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Judgment
The instant application was filed on 31.05.2024 by Union Bank of India (Applicant) under Section 7 of the Insolvency & Bankruptcy Code, 2016 (Code) r.w. Rule 4 of the Insolvency & Bankruptcy Code (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against M/s GEI Power Limited (Respondent) for the default amount of Rs. 31,33,49,707/-. The date of default as mentioned in part 4 of the application is 30.06.2013.
The Applicant is a bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The Respondent is a corporate entity engaged in the manufacturing of specialty structural items fabrication used for power industries, transmission towers, substation structures and subassemblies for power plants & oil plants.
The averments made by the Applicant in its petition and as presented/argued by the learned counsel for the Applicant are summarized hereunder:
The respondent approached the applicant in the year 2010 to avail financial assistance in the form of term loan amounting to Rs. 24 Crores, working capital loan of Rs. 6 Crores and also sought bank guarantee of Rs. 5 crores. The corporate guarantees for the same were extended by the Board of Directors of the respondent company.
The respondent was granted the said credit facilities, i.e., term loan amounting to Rs. 24 Crores and CC limit amounting to Rs. 6 crores on the terms and conditions as mentioned in the terms of sanction. The same were accepted by the Respondent by its letter dated 22.05.2010.
The said term loan also included Foreign Currency Term Loan (FCTL) of Rs. 7 crores for which a demand promissory note dated 03.02.2011 for the FCTL was also executed.
To secure the said credit limits the respondent and its guarantors executed several documents on 23.06.2010 such as Demand Promissory Note for the term loan facilities of Rs. 24 crores, for cash credit facility of Rs. 6 crores; Letter of continuity; Agreement for pledge of security for pledging 4 lakhs equity shares of the parent company (M/s GFJ Industrial Systems Limited) of the respondent; Term loan agreement; Personal guarantee by Director to secure the total financial assistance of Rs. 35 crores (term loan– Rs.24 crores, CC- Rs.6 crores and bank guarantee-Rs.5 crores); Corporate guarantee by Director to secure the total financial assistance of Rs. 35 crores etc.
The respondent and its guarantors deposited original deed of immoveable property- land situated at Plot No. 10, Industrial Area, Phase 2, Sallapur, Mandideep, District Raisen M.P., comprising of land building and other structures, plant and machinery, fixtures and fittings for creation of mortgage to secure the said financial assistance.
A new letter of guarantee was executed on 19.07.2010 to secure the total amount of Rs. 30 crores (term loan- 24 crores and CC- 6 crores) extended to the Respondent.
The credit limits were renewed/reviewed on 22.11.2011 at the request of the respondent. Further, at the request of the respondent the term loan of Rs.19 crores was restructured and sanctioned cash credit facility to Rs.6 crores vide sanction memo dated 14.01.2013.
The applicant and the guarantors on 17.05.2013 executed several documents such as demand promissory note for- CC amount of Rs.6 crores, loan amount of Rs.5,52,94,622/-, loan amount of Rs.12,51,62,352/-; hypothecation agreement of goods & debts; letter of undertaking not to alienate hypothecated goods etc. to secure the restructuring of the loan.
The applicant time and again through its letters reminded the respondent, its directors/promoters/ personal guarantors to repay the amount outstanding in the loan accounts. However, despite assurances given by the respondent, the respondent failed to pay the dues of the applicant. Thus the respondent defaulted on its loan instalments and accordingly the loan account of the respondent was classified as NPA on 30.06.2013 subsequent to which the applicant stopped debiting the interest in its loan account.
The applicant issued various notices dated 01.08.2013, 28.11.2013, 16.01.2015, 23.01.2015, 04.02.2015, 19.03.2015 & 05.12.2015 to the respondent. The applicant thereafter filed an application before the Hon’ble Debt Recovery Tribunal (DRT) in the year 2015 for recovery of its outstanding loan amount.
Since the respondent failed to repay the outstanding debt, the respondent is liable to pay the debt along with further interest from the date of NPA till its realization.
In this context defense placed by the Respondent in its reply dated 09.12.2024 and submission made thereon and as presented/argued by the learned counsel for the Respondent are summarized as under:
The project started by the Respondent has come to standstill and the substratum of the company has been lost completely. The balance sheet of the Respondent as on 31.03.2024 demonstrates that during the financial year the company accumulated losses amounting to Rs. 52,48,43,563/- wherein current year losses amounted to Rs. 3,85,48,975/-. There was no business or turnover in the Respondent for the year ended 31.03.2023 and 31.03.2024.
The balance sheet as on 31.03.2024 also reflects that Respondent has assets to the tune of Rs. 33,51,84,803/-, against which it has short-term borrowings, trade payable and other current liabilities amounting to Rs. 47,19,90,810/-; Rs. 4,11,10,608/- & Rs. 11,69,93,043/- respectively, total amounting to Rs. 63,00,94,461/-. Thus, the liabilities of the Respondent are more than its assets.
The balance sheet of the Respondent as on 31.03.2024 demonstrates that the Respondent has lost its substratum and that there is no possibility that the Respondent could be revived. Therefore, the Respondent does not object to the admission of the present application filed by the Union Bank of India.
We have heard learned counsel for the Applicant as well as the Respondent and have perused the material available on record. It is noted that applicant on 22.05.2010 sanctioned term loan amounting to Rs. 24 Crores and CC limit amounting to Rs. 6 crores to the Respondent, which was to be repaid by the respondent in 24 quarterly instalments commencing from April 2011. Subsequently, the credit limits were renewed on 22.11.2011 with the term loan at the outstanding level of Rs.21 crores and cash credit limit of Rs.6 crores. The respondent has also issued the demand promissory notes dated 03.02.2011.
It is noted that on 14.01.2013 the term loan was restructured to Rs.19 crores and cash credit facility to Rs.6 crores. The respondent executed copy of the balance and security confirmation letter on 17.05.2013 in favour of the applicant. The account of the respondent was declared NPA on 30.06.2013.
It is noted that the Respondent has placed no objection to the admission of the present application. The Respondent has admitted that the Company has lost it substratum and there are no chances of its revival, therefore, the Respondent has no objection even if the Respondent company is admitted into CIRP in accordance with the provisions of the Code.
As far as limitation is concerned the loan was sanctioned in the year 2010 which was to be repaid by the respondent in 24 quarterly instalments commencing from April 2011. Moreover, the respondent has placed on record its audited balance sheet for the Financial Year 2023-24, which reflects the debt of the applicant under the head long term borrowings. Thus, the sanction and disbursement of the loan is already substantiated by the relevant documents which are placed on record.
The balance sheet for the financial year 2023-24 would also lead to a conclusion that the debt has also been appearing in the balance sheets of the earlier years, though no such balance sheets are placed on record. The acknowledgement of such debt by the respondent in the balance sheets year after year would lead to extension of the limitation period. Accordingly, we are of the view that the present application is filed well within the limitation period.
Considering the above, we are of the considered view that it is undisputed that the applicant has sanctioned loan to the Respondent and that the same was acknowledged by the respondent in its audited balance sheet year after year. Thus, the claim of the Applicant stands established and there is a default in payment of the amount due to the Applicant without any dispute in existence. The default amount meets the threshold limit as per Section 4 of the Code and the application is well within the limitation.
In view of the facts, it is clear that the Respondent has defaulted in the payments of its debts. On the basis of the facts the application is otherwise defects free and on record. Accordingly, we admit this application and order as under:
ORDER
Corporate Debtor M/s GEI Power Limited is admitted in the Corporate Insolvency Resolution Process under section 7 of the Insolvency & Bankruptcy Code, 2016.
The moratorium under section 14 of the Insolvency & Bankruptcy Code, 2016 is declared for prohibiting all of the following in terms of Section 14(1) of the Code.
(a)the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
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;
the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
The order of moratorium shall have effect from the date of this order till the completion of the Corporate Insolvency Resolution Process or until this Adjudicating Authority approves the Resolution Plan under sub-section (1) of the Section 31 or passes an order for liquidation of Corporate Debtor Company under Section 33 of the IBC, 2016, as the case may be.
The Financial Creditor has proposed the name of the IRP, therefore, this Adjudicating Authority hereby appoints Mr.Jagdish Kumar having registration No.IBBI/IPA-001/IP-P00671/2017-18/11143 to act as an IRP under Section 13(1) (c) of the IBC, 2016.
The IRP so appointed shall make a public announcement of initiation of Corporate Insolvency Resolution Process (CIRP) and call for submission of claims under Section 15 as required by Section 13(1) (b) of the Code.
The supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period. The corporate debtor to provide effective assistance to the IRP as and when he takes charge of the assets and management of the corporate debtor.
The IRP shall perform all his functions as contemplated, inter-alia, by sections 17, 18, 20 & 21 of the Code. It is further made clear that all personnel connected with Corporate Debtor, its Promoter or any other person associated with management of the Corporate Debtor are under legal obligation under Section 19 of the Code extending every assistance and co-operation to the Interim Resolution Professional. Where any personnel of the Corporate Debtor, its Promoter or any other person, is required to assist or co-operate with IRP, do not assist or Co-operate, the IRP is at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing an appropriate order.
The IRP shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor Company’ and manage the operations of the Corporate Debtor Company as a going concern as a part of obligation imposed by Section 20 of the Insolvency & Bankruptcy Code, 2016.
The Financial Creditor is directed to pay an advance of Rs. 1,00,000/- (Rupees one lakh only) to the IRP within two weeks from the date of receipt of this order for the purpose of smooth conduct of Corporate Insolvency Resolution Process (CIRP) and IRP to file proof of receipt of such amount to this Adjudicating Authority along with First Progress Report. Subsequently, the IRP may raise further demands for Interim funds, which shall be provided as per Rules.
The Registry is directed to communicate a copy of this order to the Financial Creditor, Corporate Debtor and to the Interim Resolution Professional and the concerned Registrar of Companies, after completion of necessary formalities, within seven working days and upload the same on website immediately after pronouncement of the order.
The IRP shall also serve a copy of this order to the various departments such as Income Tax, GST, State Trade Tax and Provident Fund etc. who are likely to have their claim against Corporate Debtor as well as to the trade unions/ employee’s associations so that they are timely informed about the initiation of CIRP against the corporate debtor.
The commencement of Corporate Insolvency Resolution Process shall be effective from the date of this order.