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Judgment
Per: Ashutosh Chandra, Member (Technical),
This is a Petition being C.P. (IB) No.05/BB/2021, filed by, Mitra Trading & Exports Private Limited, the Petitioner, against MTM Trading Private Limited, the Respondent, under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of Insolvency and Bankruptcy (Petition to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process against the Respondent claiming a default of financial debt of Rs.1,13,21,77,641/- (Rupees One Hundred Thirteen Crore Twenty One Lakh Seventy Seven Thousand Six Hundred and Forty One Only) including interest of Rs.51,41,77,641/- from 15.03.2020 till the date of filing of this Petition.
Mr. Prashant Itagikar, Director of the Petitioner Company filed this application/ petition under section 7 of the Code, 2016 being duly authorised by Board Resolution dated 01.12.2020. Copy of the Board resolution is annexed to the Petition.
The Petitioner is engaged in the business of trading in commodities among other activities. The Respondent is a company engaged in the business of trading in commodities among other activities as per the Memorandum of Association of the Company. The Company was earlier known as Murkumbi Investments Private Limited and was earlier an investment company. The NBFC licence was surrendered and RBI approved the same on 07.08.2020. Subsequently, the Respondent Company was renamed as MTM Trading Private Limited.
The Petitioner granted credit facility in the form of Inter Corporate Deposit (ICD) for Rs.16 Crore vide Sanction Letter dated 16.08.2011 by transferring the same to bank account of Respondent at an interest rate of (11%) p.a. The Respondent has confirmed receipt of the ICD's vide receipts dated 23.08.2011 and 26.08.2011 and on further request the Petitioner has given various ICDs amounting to Rs.68,60,00,000/- by 31.12.2011. On 19.12.2011, the Respondent repaid Rs.83,17,754/- interest and on 26.06.2012, principal amount of Rs16 Crore was also repaid. Copies of the Sanction Letter dated 16.08.2011 along with receipts dated 23.08.2011 and 26.08.2011 are annexed to the Petition. Further, subsequent Sanction Letters and respective receipting confirming the disbursement are also annexed to the Petition.
As the Respondent requested for further financial assistance, more credit facility was extended which was renewed from time to time. From 26.08.2012 to 21.07.2017, the Petitioner has given further loan to the extent of Rs.131 Crore in different tranches and the Respondent repaid Rs.48.45 Crore of Principal amount and Rs.65.65 Lakhs interest during the period. After much follow up, the Rs 55.35 Crore of principal was paid during 2018-19. However interest amounts remained unpaid and accumulated to Rs.51.42 Crore as on 31.03.2018. Summary of transactions is produced herein below in tabular form:
| Year | Principal amount given | Accumulated interest | Principal repaid | Interest Repaid | Balance (Principal + Interest) |
|---|---|---|---|---|---|
| 2011 | 68,60,00,000 | 99,08,957 | - | - | 69,59,08,957 |
| 2012 | 14,40,00,000 | 6,27,58,723 | 19,00,00,000 | - | 71,26,67,680 |
| 2013 | 29,10,00,000 | 7,16,84,812 | 21,70,00,000 | 83,17,754 | 85,00,34,738 |
| 2014 | 6,15,00,000 | 7,43,95,800 | 5,75,00,000 | 1,05,00,000 | 91,79,30,538 |
| 2015 | 24,85,00,000 | 8,63,22,544 | - | 10,50,000 | 1,25,17,03,082 |
| 2016 | 9,25,00,000 | 9,56,13,214 | 18,00,00,000 | - | 1,25,98,16,296 |
| 2017 | 29,25,00,000 | 10,52,91,030 | - | 5,00,000 | 1,65,71,07,326 |
| 2018 | - | 2,85,70,315 | 55,35,00,000 | - | 1,13,21,77,641 |
| 2019 | - | - | - | - | 1,13,21,77,641 |
It is submitted that after 10.04.2019, the Respondent has not repaid either principal or interest. Finally, the Petitioner sent notice dated 28.02.2020 to the Respondent demanding payment of outstanding principal amounts and interest. The Respondent informed the Petitioner that the Respondent Company is in deep financial distress and is unable to pay the dues. The Respondent defaulted on 15.03.2020. Copy the Notice dated 28.02.2020 is annexed to the Petition. Copy of Balance Confirmation Letter dated 28.02.2020 confirming that amounts payable to Petitioner are Rs.113,21,77,641/- is annexed to the Petitioner.
