SREI Infrastructure Finance Limited vs M/s. Alstrong Enterprises India Private Limited

PER: SH. L. N. GUPTA, MEMBER (T)

The present IA No. 4488 of 2022 has been filed by M/s. Alstrong ACP Manufacturing India Private Limited, through its Resolution Professional Mr. Alok Kumar Agarwal (hereinafter referred to as the ‘Applicant) under Section 60(5) of IBC, 2016, read with Rule 11 of NCLT Rules, 2016 seeking the following relief:

Since two reliefs have been sought in the present application, therefore, we would like to deal with each of the two prayers.

With respect to prayer (a), it has been brought to our notice by the Respondent that earlier too, the Punjab National Bank had filed an application bearing no. IA-1615/2021 to seek dismissal of the main Petition (IB)-913 of 2020 seeking a relief similar to what is being sought by the Applicant herein.

This Adjudicating Authority vide order dated 02.07.2021 had dismissed the said IA-1615/2021 and observed the following as regards to the right of a third party to intervene in an application filed for initiating the CIR process:

In this regard, we also consider it appropriate to refer to the Judgement of the Hon’ble NCLAT in the matter of Vekas Kumar Garg vs. DMI Finance Pvt. Ltd. & Anr. in Company Appeal (AT) (Insolvency) No. 113 of 2021, dated 18.02.2021, wherein the following is held with respect to the right of a third party to intervene in a Section 7 Application at a pre-admission stage.

In view of the Judgement (supra), we are of the view that the aforesaid finding is applicable to the facts of the present case, and accordingly the Prayer (a) is not maintainable and therefore, rejected.

With respect to prayer (b), we are of the considered view that there is no need for any such separate direction as the IRP on appointment has to act in terms of the provision of the IBC, 2016, and Regulations made therein. Till the time any actual violation of the Code is pointed out to this Adjudicating Authority, there is no cause of action as on date for the Applicant to pursue such a prayer.

Accordingly, the prayer (b) requires no consideration.

In terms of the aforesaid observations, the IA-4488 of 2022 is Dismissed.

PER: SHRI L. N. GUPTA, MEMBER (T)

M/s. SREI Infrastructure Finance Limited (for brevity, the ‘Applicant/ Financial Creditor’) 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. Alstrong Enterprises India Limited (for brevity, the ‘Respondent’/AEIL).

The Respondent namely, M/s. Alstrong Enterprises India Limited (AEIL) is a Company incorporated on 16.09.2011 under the provisions of the Companies Act, 1956 with CIN U28910DL2011PTC225135 having its registered office at 75, Khirki Village, Malviya Nagar, New Delhi – 110017, which is within the jurisdiction of this Tribunal. The Authorized Share Capital of the Respondent Company is Rs.2,75,00,000/- and Paid-up Share Capital is Rs.2,44,54,550/- as per the master data annexed with the Application.

It is subsequently submitted by the Applicant that during the pendency of the present application, CIR process in respect of the Applicant Company has been initiated by the NCLT, Kolkata Bench vide order dated 08.10.2021 in C.P. (IB) No. 295/2021 and currently, its affairs are vested with Sh. Rajneesh Sharma, the Administrator, who had further authorized Mr. Pradeep Faujdar vide Power of Attorney dated 01.04.2022 to pursue the present application.

It is stated by the Applicant that on request of the Respondent and Worlds Window Infrastructure & Logistics Pvt. Ltd. (hereinafter referred to as “WWILPL”), the Applicant vide its sanction letter dated 18 June, 2018 agreed to grant the financial assistance of Rs.1,00,00,00,000/- to the Respondent and WWILPL. It is further stated that the following documents were executed by and between the parties in connection with the said Loan:

The Applicant has furnished particulars of the total unpaid financial debt and the date of default in Part IV of the application, which is reproduced below, for the sake of convenience:

As per Part IV of the Application, the Applicant has claimed the amount of Rs.104,97,68,105/- as an unpaid financial debt and relied on 06.02.2020 as the date of default.

Based on the abovementioned facts and documents, the Applicant has prayed for the initiation of the CIR Process against the Respondent.

On issuance of a notice, the Respondent filed its reply and stated that –

The Applicant had transferred its fund-based business division along with all its assets and liabilities to an entity namely SREI Equipment Finance Limited vide Business Transfer Agreement dated 16.08.2019. The effect of such transfer was that all sums, including the one alleged to be outstanding against the Respondent, stood assigned to SREI Equipment Finance Limited - the Assignee, along with all the rights and interests. Such transfer of business was intimated by the Applicant to the Respondent vide letter dated 01.10.2019. In view of such transfer of debt by the Applicant to SREI Equipment Finance Limited, the Applicant is not entitled to invoke the provisions of section 7 of the Code and thus the application is not maintainable.

