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Judgment
Per: SANJIV JAIN, MEMBER (JUDICIAL)
Under Adjudication is CP/IB/257/CHE/2022 which has been filed by State Bank of India (hereinafter referred to as 'Financial Creditor') under Section 7 of the Insolvency & Bankruptcy Code 2016 (in short, 'I&B Code, 2016') r/w Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 against CBC Fashions (Asia) Private Limited (hereinafter referred to as 'Corporate Debtor'). The prayer made is to admit the Application, to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, declare moratorium and appoint Interim Resolution Professional (IRP).
Part-I of the Application sets out about the Financial Creditor which is a Bank incorporated under the State Bank of India Act, 1955 on 01.07.1955. The Registered Office of the Corporate Debtor as per the Application is at 11, CBC Building, MR Nagar, KNP Colony PO, Dharapuram Road, Tirupur- 641 608 with CIN:U18101TZ2008PTC014581. In Part III of the application, it is stated that the Financial Creditor has proposed one Mr.S.Muthuraju with Registration No: IBBI/IPA-002/IP-N00009/2016-2017/10013 as the "Interim Resolution Professional" of the Corporate Debtor.
The Affidavit verifying the application is placed at Page No's 25 of the Application typeset and Mr.Anantha raja A, the Assistant General Manager of SBI, SAMB Branch, Coimbatore has sworn the Affidavit as the authorized representative of the Financial Creditor.
In Part-IV of the Application, a total sum of Rs.63,07,66,994 /- (Sixty Three Crore Seven Lakhs Sixty Six Thousand Nine Hundred and Ninety Four Only) is being claimed by the Financial Creditor as the Financial debt. Further the date of default is stated as 09.05.2022 being the expiry of 60 days granted to Corporate Debtor vide Financial Creditor letter dated 09.03.2022.
It is stated that on account of Corporate Debtor's default in making payment to the Financial Creditor, the Corporate Debtor's Loan account was classified as a Non-Performing Asset on 27.06.2021 in accordance with the asset classification norms of the Reserve Bank of India.
Part – V of the Application discloses about the details of the documents filed by the Financial Creditor to prove the existence of a 'Financial debt'.
It is submitted by the Ld. Counsel for the Applicant that Funded Interest Term Loan was sanctioned to the Corporate Debtor vide resolution dated 31.08.2020 (Annexure I-TT). The corporate debtor has availed the Funded Interest Term Loan (FITL) for deferment of interest on the working capital pursuant to the Guidelines/ Instructions issued by the Reserve Bank of India (RBI) on COVID-19-regulatory package. The deferment of interest was converted into FITL as per the terms set out in sanction letter dated 01.09.2020. A copy of the letter dated 1 September 2020. bearing ref. no. SCB/AMT-11/2020-21/45 is annexed as Annexure "I-SS" of the Application typeset.
It is submitted that by way of a demand notice U/s 13(2) of SARFAESI Act 2002 dated 9.03.2022, bearing no. SAMB/CBE/CLOIII/668, the Financial Creditor called upon the Corporate Debtor and Personal Guarantors of the Corporate Debtor to make the payment of an aggregate outstanding amount of Rs.58,76,91,735.00 (Rupees Fifty Eight Crore Seventy Six Lakhs Ninety One Thousand Seven Hundred and Thirty Five only) due and payable as on 28.02.2022 to discharge in full liabilities within 60 (Sixty) days from the date of the notice.
It is submitted that the Corporate Debtor failed to make payment of the outstanding amounts mentioned Supra under the Facilities in terms of the notice of demand dated 9.03.2022. A copy of the notice of demand under the SARFESI proceedings dated 9.03.2022, bearing no. SAMB/CBE/CLOIII/668 is annexed as Annexure "I-UU" of the Application typeset.
It is stated that the Financial Creditor served possession notice under (For Immovable Property) under Rule 8 (1) of the SARFAESI Act on the Corporate Debtor on 21.06.2022 and 05.09.2022. The copy of the said notice is placed as Annexure I-VV to I-WW of the Application typeset.
Ld. Applicant Counsel submitted that the debt of the Corporate Debtor is patent and irrefutable from the balance confirmation letters dated 21.04.2020 and 15.06.2021 issued by the Corporate Debtor to the Financial Creditor. The copy of the said balance confirmation letters is placed as “Annexure I-XX to I-YY of the Application typeset.”
It is submitted that the Corporate Debtor has acknowledged its loan in the outstanding liability to the Financial Creditor in its audited balance sheets for the FY of 2017-18 and 2019-20; Rs.55,89,79,588/- reflects as due and payable by the Corporate Debtor to the Financial Creditor. The audited balance sheets of the Corporate Debtor are placed as Annexure “I-ZZ” to “I-BBB”.
The Financial Creditor has annexed the Record of Default dated 06.09.2022 from NeSL in a separate typeset filed along with the Application in a separate typeset in SR No 1996 dated 09.05.2023.
Ld. Counsel for the Respondent stated that this Tribunal in IA/1081/CHE/2023 vide order dated 24.08.2023 had condoned the delay of 22 days in filing the counter/reply statement and allowed the Respondent to file the Counter/Reply statement subject to a cost of Rs.25000 (Rupees Twenty Five Thousand) payable to PMNRF.
Subsequently, the Respondent filed a comprehensive reply/counter statement before this Tribunal. In para k of the said counter statement, the Respondent has admitted that OTS proposal dated 06.10.2022 submitted by the Respondent to the Applicant was not considered. No other significant objection has been made by the Respondent in this matter.
Heard the submissions made by the Learned Counsels for both the parties and perused the records and pleadings placed on record.
The existence of debt of the Corporate Debtor is proven beyond reasonable doubt, by virtue of the balance confirmation letters dated 21.04.2020 and 15.06.2021 issued by the Corporate Debtor to the Financial Creditor. The Corporate Debtor has acknowledged its loan in the outstanding liability to the Financial Creditor in its audited balance sheets for the FY of 2017-18 and 2019-20; Rs.55,89,79,588 reflects as due and payable by the Corporate Debtor to the Financial Creditor.
The Applicant has also filed the IU/Record of Default dated 06.09.2022 in SR.No.1996 dated 09.05.2023.
| Date of Submission | 09-06-2022 23:09:56 |
| Type of Submission | Default Submission |
| Submission ID | 26 |
| Submitted by (CREDITOR) | M/s STATE BANK OF INDIA |
| Debtor | M/s CBC FASHIONS (ASIA) PRIVATE LIMITED |
| Default Amount | 352825371.00 |
| Status of Authentication by Debtor | AUTHENTICATED |
| Authentication Completed on | 06-09-2022 16:44:14 |
It is to note that the default arising in the present Application is much after the advent of the Covid-19 pandemic and hence the Corporate Debtor cannot seek shelter under Section 10A of IBC, 2016. Under these circumstances, this Tribunal is left with no other option than to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor.
Further as consistently held by the Hon'ble Supreme Court both in Innoventive Industries Ltd. –Vs- ICICI Bank and another [(2018) 1 SCC 407] as well as Mobilox Innovations Pvt. Ltd.. –Vs- Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353] after going through the Scheme of I&B Code, 2016 in depth in relation to an Application under Section 7 filed by a Financial Creditor as compared to the one filed under Section 9 by an Operational Creditor, in relation to a Section 7 Application, where there is an existence of a 'financial debt' and its default in excess of Rs.1,00,00,000/-, this Tribunal is bound to admit the Application and as a consequence trigger the Corporate Insolvency Resolution Process (CIRP) and in relation to a Section 7 Application defence of set off or counter claim put forth by the Corporate Debtor cannot be considered as a dispute in relation to the Financial debt and default in relation to it. In the present case, it is clear that there is a default on the part of the Corporate Debtor for a sum exceeding Rs.1 Crore.
The Hon’ble Supreme Court in the case of Asset Reconstruction Company India Limited -Vs- Tulip Star Hotels Limited [Civil Appeal Nos. 84-85 of 2020] held that Entries in the book of accounts/Balance Sheet of the Corporate Debtor can be treated as Acknowledgment of Liability of Debt Payable to Financial Creditor:-
“85.It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act. In Bishal Jaiswal (supra) authored by Nariman, J. this Court quoted with approval the judgments, inter alia, of Calcutta High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, and Pandem Tea Co. Ltd., the judgment of the Delhi High Court in South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana and the judgment of Karnataka High Court in Hegde Golay Ltd. v. State Bank of India and held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt.”
In view of the aforesaid, this Tribunal is constrained to admit this present application for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. The Financial Creditor has proposed one S.Muthuraju with Registration No: IBBI/IPA-002/IP-N00009/2016-2017/10013 as the “Interim Resolution Professional” of the Corporate Debtor and a written communication in the format prescribed under Form 2 of the Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016 has been filed by the proposed IRP. However it is seen from the IBBI website that the Registration of the proposed IRP has been suspended with effect from 11.05.2023. Therefore this Tribunal is constrained to appoint MR. VISHWANATHAN RAJAGOPALAN (email-id: [email protected]) with Registration number: IBBI/IPA-003/ICAI-N-00275/2020-2021/13069 from the IBBI panel of IP’s. The IRP appointed is to take forward the process of Corporate insolvency Resolution of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15,17,18 of the Code and file his report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIR Process in relation to the Corporate Debtor in terms of the provisions of I&B Code, 2016.
As a consequence of the Application being admitted in terms of Section 7 (5) of the Code, the moratorium as envisaged under the provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor:
a. The institution of suits or continuation of pending suits or proceedings against the respondent 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 respondent 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 respondent in respect of its property including any action under the Securitization 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 respondent.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance 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 or a similar grant or right during moratorium period;
However, during the pendency of the moratorium period in terms of Section 14(2) (2A) and 14(3) as extracted hereunder:
(2)The supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and mange 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 or in such circumstances as may be specified.
(3)The provisions of sub-section (1) shall not apply to
(a)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;
(b)a surety in a contract of guarantee to a corporate debtor.
The duration of the period of moratorium shall be as provided in Section 14(4) of the Code and for ready reference reproduced as follows:
(4)The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process:
Provided that where at any time during the Corporate Insolvency Resolution Process period, if the 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, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.
Based on the above terms, the Application stands admitted in terms of Section 7 (5) of IBC, 2016 and the moratorium shall come in to effect as of this date. A copy of the Order shall be communicated to the Financial Creditor as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named who is figuring in the list of Resolution Professionals forwarded by IBBI be also furnished with copy of this Order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.