State Bank Of India vs M/s. Genegrow Commercial Pvt. Ltd.

Per Harish Chander Suri, Member (T):

This Petition, under Section 7 of the Insolvency and Bankruptcy Code, 2016, has been filed by the State Bank of India, hereinafter referred to as the Applicant/ Financial Creditor, against Genegrow Commercial Pvt. Ltd., a Corporate Person, being the Corporate Guarantor, for the Principal Borrower, Gee Pee Infotech Pvt. Ltd., having its registered Office at Kolkata, hereinafter referred to as the Corporate Debtor.

The Financial Creditor has authorised its Assistant General Manager and Case Lead Officer of State Bank of India, Stressed Assets Management Branch, Kolkata, Shri Gurapada Chakraborty vide letter of authority dated 27-02-2018 to sign, execute documents, petitions, affidavits etc., on behalf of the Bank in the matter of filing the present Petition before this Tribunal. This Petition has, accordingly, been filed by the said authorised representative of the Financial Creditor, who has further appointed M/s. India Law LLP, Advocates to act, appear and plead on behalf of State Bank of India, before this Tribunal.

It is submitted by the Financial Creditor that it has granted loan and various credit facilities at the request of the Corporate Debtor, namely, Genegrow Commercial Pvt. Ltd., to the Principal Borrower, namely, Gee Pee Infotech Pvt. Ltd. on the terms and conditions contained in the sanction letter/letter of arrangement and diverse loan agreements executed from time to time and the Principal Borrower had been enjoying various credit facilities granted by the Bank since March, 2006. The credit facilities were enhanced from time to time and the limits had been last sanctioned on 15th March, 2014 by the Applicant at the request of the Corporate Debtor, Genegrow Commercial Pvt. Ltd., as well as by the Principal Borrower.

The Corporate Debtor, Genegrow Commercial Pvt. Ltd., being Corporate Guarantor of the Principal Borrower, i.e. Gee PEE Infotech Pvt. Ltd., has executed a Deed of Guarantee for overall limit with the Financial Creditor dated 05-10-2009. Subsequently, the Supplemental Deed of Guarantee was executed by and between the Corporate Debtor and the Financial Creditor.

The Applicant states that the account of the Principal Borrower i.e., Gee Pee Infotech Pvt. Ltd., was classified as an Non-Performing Asset(NPA) account on 10-01-2014. The total outstanding as on 31-01-2018 was Rs. 162,62,23,609=63 inclusive of interest.

The Applicant further states that as per the Deed of Guarantee dated 05-10-2009, Clause 11 and 12, the liability of the guarantor is both irrevocable and unconditional and shall be enforceable on balance confirmation by the Principal Borrower. The Principal Borrower has issued a Balance Confirmation wherein the Principal Borrower has inter alia admitted the debt and default to the tune of Rs. 84,53,923=50 admittedly due as on 07-04-2014.

The Applicant has also annexed the CIBIL report wherein the debt of the Principal Borrower is reflected in August, 2014 as Rs. 81,92,38,509=00. The Applicant has also annexed the Statement of Accounts wherein the default of the Principal Borrower is reflected as Rs. 81,92,38,508=50 as on 27-09-2014.

It is stated that due to the said account of the Principal Borrower having been classified as NPA, the Financial Creditor was constrained to take recourse to an Original Application being O.A. No. 493/2015 filed before The Debt Recovery Tribunal-I on 24-09-2015. The Principal Borrower has never objected to the pending DRT proceedings and is contesting the same.

It is stated by the Applicant that the Corporate Debtor, Genegrow Commercial Pvt. Ltd., being the guarantor does not have any defence and the Principal Borrower therein has acknowledged and admitted the debt by issuing balance confirmation to the tune of Rs. 162,62,23,609=63 inclusive of interest.

When the matter was listed for adjudication before this Tribunal on 15-03-2018, a notice of admission was directed to be issued to the Corporate Debtor and was duly received by the Corporate Debtor. A duly authorised representative, Mr. Bijay Kumar Agarwal, Director for Legal Proceedings was authorised vide resolution dated 14-07-2018, who further authorised Khaitan & co, LLP to be their advocates on record to represent the Corporate Debtor before this Tribunal.

