M/s. Kotak Mahindra Bank Limited vs M/s. T&R Auto Private Limited

M/s. T & R Auto Private Limited (hereinafter referred to as the Corporate Debtor/CD) availed a loan facility of Rs. 4,67,00,000/-(Loan–I) from Kotak Mahindra Bank Limited (hereinafter referred to as the Financial Creditor/FC) pursuant to a sanction letter dated 21.07.2017 (Annexure–4). The said facility was disbursed on 02.08.2017 for a tenure of 12 months, carrying an interest rate of 10.50% per annum with a default interest rate of 3% per annum.

In furtherance thereof, the CD executed a Master Facility Agreement, Guarantee Deed, Memorandum of Entry, and Deed of Settlement, all dated 25.07.2017 (Annexure–5).

Subsequently, the aforesaid financial facility was renewed by the FC, for which the CD executed, inter alia, the following documents:

Letter requesting the Applicant bank for setting up BG limit of Rs. 217 lakhs dated 07.08.2019; and

Thereafter, the FC sanctioned an additional sum of Rs. 44,05,548/-(Loan–II) as working capital assistance under the Emergency Credit Line Guarantee Scheme (ECLGS) during the Covid-19 pandemic vide sanction letters dated 26.06.2020 and 02.07.2020 (Annexure– 8). The said amount was disbursed on 01.07.2020 at an interest rate of 8.95% per annum.

In connection with Loan–II, the CD executed a Memorandum of Entry, Declaration of Hypothecation, and Term Loan Agreement dated 26.06.2020, along with a Letter of Continuing Security dated 15.06.2020.

Meanwhile, Bajaj Auto Limited invoked a Bank Guarantee on 23.07.2020 which was earlier issued by the FC. The BG amount of Rs. 2,00,00,000/- was discharged by the FC by appropriating Rs. 1,36,43,258.97/- from the fixed deposit furnished by the CD as collateral security, and paying the balance amount of Rs. 63,56,741.03/- by debiting its General Ledger account.

Consequently, the liability of the CD towards invocation of the BG was quantified at Rs. 63,56,741.03/-, together with applicable interest and charges until repayment.

On 08.12.2021, the FC issued a demand notice under Section 13(2) of the SARFAESI Act, 2002 upon the CD and related parties, demanding repayment of outstanding dues within 60 days.

Upon failure of the CD to comply, the FC issued a notice dated 22.03.2022 under Section 13(4) of the SARFAESI Act, for taking possession of the CD’s immovable property. Aggrieved thereby, the CD filed Writ Petition No. 17699/2022 before the Hon’ble High Court of Telangana

The Hon’ble High Court, vide order dated 11.04.2022, directed the CD to deposit 15% of the outstanding dues (Rs. 4,60,30,432/- as on 20.11.2021) as a condition precedent for the FC not to proceed further under the possession notice dated 22.03.2022, subject to the outcome of S.A. (IR) No. 386/2022 pending before the DRT–II, Hyderabad. In compliance, the CD deposited Rs. 69,04,565/- on 09.05.2022.

As per the petition, the balance amounts remained due and outstanding. The petition (Part IV, Column 2) records that the outstanding amount in default till the date of filing of the present petition was Rs. 14,04,56,124.26/-, comprising the balance principal, interest, penal interest and other charges (pp. 22–23 of the petition).

The CD had availed a loan of Rs. 4,67,00,000/- (Loan–I) from the FC vide sanction letter dated 21.07.2017, which was disbursed on 02.08.2017.

Subsequently, the CD availed another financial facility amounting to Rs. 44,05,548/- (Loan–II) from the FC vide sanction letter dated 26.06.2020, as working capital assistance during the Covid-19 pandemic, which was disbursed on the same date.

On default of repayment by the CD, the FC issued a demand notice dated 08.12.2021 under Section 13(2) of the SARFAESI Act, 2002, calling upon the CD to pay an amount of Rs. 41,62,884/- towards Loan–I and Rs. 44,05,548/- towards Loan–II, within a period of 60 days.

Upon failure of the CD to comply, the FC proceeded to issue a possession notice dated 22.03.2022 under Section 13(4) of the SARFAESI Act in respect of the secured assets mortgaged by the CD.

Aggrieved by the said possession notice, the CD filed Writ Petition No. 17699 of 2022 before the Hon’ble High Court of Telangana, contending that Securitisation Application (S.A.) No. 85 of 2022 (Diary No. 386 of 2022) was already pending before the Debt Recovery Tribunal (DRT)–II, Hyderabad.

The Hon’ble High Court, by its order dated 11.04.2024, observed as under:

In compliance with the order of the Hon’ble High Court, the CD made part payment to the extent of 15% of the quantified outstanding dues. From the above, it stands established that the outstanding liability of the Corporate Debtor was determined at Rs. 4,60,30,432/- as on 20.11.2021.

A perusal of the financial statements furnished by the Financial Creditor (at pages 279 to 356 of the Application) reveals that the outstanding dues in respect of Loan–I and Loan–II remain repayable by the CD.

A plain reading of Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) makes it clear that, for initiation of Corporate Insolvency Resolution Process (CIRP), the Applicant must establish the existence of a financial debt and a default committed in relation thereto. The Adjudicating Authority is required to undertake a summary adjudication to ascertain and record satisfaction regarding the occurrence of default before admitting the application.

Upon perusal of the computation set out in Part IV of the petition, which has remained uncontested, this Authority is satisfied that the present petition meets the threshold requirement of Rs. 1 crore, as stipulated under Section 4 of the IBC, 2016, for initiation of proceedings under Section 7.

On the aspect of limitation, the demand notice was issued by the FC on 08.12.2021, and the cause of action arose upon expiry of 60 days from the date of its receipt by the CD. On computation, it is evident that the present petition has been filed within the period of three years, and is therefore within limitation.

In view of the foregoing, we hold that the FC has duly established the existence of a financial debt as well as default committed by the CD. Accordingly, the following directions are issued:

The Application is admitted and this Adjudicating Authority orders the commencement of the Corporate Insolvency Resolution Process, which shall ordinarily be completed within the timelines stipulated in the Code, 2016 (as amended), reckoning from the date on which this order is passed.

The Applicant has proposed the name of M/s. AAA Insolvency Professionals LLP^{11.Registration No.: IBBI/IPE-0002/IPA-1/2022-23/50001, Address: AAA House, 64 Okhla Estate Phase-III, Near Modi Mill, Okhla Industrial Estate, New Delhi-110020, Email: [email protected] & [email protected] , Contact No.: 9811133226.}, Registration No.: IBBI/IPE-0002/IPA-1/2022-23/50001, whose AFA as per the IBBI Website is valid up to 31.12.2025, as the Interim Resolution Professional (hereinafter referred to as the "IRP"). The proposal to appoint M/s. AAA Insolvency Professionals LLP as IRP is approved. The IRP is directed to file Authorization for Assignment within three days from the date of this order.

The IRP is directed to take charge of the management of the Corporate Debtor, immediately. He is also directed to cause a public announcement as prescribed under Section 15 of the Code, 2016, within three days from the date of receipt of this order, and call for submissions of claim in the manner as prescribed.

Moratorium is hereby declared and shall have effect from the date of this order till the completion of the CIRP, for the purposes referred to in Section 14 of the Code, 2016. It is hereby ordered that all of the following are prohibited:

I. 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 or law, tribunal, arbitration panel, or other authority;

II. Transferring, encumbering, alienating, or disposing of by the Corporate Debtor any of its assets or any legal rights or beneficial interest therein;

III. 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 Act, 2002 (54 of 2002);

IV. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

V. Notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period.

The supply of essential goods or services to the Corporate Debtor shall not be terminated, suspended or interrupted during the moratorium period. Further, if the IRP considers supply of any goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period. Furthermore, the provisions of Sub-section (1) of Section 14 shall not apply to such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority.

The IRP shall comply with the provisions of Sections 13(2), 15, 17 & 18 of the Code, 2106. The Directors, Promoters or any other person associated with the management of Corporate Debtor are directed to extend all assistance and co-operation to the IRP as stipulated under Section 19 for discharging his functions under Section 20 of the Code, 2016.

The Corporate Applicant as well as the Registry is directed to send a copy of this Order to the IRP, to enable him to take charge of the assets, etc. of the Corporate Debtor, and comply with this order as per the provisions of the Code, 2016.

The Registry is directed to communicate this Order to the Corporate Applicant.

The Registry shall also communicate this Order to the Registrar of Companies, Hyderabad, for updating the status of the Corporate Debtor on the website of the Ministry of Corporate Affairs.