Mobile Constructions Private Limited vs Apple Land Development Private Limited

[PER: K. R. SAJI KUMAR, MEMBER (JUDICIAL)]

This C.P. No. (IB) 1051/MB/2023 (Application) was filed on 21.08.2023 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, by Mobile Constructions Private Limited, the Financial Creditor (FC), for initiating Corporate Insolvency Resolution Process (CIRP) in respect of Apple Land Development Private Limited, the Corporate Debtor (CD).

The total amount of default alleged in the matter is Rs. 2,51,32,731/- (Two Crore Fifty-One Lakh Thirty-Two Thousand Seven Hundred Thirty-One Rupees) including the principal amount of Rs.1,57,50,000/- along with Rs.93,82,731/- as alleged interest up to 25.05.2023.

It is alleged that the FC provided financial loan assistance to the CD and was granted and disbursed in five tranches starting from 10.04.2019 to 24.04.2019. The rate of interest was 12% per annum and was payable on half yearly basis on the principal amount. The CD was liable to repay the principal amount of Rs.1,57,50,000/- within a period of one year from the date of disbursal along with interest. The FC disbursed an aggregate sum of Rs.1,57,50,000/- to the CD in tranches between the period from 10.04.2019 to 24.04.2019. The details of disbursement are as follows:

In spite of receipt of Court notice, the CD remained absent and was set ex-parte vide order dated 19.12.2023.

This Court heard the FC and vide order dated 21.02.2024, dismissed the Application, against which an appeal was preferred by the FC. The Hon’ble NCLAT by order dated 11.12.2024, set aside the order of dismissal of the Application and directed this Adjudicating Authority, inter alia, to pass an order admitting the Application within a period of one month from the date on which a copy of the appellate order was produced before the Adjudicating Authority. The matter was mentioned before the erstwhile Bench on 20.12.2024, on which date the Registry was directed to list it on 10.01.2025. It was also ordered that notice be issued to the CD for causing its appearance on 10.01.2025. Meanwhile, the Bench was re-constituted and the matter came up for hearing on 10.01.2025 before this re-constituted Bench. There was no representation for the CD on 10.01.2025. Thereafter, it was listed on 21.01.2025 for hearing, and on that day, the Ld. Counsel for the FC was heard in detail and this Bench reserved the matter for orders.

In the year 2019, the CD sought financial assistance from the FC in the form of a loan. At the request of the CD, the FC agreed to extend the loan of Rs.1,57,50,000/-, on the condition that the CD would pay interest on a half yearly basis on the principal sum at the rate of 12% per annum and that the CD would repay the principal amount within one year from the date of disbursal. Although there was no written agreement between the FC and the CD, all payments were disbursed by bank transfer to the account of the CD.

However, the CD started committing default by not paying interest on the very first half-yearly instalment of interest, which became due on 10.10.2019. The CD also continued to make defaults in payments of instalments. The total default committed by the CD was Rs. 2,57,53,424/- as on 31.07.2023.

The FC issued demand notice on 20.07.2020, calling upon the CD to repay the overdue amount. However, the CD did not respond to the same. Thereafter, the FC issued loan recall notice on 25.05.2023, recalling the entire principal amount and interest up to May 2023. Again, no reply was sent by the CD to the recall notice. The CD did not appear before the Court in spite of receipt of Court notice and consequently, it was set ex-parte. Since the CD has never denied default, CIRP is only to be initiated against the CD for the default committed by the CD.

Records indicate that Court notice was ordered on 08.11.2023 to the CD, for its appearance, intimating the date of hearing as 19.12.2023. The notice was duly served on the CD on 20.11.2023. However, since the CD did not appear, it was set ex-parte on 19.12.2023. The matter was heard ex-parte and reserved for orders on 18.01.2024 and the matter was dismissed vide order dated 21.02.2024. The CD never appeared before the Hon’ble NCLAT also when the appeal was heard and disposed of by the Appellate Tribunal. In short, the CD remained ex-parte throughout the proceedings.

In the above backdrop, we have perused all the documents and pleadings of the FC and heard their Ld. Counsel.

