State Bank of India vs Galaxy Cotton & Textiles Pvt. Ltd.

State Bank of India, through authorised signatory Mr. Nitin Kanaiyalal Chauhan, Assistant General Manager, filed this petition under section 7 of The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code") read with Rule 4 of The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as "the Rules") seeking reliefs under Section 7(5)(a) and Section 13(1)(a)(b)(c) of the Code.

That the applicant State Bank of India, incorporated on 01.07.1955, having its corporate office at Corporate Centre, State Bank Bhavan, Madam Cama Road, Nariman Point, Mumbai 400 021 and having stressed assets management branch at "Paramsiddhi" complex, 2nd Floor, Opp. V.S. Hospital, Ellisbridge, Ahmedabad 380 006, Gujarat State is in the banking business of providing various types of financial facilities including business loans, personal loans, consumer loans, loan against property, home equity loans, term loan etc.

M/s. Galaxy Cotton & Textiles Private Limited is a company incorporated under the Companies Act, 1956 on 07.12.1994 having identification No. U17119GJ1994PTC023788 and having its registered office at Aditya Centre, Phulchhab Chowk, Rajkot 360 001, Gujarat State. That Authorised share capital of the respondent company is Rs. 6,00,00,000.00 and paid up share capital is Rs. 5,00,00,000.00.

That, the applicant/financial creditor has submitted that the applicant had granted total financial assistance of Rs. 34.10 crores under different heads to respondent/corporate debtor as per the details given below: -

The applicant bank has submitted that the date on which the account has been classified as Non-Performing Assets i.e. 27.09.2015 is taken as date of default and as on 30.04.2018 exclusive of penal interest and costs, an amount of Rs. 35,21,38,641.14 (Rupees thirty-five cores twenty-one lacs thirty-eight thousand six hundred forty-one and paise fourteen only) is outstanding.

The applicant bank has further submitted that Debt Recovery Tribunal - II, Ahmedabad passed order on 08.12.2015 and 03.01.2018 in favour of the applicant bank in Original Application No. 726 of 2017 and Original Application 07 of 2018 respectively. That, the respondent(s) company along with others have filed Securitization Application No. 213 of 2016 before Debt Recovery Tribunal - II, Ahmedabad challenging the actions initiated by the bank under the provisions of SARFAESI Act which is pending. That, the secured creditor(s) - Bank had auctioned the cotton bales vide auction notice dated 16.01.2018 and 17.01.2017.

The applicant bank has also submitted copy of the financial contracts reflecting all amendments and waivers in respect of various credit facilities availed by the respondent company and copy of documents executed by the respondent company against different credit facilities. In support of its claim, the applicant bank has submitted copy of the following documents: -

Mr. Dhirajlal Parbatbhai Lakkad, Director of the respondent company filed reply in affidavit inter alia raising objections that the IB petition filed by the financial creditor is neither legal nor true. That the mater cannot be heard by bench of two judicial members as it is against statutory law and hence may be placed before appropriate bench for adjudication. That, the applicant bank cannot resort to parallel remedies under Section 7 of the IB Code when OA filed by the bank before Debts Recovery Tribunal, Ahmedabad are pending for adjudication. That, there is nothing on record to indicate that Mr. Nitin K. Chauhan is AGM of Financial creditor and authorised to file the instant petition. That, the instant application is hit by period of limitation. That, there exists dispute between the parties and hence the matter be freed from clutches of the Code and may be agitated in regular courts of law.

Heard both sides at length as also perused the documents annexed with application and the reply/objections filed by the respondent. We deem it appropriate to first deal with the objections so raised in the reply filed by the corporate debtor.

The first and foremost objection raised by the corporate debtor is that the matter cannot be heard by the bench consisting of two judicial members as it is against statutory law and hence may be placed before appropriate bench for adjudication. In this respect we make it clear that in a similar case where decision of a bench consisting of two judicial members were challenged before the Hon'ble Supreme Court, in Swiss Ribbon, Hon'ble Supreme Court has not observed anything in this respect. In the instant case, on appointment of the new Member (Technical) and having heard the matter by a bench consisting of one Technical Member as well as one Judicial member, the objection so raised by the corporate debtor has become infructuous now.

The second objection raised by the corporate debtor is that the bank cannot resort to parallel remedies under Section 7 of the IB Code when OA filed by the bank before DRT, Ahmedabad is pending for adjudication. In this regard the law has already been settled by the higher authorities and pendency of proceedings before any other forum as mentioned in the Code would not cause any impediment with regard to the initiation of Corporate Insolvency Resolution process (CIRP) because under Section 7 of the Code, pendency of such proceeding is not barred to admission of the petition and initiation of CIRP. Accordingly, this argument is also rejected as unfounded.

The third objection raised by the respondent is that there is nothing on record to indicate that Mr. Nitin K. Chauhan is AGM of the financial creditor and authorised to file the instant petition. On perusal of the record it is found that the financial creditor has produced letter of authority dated 06.07.2018 issued by Dy. General Manager of the financial creditor bank certifying that Mr. Nitin K. Chauhan AGM, in Grade of SMGS-V at State Bank of India, Stressed Assets Management Branch, Ahmedabad is authorised under Regulation 76 (1) of the SBI General Regulations 1955, framed under Section 50 of the SBI Act, 1955, to file application before National Company Law Tribunal, Ahmedabad for and on behalf of SBI. Hence, instant objection regarding authority of Mr. Nitin K. Chauhan is AGM of SBI is also met out.

The fourth objection raised by the petitioner is that the instant application is hit by period of limitation. On perusal of the record it is found that the applicant has submitted all the documents relating to the disbursement of loan since 2008 till July, 2015. During this period, the bank, from time to time i.e. before expiry of three years, restructured the loan and/or entered into C-1 agreement of loan for overall limit and C5 letter regarding grant of individual limits within the overall limit dated 11.10.2008. Record also shows that, subsequently, C4 deed of guarantee for overall limit dated 11.10.2008 has also been executed between the financial creditor and corporate debtor. On perusal of the statement of account placed at page No. 484 to the application shows that on 08.07.2015 the corporate debtor has deposited an amount of Rs. 1.00 lac in favour of the applicant bank, whereas the instant application is filed on Monday, 9th July, 2018. So, even if it is assumed that 08.07.2018 is the last day for filing application, 08.07.2018 being Sunday, the same has been filed on the immediate and next working day i.e. Monday, 9th July, 2018 and, therefore, it is well within limitation. Thus, the application is not time barred.

The respondent has also raised dispute between the parties. In this respect it is desirable to refer to the decision in Unigreen Global (P) Ltd. vs. Punjab National Bank, wherein The Hon'ble Supreme Court has clarified the position that while dealing with the application the Adjudicating Authority has to see that, only when the default took place, in the sense when the debt became due and is not paid, the IRP begins. Hon'ble Supreme Court also observed that the scheme of the Code under Section 7, stands in contrast with the scheme under section 9 and observed as follows: -

On perusal of the record it is also found that the objections so raised by the respondent regarding admission of the petition cannot be accepted since all the requirements of Section 7 of the IB Code for initiation of CIRP by the financial creditor has been fulfilled. In all respect the application is complete as per the requirement of Section 7 (2) of the Code and other conditions prescribed by Rule 4 (1) under The Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

In the instant application, from the material placed on record by the Applicant, this Authority is satisfied that the application is complete in all respect and the Corporate Debtor committed default in paying the financial debt to the Applicant and the respondent company has acknowledged the debt.

In the instant case, the documents produced by the Financial Creditor clearly establish the 'debt' and there is default on the part of the Corporate Debtor in payment of the 'financial debt'.

There is no dispute in the case that the petitioner is the financial creditor. The application is also furnished in the prescribed form – 1 of the Rules and the prescribed fee has also been paid. Along with the application, the applicant proposed the name of the Resolution Professional namely Shri Tejas Shah. The Adjudicating Authority hereby appoint Shri Tejas Shah, B/201, Narayan Krupa Avenue, Opp. Prernatirth Derasar, Satellite, Ahmedabad 380 060 (Email ID [email protected]) (Mobile No. 9825703183) having registration No. IBBI/IPA-001/IP-P00089/2017-18/10185 to act as an interim resolution professional. Form 2 of the proposed interim resolution professional has been annexed and placed at page No. 513-515 of the application where declaration is made that no disciplinary proceeding is pending against him with the Board or Indian Institute of Insolvency Professionals of ICAI.

In the aforesaid background and as also discussed above, the application under Section 7 (2) of the IB Code is complete in all respects and there is debt due to the "financial Creditor" and there is default on the part of the "corporate debtor". Hence, there is no alternative but to admit the application in absence of any infirmity.

The petition is, therefore, admitted and the moratorium is declared for prohibiting all of the following in terms of subsection (1) of Section 14 of the Code: -

It is further directed that the supply of goods and essential services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period. The provisions of sub-section (1) shall, however, not apply to such transaction as may be notified by the Central Government in consultation with any financial sector regulator.

The order of moratorium shall have effect from the date of receipt of authenticated copy of this order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33 as the case may be.

This Petition stands disposed of accordingly with no order as to costs.

Communicate a copy of this order to the Applicant, Financial Creditor, Corporate Debtor and to the Interim Insolvency Resolution Professional.