Standard Chartered Bank vs Ashoka Pulp And Paper Pvt. Ltd

This is an application filed by the Applicant M/s. Standard Chartered Bank seeking to initiate corporate insolvency resolution process ("CIRP") of M/s. Ashok Pulp and Paper Ltd., the Respondent under Section 7 of the Insolvency and Bankruptcy Code 2016 ("the Code") for the alleged default on the part of the Respondent in settling an amount of Rs. 12,02,30,776/- as on 12.07.2019 towards the loan amount disbursed by the Applicant. The details of transactions leading to the filing of this petition as averred by the Applicant are as follows:

i. The Respondent along with its shareholders Sh. Krishan Kumar Gupta, Sh. Shiv Kumar Gupta, Sh. Raj Kumar Aggarwal, Sh. Brij Bhushan Gupta and Ashoka Promoter LLP approached the Applicant with loan application form dated 13.12.2016 to avail the credit facilities for working capital and business expansion.

ii. At the request of the Respondent, the Applicant vide facility letter dated 23.12.2016, sanctioned LAP facility for an amount of Rs. 15 crores. In consideration of the said sanction, the loan agreement dated 24.12.2016 was executed for an amount of Rs. 14,93,11,425/- by the Respondent, Sh. Krishan Kumar Gupta, Sh. Shiv Kumar Gupta, Sh. Raj Kumar Aggarwal, Sh. Brij Bhushan Gupta and Ashoka Promoter LLP. The charge on the property was also created by depositing title deeds with the Applicant.

iii. Demand notice dated 20.05.2019 was issued by the Applicant as the Respondent defaulted in its repayment obligation. Further another notice under Section 25 of the Payment and Settlement Systems Act, 2007 dated 21.05.2019 was sent to the Respondent.

iv. The Respondent in response to the notices dated 20.05.2019 and 21.05.2019 wrote letters dated 28.05.2019 to the Applicant which were duly replied by the Applicant vide replies dated 10.06.2019.

v. Applicant sent a notice dated 04.06.2019 regarding initiation of proceeding under the Code.

Consequent to the issuing of notice by the Applicant as well as this Tribunal, the Respondent filed its reply on 09.10.2019 in which the following contentions are raised by the Respondent:

i. The application under Section 7 of the Code filed by the Applicant is not only incorrect, misconceived, misplaced and based on entirely wrong and misleading facts but suffers for malicious, an act of utter beach and fraudulent transaction and the same is nothing but only a gross abuse and misuse of process of law.

ii. Further, the Applicant has not come to this Tribunal with clean hand and with a view to conceal the misdeeds and illegalities perpetuated, the Applicant has asserted thoroughly incomplete, in-accurate, self-serving, misleading facts and details and has deliberately and maliciously suppressed the most pertinent and indispensable fact/details, relating to the utter failure of the applicant bank in complying with the mandatory and fundamental pre-requisite terms and conditions of the loan agreement dated 24.12.2016 according to which the loan amount shall be disbursed only after foreclosing the amount of CC limit of Punjab National Bank, which has resulted into hefty loss to the Respondent. Hence, the Applicant is guilty of suppression and the captioned application deserves to be dismissed.

iii. The instant case is distinguishable being peculiar on the basis of its predominating facts and circumstances, wherein the loan agreement between the Applicant and Respondent was signed principally and precisely with a pre-condition of foreclosing earlier loan/CC limit, and accordingly the Applicant was under mandatory obligation to foreclose the CC limit of Punjab National Bank before disbursal of the amount, however, in active connivance with the earlier directors namely Sh. Krishan Kumar Gupta and Raj Kumar Aggarwal of the Respondent, mischievously the loan amount was disbursed without foreclosing the earlier loan. Smelling the malicious and fraudulent transaction and acts of the earlier directors and disbursal of loan by the Applicant in utter breach of the terms and conditions of loan agreement, Mr. Shiv Kumar and Brij Bhushan Gupta being 67% shareholder in the Respondent earnestly objected to the same and passed a resolution dated 22.07.2017 in a special general body meeting thereby resolving the removal of Sh. Krishan Kumar Gupta and Raj Kumar Aggarwal from the directorship of the Respondent and appointment of Mr. Shiv Kumar and Brij Bhushan Gupta as director of the Respondent. In furtherance of the same, the present directors of the Respondent company filed a company petition No. 204 of 2017 before the National Company Law Tribunal, for compliance of the Board Resolution dated 22.07.2017, and the petition was allowed vide order dated 03.05.2019 by this Hon'ble Tribunal and Mr. Shiv Kumar and Brij Bhushan Gupta were appointed as directors of the Respondent Company.

iv. Since, the nature of disputes between the Applicant Bank and Respondent Company involves complicated issues including breach of mandatory fundamental terms of the Loan Agreement firstly by Applicant itself and compulsorily require exhaustive and elaborative evidence both oral as well as documentary and cross-examination of the statement and witnesses, earlier directors, for arriving at just and proper conclusion which can only be undertaken through the Civil Suit filed by the Respondent, which is pending within the jurisdiction of the competent Court in Delhi.

v. The captioned application filed by the Applicant under Section 7 of the Code for initiation of CIRP of the Respondent, is without any cause of action as no such cause of action has ever occurred in favour of the Applicant against the Respondent and the Applicant has filed the present application just to harass and to firstly, save the Applicant bank from the suit proceedings initiated against them by the answering respondent, secondly, circumvent the legitimate and bona fide claim of the respondent for which, the respondent are legally and legitimately entitled to, thirdly, obtain the moratorium order so that the suit preceding could be stayed and illegalities and utter violation perpetuated by the applicant and repercussions thereof could be circumvented by taking shutter of the IBC proceedings.

We have gone through the details of documents filed by both the parties and heard the arguments made by the counsels of both the parties and reserved the orders on 30.01.2020.

The Respondent filed an application on 05.02.2020 under Rule 11 of the National Company law Tribunal Rules, 2016 for withholding the pronouncement of the order and directing the Applicants to provide clarifications in the matter. He has raised the following issues in his applications:

i. The bank in Section 7 application, on page 15 of the application, has alleged that the Applicant has defaulted in its repayment obligation and failed to pay the monthly installments on 01.04.2019, 01.05.2019, 01.06.2019 and on 01.07.2019. It is submitted that it is denied that the Applicant has defaulted in the repayment of the abovementioned EMIs and it is further submitted that even assuming, but not admitting, that the Applicant failed to pay the alleged EMI, it still does not amount to default of the entire outstanding loan amount i.e. Rs. 12,02,30,776/-, hence there is no default as alleged by the Respondent and therefore, the application is liable to be dismissed on this ground along. Moreover from the information received from the tenant and from the erstwhile directors it is revealed that the substantial monthly installments as claimed above are already cleared. The Respondent has already requested the Applicant to furnish the copy of the loan account but the same has not yet been furnished.

ii. The amount claimed to be in default by the Respondent in the application pertains to the future EMIs payable by the Respondent as per terms of loan agreement and hence the amount is not legally due and hence the application is liable to the rejected/dismissed on this ground alone.

iii. The Respondent in the application has on page 7 of the application read with Annexure IB on page 15 of the application has not given the amount in default but in fact given an amount which seems to be the outstanding balance under the loan account. It is further submitted the Respondent has failed to disclose the date of default which, as submitted above, is a statutory and mandatory requirement.

iv. The Respondent in the application has not complied with abovementioned mandatory and statutory requirements of Part IV of Form 1 of application under Section 7 of the Code read with rule 4 of Rules the hence the application filed by the bank is incomplete and therefore, the application is liable to the rejected/dismissed on this ground alone.

v. The application has failed in this duty by intentionally and fraudulently suppressing the fact that the company had, during the pendency of the present proceedings repaid, the EMI dated 01.04.2019 which is claimed to be default by the Bank.

vi. Even on the last hearing i.e., 30.01.2020 the Applicant failed to apprise the Tribunal of the fact that the Respondent has made various payments to the bank against the EMIs which are claimed to be in default by the Bank.

The matter was heard on 14.02.2020. The counsel for the Applicant was not present. The counsel for the Respondent highlighted the points mentioned in the application and expressed his readiness to pay the pending dues of EMI to the Applicant.

We have gone through the documents submitted by both the sides. A perusal of the application filed by the Applicant reveals that the Applicant has filed this application under Section 7 of the Code to recover an amount of Rs. 12,02,30,766/- and the date of default is mentioned as 12.07.2019. A perusal of the loan documents reveal that the Applicant has sanctioned an amount of Rs. 14 crores to be repaid in 144 monthly instalments of Rs. 17,75,330/- commencing from 01.02.2017.

The Applicant has also revealed that the Respondent has failed to pay the monthly installments on 01.04.2019, 01.05.2019, 01.065.2019 and again on 01.07.2019. In such a case the defaulted amount is for less than the amount indicated in the application. The Applicant has obviously indicated the outstanding amount as on 12.07.2019 as the amount of default. The amount claimed to be in default by the Applicant pertains to the future EMI's payable by the Respondent and hence the entire amount has not legally fallen due.

The case filed by the Respondent in the Hon'ble High Court of Delhi against the Applicant claiming damages to the tune of Rs. 9.00 crores for the irregularities committed by the Applicant while sanctioning and disbursing the loan amount in connivance with the then Directors of the Respondents assumes significance. It leads to the suspicion that the Applicant has resorted to the filing of this petition in a premature manner to avoid the pending case in the Hon'ble High Court of Delhi. It is to be noted here that the Applicant has sanctioned the loan amount to meet the working capital needs of this business run by the Respondent and it doesn't appear to be proper to initiate CIRP when the loan is sanctioned for 144 months. It is considered that for default of payment of 3 or 4 EMIs, initiating CIRP is a farfetched reaction on the part of the Applicant. It is not the intention of the legislation also.

In the above circumstances the petition fails and is disposed of as dismissed. No cost.