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Judgment
The present Application was filed on 01.08.2021 by State Bank of India ('Petitioner/Financial Creditor') under section 7 of the Insolvency and Bankruptcy Code, 2016 ('The Code) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process ('CIRP') against Abhijeet Ferrotech Limited ('Respondent/Corporate Debtor') for default amount of Rs. 144,70,88,690/- (One Hundred Forty-Four Crores Seventy Lakhs Eighty-Eight Thousand Six Hundred and Ninety Rupees Only).
BRIEF BACKGROUND:
This Application was originally filed in the National Company Law Tribunal, Kolkata Bench bearing CP (IB) No.209/(KB)/2021. Thereafter, vide office order dated 30.08.2022, Hon'ble President, under Section 419 of the Companies Act, 2013 read with Rule 62 of the NCLT Rules, 2016 had transferred the matter to this Bench and henceforth, this case was transferred to this Bench and re-numbered as TP (IBC) No. 02/CB/2022.
The Applicant had simultaneously issued notice under Section 13(2) of the SARFAESI Act 2002 on 17.02.2017 and on 11.09.2018 initiated proceedings u/s 19 of Recovery of Debts Due to the Banks and Financial Institutions Act,1993 ('RDDBFI Act') before Ld. DRT-II, Kolkata, which was rejected by Ld. DRT vide order dated 17.06.2022. The applicant preferred appeal against the rejection before Ld. DRAT.
While the appeal before LD. DRAT was pending, this Tribunal vide order dated 21.03.2023 rejected TP (IBC) No. 02/CB/2022 on the ground that, the point for consideration in the Section 7 Application and the appeal pending before Ld. DRAT are substantially the same, hence the Tribunal was not inclined to exercise its discretion to admit the Corporate Debtor into CIRP.
Ld. DRAT vide its order dated 19.03.2024 set aside the order of Ld. DRT but subsequently the order dated 19.03.2024 was stayed by Hon'ble Calcutta High Court vide its order dated 30.04.2024, till 30.09.2024 or until further order, whichever is earlier.
In the meantime, Hon'ble NCLAT vide order dated 02.07.2024 in CA(AT)(Ins) No.690 of 2023 had set aside the order of this Tribunal dated 21.03.2023 and revived the present application i.e. TP (IBC) No. 02/CB/2022 on the ground that since proceeding under section 19 of RDDBFI Act, 1993 is inconclusive in nature, it cannot be a bar to Section 7 Proceeding under IBC, 2016. Hence, this comes before us for fresh adjudication.
The averments made by the applicant in its application are as follows:
a. The State Bank of Travancore, which got merged with State Bank of India on 31.03.2017, sanctioned credit facilities in favour of respondent vide its sanction letter dated 17.03.2012 to the tune of Rs. 99,00,00,000/- (Rupees Ninety-Nine Crore Only) for a period of 12 months which was subsequently renewed for a period of 12 months on 08.04.2013.
b. On 31.03.2013, the account of Respondent was first declared as Non-Performing Asset ('NPA') and thereafter, the same was referred to the Corporate Debt Reconstructing Cell (CDR) of RBI and subsequently a restructuring package ("Package") was approved by CDR EG on 26. 09.2013. Based on such Package, Applicant along with other consortium lenders entered into Master Restructuring Agreement ("MRA") with the Respondent on 28.09.2013 and various documents were executed by the Respondent in support of MRA on 30.09.2013.
c. In accordance with the restructuration package, the State Bank of Travancore vide sanction letter dated 14.02.2014, restructured the credit facilities in favour of the Respondent and sanctioned an amount of Rs. 89,46,00,000/- on 14.02.2014. Furthermore, a Deed of Accession and a Modification on the Master Restructuring Agreement were executed on 26.03.2014. State Bank of Travancore vide sanction letter dated 28.12.2025 enhanced the credit limit by Rs.36,76,00,00/- and increased it to Rs.126.20 Crores from the existing Rs.89.46 Crores.
d. Meanwhile, since the Respondent failed to meet the terms of the Corporate Debt Restructuring, hence, the account of Respondent was declared as NPA on 30.09.2016 w.e.f. 31.03.2013 as per RBI Guidelines and Directives. Therefore, the entire Loan was recalled by SBI on 25.11.2016.
e. The Applicant issued notice under Section 13(2) of the SARFAESI ACT, 2022 on 17.02.2017. Furthermore, the applicant on 18.05.2018. issued a Demand Notice to the Respondent to pay a sum of Rs. 1,09,91,11,273/- inclusive of interest and penal charges and subsequently filed an application under Section 19 of RDDBFI Act, 1993 bearing O.A. No. 742 of 2018 before the Ld. Debts Recovery Tribunal- II, Kolkata on 11.09.2018.
f. The debt has been acknowledged by the applicant in its Balance Sheet for the Financial Year 2016-17 and through its letter dated 07.07.2021, the respondent had also proposed a One-Time Settlement (“OTS”) to the Applicant with reference to the acknowledged debt.
The respondent in its reply has stated the following:
a. There is no existence of debt as defined under section 3(11), and there is no default as defined under section 3(12) of the Code. As per the MRA dated 30.09.2013, the lenders were required to extend renewed working capital facility but despite the respondent adhering to its obligations under the MRA and subsequent agreements being executed between both the parties, the consortium lenders neglected in disbursing the sanctioned credit.
b. The Applicant has mentioned two different NPA dates in its application i.e. 31.03.2013 which is the original date of NPA classification and 30.09.2016 on which the account was re-classified as NPA after debt restructuration, which is illegal and in violation of RBI directives.
c. The subsequent classification on 30.09.2016 (effective from 31.03.2013) was due to the failure on part of the Applicant in disbursing the complete amount and hence default cannot be attributed to the respondent and the subsequent MRA has subsumed the credit facility disbursed originally by the lenders and hence any default that accrued in relation to the disbursals made prior to MRA cannot be alleged any further.
d. Present application is time barred as the original date of default is 31.03.2013 and as per Article 137 of Schedule I of the Limitation Act read with section 238-A of IBC,2016, the limitation period expires on completion of 3 years i.e. on 31.03.2016.
e. Moreover, all the documents executed between the parties were in the year 2013 and 2014, with the last document being executed on 26.03.2014 and since the present application is filed in the year 2021, hence it is barred by limitation.
f. The Present Section 7 Application is devoid of any credential as it has been filed and signed by personnel without proper authority making the Application non-maintainable.
g. The demand notice sent under SARFAESI Act, 2002 on 17.02.2017, will not extend the period of limitation as the account was originally classified as NPA on 31.03.2013 and also because the proceedings under SARFAESI and IBC are distinctive in nature.
h. Mere entry in the balance Sheet and the note annexed thereto cannot be held as valid acknowledgement according to Section 18 of Limitation Act, 1963.
The application filed by the Applicant before Ld. DRT under Section 19 of RDDBFI Act, 1993 will not give benefit of Section 18 of the Limitation Act, 1963 to the Applicant. As per Section 18 of the Limitation Act, 1963, there is necessity of a written acknowledgement on the part of the respondent, hence, mere filing of Section 19 Application under RDDBFI Act, 1993 would not give the applicant the benefit of Section 18 of the Limitation Act, 1963. Furthermore, the proceedings under Section 19 of RDDBFI Act, 1993 is of the nature of summary suits and the certificate issued thereto is not in the nature of decree, which is sine-qua non to get the benefit under Limitation Act, 1963
j. The Applicant’s reliance on the OTS proposal dated 07.07.2021 by the Respondent won’t extend the period of limitation because as per Section 18 of the Limitation Act, 1963, any acknowledgement shall be made within the persisting limitation period and since the original date of default was in the year 2013, hence the OTS proposal in the year 2021 is way beyond the three years limitation period as required by Article 137 of Schedule-I of the Limitation Act, 1963 and hence the proposal given by the Respondent cannot be construed to have reignited the limitation clock.
The Tribunal vide order dated 06.04.2022 directed to place on record the Board Resolution authorizing the signatory of the application to sign the present Application because the letter of Authorization dated 19.07.2021 having Ref No. SBI/SARG-III/Team-2/2021-22/424 attached with the application was found to be insufficient. The Applicant filed an additional affidavit in compliance with the direction given by the Tribunal on 06.04.2022 and in that it had stated that in accordance with Regulation 76 (1) of SBI General Regulations, 1955 framed under section 55 of SBI Act, 1955, an official notification was published in the Part- III Section 4 of the Gazette of India No. 18 published on 02.05.1987. As per the notification all branch Manager/Division Manager were empowered to sign petitions on behalf of the bank and hence the said letter of Authority dated 19.07.2021, issued in favour of the Chief Manager and case officer, Mr. Ashwini Kumar is valid and as per law.
After revival of the present Application the Corporate Debtor has filed two additional affidavits i.e. on 11.02.2025 and 14.04.2025 wherein it has made the following submissions:
a. The Respondent has approached the Applicant with multiple OTS proposals since July, 2021 but it was advised to first settle its dues with lead bank of the consortium considering the existing banking industrial practice. Subsequently, the Respondent has made OTS proposal to the lead Bank i.e. Punjab National Bank (holding 21.92% of total debt) and submitted another OTS proposal to Indian Bank (having 14.36% of Total Debt), both of which were under consideration as on 11.02.2025.
b. The Respondent as on 11.02.2025 has already settled its dues with Indian Overseas Bank and Asset Reconstruction Enterprises Limited (assignee of Axis Bank) through OTS proposals comprising 41.39% of the debt owed to the consortium.
c. The Respondent had subsequently filed an OTS proposal on 18.03.2025 with the Applicant wherein it was proposed to settle the 50% of outstanding debt owed to the applicant i.e. Rs.44.36 Crores out of the total outstanding of Rs. 88.72 Crores. In the meantime, respondent has already entered settlement of its dues with ACRE (Assignee of Axis Bank), PNB Bank and Indian Overseas Bank (constituting 63.31% of total debt) through OTS proposals. The Respondent has also offered OTS proposals to Indian Bank and UCO Bank which are in advanced stages of consideration and are expected to be approved.
d. The Applicant in response to the proposal dated 18.03.2025 has informed the Respondent vide letter dated 20.03.2025 that as per Applicant's policy 25% of the OTS amount should be deposited in advance and the remaining amount should be deposited within three months from the OTS sanction date but it has also been communicated that the details of account no. for depositing the advance can only be provided after the proposal has gotten necessary internal approvals.
The Respondent while filing additional Affidavit dated 14.04.2025 requested the Tribunal to grant an extension of 60 days to obtain necessary approval required to process the OTS Proposal.
We have heard the Ld. Counsel for the Applicant and Respondent and perused the pleadings and documents relied on by them.
In gist, the Respondent opposing this application has raised the following Contentions:
a. The Application has been filed and signed by the personnel without any proper authority hence it is not maintainable.
b. Since the whole amount sanctioned after the restructuring of the loan was not disbursed in totality to the respondent, hence 'default' cannot be said to have been committed by the Respondent.
c. The Application is barred by Limitation as the account was classified as NPA on 31.03.2013 and the application was filed on 01.08.2021.
In regards to the first Contention it is observed that the Applicant through its Affidavit dated 15.11.2022 has filed a notification published in the Gazette of India dated 02.05.1987 wherein, Branch Managers/Division Managers are empowered to initiate proceedings and sign petitions on behalf of Applicant Bank, hence the signatory of the application is legally authorized to initiate the present proceeding and sign the application on behalf of the applicant bank.
The Contention of the Respondent that no default can be attributed to the Respondent because the sanctioned amount as per the MRA was not disbursed in totality, fails considering the judgment of the Hon’ble Supreme Court in M/S. Innoventive Industries Limited V. ICICI Bank & Anr. (CIVIL APPEAL No.s 8337-8338 of 2017) and judgment of Hon’ble NCLAT in State Bank of India vs. N.S. Engineering Projects Pvt. Ltd.[CA(AT)(Ins) No.978/2022]. This issue has also been addressed by the Hon’ble NCLAT while allowing the appeal in State Bank of India v Abhijeet Ferrotech Limited [CA(AT)(Ins) No.690/2023], wherein it held that the non-disbursal of amount by the bank won’t exonerate the borrower from the liability of default.
For the sake of brevity, it is also noted that upon perusal of the MRA in the present case, it is observed that Sub-Clause XXII under Clause 4.1 of the MRA agreement clearly indicates that the obligation of borrower in the present case is unconditional and non-dependent upon infusion of funds by the Applicant. Sub-Clause XXII under Clause 4.1 of the MRA is reproduced herein below:
(xxii)Nature of Obligations: The obligations under this agreement and the other CDR Documents constitute direct, unconditional, and general obligations of the Borrower and rank prior to the payment to all other unsubordinated indebtedness of the Borrower, except for any obligations mandatorily preferred by law applying to companies generally. It is pertinent to note that the Hon'ble Supreme Court while deciding on this legal issue in Innoventive (Supra) has also relied on a similar clause of the MRA, where it was clearly stated that the obligation of the borrower will be unconditional.
As regards to the point of Limitation, the Respondent has contended that since the account of the Respondent was declared NPA as on 31.03.2013 and the present application was originally filed on 11.08.2021 and hence the same is time barred.
Upon perusal of the documents on records, it is noted that the account of Respondent was originally declared NPA on 31.03.2013 and subsequently the accounts of Respondent were restructured by the CDR cell of Reserve Bank of India. In pursuance of the restructurisation, the Respondent entered into a MRA dated 30.09.2013 with the lenders through which the respondent has duly acknowledged his debt existing on the date of agreement.
Furthermore, the lenders and the Respondent modified the Master Restructuring Agreement on 26.03.2014 and the applicant vide sanction letter dated 28.12.2015 had enhanced the working capital limit granted to the respondent. It is also noted that a charge was created against the debt owed by the respondent to the applicant vide certificate dated 23.12.2015 which was subsequently modified on 15.03.2016.
The Hon'ble Supreme Court in the matter of Laxmipat Surana Vs. Union Bank of India (2021) SCC Online SC 267 explained the applicability of section 18 of limitation act to IBC in Para 42,43,49 in following words:
42.There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code. Section 18 of the Limitation Act reads thus:
43.Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 IBC. However, Section 7 comes into play when the corporate debtor commits “default”. Section 7, consciously uses the expression “default” — not the date of notifying the loan account of the corporate person as NPA. Further, the expression “default” has been defined in Section 3(12) to mean 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. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 of the Code enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgement, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgement of the debt, from time to time, for institution of the proceedings under Section 7 of IBC. Further, the acknowledgment must be of a liability in respect of which the Financial Creditor can initiate action under Section 7 of IBC.
49.Section 18 of the Limitation Act, however, posits that a fresh period of limitation shall be computed from the time when the party against whom the right is claimed acknowledges its liability. The financial creditor has not only the right to recover the outstanding dues by filing a suit, but also has a right to initiate resolution process against the corporate person (being a corporate debtor) whose liability is coextensive with that of the principal borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability."
Furthermore, the existence of the debt has been acknowledged by the Respondent in its Balance Sheet for the Financial Year 2016-17, which was signed by a Director of the Respondent company on 05.06.2018.
The Hon'ble Supreme Court in the case of Bishal Jaiswal v. Asset Reconstruction Co. (India) Ltd (CIVIL APPEAL NO.323 OF 2021) held that a balance sheet entry can be treated as an acknowledgment only if it unequivocally indicates the existence of a legally subsisting debt. The Hon'ble Supreme Court in the case of Asset Reconstruction Co. (India) Ltd. v. Tulip Star Hotels Ltd. (CIVIL APPEAL NOS. 84-85 OF 2020) held that a generic balance sheet entry cannot be treated as an acknowledgment unless the specific name of the creditor is reflected. As far as the facts of present case are concerned, the respondent has signed the Balance Sheet for the Financial Year 2016-17 on 05.06.2018 and under clause 3.5 and 5.1 of the said Balance Sheet the respondent has clearly admitted the existence of debt. In light of the same it is observed that since 31.03.2013 through some act or the other the respondent has continuously acknowledged the existence of the debt and in every instance the same has been done before the expiry of the period of limitation of 3 years. Hence with the acknowledgment in the balance sheet signed on 05.06.2018, the new period of limitation would have ended on 05.06.2021.
It is also noted that the Hon'ble Supreme Court in Suo Moto Writ Petition (C) No. 3 of 2020, in regard to exclusion of time period to compute limitation has held the following:
...
II. Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022.
III. In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply."
Hence in light of the Hon'ble Supreme Court's Suo Moto Judgement since the limitation would have ended on 05.06.2021 i.e. between 15.03.2020 and 28.02.2022, the limitation period got extended by 90 days from 01.03.2022 and would have ended on 29.05.2022. But as observed above the present application was filed on 11.08.2021 which is well within the period of Limitation.
The Respondent has contended that he has entered settlement with many of the lenders of the consortium and his settlement proposal submitted to two of its lenders i.e. Indian Bank and UCO Bank is pending under consideration and are at advanced stages of consideration. So much so he has already filed an OTS proposal with the applicant and hence prayed for time to finalise the same but the Ld. Counsel for applicant has vehemently opposed such prayer as he has not received any such instruction from the Applicant Bank. Moreover, the pendency of OTS proposal no way bars admission of a debtor into CIRP, hence no such time was granted.
Hence, it is conclusively established that the Respondent has in fact defaulted in payment of a debt amount i.e. beyond Rs. 1 Crore and the present application has been filed within the period of limitation.
In view of the aforesaid observations, we hereby admit the petition and pass the following orders:
I. The Petition bearing TP (IBC) No. 02/CB/2022 under Section 7 of the Code read with rule 4 (1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating CIRP of Abhijeet Ferrotech Limited [CIN: U52322WB1996PLC076509], Corporate Debtor is 'ADMITTED'.
II. The moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 is declared for prohibiting all the following in terms of section 14(1) of the Code –
a. the institution of suits or 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;
b. transferring, encumbering, alienating, or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
c. 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;
d. the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
III. The order of moratorium shall have effect from the date of this order till the completion of the Corporate Insolvency Resolution Process until this Adjudicating Authority approves the Resolution Plan under sub-section (1) of section 31 or passes an order for liquidation of Corporate Debtor under section 33 of the Insolvency & Bankruptcy Code, 2016, as the case may be.
IV. As proposed by the applicant Mr. Satish Kumar Gupta having Registration No. IBBI/IPA-001/IP-P00023/2016- 17/10056 and Email Id: [email protected], [email protected] office at Flat No.17012, Building No.17, Phase 2, Kohinoor City, Near kohinoor Hospital, Kurla, West Mumbai, PIN-400070 is hereby appointed as Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the Code, subject to him possessing a valid Authorisation for Assignment (AFA) in terms of 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016.
V. The IRP so appointed shall make a public announcement of initiation of Corporate Insolvency Resolution Process (CIRP) and call for submission of claims under Section 15 as required by section 13(1) (b) of the Code.
VI. The supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended, or interrupted during the moratorium period. The corporate debtor to provide effective assistance to the IRP as and when he takes charge of the assets and management of the corporate debtor.
VII. The IRP shall perform all his functions as contemplated, inter alia, by sections 17, 18, 20 & 21 of the Code. It is further made clear that all personnel connected with Corporate Debtor, its Promoter or any other person associated with management of the Corporate Debtor are under legal obligation under section 19 of the Code extending every assistance and co-operation to the Interim Resolution Professional. Where any personnel of the Corporate Debtor, its Promoter or any other person required to assist or cooperate with IRP, do not assist or co-operate, the IRP is at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing an appropriate order.
VIII. The IRP shall be under duty to protect and preserve the value of the property of the 'Corporate Debtor' and manage the operations of the Corporate Debtor as a going concern as a part of obligation imposed by section 20 of the Insolvency & Bankruptcy Code, 2016.
IX. The IRP/RP shall submit to this Adjudicating Authority periodical reports concerning the progress of the CIRP in respect of the Corporate Debtor.
X. The Financial Creditor shall deposit a sum of ₹5,00,000/- (Five Lakhs only) with the within two weeks from the date of receipt of this order for the purpose of smooth conduct of Corporate Insolvency Resolution Process (CIRP) and IRP to file proof of receipt of such amount to this Adjudicating Authority along with First Progress Report. Subsequently, IRP may raise further demands for Interim funds, which shall be provided as per Rules.
XI. In terms of section 7(7)(a) of the Code, the Registry is hereby directed to communicate a copy of this order to the Financial Creditor, Corporate Debtor and to the Interim Resolution Professional and the concerned Registrar of Companies, within seven (7) working days and upload the same on website immediately after pronouncement of the order.
XII. The IRP shall also serve a copy of this order to the various departments such as Income Tax, GST, State Commercial Tax, and Provident Fund etc. who are likely to have their claim against Corporate Debtor as well as to the trade unions/employee's associations so that they are informed of the initiating of CIRP against the Corporate Debtor timely.
XIII. The commencement of the Corporate Insolvency Resolution Process shall be effective from the date of this order.
XIV. The Resolution Professional shall submit his periodic reports before this Adjudicating Authority as per rules/regulations. The petition TP (IBC) No 02/CB/2022 stands "ALLOWED".