The amount of Rs.1,04,97,68,105/- claimed in the application is not due and payable in terms of the repayment schedule of the loan agreement. The Applicant has failed to show the default of Rs.1,04,97,68,105/- and no demand was made by the Applicant. The Applicant in its e-mail dated 29.02.2020 (annexed as Annexure 22 @ 1451 of the Main Application) stated that in case the Respondent failed to pay the outstanding installment, the Applicant would be compelled to recall the entire loan totaling Rs.1,04,97,68,105/-. However, Applicant has not recalled/demanded the entire loan amount. Thus, the amount claimed is not due and payable.

The Applicant has claimed different amounts in the Form as appearing in part IV. On the one hand, the Applicant has claimed an amount of Rs.1,04,97,68,105/- and on the other hand, it has mentioned that the amount claimed to be in default is Rs.14,75,64,891/-. The amount claimed by the Applicant cannot be different. The Hon'ble Adjudicating Authority, Mumbai Bench in the matter of Urban Infrastructure Trustee Ltd v. Neelkanth Township and Construction Pvt. Limited (C.P. No. 21/1 & BP/NCLT/MB/MAH/2017) observed that the amount to be claimed and default occurred cannot be two different amounts.

Against the same debt, the Applicant has filed two Applications against the two Corporate Debtors i.e., the Respondent herein and M/s Worlds Window Infrastructure & Logistics Pvt. Ltd., in respect of which CIR Process has already been initiated by the NCLT Principal Bench.

The Applicant has failed to show the working computations as mandated in Part IV in para 2 of the form. The Respondent has an apprehension that the Applicant has charged the exorbitant and unreasonable interest on the overdue amount. Application is thus, incomplete and liable to be dismissed.

The applicant in its application claims the default to have occurred in February 2020, whereas, the Applicant had been claiming due amounts till May 2020. Therefore, the application is barred by Section 10A of the IBC, 2016. Further, the applicant has willfully concealed the demands raised by it during the Section 10A period, which otherwise would have rendered the application redundant.

The Respondent Company since the past has been doing well in its business which is evident from the financial statements from the period 2014-15 to 2018-19. If the present application is admitted, the Respondent company which is doing well in its business, employing 385 employees, and servicing its creditors in a timely fashion, would be put to an unnatural death.

It is pertinent to mention that the Respondent Company has had borrowings from different Financial Creditors and at present, it owes Rs. 85 Crores approximately to various Financial Creditors, which are not party to the present application. If the present application is proceeded with, it would cause irreparable harm to its creditors.

It is also pertinent to mention here that the Applicant was aware of the finance availed by the Company while the Respondent was made a co-borrower. As per the financing documents of the main lenders i.e., Punjab National Bank and State Bank of India, a prior no-objection certificate was required for granting the status of a Co-Borrower to the Respondent under any agreement. In the past, the said main lenders have raised their concerns and objections to the said actions of the Applicant and advised for the necessary corrective action.

There was no disbursement to the Respondent. The Loan agreement provides for a mechanism by which the Respondent could have requested disbursement in accordance with the Schedule. As a matter of fact, no such request letter was made to the Respondent. Thus, there is no financial debt.

Additionally, and more importantly, the Respondent only has a relationship with the Applicant through security. It is well settled that security, like in the present case, would not fall within the meaning of financial debt.

Thus, the facility under the loan agreement was never availed by the Respondent, and thus no money is due and payable from the Respondent to the Applicant. In any event, the Applicant is devoid of any authority to grant loan/disburse any loan to a non-infrastructure company like the Respondent.

The Applicant has also filed its rejoinder and Written Submissions stating the following:

It is denied that the Applicant had transferred its fund-based business division along with all its assets and liabilities to SREI Equipment Finance Limited ("SEFL") vide Business Transfer Agreement dated 16.08.2019. It is submitted that while a business transfer agreement was executed between the Applicant and SEFL, it did not come into effect and was not acted upon as certain conditions under the business transfer agreement could not be complied with. The letter dated 1 October 2019 was issued in good faith by the Applicant, however, as the business transfer did not come into effect, the letter stands null and void. Therefore, the account of the Respondent remains with the Applicant.

It is also pertinent to mention that the payment made by the Respondent to SEFL post-issuance of the letter dated 1 October 2019 has been duly credited to the loan account of the Respondent and adjusted against the outstanding dues. A copy of the statement of account of the Respondent as on 6 February 2020 has been annexed along with the present petition (Annexure A-20), which clearly evidences that all the payments made by the Respondent (including those made after 1st October 2019) are reflected in the account statement and factored in for the purpose of calculating debt under section 5(8) of IBC.

