UCO Bank vs K-Lifestyle & Industries Limited

The present matter is kept for pronouncement of order today.

The present matter i.e., CP (IB) No. 625 of 2018, filed under Section 7 of the Insolvency & Bankruptcy Code, is admitted.

The detailed order is recorded vide separate sheet.

[Per: Mr. Prasanta Kumar Mohanty, Member (T)]

The present I.B. Petition is filed by the Financial Creditor UCO Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as a "Code"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP" in Short) against the Corporate Debtor Company namely, K-Lifestyle & Industries Limited for the default committed by the Corporate Debtor in making repayment of the Cash Credit/Term Loan facility availed from the Bank. The Applicant (FC), UCO Bank is a Bank, incorporated under the provisions of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. The application has been filed by the duly authorised officer, Shri Arupananda Jena, Deputy General Manager, UCO Bank working for gain at its Flagship Corporate Centre Branch at 2, India Exchange Place, Kolkata-700001.

The Respondent Corporate Debtor (CD) Company, namely K-Lifestyle & Industries Limited was incorporated on 12/08/1987 with CIN: L74999DN1987PLC000035.

The nominal share capital of the Respondent (CD) Company is Rs.224,99,99,870/- (Rupees Two Hundred Twenty Four Crores Ninety Nine Lakhs Ninety Nine Thousands Eight Hundred Seventy Only) and the paid-up capital of the company is Rs.101,78,04,000/- (Rupees One Hundred One Crore Seventy Eight Lakhs Four Thousands Only). The Registered Office is situated at: 58-A, Dhanu Udyug Industrial Area, Piperia, Silvassa, Union Territory of Dadra & Nagar Haveli, PIN-396230, and the Corporate Office is situated at: Kamat Industrial Estate, 396, Veer Savarkar Marg, Prabhadevi, Mumbai-400025.

The main objects of the company, by which the Respondent (CD) Company is incorporated, are mentioned in the Memorandum of Association which are briefly mentioned as:

It is submitted that the Corporate Debtor is a borrower and enjoying credit facilities from July 2008 under a consortium arrangement with the Financial Creditors under the leadership of UCO Bank, and the other Financial Creditors are Punjab National Bank, Dena Bank and Bank of India as its Consortium Members (hereinafter referred to as its "Consortium Members Bank").

The Corporate Debtor duly accepted the terms and condition of such sanction/renewal in respect of the said Working Capital Cash Credit Limit as recorded in its Resolution dated 17/03/2010. To continue with the aforesaid renewed Cash Credit Facility, the Corporate Debtor on 23/04/2010 executed the documents in favour of the UCO Bank and other Financial Creditors, Punjab National Bank and Dena Bank (hereinafter referred to as "WC Consortium Member Banks") The following documents were executed by the Corporate Debtor:

It is submitted that the Consortium Member Banks confirmed in writing ceding first pari passu charge on current assets and second charge on fixed assets of the Corporate Debtor for the enhanced Cash Credit Limit as sanctioned by the Financial Creditor from Rs.30 Crores to Rs.60 Crores and Non Fund Based Limit from Rs.5 Crores to Rs.10 Crores. A copy each such letters are annexed and marked with Q, R & S in the paper book. The extend of the credit facilities granted by the financial creditors alone as per the last sanction are as follows:-

To collaterally secure the aforesaid credit facilities extended by the Financial Creditor in favour of the Corporate Debtor from time to time, the Corporate Debtor and its Directors/Guarantors created mortgage/charge of their immovable properties in favour the Financial Creditor as well as the other Consortium Member Banks on 28.04.2009 and 26.02.2010 and such charge has duly been registered with the office of ROC. From the aforesaid documents executed by the Corporate Debtor, the several securities created by it in favour of this Financial Creditor and other Consortium Member Banks are enclosed in a schedule being Annexure T of the paper book.

It is submitted that the Corporate Debtor availed the aforesaid credit facilities but failed to operate the said accounts in conformity with the terms and conditions on the basis of which the limit was granted and the Corporate Debtor started defaulting in repaying the outstanding/dues of the Principal and Interest and the account of the corporate debtor was declared as a non performing asset (NPA) on 31.01.2013. The dues of the financial creditor at that point of time (without interest, penal interest etc.) is as follows:-

The Corporate Debtor has defaulted payment and the date of default is 31.01.2013 as stated by the Petitioner Bank. (Page no. 13 of paper book).

The statements of accounts of the Corporate debtor have been filed and the Petitioner Bank has submitted a Certificate to this effect under Banker's Book of Evidence Act, 1891. (Page no. 354 to 355 of paper book). The Petitioner Bank has claimed their dues of Rs.231,29,11,859.67/- (Rupees: Two Hundred Thirty One Crores Twenty Nine Lakhs Eleven Thousands Eight Hundred Fifty Nine and Sixty Seven Paise only) as on 31/08/2018 as computed in the page no.325 of the paper book which is given below:

The Petitioner Bank, in support of its contentions has annexed the details of Financial Debt, Records and evidences of default including copies of all the sanction letters, the workings showing the amount claimed to be in default and its calculation in tabular form as on 31/08/2018.

The Financial Creditor, to substantiate their claim, has enclosed following documents: -

In the present matter, this Tribunal, vide its order dated 20/12/2018 had directed the Petitioner Bank to serve the notice of date of hearing to the Corporate Debtor and file the proof of service of notice before this Tribunal. Thereafter, the Respondent, Corporate Debtor appeared before this Tribunal on 18/02/2019 and sought time to file objections within two weeks.

The Learned Lawyer of the Applicant Bank(FC) filed Rebuttal documents, clarified their positions and put forth their arguments relying on the documents submitted by them, which were executed by the corporate Debtor. It was also clarified by the counsel for the Financial Creditor that the petition has been filed by the Financial Creditor for its own Limit Sanctioned.

It is further submitted that on perusal of Affidavit-in-Reply, it transpires that the main contention raised by the Corporate Debtor is that the present application is beyond the period of limitation and therefore the Corporate Debtor has prayed for dismissal of present petition.

It is submitted that the Corporate Debtor has failed to substantiate this averment and the same has been raised without there being any material to indicate that the present application is in the fact time barred. From the perusal of application, the applicant has produced relevant accounting documents including Balance Sheet and Audit Report of the Corporate Debtor to suggest that the liability towards applicant was shown by the Corporate Debtor in its accounts even for the financial year 2016-2017.

It is submitted that the applicant has also produced minutes of two meetings dated 14.05.2018 and 02.07.2018 to show that the Corporate Debtor had submitted a One Time Settlement Proposal for settlement of its dues and the same was deliberated in the above two meetings in the presence of representative of Corporate Debtor and the OTS came to be rejected by the Consortium of Financial Creditors.

It is submitted that a matter of abundant caution, the applicant also produced two letters written by Corporate Debtor dated 10.03.2018 and 29.03.2018 titled as Resolution Plan wherein they had given One Time Settlement Proposal for settlement of their liability. The said letters clearly amount to acknowledgment of the liability by the Corporate Debtor in terms of Section 18 of Limitation Act read with Section 25 of Indian Contract Act.

Therefore, the objection of limitation raised by the Corporate Debtor is not sustainable in the eyes of law and the present company petition is required to be admitted, as the Corporate Debtor has failed to make out any case against the admission of petition.

It is further submitted that the pursuant to the said default, the Financial Creditor has filed a Section 19 proceedings under the Recovery of Debts due to the Banks and Financial Institutions Act, 1993 in DRT I, Kolkata in 2014 but however till date no order of adjudication has been passed and the said proceedings is in progress.

The matter was taken up and heard both sides by this Bench on 20.12.2018, 18.02.2019, 15.04.2019, 25.06.2019, 16.08.2019, 06.09.2019, 10.10.2019, 22.10.2019, 05.11.2019, 18.11.2019, 20.11.2019, 02.12.2019 & 17.12.2019. On 17.12.2019 the matter was finally heard and both the counsels were granted liberty to submit their written submissions. The counsels of the Petitioner and the Respondent were present and put forth their submissions before the Bench.

Further, the following two IAs were filed by the Corporate Debtor in relation to the petition filed by the Financial Debtor under Section 7 of IBC.

ii) IA 714 of 2019 in CP(IB) 625 of 2018 filed by the K-Lifestyle & Industries Limited V/s. UCO Bank – The instant Interlocutory Application is filed by the Applicant (Respondent herein) under Section 60(5) of IBC, 2016 against the Respondent (Applicant Bank herein) with a prayer that –

The Counsel of the Petitioner argued against the relief sought for here and submitted their rebuttal on 18/11/2019 claiming that the application is not time barred and the Respondent has acknowledged the debts of the Financial Creditor in their Balance Sheet filed with ROC for the year 2016-2017.

It is a settled legal position that the pendency of Case before DRT/SARFAESI proceeding or other dispute does not prevent a Financial Creditor to trigger the C.I.R.P. because the nature of remedy being sought for under the provisions of the I.B. Code is “Remedy in Rem” in respect of the CD.

The Petitioner Bank has suggested the name of Insolvency Professional to be appointed, if this petition is allowed and the proposed I.R.P. has also given his affirmation/consent in writing, which is annexed with the present I.B. Petition.

The Petitioner Bank has submitted the documents duly executed by the Corporate Debtor and guarantors along with a Certificate under the Banker's Book of Evidence Act, 1891, in support of their IB Petition for initiation of C.I.R.P. (Page no. 354-355 of paper book).

The Cash Credit limit and Term Loan were sanctioned and released by the Petitioner Bank and the same was availed by the CD, K-Lifestyle & Industries Limited. The Charges have been registered by the CD with the ROC in favour of the Petitioner Bank along with other consortium member Banks on 28/04/2009 and 26/02/2010. The charges are yet to be satisfied.

The CD has defaulted in making repayment of Term loan/credit facilities to the Petitioner Bank and the date of default is 31/01/2013. The Statement of accounts submitted by the applicant Bank confirm the debt was due and default has been committed by the Corporate Debtor.

The Petitioner Bank has filed the petition within the period of limitation, as the Corporate Debtor has acknowledged its debts to the Financial Creditor in its Balance Sheet filed with the ROC in the year 2016-2017 which ultimately extends the Limitation period upto 31/03/2020 when the petition has been filed on 05/11/2018.

Documents submitted by the Financial Creditor show that the detailed Resolution Plans have been submitted on 10/03/2018 and 29/03/2018 by the Corporate Debtor wherein they have mentioned that the Board of Directors of the Corporate Debtor have requested to the Financial Creditor to accept their OTS with interest at 4% simple from the date of NPA to the revised cut-off date i.e. 28/02/2018.

The Respondent filed IA 678 of 2019 in CP(IB) 625 of 2018 with a prayer to discard this petition filed by the Financial Creditor under Section 7 as the same has been filed with malicious intend but the facts and documents submitted by the petitioner suggest otherwise and filing of this petition with malicious intent is not found.

The Respondent Company also filed another IA 714 of 2019 in CP(IB) 625 of 2018 with a prayer that the application filed under Section 7 by the Financial Creditor be rejected on the ground of Limitation but the Corporate Debtor has acknowledged the Debt of the Financial Creditor in their Balance Sheet of 2016-2017, which extends the Limitation period upto 31/03/2020 besides their Resolution Plans submitted to the Financial Creditor on 10/03/2018 and 29/03/2018 for consideration.

Income Tax Department, Government of India, Office: Room No.1906, 19th Floor, Air India Building, Nariman Point, Mumbai-400021 has submitted a letter dated 16/09/2019 to this Registry with a request to intimate them, if IRP is appointed so that they can lodge their claim of Rs.33,81,32,467.00 being the outstanding demand made against the Corporate Debtor under different Sections of I.T. Act for the assessment year from 2007-2008 to 2014-2015.

The present I.B. Petition is filed by the duly authorised official of the Financial Creditor in a prescribed format under Section 7 of the I.B. Code annexing copies of loan documents confirming the existence of debt due and defaulted and proposed a name of Resolution Professional to act as an Interim Resolution Professional (IRP).

Balance Sheet is the Sacrosanct document of the Corporate Debtor Company which shows the Assets and Liabilities of the company prepared by the Company at the end of every Financial year, approved by the Board, placed in Annual General Meeting for approval and thereafter the said Balance Sheet is signed by the Chairman/MD & CEO/Director/Company Secretary filed with ROC as statutorily required under Section 92(4) of the Companies Act 2013 within sixty days from the date of Annual General Meeting. Once the Liability to the Financial Creditor is shown in the Balance Sheet of the Corporate Debtor it extends the Limitation period for another 3 year form the date of the Balance Sheet and The Adjudicating Authority need not look for any other document with regard to the availability of the Limitation period.

Considering the material, papers filed by the Petitioner Bank, arguments of both sides and the facts mentioned in the Para No. 21, 21.1, 21.2, 21.3, 21.4, 21.5, 21.6, 21.7, 21.8 & 21.9 this Adjudicating Authority is satisfied that,

- (a) The Corporate Debtor availed the Term Loan/Cash Credit facilities from the Financial Creditor. - (b) Existence of debt is above Rs. One Lakh - (c) Debt is due; - (d) Default has occurred on 31.01.2013;

Hence, the present IB Petition is admitted with the following Directions/observations. The date of admission of this petition is 05/02/2020.

The Respondent filed IA 678 of 2019 in CP(IB) 625 of 2018 with a prayer to discard this petition filed by the Financial Creditor under Section 7 as the same has been filed with malicious intend but the facts and documents submitted by the petitioner suggest otherwise and filing of this petition with malicious intent is not found. Hence, the prayer made in this IA is rejected.

The Respondent Company also filed another IA 714 of 2019 in CP(IB) 625 of 2018 with a prayer that the application filed under Section 7 by the Financial Creditor be rejected on the ground of Limitation but the Corporate Debtor has acknowledged the Debt of the Financial Creditor in their Balance Sheet of 2016-2017, which extends the Limitation period upto 31/03/2020 besides their Resolution Plans submitted to the Financial Creditor on 10/03/2018 and 29/03/2018 for consideration. We do not find any merit in this IA. Hence, the prayer of the Corporate Debtor made in this IA is rejected.

This Adjudicating Authority hereby appoints, as proposed, Mr. Ajit Kumar, having Insolvency Professional Registration No. IBBI/IPA-003/IP-N00062/2017-18/10548, Email ID: [email protected], Address: 1A, Sanskriti Apartment, GH-22, Sector 56, Gurgaon 122011, India as an Interim Resolution Professional. The Interim Resolution Professional is further directed to make public announcement of moratorium in respect of Corporate Debtor soon after receipt of an authenticated copy of this order. The IRP is also to act further as per the order/directions issued by this Adjudicating Authority and to follow the provisions Under Section 13 and 14 and other relevant provisions of the Insolvency and Bankruptcy Code 2016.

As per the provisions of Section 13 and 14 of the I.B. Code on the date of commencement of insolvency, this Adjudicating Authority declares moratorium with effect from today for prohibiting all of the following, namely: -

The IRP is hereby advised to adhere the timeline as stipulated for completion of the Corporate Insolvency Resolution Process ("CIRP" in short) and perform the duties as specified Under Section 17, 18, 20 and 21 of I.B Code. The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, in Section 15, 17, 18, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the 'Code', Rules and Regulations. It is further made clear that all the personnels connected with the Corporate Debtor, its promoters or any other persons associated with the management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the 'Corporate Debtor'. In case there is any violation, the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing an appropriate order. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the 'Corporate Debtor' as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

It is also observed that the Petitioner Bank has claimed total Rs.231,29,11,859.67 i.e. Principal amount is Rs.131,01,01,229.72 and undebited/unapplied interest amount is Rs.100,28,10,629.95. One of the prime objectives of the Insolvency and Bankruptcy Code, 2016 is to find out a viable Insolvency Resolution Plan in time for the Corporate Debtor and in order to have a Resolution Plan Viable, feasible and implementation successful, in the era of Minimum Cost of funds based Lending Rate ("MCLR" in short)/Repo Linked Interest Rate/Interest Rate Falling Regime and Competitive market condition, the Committee of Creditor(s) (COC) may explore, while finalizing the Resolution Plan for the Corporate Debtor, the possibility of loading maximum interest at the Applicant Bank's Base Rate (BR) +1% from the date of default to the date of implementation of MCLR and further from the date of implementation of MCLR till the date of approval of the Resolution Plan at the interest rate of Petitioner Bank's One Year MCLR or One Year MCLR +1% without any penal /overdue interest.

The Registry is hereby directed to communicate the authenticated copy of this order to the Financial Creditor, Corporate Debtor Company, the I.R.P and also to the Registrar of Companies, Gujarat immediately through speed post / registered post.

The Registry is also directed to communicate the Income Tax Department about the commencement of CIRP and appointment of IRP so that they can lodge their claim, if otherwise they are entitled under the IBC 2016.

Thus the present I.B petition filed Under Section 7 of the IBC stands admitted on 05/02/2020 with the above Observations and Directions.