The first question to be decided is whether there exists any debt and liability owed by the CD and if it is in default of the threshold amount as prescribed under Section 4 of the IBC. It is the admitted case of the FC that there was no formal agreement between the parties regarding the grant and disbursement of the loan. However, in Part-IV of the Application, the FC has stated that a total amount of Rs.1,57,50,000/- was paid to the account of the CD in five tranches starting from 10.04.2019 until 24.04.2019. According to the FC, interest at the rate of 12% per annum was payable on the principal amount on half yearly basis with the first payment of interest due on 10.10.2019. However, in the absence of any written terms and conditions regarding the loan, it is unclear whether any interest was actually payable on the amount disbursed to the CD. Be that as it may, Exhibit ‘F’, which is the Bank Statement of the FC shows that certain amounts were transferred to the account of the CD, i.e., Rs.3,000,000/- on 10.04.2019; Rs.3,000,000/- on 11.04.2019; Rs.2,950,000/-on 12.04.2019; Rs.3,500,000/- on 18.04.2019; and Rs.3,300,000/- on 24.04.2019 aggregating Rs.15,750,000/-. Since the CD has chosen not to appear and offer any explanation for the receipt of the above amounts to its credit, the only presumption that can be drawn is that there was indeed disbursement by the FC to the account of the CD by way of credit. This is further corroborated by the Ledger Account of the FC produced as Ext. ‘J’. Additionally, the Audited Financial Statement of the FC for the financial year ending 31.03.2020 produced as Ext. ‘K’ shows that Rs.15,750,000/- was given to the CD under ‘Loans and Advances’. The record of default obtained from the Information Utility indicates that Rs.15,750,000/- was in default by the CD as on 10.10.2019, when the CD failed to pay the first half yearly interest and that the default extended to both interest and principal. All the above is sufficient to prove that the CD owes Rs.15,750,000/- to the FC, which remains due and payable to the FC by the CD. The default by the CD occurred on 10.10.2019, when the half yearly interest component was due. Although there is nothing to suggest that there was an agreement for interest, there is no indication that the CD had ever repaid or returned the amounts disbursed by the FC. Since both the two entities are Private Limited Companies, the amount disbursement by the FC to the CD is in the nature of disbursal against consideration for the time value of money reflecting a commercial effect of borrowing, within the meaning of Section 5(8)(f) of the IBC. This question is thus answered accordingly.

The next question to be decided is whether the default occurred during the period when initiation of CIRP was prohibited under Section 10A of the IBC. The FC consistently claims that the default occurred on 10.04.2019, when the first half yearly instalment of interest became due from the CD. It is the consistent case of the FC that the default occurred on 10.10.2019, when the first half yearly instalment of interest has fallen due by the CD. As per the Bank Statement of the FC, the last disbursement of Rs.3,330,000/- was made by the FC on 24.04.2019. A demand notice was sent to the CD on 20.07.2020, which was also emailed to the directors of the CD on the same day. A second notice was issued by the FC on 25.05.2023. However, the CD did not respond to either of these. In the notice dated 25.05.2023, the CD was called upon to repay Rs.2,51,32,731/- being the entire principal with interest as on 25.05.2023, and to be paid within seven days from the receipt of the notice. There is no evidence to suggest that any repayment, by way of principal or interest, was ever made by the CD. The CD has not contested its case at all. The last tranche of disbursement was made on 24.04.2019. Since the default occurred on 24.10.2019, as the CD failed to make the last half yearly interest and the principal amount was also not paid, the Application is not prohibited under Section 10A of the IBC. The first tranche of amount was transferred on 10.04.2019 and the last on 24.04.2019. We find that 10.10.2019 is the first date of default, when the CD failed to make the first half yearly interest that fell due. However, the default by the CD continued as it failed to make the successive half yearly interest payments. With the last payment of Rs.3,330,000/- on 24.04.2019, the whole of the interest on the principal amount was to be repaid on or before 24.10.2019. Thus, in the absence of any pleading or evidence to the contrary from the CD, it emerges that the date of default would actually fall on 24.10.2019, which is the last half yearly payment of interest by the CD. The principal amount disbursed also remained unpaid. There is no evidence to show that the total amount disbursed by the FC has ever been repaid by the CD, either the principal or the interest component. Therefore, we find that the debt is of a continuing nature. In the instant case, the first demand notice was issued to the CD on 06.07.2020 followed by a loan recall notice dated 25.05.2023. We find that to claim a continuing debt, even notice of recall is not necessary. Further, the CD has been in continuous default even much before the 10A period. Consequently, the mere issuance of a demand notice during the 10A period is insignificant, especially when no application for initiation of CIRP was filed by the FC. It is settled law that the bar under Section 10A of the IBC, does not apply when the default occurred prior to the 10A period. In the instant case, although a demand notice was issued to the CD on 06.07.2020, no application was preferred by the FC at that time. It was only after the second notice dated 25.05.2023 that the FC filed the present Application on 21.08.2023.

We have already determined the date of default in the instant matter as 24.10.2019, which was the due date for the last half yearly interest payment by the CD. However, along with the last half yearly interest, the principal amount was also remaining unpaid as on 24.10.2019. In M.A. No. 21 of 2022 in MA No. 665 of 2021 in Suo Motu Writ Petition (C) No. 3 of 2020, “In Re: Cognizance for Extension of Limitation” the Hon’ble Supreme Court held that limitation for all types of proceedings stands excluded from 15.03.2020 to 28.02.2022, for all cases irrespective of the type of case. This view was recently applied by the Hon’ble Delhi High Court in Captain Sudhanshu Bharadwaj Vs. Air India Limited. [OMP(T) COMM. 31/2023] and also the Principal Bench of the Hon’ble NCLAT, New Delhi in Indospirit Distribution Limited Vs. Kristal Spirits India Pvt. Ltd. [Company Appeal (AT) (Ins.) No. 503 of 2024]. By applying the above, in the present matter, the Application ought to have been filed within a period of three years (1095 days) beginning from the date of default i.e., 24.10.2019; out of which a total number of 142 days had expired from 24.10.2019 till 14.03.2020. After the excluded period from 15.03.2020 to 28.02.2022, the balance period of limitation would run from 01.03.2022. In that case, the FC would get remaining balance of 953 days, and the new date of expiration of the limitation would be 09.10.2024, which is calculated as below:

The present Application was filed on 21.08.2023. Hence, we find that the Application is filed within the limitation period.

In short, in the absence of any evidence produced by the CD, as to the debt and default claimed by the FC, we conclude that the CD has failed to service the debt obligation and has committed default of more than One Crore Rupees in terms of Section 4 of the IBC, which makes this Application eligible to be allowed.

From the above, it is clear that financial debt amounting to more than One Crore Rupees is due and payable by the CD to the FC herein and the CD has defaulted in payment of debt within the definition of Section 5(8) of the IBC.

Considering the facts and law as discussed above, this re-constituted Bench is of the view that in such circumstances, it is imperative that CIRP is only to be initiated in respect of the CD. Therefore, we are of the considered view that this Application is complete and satisfies all the necessary requirements for admission under Section 7 of the IBC.

This Application bearing C.P. (IB) No. 1051/MB/2023 under Section 7 of the IBC, filed by Apple Land Development Private Limited, the FC, for initiating CIRP in respect of Mobile Constructions Private Limited, the CD is admitted.

We further declare moratorium under Section 14 of the IBC, with consequential directions as follows:

I. We prohibit-

II. That the supply of essential goods or services to the CD, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.

III. That the order of moratorium shall have effect from the date of this order till the completion of the CIRP or until this Bench approves the resolution plan under section 31(1) of the IBC or passes an order for the liquidation of the CD under section 33 thereof, as the case may be.

IV. That the public announcement of the CIRP shall be made in accordance with the provisions of the IBC, the Rules and Regulations made thereunder.

V. That this Bench hereby appoints Mr. Nilesh Rajendra Kothari, a registered Insolvency Professional having Registration Number- IBBI/IPA-002/IP-N01225/2022-23/14132 and e-mail- [email protected], having valid Authorisation for Assignment up to 31.12.2025 as the Interim Resolution Professional (IRP) to carry out the functions under the IBC. The fee payable to IRP/RP shall be in accordance with the Regulations/Circulars issued by the IBBI.

VI. During the CIRP Period, the management of the CD shall vest in the IRP or, as the case may be, the RP in terms of Section 17 or Section 25, as the case may be, of the IBC. The officers and managers of the CD shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

VII. In exercise of the powers under Rule 11 of the NCLT Rules, we order the FC to deposit a sum of Rs.5,00,000/- (Five Lakh Rupees) with the IRP to meet the initial CIRP cost, if demanded by the IRP to fund expenses on issuing public notice and inviting claims, etc. The amount so deposited shall be interim finance and paid back to the FC on priority upon the funds available with IRP/RP. The expenses, incurred by IRP out of this fund, are subject to approval by the Committee of Creditors (CoC).

VIII. A copy of this Order be sent to the Registrar of Companies, Mumbai Maharashtra, for updating the Master Data of the CD.

IX. Registry is directed to immediately communicate this Order to the FC, the CD and the IRP by way of e-mail and WhatsApp.

X. The Registry is directed to communicate electronic version of this Order to the Insolvency and Bankruptcy Board of India forthwith for information and record.

XI. Compliance report of the order by Designated Registrar is to be submitted today.