Punjab National Bank vs Highland Automobiles Private Limited

Per : Sh. L. N. GUPTA, M (T) & Sh. HARNAM SINGH THAKUR, M (J)

Punjab National Bank Ltd. (for brevity, the “Applicant”) has filed the present application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity, the ‘IBC, 2016’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency process against M/s Highland Automobiles Private Limited (for brevity, the “Respondent”).

The Respondent namely, M/s Highland Automobiles Private Limited is a Company incorporated on 25.09.1996 vide Certificate of Incorporation dated 25.09.2006, with CIN U35912JK1996PTC001574 under the provisions of the Companies Act, 1956 having its registered office at Ansari Complex, Sonawar, Srinagar, Jammu & Kashmir, PIN 190001, which is within the territorial jurisdiction of this Bench. The Authorized Share Capital of the Respondent Company is 2,00,00,000/-and the Paid-up Share Capital of the Company is Rs. 1,00,00,000/- as per the Master Data of the Company annexed as Annexure A-3 of the Application.

It is submitted by the Applicant that the Respondent has defaulted in repayment of the loan amount of Rs 33,64,46,005/-advanced to it by the Applicant.

The particulars of the unpaid Financial Debt claimed including the total amount of default and the date of default are mentioned in Part IV of the application, which reads thus:

As per Part IV of the application (ibid), the Applicant has claimed an outstanding financial debt of Rs. 33,64,46,005/- and relied on 31.12.2008 as the ‘date of default’.

The Applicant Bank has relied on the following documents to substantiate its claim:

Based on the facts and documents mentioned above, the Applicant has prayed for the initiation of CIRP against the Respondent.

As there was no representation on behalf of the Respondent, it was proceeded ex-parte vide order dated 01.01.2024. However, on the date of final hearing on 18.01.2024, Proxy counsel appeared on behalf of the Respondent and stated that they had already filed their Short -Written Submissions and Reply.

Accordingly, we refer to the reply filed by the Respondent vide Diary no 2786 dated 31.05.2019, the written synopsis filed under Diary No. 01188/2 dated 20.12.2022, as well as the written submissions filed under Diary No. 01188/7 dated 22.01.2024. The Respondent has primarily contended the following;

The application is liable to be dismissed as it has been filed after the expiry of the period of limitation. The date of default was 31.12.2008, when the account of the Respondent slipped into NPA and therefore, there has been a delay of more than 10 years in filing the application, wherein no sufficient cause has been pleaded for the condonation of such delay.

The Respondent availed a credit facility from the Applicant Bank to conduct automobile business. Though the account/cash credit facility was initially operated by the Respondent regularly, however, due to ill luck, the operation of the said account became irregular owing to the downfall in the business activities of the respondent due to the turmoil causing catastrophic floods in the valley in the years 2008, 2010 and 2014 and thereafter in 2016.

The present application under Section 7 is not maintainable as the Respondent-corporate debtor is solvent and is ready to pay the amount of Rs. 12.50 Crore agreed upon by the financial creditor in a one-time settlement (OTS) that took place earlier wherein out of the agreed amount, Rs. 50 Lakh were paid.

Due to the insufficient reserve and surplus, the Respondent tied up with Jammu and Kashmir Bank for sanctioning an OTS amount in favor of the Respondent by way of a letter of approval. The said bank was ready to release the amount in favour of the applicant. During the process of OTS, the applicant by way of communication to the Regional Director of Reserve Bank of India Jammu, requested them to freeze the operations of the accounts and close all fixed deposits of the Respondent company lying before Jammu and Kashmir Bank branch Air Cargo Rajbagh, Srinagar.

The Applicant has already filed a civil suit before the Ld. Additional District Judge Bank case at Srinagar for the recovery of the loan amount to the tune of Rs 15,22,64,081 with interest @15 percent per annum and thus, the present application filed by the petitioner doesn't stand as per the IBC, 2016.

There is already a case pending against the Applicant filed by Respondent wherein the notice issued by the Applicant under section 13(4) of SARFAESI has been kept in abeyance till date by the court of First Additional District and Sessions Judge at Srinagar.

We have heard the Applicant and gone through the pleadings and written submissions placed by both the parties on record. The Applicant has primarily relied upon the date of NPA i.e., 31.12.2008 as the date of default.

From the record, it is observed that the Applicant has recalled the loan vide its “Loan Recall and Demand Notice” dated 25.01.2010, placed as Annexure A-12 of the Application (Pg. 122 onwards).

Since the ‘date of default’ mentioned by the Applicant is 31.12.2008 and the present Application is filed on 18.02.2019, we would like to examine - Whether the present Application is filed within the period of Limitation.

In this context, during the hearing, the Applicant relied upon the Balance Sheets of the Respondent Company for the financial years 2008-09 to 2016-17 filed vide IA No. 2335 of 2023 to demonstrate the acknowledgment of debt made by the Respondent.

In order to substantiate acknowledgment of loan/debt on behalf of the Respondent, Ld. Counsel for the Applicant first referred to page no 37 of the Audited balance sheet dated 31.03.2011 for the FY 2010-11 which reads as below:

From the above, it is evident that there is an entry of secured loan in the balance sheet of the corporate debtor.

Next, Ld. Counsel for the Applicant referred to page no 70 of the Audited balance sheet ending 31.03.2014 for the FY 2013-14 which reads as below:

From the above, it is evident that there is an entry of secured loan in the balance sheet of the corporate debtor.

Next, Ld. Counsel for the Applicant referred to page no 92/93 of the Audited balance sheet ending 31.03.2017 for the FY 2016-17, which reads as below:

From the balance sheet statement (ibid), it is evident that there is an entry of secured loan in the balance sheet of the corporate debtor.

Further, we notice that a reference has been made regarding the OTS by the Corporate Debtor in its letter dated 09.12.2017 addressed to the Sr. Manager PNB (page no. 38 under Annexure R-2 of the Reply filed by the Corporate debtor vide Diary No 2786 dated 31.05.2019), the relevant page depicting the date of signing reads thus:

Admittedly, the Respondent had also deposited an amount of Rs. 50 Lakhs with the Applicant Bank which tantamounts to acknowledgment of debt.

On perusal of the above-mentioned documents, we find that the present application filed by the Applicant Bank is well within the limitation in the following manner:

Accordingly, we find that the present Application being filed on 18.02.2019 is well within the Limitation.

Furthermore, from the pleadings, we also notice that the Respondent Company has repeatedly taken the plea of one-time settlement of its dues, which in terms of the judgment of the Hon’ble Supreme Court in “Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy and Anr.” is an acknowledgment of debt. The relevant para of the judgment (supra) dated 04.08.2021 reads thus:

Thus, in terms of the abovementioned discussion, we find that the petitioner Bank has been able to successfully establish the debt and default beyond doubt on the part of the Respondent in repayment of its financial debt.

In the sequel to the above and the given facts and circumstances, the present Application being complete and the Applicant having established the default on the part of the Respondent in payment of the Financial Debt for an amount being above the minimum threshold limit, the present Application is admitted in terms of Section 7(5) of the IBC and accordingly, the Moratorium is declared in terms of Section 14 of the Code. As a necessary consequence of the Moratorium in terms of Section 14(1) (a), (b), (c) & (d), the following prohibitions are imposed, which must be followed:

As proposed by the Applicant, this Bench appoints Mr. Arvind Kumar as Interim Resolution Professional (IRP) having Registration No. IBBI/IPA-001/IP-P00178/2017-18/10357, Email ID: [email protected]. The antecedents of the proposed IRP have been verified by the Legal Research Associate of this Adjudicating Authority. This Adjudicating Authority further orders that:

Mr. Arvind Kumar, as an IRP having Registration No. IBBI/IPA-001/IP-P00178/2017-18/10357, E-mail ID: <[email protected]> is directed to take charge of the CIRP of the Respondent with immediate effect. The IRP is further directed to take the steps as mandated under the IBC specifically under Sections 15, 17, 18, 20, and 21 of IBC, 2016.

