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Judgment
ORDER
PER: DR. SANJEEV RANJAN, MEMBER (TECHNICAL)
This Petition is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by M/s State Bank of India (“Applicant”), seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against M/s Worlds Window Estate Private Limited [CIN: U70101DL2006PTC145081] (“Corporate Debtor”) which is the corporate guarantor to loans availed by the M/s Magnifico Minerals Private Limited ("Borrower").
The Corporate Debtor was incorporated on 19.01.2006, under the Companies Act, 1956. Its registered office is at Plot No. 25, DSIIDC Shed, Scheme-II, Basement, Okhla Industrial Area, Phase-II, Okhla Industrial Area Phase-I, South Delhi, New Delhi-110020. Therefore, this Bench has jurisdiction to deal with this petition.
The present petition was filed on 26.05.2023 before this Adjudicating Authority. It is the case of the Applicant that the Borrower had sought fund based and non-fund based facilities from State Bank of Patiala (which was later on merged with the applicant). The amount of default as per Form I part IV of the Petition sums upto an amount of Rs. 71,18,05,053.27/- (Rupees Seventy-One Crores Eighteen Lakhs Five Thousand and Fifty-Three and Two Seven Paise) as on 30.04.2023 along with further interest as per the accounts of the Financial Creditor.
Ld. Counsel for the Applicant submits that:
The details of the Financial Debt are as under: Two facilities namely - Cash Credit fund base (stock cum book debts) of Rs. 4,00,00,000 (Rupees Four Crores), and non-fund based working capital limit Letter of Credit of Rs. 46,00,00,000 (Rupees Forty-Six crores), was made available to the Borrower i.e. M/s Magnifico Minerals Private Limited, under a Sanction letter dated 06.08.2012 by erstwhile State Bank of Patiala (“SBP”), now SBI. (Sanction letter Annexure F at pg. 71-76 Petition V1])
Key terms of the Sanction in respect of the cash credit facilities are set out below: i. Interest: -3.50% above base rate i.e., 14.00%p.a. (floating), in line with Central Bank of India. However, the ROI of SBI will not be lower than any other lender in the consortium. ii. Performance of Security: Three months’ time period is permitted for submission of corporate guarantees of - M/s World’s Window Impex India Private Limited, M/s Worlds Window Exim Private Limited, World Window Estate Pvt. Limited, and Dhartrima Urja Pvt. Ltd. Penal interest @ 1.00% over and above the sanctioned ROI will be charged for non-compliance of 3 months’ time period of perfection of security. iii. Penal Interest: Irregularity Bank will recover penal interest @5% p.a. on the irregular portion for the period of irregularity. The above penal interest is over and above the applicable rate of interest. iv. Commitment charges: - 0.25% of the entire unutilized portion if the average utilization is 60% or less in line with the lead bank.
Key terms of the Sanction in respect of the letter of credit are set out below: i. Margins: 10% ii. Security: same as applicable to cash credit facility. iii. Commission: 50% concession on applicable bank charges. iv. LC issuance charges: Maximum 120 days v. Period of Sanction: One year from date of Sanction (Sanction Letter-Annexure G at pg. 77-83 Petition V1] (Agreement of loan for overall limit dated 28.12.2012 - Annexure I p.86- 120 Petition V1].