The Corporate Debtor in its reply dated 07-09-2018 submitted that the Application filed by the Financial Creditor is misconceived and not maintainable in law or in the facts of the case and is liable to be dismissed because, according to the Corporate Debtor, the Application is not in proper form and the signatory to the Application is not authorised to institute the present proceeding before this Tribunal. There is no debt which is due and/or payable by the Corporate Debtor to the Financial Creditor. The Application has been filed in complete non-compliance of the provision of the Code and the provisions of the Banking Regulation Act, 1949 and the amendments thereof and the guidelines and/or circulars issued by the Reserve Bank of India.

It is submitted by the Corporate Debtor that the Financial Creditor, being a Bank, doing business in the country, is bound by Circulars and Policy decisions and/or directions issued by the Reserve Bank of India from time to time. The Reserve Bank of India, in usual course of discharging its duties and obligations issued diverse directions and/or guidelines, including directions and/or guidelines in relation to the cases that may be considered for reference for resolution under the Insolvency & Bankruptcy Code, 2016.

It is submitted by the Corporate Debtor that I&B Code has been enacted to consolidate and amend the laws relating to re-organization and Insolvency Resolution of corporate persons, partnership firm and individuals in a time bound manner for mechanization of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders. The provisions of I & B Code can be effectively used for the resolution of Stressed Assets by empowering the Banking Regulator to issue directions in specific cases.

It is further submitted in the reply that by a Banking Regulation(Amendment) Ordinance, 2017, Section 35A was amended to insert two further provisions, namely 35AA and 35BB and the Central Government authorised the Reserve Bank of India to issue such directions to Banking Company or Baking Companies which may be considered necessary to initiate Insolvency Resolution Process in respect of a default under the provisions of the I&B Code. In terms of a Press Release dated 13-06-2017, the Reserve Bank of India recommended for reference under the IBC all accounts with fund and non fund based outstanding amount greater than Rs. 5000 crores with 60% or more classified as non-performing by Banks as on 31^st March, 2016. Under the said recommended criteria while 12 accounts were identified, as regards the other non-performing accounts which did not qualify under the aforesaid criteria, it was recommended that the banks should finalize a resolution plan within 6 months and in cases where a viable resolution plan was not agreed upon within the stipulated period, the Banks would be required to file for insolvency proceedings under the I&B code.

in view of the enactment of the I&B code, the Reserve Bank of India decided to substitute the existing guidelines with a harmonized and simplified generic framework for resolution of stressed assets and for such purpose, issued a Circular dated 12^th February, 2018 indicating the details of the revised framework.

It is stated that the case of the Corporate Debtor falls in the other category of non-performing account which did not qualify under the criteria mentioned in clause 3 of the Press Release of Reserve Bank of India dated 13th June, 2017. As such in terms of clause 4 of the Press Release, a resolution plan was to be finalized in terms of the resolution framework which was to be released in terms of clause 6 thereof. The non-compliance of clause 4 of the Press Release dated 13th June, 2017, deprives the Corporate Debtor from availing a resolution plan, notwithstanding exercise of due diligence and bona fide. Not only the provisions of the Press Release dated 13th June, 2017 and the Circular dated 12th February, 2018 was complied with by the Financial Creditor, the Financial Creditor in February 2018 filed the present proceeding under Section 7 of the I&B Code, 2016.

It is submitted that vide Circular dated 12-02-2018, an account with credit exposure of the lenders below Rs. 20 Billion( i.e. Rs. 2000 crores), the Reserve Bank of India expressed its intention to announce every 2 years period reference dates for implementing the Resolution Plan to ensure calibrated, time bound resolution of all such accounts in default. It is further submitted that it was clarified that the aforesaid transition arrangement shall not be available for Borrower entities in respect of which specific instructions have already been issued by the Reserve Bank of India to the Banks for reference under I& B Code, 2016 and the Lenders were directed to continue pursuing such cases as per earlier instructions.

In its rejoinder, the Financial Creditor denied all the submissions, averments and allegations made in the reply filed by the Corporate Debtor and submitted that the Corporate Debtor is intending to delay and frustrate the legitimate claim of the Financial Creditor and submitted that the letter of authorisation has been duly executed and specific powers have been given to the representative of the Bank.

