Shriram City Union Finance Limited vs Mountain Edge Tours and Holidays Private Limited

Mountain Edge Tours and Holidays Private Limited the respondent/Corporate Debtor (hereinafter referred to as CD) had approached Shriram City Union Finance Limited the Applicant/Financial Creditor (hereinafter referred to as FC) on or about May/June, 2018 for Loans to purchase office spaces.

After due negotiations and discussions, the FC agreed to principally grant the CD the said loans on terms and conditions mentioned in the three Sanction Letters dated 30^th May, 2018 and one Sanction Letter Dated 30^th June, 2018.

The CD having understood and agreed to the terms of the disbursement, signed the same as token of acceptance and returned the same back to the applicant.

On such basis 4 formal loan agreements were executed by and between the parties herein. The details of the said loan agreements being depicted as follows: -

The respondent mortgaged the said properties with the applicant (FC) by Equitable Mortgage which stood as a security in favour of the applicant till the loan amount was repaid to the fullest. The copies of the 4 loan agreements are collectively attached to the Company Petition as A-5 [Page 34 to 57].

The Corporate Debtor filed the requisite e-Form with the RoC for registering the said charge over the properties of the Company. A copy of the Index of Charges as downloaded from the website of Registrar of Companies is attached to the Company Petition forms Annexure A-6 [Page 58].

In pursuance to the execution of the said 4 loan agreements, the respondent-CD forwarded several Post-Dated Cheques from their accounts maintained with HDFC and Axis Bank in support of the said loan accounts which constitute further acknowledgment of an existing debt between the parties.

However, contrary to the terms and conditions governing the said 4 Loan Agreements, the CD paid only a few installments and thereafter defaulted in repayments of the subsequent Monthly installments.

In spite of repeated requests, reminders and demands and apart of several opportunities by the applicant FC to the CD it failed, neglected and/or refused to make payment of the outstanding amounts/contractual dues.

Left with no other alternative, the applicant FC recalled the said 4 loan agreements and called upon the CD to repay the foreclosed amount vide their Letter bearing no. LRN-01/Sept-19/2018-19 dated 13^th September, 2019.

The CD duly received the said notice, but, despite receipt of the such notice, the CD neither raised any objections nor honoured any payment. It failed and/or neglected to clear the foreclosed sum or regularize the said loan account.

The Applicant herein has also filed a complaint with the BKC Police Station, Bandra Mumbai under Sections 406, 420, 465, 458, 471 read with Section 34 of the Indian Penal Code on 4^th November, 2019. The copy of the said complaint dated 4^th November, 2019 forms Annexure A-8 [Pages 74 to 80] to the CP.

The applicant has also initiated arbitration as per the arbitration clause in the said agreement as against the Corporate Debtor herein. The same is sub-judice before the Ld. Arbitrator and the Corporate Debtor is contesting the same.

Such act or action of the respondent-CD of deliberately avoiding payment of the sum due paying sporadically and whimsically, instead and in place of making payment of the foreclosed amount tantamounted to acknowledgment of debt and inability to pay the outstanding.

However due to the prolonged national lockdown, the Government of India was pleased to suspend matters under the Insolvency and Bankruptcy Code till March, 2021.

Suddenly on or about 17^th June, 2021, the applicant received a copy of a suit proceeding filed by the Corporate Debtor before the Hon’ble High Court at Bombay claiming compensation from the developer and the applicant herein on false and frivolous grounds mentioned therein. The applicant is taking necessary steps before the Hon’ble Court in the said suit proceedings.

The respondent CD had unambiguously admitted stopping payments of EMIs which is not only illegal and de-hors the terms of the contract but also an admission of debt.

The CD was induced to procure the loan from the FC and that the amount was disbursed in the name of the Developer in disregard to the banking process and without information of the CD.

It was represented by the FC that the legal due diligence would be done by the FC.

The FC has stated that it was a working capital loan and then as per norms, the amount should have been given to the CD.

The CD, as they did not get the possession of the said flats, stopped payments of the EMIs of the said loan accounts.

The Hon’ble Supreme Court in (Vidarbha Industries Power Limited vs. Axis Bank Limited) [(2022)8 SCC 352] at Paragraphs 86 to 90 has held admission of application under Section 7 of the IBC, 2016 is not a mandatory but discretionary power of the Hon’ble NCLT considering the facts and circumstances of the case.

In the present case, the discretion requires consideration, as collusion amongst the financial creditor and the developer exists and cross-criminal complaints, pending arbitration proceedings, pending proceedings under Section 138 of the NI Act and above all, a suit for recovery of money from the Financial Creditor and the developer are pending before the Hon’ble High Court at Bombay filed by the corporate debtor, prior to the filing of this present proceeding.

That this Adjudicating Authority in exercise of powers under Rule 11 of the NCLT Rule, 2016 can rope in the developer in this proceeding and further enquire in the real state of affairs.