The Applicant had disbursed the Loan in 3 tranches on 24.07.2018 (40 crores), 31.08.2018 (20 crores), and 14.09.2018 (40 crores), which are admitted in the Balance Sheets of the CD.

The CD/Alstrong/Co-Borrower has raised several defenses to resist the initiation of CIRP. All such defenses were also raised by WWILPL, the Borrower in CP(IB) No. 943/PB/2020 to resist the initiation of CIRP. However, all such defenses were rejected by the Principal Bench vide its judgment dated 07.03.2022, which has attained finality, as no appeal was preferred against the same.

The CD has taken a frivolous plea that the petition is barred under section 10A of the Code on the basis that the FC had sent an email dated 28.05.2020, wherein the CD was asked to make good the defaults. The submission of the CD is misleading, as it had started defaulting in its payment obligations from 31.10.2019 onwards. Subsequent dates of default are 30.11.2019, 31.12.2019 and 31.01.2022, and so on.

The Applicant has stated in Part IV Column 2 that as of 06.02.2020, the amount claimed to be in default is Rs.14,75,64,891/-, which is more than Rs. 1 crore. Thus, the bar under section 10A of the Code is not applicable.

There is no bar in the Code for filing two simultaneous applications under Section 7 against the Borrower as well as the Co-Borrower. Even as per Section 43 of the Indian Contract Act of 1872, the liability of a borrower and a co-borrower are one and the same and both are jointly and severally liable to pay the debts due.

Further, the CD herein cannot claim that no disbursement was made to it as its books of accounts reflect the loan of the FC [Annexure 21 @pg. 1380-1381 (Vol VII)]. Apart therefrom, under the Loan Agreement, the term Borrowers has been defined to mean both Borrower and Co-Borrower collectively [@91 Vol 1] and the obligation to repay was on both the Borrower and the Co-Borrower as per Cl. 2.10 [@120 Vol 1]. Further, Article VIII Cl. 8.1.5 [@156 Vol 1] makes it clear that in event of failure or inability of the Borrowers to pay their debts, the FC/Applicant can initiate proceedings against the Borrowers viz. Borrower and Co-Borrower. Even otherwise, the Loan Agreement was signed by the FC, the Borrower, and the Co-Borrower.

We have heard the Ld. Counsels for both parties and perused the documents placed on records, including the Written Submissions filed by both parties. It is observed that the Respondent has raised various defenses in support of its contentions.

It is contended by the Respondent that the loan under reference was not disbursed to it and therefore, it is not under obligation to repay the same. The Applicant has not controverted this fact, but at the same time, it has argued that the Respondent herein was the Co-Borrower in terms of the Loan Agreement dated 07.07.2018, which was signed by the FC, the Borrower, and the Co-Borrower. Hence, at this stage, we consider it appropriate to refer to the Common Loan Agreement dated 07.07.2018, the relevant extracts of which are reproduced overleaf:

From the perusal of the above, it is clear that in terms of the common Loan Agreement dated 07.07.2018, the expression “Borrower” included both the “Borrower” as well as the “Co-Borrower” (i.e., the Respondent herein) and both of them to be collectively referred to as the “Borrowers”. We further notice that the Loan Agreement has been signed by Borrower, Co-Borrower (i.e., the Respondent/AEIPL), and the Applicant/Financial Creditor (i.e., SREI).

Now, in order to find out the liability of the Respondent (i.e., Co-Borrower in terms of the Loan Agreement) in case of default, we refer to the “Article VIII – Events of Default and Consequences of Default” placed on record. The same is reproduced below:

Thus, it is evident from para 8.1.5 of “Article VIII – Events of Default and Consequences of Default”, that in case of failure or inability of the Borrowers to pay their debts as they mature, the Applicant shall have the right to take the “Borrowers” into Liquidation, or Dissolution or Appointment of Receiver or Liquidator for all or part of the “Borrowers” assets, either voluntarily or compulsorily.

Thus, on a conjoint reading of the Common Loan Agreement signed by and between the Applicant and the Borrowers (which includes Co-Borrower/Respondent) and para 8.1.5 of “Article VIII – Events of Default and Consequences of Default”, it is clear that the “Borrowers” were jointly and severally liable towards the debt of the Applicant and the Applicant has right to recover the same from their assets in case of default.

Further, on perusal of the documents on record, we find that the Respondent has made a disclosure in the Notes to financial statements for the period ended 31^st March 2019 that it was a co-borrower for the loan availed by M/s Worlds Window Infrastructure & Logistics Pvt. Ltd., which is its subsidiary company. The disclosure reads thus:

The relevant extract of the Financial Statement 2018-19 is reproduced below:

Further, we would like to refer to Section 43 of the Indian Contract Act of 1872, which reads thus:

Thus, as per Section 43 of the Indian Contract Act of 1872, the liability of a borrower and a co-borrower are one and the same and both are jointly and severally liable to pay the debts due.

In view of this position of law, we find no force in the contention of the Respondent that the Co-Borrower cannot be held liable for the debt of the borrower.

It is further contended by the Respondent that CIRP in respect of the same debt has already been initiated in respect of the main borrower company i.e., Worlds Window Infrastructure & Logistics Pvt. Ltd. by the NCLT, Principal Bench in CP(IB) No. 943/PB/2020. We find no provision under the IBC, which prohibits the initiation of CIRP in respect of two or more Corporate Debtors, which are liable for the same debt. Hence, we find no merit and reject this contention raised by the Respondent.

It is further contended by the Respondent that the Applicant has wrongly charged the interest and has claimed different amounts in its application. In our view, since the claim of the Applicant is well above the minimum threshold limit of Rs. 1 Crore prescribed under Section 4 of IBC 2016, this Adjudicating Authority will not indulge itself in computing the quantum of debt.

Another defense raised by the Respondent is that the application is barred under Section 10A of IBC, 2016. In this regard, the Respondent has relied upon the email dated 28.05.2020, wherein the demand has been raised. Per contra, the Applicant has stated that the Respondent started defaulting in its payment obligations from 31.10.2019 onward and subsequent dates of default are 30.11.2019, 31.12.2019 and 31.01.2022, and so on. The Applicant has stated in Part IV Column 2 that as of 06.02.2020, the amount claimed to be in default was Rs. 14,75,64,891/-. Further, the Applicant has given the dates on which the default occurred and the corresponding amount claimed to be in default in Part IV of the application, which pertains to the period when Section 10A of IBC, 2016 was not applicable. The relevant extracts of Part IV are reproduced below:

Since there is a debt subsisting of more than Rs. 1 crore that was due and payable before the Section 10A period, therefore, the application cannot be considered barred by Section 10A of IBC, 2016 and the defense raised by the Respondent is devoid of merit.

The Respondent has also contended that its loan account was transferred to one SREI Equipment Finance Limited, hence, the application could only be preferred by that company. Per contra, the Applicant has stated in its rejoinder that though it was in the process of Assigning the loan account of the Respondent to M/s SREI Equipment Finance Limited, but the process could not be finalized and the loan account of the Respondent is with the Applicant Company only. For the sake of convenience, the response of the Applicant is reproduced below:

In view of the aforesaid clarification given by the Applicant, we find no merit in the argument advanced by the Respondent and therefore, would like to proceed ahead in the matter.

The Applicant has also annexed the “Record of Financial Information – Form C” maintained with NeSL, in respect of the default committed by the Respondent, the relevant part of which is reproduced below:

From the “Record of Financial Information – Form C” of NeSL and other documents placed on record, it is evident that the Respondent/AEIPL has committed default in payment of the Financial Debt owed to the Applicant/Financial Creditor.

In the given facts and circumstances, the present Application being complete and the Applicant/Financial Creditor having established the default in payment of the Financial Debt of being above the 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 by all and sundry:

As proposed by the Applicant, this Bench appoints Mr. Manish Agarwal as IRP having IBBI Registration IBBI/IPA-002/IP-N00223/ 2017-2018/10904 (Email: [email protected]) subject to the condition that no disciplinary proceedings are pending against the IRP so named and disclosures as required under IBBI Regulations, 2016 are made by him within a period of one week from this Order. This Adjudicating Authority orders that:

The Applicant is directed to deposit Rs. 2,00,000/- (Two Lakh) only with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as accounted for by Interim Resolution Professional and shall be paid back to the Applicant.

We are aware that on a separate application of the present Applicant, for the same debt, the main borrower namely, M/s Worlds Window Infrastructure & Logistics Pvt. Ltd. (“WWILPL”) has already been undergoing the CIR process. We, therefore, consider it appropriate to make it clear that any realisation made by the Applicant Company through the CIR process of M/s Worlds Window Infrastructure & Logistics Pvt. Ltd. would correspondingly / to that extent reduce the claim of the Applicant in respect of the Corporate Debtor/Co-Borrower herein. The IRP is, therefore, directed to keep a close watch over the CIR/Resolution process of the WWILPL and act accordingly.

A copy of this Order shall immediately be communicated by the Registry/Court Officer of this Tribunal to the Applicant/Financial Creditor, the Respondent, and the IRP mentioned above. In addition, a copy of the Order shall also be forwarded by the Registry/Court Officer of this Tribunal immediately to the IBBI for their records.