Further the Borrower sought to avail additional working capital facilities (collectively referred as “WC facilities”). WC facilities aggregating to Rs. 478,00,00,000 (Rupees Four Hundred Seventy Eight Crores) were made available to the Borrower under a Working Capital Consortium Agreement dated 25.06.2013 ("WC Facility Agreement”). SBP was a part of the consortium of lenders. The Bank of India is designated as the Lead bank. The consortium of lenders consisted of a total 06 lenders, including: i. Bank of Baroda (Erstwhile Dena Bank) ii. Central Bank of India iii. Union Bank of India iv. Canara Bank v. Andhra Bank. vi. State Bank of India (Erstwhile State Bank of Patiala) (Working Capital Consortium Agreement- Annexure O at pg. 151-191 Petition V2]
These Working Capital Facilities were secured by various securities out of which the Corporate Guarantee is relevant considering the subject matter of the present case. Details of which is as follows: i. M/s World Window Impex India Private Limited Net worth INR 150.30 Crores as on 31.03.2011 ii. M/s World Window Exim Pvt. Ltd. Net worth INR - 1.53 Crores as on 31.03.2016. iii. M/s World Window Estate Pvt. Ltd. Net worth – INR 0.41 crores as on 31.03.2016. iv. M/s Dharitrima Urja with net worth INR 169 crores as on 31.03.2016. (Agreement for Letters of Credit and/ or Guarantee dated 25 June 2013 - Annexure P at pg. 192-197 Petition V2]
As per the Working Capital Consortium Agreement dated 25.06.2013, the Borrower was under an obligation, to procure irrevocable and unconditional guarantees from its directors and/ or other parties for securing the payment and discharge of the amount of Rs. 478,00,00,000 (Rupees Four Hundred Seventy Eight Crores) of Working Capital Consortium Facility. Pursuant to that two companies, including the Corporate Debtor and M/s World Window Exim Private Limited, being group companies of the Borrower, executed a Deed of Guarantee dated 09.07.2015 in favour of the Consortium Lenders, including SBP. The said corporate guarantee is irrevocable, unconditional, and continuing in nature, and the obligation upon the Corporate Debtor would subsist until the complete discharge of the entire outstanding amount due and payable under the WC Facility Agreement. (Deed of Corporate Guarantees executed by the Corporate Debtor and by World Window Exim Private Limited - Annexure Y and Z pg. 277-299 Petition V2] (Memorandum of Entry dated 09.07.2015 - Annexure AA pg. 300-307 Petition V2]
The Financial Creditor and the Borrower entered into the two revisions of the facilities for the same limits as previously sanctioned. Further additional security by way of the Corporate Guarantee of World Window Estate Private Limited (Corporate Debtor) was required to be provided in terms of the Sanction letter dated 21.03.2017. (Sanction letter dated 21.03.2017 - Annexure BB pg. 308-313 Petition V2] (Sanction letter dated 28.03.2018 - Annexure DD pg. 338-373).
Further the Borrower was declared as NPA on 25.05.2019 by the Financial Creditor and the Guarantee was invoked by the Financial Creditor against the Corporate Debtor on 16.12.2019 vide invocation letter dated 12.12.2019 [Invocation of Guarantee Notice dated 12.12.2019 - Annexure HH at pg. 719-725 Petition V6]
On 28.07.2020, the Borrower made a part payment of an amount of Rs. 1,85,41,235.60/- (Rupees One Crore Eighty-Five Lakhs Forty-One Thousand Two Hundred Thirty-Five and Sixty Paise) towards payment of the facilities due and payable to the Financial Creditor. The Borrower has also admitted and acknowledged its outstanding liability towards the Financial Creditor in its audited balance sheets for the years 2019-2020 to 2020-2021 [Annexure JJ @ pg no. 784 Petition V6, pg. no. 813 Petition V6 and Annexure KK @ pg. no. 958, Petition V7].
Further the Corporate Debtor has also placed on record multiple OTS proposals, which depicts the acknowledgement of debt by the Corporate Debtor.
Replying to the averments of the Ld. Counsel for the Applicant, the Ld. Counsel for the Corporate Debtor submits the following:
State Bank of India (‘Applicant/Financial Creditor’) is one of the consortium members which granted credit facilities amounting to Rs. 478 crores to Magnifico Minerals Private Limited (Borrower’) in the year 2013.
World Window Estate Private Limited (‘Respondent/Corporate Debtor’) was the mortgagor /guarantor to the consortium of lenders including the Applicant in pursuance of the deed of guarantee entered into between the Applicant and the Respondent Guarantor on 09.07.2015.
It is submitted that both the Borrower and the Respondent belong to World Window Group of Companies, and the Group’s business was flourishing to the extent that it was valued at INR 2100 Crores in the year 2017 by E&Y.
Some of the consortium members in January 2019 arbitrarily froze the debit operations in the bank accounts of the Borrower, pursuant to which the Borrower was forced to default on its loans and was declared as a NPA on 25.05.2019. Consequently, the Respondent Guarantor received a demand notice only on 12.12.2019.
It is submitted that there were no instances of default/ irregularities in the accounts of the Borrower with any of the consortium of lenders until January 2019. The accounts of the Borrower were always standard and regular since inception. The due diligence and stock audit was conducted from time to time. The banks including the Applicant never raised any concerns on any documentation/ conduct of account. The company was operating as a viable going concern, with stable operations and ongoing contracts with customers and vendors, when some of the banks which were a part of the consortium including the Applicant arbitrarily froze the operations of the bank account of the Borrower, resulting in significant financial challenges. As a result, Borrower began encountering difficulties in fulfilling its contractual obligations for payment of its debt obligations.
The consortium members including the Applicant and the Borrower have been in constant negotiations to resolve the financial situation, and these discussions are continuing till date.
There is a possibility that the Borrower might clear its debts and settle with all the banks, or an ARC might take over the entire debt held by the consortium of lenders including the Applicants along with all the underlying security interests which would include the land mortgaged by the Corporate Debtor, the initiation of insolvency proceedings against the Corporate Debtor at the behest of a sole consortium member (the Applicant) will result into an irreparable situation wherein the Corporate Debtor who has not availed the debt might suffer even though the borrower becomes debt free and settles its dues.
It is reiterated that the Corporate Debtor is a mere mortgagor of its property for the loan availed by the Borrower and initiation of the insolvency proceedings against the Corporate Debtor would further the interest of the Applicant which is to merely use the provisions of the Code as a tool for recovery of its debt. The Borrower is a going concern with substantial assets and IBC cannot be used as recovery proceedings by the Applicant.
The Applicant has not initiated any proceedings under IBC against the Borrower and is still in negotiations to arrive at a one-time settlement of its debt with the consortium members including the Applicant.
The present application has been filed without the mandatory requirement of filing information with the information utility. In the present case, the Applicant has not filed the information of the alleged default with the information utility and the same is not appended with the application as per the requirements of Circular No. IBBI/IU/59/2023 issued by IBBI dated 16.05.2023.
We have heard the learned Counsels appearing for Applicant and Corporate Debtor and perused the documents on records. We find that:
This being a petition under section 7 of IBC, 2016, there are few questions that needs to be answered which is as to whether there is a debt which is due and is in default and whether there is time value of this debt (Hon’ble Supreme Court in the case of M. Suresh Reddy v. Canara Bank, 2023 SCC Online SC 608, (Para 10-13).
The Applicant has attached various documents to the petition as discussed in the earlier part of this order that evidence both the disbursal of loan amount and the Corporate Guarantee given by the Corporate Debtor. Moreover, this fact is not disputed by the Corporate Debtor. The Applicant has also attached a certificate dated 29.05.2015 issued by CERSAI [Annexure X at pg. 276 Petition V2] and Statement of Accounts alongwith the Certificate of Banker’s Book of Evidence Act, 1981 (Annexure NN at pg. 1166, Petition V8) which proves the disbursal of loan amount by the Applicant. Pertinently, the obligation of Corporate Guarantor is co-extensive and co-terminus with that of the Principal Borrower as per Section 128 of the Indian Contract Act.
As per the documents on record, it is abundantly clear that there exists a debt obligation against the Borrower. With the Applicant Bank invoking the guarantee, this debt is now incumbent upon the Corporate Guarantor i.e. the Corporate Debtor in the present application.
It is the plea of the Corporate Debtor that the Insolvency and Bankruptcy Board of India had issued a Circular (notification no. IBBI/IU/59/2023), dated 16.05.2023 which makes it mandatory for the creditors to file the date of default with the information utility. Therefor the record of utility is a necessity for application filed under Section 7 and Section 9 of the Code to be effectively heard. However, no such record has been filed by the Applicant. At this juncture we rely upon the Judgment passed by Hon’ble NCLAT on 13.12.2023 in the matter of Vijay Kumar Singhania v/s Bank of Baroda & ors. Company Appeal (AT) (Insolvency) No.1058 of 2023. The relevant paragraphs are as extracted below:
“29.From the above examination of statutory scheme, Rules and Regulations, it is clear that Regulation 20(1A) cannot be read to mean that after the said amendment brought in regulation w.e.f 14.06.2022 an application filed under Section 7 which is not supported by information of default from an information utility is to be rejected and if the Financial Creditor has filed other evidence to prove default which is contemplated by the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the said application has not to be considered. We, thus, are of the considered view that even after amendment of Regulation 20 by insertion of Regulation 20(1A) w.e.f 14.06.2022, Financial Creditor is entitled to file evidence of record of default as contemplated by Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. We, thus, do not find any substance in the submission of the Appellant that since Financial Creditor has not filed the record of default from an information utility, Section 7 deserves to be rejected.
30.Before the Adjudicating Authority, submission on the basis of the argument which has been advanced by the Appellant before us that no information of default from the information utility have been filed, application deserves to be rejected was raised and dealt with by the Adjudicating Authority. It is useful to extract the following observations in paragraph 11 of the judgment of the Adjudicating Authority:-
“……………As far as the plea of default being not recorded with the information utility is concerned, as can be seen from Section 7 (3)(a) of the IBC, 2016, along with the application, the Financial Creditor may furnish the record of default recorded with the information utility or such other or record or evidence of default as may be specified. Besides, as can be seen from Regulation 2A of IBBI (Insolvency Resolution Process for Corporate Persons Regulations), 2016, for the purpose of Clause (a) of sub-section 3 of Section 7 of the Code (ibid), the Financial Creditor may furnish a certified copy of entries in the relevant account in Banker’s Book as evidence of default. In the present case, the Petitioner has enclosed the copies of the statement of account in respect of Account Nos. 05860600004851 and 05860500000127 along with the interest calculation sheet and Certificate under Section 2(A) of Banker’s Book Evidence Act, 1891, as Annexure-7 to the Petition, which is valid evidence in terms of the provisions of Regulation 2A(a) of IBBI (CIRP) Regulations, 2016. As far as the plea of Regulation 20(1A) of IBBI (Information Utilities) Regulations, 2017 is concerned, in terms of the said provision, before filing an application to initiate CIRP the creditor should file the information of default with the Information Utility and the IU shall process the information for the purpose of issuing record of default in accordance with Regulation 21 of the Regulations. The Regulation nowhere provides that the information of default recorded by IU can be the only evidence to be relied on while taking a decision regarding the admission of a Petition under Section 7 of IBC, 2016. Even otherwise also, neither the IBBI (IU) Regulations, 2017 nor the order issued by the Registrar, NCLT can have overriding effect qua the provisions of Regulation 7(3)(a) of the IBC, 2016. In the wake, we are unable to countenance the plea raised by the Respondent i.e., in the absence of a record of default recorded by IU, an application filed under Section 7 of IBC, 2016 may not be admitted.”
31.Thus, we are of the view that the Adjudicating Authority has correctly repelled the contention of the Appellant that in absence of a record of default recorded by information utility, the application filed under Section 7 may not be admitted.”
Therefore, considering the judicial precedent and provisions of the Code, 2016 and the regulations made thereunder, it is settled proposition that the record of default recorded with the Information Utility cannot be the only document to be furnished in a Section 7 Application and the financial creditor is at liberty to submit such other record of default as may be specified which proves the existence of debt and default. Further the Applicant has placed on record the copy of the Sanction Letters dated 06.08.2012 & 01.12.2012, Agreement of Loan for overall limit dated 28.12.2012, Omnibus Guarantee Agreement dated 28.12.2012, Letter of Grant of Individual Limit within the Overall Limit dated 28.12.2012, Working Capital Consortium Agreement dated 25.06.2013, Agreement for Letters of Credit and/ or Guarantee dated 25.06.2013, Certificate dated 29.05.2015 issued by CERSAI, Copy of Deed of Guarantee executed by Ms. World Window Exim Private Limited dated 09.07.2015, Legal Demand notice of invocation of Guarantee dated 12.12.2019, Balance Sheet Confirmations, Statement of Accounts alongwith Copy of Banker’s Book of Evidence Act, 1891 to prove the existence of debt and its default. Therefore, the contention of the Corporate Debtor regarding the non-maintainability of the present application in absence of record of default cannot be sustained.