The Financial Creditor has surrendered its licence as NBFC (Non-Banking Financial Corporation) and the RBI has accordingly, cancelled their Certificate of Registration (CoR) as NBFC.

CD admitted to having executed the loan agreements for the said loan amount and had been paying the installments.

Nowhere in the reply has the CD clarified as how the FC had induced them to take the said loans.

The CD being a business entity desirous of purchasing the said units had taken a commercial call and understanding the terms of the loan agreements had signed the same signifying their consent.

The allegation of the CD that the loan was not disbursed to them but to the third party without their knowledge and against banking norms is claimed as a baseless allegation, for when a borrower takes a property loan it is a normal banking procedure that the borrower makes a down payment and the remaining amount being the loan amount is paid by the Financer to the third party for and on behalf of the borrower who pays the loan amount back in EMIs. Attention is drawn to clause 3 of the loan agreement which states – “The Borrower has requested the Lender to disburse the Loan in the manner specified in Schedule 4 hereto”. The Schedule of Disbursement contains the details of disbursement signed by the CD/Borrower. Similar clauses are found in the other 3 agreements. Therefore, the CD not only knew about the disbursement but had also instructed the same as would appear from the agreements.

That it was never represented to the CD by FC that the due diligence of the property would be done by the FC. In fact the CD wanted to expedite the process and wished that the due diligence be conducted by the FC so that the loan procedure may also be expedited. It would be evident from the email dated 8^th May, 2018 [Page No. 29 of the Reply of the CD] that the FC has requested to the CD to deposit the amount to the account of the advocate directly and the amount that was deposited by the CD in the account of the FC was refunded to the CD as would be evident from the email dated 19^th May, 2018 [Page No. 30 of the Reply of the CD].

The grievance of the CD that the said units are not been handed over to the CD by the Developer in connivance with the FC are bald allegations. In fact, when the FC came to know of the alleged fraud played upon them, the FC lodged complaints with Police Station on 4^th November, 2019 [Page No. 74 of the Company Petition].

The loan being stated as a “Working Capital Loan” in the petition is an inadvertent typographical error of which the CD is trying to take advantage to evade their legal and contractual obligations.

The CD had approached the FC for financial assistance to purchase the said units is admitted in the suit proceeding pending before the Hon’ble High Court at Bombay at Paragraph No. 6. Further the CD also admitted that the FC had disbursed the loan amount to the Developer in paragraph 7 of the plaint and that the Developer on receiving the amount from the FC had issued NOCs for creation of mortgage of the said units as admitted in paragraph 8 of the plaint [Page No. 113 of the Company Petition]. Therefore, it is evident from the admissions of the CD in their own plaint that FC had performed their part of the obligation and it was now the obligation of the CD to repay back the said loan amount as mentioned in the loan accounts.

The application filed by the Financial Creditor under Section 7 of the Insolvency & Bankruptcy Code, 2016 for initiating corporate Insolvency Resolution Process against the Corporate Debtor is hereby admitted.

We hereby declare a moratorium and public announcement in accordance with Sections 13 and 15 of the I & B Code, 2016.

Moratorium is declared for the purpose referred to in Section 14 of the Insolvency & Bankruptcy Code, 2016. The I.R.P. shall cause a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims under sub-Section (1) of Section 15 of Insolvency & Bankruptcy Code, 2016 shall be made immediately.

Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016 prohibits the following: -

The institution of suits of continuation of pending suits or proceedings against the corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;

Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (52 of 2002);

The supply of essential goods or services rendered to the corporate debtor as may be specified shall not be terminated, suspended, or interrupted during the moratorium period.

The provisions of sub-Section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

The order of moratorium shall have effect from the date of admission till the completion of the Corporate Insolvency Resolution Process.

Mr. Kanchan Dutta registered with Insolvency and Bankruptcy Board of India, having Registration No. IBBI/IPA-001/IP-P00202/2017-18/10391 Email [email protected] is hereby appointed as Interim Resolution Professional for ascertaining the particulars of creditors and convening a Committee or Creditors for evolving a resolution plan subject to production or written consent within one week from the date of receipt of this order.

The Interim Resolution Professional should convene a meeting of the Committee of Creditors and submit the resolution passed by the Committee of Creditors and shall identify the prospective Resolution Applicant within 105 days from the Insolvency commencement date.

The Financial Creditor/Applicant is directed to deposit Rs. 3,00,000/-(Three Lacs) to IRP appointed hereinabove within three days from this order. IRP can claim the preliminary expenses and fees subject to the approval by the CoC and after constitution of CoC.

Registry is hereby directed to communicate the order to the Financial Creditor, the Corporate Debtor, the I.R.P. and the jurisdictional Registrar of Companies by Speed Post as well as through email.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.