Raj Radhe Finance Limited vs Shrinathji Spintex Pvt Ltd

The case is fixed for pronouncement of order.

The order is pronounced in open court vide separate sheet.

This is an application filed by the Financial Creditor viz. Rajradhe Finance Ltd. under Section 7 of Insolvency and Bankruptcy Code 2016 (hereinafter referred to as "IBC, 2016") against the Corporate Debtor viz. Shree Shrinathji Spintex Private Limited seeking thereof to initiate Corporate Insolvency Resolution Process (CIRP) as against the Corporate Debtor.

In Part II of the application, it is stated that the Corporate Debtor was incorporated on 16.11.2010 with the Authorised Share capital of Rs.2,00,00,000/- (Rupees Two Crores only) and the paid up share capital of Rs.1,92,98,000/- (Rupees One Crore Ninety Two Lakhs Ninety Eight Thousand Only). In Part III of the Application the Financial Creditor has proposed the name of one Mr. Atul Mittal as the Interim Resolution Professional, who has also filed his written consent in Form 2. In Part IV of the application the default amount is stated to be Rs.11,71,43,960.20/- (Rupees Eleven Crores Seventy One Lakhs Forty Three Thousand Nine Hundred and Sixty and Paise Twenty Only) together with further interest at contractual rates till the date of realization of all the outstanding dues and date of default is mentioned as 29.05.2015.

This petition was dismissed for want of prosecution by order dated 25.08.2020 and was restored by Hon’ble NCLAT vide order dated 27.04.2022 passed in Company Appeal (AT) (INS) No.1485 of 2022. This Tribunal allowed the substitution of the petitioner by order dated 28.01.2025 passed in IA No.973 of 2024.

Applicant submitted that Corporate Debtor had entered into arrangement for cash credit (Hypothecation of stock cum Book Debts) facilities with Dena Bank and executed Agreement of Hypothecation dated 03.06.2011 for Rs.12,33,00,000/-. The Corporate Debtor also issued Demand Promissory Note, Letter of Continuity Letter of General Lien and Set Off, Foreign Bill Form, and General Undertaking to Dena Bank. The Corporate Debtor further entered into Registered Instrument relating to Deposit of Titles Deeds on 06.06.2011 in favour of Dena Bank. The Corporate Debtor further executed a Deed of Rectification dated 13.06.2011 and another Instrument of Deposit of Title Deeds on 28.03.2013 in favour of Dena Bank. The Corporate Debtor issued a Letter of Acknowledgement of Debt dated 26.03.2013 in favour of the Dena Bank. Dena Bank has filed a Sanction Letter dated 15.10.2014 stating the Nature of Arrangement to be Cash Credit (Hypothecation of stock cum Book Debts) with a Limit of 450 Lacs. along with all terms and conditions.

It is submitted that the Corporate Debtor defaulted and became NPA on 29.05.2015. Dena Bank issued Notice u/s.13(2) of SARFASI Act on 21.08.2015. Further Dena Bank filed Original Application No.68 of 2016 before DRT-II Ahmedabad under Section 19 of Recovery of Debts Due to Bank and Financial Institution Act, 1993.

The respondent submitted that the petition is barred by the limitation as the alleged date of default is of 29.05.2015 and the present proceeding was filed on 29.10.2018 i.e., after 3.5 years. It is further submitted that the Petitioner while preferring the present Petition suppressed various pending proceedings before the Competent Court of Law and order passed by the Competent Court against the Petitioner Bank preferred by the Respondent Company. There is a pre-existing dispute between the Respondent Company and Petitioner Bank, and to suppress the fact of pre-existing dispute, the Petitioner Bank has not disclosed the very fact before this Hon'ble Court. Hence the present Petition is required to be dismissed on this ground of suppression of material facts, proceedings and orders.

Respondent submitted that it is the case of the Petitioner Bank before Ld. DRT, that they have hypothecation charge over the Cotton Bales of the Respondent Company. The State Bank of Patiala (Defendant No. 13 in OA 68 of 2016) has auction sold the 5700 Cotton Bales on 02.06.2016 without knowledge and permission of the Petitioner Bank illegally and without authority of law, which was heavily objected by the Petitioner Bank and Respondent Company before Ld. DRT in proceedings of OA 68 of 2016. The State Bank of Patiala has recovered an amount of Rs. 7,31,55,200/- out of auction proceeds. The entire claim of Petitioner is Rs.7,85,61,769/-, hence the entire alleged due amount of Petitioner can be recovered from the State Bank of Patiala as they have illegally and without authority of law auction sold the goods which was claimed to be pledged by the Petitioner Bank. It is further submitted that in order dated 19.08.2016, the State Bank of Patiala has vide exh. R/29 stated that they have received an amount of Rs. 7,31,55,200/- In the said order, while permitting to appropriate the sale proceeds, the Hon’ble DRT has directed the State Bank of Patiala that auction sale proceed will subject to final adjudication of Original Application, and an authorized officer of the bank has to file an undertaking to the effect and abide by the same. Hence the alleged claim of the Petitioner Bank is secured as an amount of Rs. 7,31,55,200/- is already recovered. Therefore it is in the interest of justice, the Debts Recovery Tribunal should be permitted to proceed with the adjudication of the Original Application No. 68 of 2016 preferred by the Petitioner Bank for recovery of its alleged dues.

It is submitted that the Petitioner Bank has suppressed the fact before this Tribunal that the Respondent Company has preferred Securitization Appeal No.208 of 2016 before Hon’ble DRT-II, Ahmedabad which is pending. The proceeding was initiated disputing the illegal and arbitrary auction sale notice issued by the Petitioner Bank on 27.08.2016.

The applicant in rejoinder submitted that the Corporate Debtor issued a letter dated 24.12.2015 acknowledging the debt by requesting to waive Corporate Guarantee of Galaxy Cotton and Textile Private Limited as per the provisions of Section 185 and 186(2) of the Companies Act, 2013 and also against collateral securities of Rs.3066.49 lacs confirming the total exposure of Rs.759.38 lacs. Applicant further submitted that the directors of the Corporate Debtor had appeared in the DRT and consented for recovery by way sale of assets which is recorded in order dated 29.09.2016. It is submitted that in view of the above 2 acknowledgement by the respondent, the present petition is within limitation. It is submitted that the original application before DRT i.e. Original Application No.68 of 2016 is already heard and fixed for pronouncement of judgment on 28.02.2025 vide order dated 06.02.2025. It is further submitted that the proceedings before the DRT and this Tribunal are different and cannot be interrelated. Petitioner submitted that CD has defaulted and has not filed any financial documents with the ROC since 2015.

It is submitted that with regard to the issue of State Bank of Patiala, it is submitted that the issue of the first charge is the subject matter of DRT with respect to the sale of Cotton Bales and even otherwise the dues of the petitioner are much higher than the amount received by State Bank of Patiala. Also, the petitioner has not received any amount as of this date for sale done by State Bank Patiala.

The applicant relies on the Judgment of:

Heard both the parties and perused the documents on record.

Observations are:

a. This application was originally filed by Bank of Baroda (Dena Bank, (Gondal Branch) which merged with BOB). The substitution petition was allowed whereby the applicant Raj Radhe Finance substituted the original financial creditor due to substitution of financial debt.

b. The liability to the debt has been acknowledged by the CD on 26 March 2013. A fresh sanction letter (renewal) was issued by the financial creditor on 15 Oct 2014 which reiterated the earlier sanction conditions, charges created, which includes corporate guarantee of Galaxy Cotton & Textiles Pvt Ltd which is also presently under CIRP.

c. A suit was filed on (OA 68 of 2016) under Sec 19 of the RDDBF Act 1993 against the CD and the Directors and the Guarantors, including State Bank of Patiala for recovery of an amount of Rs.7,85,61,679 as on January 19, 2016. It is stated in that application that the applicant had raised an objection against the State Bank of Patiala for sanction of unilateral pledge loans by SBP and disbursed certain pledge loans by including the hypothecated stocks.

d. The audit report of the CD for the financial year ended 31 March 2014 (2013-14) has acknowledged the debt in its balance sheet dated 12^th August 2014. The demand notice is issued on 21 8 2015. In this regard, the applicant’s rely on two important judgments of Honble NCLAT and Honble Supreme Court:

ii) Honble Supreme Court in BK Educational Services Pvt Ltd V Parag Gupta & Associates held that the limitation period for the purpose of Sec 7 & 9 of the IBC was governed by Article 137 of the Limitation Act, 163 and the initiation or pendency of proceedings before DRT under the SARFAESI Act, 2002 or the RDDBFI Act 1993 could not be considered as an extension of the limitation period under the IBC.

e. When we see the documents submitted, while allowing the substitution application, the same has been allowed only for after examining the provision in the loan agreement clause 23 whereby the borrower had allowed the bank the right to sell or transfer by way of assignment, securitisation or otherwise the whole or part of the credit facilities and outstanding amount…” which are mentioned in the hypothecation agreement dated 3 June 2011. The Deed of Assignment was executed on 19 Oct 2019 by the Erstwhile Financial Creditor (Bank of Baroda, who took over Dena Bank by way of amalgamation) with M/s Raj Radhe Finance. In para 2.2.5 of the stated agreement, the “assignor undertakes that it shall, if so required by the Assignee and at the cost of Assignee, notify any or all the Borrowers, Guarantors, Advocates, other Lenders, Statutory Authorities, DRT/DRAT/High Court/BIFR/ AAIFR, Official Liquidator, High Court/DRT Receiver, Insurance Company, Security Agency and any other entity related to the Borrower of the assignment of the loan of the underlying Security Interests, Pledges and/or guarantees and all its right, title and interest in the Financing Documents to the Assignee.

f. The debt was due on date of NPA being 29 May 2015 and the demand notice was issued on 21 August 2015. It is stated that the CD issued a letter dated 24 Dec 2015, acknowledged the waiver of the Corporate Guarantee of Galaxy Cotton and Textile Pvt Ltd and also against collateral securities confirming the total exposure of Rs 759.38 lakhs. This copy is available on record submitted as additional affidavit by the applicant. Further the applicant has filed the Company Master data of the company wherein the last date of balance sheet is stated to be 31 March 2015 and last date of AGM as 30 Sept 2015. The financial creditor had demanded a certificate of recovery for an amount of Rs.7,85,61,769 by filing an OA before the DRT No.68 of 2016 on Jan 19, 2016. The applicant has produced the CIBIL reporting data as on 30 April 2017.

The crucial documents/ only document that needs to be seen or taken in to consideration to address the issue of limitation by the original creditor is the letter addressed by the CORPORATE DEBTOR on 24 Dec 2015. The corporate has clearly acknowledged the liability amount of Rs.759.38 lakhs which is signed by the Director of the CORPORATE DEBTOR. This has been confirmed by clarification affidavit as per directions of this tribunal on 26 March 2025. It is also clear from the documents that the CD through its director had released corporate guarantee given in favour of the Galaxy Cotton (Sister concern) but acknowledged the amount. The application was filed by the original financial creditor Bank of Baroda on 1 November 2018 after the debt was defaulted in 2015. The additional documents submitted, has not been denied by the respondent CD who was directed to file written submissions after hearing to file the same that day itself. Further, since there is no denial and the assignee who acquired the debt has proved by the document that it had purchased the debt after due diligence continues to be a creditor eligible to recover the amount as the original financial creditor, by this acknowledgement is deemed to have filed the application before this Tribunal within the limitation period. Since the entity who has substituted the loan is a regulated entity, we at this stage are not able to doubt the authenticity of the additional documents given as it could be construed as the supportive document to address the issue of limitation, which was never questioned from the date from which the application was filed by the original creditor BOB.

Further the Order was de-reserved on 26 March 2025 and the respondent was directed to file affidavit on the genuinity of the letter dated 24.12.2015 within 1 week. The respondent for R 1 CD has filed an affidavit in compliance of the directions vide affidavit dated 20 April 2025. He has confirmed that the letter dated 24.12.2015 was issued by the erstwhile director of the CD Mr. Ravikumar Harshukbhai Lakkad who expired on 23.2.2022. A copy of the MCA data showing his Directorship during the period and his death certificate is enclosed. In the stated letter the debt has been acknowledged and hence this addresses the issue of limitation and the financial creditor (original FC BOB) has filed the application on 1 Nov 2018 under Sec 7 of IBC 2016.

In view of the above we pass the following orders: