Mr. Sachin Manohar Deshmukh vs Central Bank Of India & Anr.

The Respondent No. 1/CBI has claimed an amount of Rs. 185,35,24,319/- as amount due to them from Corporate Debtor/R-2 towards the loan advance by them. The R-1/CBI in support of its claim has relied on the loan agreement and the application filed by it before DRT against the demand notice dated 29.09.2018 and 05.10.2018 from the R-1/CBI.

The Appellant vide its letter dated 12.10.2018 denied the allegations made therein and thus raising a dispute.

The Appellant approached the R-1 for a One Time Settlement (OTS) and paid an amount of Rs. 10 Crores to the R-1. The said Settlement Proposal was accepted by the R-1 vide its sanction letter dated 28.01.2019 and consequently R-1 withdraw the Company Petition on 31.01.2019.

Respondent No. 1 once again filed Company Petition No. 3794 of 2019 before the Adjudicating Authority, (NCLT, Mumbai Bench) on 17.06.2019.

The Respondent No. 1 was approached by the Appellant vide their letter dated 24.01.2020 with a proposal for one time settlement at Rs. 40 Crore and deposited an amount of Rs. 4.00 Crore as upfront deposit. The R-1/CBI vide their letter dated 13.03.2020 accepted the said proposal of OTS & sanction the same vide the R-1 letter dated 13.03.2020.

Thereafter, Global Pandemic Covid -19 emerged in India/world at large from 24.03.2020, the entire country has been under a complete lockdown and curfew was imposed. Even the banks started working on minimal staff only to provide essential services to the public at large. All this laid investors who were willing to invest in the Appellants Company were not able to pump in the money as they were completely stuck up. The Appellant found mobilizing resources extremely difficult. The Petitioner’s representative were also not able to meet the Bank due to lockdown.

The Petitioner addressed various letters to the R-1 requesting for extension of time to make balance payment of OTS amount. Initially R-1/Bank extended the period for making the balance payment subject to interest.

The Appellant was in constant co-ordination with the R-1/Bank and again submitted a OTS on 28.06.2021 before the commencement of hearing and agree to make payment of balance amount of Rs. 36 Crores to the R-1/Bank.

The Appellant states that it may not be out of place of mention that the R-2 Company has principally two major ongoing projects viz, (1) Project Ramrajya and (2) Project Swarajya and around 2500 flats have been sold to various homebuyer whose value of each flat ranges from Rs. 5 Lakhs to Rs. 7.5 Lakhs who have invested hard earned money or sold their existing house or even borrowed money to own a home for themselves. Further so far as “Project Swarajya” is concerned almost 90% of work has been completed including obtaining Occupation Certificate (OC) barring some small internal work has remained. It is humbly prayed that if a stay to Corporate Insolvency Resolution Process (CIRP) is not ordered the possession of these homebuyer who are from lower spectrum of society will be delayed by at least 6-9 months for no fault of theirs.

Adjudicating Authority took up the hearing in the above matter by virtual mode. The Appellant wanted to place the aforesaid material on record and also the fact that they were willing to make payment of the interest on the delayed period. However, the Hon’ble Bench refused to hear the Appellant. Further due to certain technical snag, the Appellant and their counsel were removed from the Virtual hearing. The Appellants immediately called up the helpline available on the Virtual Hearing portal, however, since there was no response, the Appellant were compelled to place the aforesaid facts to the Registry of the Hon’ble Tribunal and requested for re-entry into the hearing however were not allowed to re-enter the same.

It is relevant to mention herein that though the order was passed on 16.07.2021, the Appellant was informed about the same on 22.07.2021 when it was uploaded on the website.

The Appellants further state that the R-2 has subsidiary companies which are completely relying on the business of the R-2 and upon passing of the impugned order for CIRP of Corporate Debtor, these subsidiary companies have come to an abrupt stand still thus affecting of the working of not only the Appellants but for all its subsidiary companies.

He made public announcement on 26.07.2021 under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in the following newspaper i.e., Free Press Journal and Navakal for inviting claims from creditors of Neptune Developers Ltd. And the last date for submission of claim was 06.08.2021.

That the IRP has filed its report certifying Constitution of Committee of Creditors on 18.08.2021 and till that date the IRP received claims from 350 Class of Creditors (Homebuyers), 3 claims from Financial Creditor and 3 from unsecured Financial Creditor. A few connected details from the copy of the IRP’s report certifying Constitution of Committee of Creditors is given hereunder:

That the IRP called its 1^st Committee of Creditors meeting on 26.08.2021. During the meeting one of the Financial Creditor viz; Asset Care & Reconstruction Enterprise Ltd. & Anr. (who holds 67.31%) informed the IRP that an application has been filed with Hon’ble NCLT with a contention that their projects/securities should be kept out of CIRP proceedings and therefore requested for adjournment of 14 days and the same was agreed by other Financial Creditors. Thereafter the meeting was adjourned to 09.09.2021.

In the meantime, Mr. Sachin Manohar Deshmukh, Ex-Director of Neptune Developers Ltd. filed an appeal before this Tribunal against the order passed by Adjudicating Authority dated 16.07.2021 on various contention and mainly on the grounds that initiation of CIRP was bad in law and hence the CIRP order be recalled.

The matter was first heard on 23.08.2021 by this Hon’ble Bench and after hearing the arguments of the Counsels, two weeks was granted for reply to be filed by all the Respondents, however, no interim orders were passed by the Adjudicating Authority.

That Mr. Sachin Manohar Deshmukh, erstwhile Director of Neptune Developers Ltd. Being aggrieved by the order dated 23.08.2021 preferred an appeal before Hon’ble Supreme Court bearing Civil Appeal No. 4982/2021.

That the matter was heard by the Hon’ble Supreme Court on 27.08.2021, the Hon’ble Supreme Court of India by its order dated 27.08.2021 was pleased to stay on further proceedings in the CIRP for a period of 8 weeks from the date of the order.

That on learning of the order dated 27.08.2021, the IRP wrote an email dated 28.08.2021 to the CoC members and informed them of the said development and also to the erstwhile management. The erstwhile management vide its email dated 30.08.2021 contended that the IRP cannot remain in control and management of the Corporate Debtor and that he should hand over the management.

Thereafter the R-2 vide its email dated 01.09.2021 replied that the Hon’ble Supreme Court order dated 27.08.2021 clearly stated that there shall be a stay of further proceedings for a period of 8 weeks from today, which implies that no further steps to be taken in connection with the CIR Process. The stage at which the CIRP has reached should remain the same. At this stage the IRP has been appointed and CoC has been constituted and the first CoC meeting was held and adjourned and therefore no further steps will be taken in the CIRP. The IRP further states that, based on the legal advice received and after considering the same, the IRP will continue to manage the affairs of the corporate debtor till further orders of the supreme court and the powers of the Board of Directors shall remain suspended and their powers be exercised by the IRP.

In the meantime, Asset Care & Reconstruction Enterprise Ltd. & Anr. (“ACRC”) has preferred an IA bearing No. 1979/2021 before NCLT, Mumbai for following reliefs:

That the CIRP initiated applies only to the project known as Neptune Swarajya, Ambivali, Kalyan, Thane and the creditors thereof.

That the CIRP initiated does not extend and apply to the project known as Project Ramrajya being developed by the Corporate Debtor at Ambivali, Kalyan, Thane and all securities furnished in that regard and that the same shall stand excluded from the CIRP of the Corporate Debtor and also to furnished the same in the Information Memorandum to the CoC of the Corporate Debtor.

Stay the preparation of the Information Memorandum of the Corporate Debtor and further steps in the CIRP of the Corporate Debtor in relation to the project Ramrajya and also to restrain and prohibits in any manner taking over, exercising power, and /or taking steps, against and/or in relation to the project Ramrajya.

Similarly, in the meantime, the flat holders of Project Ramrajya have also filed an IA bearing No. 1980/2021 in NCLT for declaring that the CIRP which has been initiated against the Corporate Debtor be restricted to only Swarjya Projects of the Corporate Debtor and the Project Ramrajya be excluded from CIRP.

In the meantime, if has come to the knowledge of the IRP/R-2 that the farmers were trying to encroach upon the Corporate Debtor’s land at Pune and therefore the IRP had to increase the security and has also authorized the Corporate Debtor’s officials to file police complaint and take such steps as may be required to safeguard the Corporate Debtor’s assets.

Respondent No. 2 had conducted CIRP till the date the stay was granted with all the sense of duties and responsibilities as per the provisions of the I & BC, 2016 and thereafter as stated herein above has been managing the affairs of the Corporate Debtor.

The Ld. Counsel for R-2 given the status as above.

There was no violation of natural justice & suppression of material facts as alleged by the Appellant.

It was stated by the Ld. Counsel of R-1/CBI that the Appellant has erroneously contended that on 08.07.2021, the Counsel of the Appellant/CD was removed/logged out from the virtual hearing before the Adjudicating Authority and therefore had no opportunity to argue the case [averment @ pg. 27 (Ground D)]. This contention is false since:

The case was listed as Sl. No. 4 on 08.07.2021 before the Adjudicating Authority [pg. 51/52, reply Vol.]

The Corporate Debtor’s Counsel has admitted in the email dated 08.07.2021 that only after the hearing in Sl. No. 4 the counsel was removed [pg. 585, Appeal vol.3]

The Adjudicating Authority’s order dated 08.07.2021 records that the parties were heard [pg. 58, reply Vol.]

the Appellant suppressed the cause list for 08.07.2021 and the order dated 08.07.2021 while filing the present appeal.

No application or sworn affidavit has been filed by the counsel for the Appellant/CD alongwith the present Appeal stating that he was removed from the hearing and was not given any opportunity to present the case.

Assuming without admitting that the Appellant/CD’s counsel was not heard by the Adjudicating Authority, then the Appellant may have immediately approached this Hon’ble Appellate Tribunal challenging the order dated 08.07.2021, but no such appeal was filed. Furthermore, no steps were by the Appellant to file any application for recall of the order dated 08.07.2021 or for re-opening the arguments before the Adjudicating Authority;

Only after the Adjudicating Authority had passed a judgment dated 16.07.2021 admitting the Insolvency Application, the Appellant belatedly filed the present Company Appeal on 09.08.2021 challenging the order dated 16.07.2021.

It was also stated by Ld. Counsel of R-1/CBI that Section 10-A of the Code is inapplicable.

The Appellant’s contention based on Section 10-A of the Code was neither raised before the Adjudicating Authority, nor is there any pleading with respect to Section 10-A in the present Company Appeal.

It is well settled law that no new plea can be raised at the Appellate stage. This Hon’ble Appellate Tribunal in M/s Power Finance Corporation Ltd. V. M/s. Shree Maheshwar Hydel Power Corporation Ltd., CA (AT) No. 237 of 2017, judgment dt. 12.03.2018 has held that the parties cannot raise grounds which were not raised before the Tribunal below, and that an appeal against an impugned order can be found fault with only on the basis of the grounds raised before the Tribunal below.

© Assuming without admitting that the Appellant can rely upon Section 10-A of the Code, it is submitted that Section 10-A is inapplicable since the default had occurred much prior i.e., NPA on 31.03.2015, the acknowledgment of debt was on 30.06.2017, the cancellation of 1^st OTS was on 17.06.2019 due to failure to pay, the Insolvency Application was filed on 13.08.2019.

The contention of the Appellant that allegedly after approval of the 2^nd OTS the cause of action did not survive is false and misleading. The terms and conditions of 2^nd OTS clearly states that the DRT/NCLT proceedings shall be withdrawn only on payment of entire settlement amount, and that if payment was not made as agreed, then the OTS will stand automatically cancelled and the bank will be entitled for entire dues [pg 578-579, Appeal Vol. 3]

It is further submitted that there were no settlement/OTS existing between the parties when the matter was heard and reserved on 08.07.2021, and even when the judgment dated 16.07.2021 was passed by the Ld. Adjudicating Authority. In fact, the 2^nd OTS was rescinded on 08.07.2020 itself, i.e., almost a year before the Insolvency Application was heard and reserved for orders.

14.(1) We have carefully gone through the submissions made by the Ld. Sr. Counsel/Counsels of the parties, the pleadings available on record and are having the following observations:

It is not in dispute that the Term Loan was not taken from Respondent No.1/CBI by the Corporate Debtor.

It is also not in dispute that Corporate Debtor’s account was declared as NPA on 31.03.2015.

It is also not in dispute that Corporate Debtor has not acknowledged the specified amount i.e. approximately Rs. 95 Crore due to the Respondent No. 1/CBI as on 30.06.2017.

The parties both the Financial Creditors/Respondent No. 1 and Corporate Debtor/Appellant is not denying that an OTS was not sanctioned on 28.01.2019 and the same was rescinded by the Bank on 17.06.2019. The Corporate Debtor failed to pay balance Rs. 83.18 Crore out of OTS sanctioned of Rs. 93.18 Crore and hence only Rs. 10 Crore was paid by the Corporate Debtor/ Appellant to the Bank.

What it is observed that the Respondent No.1/Bank sanctioned 2^nd OTS on 13.03.2020 for an amount of Rs. 40 Crore and out of which only Rs. 4 crore was paid by the Corporate Debtor/Appellant to the Respondent No.1/Bank.

From the above it is very much clear that the debt is neither barred by the limitation nor it is barred by the provision of Section 10(A) of the IBC, 2016 as the bank has filed the petition on 13.08.2019.

The record also revealed that the Respondent No.1/CBI/FC has filed the Petition for initiation of CIRP originally on 22.10.2018 but before the admission of the said application, the Corporate Debtor has approached the Respondent No.1/Bank for settlement of their dues and accordingly, the compromise proposal submitted by the Corporate Debtor/Appellant was accepted by the Applicant Bank vide sanction letter dated 28.01.2019. As per Settlement proposal, the Corporate Debtor has paid the upfront amount of Rs. 10 Crore to the Respondent No.1/Bank/Financial Creditor. As settlement has been arrived at the matter was withdrawn on 31.01.2019 (pg. 71 of the Appeal Paper Book). Hence, this is 2^nd round of litigation under IBC, 2016 by the Financial Creditor perhaps who has reached at the conclusion that the Corporate Debtor/Appellant is not in a position to run the organization or to pay their dues. Repeated settlement/OTS is of no use to supplement the organization running. Repeated failures to pay the balance amount of Settlement after agreement is also unhealthy in financial terms.

The Hon’ble Apex Court has already settled the law that date of NPA/date of default is not shifted.

Be that as it may, OTS is a mechanism available with the banks for years together to allow survival of Debtors and maintain cash flow for banks. However, repeated failure reflects either the intention of the Corporate Debtor/Appellant is not fair as in every OTS the settlement amount is going down and thereby reflecting that delay in CIRP will make the organization weaker and the object of the code for maximization of the value of assets of such persons shall not happen.