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Judgment
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
The appeal has been filed by the ‘Appellants’ under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 24.05.2021 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal), New Delhi (Court No.IV ) in Company Petition No. IB- 699/ND/2019.
The Adjudicating Authority while passing the ‘Impugned Order’ dated 24.05.2021 in Company Petition No. IB- 699/ND/2019 had, inter alia, observed the following at para 14 to 20:-
“14.That in the present case, the date of default was mentioned as the date of declaration of NPA as 02.12.2016. In view of the quashing of the declaration of the account of the corporate debtor as NPA, the date of default now can be considered as date of default as recorded in the certificate of information utility services which is 03.09.2016. The application is filed on12.03.2019, which is well within the period of limitation and not barred by law.
15.The registered office of corporate debtor is situated in Delhi and therefore this Tribunal has jurisdiction to entertain and try this application.
16.The Applicant is entitled to claim its dues, establishing the default in payment of the financial debt beyond doubt. The application is complete hence in the light of above facts and records the present application is admitted.
17.The Applicant has proposed the name of Mr. Vijay Kumar Gupta as Insolvency Resolution Professional, who is be and hereby appointed as IRP of corporate debtor, having registration number IBBI/IPA-001/IP-P01387/2018-19/12134 (email –[email protected]) as the Interim Resolution Professional subject to the condition that no disciplinary proceedings are pending against such an IRP named who may act as an IRP in relation to the CIRP of the Respondent and specific consent is filed in Form 2 of Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rule, 2016 in relation to specifically the corporate debtor and the applicant herein and make disclosures as required under IBBI (insolvency Resolution Process for Corporate Persons) Regulations, 2016 within a period of one week from the date of this order.
18.We direct the Financial Creditor to deposit a sum of Rs. 2 lacs with the Interim Resolution Professional namely Mr. Vijay Kumar Gupta to meet out the expense to perform the functions assigned to him in accordance with regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within three days for the date of receipt of this order by the financial Creditor. The amount however be subject to adjustment by the Committee of Creditors as accounted for by Interim Resolution Professional and shall be paid back to the Financial Creditor.
19.As a consequence of the application being admitted in terms of Section 7(5) of IBC, 2016 moratorium as envisaged under the provisions of Section 14(1) shall follow in relation to the Corporate Debtor prohibiting proviso (a) to (d) of the Code. However, during the pendency of the moratorium period, terms of Section 14(2) to 14(4) of the Code shall come in vogue.
20.In terms of above order, the Application stands admitted in terms of Section 7(5) of IBC, 2016. A copy of the order shall be communicated to the Applicant as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. Further the IRP above named be also furnished with copy of this order forthwith by the Registry.”
The Appellants are 65% ‘Shareholders’ of the Respondent No.1 Company (R1) even Appellant No.1 is the ‘Promoter’ and ‘Managing Director’ of the Respondent No.1 Company. The Respondent No.2 (R2) was incorporated in the year 1998 and was functioning as 100% export oriental manufacturing unit engaged in manufacturing of conventional men’s wear, comprising of jackets, trousers and coats and he was supplied to leading brands of the Company across the world. Their turnover is approx. Rs. 76 Crore and is having net profit of the 15% of the turnover. The R1- Bank has unlawfully and illegally declared the Respondent companies account as ‘Non-Performing Asset’ (NPA) on 02.12.2016 and initiated proceedings under the Securitisation and Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (for short SARFAESI Act, 2002). It is also submitted by the Appellants that on their petition under Section 17 of the SARFAESI Act, 2002 in SA No.91/2017 dated 20.03.2018, the ‘Presiding Officer, DRT-II Delhi’ has passed the following orders:
“20.As seen from the above factual and legal position, the security applicants have established from the Statement of Account that the account was wrongly notified as NPA on 02.12.2016 and, as such, the entire action initiated by the Respondent Bank is vitiated and by the wrong declaration of the account as NPA further proceedings under Section 13(4) of the SARFAESI Act are unsustainable. Accordingly, points No.(i) & (ii) are answered in favour of the security applicants and against the Respondent Bank.