The term of appointment of Mr. Arvind Kumar, as an IRP shall be in accordance with the provisions of Section 16(5) of the Code;

In terms of Section 17 of the Code, from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs of CD shall vest with the Interim Resolution Professional and the officers and the managers of the Corporate Debtor shall report to the Interim Resolution Professional, who shall be enjoined to exercise all the powers as are vested with Interim Resolution Professional and strictly perform all the duties as are enjoined on the Interim Resolution Professional under Section 18 and other relevant provisions of the Code, including taking control and custody of the assets over which the Corporate Debtor has ownership rights recorded in the balance sheet of the Corporate Debtor, etc. as provided in Section 18 (1) (f) of the Code. The Interim Resolution Professional is directed to prepare a complete list of the inventory of assets of the Corporate Debtor;

The Interim Resolution Professional shall strictly act in accordance with the Code, all the rules framed thereunder by the Board or the Central Government, and in accordance with the Code of Conduct governing his profession and as an Insolvency Professional with high standards of ethics and morals;

The Interim Resolution Professional shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the Corporate Insolvency Resolution Process in terms of Section 13 (1) (b) of the Code read with Section 15 calling for the submission of claims against Corporate Debtor;

It is hereby directed that the Corporate Debtor, its Directors, personnel, and the persons associated with the management shall extend all necessary cooperation to the Interim Resolution Professional in managing the affairs of the Corporate Debtor as a going concern and extend all cooperation in accessing books and records as well as assets of the Corporate Debtor;

The Suspended Board of Directors is directed to give complete access to the Books of Accounts of the corporate debtor maintained under section 128 of the Companies Act. In case the books are maintained in the electronic mode, the Suspended Board of Directors are to share with the Resolution Professional all the information regarding Maintaining the Backup and regarding Service Provider kept under Rule 3(5) and Rule 3(6) of the Companies Accounts Rules, 2014 respectively as effective from 11.08.2022, especially the name of the service provider, the internet protocol of the Service Provider and its location, and also address of the location of the Books of Accounts maintained in the cloud. In case accounting software for maintaining the books of accounts is used by the corporate debtor, then IRP/RP is to check that the audit trail in the same is not disabled as required under the notification dated 24.03.2021 of the Ministry of Corporate Affairs. The statutory auditor is directed to share with the Resolution Professional the audit documentation and the audit trails, which they are mandated to retain pursuant to SA-230 (Audit Documentation) prescribed by the Auditing and Assurance Standards Board ICAI. The IRP/Resolution Professional is directed to take possession of the Books of Account in physical form or the computer systems storing the electronic records at the earliest. In case of any non-cooperation by the Suspended Board of Directors or the statutory auditors, he may take the help of the police authorities to enforce this order. The concerned police authorities are directed to extend help to the IRP/RP in implementing this order. For retrieval of relevant information from the systems of the corporate debtor, the IRP/RP may take the assistance of Digital Forensic Experts empanelled with this Bench for this purpose. The Suspended Board of Directors is also directed to hand over all user IDs and passwords relating to the corporate debtor, particularly for government portals, for various compliances. The Interim Resolution Professional is also directed to make a specific mention of non-compliance, if any, in this regard in his status report filed before this Adjudicating Authority immediately after a month of the initiation of the CIRP.

The Resolution Professional is directed to approach the Government Departments/ Banks/ Corporate Bodies/ other entities with requests for information/documents available with those authorities/institutions/others pertaining to the corporate debtor which would be relevant in the CIR proceedings. The Government Departments, Banks, Corporate Bodies and other entities are directed to render the necessary information and cooperation to the Resolution Professional to enable him to conduct the CIR Proceedings as per law.

The Interim Resolution Professional shall after collation of all the claims received against the Corporate Debtor and the determination of the operational position of the Corporate Debtor constitute a Committee of Creditors and shall file a report, certifying the constitution of the Committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene the first meeting of the Committee within seven days of filing the report of the constitution of the Committee; and

The Interim Resolution Professional is directed to send a regular progress report to this Tribunal every fortnight.

The Petitioner is directed to deposit Rs.5,00,000/- (Five Lakhs) only with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as to be duly accounted for by IRP and shall be paid back to the Applicant.

A copy of this Order shall immediately be communicated to the Petitioner Bank, the Respondent Company, and the IRP named above by the Court Officer/Registry of this Tribunal.

In addition, a copy of the Order shall also be forwarded by the Court Officer/Registry to IBBI for their records.