Union Bank Of India & Ors. vs Rolta India Limited

Ld. counsel for the parties present. The matter is listed today under For Pronouncement of Orders. The Order is pronounced. The Company Petition against the Corporate Debtor is admitted and Ms. Mamta Binani is appointed as the Interim Resolution Professional of the Corporate Debtor. However, Ld. Counsel appearing for the Corporate Debtor Shri Ashish Kamat requested for stay of the said admission Order against the Corporate Debtor. Request is declined. Registry is directed to upload the Order immediately.

Per Coram:

This Company Petition is filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by Union Bank of India ("hereinafter referred to as Petitioners"), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Rolta India Limited ("hereinafter referred to as Respondent").

The Corporate Debtor is a Private Limited company incorporated on 27.06.1989 under Companies Act, 1956 with the Registrar of Companies, Maharashtra, Mumbai. Its registered office situated at Rolta Tower-A, Rolta Technology Park, 22^nd Street, MIDC-Marol, Andheri (East), Mumbai - 400093. Therefore, this Bench has jurisdiction to deal with this Petition.

The present Petition was filed before this Adjudicating Authority on the ground that the Respondent has defaulted in repayment of monies to the tune of Rs.1413,47,38,878/- (Rupees One Thousand Four Hundred Thirteen Crore Forty-Seven Lakh Thirty-Eight Thousand Eight Hundred Seventy Eight Only).

The Corporate Debtor is a company engaged in providing Manufacturers of Computer Aided Systems, Networking Services, and Export of Software Consultancy.

The date of Default is stated to be 31.01.2018, (Affidavit @ Page 437 forming part of Petition, particularly Para (i)@ Pg. 440 onwards) whereas the particulars of debt of the Petitioners is detailed as under:

In the year 2009, Rolta Industries Ltd has availed Working Capital Facilities "WCTL" aggregating to Rs.400 Crores from the Union Bank Consortium compromising Union Bank of India and Bank of India. The Financial Creditor) sanctioned Rs.200 Crores & Bank of India sanctioned Rs.200 Crores.

The Corporate Debtor has executed (i) Working Capital Consortium Agreement; (ii)Joint Deed of Hypothecation; & (iii) Inter se Agreement dated 26th December, 2009 in favour of consortium.

The Facilities were reviewed, enhanced, modified and renewed from time to time and on the terms and conditions as set out in the respective sanctions and duly agreed upon by the Corporate Debtor.

The Corporate Debtor has executed Copy of Deed of Hypothecation cum Charge on 27th October, 2016; Memorandum of Entry on the 3rd November, 2016; & Declaration of Mortgage by deposit of Title Deeds.

The Financial Creditor by its Letter of Sanction dated 26th September 2016 for Rs.240 crores (WCTL-I) and 19th June, 2017 for Rs.185.00 crores (WCTL-II), sanctioned the facilities, subject to the terms and conditions which were accepted by the Corporate Debtor in the Board Meeting held on the 24th October 2016 and 21 June,2017 respectively. (Exhibit Z1 & Z2).

By its further Revival Letter dated 25th May, 2018, the Corporate Debtor confirmed the liabilities. (Exhibit-Z6)

In the Joint Lenders meeting held on the 1 February, 2018,16th March, 2018, 17th May,2018 & 7th August, 2018, held between the Lenders and the Corporate Debtor to work out possibilities of settlement and revival of smooth financial working of the Corporate Debtor. The minutes of the Joint Lenders meeting are annexed as (Exhibits- Z7 to Z9).

The Applicant had filed a Company petition under section 7 of the IBC,2016 against the Corporate Debtor on the 10th September,2018 registered as 3561 of 2018. At the said time, the Corporate Debtor had filed a Writ Petition before the Hon'ble Supreme Court registered as WP No.237 OF 2019 challenging the Circular dated 13th February, 2018 of the Reserve Bank of India. The Hon'ble Supreme court by its order dated 2nd April, 2019 set aside the circular dated 13th February, 2018. The NCLT, by its order dated 1^st May,2019 dismissed the Company Petition filed by the Financial Creditor with liberty to file fresh Petition. The Financial Creditor by its Letter dated 23 January, 2019 addressed to the Corporate Debtor has recalled the financial assistance/facilities granted to the Corporate Debtor.

Thus, the Corporate Debtor, is indebted to pay to the Financial Creditor, an aggregate sum of Rs.1413,47,38,878.00 (inclusive of interest as on as on the 31.12.2019, in respect of Financial Facilities including the restructured Financial Facilities availed from Applicant/Financial Creditor.

The Financial Creditor relied upon the following documents to support and established the existence of debt, default and acknowledgement of debt:

The Respondent is opposing the admission of the Company Petition on the basis of the following grounds:

a. Petition is defective and incomplete;

b. Petition is filed without authorisation;

c. Power of Attorney is insufficiently stamped;

d. There is no proof of default;

e. Petition will derail the settlement process with strategic investors;

The key determinants for admission of an application under Section 7 of the Code are (i) debt and (ii) default. However, in the present case, the Petitioner has failed to disclose the date of default. Infact, the Present Petition is not only silent with respect to the date of default but is also misleading since it purports to be stating the date of default at Exhibit B-3 whereas no such document or exhibit is to be found in the annexed.

Under Section 7 of the Code read with Rule 4 of the AA Rules, an application for initiating CIRP against a corporate debtor must be in strict compliance with the requisites of prescribed Form 1 along with the accompanying documents in support thereof. Rule 4(1) of the AA Rules is given below for reference:

The Hon'ble Supreme Court of India in Innoventive Industries Ltd. vs ICICI Bank Ltd. (2018) 1 SCC 407 has held that the provision of Rule 4 of the AA Rules are mandatory and an application under Section 7 of the Code must contain the necessary particulars indicated in Form 1 given under the AA Rules ('said Form'). The relevant extract of Innoventive Industries Ltd. (supra) is reproduced for reference:

As per the Form prescribed under Rule 4 of the AA Rules, one of such necessary particulars is the "Date on which Default occurred" as required at Sr. 2 under Part IV of Form 1. The Present Petition fails to meet the test and standard under Section 7 since it is defective in form as well as substance, and as such is incomplete.

It is for these reasons that an applicant is required to bring a complete form with accurate details and such an applicant cannot rectify the deficiencies/defects/objections raised by the Corporate Debtor by way of supplying additional documents in the Rejoinder. This Hon'ble Tribunal is required to consider the Application which is filed in format and if it is found that it is complete and there is debt and default, it has to be admitted.

Under Section 7 of the Code read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [AAA Rules'], an application for initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor must be in strict compliance with the requisites of prescribed Form 1 along with the accompanying documents in support thereof. More particularly, under S. No. 5-Part I of Form 1 given under the IB (AAA) Rules, the Applicant is mandated to furnish details of 'person authorized to submit application' along with the documents proving such authorization.

In the present case, the Petition is filed by the Applicant on the strength of Power of Attorney dated 6th January 2018 executed by Mr. DC Chauhan & Mr. PR Rajagopal ("said Donees") in favor of one Mr. Ranjit Singh ('said Signatory").

Under Section 7 of the Code, an application for initiating insolvency process can either be filed by the financial creditor itself or by any other person on behalf of such financial creditor. Where the financial creditor is an artificial person, Section 7(1) has specified that the application can be filed on behalf of such financial creditors by such persons "as may be notified by the Central Government". Section 7(1) of the Code is reproduced hereinbelow for reference:

In exercise of powers under Section 7(1) of the Code, by way of notification dated 27th February 2019, the Central Government has notified that only the following persons can file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority, on behalf of financial creditor;

a. A guardian;

b. An executor or administrator of an estate;

c. A trustee (including a debenture trustee);

d. A person duly authorised by the Board of Directors of a company.

It is submitted that the Signatory is not a 'person authorized to submit application" as the said Power of Attorney holder cannot file proceedings for initiating corporate insolvency resolution process under the Code.

The Hon'ble National Company Law Appellate Tribunal has in the case of Palogix Infrastructure Private Limited vs. ICICI Bank Limited held as follows:

The above view of the Hon'ble NCLAT in Palogix (supra) has been approved and upheld by the Hon'ble Supreme Court of India in Rajendra Narrotam Sheth v Chandrprakash Jain (2022) 5 SCC 600. The relevant extract of the said judgment is as follows:

The Corporate Debtor taken defence that Powers of Attorney is insufficiently stamped and cannot be acted upon in addition to the aforesaid, as per the provisions of Section 18 of the Maharashtra Stamp Act, 1958 ("Stamp Act'), every instrument executed outside the State of Maharashtra ought to be stamped within three months after it has been first received in this State, Section 18 of the Stamp Act is reproduced hereinbelow:

Also, Section 34 of the Stamp Act further provides that any insufficiently stamped instrument cannot be admitted as evidence or be acted upon by any person or judicial authority. Section 34 of the Stamp Act is given below:

In Garware Wall Ropes Ltd. v Coastal Marine Construction & Engg. Ltd. (2019) 9 SCC 209, the Hon'ble Supreme Court, while interpreting the import and effect of an unstamped document, has laid down that an unstamped agreement is not a contract in the eyes of law, and hence unenforceable. The relevant paragraph from Garware Wall Ropes Ltd. (Supra) is reproduced herein below for reference:

As per Article 48 under Schedule I of the Stamp Act, a Power of Attorney 'authorizing one person to act in more than one transaction or generally' requires stamp duty of Rs. 500/- (INR Five Hundred Only). Since the Power of Attorney is insufficiently stamped the same can neither be acted upon nor be taken into account as evidence of any transaction by this Hon'ble Tribunal.

An application under Section 7 of the Code, unlike any pleading before a civil court, must present all necessary proofs and documents to evidence existence of debt, disbursement and default. An application under Section 7 of the Code is liable to be admitted only when the same supplies such proofs through solid documentary evidence, upon examination of which the adjudicating authority would be satisfied (without any inference of facts or presumption) that debt, disbursement and default demonstrably exist.

In the present case, the Petitioner has failed to produce documents and sufficient evidence which would establish existence of default or date of default. Infact, the Petitioner has failed to supply documentary evidence which would prove or demonstrate:

a. default has occurred with respect to the amount disbursed;

b. date on which default has taken place;

In the present case, the Petitioner has not produced any document or proof which would attest to the assertions with respect to default or the date of default for the purposes of the Code. The documents produced by the Petitioner do not prove any of the above factors, and thus lacks the necessary evidence which is required for admission. Hence, the Present Petition is liable to be dismissed on this count alone.

The existence of default and date of default are jurisdictional facts which are required to be established to maintain an application under Section 7 of the Code, and failure to establish such jurisdictional facts would render the Present Petition as not maintainable and this Hon'ble Tribunal would not have jurisdiction to entertain the Present Petition under Section 7 of the Code. Accordingly, the issue of maintainability is required to be determined by this Hon'ble Tribunal at the threshold without venturing into the merits thereof.

The ruling of the Hon'ble Supreme Court in the case of Vidarbha Industries Power Limited Vs. Axis Bank Limited [Civil appeal No. 4633 of 2021] is squarely applicable in the current case which warrants that Adjudicating Authority has to consider the grounds made out by the Respondent against admission, on its own merits.

A Joint Partnership Agreement ("JPA") was entered by the Respondent with Bharat Electronics Ltd. ("BEL"), a Govt. of India Undertaking to jointly bid and respond to the EOI of Ministry of Defence ("MOD") for Battlefield Management System ("BMS") Program of the Indian Army with share of 80% for BEL & 20% for Respondent. Hereto annexed and marked as Exhibit A is copy of the Joint Partnership Agreement.

On 25th February 2015, MOD selected consortium of BEL & Respondent for development of BMS project and instructions were given to start the process of prototype development. In fact, a press release dated 26th February 2015 was jointly released by BEL & Respondent announcing their selections as development agency for BMS project worth over Rs. 50,000 crores. Hereto annexed and marked as Exhibit B is copy of Letter of Selection dated 25th February 2015, and Exhibit C is copy of the Press Release 26th February 2015.

Due to sensitive nature of the Project and the systems / procedures to which Respondent and BEL were exposed, a Confidentiality Agreement dated 12th May 2016 was entered between MOD, BEL and Respondent for the execution of project BMS.

Pursuant to the Agreement entered, Respondent continued to develop software of BMS project from 2015 till end of 2018 during which period a team of MOD headed by serving personnel of rank Major General would visit the establishment and facilities of Respondent every fortnight to review the progress and cost being incurred for the Project. The MOD was endeavoring to complete the prototype of the Project by end of 2018, and thus was showing great urgency in the matter. In view of the above, the Respondent made investment of Rs. 3,800 Crores towards R&D without taking any bank facility by utilizing its surplus cash flows and the investments so made would were treated as Work In Progress (WIP) in the accounts of Respondent.

As per policy of MOD, once the prototype is submitted for final testing and acceptance, an amount equivalent to 80% of the project would be reimbursed by MOD. Therefore, the Respondent was expecting to receive more than Rs. 3,000 Crores by end of 2018. In this process, the Respondent also incurred huge liabilities from its bankers and financiers with the expectation that the same would be repaid once the windfall from the MOD is received at the conclusion of the prototype testing. Furthermore, after final testing of the prototype, MOD would have placed orders with Respondent for the BMS software modules in lots over next five years which would have aggregated to a total revenue stream of about Rs. 10,000 Crores.

Unfortunately, due to reasons beyond the control of the Respondent, the Project was foreclosed and addressed a letter dated 8th March 2019 to that effect. The above incident had totally jeopardized the financial health of the Respondent, and the Respondent had to write-off Rs. 3,836.37 crores of WIP which was BMS WIP in financial year ending 31st March 2019. Hereto annexed and marked as Exhibit F is copy of the Consolidated statement of profit and loss sheet.

Even after the hardships caused by the above development, the Respondent took steps to mitigate the loss and went out of its way to find a solution to the above issue. The respondent started looking for an investor which could realign its financial affairs, and thus was able to rope in Stream cast Technologies Limited ("Investor") which committed Rs. 5,500 crores to be invested in Respondent. Accordingly, a Restructuring Services Agreement ("RSA") was entered between Investor and Respondent on 6th August 2019 which provided for the terms and condition of such restructuring.

Due to onset of COVID by end of 2019 and beginning of 2020, the investor could not get certain statutory permissions which were required to make the above referred investment from European Central Bank. This unprecedented force majeure event (which was beyond the control of the Respondent) once against delayed the process of resolution.

To sort out the above roadblocks, another Agreement dated 23rd March 2022 was entered between Respondent, Investor and Jump Networks Inc. (USA) by which Jump Networks Inc. have taken over the responsibility of the Investor under the RSA Agreement since Jump Network (being a USA based company), do not require any statutory permission which was otherwise required by Investor. It is expected Jump Networks will start implementing RSA in third quarter of this financial year.

The Respondent is a going concern which is generating business and employment for thousands of employees. Furthermore, the Respondent being involved in various sensitive and strategic projects with MOD for defense and security purposes, the putting the Respondent through the rigors of Code would not only be prejudicial to the Respondent but also prejudicial to the overall security interest of the nation.

Broadly, there were two contentions raised by the Respondent in the present case.

The contentions deserve to be rejected inter alia for following reasons:

a. As far as the date of default is concerned, the date of NPA is taken as the date of default i.e., 31 January 2018. It is true that in the Form, the date of default was cross referred to an Annexure which remained to be exhibited. However, as demonstrated during the course of arguments, in the accompanying Affidavit to the Petition which was filed along with the Petition and as part of the Petition, it is clearly stated at page 436 that the date of default and the date of NPA is 31st January 2018. This Affidavit is at page 436 of the Petition.

b. The law demands that the account should be in default. It is not the case of the Corporate Debtor that they are not in default. It is further admitted that there is default and therefore a Resolution Plan was given to the lenders. Therefore, this contention holds no merits.

c. The other issue which was raised by the Corporate Debtor was with respect to Power of Attorney being insufficiently stamped. It is the case of the Corporate Debtor that the Power of Attorney is insufficiently stamped. This Tribunal is required to look into that whether there is a valid authorization in favour of the person filing an application before the Tribunal. It is also contended by the Corporate Debtor that no petition can be filed on the basis Power of Attorney by placing reliance on Palogix Infrastructure Pvt. Ltd. v/s. ICICI Bank Ltd. (2017 SCC OnLine NCLAT 266). The Respondent also relied upon the memorandum issued by the Ministry of Corporate Affairs to contend that Power of Attorney is not a valid instrument on the basis of which a Petition under Section 7 of the Code can be filed.

d. Therefore, on one hand it contended that the Power of Attorney is not sufficiently stamped and at the same time it is contended that the Power of Attorney is not a valid document on the basis which a Petition can be filed.

These contentions deserve to be rejected in view of the fact that the Hon'ble NCLAT in the very same judgment of ICICI Bank Ltd. has held as follows:

e. This judgment further came up for consideration before the Hon'ble Supreme Court in the matter of Rajendra Narrotamdas Sheth v/s. Chandraprakash Jain (2022) 5 SCC 600 (relevant paragraphs 12, 13, 14 and 15). The Hon'ble Supreme Court approved findings given in paragraph 41 of the judgment of the Hon'ble NCLAT. The Hon'ble NCLAT in case of a bank conclusively held that even if a Power of Attorney is not an instrument on the basis of which an Application under Section 7 can be filed, a Power of Attorney can always be treated as letter of authorization which permits an Application to be filed. Therefore, in the case of ICICI on which the Respondent relies, the Hon'ble NCLAT permitted a bank to maintain an application on the basis of Power of Attorney treating it to be an authorization letter authorizing its officer to file an application. On this ground itself, the contention deserves to be rejected.

f. The Hon'ble Supreme Court in fact, permitted an application filed on the basis of Power of Attorney in a bank's case which was issued on the basis of a resolution passed in 2008 which was much prior to the Code coming into force. This was treated as a valid authorization for the purpose of filing an application. The Hon'ble Supreme Court further held as follows:

g. In view of the above, the contention that there is no valid authorization deserves to be rejected. In fact, the document can be treated as authorization, if not Power of Attorney.

h. As far as the argument of stamp duty being insufficient, the same deserves to be rejected. This petition is not filed for enforcing any document or any right. This is filed for the purpose of initiating insolvency and what is required to be proved at this stage is the existence of a valid authorization to file a petition against the Corporate Debtor. There is no stamp duty prescribed for authorization to file a petition under Section 7. Pertinently, in insolvency matters, courts have time and again held that payment of stamp duty cannot be raised as an issue at the stage of admission. It is settled law that once the debt in default is proved and valid authorization is placed on record, the issue of sufficient or insufficient stamp duty will not arise. There is otherwise also no basis for this argument of insufficient stamp duty.

We have perused the records and heard the submissions of Ld. Counsel for both sides.

Firstly, the primary defence raised by the Corporate Debtor that the petition is incomplete and defective, the Petitioner has failed to state the date of default in Part IV of Form I. This Adjudicating Authority relies upon judgement of Hon’ble NCLAT in Bishal Jaiswal Vs. Asset Reconstruction Company (India) Ltd. Company Appeal (AT) (Insolvency) No. 385 of 2020 relevant paragraphs are as follows:

Accordingly, the date of default is 31.01.2018.

Secondly, the Ld. Counsel for the Respondent argues that the Power of Attorney holder cannot file an Application under Section 7 of the Code in furtherance of the same he has placed reliance on Palogix Infrastructure Pvt. Ltd. v/s. ICICI Bank Ltd. (2017 SCC OnLine NCLAT 266) and the Judgment of Hon’ble Apex court in Rajendra Narrotam Sheth v Chandrprakash Jain (2022) 5 SCC 600.

Per contra the Ld. Counsel for the Petitioner has taken us through the very same judgments relied upon by the Respondent. The relevant paragraphs are reproduced in Paragraph 50(d) & (f) supra wherein it is iterated by the Hon'ble NCLAT a Power of Attorney can always be treated as letter of authorization which permits an Application to be filed. The Hon'ble Supreme Court approved findings given in paragraph 41 of the judgment of the Hon'ble NCLAT in Paragraph 11 of Palogix Infrastructure Pvt. Ltd. v/s. ICICI Bank Ltd. Therefore, the present Petition is maintainable.

Upon perusal of the documents placed before us by the Financial Creditor it is evident that the amount was disbursed and the Corporate debtor has defaulted in repayment of the same. The tabulated chart of the documents annexed by the Petitioner is reproduced in Paragraph 15 supra.

The Hon’ble Apex Court in E.S. Krishnamurthy vs Bharath Hi-Tecch Builders (P) Limited 2022 3 SCC 161 has held as under:

Therefore, at this juncture it is essential to ascertain that the default has been committed in respect of a debt is due and payable. The Respondent in light of Vidarbha Industries Power Limited Vs. Axis Bank Limited [Civil appeal No. 4633 of 2021] has contended that discretion be exercised as the company is a going concern. The said judgement is not applicable in present case as the Hon’ble Apex Court in Vidarbha Industries has held that if there are good reasons to keep admission of the Corporate debtor in abeyance and the Corporate debtor has carved out a case against its admission on its own merits, this Adjudicating Authority can exercise its discretion.

However, in the present case the Corporate Debtor has miserably failed to carve out it case against admission into CIRP. Therefore, we are satisfied that exist a financial debt and default on the part of the Corporate Debtor in payment of the debt.

The application made by the Financial Creditors is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor

The Financial Creditor has proposed the name of Ms. Mamta Binani, Registration No. IBBI/IPA-002/IP-N00086/2017-18/10227, as the Interim Resolution Professional of the Corporate Debtor. He has filed his written communication in Form 2 as required under rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

It is, accordingly, hereby ordered as follows: -