The Federal Bank Limited vs M/s. MIR Realtors Pvt Ltd

Per: Ashok Kumar Borah, Member (Judicial)

This application has been filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the Federal Bank Limited ("the Financial Creditor"), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against MIR Realtors Private Limited ("the Corporate Debtor").

The Corporate Debtor was incorporated on 15.11.2004 under the Companies Act, 1956, with the Registrar of Companies, Kerala, having its registered office at 41/2030, M.M Building, First Floor, Kalabhavan Road, Ernakulam, Kochi-682018.Its Corporate Identity Number (CIN) is U70101KL2004PTC017590.

The Corporate Debtor had approached the Financial Creditor for availing Loan. After accepting the request of the Corporate Debtor, a Term Loan of Rs.10 crore was sanctioned and which was availed by the Corporate Debtor on 06.03.2015. The repayment was to be commenced from 06.01.2016. However, this was not done and the account became NPA on 05.06.2016. However, assuring regularization of the account, balance confirmation statement was executed by the Corporate Debtor through its Managing Director on 10.04.2017. Since no payments were made to make the account standard, the Financial Creditor has treated the account as in default w.e.f. 12.04.2017 onwards. While availing the loan facility, the Respondent had offered primary security by way of equitable mortgage of 87 cents of land and collateral security of equitable mortgage of 368 cents of land. This Application has been filed on 27.01.2020 within 3 years from the date of acknowledgement of the liability stating that an amount of Rs. 8,97,72,270 (Eight Crore Ninety-Seven Lakh Seventy-Two Thousand Two Hundred and Seventy) is in default as on 7.09.2018. In this respect, a Section 13(2) notice under the Securitization Act was issued on 10.09.2018.

The documents evidencing the loan documents such as the Board Resolution, Term Loan Agreement. Agreement of Guarantee, Demand Promissory Note, Security Delivery Letters, Letters Evidencing Deposit of Title Deeds towards creation of mortgage, balance confirmation letter were produced along with the application including the certification of charges with ROC and statement of account. The CIBIL report is also produced evidencing the fact of default with the credit information company.

The applicant submits that the Section 7 application under IBC Code 2016 was filed along with an application to condone the delay of 230 days in the event of the default being reckoned as the date of NPA.

Section 18 of the Limitation Act will apply to the proceedings under IBC as per the following judgements of the Hon’ble Supreme Court.

In the decision reported in Sesh Nath Singh &anr Vs Baidyabati Sheoraphui Cooperative Bank Limited& another reported in (202I SCC Online SC 244)it was held that the adjudicating authority can condone the delay in filing the application under Section 7of IBC under Section 5 of the Limitation Act and that too even without a separate petition seeking condonation of delay.

The Corporate Debtor entered appearance during February 2020 and had admitted the availing of loan and the liability. However, the Corporate Debtor has not filed any reply/counter to this application till date.The Corporate Debtor was seeking indulgence of this Tribunal by seeking time to clear the liability. During March 2020 the Corporate Debtor himself appeared through its Managing Director and submitted that the application can be admitted if he fails to pay an amount of at least Rs.1 Crore within a weeks' time. He had issued a cheque of Rs.1 crore through cheques dated 12.03.2020 and 27.03.2020 which were stood dishonored for insufficient funds. Due to the declaration of lockdown owing to Covid -19 pandemic, this application stood adjourned and subsequently thereafter also the Corporate Debtor indulged in his tactics seeking time in one pretext or the other to settle the liability by way of a compromise settlement.

During the pendency of this application the Corporate Debtor has been acknowledging and admitting the liability and came forward with a proposal to settle the entire outstanding liability by way of repayment of the same by way of monthly instalments. The Bank granted an offer for settlement based on certain terms and conditions vide letter dated 02.02.2021. Since default was committed in payment as per the aforesaid terms, the repayment terms were modified as per letter dated 08.02.2021.The Corporate Debtor appears to have committed default on this modified settlement stipulation also without adhering to the repayment terms stipulated in the letter and hence the offer stood revoked. The Corporate Debtor approached the Hon'ble High Court of Kerala by filing W.P.(C) No.14634/2021. The Hon'ble High Court directed the Corporate Debtor to remit the graded instalments up to 31.08.2021 with simple interest at the rate of 11.10% on or before 31.08.2021 and revalidate the compromise offer.

However, the Corporate Debtor failed to comply with the directions of the Hon'ble High Court as aforesaid. He filed an Appeal before the Hon’ble Division Bench of High Court of Kerala by filing W.A.No.1134 / 2021. which was dismissed with the following order: -

When the matter was finally heard on 28.10.2021 at the request of the learned counsel for the Corporate Debtor, the counter filed by them, belatedly has been taken on record. In the counter, the Corporate Debtor submitted that the amount claimed to be in default while filing the above application was Rs. 8,97,72,270/- as on 07.09.2018 alleging that the said amount is covered by demand notice under SAFAESI Act dated 10.09.2018. Corporate Debtor had executed balance confirmation statement assuring regularization of the account on 10.04.2017 after the account became NPA on 05.06.2016. However, their contention is that, they have not voluntarily or consciously executed any balance confirmation statement assuring regularization of the account and that such a contention has been made by the applicant in order to get over the delay and limitation.

It is further stated that the Corporate Debtor is having a receivable of Rs. 5.5 Crore from the existing customers who had purchased apartments in the project. The value of the apartments in the said project, yet to be sold, is to the tune of Rs. 15 Crore. Irrespective of the cash flow from other projects, the Corporate Debtor is solvent in the matter of settling its lawful liabilities. The Association of the Customers had agreed to deposit the balance amount payable by them in a joint escrow account opened in the name of the Corporate Debtor and Association of Customers on settlement of the proceedings before this Tribunal and DRT. Corporate Debtor duly informed the applicant bank regarding such a resolution and scheme framed by the KRERA after duly considering the loan availed from it and the outstanding amount. Pursuant to the said scheme framed by the competent statutory authority KRERA, it restarted the construction works of the projects on raising Rs. 97 Lakh from its side.

The KRERA has taken note of the claim made by the applicant. The applicant persuaded the Corporate Debtor for restructuring the loan and consequent withdrawal of the proceedings before this Tribunal on recording the settlement in O.A.No.173 of2020 of the DRT-I, Ernakulam. The condition initially stipulated by the bank for considering the proposal for restructuring the facility was that the Corporate Debtor shall make an initial payment of Rs. 1 Crore to the applicant bank to demonstrate its bonafides in the matter of restructuring/reschedulement. The Corporate Debtor raised the said amount and remitted the same to the applicant by way of two instalments, Rs.50 Lakh remitted during November, 2020 and another Rs. 50 Lakh during December, 2020. However, on receipt of the amount of Rs. 1 Crore as demanded by it, the applicant bank issued a communication dated 02.02.2021 incorporating additional terms and conditions with regard to remittance of further amount. The terms and conditions incorporated in the above communication were contrary to the understanding arrived at earlier while directing the respondent to remit Rs. 1 Crore. Still, the Corporate Debtor remitted the 1^st instalment of the proposed restructure/ reschedulement being Rs. 20 Lakh and Rs. 8.7 Lakh towards full and final payment of a connected loan, as demanded by the applicant as a prior condition for the withdrawal of the proceedings pending before this Hon'ble Tribunal. The condition No.6 was that "upon receipt of Rs. 20 Lakh being the 1^st instalment of the settlement amount and Rs. 8.70 Lakh towards the arrears in connected accounts and on filing the joint settlement before the DRT, settlements would be reported to this Tribunal. As insisted by the applicant bank, the respondent had also arranged a new personal guarantor for securing the interest of the bank while restructuring the loan. The respondent had also arranged additional security by way of mortgage of the residential apartment of the Managing Director and his wife at Edappally, while restructuring the loan. Having conceded to all such demands made by the applicant for restructuring of the loan, the applicant bank issued another letter bearing No. LCRD-EKML/EKMA/SAR2904 2020-21 dated 08-02-2021 varying the terms and conditions of the settlement and insisting that the respondent shall remit an amount of Rs. 25 lakh as on 26-02-2021 towards the 2^nd instalment stipulated therein.

The Corporate Debtor further stated that they are not in a position to comply with the varied terms in the communication sent by the Financial Creditor and it would be in a position to effect payments under the restructured loan only on reporting the settlement of the alleged liability based on which the NCLT proceeding has been initiated. Consequently, the applicant bank forwarded a joint compromise petition prepared in O.A.No. 173/2020 of the DRT 1, Ernakulam to the respondent and obtained the signatures of the existing defendants, additional defendant and their counsel during early February, 2021. The Corporate Debtor and the other defendants could not immediately realize that the applicant bank is playing a mischief upon them behind their back with a view to trap them. Thereafter, applicant bank took its own time to file the said joint compromise before the DRT and withdraw the proceedings before this Tribunal and delayed the filing upto March, 2021 and ultimately filed the same correcting the date and falsely attributing 15^th March, 2021 as the date of the joint compromise. Accepting the compromise and restructure, Hon'ble DRT-1 Ernakulam passed final order in O.A.No.173 of 2020 on 09.04.2021. While obtaining the signature of the defendants and submitting the joint compromise before the Hon'ble DRT, the applicant bank had assured the respondent that the payment as scheduled need be made only after reporting settlement before this Tribunal in compliance with clause referred to above. In as much as the liability of the respondent arises only on compliance with clause 6 and since the applicant has failed to comply with the terms for such restructuring and re-scheduling of the loan, there is no default from the part of this respondent with respect to any liability and, therefore, the present proceedings are liable to be rejected. In as much as there is no default with respect to any liability committed by the Corporate Debtor, no proceeding as contemplated under Sec. 7 of the Insolvency and Bankruptcy Code is sustainable against the respondent. They have referred to a decision of the Hon’ble Supreme Court of India, in its latest decision on the subject rendered in Indus Biotech Pvt. Ltd Vs. Kotak India Venture (Offshore fund) reported in (AIR 2021 SC 1638) in which it was categorically held with respect to determination of default under IBC and other connected matters in order to trigger an application and the dictum laid therein is clearly applicable with reference to the facts of this case as well.

The learned counsel for the Financial Creditor argued that the application is filed within the limitation period and referred to a decision in Sesh Nath (supra) and submitted that adjudicating authority can condone the delay in filing the application under Section 7 of IBC under Section 5 of the Limitation Act and that too even without a separate petition seeking condonation of delay. It is further submitted that since no settlement had arrived between the parties the application is to be admitted. Per contra the learned counsel for the respondents argued that application is filed by the bank without a delay condonation petition. Hence, it is liable to be dismissed. Further, it is pertinent to consider that the bank failed to report the settlement arrived between the parties to this Tribunal. The bank is hiding the facts; the Corporate Debtor has already settled the matter and restarted the construction. In this respect they have referred to a decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited [CIVIL APPEAL NO. 9405 OF 2017]and stated that the applicant has been using this Tribunal for recovery and collection of the amounts as per the restructured payment schedule and even in the other loan accounts.

We have heard the learned counsel on either side through video conferencing and have thoroughly perused documents placed on record by the Financial Creditor and the Corporate Debtor.

On a perusal of records submitted by the Financial Creditor and also as per Sub Section 5(a) of Section 7 of the code, the application filed by the applicant/financial Creditor has to be admitted on satisfaction of the following:

The Insolvency Resolution Process begins when a default takes place, in the sense that a debt becomes due and is not paid.The period of limitation under Article 137 of Limitation Act, 1963, for making an application under Section 7 IBC is three years from the date of accrual of the right to sue, that is, the date of default.However, as per Section 18 of the Limitation Act, 1963 an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed.At this juncture, it is relevant to consider the decision of the Hon’ble Supreme Court in Dena Bank (now Bank of Baroda) V. C. Shivakumar Reddy and Anr (CIVIL APPEAL NO.1650 OF 2020)in which it was held as under: -

In the present case, the account become NPA on 05.06.2016. However, the Corporate Debtor executed a ‘confirmation of balance outstanding in their account/s as on 31.03.2017’. Here, the acknowledgement is made on 31.03.2017 and the application was filed on 27.01.2020. Hence, it is considered that the Corporate Debtor acknowledged the debt within three years i.e. a fresh limitation period has been started and the application has been filed within the period of limitation. Since, the date of default in the present case is considered to be the acknowledgement of debt outstanding by the Corporate Debtor, the issue of condonation of delay submitted by the Financial Creditor does not arise.

On perusal of the records, it is seen that Corporate Debtor had availed a term loan of Rs.10 crore from the Financial Creditor. The Corporate Debtor failed to repay the loan as agreed to. The Financial Creditor in the circumstances instituted proceedings before the Debts Recovery Tribunal for realisation of the balance outstanding in the loan account. During the pendency of proceedings, the Corporate Debtor approached the bank and offered to pay a sum of Rs.11.65 crore in instalments. The offer made by the Corporate Debtor was accepted by the bank and the Corporate Debtor was permitted to pay the amounts as offered by them in graded instalments, commencing from 04.02.2021 subject to a few conditions including the condition that the Corporate Debtor shall pay a sum of Rs.8.7 lakh due to the bank in respect of another loan and that a compromise petition shall be filed before the Debts Recovery Tribunal incorporating the terms of settlement and a default clause to the effect that the entire amounts due to the bank would become payable in the event of default in remitting any one of the instalments.The bank has also agreed in terms of the compromise arrangement that on payment of the first instalment namely; Rs.20 lakh and Rs.8.7 lakh referred to above, and on filing the compromise petition, the bank would report the settlement before the NCLT.

It appears from the records that, on several occasions the matter was adjourned stating that the matter is under the final stage of settlement. But no settlement memo has been filed till date. In this connection a decision rendered by the Hon’ble High Court of Kerala in W.P (C ) No. 14634 of 2021 filed by the Corporate Debtor is to be gone through, in which it is stated as follows:-

It is true that the Corporate Debtor had tried several times to settle the matter on payment of considerable amount and furnishing additional securities and guarantees. Hence, it is clear that substantial amount is due to the Financial Creditor from the Corporate Debtor.

A reading of the above facts, makes it clear that nothing on record to show that the Corporate Debtor entered into a compromise agreement and repayment has been made. However, by agreeing to repay the amount the Corporate Debtor accepted the debt due to the Financial Creditor. The Corporate Debtor is required to honour the commitments made to the Financial Creditor. The failure on their part shows that the debt due to the Financial Creditor is to be made good by the Corporate Debtor. Hence, this is a fit case to initiate Corporate Insolvency Resolution Process against the Corporate Debtor under Section 7 (5) (a) of the I&B Code,2016.

In this case the applicant proposed the name of an Insolvency Professional Shri. Jasin Jose, and produced his written consent in Form 2 as per Sub Rule (1) of Rule 9 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The learned Insolvency Professional certified that there are no disciplinary proceedings pending against him with the Board or ICAI Insolvency professional Agency. However, as item No.(iii) regarding disclosure of pending works with him, he has stated that he is currently serving as Interim Resolution Professional/Resolution Professional/Liquidator in (IRP-2 and RP-1 proceedings). Moreover, on verification of records of this Tribunal, it is seen that he is performing the duties of Liquidator in some cases. In view of the aforesaid facts, it is proposed to nominate the name of an Insolvency Professional from the panel for the period from 01.07.2021 to 31.12.2021 in respect of NCLT Kochi Bench for appointment as IRP in this matter.

In view of what is stated above, the following order is passed.

I. The Application IBA/11/KOB/2021 filed by the Financial Creditor under Section 7 of the I& B Code, 2016 read with Rule 4 (1) of the Insolvency and Bankruptcy Code,2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor M/s. MIR Realtors Private Limited, is admitted.

II. There shall be a moratorium under Section 14 of the I&B Code,2016, in regard to the following:

a. 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;

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(54 of 2002);

d. The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.

III. Notwithstanding the above, during the period of moratorium, the following are also to be strictly followed: -

a. That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.

b. That the provisions of Sub-Section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

IV. That the order of moratorium against the Corporate Debtor shall have effect from the date of pronouncement of this order till the completion of the CIRP 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.

V. That the public announcement of the CIRP shall be made immediately as specified under Section 13 of the I&B Code, 2016 read with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations,2016.

VI. That this Bench appoints Mr. P. T Joy, having Registration No. IBBI/IPA-001/IP-P-02239/2021-2022/13601, email id- [email protected], residing ^at 34/306c, First Floor, JB Plaza, Edappally-Thripunithura Road, Near NSS Hostel, Padivattom, Edappaly P.O, Oberon Mall Junction, Ernakulam, Kerala-682024, whose name has been taken from the panel of Ip’s for appointing as IRP in respect of Kochi Bench for the panel from 01.07.2021 to 31.12.2021,as the Interim Resolution Professional to carry out the functions as mentioned under the Code. The fee payable to IRP, or, as the case may be the RP, shall comply with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP/ RP shall carry out his functions as contemplated by Sections 15, 17, 18, 19, 20 and 21 of the I&B Code,2016.

VII. During the CIRP period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be the RP, in terms of Section 17 of the I&B Code,2016. The officials and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in them to the IRP within a period of one week from the date of receipt of order, in default of which coercive steps will follow. The Corporate Debtor shall also extend full co-operation to the IRP for completion of the CIRP.

VIII. The Applicants shall deposit an amount of ₹2,00,000/- [Rupees Two Lakh] with the Interim Resolution Professional within 3 days of receipt of this order, for initiation of the proceedings forthwith. This amount is subject to ratification by the CoC.

IX. The Registry is directed to communicate this order to the Financial Creditor, Corporate Debtor and IRP through email and speed post immediately.