The Kerala State Industrial Development Corporation Limited vs Auto Friction Components India Private Limited

The Company Petition (C.P) was originally filed and numbered as Company Petition No.12/2016 before the Hon’ble High Court of Kerala. From the records transferred from the Hon’ble High Court of Kerala, it is noted that the Petitioner had earlier issued notice dated 26.11.2012 under section 433 and 434 of the Companies Act, 1956 requesting payment of the outstanding dues. The Respondent did not repay the amount within the stipulated time of 21 days from the date of the said notice. Hence the Petitioner preferred a petition under section 433(e), section 433(f) and 434 of Companies Act, 1956 at the Hon’ble High Court of Kerala for winding up of the Respondent Company on the grounds of inability to pay its debts. Given the Government Notification dated 30.6.2017, Petition was transferred to NCLT, Chennai under Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 and the petition was treated as an application under Section 7 of the I&B Code, 2016. The Petition got registered as TCP/558/KER/IB/2018 at NCLT, Chennai. This was again transferred to Kochi Bench of NCLT, as the jurisdiction over the case is now vested with this Bench and renumbered as TCP No. 16 of 2019. On 17.10.2019 the petitioner has filed an IA/42/KOB/2019 detailing the efforts made for recovery of the dues, reiterating his prayer to wind up the Company. when IA/42/KOB/2019 came up for hearing on 06.11.2019, the petitioner has requested to treat the Company Petition as Section 7 of Application filed under the I& B Code. In the light of this submission, he was allowed to withdraw IA/42/KOB/2019. Thereafter on 13.11.2019, petitioner filed IA/61/KOB/2019 to consider the present Petition as an Application filed under Section 7 of the Insolvency and Bankruptcy Code,2016. The bench passed the following order:

Accordingly, the Applicant (Kerala State Industrial Development Corporation Limited) (hereinafter called as ‘Financial Creditor’) in TCP No.16 of 2019 has filed an Application against Auto Friction Components India Private Limited (hereinafter called as ‘Corporate Debtor’) under Section 7 of the Insolvency and Bankruptcy Code, 2016 ["I&B Code" for short] read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, ("IB Rules" for short) with a request to initiate Corporate Insolvency Resolution Process.

After filing the application in proper form, the registry issued notice to the Corporate Debtor on 18.02.2020 and informed that the matter will be list on 04.03.2020. The notice was returned stating ‘door locked’ as unserved. Further Financial Creditor were also directed to issue notice to the corporate Debtor, he stated that all the notices sent to the Corporate Debtor have been returned with the remarks “no such person”. Hence the present application was reserved for Orders, ex-parte.

In the application, it is stated by the Financial Creditor that they are a government of Kerala Company incorporated on 21.07.1961 as a company limited by shares under the Companies Act 1956. The primary objective of the Applicant is to promote, facilitate and finance industries and catalyse the development physical and social infrastructure required for industrial growth in the state of Kerala. It is submitted that that Corporate Debtor was a small-scale unit promoted for manufacture of brake linings for heavy commercial vehicles and passenger cars. The company incurred heavy losses from the beginning and after operations for 5 years the company was forced to close all operations in 1983 owing to the losses. To revive the company an agreement to provide loan was executed between the Financial Creditor and the Corporate Debtor on 09.04.1990, whereby applicant granted a term loan of ₹40,80,000/- (Rupees Forty Lakhs and Eighty Thousand Only).

It is also stated that as security for the term loan granted the immovable assets of the company were mortgaged by deposit of title deeds of the land admeasuring 1 Acre in Industrial Estate, Pappanamcode, Trivandrum District, Kerala. The Corporate Debtor deposited the title deeds of the land before the Financial Creditor. Repayment of the said loan was also personally guaranteed by the Directors of the Company as per their deed of guarantee dated 09.04.1990. it is also submitted that as a security for loan, the movables of the company by way of deed of hypothecation (dated 09.04.1990) is given to the Financial Creditor.

It is again submitted that as per the terms of the loan agreement, the principal amount of ₹40,80,000 (Rupees Forty Lakhs and Eighty Thousand Only) is to be repaid in 12 half yearly instalments with interest at the rate of ₹14% per annum. Therefore, the entire amount with interest must be repaid on or before 15.04.1998. The company has committed defaults in the repayment of the term loan. Owing to the arrears of the company, the Financial Creditor issued letter dated 25.02.1993 calling upon the Company to make payment of the arrears within 15 days from the receipt of notice, failing which the Financial Creditor will recall the entire loan outstanding and initiate Revenue Recovery Proceedings to recover the amount from the Company and the Guarantors jointly and severally. Since the Company failed to make any payment of the demanded amounts, the Financial Creditor Requisitioned the District Collector, Thiruvananthapuram on 15.06.1993 in terms of Kerala Revenue Recovery Act,1968, to initiate revenue recovery proceedings against the Company for recovering the amount stated in the requisition. The Financial Creditor issued notice to the Company on 13.07.1996 and attached the movables and immovables of the Company. The auction for the immovable properties of the company was held on 22.02.2000. However, the same did not materialize due to want of bidders. Meanwhile one of the Directors of the Corporate Debtor filed a Writ Petition before High Court of Kerala numbered as Original Petition No.20189/1995 against Revenue Recovery Process. The same was dismissed on 09.09.1999. Pursuant to such dismissal, the Applicant wrote several reminders to the District Collector, Thiruvananthapuram to proceed against the properties of the Guarantor, but to no avail. Later, the Financial Creditor issued notice under Section 434 (1) (a) of the Companies Act, 1956. 7. The aforesaid circumstances reveal that the Financial Creditor has taken every possible step for recovery of the amounts due to it from the Company in a timely manner. It is submitted that the steps taken by the Applicant are well within the period of Limitation and are not barred in any manner whatsoever. The total outstanding due from the Corporate Debtor to the Financial Creditor as on date of issuing the Winding Up notice ₹1,91,70,869. An amount of ₹18,29,11,115/- (Rupees Eighteen Crore Twenty-Nine Lakhs Eleven Thousand One Hundred and Fifteen Only, being aggregate of the total principal amount of ₹40,80,000/- ((Rupees Forty Lakhs and Eighty Thousand Only), and interest of ₹17,88,05,424 as on 31.12.2019, was outstanding in the books of Applicant in respect of the Term Loan Account of the Corporate Debtor.

On-going through the facts and submissions of the petitioner and upon considering the same, it is concluded that the Financial Creditor has established that the loan was duly sanctioned and duly disbursed to the Corporate Debtor but there has been default in payment of Debt on the part of the Corporate Debtor.

Considering the above facts, we come to conclusion that the nature of Debt is a “Financial Debt” as defined under section 5 (8) of the Code. It has also been established that admittedly there is a “Default” as defined under section 3 (12) of the Code on the part of the Debtor.

As a consequence, keeping the admitted facts in mind, it is found that the Financial Creditor has not received the outstanding Debt from the Corporate Debtor and that the formalities as prescribed under the Code have been completed by the Applicant, we are of the conscientious view that this Petition deserves ‘Admission’.

Further that, we have also perused the Form – 2 i.e. written consent of the proposed Interim Resolution Professional submitted along with this application/petition by the Financial Creditor and there is nothing on record which proves that any disciplinary action is pending against the said proposed Interim Resolution Professional.

Hence, after perusal of the provisions of the Code and facts and circumstances of this case along with the submissions of the Applicant, it is hereby held that this Application is Admitted. The commencement of the Corporate Insolvency Resolution Process shall be effective from the date of the Order.

The Financial Creditor has proposed the name of Mr. Raju Palanikunnathil, having registration No. IBBI/IPA-001/IP-P00801/2017-18/11356 as Interim Resolution Professional. We therefore appoint Mr. Raju Palanikunnathil, as Interim Resolution Professional to conduct Corporate Insolvency Resolution Process of the Corporate Debtor. The IRP is directed to submit the copy of AFA (Authorisation for Assignment) issued by Insolvency Professional Agency within two days from the date of receipt of Order of his appointment.

Having admitted the Application, the provisions of Moratorium as prescribed under Section 14 of the Code shall be operative with effect from the date of order. However, the supply of essential goods or services to the “Corporate Debtor” shall not be terminated during Moratorium period. It shall be effective till completion of the Insolvency Resolution Process or until the approval of the Resolution Plan prescribed under Section 31 of the Code.

That as prescribed under Section 13 of the Code on declaration of Moratorium the next step of Public Announcement of the Initiation of Corporate Insolvency Resolution Process shall be carried out by the IRP immediately on appointment, as per the provisions of the Code.

That the Interim Resolution Professional shall perform the duties as assigned under Section 18 and Section 15 of the Code and inform the progress of the Resolution Plan and the compliance of the directions of this Order within 30 days to this Bench. A liberty is granted to intimate even at an early date, if need be.

The Registry is directed to communicate this order to the Financial Creditor, the Corporate Debtor and the IRP by Speed Post and email immediately.

A copy of this Order be also sent to the Registrar of Companies, Kerala, for updating the Master Data of the Corporate Debtor, who shall send a compliance report in this regard to the Registry within seven days.