It is further stated in the rejoinder filed by the Financial Creditor that the Press Release dated 13^th June, 2017 has been issued to the Applicant in which a list of company's name has been annexed and direction has been given to the Applicant to initiate the proceedings under the I & B code. The said Circular is a specific direction to the Bank and it is well within the ambit of the Reserve Bank of India to issue such directions under Section 35AB of the Act.

The Financial Creditor has submitted that a sum of Rs. 162,62,23,609=63 is due and payable as on 31-01-2018 by the Corporate Debtor which amount the Corporate Debtor has failed to pay and discharge its liability and thus committed a default. The Corporate Debtor has executed Deed of Guarantee on 5^th October, 2009. It is submitted that the Bank can also proceed against the Guarantors for recovery of its dues simultaneously as per settled law in the case of this nature. The Guarantors' liability is co-existensive with that of the principal borrower and there is no legal bar in initiating action against the Corporate Debtor, who is a guarantor. It is submitted that even the pendency of the proceedings of the SARFEASI Act does not bar the Applicant from initiating proceedings under the I&B Code, 2016.

The Financial Creditor has further submitted that the Corporate Debtor and the principal borrower were provided sufficient opportunities to repay the outstanding dues and OTS Scheme was also provided to them but they failed to provide valid resolution plan and the same were rejected and/or not considered by the Applicant. The Financial Creditor further submits that the Corporate Debtor is a defaulter and has been deliberately trying to linger on the matter to escape its liability and finally the financial Creditor prays that the petition might be admitted and CIRP may be initiated against the Corporate Debtor.

In the premises, the Applicant has no way out but to initiate an insolvency proceeding under the I & B code, 2016.

Heard the Ld. Counsels. Perused the records and citations referred to by both sides.

The Corporate Debtor has raised two fold contention. Firstly, it contends that the Financial Creditor has not complied with the circular dated 12^th February, 2018 and hence this application is not maintainable. Secondly, it contends that since the circular itself having been declared as non-est, by the Hon'ble Supreme Court, this application filed based on the circular becomes not maintainable and hence liable to be rejected.

Ld. Counsel for the Corporate Debtor has submitted that the instant application has been filed without complying with 13th June, 2017 Press Release and 12th February, 2018 Circular and therefore, the proceedings initiated by the Financial Creditor are not maintainable. He relied upon the rejoinder for highlighting an argument that the Financial Creditor has chosen to file this application since no viable Resolution Plan is forth-coming for the Corporate Director. So, according to him any action taken by the Financial Creditor as per the circular being held non-est by the Hon'ble Supreme Court, this application cannot proceed further. To strengthen the said contention, the Ld. Counsel for the Corporate Debtor has referred to Dharani Sugars and Chemicals limited Vs. Union of India and others, reported in (2019) 5 Supreme Court Cases 480. According to him the above said circular dated 12th February, 2018 was declared as ultra vires as a whole, and as a result, all cases in which debtors have been proceeded against by Financial Creditors under section 7 of the Insolvency Code are to be declared as non-est and, therefore, this application filed on the strength of 12th February, 2018 Circular is to be declared to be non-est applying the proposition laid down in the above said citations of the Hon'ble Supreme Court.

The Ld. Sr. Counsel appearing for the Financial Creditor submits that the proposition laid down in the above said citation is applicable only in cases wherein the timelines prescribed as per clause 8 of the Circular dated 12th February, 2018, falls under the category of debtors whose debt exceeds Rs. 20 billion and above alone, and the Corporate Debtor herein being below the above said margin, does not fall under clause 8 of the above said circular, and therefore, there is no bar for initiating the Insolvency and Resolution Process against the Corporate Debtor whose debt is only to the tune of Rs. 162,62,23,609.63. It is good to read clause 8 of the Timelines of the Circular dated 12th February, 2018, which is as under:-

A reading of the above said clauses what is understood is that the debtors who falls under the category of clause 8, certain timelines have been given by the Reserve Bank of India to the Financial Creditors for initiating resolution process. Therefore, the circular though, declared to be non-est, it has no effect upon the Corporate Debtor herein the case in hand. It is also significant to note here that the financial creditor has not raised a contention in its application that this application was filed on the strength of the circular declared as non-est. We do not find any merit in the submission on the side of Ld. Counsel, on the strength an averment in the rejoinder read as “I deny that the applicant has not complied with the provisions of the Press Release dated June 13, 2017 and or Circular dated February 12, 2018 and/or the financial Creditor has deprived the corporate debtor from availing any resolution plan as alleged of at all.” It Carnot be taken as admission on the side of the financial creditor that the filing of the application is on the strength of the above said press release. Therefore, it appears to us that the submission of the Ld. Counsel is devoid of any merit.

At this juncture the Ld. Counsel for the Corporate Debtor has referred to clause 12 of the very same circular and attempted to submit that Clause 12 is applicable to a debtor like the debtor in the case in hand and therefore the circular is applicable to the corporate debtor. It is good to read clause 12, which is as under:-

According to the Ld. Counsel even if the debtor's debt is below Rs. 20 billion or above Rs. 1 billion, there are certain dead lines prescribed and without fulfilling the guidelines an application of this nature cannot be initiated.

On reading of the above said clause, what we understood is that the Reserve Bank of India intends to announce over 2 years period wherein exposure of the lender is below Rs. 20 billion debt and, or above 1 billion for implementing the Resolution Process to ensure calibrated, time-bound resolution of all such accounts in default.

According to the Learned Sr. Counsel appearing for the applicant, RBI has not yet announced the time bound resolution of defaulted accounts falling under the category of clause 12 of the circular dated 12th February, 2018 so far and none of the clauses referred to in the circular which has been declared as non-est by the Hon'ble Supreme Court, is applicable to the Corporate Debtor in the case in hand.

In view of the above said reason, the contention that the applicant has initiated Insolvency proceedings under the Insolvency and Bankruptcy Code by not complying with the Press Release dated 13th June, 2018 is arbitrary, besides being contrary to law and statute and is devoid of any merits. So also we do not find any merit in the contention that the applicant filed the instant application on the strength of a circular which was declared as non-est by the Hon'ble Supreme Court and therefore initiating CIRP as against the corporate debtor is against the proposition held in the above cited decision is found devoid of any merit.

No other contentions raised on the side of the Corporate Debtor so as to pass an order of rejection as alleged on the side of the corporate debtor. The application is otherwise complete. The applicant has produced the Letter of Authority to prove that the signatory is authorized to sign the application.

It is true that the Corporate Debtor who is a Corporate Guarantor, has executed a Deed of Guarantee dated 5.10.2011 for overall limit sanctioned in favour of the Financial Creditor. There is a Supplementary Deed of Guarantee as well executed between the Corporate Guarantor and the Financial Creditor. The principal borrower was classified as an NPA account on 10.01.2014 and the total outstanding amount as on 31.01.2018 was Rs. 162,62,23,609.63 (Rupees One Hundred Sixty Two Crore, Sixty Two Lakh, Twenty Three Thousand Six Hundred Nine and Paise Sixty Three Only).

Referring to the Deed of Guarantee, we are satisfied that the Corporate Debtor herein has committed default in repayment of the loan amount. The Ld. Sr. Counsel referred to the Balance Confirmation wherein the Principal Borrower, has inter-alia, admitted the debt and committed default to the tune of Rs. 84,53,923.50 (Rupees Eighty Four Lakh Fifty Three Thousand Nine Hundred Twenty Three and Paise Fifty Only) as on 07.04.2014. To prove that there is record of default what is produced is the CIBIL report wherein the debt of the Principal Borrower is reflected in August, 2014 as Rs. 81,92,38,509/- (Rupees Eighty One Crore Ninety Two Lakh Thirty Eight Thousand Five Hundred Nine Only). The applicant has also annexed the statement of accounts wherein the default of the Principal Borrower is reflected.

The Financial Creditor also initiated proceedings before the Debt Recovery Tribunal-1 (DRT), being application no. O.A. No. 493/2015 on 24.09.2015 and it is submitted that the Principal Borrower has never objected to the pending DRT proceedings and is contesting the same. The name of a Resolution Professional is also proposed and Form No. 2 seen produced by the Resolution Professional. So, all the requirements have been complied with.

