The State Trading Corporation Of India vs M/s Ganesh Benzoplast Limited

NARESH SALECHA, MEMBER (TECHNICAL)

The present appeal has been filed by the Appellant i.e. The State Trading Corporation of India which is an enterprise of the Govt. of India under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against the Impugned Order dated 13.02.2020 passed by the National Company Law Tribunal, Mumbai Bench (‘Adjudicating Authority’), in C.P.(IB) No. 1975/MB/2018.

The Appellant submitted that the Respondent, through its Director Mr. Ramakant Pilani, approached the Appellant in 2004 for grant of export facilities for industrial lubricants to foreign buyers in Latin America, Europe, North America, Middle East, and South East Asian countries, leading to discussions and meetings, culminating in the Respondent's letters dated 28.02.2004, 06.07.2004, 14.04.2005, and 17.06.2005 requesting processing, sanction, and exposure limits up to Rs. 4,00,00,000/- for export bills as per specified terms.

The Appellant submitted that, following the Respondent's letter dated 07.10.2005 confirming procurement of various export orders and market availability, the Appellant accepted the proposal vide letter No. STC/GBL/2005 dated 21.10.2005, which the Respondent acknowledged vide letter dated 18.11.2005, leading to execution of an Agreement dated 06.02.2006 extending the benefit of post-shipment credit facility (CLIS) from Exim Bank to the Respondent.

The Appellant stated that Mr. Ramakant Pilani executed an unconditional and irrevocable personal guarantee dated 02.02.2006, notarized on the same date, guaranteeing payment to the Appellant up to Rs. 5,00,00,000/- plus 15% interest per annum in case of default by the Respondent.

The Appellant contended that shipments were carried out by the Respondent as "Shipper," with remittances received by the Appellant until July 2007, after which delays led to accumulation of outstanding dues; in accordance with the agreement, the Respondent issued post-dated cheques for the released amounts, stipulating presentation upon default by foreign buyers.

The Appellant submitted that upon the Respondent's failure to clear dues, 14 such cheques were presented to State Bank of India and dishonoured; six statutory notices were issued within prescribed limits, and despite the Respondent's baseless defence, the Appellant filed complaints under Section 138 of the Negotiable Instruments Act, 1881, which remain pending before the Competent Metropolitan Magistrate at Mumbai.

The Appellant stated that the total debt due towards export transactions as on 28.02.2021 stands at Rs. 23,31,74,832/- (principal Rs. 7,54,07,331/-) plus interest at 14.35% per annum.

The Appellant contended that vide letter dated 07.11.2003, the Respondent requested facilities for supply of Toluene and allied products by opening Letters of Credit (LCs) in favour of domestic parties, specifically M/s Reliance Industries Limited (RIL) and Raj Petro Speciality Pvt. Ltd., followed by a further request dated 26.12.2003 for assistance in raw material procurement.

The Appellant submitted that these proposals were accepted vide letter dated 13.01.2004 on specified terms, acknowledged by Mr. Ramakant Pilani on behalf of the Respondent; raw materials were procured by the Appellant on behalf of the Respondent via LCs, stored in warehouse tanks at the Respondent's Tarapur, Thane premises managed by Central Warehousing Corporation (CWC) at the Respondent's cost, under a tripartite agreement dated 19.01.2004, with liftings on cash-and-carry basis.

The Appellant stated that to facilitate procurement, Mr. Ramakant Pilani issued a personal guarantee dated 05.04.2006, notarized on the same date, and the Respondent issued a corporate guarantee dated 05.04.2006, notarized likewise, undertaking full payment to the Appellant.

The Appellant contended that specific transactions included: (i) Respondent's request dated 21.06.2007 for inland LC for 19 KLS Rajprol T-100 in favour of Raj Petro Speciality Pvt. Ltd., with interest-free earnest money deposit and purchase order dated 20.06.2007; Appellant instructed Bank of India to open LC No. 00571LCDA070119 dated 22.06.2007 for Rs. 34,90,906/- (with +/-5% tolerance) at 60 days from invoice; (ii) Respondent's acknowledgement of receipt vide letter dated 09.07.2007, forwarding original lorry receipts to Mr. Bendre, Chief Manager Finance; (iii) further request dated 24.07.2007 for LC for 115 MT Toluene in favour of RIL, with earnest money and purchase order dated 10.07.2007; and (iv) request dated 24.09.2007 for LC for 80 KLS JNK process oil 485 in favour of M/s Jeyenkay Petrogels, with earnest money and purchase order dated 20.09.2007.

The Appellant submitted that apart from these, the Respondent placed purchase orders for materials procured from the Indian market under various agreements; however, a cheque dated 17.08.2010 for Rs. 1,55,00,000/- from HDFC Bank was dishonoured upon presentation to SBI, leading to proceedings under Section 138 of the NI Act without compliance despite statutory notice; additionally, post-dated cheques issued towards liability for procurement and supply were dishonoured, prompting a pending criminal complaint before the 33rd Metropolitan Magistrate Court, Ballard Pier, Mumbai.

The Appellant stated that delays in remittances from July 2007 resulted in accumulated outstanding dues, with total debt towards domestic transactions as on 28.02.2021 at Rs. 4,97,31,203/- (principal Rs. 1,21,46,355/-) plus interest at 12.85% per annum from invoice dates. The Appellant further stated that the aggregate debt due as on 28.02.2021 is Rs. 28,34,13,327/- (export: Rs. 23,31,74,832/-; domestic: Rs. 4,97,31,203/-; 'C' Forms: Rs. 5,07,292/-) plus stipulated interest, with defaults occurring from July 2007 onwards.

The Appellant contended that a demand notice dated 20.03.2018 under Section 5, Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, in Forms 3 and 4, was served on the Respondent, eliciting a reply dated 31.03.2018, to which a rejoinder dated 28.05.2018 was issued; the petition under Sections 8 and 9 of Code was filed, culminating in the impugned order dated 13.02.2020 rejecting CIRP initiation.

The Appellant submitted that post-impugned order, the Respondent issued communications dated 06.03.2020 and 12.03.2020 and deposited Rs. 2,18,88,421/-, which the Appellant rejected vide letter dated 20.03.2020 as without prejudice to its rights.

The Appellant stated that the BIFR/sanctioned scheme in reference in reference to sick Corporate Debtor dated 04.12.2015 provided two options to unsecured creditors like the Appellant: Option 1 - payment of 25% principal in five equal annual instalments; Option 2 - forgo scaled-down dues and wait seven years for the rehabilitation scheme to work out, allowing action thereafter.

The Appellant contended that the Respondent failed to pay even a single instalment under Option 1 from 04.12.2015 to 03.12.2020, rendering the scheme inoperative; the Adjudicating Authority erred in directing belated payment of 25% principal (Rs. 2,18,88,421/-) instead of initiating CIRP, thereby foreclosing Option 2 and depriving the Appellant of its vested right to wait until December 2022 for full recovery.

The Appellant contended that the Adjudicating Authority failed to follow a correct judicial approach in declining CIRP initiation despite established default and scheme non-compliance. The Appellant stated that, absent adherence to the sanctioned scheme, the Adjudicating Authority erred in directing belated payment of 25% principal instead of mandating CIRP under the Code.

Concluding his arguments, the Appellant requested this Appellate Tribunal to set aside the Impugned Order and allow the present appeal.

Per contra, the Respondent denied all averments made by the Appellant as misleading and baseless.

The Respondent submitted that it filed preliminary objections on 05.10.2021 to the appeal's maintainability, including on limitation grounds, leading to dismissal by this Appellate Tribunal on 20.04.2023. The Respondent contended that the Supreme Court order dated 02.04.2025 restored the appeal for merits hearing, prompting supplementary objections on 08.07.2025, which the Appellant failed to rebut despite directions.

The Respondent submitted that Appellant itself prayed for 25% principal payment in its Adjudicating Authority rejoinder, which the Adjudicating Authority recorded in para 5 of the impugned order and enforced as reasonable under the BIFR scheme. The Respondent contended no "person aggrieved" exists under Section 61 of the Code, as rights were enforced, not denied; per Delhi HC in Vinod K. Patel v. IFCI Ltd. (2001), aggrievement requires substantial denial of personal/property rights, absent here. Even assuming crystallization, liability capped at 25% principal, matching the Adjudicating Authority’s direction the Appellant could secure no more.

The Respondent submitted that its sick company registration with BIFR, draft scheme publication in TOI (09.05.2013) inviting objections (none from Appellant), Delhi HC sanction on 04.12.2015 post-BIFR defunction, BIFR circulation (08.01.2016), and SLP dismissal of some other creditor (10.04.2018), attaining finality BIFR order dated 04.12.2015 under Sections 188, 193, 32(1) SICA with overriding effect (Clause O, per Section 32(1)). The Respondent submitted that the Clause 11.11(a), provide unsecured creditors payments at 25% principal in 5 annual instalments of BIFR sanctioned order; the Appellant's 2003-04 dues uncrystallized/disputed per audited notes, hence no payment obligation arose. "Crystallization" clarified as converting contingent liability to definite/enforceable debt; absent here, no default. The Respondent argued that the claim of the appellant was contingent and not crystallised, hence nothing was payable by the Respondent to the Appellant.

The Respondent contended that despite this, the Respondent proposed settlement on 20.09.2019 before the Adjudicating Authority offering 25% lump-sum (of contingent outstanding principal) to be paid within 30 days, extinguishing debts and dues per scheme. The Respondent stated that the Adjudicating Authority passed order solely on scheme's binding effect, without adjudicating Respondent's 30.07.2018 objections to Section 9 maintainability.

The Respondent submitted that the Hon’ble Supreme Court in judgement of Modi Rubber v. Continental Carbon holds scheme's Option 2 full recovery post-7 years without waiver else it may be contrary to SICA, frustrating rehabilitation by risking re-sickness despite secured creditors' sacrifices. The Hon’ble Supreme Court held that “Unsecured creditors cannot reject scaled-down value and later claim full dues, as company survives on collective sacrifices; High Court view in Continental Carbon quashed. Appellant's sole contention thus fails; nothing survives in appeal”.

The Respondent contended that the Appellant exercised Option 1 via demand notice (20.03.2018) barring Option 2; and thereby, the Appellant is entitled only to lump-sum 25% paid sans crystallization/pre-interest and now can’t claim option B.

The Respondent submitted that the Appellant accepted payment per impugned order invoking estoppel by election per Cauvery Coffee Traders v. Horner Resources and Cannot approbate (accept benefit) and reprobate (challenge order). The Respondent assailed conduct of the Appellant for such belated protest (20.03.2020 post-payment) and 18-month delayed appeal reflecting mala fides, blowing hot and cold acts which are impermissible.

The Respondent denied export liabilities (06.02.2006 agreement): as the Appellant failed to furnish buyer guarantees (Technocraft) for New India Assurance credit insurance (premium paid by Respondent), causing its own loss; disputed via 31.03.2018 reply. The Respondent stated that for Domestic trade (19.01.2004 tripartite): Clause 12 vested disposal authority in Appellant (CWC godown), not Respondent and therefore; losses were caused due to the Appellant's inaction. The Appellant denied liability of C-Forms.

Concluding, all his arguments, the Respondent requested this Appellate Tribunal to dismiss the present appeal and allow BIFR revived company to continue on its own legs.

We have already noted the rival contentions of the Appellant and Respondents in preceding discussions.

It needs to be appreciated that the Corporate Debtor was declared a sick industrial company in terms of Section 3(1)(o) of the Sick Industrial Companies (Special Provision) Act, 1985 (‘SICA’) vide order dated 06.05.2011 by BIFR.

The BIFR appointed IDBI as Operating Agency (‘OA’) under Section 17(3) of the SICA to examine its viability and formulate a rehabilitation scheme.

The IDBI submitted a revival scheme in respect of the Corporate Debtor, which was examined by the BIFR through multiple hearings granted to the stakeholders.

The BIFR noted that, as of cut-off dates of 31.03.2011, the total statutory dues were of Rs. 61.77 Lakhs and the dues of Secured Creditors as on 31.03.2011 was of Rs. 266.01 Crores and further the dues of Sundry creditors as on 31.03.2011 was of Rs. 20.42 Crores.

The IDBI in its order of sanction scheme also noted the various relief and concession sought by the Respondent.

We further note that in the same BIFR sanctioned scheme, the details of Sundry Creditors as on 31.03.2011 and the list of contingent liability as on 31.03.2011 were tabulated in Annexure 5 and Annexure VIA, respectively.

We also note that the liability towards the Appellant was considered as contingent liability as can be seen in Annexure 6A which reads as under :-

At this stage, we also note that Annexure 5 of BIFR sanctioned scheme which indicate the total of 191 creditors who were treated as Unsecured Creditors as on 31.03.2011, and in the list, the name of the Appellant do not figure. This tantamount that according to BIFR sanctioned scheme, the Appellant was not treated as Unsecured Creditors and was only reflected in the list of contingent liability of the Respondent/ Corporate Debtor.

At this stage, we would also take into consideration the fact brought by Appellant as well as the Respondent during hearing that one of the Unsecured Creditor, namely, M/s Avron Chemicals Pvt. Ltd. (seen as Serial No. 47 of the list of the Unsecured Creditors as on 31.03.2011 in BIFR sanctioned order) has gone to the Hon’ble Supreme Court of India in SLP No. 12096 of 2016, arising out of Impugned Judgement dated 04.12.2015 in WP (C) No. 9320 of 2015 passed by the Hon’ble Delhi High Court. The Hon’ble Supreme Court of India vide its order dated 10.04.2018 heard the parties and refused to interfere in the impugned judgement and therefore, SLP was rejected by the Apex Court.

We further take into consideration Note No. 34 i.e., contingent liability and legal cases attached to the notes to financial statements for the period ended on 31.03.218 of the Corporate Debtor, where the claims of the Appellant in respect of export bill were treated by the Corporate Debtor as contingent claims and the Corporate Debtor reflected such claims of the Appellant at Rs. 24.98 Crores as on 31.03.2018.

We note that the Writ Petition (C) No. 9320/ 2015 was filed by the Corporate Debtor before the Hon’ble Delhi High Court, seeking direction under Article 226 and 227 of the Constitution for seeking of sanction BIFR scheme as contained in case no. 42 of 2009, which was under consideration of BIFR. We note that the Corporate Debtor contended before the Hon’ble Delhi High Court that BIFR was not functioning in the absence of members in the BIFR. The Hon’ble Delhi High Court vide its order dated 04.12.2015 approved the BIFR sanction scheme dated 04.12.2015.

We have already noted that this order dated 04.12.2025 confirming BIFR Scheme in respect of the Corporate Debtor of the Hon’ble Delhi High Court was challenged before the Hon’ble Supreme Court of India by one of other Unsecured Creditors- M/s Avron Chemicals, which was rejected by the Hon’ble Supreme Court of India on 10.04.2018. Thus, the BIFR scheme proposed and approved by the BIFR and rectified by the Hon’ble Delhi High Court vide its order dated 04.12.2015, stood confirmed at the highest level.

Now, in this background, we note that the whole controversy in the present case is regarding Appellant’s dues. According to Part IV of Section 9 petition filed by the Appellant before the Adjudicating Authority, the outstanding dues towards the export transactions was Rs. 17,00,05,876/- and due towards domestic transactions was Rs. 3,68,62,534/- along with the interest and outstanding dues towards non submission of Form – C of Rs. 3,57,76,081/-.

It is the case of the Appellant that since the outstanding dues were not paid by the Respondent, the Appellant issued demand notice under Section 8 of the Code on 20.03.2018 enclosing all details, invoices and calculations of the claims with details. It has been brought to our notice that the Demand Notice was replied by the Respondent vide letter dated 31.03.2018 denying any outstanding payable by the Corporate Debtor. It was contended by the Respondent that no dues are payable by the Corporate Debtor, since, contingent liability had not been crystalised and cannot be treated das even Unsecured liabilities.

The Respondent has also brought to our notice that the Appellant never raised any objections w.r.t to BIFR sanctioned scheme which has attained finality as the Hon’ble Supreme Court of India has refused to interfere with the Hon’ble Delhi High Court order sanctioning the BIFR scheme. On this point, we had put a pointed query to the Appellant and the Appellant had replied that since the Appellant was not a party before BIFR or the Hon’ble Delhi High Court or the Hon’ble Supreme Court of India, he did not have opportunity or reason in raise any objections. The Appellant further that contended as per BIFR scheme during such phase, the Appellant was not entitled to raise its objections.

The main bone of contention between the Appellant and the Respondent is w.r.t. to treatment of dues of the Appellant. We note that as per the sanctioned BIFR scheme, the Unsecured Creditor had two options which are reproduced as under :-

In this connection, we would like to reproduce the exact provisions of the sanctioned BIFR order dated 04.02.2025 as contained in Para 11.11 which reads as under :-

It is the case of the Appellant that the Appellant was never treated as Unsecured Creditors by the Corporate Debtor and the Appellant was reflected in Annexure VI (A) list for contingent liability payable by the Corporate Debtor on crystallisations.

The Appellant pleaded that, if he was to be treated as Unsecured Creditors, he had two options, either to accept the 25% of its claims and get paid in five equal annual installments or wait for seven years and claim full amount. The Appellant further argued that if the Appellant was treated as Unsecured Creditors by the Respondent, he should have been paid in five annual equal instalments from the date of sanction of BIFR order dated 04.12.2015. Thus, he should have paid the entire amount of 25% as claimed by the Respondent by 04.12.2020, which was not done by the Respondent as such, BIFR scheme failed by the Respondent.

The Appellant argued that on the contrary in case he was given option B with relation to Unsecured Creditors, he was having a window period of seven years to claim his 100% outstanding and this window would have been open to him after expiry of seven years from BIFR sanction order dated 04.12.2015 i.e., as on 04.12.2022.

The Appellant brought to our notice that the Adjudicating Authority vide its Impugned Order dated 13.02.2020, have given the reasoning only in para no. 8 & 9 and in para 10 directed the Corporate Debtor to make payment of Rs. 2,18,88,421/- within the time of 30 days from the date of receipt of the Impugned Order.

It is the case of the Respondent that the Respondent fully complied with the Impugned Order and since then, paid the full amount. On this point the Appellant submitted before us that he has received the money indicating ‘without prejudice’.

It is the case of the Appellant that the Adjudicating Authority could not have forced the Appellant to accept BIFR scheme in piece meal when the Appellant has sought the proceeding under Section 9 of the Code.

The Appellant vehemently argued that the BIFR Sanctioned Scheme was not made applicable for him. The Appellant argued that if the Sanctioned BIFR Scheme applied to him, then as per option no. 1, the Appellant should have been paid 5 equal annual installments within 5 years of BIFR sanctioned order i.e., he should have been paid by 04.12.2020, whereas the payment was made to him after the passing of the Impugned Order dated 13.02.2020.

We note that the Appellant’s argument is that BIFR order failed w.r.t. his payments as he was not paid on the basis of five equally annual instalments as per clause 11.11 of the BIFR sanctioned scheme dated 04.12.2015. As such, he cannot be compelled to accept the same. When he filed his petition u/s 9 of the code and the Adjudicating Authority has no jurisdiction to order the Appellant to accept BIFR payment as such belated time. The Appellant argued that the Adjudicating Authority is not empowered the equity jurisdiction. The Adjudicating Authority is only to determine existence of debt, default, absence of existence of pre-existing dispute and should have admitted the petition of the Appellant under section 9 of the Code.

At this stage, we would like to examine the rational used by the Adjudicating Authority while passing such directions.

The rational of the Adjudicating Authority is practically contained in para 8 to 10 of the impugned order which reads as under :-

(Emphasis supplied)

Based on the detailed arguments before us and the Impugned Order noted above, it is seem that the Respondent was to follow the BIFR scheme in toto and to make the payment as due and available towards the Appellant in five equal installment i.e., beginning from 04.12.2015, if Corporate Debtor considered the Appellant as Unsecured Creditor and not contingent liability. It is undisputed fact that the Respondent did not make any payment to the Appellant till the Impugned Order was pronounced by the Adjudicating Authority. The argument of the Respondent that in any case the Appellant would have been entitled maximum 25% of his claims does not hold any logic. If, Respondent treated the Appellant as Unsecured Creditor, he should have paid on annual basis which Respondent failed to do so. As such, the Appellant was not bound by the same and he was within his right to file Section 9 petition under the Code.

We hold that the Adjudicating Authority was duty bound to adjudicate on existence of debt, default and existence of pre-existing dispute if any, and if debt and default and no pre-existing dispute were confirmed then the Adjudicating Authority ought to have admitted Section 9 petition of the Appellant.

Forthwith, on the treatment of Appellant as contingent liability in the books of Corporate Debtor, we put a direct and pointed query to the Respondent as to how and under what circumstances the dues payable towards Appellant was shown under contingent. The Respondent merely answered that the same is reflected in the financial statement. The Respondent could not satisfy us as how the claims of the Appellant was contingent liability.

We would like to indicate that the Respondent also argued that the debt itself was not payable. If the argument of the Respondent is to be accepted, we wonder how the Adjudicating Authority could have directed the Respondent to make a payment of Rs. 2,18,88,421/- which could have been ordered only when debt was payable.

One of the another arguments of the Respondent before us was that since debt of the Appellant was contingent, the same was required to be crystallised before debt could have become due and such crystallisation could have been done by competent court of law. The Respondent, however, could not satisfy us, if this is the case, then why the due amount has been paid to the Appellant after the Impugned Order. As such, we do not accept the logic of the Respondent on the same issue.

The Respondent has also brought to our notice that the Hon’ble Supreme Court in case of Modi Rubber (Supra) has already settled the principals of law regarding validity of the order passed by BIFR in regard to the option being provided in the sanctioned scheme by it, which makes binding for unsecured creditors to accept the provision in relation of payment of the restructured or and to wait for a period of 7 years, till the scheme works itself out. On this issue we note that the facts of both the cases are different in the case of Modi Rubber (Supra) where Operational Creditor was clearly treated as Unsecured Creditors and there was no issue of contingent liability. In that sense, the Appellant, herein, was not treated as unsecured creditors at all but only as contingent liabilities under clause 11.11 of sanctioned BIFR scheme dated 04.12.2015.

Thus, for the reasons discussed before, the Appeal succeeds and the Impugned Order is set aside. The original petition bearing C.P. (IB) 1975/MB/2018 is restored back before the Adjudicating Authority. Both the parties are directed to appear before the Adjudicating Authority on 05.02.2026. The Adjudicating Authority, shall decide the said case afresh strictly in accordance with law. No cost. I.A., if any, are closed.