafter, SDPL separately executed a deed of hypothecation dated 09.05.2015 and a memorandum of entry dated 19.05.2016 in favour of the Security Trustee, towards securing the Facility.

The Petitioner/Financial Creditor in support of the C.P. averments has enclosed the following documents among other documents, to the C.P:

It is stated that SDPL started committing breach of the terms of the Facility in June 2019. Accordingly, the Financial Creditor issued email dated 11.06.2019 to MDPL intimating the event of default and on 01.10.2019, MDPL acknowledged the debt owed. Subsequently, on 01.10.2019, the Financial Creditor issued another notice to SDPL intimating the event of default. On 04.10.2019, the Security Trustee issued a notice to MDPL invoking the corporate guarantee. On 07.10.2019, SDPL issued reply confirming that part payment had been made towards curing default, and that amounts had been collected towards making payment for the remaining outstanding amount. Further, on 07.10.2019, MDPL issued response to the Security Trustee, stating that the default was being cured and the same had been informed to the Financial Creditor.

It is further stated that on 31.10.2019, due to failure to cure default, the Financial Creditor issued notice to SDPL and MDPL for rectifying defaults and on the same day, the Security Trustee also issued notice calling upon MDPL to fulfil its guarantor obligations. Again, as the defaults were not cured, the Financial Creditor issued notice of repayment dated 07th November to SDPL and MDPL calling upon them to cure the defaults. Corresponding to this, the Security Trustee issued notice dated 11.11.2019 to MDPL invoking corporate guarantee. Subsequently, MDPL issued email dated 16.11.2019 to the Financial Creditor communicating a repayment schedule towards outstanding dues.

On 27.12.2019, MDPL issued email to the Financial Creditor containing details of cheques advanced towards part-payment and confirmed that amounts had been collected towards making payment for the remaining outstanding amount. However, on account of MDPL and SDPL to fulfil their obligations under the Transaction documents, the Financial Creditor issued a Demand Notice dated (06^{\text{th}}) January calling upon SDPL and MDPL to pay an aggregate principal and interest amount of Rs.26,22,86,195/-, a default interest of Rs.7,95,48,957/-, and a Cash Flow Share of Rs.5,87,72,688/-. Further, the Security Trustee issued a Demand Notice to MDPL dated 08.01.2020 invoking the corporate guarantee for an amount of Rs.26,22,86,195/-.

Pursuant to discussions between the parties, SDPL issued notice dated 19.03.2020 undertaking to meet its obligations as borrower by sale of 34 units in the identified Apartments. However, SDPL and MDPL failed to meet these obligations. Subsequently, the Security Trustee issued Demand Notice dated 23.09.2020 to MDPL invoking the corporate guarantee for a total outstanding amount of Rs.21,70,00,975/- comprising of unpaid default interest of Rs.10,79,57,561/- and cash flow share of Rs.10,90,43,414/- up to 23.03.2020.

On 14.01.2021, the Security Trustee issued a notice of occurrence of default to SDPL and MDPL intimating them of the seven covenant breaches of the Loan Agreement committed and calling upon MDPL to pay all amounts due and outstanding and cure all defects. Pursuant to this, the Security Trustee invoked the corporate guarantee on 04.02.2021 and called upon MDPL to pay an amount of Rs.44,01,11,960/- overdue as on 04.02.2021, the amount comprises the default interest and cashflow share, and part of the amount due from SDPL and MDPL. Further, on 11.06.2021 and 19.07.2021, the Security Trustee issued a notice of occurrence of default intimating to fulfil the aforesaid obligations. Pursuant to this, the Security Trustee again issued

a notice invoking corporate guarantee dated 26.07.2021 to MDPL to pay amount of Rs.506,580,964/- overdue as on 30.06.2021.

It is further stated that the tenor of the loan expired on 11.08.2021. The Security Trustee issued a Demand Notice dated 16.08.2021 to SDPL and MDPL and also issued a notice invoking corporate guarantee to MDPL dated 20.08.2021 to pay the due amount Rs.1,018,207,953/-. MDPL has acknowledged the debt several times though MDPL and SDPL have not paid the due amount as on date.

The Respondent/Corporate Debtor opposed the C.P., by inter alia contending as under:

Heard Mr. S.S Naganand, learned Senior Counsel along with Ms. Poornima Hatti, learned Counsel for the Petitioner and Mr. Shyam Sundar, learned Senior Counsel along with Ms. Krutika Raghavan, learned Counsel for the Respondent and have also perused the pleadings carefully including the Written Submissions filed and Judgements relied on by both sides.