Having heard the Ld. Counsel for the parties and on perusal of the records containing documents filed by the rival parties, we are of the considered view that since the Financial Creditor has rightly filed this petition under section 7 of the Insolvency & Bankruptcy Code against M/s. Genegrow Commercial Pvt. Ltd, the present Corporate Guarantor having executed the deed of guarantee and Supplementary Deed of guarantee, ensuring and guaranteeing the repayment of loan facilities/total outstanding as on 31st January, 2018 to the tune of Rs. 162,62,23,609.63 outstanding against Gee Pee Infotech Pvt. Ltd., the Principal Borrower, both the deed of guarantees being irrevocable and unconditional and shall be enforceable. The Financial Creditor has also placed on record the balance confirmation by the Principal Borrower admitting the default to the tune of Rs.84,53,923.50 as on 7th April, 2014 which is also reflected in the CIBIL Report. Since the accounts of the Principal Borrower was classified as an NPA, the Financial Creditor had to file O.A. No. 493/2015 before the DRT, which was never objected to by the Principal Borrower and the liability of the Corporate Guarantor is coextensive with the Principal Debtor and even the Financial Creditor is free to sue and proceed against the Principal Debtor or the Guarantor or both, as per its choice and discretion. The Corporate Debtor has no defence at all in this matter as the amount of Rs. 162,62,23,609.63 is admitted and acknowledged by the Principal Borrower, thereby making the Guarantor/the present Corporate Debtor equally liable.

In view of all the arguments advanced by the parties and documents placed on record, we are of the considered view that the Corporate Debtor/Guarantor has no case and the judgement cited in Dharani Sugars and Chemicals limited Vs. Union of India and others, reported in (2019) 5 Supreme Court Cases 480 cited above or the Circular dated 12^th February, 2018 of Reserve Bank of India cited above, have no relevance and cannot be relied upon by the Corporate Debtor in this matter. The facts of this case are quite distinguishable from those of Dharani Sugars and Chemicals Limited Vs. Union of India and others. Therefore, the Financial Creditor has been able to make out a good case in its favour and against the Corporate Debtor/Guarantor.

Being satisfied that none of the objections raised on the side of the Corporate Debtor are sustainable under law and being satisfied that the Financial Creditor has fulfilled all the requirements under Section 7(3) of the Code and satisfactorily established the default in repayment and that Mr. Binay Kumar Singhania, whose name has been proposed as Interim Resolution Professional has filed written communication dated 26^th February, 2018 wherein it is declared that there is no disciplinary inquiry proceeding pending against him, and therefore, we have no hesitation to admit the petition and pass the following orders:-

The application filed by the Financial Creditor under Section 7 of the Insolvency & Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, M/s. Genegrow Commercial Pvt. Ltd. is hereby admitted.

ii) Moratorium is declared for the purposes referred to in Section 14 of the Insolvency & Bankruptcy Code, 2016. The IRP shall cause a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims under Section 15.

iii) Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016 prohibits the following:-

The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

iv) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated, suspended, or interrupted during moratorium period.

The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. vi) The order of moratorium shall have effect from the date of admission till the completion of the corporate insolvency resolution process. vii) 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 the 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.

viii) Mr. Binay Kumar Singhania of 16, Strand Road, Unit 519, Fairly Place, Kolkata 700001, having Registration No. IBBI/IPA-001/IP- P00041/2017-18/10102, E-mail ID: [email protected], an Insolvency Professional registered with the Indian Institute of Insolvency Professionals of ICAI, is hereby appointed as Interim Resolution Professional by this Tribunal for ascertaining the particulars of creditors and convening a meeting of Committee of Creditors for evolving a resolution plan subject to production of written consent within one week from the date of receipt of this order. ix) The Interim Resolution Professional should convene a meeting of the Committee of Creditors and submit the resolution passed by the Committee of Creditors and shall identify the prospective Resolution Applicant within 105 days from the insolvency commencement date.

The Registry is hereby directed under section 7(4) of the Insolvency and Bankruptcy Code, 2016 to communicate the order to the Financial Creditor, the Corporate Debtor and to the I.R.P. by Speed Post as well as through E-mail.

xi) List the matter on 3rd September, 2019 for filing of the progress report.

xii) Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.