21.The Security applicants have claimed a sum of Rs.98.11 crores as damages on account of various acts of omission and commission on the part of the Respondent bank. However, they have not produced any document to sustain their counter claim. Therefore, the security applicants have failed to make out a case for set off and, as such, this point is answered against them and in favour of the respondent bank.
22.In the result, the present S.A is allowed and it is held that the declaration of the account of security applicants as NPA is illegal and, consequently, the proceedings taken under Sections 13(2), 13(4) of the SARFAESI Act and for sale of the secured asset are hereby quashed. However, this does not prevent the respondent bank from declaration of the account as NPA as per RBI guidelines and to act in accordance with law. In the peculiar facts and circumstances of the case, the parties are left to bear their own costs. File be consigned to records”.
The Appellants have also pointed out that the impugned order failed to appreciate that with the date of NPA 02.12.2016 being prohibited and precluded from being treated as the date of “default”, subsequent “defaults” were equally prohibited under the doctrine / principle of “Nullssuss Commodum Capere Postest De Injuria Sua Propria” that no man shall take advantage of its own wrong. The Hon’ble Supreme Court in (2017) 11 SCC 447, explaining the maxim held
“It is settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law. It is sound principle that he who prevents a thing from being done shall not avail himself of the non-performance he has occasioned. To put it differently, “a wrongdoer ought not be permitted to make a profit out of his own wrong”.
The Appellants have accordingly submitted that such proceedings under the Code are without merit, jurisdiction and beyond the provisions of the Code and is seeking setting aside of the impugned order dated 24.05.2021.
It is submitted by the R1 - Bank that NPA has no bearing on Section 7 of the Code. Section 7 of the Code deals with ‘Debt’ and ‘Default’ even dispute does not come within its domain and have cited the judgment of Hon’ble Apex Court in ‘Laxmi Pat Surana Vs. Union Bank of India’ 2021 SCC Online SC 267. It has been stated by the R1 that it is clearly established by the report of the ‘Information Utility’ that the date of default is 03.09.2016. The report of the ‘Information Utility’ is one of the evidences that can be used by the Bank/ Financial Creditor to prove the existence of default. The application has been filed on 12.03.2019 within a period of 3 years as required under Section 7 of the Code R/w Article 137 of the Limitation Act. The NPA is only for the purpose of SARFAESI Act, 2002 and the same has nothing to do with the proceedings under the Code. The proceedings under the Code and SARFAESI Act, 2002 are independent and separate proceedings. The Adjudicating Authority has rightly held that they are concerned only with ‘default’. The Appellants is nowhere confirming that they have not committed any default or that no amount is due and payable under law. If ‘debt’ is legally due and payable and ‘default’ has been committed, the provisions of the Code get triggered and have accordingly, supplemented the stand of the Adjudicating Authority. It was also submitted by the R1- Bank that the question of rightful or wrongly declaration of NPA is pending before the ‘Debt Recovery Appellate Tribunal’ (DRAT) which is the forum to decide any such plea.
The Respondent No.2 – Resolution Professional of the Corporate Debtor (CD) (under CIRP) has stated that after his appointment as IRP, he has made a public announcement on 29.05.2021 inviting claims from creditor in various newspapers. The RP has stated that he has visited the registered office of the CD and the factory situated in Udyog Vihar Gurugram Haryana. The factory had 20-30 employees and security guards. The RP has also submitted that the Appellants in this case have not provided information & documents pertaining to the CD and no assistance has so far been extended to the Insolvency Professional.
