Omkara Assets Reconstruction Company Limited vs Autocreate Wheels Private Limited

PER: SH. LAKSHMI GURUNG, MEMBER (JUDICIAL)

The Present Company Petition (IB) 732 (MB)/2022 is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Omkara Assets Reconstruction Company Limited (“Financial Creditor/Petitioner”) for initiating Corporate Insolvency Resolution Process (“CIRP”) against M/s. Autocreate Wheels Private Limited (“Corporate Debtor/Respondent”) for a default amount of Rs.23,07,60,303/- (Rupees Twenty Three Crores Seven Lakhs Sixty Thousand Three Hundred and Three Only).

The Petitioner herein is the Assignee of loan accounts of the Corporate Debtor while the original lender to Corporate Debtor is State Bank of India (SBI). SBI had sanctioned financial facilities for Rs. 15,00,00,000/- (Rupees Fifteen Crore) to the Corporate Debtor. The Agreement of Loan cum Hypothecation executed on 28.10.2011 for Rs. 15.00 crores duly signed by the corporate debtor and the guarantors is annexed to the petition.

According to the petitioner, the said financial facilities were later enhanced vide letter dated 23.10.2013 as follows:

The financial facilities were further modified in the year 2013 and 2014. As per the last sanction letter 09.12.2014, the said facilities were reduced as follows:

Thus, the limits were reduced to Rs. 18.33 crores and then to Rs. 13.83 crores approx.

The various other documents annexed to the petition include following:

ii) Supplemental Agreement of Loan-cum Hypothecation executed on 28.03.2013.

iii) Mortgage by Deposit of title deeds dated 24.03.2013.

iv) Guarantee Agreement dated 19.03.2014 issued by Autocrete India Private Limited.

Due to failure to service the loan facility as per the loan agreement, on 07.07.2015, SBI declared the account of the Corporate Debtor as a Non-Performing Asset (NPA). Thereafter, SBI issued a notice dated 13.07.2015 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), calling upon the Corporate Debtor to repay the outstanding amount of Rs. 14,08,52,158 (Rupees Fourteen Crores Eight Lakhs Fifty-Two Thousand One Hundred and Fifty-Eight) as on 13.07.2015, within sixty days from receipt of the said notice. Despite receipt of the aforesaid notice dated 13.07.2015 under Section 13 (2) of the SARFAESI Act, the Corporate Debtor failed to repay the outstanding amount to the State Bank of India.

However, the Corporate Debtor, on 08.09.2016 addressed a letter to SBI proposing a One-Time Settlement (OTS) of Rs.8,50,00,000 (Rupees Eight Crores Fifty Lakhs Only). In response, SBI advised the Corporate Debtor to improve its offer therefore the Corporate Debtor addressed another OTS letter dated 16.03.2017, proposing to make payment of an amount of Rs. 9,30,00,000 (Rupees Nine Crores Thirty Lakhs).

Thereafter, SBI assigned the above debt to ASREC (India) Limited (hereafter referred to as ASREC) vide a Deed of Assignment dated 28.11.2019. Therefore, the Corporate Debtor addressed several OTS letters to ASREC offering payment of the OTS amounts, which are as follows:

Further, between 31.12.2019 and 01.01.2020, the Corporate Debtor made payment of Rs. 3,00,00,000 (Rupees Three Crores) to ASREC towards the outstanding dues.

ASREC, on 27.01.2020, approved the OTS proposal submitted by the Corporate Debtor on the terms and conditions specified therein. However, no payments were further made towards the OTS by the Corporate Debtor therefore the OTS was revoked by a letter dated 18.11.2020.

Thereafter, ASREC assigned the loan accounts of the Corporate Debtor to Omkara Asset Reconstruction Company Limited/ the Petitioner, vide Assignment Agreement dated 10.03.2021.

The Corporate Debtor addressed a letter dated 20.08.2021 to the Petitioner stating that the corporate debtor is working towards closing of the entire liability. The CD further submitted the cheque of Rs.30,00,000 (Thirty Lakhs Only) dated 18.08.2021 to be adjusted against the principal outstanding amount and also as a token to express their bona fide intention of clearing the dues as soon as possible. Accordingly, the petitioner accepted the cheque and which was credited to their account on 25.08.2021.

The Corporate Debtor addressed yet another letter dated 17.09.2021 to the Petitioner enclosing therewith a cheque drawn in favour of petitioner for Rs.2,00,000 (Two lakhs Only). The corporate debtor further expressed its intent to settle the accounts with the petitioner.

Another letter dated 21.09.2021 was sent by the corporate debtor to the petitioner stating “We once again reaffirm our intent to completely settle our accounts with you”.

Certificate of Registration dated 05.07.2021 for modification of charge issued by the Registrar of Companies, Mumbai in favour of the Petitioner is annexed to the petition.

Under this background, the Petitioner filed the instant petition on 21.02.2022 for default amount of Rs. 23,07,60,303 (Rupees Twenty-Three Crores Seven Lakhs Sixty Thousand Three Hundred and Three) outstanding as on 16.02.2022.

The Corporate Debtor filed reply taking various defense which can be summarized as below: -

The Original lender i.e. State Bank of India has classified the account of the Corporate Debtor NPA on 7.07.2015 and issued demand notice dated 13.07.2015. Thereafter, the State Bank of India issued possession notice on 05.10.2015. There has not been any acknowledgement of debt within the relevant period of limitation hence the present petition is barred by limitation.

SBI has filed O.A. No.490 of 2016 on 05.05.2016 which is pending before DRT. The Corporate Debtor filed S.A. No. 356 of 2015 before the DRT which is still pending. Another O.A. No. 319 of 2017 is also pending before DRT.

The alleged assignments in favour of the Financial Creditor are not valid documents as they are inadequately stamped and the alleged assignment deed cannot be taken as evidence.

The Corporate Debtor was carrying on the business of Automobiles and was an authorized dealer for Maruti Suzuki Cars in Andheri. The Corporate Debtor was constituents of the SBI for the last several years and was enjoying various credit facilities. SBI abruptly reduced the Cash credit limits and also put onerous condition upon the Corporate Debtor to infuse capital of Rs.3 Crores within time stipulated therein. The Corporate Debtor never accepted such onerous condition and the purported renewal sanction was imposed upon the Corporate Debtor. It is further submitted that at the time of the alleged NPA, the Corporate Debtor was having about 150 bookings for the delivery of cars. However, the SBI abruptly froze the account and therefore the Corporate Debtor could not even complete deliveries in hand.

It is claimed by the Corporate Debtor that an amount of Rs.1.50 Crores deposited with the Financial Creditor has not been accounted. Further during the pendency of Securitization Application, the Corporate Debtor paid aggregate of Rs.3.85 Crores for consideration of various OTS proposals the same has not been accounted by the Corporate Debtor. Therefore, the amount of claim mentioned in the Application is incorrect and application is liable to be rejected.

In response to the Reply of the Corporate Debtor, the Petitioner has filed rejoinder stating that the Corporate Debtor has not denied the followings:

a. availing of credit facilities;

b. committing default in repayment of the said credit facilities;

c. making part payments and getting the some of the secured assets released against such part payment.

Under the terms of Letter of Arrangement dated 23.03.2013 recording terms of Sanction of credit facilities the Corporate Debtor was required to repay Working Capital Term Loan of Rs. 19.75 Crores in 60 EMI of Rs. 9,88,734/- each commencing after one month from the disbursement i.e. on or before 22.03.2018. Thus, the Financial Creditor is entitled to file the present proceedings within three years thereafter i.e. on or before 21.03.2021. Considering the exclusion period granted by Hon’ble Supreme Court the petition is well within limitation.

The Corporate Debtor in its reply-in-affidavit has itself admitted of giving various One Time Settlement Proposals including one to the Petitioner.

Heard the Ld. counsel for the parties and perused the records.