The Respondent was hugely benefited by the borrowings from the Petitioner and has not kept up the commitment of repayment and defaulted in making the payment in spite of repeated requests and reminders.
The Petitioner has annexed NeSL Report reflecting the default committed by the Respondent, audited financial statements of the Respondent as on 31.03.2020 showing negative net worth of the Company and Master data of the Respondent available on the MCA website.
The Petitioner has duly served copy of Petition to the Respondent and filed proof of service.
The Respondent has filed its written submissions/objections as follows:
(1)It is submitted that the Respondent was engaged in the business of core investment and had obtained registration from the Reserve Bank of India under section 45IA of the RBI Act, 1934 r/w Direction 5 of the Core Investment Companies (Reserve Bank) Directions, 2016.
(2)It is submitted that as a core investment company, the business of the Respondent was restricted to making investment, in securities such as shares, bonds debentures, debt or loans in group companies only. Accordingly, the Respondent had major investment in equity shares of the Group Companies. The Company had regular income in the form of dividend from group companies. Since the income of the company in the form of dividends from the group companies was discontinued due to inadequate income or losses occurred to the group companies, the Respondent incurred continuous losses. The Respondent had to sell its investments in loss as one of the group companies was undergoing debt restructuring plan due to market price falling down considerably.
The Respondent approached the Petitioner to meet its financial requirements for funds. The Respondent admits that it has defaulted in paying its financial debt to the Petitioner and admits that the total amounts due are Rs.1,13,21,77,461/- (Rupees One Hundred Thirteen Crore Twenty One Lakh Seventy Seven Thousand Four Hundred and Sixty One only). It is further stated that the net worth of the company as on 31.03.2020 is negative at Rs.874,909,836/- (Rupees Eighty Seven Crore Forty Nine Lakh Nine Thousand Eight Hundred and Thirty Six only).
(4)It is submitted that the Respondent has no hope as Core investment Company and made an application to RBI for cancellation of registration as Core Investment Company and the same was allowed vide Order dated 07.08.2020.
(5)The Respondent states that the main objects of the company have been altered to diversify business and is now engaged in the business of general merchants, traders, importers, exporters etc. Though the financial position appearing to be dwindling as per audited Balance sheets as on 31.03.2020, the Respondent is confident of turning the table and coming out of financial problems by engaging in new line of business. Hence it is prayed the petition for initiating corporate insolvency resolution process may not be admitted.
Heard Mr. Saji P. John, learned Counsel for the Petitioner and Mr. Ramnath Sadekar, learned Counsel for the Respondent Company, through Video Conferencing. We have carefully perused the pleadings of the Parties and the extant provisions of the Code. The relevant documents annexed with the respective submissions have been examined.
The instant application is filed in accordance with the extant provisions of the Code and the debt and default are established by the Financial Creditor by submitting substantial evidence in support of the claim as mentioned supra. The Corporate Debtor has admitted to its liability to repay the claimed dues. However it states that it is unable to repay its debts as the company's net worth is in the negative. The Financial statements pertaining to the Respondent, as brought on record are also clearly indicative of the fact that the Respondent Corporate Debtor is in no position to repay its debts. These are not contested by the Respondent. With the discontinuation of dividend income due to inadequate income, the losses have been mounting for the entire group of the Corporate Debtor. Due to falling markets it had to dispose of its investments. In seeking financial assistance from the Petitioner, the Respondent further defaulted and admittedly ended up with a default amount of Rs.1,13,21,77,461/-, as against an admitted negative net worth of Rs.874,909,836/-, as on 31.03.2020. The Respondents plea that it now intends to change its line of business and repay its debts appears to be untenable. The future line of business of trading in consumer goods, as mentioned by the Respondent, is unlikely to generate the quantum of income required to the debts in question, in the foreseeable future. We are therefore of the clear view that the Respondent has lost its substratum and its ability to generate income, earn substantial revenue and repay its debt, and hence has clearly become insolvent. It is therefore a fit case for initiating CIRP so as to resolve the insolvency of the Respondent Corporate Debtor.
