Punjab and Sind Bank vs C Gems and Jewels Private Limited

The instant application was filed on 01.07.2024 by Punjab and Sind Bank (Financial Creditor/Applicant) through its Authorised Representative Mr. Sharad Chandra, Chief Manager and General Attorney, under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code” or “IBC”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’) against C Gems and Jewels Private Limited (Corporate Debtor/Respondent) for the default amount of Rs. 48,86,78,005/- as on 30.04.2024 along with further interest and pendente-lite from 01.05.2024 till realization of the amount due. The date of default is 31.03.2019.

The applicant is constituted under the provisions of the Banking Companies (Acquisition and Transfer of Undertaking) Act 1980, Act 5 of 1980 on 24.06.1908. The respondent is a private limited company incorporated under the provisions of the Companies Act, 1956.

The averments made by the Financial Creditor/Applicant in its Application and as argued by the learned counsel are summarised as under:

a. Term Loan of Rs.500 lac against Rent Receivables.

b. Conversion cum enhancement of CC limit of Rs.100 Lac to Rs.300 Lac as Overdraft limit against property.

c. Review of existing term of Rs.650 Lac which was required to be brought down to Rs.250 Lacs.

a. Overdraft limit of Rs.300 Lac against property was enhanced to Rs.400 Lac.

b. Term Loan of Rs.250 Lac was reviewed for Rs.203 Lac.

c. Term Loan of Rs.500 Lac against Rent Receivables was reviewed for Rs.471 Lac (Rent receivable account no.1).

d. Term Loan of Rs.262 Lac against Rent Receivables was sanctioned receivable account no.2)

a. Overdraft limit of Rs.400 Lac against property was enhanced to Rs.1000 Lac.

b. Term loan of Rs.250 Lac was reviewed for Rs.78 Lac, which stands adjusted now and is not a subject matter of this OA.

c. Term Loan of Rs.500 Lac against Rent Receivables was reviewed for Rs.383 Lac.

d. Term Loan of Rs.262 Lac against Rent Receivables was reviewed for Rs.214 Lac.

e. Term Loan of Rs.1000 Lac was sanctioned as Mortgage Term Loan for Automatic Refueling System.

a. Term loan (Rent receivable account no. 1) against rent receivable in 108 equated monthly instalments w.e.f. October 2014.

b. Term loan (Rent receivable account no. 2) against rent receivable by way of ballooning detailed as under and interest to be recovered as and when due.

c. Mortgage term loan was agreed to be repaid in 120 equated monthly instalments along with interest w.e.f. one month from the date of disbursement.

d. General term loan was agreed to be repaid in 108 equated monthly installments along with interest after a moratorium period of 12 months.

The objections raised by the corporate debtor/respondent in its reply dated 26.12.2024 and as argued by the learned counsel for the respondent are summarised as under:

a. Applicant has not attached all documents in support of its claim which are necessary documents.

b. Applicant is pursuing parallel remedies by filing original application in DRT which is illegal and perverse.

c. Corporate debtor is registered under MSME as Medium enterprise. It has filed various OTS proposals which are rejected without even negotiating by the applicant.

d. As per the sanction letter dated 13.02.2018, Corporate debtor has following term loans and an ODP limit. Out of the said loans, it has availed only 4 term loans and an ODP limit.

e. Mortgaged asset of corporate debtor- Equitable mortgage of Land and building measuring 82 kanals and 8 marlas situated at NH-1, GT road, VillagePatarsi, District Fatehgarh Sahib in the name of Company

f. The Bank has claimed vide various communications following amounts in year 2019, 2021 and 2024:

g. The reason for loan default is because of the reduction in the price of Diesel and petrol in the neighbouring states and UT due to which it suffered huge losses, plunging into a deep financial crisis and the unfortunate demise of the promoter-director of the company Sh. G.S. Chawla, who had been primarily dealing with the bank for the last 50 years and also looking after the daily affairs of the company. Presently the affairs of the Company are being solely handled by a Jagjit Kaur chawla who is a Senior Citizen and made all endeavours to settle with the bank. Moreover, the business was badly affected by the outbreak of the COVID-19 pandemic in the years 2020 and 2021 and the entire business was closed and has never been revived since.

h. The OTS proposals sent to the Financial creditor from time to time are an indication of the company to repay or settle the dues which were submitted with the hope that the same shall be settled. At the time when the NPA was Rs. 25.62 crores the proposal of Rs. 20 Crores was sent to the Financial Creditor which shows the bonafide intent to settle the loan account. Bank initiated SARFAESI Proceedings which are still pending and parallel remedy has been sought by the Financial Creditor. Following proposals were sent to the bank which can be corresponded with the loan recovery as mentioned hereinabove:

j. Out of the land measuring 82 Kanal 08 Marla, balance land was leased out by the Company to different entities by way of duly registered lease deeds after obtaining necessary approval/no objection from the Bank, the details of which have also been mentioned in the Jamabandi being maintained by the concerned Patwari. No objection/permission for lease in respect of the said property was granted by the Bank vide its letter dated 07.08.2014.

k. Since the ownership of a portion of earlier mortgaged land is with the third parties against whom the Bank has also filed OA which is pending adjudication before the Learned Debts Recovery Tribunal-III Chandigarh. The present petition under Section 7 of the Code is filed only when the Financial Creditor failed in the successful auction of the mortgaged assets which shows malafide on the part of the bank.

l. The other Loan accounts of the Company are settled. The loan account i.e. Petro & Agroways; Chawla Filling Station; Reliant Infrastructure(P) Ltd; Reliant Power of same promoters are settled by the Bank and considering the antecedents of the company and promoters the present antecedents of the company and promoters the present proceedings may be dropped.

m. The present Petition suffers from glaring defects which are not curable at this stage since in view of the law settled by the Hon'ble Supreme Court that the application cannot be filed by an attorney holder. Reliance is placed on Palogix Infrastructure Private Limited v. ICICI Bank Limited, 2017 SCC Online NCLAT 266 and A.C. Narayanan Versus State of Maharashtra and another 2014(11) SCC 790.

n. The present case does not fall in the definition of Financial Debt which is defined under section 5 (8) of IBC. The said averments as mentioned in the petition is based on the transactions which do not fall under the definition of financial debt since there is no time value for money or any period defined as to the interest for which the loan is availed. Reliance is placed on Dr. B.V.S. Lakshmi versus Geometrix Laser Solutions Private Limited by Hon’ble NCLAT and Utsav Securities (P.) Ltd. Versus Timeline Buildcon (P.) Ltd. 2020(161) SCL 358 by NCLT, Principal Bench.

o. A perusal of clause 5 of part V of form 1 shows that the Financial Creditor is required to place a latest and complete copy of the financial contract reflecting all amendments and waivers up to date and a copy is required to be attached. There is no document on record in the form of a Financial contract setting out terms of financial debt, including tenure of debt, interest payable and date of repayment. The Sanction letter of 2018 appended with the petition shows that financial facilities were executed after 2014 to 2018 sanctions letters were superseded. There is no occasion to append the Sanction Letter of 2014 onwards and proceeding 01.04.2018. The sanction letter of 2018 is of importance since the EMI were linked with lease deeds for lease amounts.

p. The exact date of default is not available with the Financial Creditor as the claim is time barred. The transactions as mentioned in the petition under section 7 of IBC is not matching with the statement appended with the averments made in the petition. The financial creditor has even not mentioned the date of default in the present petition and has only mentioned the last transaction done by the corporate debtor.

q. The Financial Creditor have sought to debit/charge interest over and above the rates of interest mentioned in the documents heavily relied upon by the bank. There is huge difference and variance in the rates of Interest debited and charged from time to time and the rates of interest interpolated and filled in the documents filed by the Financial Creditor. There is no communication in respect of the change or variance in the rate of interest debited to the borrower the Corporate Debtor Firm and as such the same is against the principles of natural Justice. The penal interest cannot be capitalized and further no interest can be charged upon the expenses/charges debited in the account. The Financial Creditor has failed to show as to what is the principal amount allegedly advanced to the concerned borrower.

r. The outstanding liability of the Corporate Debtor as on date is Rs. 20.09 crores which is payable by the corporate Debtor to various creditors and which is payable in priority of the dues of the Financial Creditors. All the factors of total amount payable as statutory dues and amount offered to the Financial Creditor as One time Settlement; the filing of OA before DRT and failure to auction properties is paramount consideration before deciding the present case.

s. The Financial Creditor have also debited the interest with monthly payments, which is against the public policy and any alleged loaning documents filed alongwith the application of the Financial Creditor. There is no record appended with the petition from Information Utility and no date of default mentioned in the petition.

t. In the event that upon adjudications of the claim application, it is held that any amount is payable, then without prejudice in any manner admitting any of the alleged claims of the Applicant Bank, interest of justice and equity warrant and demand that this Tribunal be pleased to hold and find that the Corporate Debtor herein is entitled to the claims/set off both in guarantee stands discharged and not legally enforceable and as such no liability can be fastened upon Answering the Corporate Debtor.

u. The said deeds of guarantee are not enforceable in the eyes of law at all and the same are being sought to be enforced after the expiry of three years from the date of alleged execution date.

The applicants through its rejoinder dated 11.04.2025 have denied the averments made by the Corporate debtor which are contrary to the submissions made by the applicant and have submitted that

a. The Corporate Debtor had admitted that the corporate debtor has defaulted on the repayment obligation towards the applicant bank and the defaulted amount is above Rs. 1 Crore.

b. The corporate debtor has even mentioned in the reply that the CIRP may be initiated so that the Corporate Debtor being an MSME can give its own resolution plan.

c. The applicant has rejected the last OTS submitted by the corporate debtor vide its OTS Rejection letter dated 05.04.2025, the copy of the same is annexed as Annexure A/R-1.

d. The applicant has further initiated the proceedings regarding the classification as wilful defaulter owing to the Wilful Default committed by the corporate debtor along with its directors, mortgagors and guarantors. The copy of the show cause notice issued dated 31.07.2024 as per the RBI Master Circular on Wilful default is annexed as Annexure A/R-2. From the same it is evident that the corporate debtor has not even defaulted on the repayment of the credit facilities but has wilfully defaulted on the same despite having sufficient source.

We have heard the learned counsel for the applicant as well as for the respondent and perused the material available on record.

Following are the points for determination:

The First issue is whether the present petition is filed within the period of limitation. The date of default in the present matter is stated to be 31.03.2019 as on this day its accounts were declared as NPA on 31.03.2019 as per RBI norms and Guidelines. No doubt, the date of default is meant for the calculation of period of limitation of 3 years, but in the case in hand, the Corporate Debtor has admitted its liability, towards the Financial Creditor, vide letters 06.08.2019, 20.08.2019, 29.08.2019, 30.08.2019, 12.06.2020, 24.07.2020, 18.08.2020, 04.03.2021, 27.07.2023. The corporate debtor has acknowledged its liability in the Civil Writ Petition bearing No. 19462 of 2023 titled "C Gems and Jewels Private Limited versus Punjab and Sind Bank". The corporate debtor has also acknowledged its liability towards the applicant bank in its written statement dated 26.12.2022 filed before the Debt Recovery Tribunal-II, Chandigarh in the Original Application filed by the applicant bank bearing OA No. 1981 of 2021. The Corporate Debtor once again acknowledged its liability towards the applicant bank in the SA filed by it bearing SA No. 260 of 2023 titled "C Gems and Jewels Private Limited versus Punjab and Sind Bank" dated 15.09.2023. The corporate debtor has even mentioned in the reply that the CIRP may be initiated so that the Corporate Debtor being an MSME can give its own resolution plan.

One of the letter dated 12.06.2020 acknowledging the debt issued by the respondent to the Applicant, as annexed in the application is placed hereunder:

One of the letter dated 27.07.2023 proposing one time settlement cum Resolution plan acknowledging the debt issued by the respondent to the Applicant, as annexed in the application is placed hereunder:

Reliance can be placed upon the decision of Supreme Court in Vidyasagar Prasad Vs UCO Bank & Anr. in Civil Appeal No. 1031 of 2022 wherein it is opined that the balance sheet entries and the One Time Settlement (OTS) proposal amounted to an acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the period of limitation.

Since, the acknowledgment is within 3 years, as per Section 18 of the Limitation Act of 1963, a fresh period of limitation shall be computed from the time when the acknowledgment was signed. Thus, there is continuing cause of action, acknowledgment of debt by the corporate debtor in lieu of the balance and security confirmation/revival letters executed, proceedings undergoing under SARFAESI Act, 2002, Writ filed before Hon'ble High Court, proceedings undergoing under RDB Act, acknowledgment of debt in balance sheets, OTS letters etc. Hence, the present petition is within the period of limitation.

The next contention of the Ld. Counsel for the Corporate Debtor is that the Financial Creditor has approached different Fora, such as recovery action proceedings under SARFAESI Act, 2002, Debt Recovery Tribunal, apart from this Tribunal. However, this contention of opposite counsel is not much convincing because proceedings under Section 7 of the Code are independent proceedings and have no effect on other pending proceedings before authorities/forums/tribunals/courts. As per Section 238 of the Code, the proceedings before NCLT have precedence over other proceedings.

The other contention on behalf of the Ld. Counsel for the Corporate Debtor that applicant is required to place a latest and complete copy of the financial contract reflecting all amendments and waivers up to date on record. In the case in hand, the admission of loan on the part of Corporate Debtor in the Statement of Accounts placed on record by the Financial Creditor proves the default on the part of Corporate Debtor. The copy of record of default by the Applicant bank with NeSL annexed with the Petition shows total default amount as Rs. 47,71,14,187/- and date of default as 31.03.2019 which is stated to be authenticated.

The final contention is whether the amounts claimed by the Applicant are covered under the definition of Financial Debt. It is stated that since there is no time value for money or any period defined as to the interest for which the loan is availed.

Financial debt as per Section 5(8) of the code is defined as:

The Supreme Court in Jaypee Infratech Ltd. Interim Resolution Professional v. Axis Bank Ltd., (2020) 8 SCC 401, laid that

In the instant case, the Corporate Debtor availed financial assistance from the Financial Creditor and entered into loan agreement. Further applicant on request of corporate debtor through its Director had sanctioned following credit facilities vide sanction letter dated 28.06.2014, 31.12.2015 and 13.02.2018. In order to avail the above-mentioned sanctioned facilities, Corporate debtor executed security documents through its directors including demand promissory note, Form No. 103 Repayment, Form No. 106 Letter of waiver, Form No. 199 Undertaking, Form No. 103 Penal Interest, Form No. 412 Utilization of Funds, Agreement of Hypothecation of Goods and Certificate of execution of documents.

On the perusal of the documents as placed before us such as Loan Agreements dated 31.12.2015, 26.02.2018 and 06.07.2018 and Copy of statement of accounts, it is established that there was disbursal of loan amount by the Financial Creditor in favor of Corporate Debtor. The rate of interest in respect of credit facilities availed by the Corporate debtor agreed vide sanction letter dated 13.02.2018 under overdraft limit was agreed @12.90% per annum, in respect of term loan against rent receivables in both the accounts @12.85% per annum, in respect of mortgage term loan @11.65% per annum and in respect of term loan general @12.90% per annum with monthly rests or such other rate(s) as may be prevailing time to time. Further, the Corporate Debtor has nowhere denied the existence of the debt in its averments. Therefore, one essential ingredient with respect to Section 7, that there has been a “debt”, stands substantiated.

The Corporate Debtor has failed to repay the amount as undertaken, thereby committing default with respect to loan agreement. Furthermore, as per the record of default as maintained by the Information Utility NeSL, it is concluded that there exists a debt worth more than Rs. 1 Crore by the Corporate Debtor towards the Financial Creditor and the said Corporate Debtor has defaulted in the repayment of the said debt. Therefore, another major essential ingredient of Section 7 i.e., “default” with respect to the debt stand substantiated.

The Corporate Debtor had admitted that the corporate debtor has defaulted on the repayment obligation towards the applicant bank and the defaulted amount is above Rs. 1 Crore. In view of the above, we are of the considered view that there exists financial debt which is payable and defaulted by the respondent. The debt is more than the threshold limit of Rs. 1 crore as per Section 4 of the IBC. This application is filed within limitation and is defect-free; and as such it is a fit case to be admitted under section 7 of the Code.

Accordingly, we allow this application and order as under:

a. Corporate Debtor – C Gems and Jewels Private Limited is admitted in the Corporate Insolvency Resolution Process under section 7 of the Insolvency & Bankruptcy Code, 2016.

b. The moratorium under section 14 of the Insolvency & Bankruptcy Code, 2016 is declared for prohibiting all of the following in terms of Section 14(1) of the Code.

c. The order of moratorium shall have effect from the date of this order till the completion of the Corporate Insolvency Resolution Process or until this Adjudicating Authority approves the Resolution Plan under sub-section (1) of the Section 31 or passes an order for liquidation of Corporate Debtor Company under Section 33 of the IBC, 2016, as the case may be.

d. As proposed by the financial creditor, we appoint Mr. Navneet Gupta having registration No. IBBI/IPA-001/IP-P00361/2017-18/10619; to act as an IRP under Section 13(1)(c) of the IBC, 2016 in respect of the CIRP of the corporate debtor. IRP shall conduct the Corporate Insolvency Resolution Process of the corporate debtor as per the provisions of the Insolvency & Bankruptcy Code, 2016 read with Regulations made thereunder.

e. The IRP so appointed shall make a public announcement of initiation of Corporate Insolvency Resolution Process (CIRP) and call for submission of claims under Section 15 as required by Section 13(1) (b) of the Code.

f. The supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period. The corporate debtor to provide effective assistance to the IRP as and when he takes charge of the assets and management of the corporate debtor.

g. The IRP shall perform all functions as contemplated, inter alia, by sections 17, 18, 20 & 21 of the Code. It is further made clear that all personnel connected with Corporate Debtor, its Promoter or any other person associated with management of the Corporate Debtor are under legal obligation under Section 19 of the Code extending every assistance and co-operation to the Interim Resolution Professional. Where any personnel of the Corporate Debtor, its Promoter or any other person, is required to assist or co-operate with IRP, do not assist or Co-operate, the IRP is at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing an appropriate order.

h. The IRP shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor Company’ and manage the operations of the Corporate Debtor Company as a going concern as a part of obligation imposed by Section 20 of the Insolvency & Bankruptcy Code, 2016.

j. The Registry is directed to communicate a copy of this order to the Financial Creditor, Corporate Debtor and to the Interim Resolution Professional and the concerned Registrar of Companies, within seven working days and upload the same on website immediately after pronouncement of the order.

k. The IRP shall also serve a copy of this order to various departments such as Income Tax, GST, State Trade Tax and Provident Fund etc. who are likely to have their claim against Corporate Debtor as well as to the trade unions/ employee’s associations so that they are timely informed about the initiation of CIRP against the corporate debtor.

l. The commencement of the Corporate Insolvency Resolution process shall be effective from the date of this order.