SREI Equipment Finance Limited vs Worlds Window Wardha Infrastructure Private Limited

PER: MS. REENA SINHA PURI, MEMBER (T)

This Application is filed by SREI Equipment Finance Limited (hereinafter referred to as the Financial Creditor or FC/Petitioner) against M/s Worlds Window Wardha Infrastructure Private Limited (hereinafter referred to as the Corporate Debtor or CD/Respondent), seeking initiation of CIRP^{11.Corporate Insolvency Resolution Process} under section 7 of the IBC^{22.Insolvency and Bankruptcy Code, 2016}. The FC claims that the CD has defaulted in repayment of financial debt amounting to ₹9,97,27,223 inclusive of interest and penal interest etc.

The relevant facts are that a Common Loan Agreement^{33.Page 115-241 of the Application} was executed between the FC and the CD on 30.12.2019, by which a term loan facility of ₹20 crores was sanctioned and the first disbursement of ₹5 crores was made to the CD on 02.01.2020. As security, the CD executed a deed of hypothecation on 30.12.2019 in favour of the FC, creating a charge over its movable and immovable assets. A deed of personal guarantee was also executed by one of its promoters, Mr. Piyoosh Goyal, and the charge was registered with the RoC on 24.06.2020.

As per the terms of the loan agreement, while the principal amount was payable in bullet instalment at the end of four years from the initial disbursement date^{44.Page 146 of the Application - Agreement clause 2.10.1 (a) & Page 212 of the Application - Schedule III of the Agreement}, interest was compounded monthly and payable quarterly on the last business day of each quarter falling after the initial disbursement date^{55.Page 125 of the Application - Definition of Interest and Interest Payment Date & Page 210 of the Application -Schedule II of the Agreement}. There was also a provision for charge of penal interest/overdue charges. Further, in the event of default or continuing default by the borrower, which included non-payment of interest/repayment of instalment on the repayment date, the lender was entitled to declare the loans and all accrued interest thereon and all other monies in respect of the loan Facility, to be forthwith due and payable^{66.Page 187 of the Application - Agreement clause 8.3.1}.

Since the CD did not make any payment even after the section 10A period and continued to commit default, the FC issued a demand notice^{77.Page 299 -301 of the Application} on 17.11.2023, calling upon the CD to clear the outstanding sum of ₹4,88,23,683 (due on 08.11.2023) within seven days, failing which the entire liability amounting to ₹9,97,27,223 would be recalled. The CD neither replied to the demand notice nor made any payment towards its liability. Consequently, the FC invoked section 7 of the IBC and filed the present application on 13.03.2024.

As per Part IV of the Application the details of the amount due to the FC are as under:

Objecting to the application, the CD claims that no date of default was pleaded in the application and that there was inconsistency regarding the date of default. It is contended that based on the claim of date of default as 30.09.2020, the application itself is barred by limitation. The correctness of the amount claimed as due by the FC is also questioned. It is contended that interest pertaining to the period expressly prohibited by section 10A had been included in the claim and the charge of interest at the rate of 24%, overdue charges and other charges are without any basis. It is also claimed that there was no loan agreement between the CD and the FC; that the application was wrongly filed by the assignor in place of the assignee; and the authorized representative of the financial creditor did not have the requisite authorization.

The submissions of the parties were heard and records carefully perused. It is evident that the documents on record, including the loan agreement dated 30.12.2019, the ROC charge certificate dated 24.06.2020, and the NeSL information utility record dated 02.01.2024, all reflect the FC as the lender. Further, it is noted that the petition filed by Mr. Pradeep Faujdar on a power of attorney that expired on 31.03.2023, was subsequently ratified by the Administrator/new Board constituted after restructuring of the FC. The power of attorney dated 28.03.2023 and 16.04.2024 are on record. No documentary evidence has been produced by the CD to substantiate its assertion of assignment of loan by the FC. Therefore, the objections of the CD on these accounts are not valid.

On the question of the date of default, it is noted that the interest component was payable quarterly on the last day of each quarter. The principal amount was payable at the end of four years from the date of disbursement. Since ₹ 5 crores was advanced on 02.01.2020, in terms of the loan agreement, interest became payable from 31.03.2020. However, in view of Section 10A of the IBC, application against default can be made only in respect of the interest payable after 31.03.2021. Since the CD did not make any payment, the FC issued a demand notice on 17.11.2023 requiring the CD to make the payment due on 08.11.2023 within seven days from the date of demand notice. It was also stated that as per the terms of the agreement, failure to pay the due amount would entail recall of the entire liability including the principal amount, which was otherwise payable on 01.01.2024. Since the CD failed to make any payment, it remained in continuing default since 31.03.2021 and even on the date of filing of the application by the FC on 13.03.2024.

It is also evident from the material on record that interest of at least ₹ 2,06,36,301 was overdue as on 17.11.2023. Further, non-payment of the overdue amount by the CD kicked in the acceleration clause 8.3.1 of the loan agreement, resulting in the entire loan amount and all accrued interest thereon and all other monies in respect of the loan Facility forthwith due and payable. In any case, even otherwise, the principal amount was due to be paid on 02.01.2024, being the end of the four-year period from the initial disbursement date. There is also no doubt that the unpaid debt exceeds the threshold limit prescribed in the IBC. Section 7 of IBC requires only proof of existence of debt and default above the statutory threshold. Reliance is placed on Innoventive Industries Ltd. v. ICICI Bank^{88.(2018) 1 SCC 407}, wherein the Hon’ble Supreme Court held that once debt and default are established, the Adjudicating Authority is bound to admit the petition. Therefore, there is no merit in the objections of the CD against the invocation of section 7 of the IBC in the application filed on 13.03.2024.

On the question of the application being barred by limitation, it is evident from Part IV of the application, that the CD defaulted from the very first quarter-end from the date of initial disbursement of loan and continued to be in default even on the date of filing of this application on 13.03.2024. The tabular chart contained in part IV of the application lists the various dates of default in paying the interest component. The interest amounts pertaining to the section 10A period (quarter ending 30.09.2020, 31.12.2020 and 31.03.2021) are specifically mentioned as falling in the ‘blackout period’. The default amount of interest from the quarter ending 30.06.2021 to quarter ending 30.09.2023 is computed at Rs 2,06,36,301, well above the threshold limit. As evident from record, the CD remained in continuing default, resulting in issue of demand notice on 17.11.2023. The application under section 7 filed on 13.03.2024 is therefore valid and not hit by limitation.

The FC has filed the Agreement dated 30.12.2019, the ROC charge certificate evidencing creation of security, and the NeSL record acknowledging the financial debt. The CD has not denied that a sum of ₹5 crores was credited to its account. Under Section 5(8) of the IBC, once money has been disbursed against the consideration for time value of money, it constitutes a financial debt. The disbursal of ₹5 crores on 02.01.2020, coupled with agreed repayment terms, meets the statutory test. It is admitted that the CD has not repaid any part of the loan. Even disregarding computation of penal interest or other charges, the principal amount of ₹5 crores remains unpaid. The statutory threshold under Section 4 of the IBC is met. Hence, in view of the admitted debt and default, the application is allowed with the following directions:

The Application is admitted, and this Adjudicating Authority orders the commencement of the Corporate Insolvency Resolution Process, which shall ordinarily be completed within the timelines stipulated in the Code, 2016 (as amended), reckoning from the date on which this order is passed.

The Applicant has proposed the name of Mr. Manish Agrawal as the Interim Resolution Professional (hereinafter referred to as the ‘IRP’). The declaration under Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, by way of Form 2 indicates that no disciplinary proceedings^{99.Pg 65-68 of the Application} are pending them and they are eligible to be appointed as IRP qua the CD. Accordingly, this Adjudicating Authority appoints Mr. Manish Agarwal, Registration Number: IBBI/IPA-002/IP N00223/2017-18/10904, whose Authorization for Assignment is valid up to 30.06.2026 as per the IBBI IPs Registered List on the website. The IRP is directed to file Authorization for Assignment within three days from the date of this order.

The IRP is directed to take charge of the management of the Corporate Debtor, immediately. They are also directed to cause public announcement as prescribed under Section 15 of the Code, 2016, within three days from the date of receipt of this order and call for submissions of claims in the manner as prescribed.

Moratorium is, hereby, declared and shall have effect from the date of this order till the completion of the CIRP, for the purposes referred to in Section 14 of the IBC.

It is hereby ordered that all of the following are prohibited:

Notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period.

The supply of essential goods or services to the Corporate Debtor shall not be terminated, suspended or interrupted during the moratorium period. Further, if the IRP considers supply of any goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period.

Furthermore, the provisions of Sub-section (1) of Section 14 of the IBC shall not apply to such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; and to a surety in a contract of guarantee to a corporate debtor.

The IRP shall comply with the provisions of Sections 13(2), 15, 17 & 18 of the IBC. The Directors, Promoters or any other person associated with the management of Corporate Debtor are directed to extend all assistance and co-operation to the IRP as stipulated under Section 19 of the IBC for discharging her functions under Section 20 of the IBC.

The Corporate Debtor as well as the Registry is directed to send the copy of this Order to the IRP, to enable her to take charge of the assets etc. of the Corporate Debtor, and comply with this order as per the provisions of the IBC.

The Registry is directed to communicate this Order to the Corporate Applicant.

The Registry shall also communicate this Order to the Registrar of Companies, for updating the status of the Corporate Debtor in the website of the Ministry of Corporate Affairs.

Accordingly, this Company Petition is allowed.