It is noted that the Corporate debtor has not denied the factum of availing credit limits from SBI which facilities were modified from time to time. The corporate debtor has also not denied various letters sent to SBI and its successor, ASREC for settlement proposals. The corporate debtor has further not denied the letters dated 20.08.2021, 17.09.2021 and 21.09.2021 sent by it to the Petitioner acknowledging the debt and also expressing its intent to settle the loan account. Therefore, the existence of the “debt and default” is not denied by the corporate debtor.

The objections/defence raised by the corporate debtor are mentioned in para 18 above as follows: -

As far as the first three objections are raised, they are legal in nature and go to the root of the matter and therefore will be dealt with in detail.

As far as the fourth objection is concerned, it is not an objection in true sense, because there is admission by the corporate debtor that default has occurred but alleged that the default has occurred due to the fact that SBI abruptly reduced the limits availed by the Corporate Debtor and had put a condition to infuse capital, which prejudiced the Corporate Debtor as the corporate debtor could not make deliveries of the orders in hand. Firstly, infusion of capital by the Corporate Debtor was one of the conditions for the renewal of credit facilities and the same was agreed upon by the Corporate Debtor. Secondly, for adjudication of a section 7 petition, the cause of the default is irrelevant as Adjudicating Authority is not a court of equity. The Adjudicating Authority has to merely determine whether there is “debt” and “default”, which is not denied by the corporate debtor in the present case. Hence this objection is untenable and is hereby rejected.

As far as the fifth objection is concerned, the default amount mentioned in the petition is incorrect, sufficient to say that as long as the default amount exceeds the threshold limit of Rs. 1.00 crore, the petition cannot be dismissed merely on the ground that the amount mentioned in the petition is incorrect. The default amount claimed under Part IV of the petition is Rs.23,07,60,303. Even at the best case of the corporate debtor, after deducting the amounts deposited by the corporate debtor with various OTS proposals, the default amount is still above the threshold limit under section 4 of IBC. Hence this objection is also rejected for consideration of the present petition for admission.

Having considered the first three objections of the corporate debtor, the issues to be decided by the Adjudicating Authority are as follows:

The Corporate debtor has contended that the Original lender i.e. State Bank of India has classified the account of the Corporate Debtor NPA on 07.07.2015. Thereafter, there is no acknowledgment of debt by the corporate debtor within three years. Hence the petition is barred by limitation.

Per contra, the Financial Creditor has submitted that the term loan of Rs. 19.75 crores sanctioned while letter of arrangement dated 23.03.2013 was to be repaid in 60 EMIs of Rs. 9,88,734/- commencing after one month i.e. 22.03.2018 and the last instalment falling due on 21.03.2021. Therefore, the limitation period ends on 21.03.2021. However, due to exclusion period granted by Hon’ble Supreme Court in Sue Motu Writ Petition No.03/2020, the period from 15.03.2020 to 28.02.2022 has to be excluded for calculating the limitation period.

The Financial Creditor has further pointed out various letters sent by the corporate debtor for OTS and expressing its intent to make settlement. We find force in the submission of the petitioner. The Corporate Debtor was declared as NPA on 07.07.2015 which means default occurred 90 days prior to 07.07.2015 i.e. on 08.04.2015. In other words, date of default is 08.04.2015. Therefore, the limitation period starts from 08.04.2015. If there is no fresh acknowledgement of debt, the limitation period would ordinarily expire on 07.04.2018. However, the petitioner has placed on record numerous letters sent by corporate debtor to SBI/ASREC/the Petitioner proposing for One Time Settlement (OTS) of the loan accounts availed from the State Bank of India which are summarised below:

It is settled law that a proposal to make settlement amounts to acknowledgement of debt. Reliance is placed on the judgment of Tejas Khandar vs Bank of Baroda Company Appeal (AT) (Insolvency) No. 371 of 2020 wherein it was held that:

From the table given in Para 30, it can be seen that an OTS proposal was made by the corporate debtor on 16.03.2017 thereby giving a fresh limitation period of further three years from 16.03.2017. Similarly, another letter dated 07.01.2020 was addressed by the corporate debtor to the assignee of SBI i.e. ASREC proposing to make settlement. Thus, a fresh limitation period starts from 07.01.2020 and ends on 06.01.2023. The Petition was filed on 21.02.2022 which is within the limitation. From whichever point we look at, we have no hesitation in holding that the petition is well within the limitation in view of the letters offering OTS proposals from time to time. Therefore, the first question is answered in negative.