The Financial Creditor has also suggested a qualified Resolution Professional, namely Shri Joby Chacko, having Registration No. [IBBI/IPA-001/IP-P01372/2018-19/12300], who also filed written Consent in Form-2 dated 30.12.2020 and necessary declaration of his being qualified for being so appointed. Therefore we are of the prima facie opinion that said IRP is eligible to be appointed as IRP in this case. Hence, the instant Company Petition is fit case to admit by initiating CIRP by appointing an IRP, and declaring moratorium etc. in respect of the Corporate Debtor.
So far as the law with regard to initiation of CIRP is concerned, Hon'ble NCLAT vide order dated 15th May, 2017 passed in Company Appeal (AT) (Insolvency) No.1 & 2/2017 in the case of M/s. Innoventive Industries Limited vs. ICICI Bank & Anr. has dealt with the issue of admission of a Petition filed under Section 7 of the Code, under Paras 55 to 58, which are extracted below:
"55.Process of initiation of Insolvency Resolution process by a financial creditor is provided in Section 7 of the I&B Code. As per sub-section (1) of Section 7 of the I&B Code, the trigger for filing of an application by a financial creditor before the Adjudicating Authority is when a default in respect of any financial debt has occurred. Sub-section (2) of Section 7 provides that the financial creditor shall make an application in prescribed form and manner and with prescribed documents, including:
i."record of the default" recorded with the information utility or such other record or evidence of default as may be specified; ii. The name of the resolution professional proposed to act as an interim resolution professional; and iii. Any other information as may be specified by the Board.
56.The procedure once an application is filed by the financial creditor with the Adjudicating Authority is specified in sub-section (4) of Section 7 to sub-section (7) of Section 7 of the Code. As per sub-section (4) of Section 7 of the I&B Code:
"(4)The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3)."
57.Sub-section (5) of Section 7 of the I&B Code provides for admission or rejection of application of a financial creditor. Where the Adjudicating Authority is satisfied that-...the documents are complete or incomplete.
58.The Adjudicating Authority post ascertaining and being satisfied that such a default has occurred may admit the application of the financial creditor. In other words, the statute mandates the Adjudicating Authority to ascertain and record satisfaction as to the occurrence of default before admitting the application. Mere claim by the financial creditor that the default has occurred is not sufficient. The same is subject to the Adjudicating Authority's summary adjudication, though limited to 'ascertainment' and 'satisfaction'."
The Hon'ble Supreme Court has also upheld the above judgement in Civil Appeal Nos.8337-8338 of 2017 vide judgment dated 31st August, 2017. The Hon'ble Supreme Court has adverted to Section 7, at para 28, which reads as under:
"28.When it comes to financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the Corporate Debtor – it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the Corporate Debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.”
In view of the above facts and circumstances of the case, which satisfy the provisions of the Code of 2016, and the test laid down in the above cited case, by exercising the powers conferred on this Adjudicating Authority, u/s 7(5)(a) and other extant provisions of the Code of 2016, we hereby admit C.P. (IB) No.05/BB/2021 by initiating Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor, with the following consequential directions:
Shri Joby Chacko, bearing Registration No.IBBI/IPA-001/IP-P01372/2018-19/12300, who is a qualified Insolvency Professional, is hereby appointed as Interim Resolution Professional, in respect of the Corporate Debtor, namely, MTM Trading Private Limited, to carry out the CIRP as mentioned under the Insolvency and Bankruptcy Code, 2016 and various rules issued by IBBI from time to time; The following moratorium is declared prohibiting all of the following, namely:
a. the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor /Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, 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 Securitisation 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 supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period;
f. The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator and a surety in a contract of guarantee to a Corporate Debtor;
g. The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process;
h. The IRP is directed to follow all extant provisions of the IBC, 2016 and all extant rules including fees rules as framed by IBBI from time to time. The IRP is hereby directed to file progress reports to the Adjudicating Authority from time to time.
The Board of Directors and all the staff of Corporate Debtor / Corporate Debtor are hereby directed to extend full co-operation to the IRP, in carrying out his functions as such, under the Code and Rules made by IBBI.
Post the case for report of the IRP on 19th April, 2021.