In the back drop of the above referred contentions and also the various submissions made through various pleadings on record, the following issues fell for our consideration:

The Petitioner has filed Annexure 1 Board Resolution dated 27.08.2021 to show that the Board of Directors of the Petitioner Company resolved to initiate CIRP against the Corporate Debtor and the same reads as under:-

A careful examination of the above Resolution shows that the C.P. was supported by the valid Resolution of Board of Directors of the Petitioner, wherein and where under it was resolved to approve for initiating the CIRP proceedings against the Corporate Debtor, and to authorise certain officers of the Petitioner Company to represent the Company in the said process. Hence, this issue is held against the Respondent.

The Deed of Corporate Guarantee (Annexure 10) was executed by the Respondent in favour of M/s. IL&FS Trust Company Limited, (Security Trustee). Whereas, M/s. Vistra ITC (India) Limited issued the demand under the Deed of Corporate Guarantee, vide Annexure 34 dated 20.08.2021. The Petitioner produced Annexure 42, wherein and where under the Registrar of Companies, Mumbai vide Certificate dated 25.08.2016 certified that the name of M/s. IL&FS Trust Company Limited has been changed to M/s. Vistra ITC (India) Limited. The Petitioner has also produced an affidavit of Mr. Palash Singh, the Authorised Representative of M/s. Vistra ITC (India) Limited confirming its change of name and also that M/s. Vistra ITC (India) Limited is not a part of the larger M/s. IL&FS Trust Company Limited Group and is not subject to the on-going M/s. IL&FS insolvency proceedings or in other proceedings in relation to M/s. IL&FS Group. In view of this, the contention with regard to the authority of M/s. Vistra ITC (India) Limited to act as a Security Trustee and its status with regard to the Company undergoing CIRP, are rejected.

Admittedly, Annexure-10 the Deed of Corporate Guarantee was executed by the Respondent/Corporate Debtor in favour of M/s. IL&FS Trust Company Limited, now known as M/s. Vistra ITC (India) Limited. It is also clear from the said Deed of Corporate Guarantee that M/s. IL&FS Trust Company Limited has been appointed as the Security Trustee to act for and on behalf of the Lender under the Security Trustee Agreement. The conjoint reading of the Loan Agreement dated 07.05.2016, Deed of Corporate Guarantee dated 07.05.2016 and the Security Trustee Agreement also dated 07.05.2016 clearly shows that the Petitioner is empowered and entitled to file the instant C.P., independently or jointly with the Security Trustee, in whose favour the Respondent/Corporate Debtor executed the Deed of Corporate Guarantee. Further, since the Guarantee was executed by the Corporate Debtor for securing loan facility by SDPL, the Petitioner is the Financial Creditor to the Respondent. Hence, this issue held against the Respondent.

As rightly contended by the learned Senior Counsel appearing for the Petitioner the liability of the Guarantor is co-extensive with that of the Principal Borrower and the Financial Creditor can initiate CIRP against the Guarantor even without initiating CIRP against the Principal Borrower. None of the decisions relied on by the Respondent expressed any different view. Hence, this issue is held against the Respondent.

The Hon'ble Supreme Court of India in M/s. Innoventive Industries Ltd. vs. ICICI Bank & Anr. in Civil Appeal Nos.8337-8338 of 2017 observed as under:

As per the above enunciation of law by the Hon'ble Apex Court, in an Application under Section 7 of the IBC, 2016, what is required to be seen by this Adjudicating Authority in order to accept or reject the Application is whether the C.P. is filed within the period of limitation and whether the debt and default are proved.

It is the settled principle of law that solvency or insolvency of a Corporate Debtor has no relevancy while considering for initiation of CIRP against the Corporate Debtor. If the debt and default are proved, CIRP can be initiated.

The various documents placed on record by the Petitioner and the notice of invocation of Corporate Guarantee by the Security Trustee clearly establishes the debt and default thereon. Therefore, the other issues are also held against the Respondent.

After the orders in the C.P. were reserved, one Mr. Pratik Mantri sought to intervene in the C.P. by filing an I.A. As the same was not numbered, and listed for hearing, he filed W.P. No. 3658/2022 before the Hon'ble High Court of Karnataka at Bengaluru. The said W.P was disposed of by order dated 03.03.2022 by observing that 'since final arguments were already completed, it may not be appropriate to direct the NCLT to consider the Intervener Application. However, it is for the NCLT to consider the Application in accordance with law'. It is stated that Mr. Pratik Mantri having not satisfied with the said order preferred an appeal bearing W.A No. 276/2022 before the Hon'ble High Court of Karnataka at Bengaluru, which was disposed of by order dated 25.03.2022 with the observation that "in case any intervenor application is pending before the NCLT, it will be at the discretion of the NCLT to consider and decide the same before it may proceed to admit the case". Thereafter, on making a mention, the Intervening Application filed by the said Mr. Pratik Mantri, was listed for hearing on 19.04.2022. After hearing the learned Senior Counsel appearing for the Intervening Applicant and the learned Counsel appearing for the Petitioner and the Respondent, orders were reserved in the said I.A also. It is the case of the Intervening Applicant that he is a Stakeholder of substantial interest in the Corporate Debtor Company and was also a Nominee Director of the same and there were differences among the Members of the Board of the Corporate Debtor Company and hence, in the interest of the Corporate Debtor Company, he may be permitted to intervene in the C.P. to place certain facts before the Adjudicating Authority. It is the settled principle of law that under the scheme of IBC, 2016, there is no place to any third party in an Application filed U/s.7 of the IBC, 2016, other than the Financial Creditor and the Corporate Debtor. If any of the Shareholder or Director have any grievance with regard to any of the affairs of either Financial Creditor or the Corporate Debtor, can seek redressal of the same under the appropriate provisions of the Companies Act, 2013, but they cannot seek intervention or impleadment in the C.P. filed U/s. 7 the IBC, 2016. Accordingly, the said I.A No.158 of 2022 filed for seeking intervention is rejected as not maintainable.

Section7(5)(a) of the Code is as follows:-

In the present case, the debt and default are evidenced by various documents furnished by the Petitioner. The Respondent not placed any document contradicting the said fact.

The other issue for consideration is whether the present application is filed within limitation. The date of default of the debt is well within the 3 years period from the date of filing of the C.P. Therefore, the Petition has been filed within the period of limitation.

None of the decisions on which the learned Counsel for the Respondent placed reliance, support the Respondent's contentions.

The application filed in the prescribed Form No.1 is found to be complete.

In the circumstances and for the aforesaid reasons and since the C.P. is complete, the same is admitted in terms of Section 7(5) of the IBC and accordingly, moratorium is declared in terms of Section 14 of the Code. As a necessary consequences of the moratorium in terms of Section 14, the following prohibitions are imposed, which must be followed by all and sundry:

or passed an order for liquidation of Corporate Debtor under Section 33 as the case may be;

In Part-III of Form No.1, Mr. Ayyagari Viswanadha Sarma bearing Registration No. IBBI/IPA-001/IP/P-01524/2018-19/12396 has been proposed as Interim Resolution Professional (IRP). Form No.2 dated 30.08.2021 has been filed along with the C.P are found at Page Nos.24-26 of the Petition. The Law Research Associate of this Tribunal has checked the credentials of Mr. Ayyagari Viswanadha Sarma and there is nothing adverse against him. In view of the above, we appoint Mr. Ayyagari Viswanadha Sarma bearing Registration No. IBBI/IPA-001/IP/P-01524/2018-19/12396, having registered address at Building 03, Flat-301, My Home Vihanga, Gopanpally Village, Serlingampally Mandal, Hyderabad - 500107, email- [email protected], as the Interim Resolution Professional. The IRP is directed to take the steps as mandated under the IBC, specially under Sections 15, 17, 18, 20 and 21 of IBC, 2016.

The Interim Resolution Professional shall after collation of all the claims received against Corporate Debtor and the determination of the financial position of the Corporate Debtor constitute a Committee of Creditors and shall file a report, certifying constitution of the Committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the Committee within seven days for filing the report of Constitution of the Committee. The Interim Resolution Professional is further directed to send regular progress reports to this Tribunal every fortnight.

A copy of the order shall be communicated to both the parties. The learned Counsel for the Petitioner shall deliver copy of this order to the Interim Resolution Professional forthwith. The Registry is also directed to send the copy of this order to the Interim Resolution Professional at his e-mail address forthwith.