We have heard Ld. counsels for both the parties and have analysed the information provided by them and the relevant provisions of the Code and are having the following observations:
a. It appears that the packing credit of Rs.42 lakh was disbursed by the R1-Bank on 07.03.2016 and the due date of recoupment amount of that was 03.09.2016 but the Borrower i.e. the Appellants/CD (under CIRP) could not ship the goods and failed to adjust the packing credit/repayment thereof within 03.09.2016 and as a result of the ‘RBI Guideline dated 01.07.2015’, the account became NPA after 90 days i.e. 02.12.2016.
b. As per the Application filed by PNB/Financial Creditor to initiate CIRP, in Part-IV, the following information has been provided:
| Particulars of Financial Debt | ||
|---|---|---|
| 1. | Total amount of Debt granted, date(s) of disbursement | Rs.30,75,00,000.00 Crore. That the CD was enjoying various credit facilities from Financial Creditor. These credit facilities were enhanced/ renewed/ reviewed from time to time Last Sanction on 11.03.2016 |
| 2. | Amount claimed to be in default and the date on which default occurred (attach the workings for computation of amount and days of default in tabular form) | Total amount claimed: Rs.28,96,32,153.00 as on 31.01.2019. Date of default is 02.12.2016 i.e. the Date of NPA |
c. As per ‘National e-Governance Service Limited Report’ dated 25.02.2020 record of default in the matter of CD is indicated hereunder: 2012.2021.
d. The DRT has not confirmed in the above stated order that the default has not been committed and no amount is due and payable. What it has done, it has set aside the classification of the NPA only for the purpose of the SARFAESI Act and the said order is under challenge in an appeal before the DRAT.
e. It is a settled law that default is committed first and second stage comes as NPA, if it is not regularized in between the period of default and within 90 days thereafter. In order to bring clarity and brevity on the subject Section 3(11), Section 3(12), Section 5(7), Section 5(8) and Section 7 of the Code is reproduced below for brevity and clarity:
“Section 3(11) - "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
Section 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;
Section 5(7) -"financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;
Section 5(8) -"financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes—
(a)money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
(c)any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d)the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
(e)receivables sold or discounted other than any receivables sold on nonrecourse basis;
(f)any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
Explanation. -For the purposes of this sub-clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);
(g)any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i)the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
Section 7 - Initiation of corporate insolvency resolution process by financial creditor.
(1)A financial creditor either by itself or jointly with [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
[Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:
Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.]
Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2)The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
(3)The financial creditor shall, along with the application furnish—
(a)record of the default recorded with the information utility or such other record or evidence of default as may be specified;
(b)the name of the resolution professional proposed to act as an interim resolution professional; and
(c)any other information as may be specified by the Board.
(4)The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).
[Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same.]
(5)Where the Adjudicating Authority is satisfied that— (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.
(6)The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).
(7)The Adjudicating Authority shall communicate—
(a)the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor;
(b)the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.”
f. From the above, it is very much clear that Code is a complete Act itself. What Section 7 of the Code requires that a Financial Creditor by filing an application in the requisite format can initiate CIRP against the CD when a Debt is due and payable in law and has not been paid and a default has occurred, the Adjudicating Authority is to initiate CIRP if, he finds default recorded in the Information Utility or evidence of default. So, the criteria for initiation of the CIRP under the Code is limited to three things, (i) there is a debt due and payable in law and has not been paid (ii)Default has occurred (iii) Default is recorded with the Information Utility. Here all the three criteria’s are met and hence initiation of CIRP by the Adjudicating Authority is in order. As far as issue of limitation is concerned the default has been committed on 03.09.2016 and the Application has been filed on 12.03.2019 hence, it is within a period of 3 years as required under Section 238A of the Code R/w 137 of the Limitation Act held by Hon’ble Supreme Court in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Private Limited in Civil Appeal No. 6347 of 2019 & B.K.Educational Services Pvt. Ltd. Vs. Parag Gupta And Associates in Civil Appeal No.23988 of 2017.
g. We accordingly, uphold the order dated 24.05.2021 of the Adjudicating Authority. No order as to costs.