The counsel for the Corporate Debtor has also taken the plea of commercial solvency of the Corporate Debtor which, in our view is not of relevant consideration. An application filed U/s 7 of IBC, 2016 can be admitted once there is a debt which is due and payable and as far as the present case is concerned, there is a debt and there is a default in repayment thereof. Hence as the default is committed by the principal borrower, the liability of the Corporate Debtor, being the guarantor, instantly triggers the right of the financial creditor to proceed against the Corporate Guarantor (being a corporate debtor).
In light of the above facts and circumstances, it is ordered as follows: -
The Application bearing IB-427(ND)/2023 filed by the Applicant/(FC), under section 7 of the Code read with Rule 4 of the Adjudicating Authority Rules for initiating CIRP against the Corporate Debtor is admitted.
We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:
(a)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, Adjudicating Authority, arbitration panel or other authority;
(b)Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c)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;
(d)The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the corporate debtor.
(e)The IB Code 2016 also prohibits Suspension or termination of any 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, 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.
It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3)(b) of the Code.
The Applicant has proposed the name of Mr. Sunder Khatri as the Interim Resolution Professional (“IRP”) having address: GF-124&113, World Trade Centre, Babar Road, Lalit Hotel, New Delhi, National Capital Territory of Delhi-110001. His Email id is [email protected]. His registration number is IBBI/IPA-002/IP-N00437/2017-2018/11191. The Applicant has filed a copy of the consent issued by Mr. Sunder Khatri in Form 2 and Written Communication by proposed IRP, as per the requirement of Rule 9(l) of the Adjudicating Authority Rules (Attached to the Petition, Volume – I, as ‘Annexure – D’) along with the Certificate of Registration and Authorization for Assignment in Form B (Attached to the Written Statement of the Applicant as Annexure-A). Accordingly, Mr. Sunder Khatri is appointed as IRP.
In pursuance of Section 13(2) of the Code, we direct the IRP to make a public announcement immediately with regard to the admission of this application under Section 7 of the Code. The expression immediately means within three days as clarified by Explanation to Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
During the CIRP period, the management of the Corporate Debtor shall vest in the IRP/RP, in terms of Section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this order, in default of which coercive steps will follow. There shall be no future opportunity given in this regard.
The IRP shall perform all his functions as contemplated, interalia, by Sections 17, 18, 20 & 21 of the Code. He is expected to take full charge of the Corporate Debtor’s assets, and documents without any delay whatsoever. He is also free to take police assistance and this Court hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.
The IRP or the RP, as the case may be shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.
The Financial Creditor shall deposit a sum of Rs 2,00,000/- (Rupees Two Lakh Only) with the IRP to meet the expense to perform the functions assigned to him in accordance with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within one week from the date of receipt of this order by the Financial Creditor. The amount however be subject to adjustment by the Committee of Creditors, as accounted for by IRP and shall be paid back to the Financial Creditor.
In terms of Section 7(7) of the Code, the Registry is hereby directed to communicate a copy of the order to the Financial Creditor, the Corporate Debtor, the IRP and the Registrar of Companies, NCT of Delhi and Haryana, by Speed Post and by email, at the earliest but not later than seven days from today.
The Registrar of Companies shall update his website by updating the status of the Corporate Debtor and specific mention regarding admission of this petition must be notified.
The Registry is further directed to send a copy of this order to the Insolvency and Bankruptcy Board of India (“IBBI”) for their record.
A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.
Accordingly, the present petition bearing CP No. IB 427 (ND)/2023 is admitted. No order as to cost.