The second defense raised by the corporate debtor is relating to the pending litigation before DRT. The issue whether petition under section 7 of IBC can be filed during the pendency of recovery proceedings by the Financial Creditor before the DRT is no more res-integra. The settled position is that the recovery proceeding before DRT and proceedings before IBC operate in different fields with different objectives. Further, section 238 of IBC gives overriding effect to the proceedings under section 7 of IBC.

Reliance is placed on very recent judgement of the Hon’ble NCLAT titled as State Bank of India Vs. Abhijeet Ferrotech Ltd. in Company Appeal (AT) (Insolvency) No. 690 of 2023 decided on 02.07.2024. Referring to the judgment of Hon’ble Supreme Court in A. Navinchandra Steels Pvt. Ltd. Vs. Srei Equipment Finance Ltd 2020 SCC Online SC 1141 the Hon’ble NCLAT has held as follows: -

Therefore, in our considered view there is no bar to entertain and adjudicate Section 7 petition even during the pendency of recovery proceedings before the DRT. Accordingly, the second question is answered in negative.

Coming to the next issue in hand raised by the corporate debtor is relating to Assignment Agreement. It is submitted by the corporate debtor that the Assignment Deed dated 28.11.2019 between SBI and ASREC is bad and illegal for the simple reason that it is having multiple loan accounts of the various other borrowers and a common assignment deed has been prepared and executed with the sole purpose of avoiding payment of the requisite stamp duty, which is liable to be paid by the financial institution as per the provisions of the Maharashtra Stamp Act, 1958. It is contended that if the title of the person is defective then he cannot pass on a better title than what he has. Hence the petition deserved to be dismissed on this ground.

We have considered the submission of the corporate debtor. At this juncture, we would like to refer to the Judgement of the Hon’ble Supreme Court in N. N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. [Curative Petition (C) No. 44 of 2023 in Review Petition (C) No. 704 of 2021 in Civil Appeal No. 1599 of 2020] wherein it is observed as follows:

The above judgment of Hon’ble Supreme Court is direct answer to the objection raised by the corporate debtor. Inadequate stamping of the Assignment Deed does not render it to be bad or illegal or void but merely not admissible in evidence.

Further, the Petitioner has annexed the Certificate of Registration for Modification of Charge wherein it is stated as follows:

The above Certificate of Registration of Charge in favour of the Petitioner was issued by the Registrar of Companies, Mumbai on 05.07.2021 held by the Petitioner under the Companies Act, 2013, which is subsisting and not denied by the corporate debtor. The above Certificate clearly acknowledges the charge created in favour of the Petitioner on account of the assignment agreement dated 10.03.2021 executed by ASREC in favour of the Petitioner. The issue of the Certificate issued by ROC, Mumbai, a public authority is admissible evidence which cannot be questioned. Hence the third question is also answered in negative rejecting the objection of the corporate debtor.

Further It is a well-settled position that the Adjudicating Authority has to determine whether there is debt and default and if it is satisfied that a default has occurred, then the application under section 7 of the Code must be admitted unless it lacks other necessities as mandated thereunder. We are supported by the decision of Hon’ble Supreme Court in Innovative Industries Limited vs. ICICI Bank and Anr [(2018) 1 SCC 407] wherein it was held as follows:

In view of the discussions above, this Tribunal is of considered view that debt and default have been established by the Financial Creditor and the petition is filed within the limitation period and the default amount is in excess of Rs. 1 Crore and thus above the threshold limit mandated in Section 4(1) of the Code. Accordingly, we are satisfied that the present Petition is maintainable.

Given the facts and circumstances of the case and discussions hereinabove, the Company Petition bearing no.732 of 2022 is admitted and ordered as follows: