Stressed Assets Stabilization Fund vs Precision Containers Limited

The Financial Creditor has provided Loan Facility to the Corporate Debtor in the following ways:

The loan was re-scheduled on 31.03.2001.

The first loan was disbursed fully and the second loan was disbursed to the extent of Rs.1020 lakh.

On 07.06.2000 lastly mortgage was extended. The Corporate Debtor committed default on 01.04.2000 and therefore vide Recall Notice dated 27.02.2002 and 28.02.2002 credit facilities were recalled.

The Financial Creditor had filed Reference before BIFR and it remained pending. After repeal of Sick Industrial Companies (Special Provisions) Act, 1985 [SICA Act] w.e.f. 01.12.2016 all the reference before BIFR/AAIFR stand abated. BIFR at the last hearing held on 13.07.2016 issued the directions as under:

The details of the default is as under:

The Financial Creditor has filed following documents attached to the Petition:

Loan Agreement dated 03.08.1995 at pp 17-35 of the Petition;

Subscription Agreement dated 21.12.1998 at pp 36-62 of the Petition;

Loan Agreement dated 31.08.1999 at pp 63-81 of the Petition;

Deed of Hypothecation dated 31.08.1995 at pp.107-12 of the Petition;

Deed of Hypothecation dated 21.07.1998 at pp.123-130 of the Petition;

Deed of Hypothecation dated 31.08.1999 at pp.131-145 of the Petition;

Loan Recall Notice dated 27.02.2002 at pp 146-155 of the Petition;

Loan Recall Notice dated 28.02.2002 at pp 156-162 of the Petition;

Statement of Accounts at pp 163-201 of the Petition;

The Trust Deed dated 24.09.2004 at pp 202-209 of the Petition;

Notification of SASF i.e. Financial Creditor dated 20.09.2004 issued by the Ministry of the Finance, Department of Economic Affairs declaring the Financial Creditor as the Financial Institution at p.210 of the Petition;

Transfer Deed dated 30.09.2004 at pp 211-236 of the Petition;

OTS Letter dated 02.05.2019 at pp 237-239 of the Petition;

OTS Revocation Letter dated 11.10.2007 at pp 240-245 of the Petition.

The Financial Creditor has inadvertently not mentioned the amount due as on date of filing the Application. In Part-IV, second column of the Application, the amount due mentioned is Rs.28,06,14,272/-(Rupees twenty-eight crore six lakh twenty-four thousand two hundred seventy-two only) which is amount due on date of default as mentioned in Recall Notices dated 27.02.2002 and 28.02.2002.

As per Annexure-5 of the Petition, Rs.5,92,90,31,326/- (Rupees five hundred ninety-two crore ninety lakh thirty-one thousand three hundred twenty-six only) is payable by the Corporate Debtor to the Financial Creditor. The Financial Creditor has produced statement of Accounts for entire claim mentioned at Annexure-5 in the Petition.

The Financial Creditor submitted that as on date claim of the Financial Creditor be read as per Annexure-5 and as on default claim of the Financial Creditor be read as per the Recall Notices dated 27.02.2002 and 28.02.2002.

The Corporate Debtor has committed the default on 01.01.2000. The Corporate Debtor approached the BIFR under section 15 of SICA Act and filed reference for declaration as sick unit. The reference was registered with BIFR in January, 2002 and on 19^th August, 2004 BIFR admitted reference. The reference remained pending with BIFR till SICA Act was repealed on 01.12.2016. No recovery proceedings could have been filed between January, 2002 to 01.12.2016 due to section 22 of SICA Act.

In June, 2008, SASF had approved OTS proposal for envisaging payment of Rs.4.00 crore in cash and issue of 7 lakh Equity Shares in furtherance thereof the Corporate Debtor allotted 2 lakh Equity Shares to SASF in June 2008 and transferred 5 lakh shares in May, 2009. However, it defaulted on payments as per the approved OTS terms. The OTS was extended from time to time till 31.03.2011 with interest @13.25% from 01.04.2008. The OTS was revoked in June 2011 due to non-payment of cash component. Subsequently, at the request of the Corporate Debtor, SASF agreed to extend time up to 15.01.2012 for clearance of dues. The OTS was finally revoked in September, 2012.

The Corporate Debtor admitted OTS proposal in terms of sanction letter dated 06.07.2016. The Corporate Debtor vide letter dated 05.04.2018 reiterated their earlier offer and hence the same was rejected by the Financial Creditor.

The Corporate Debtor is a small enterprise registered with the Ministry of Micro, Small and Medium Enterprise. The present Petition is not maintainable as the amounts claimed by the Applicant under the present Petition being Rs.28,06,24,272/-(Rupees twenty-eight crore six lakh twenty-four thousand two hundred and seventy-two only) is not an admitted amount and hence disputed.

Further, the Financial Creditor has failed to place on record several communications concerning the Onetime Settlement Offers given by the Corporate Debtor to the Financial Creditor post revocation of settlement vide OTS revocation letter dated September 24, 2012 (Page 245 of Petition), which would establish the crystallized settlement amount between the parties. Pursuant to the OTS approval letter dated October 11, 2007 bearing Ref. No.5588 SASF/GSS (Exhibit-19) (i) from total cash component of Rs.4,00,00,000/- (Rupees four crore only), an amount of Rs.1,00,00,000/- (Rupees one crore only) was paid upfront to the Applicant and out of the balance Rs.3,00,00,000/- (Rupees three crore only), Rs.1,14,00,000/- (Rupees one crore fourteen lakh only) was paid by the Corporate Debtor and only an amount of Rs.1,86,00,000/- (Rupees one crore eighty-six lakh only) remained unpaid. Further, as per the second condition of OTS approval letter, allotment of 7 lakhs nos. equity shares were allotted/transferred in favour of the Financial Creditor by the Corporate Debtor. An amount of Rs.1,06,38,092 (Rupees one crore six lakh thirty-eight thousand ninety-two only) is lying with the Financial Creditor (arising out of share of SASF on account of sale of Vapi Unit by the Asset Sale Committee constituted under order of the BIFR). Post revocation of OTS by the Financial Creditor vide letter dated September 24, 2012, the aforesaid amount was lying with SASF being pro rata amount distributed as per pro rata share of 29.55% in the Vapi Unit. The Financial Creditor vide its letter dated August 31, 2015 bearing reference no. SASF/PCL/2015-16/306 rejected the revised settlement offer of the Corporate Debtor and requested to submit a substantially improved settlement proposal for their consideration. Even thereafter, several letters were issued by the Corporate Debtor seeking OTS with the Financial Creditor as latest as May 20, 2019, which was also rejected by the Financial Creditor vide letter dated July 06, 2019, which was also rejected by the Financial Creditor vide letter dated 06, 2019 bearing reference no. SASF/PCL/2019-20/479 without assigning any reasons whatsoever.

Vide letter dated 11.10.2007, the Financial Creditor sanctioned OTS proposal of Rs.4 crore plus 7 lakh shares. The Financial Creditor extended time to deposit cash component time to time upon request of the Corporate Debtor. However, despite granting sufficient opportunities, no payment received and therefore vide letter dated 24.09.2012 earlier OTS was revoked. The Corporate Debtor submitted and OTS proposal and the same offered being on lower side, OTS proposal were rejected vide letter dated 06.07.2016. The Corporate Debtor again approached SASF with the settlement proposal vide its letter dated 20.05.2019 proposing for negotiated settlement with repayment period over 18 months or assignment of debt to ARC under 15:85 structure which was rejected on 06.07.2019. Vide letter dated 01.11.2019, the Corporate Debtor submitted revised OTS proposal for Rs.11.46 crore. The said OTS proposal was put up before Competent Authority with process note. The process note was prepared on the basis of prevailing internal recovery policy of the Financial Creditor. The Competent Authority approved OTS subject to certain conditions with respect to upfront payment, filing of consent terms in pending DRT suit, payment of substantial amount before withdrawal of pending legal proceedings, etc. The settlement proposal of the Corporate Debtor was considered based on the prevailing recovery policy of the Financial Creditor which considered the value of securities available and the expected time for realisation and various other factors. No OTS sanction letter is issued to the Corporate Debtor since upfront amount as stated above was not paid. Pending compliance of the conditions as stated, the OTS has not come into effect. Process note, internal recovery policy and notes of Competent Authority for approval of OTS cannot be provided in court proceedings since those documents are confidential documents and the disclosure/production such confidential documents would affect the commercial and competent position of the Financial Creditor in other cases.

After committing default, the Corporate Debtor immediately approached BIFR and reference under section 15(1) was registered in January, 2002. On 19.08.2004 BIFR admitted reference and on 21.09.2005. on 20.12.2011 Assets Sale Committee confirmed sale of Vapi Unit for Rs.360 lakh and the Financial Creditor received Rs.106.38 lakh out of total sale proceeds. The amount was kept in Escrow account since the Financial Creditor were not agreed with distribution and the distribution was challenged before AAIFR. After hearing the parties AAIFR vide order dated 18.01.2016 set aside order of distribution and reminded back the matter. Afterwards, the SICA act was repealed on 01.12.2016 and therefore SASF has already appropriated amount of Rs.106.38 lakh. From year 2004 onwards, the Corporate Debtor has categorically admitted claim of Financial Creditor in their balance audited Balance Sheets.

Upon request of the Corporate Debtor, the Company was sanctioned OTS and Letter of Approval (LoA) was issued vide Letter dated 18.01.2020 to the Corporate Debtor. Accordingly, the Corporate Debtor was supposed to pay 8.25 crore in instalments as mentioned in the said OTS Letter.

Vide E-mail dated 16.04.2020 and 29.05.2020, the Corporate Debtor requested to SASF for granting the benefit of moratorium as declared by RBI for payment of amounts under the OTS sanctioned to the Company. In response, the SASF vide its letter dated 15.06.2020 advised the Company to pay the amount of Rs.20 lakh fallen due on 19.03.2020 i.e. prior to the declaration of lockdown, together with the interest as above immediately.

The Corporate Debtor submitted the revised OTS proposal vide its letter dated 27.07.2020, requesting reschedulment of all instalments and also put various onerous conditions in revised letter. The OTS submitted by the Corporate Debtor was subject to complete relaxation of lockdown, resuming train services and various other things.

The Financial Creditor vide letter dated 05.08.2020 rejected the OTS granted on 18.01.2020 and also adjusted amount paid by the Corporate Debtor towards their outstanding dues. The Financial Creditor dated 06.10.2020 informed the Corporate Debtor that RBI circular on Covid-19 is not applicable to subject account since account was not standard account.

The Financial Creditor is ignoring the RBI Circular dated 27.03.2020 and 23.05.2020 granting moratorium to borrowers in the wake of Covid-19 pandemic.

The Financial Creditor on 18.01.2020 before the Adjudicating Authority had sanctioned the OTS and Letter of Approval was issued vide letter dated 18.01.2020 to the Corporate Debtor and entering for OTS, the Corporate Debtor had paid a down payment of Rs.0.82 crore and first instalment of Rs.0.20 crore on 18.02.2020. The second instalment was due on 18.03.2020. However, the second instalment could not be honoured due to bad market condition caused by Covid-19 pandemic. The Corporate Debtor also informed to the Financial Creditor vide its email dated 16.04.2020 that due to the lockdown imposed by the Government and to give ease to the business suffering the RBI had granted the moratorium vide its circular on 27.03.2020 which the Corporate Debtor was also eligible for to be granted.

The Financial Creditor replied to the Corporate Debtor vide its email dated 18.04.2020 stating that request for extension of time for payment of instalment will be examined by the Financial Creditor once the office start functioning normally and, in the meantime, proposed to deposit the cheque of Rs.20 lakh furnished towards second instalment. On 22.04.2020 the Managing Director of the Corporate Debtor informed the Financial Creditor to hold on and not to deposit the cheque till the lockdown ends.

The Corporate Debtor vide its email dated 12.06.2020 informed the Financial Creditor that the RBI granted a moratorium of another three months from 01.06.2020 to 31.08.2020 vide RBI Circular dated 23.05.2020. In view of the same, the request of the Financial Creditor to make payment of the instalment fallen due on 18.03.2020 would be against the spirit of the mandate under aforesaid RBI Circulars and the entire purpose of issuing these Circulars would get defeated.

This Application being C.P. (IB) No. 2146/MB/C-IV/2019 filed under Section 7 of I&B Code, 2016, presented by Stressed Assets Stabilization Fund, Financial Creditor/ Applicant against Precision Containers Limited, Corporate Debtor for initiating corporate insolvency resolution process is admitted. We further declare moratorium u/s 14 of I&B Code with consequential directions as mentioned below:

I. That this Bench as a result of this prohibits:

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;

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;

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

II. That 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.

III. That the provisions of sub-section (1) of Section 14 of I&B Code shall not apply to

a. such transactions as may be notified by the Central Government in consultation with any financial sector regulator;

b. a surety in a contract of guarantee to a Corporate Debtor.

IV. That the order of moratorium shall have effect from the date 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 of I&B Code or passes an order for the liquidation of the corporate debtor under section 33 of I&B Code, as the case may be.

V. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of I&B Code.

VI. That this Bench appoints Mr. Ramnarayan Rajaraman, a registered insolvency resolution professional having Registration Number: [IBBI/IPA-002/IP-N000699/2018-19/12204], Contact: 9867975681, E-mail: [email protected], as Interim Resolution Professional to carry out the functions as mentioned under I&B Code, the fee payable to IRP/RP shall comply with the IBBI Regulations/Circulars/Directions issued in this regard.

VII. The Financial Creditor shall deposit a sum of Rs.5,00,000/-(Rupees five lakh only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC).