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Judgment
Per: Ms. Lakshmi Gurung, Member (Judicial)
This Petition was filed by Unity Small Finance Bank Limited (Petitioner/ Financial Creditor) to initiate Corporate Insolvency Resolution Process (CIRP) against M/s Excel Arcade Private Limited (Respondent/Corporate Debtor) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for an alleged default in repayment of loan.
As per the averments in the Petition, the Corporate Debtor approached the Punjab and Maharashtra Co-operative Society (PMC Society) with a loan application dated 12.08.2018 for availing a term loan of Rs. 100 crores for its business purpose. The same was sanctioned by the PMC Society vide Sanction Letter dated 01.09.2018.
Further, the Loan amount as mentioned above were secured through the following:
Prime security of Non-Agricultural Land situated at Village Shirgaon, Taluka Vasai, District Palghar, admeasuring 1,86,410 sq. mts. In the name of M/s Privilege Power and Infrastructure Pvt. Ltd.
Receivables/proceeds received from the sale of Land(s)/Ground situated at Survey No. 57, admeasuring about 73 Acres, Shamsguda Village, under Balanagar Mandal, Tahsil Office, Medchel Malkagiri District (Previously Ranga Reddy, District) Hyderabad, State Telangana (Formerly came under Andhra Pradesh state) by Housing Development and Infrastructure Ltd (HDIL)
Corporate Guarantee extended by M/s Privilege Power and Infrastructure Pvt. Ltd. And M/s Housing Development and Infrastructure Ltd.
Personal Guarantee of Mr. Rakesh Kumar Wadhawan and Mr. Sarang R. Wadhawan.
Hypothecation over stock/ stock in trade/book debts/consumer durable/vehicles/transport vehicles/ machinery/ equipment, short particulars by the Corporate Debtor Company.
All tangible movable machinery and plant (both present and future) whether installed or not, by the Corporate Debtor company.
It is submitted that the Corporate Debtor has paid a sum of Rs. 1,06,84,932/- and Rs. 19,65,96,986/- on two occasions, however, thereafter, the Corporate Debtor defaulted in repayment of the outstanding loan amount. Consequently, the PMC Bank issued notices dated 07.10.2019 and 24.06.2020 calling upon the Corporate Debtor to make the payment. Since the Corporate Debtor did not make the payment, the PMC Bank initiated arbitration proceedings against the Corporate Debtor in the year 2021.
In the meantime, on 25.01.2022, the Punjab and Maharashtra Cooperative Bank Limited (Amalgamation with Unity Small Finance Bank Limited) Scheme 2022 was notified by the Government of India whereby the amalgamation of PMC Bank with the Unity Small Finance Bank Limited (Petitioner/Financial Creditor) was notified.
Thereafter, the arbitration proceedings initiated against the Corporate Debtor concluded and an Arbitral Award dated 28.04.2022 was passed in favour of the Financial Creditor. However, the Corporate Debtor failed to make the payment and consequently, the Financial Creditor initiated execution proceedings before the Hon’ble Bombay High Court which is pending.
It is also submitted that Housing and Development Infrastructure Limited (HDIL) and Privilege Power and Infrastructure Pvt. Ltd., the guarantors to the Corporate Debtor, were admitted to CIRP vide order dated 20.08.2019 and 15.02.2023 respectively.
FINDINGS/OBSERVATIONS
Heard the Ld. Counsel and perused the documents placed on record.
Based on the averments, it is noticed that the PMC Bank (which got now merged with the Financial Creditor) had disbursed loan of Rs. 100 crores to the Corporate Debtor as per the terms and conditions set out in the sanction letter dated 01.09.2018. The Corporate Debtor defaulted in making interest payments and consequently, the PMC Bank sent various loan recall notices calling upon the Corporate Debtor to make the payment. Further, the PMC Bank had also initiated arbitration proceedings against the Corporate Debtor and the Arbitral Award dated 28.04.2022 was passed in favour of the Financial Creditor. Since no payment came forth from the Corporate Debtor, the present petition has been filed.
As per the records, the Registry as well as the Petitioner issued notices to the Corporate Debtor. However, during the hearing on 05.01.2024, Ld. Counsel appearing for the Petitioner submitted that all efforts to serve notice upon the Corporate Debtor have failed and this Tribunal permitted to serve notice through substituted mode by paper publication in newspaper. On the next date of hearing i.e. on 22.02.2024, the Financial Creditor filed a service affidavit attaching copy of newspaper cutting (English and Marathi) evidencing service by way of substituted mode. Further, the Financial Creditor has also served notice through email on 02.01.2024 at the email id of the Corporate Debtor which is mentioned on the MCA data. In view thereof, service was held to be completed. The Corporate Debtor was directed to file reply within three weeks.
The Corporate Debtor did not file any reply to the petition within the specified time period and the Corporate Debtor’s right to file reply was forfeited on 01.04.2024. Moreover, despite service, none appeared for the Corporate Debtor and the Corporate Debtor was set ex-parte on 01.05.2024.
This Tribunal, while hearing the Ld. Counsel for the Petitioner, noted that the date of default as per the application was 12.11.2018 whereas the present petition was filed on 08.11.2023. Thus, vide order dated 16.10.2024, the Petitioner was directed to address on the issue of limitation. Pursuant thereto, the Petitioner filed an additional affidavit dated 13.11.2024 and submitted the following documents:
Loan Recall Notices dated 07.10.2019, 24.06.2020 and 28.01.2021 issued by the PMC Bank calling upon the Corporate Debtor to repay the loan amount;
NeSL Report dated 04.09.2024.
Thereafter, the Corporate Debtor filed IA/624/2025 seeking recall of the ex-parte order dated 01.05.2024. After hearing both the sides, the said IA/624 was disposed of vide order dated 05.02.2025 with following observations and directions:
“3.It is observed from the records that on 22.02.2024 it was noted that the Financial Creditor has carried out the public paper publication and also served the Corporate Debtor through e-mail and hence it was recorded that the service of notice was complete. Thereafter, 3 weeks time was granted to the Corporate Debtor to file reply.
4.Despite opportunity granted to the Corporate Debtor none appeared on 01.05.2024 nor any reply was filed. Therefore, this Tribunal was constrained to pass the order setting the Corporate Debtor as ex-parte and the matter was posted for hearing on 24.06.2024. Thereafter the matter was heard substantially on 31.01.2025. Opportunity was granted to file written submission. We note that Section 7 petition was filed on 10.11.2023, and reply has not been filed even after expiry of 15 months.
5.At this stage the Corporate Debtor seeks to recall of the ex-parte order. It appears that this is merely to delay the proceedings under Section 7 which are time bound proceedings. Therefore, this Tribunal is not inclined to recall the ex-parte order.
6.However, in the interest of justice the Corporate Debtor is permitted to file written submission not exceeding 5 pages.
7.List on 10.02.2025 for written submission by parties.
8.With above observations I.A is disposed of.”
Subsequently, the Corporate Debtor filed written submissions and has raised following contentions:
The Corporate Debtor relies on and contends that arbitral award would give rise to a fresh period of limitation for initiation of CIRP and therefore, the date of default should be 28.04.2022 and not 12.11.2018. However, since the Financial Creditor, in its petition, has pleaded 12.11.2018 as the date of default, the Financial Creditor cannot now rely on the arbitral award, without any formal pleadings in the Application, for the purpose of extending the limitation.
The Corporate Debtor submits that the Hon’ble Supreme Court has emphasized that Form-1 filed by the Financial Creditor reflect the accurate and complete case, and once submitted, it is sacrosanct and becomes pleaded case of the Financial Creditor. Therefore, once section 7 petition is filed, the pleaded case of the Financial Creditor is binding and cannot be altered/amended except under exceptional circumstances but at the same time, they cannot affect the core facts relating to debt or default. Reliance is placed on K. Sashidhar vs. Indian Overseas Bank [(2019) 12 SCC 150].
In view thereof, it is submitted that since the date of default in the present case is pleaded to be 12.11.2018 which cannot be altered, the present petition is barred by limitation even after considering the extension granted by Hon’ble Supreme Court in Suo Moto Writ Petition No. 3 of 2020 judgment. Therefore, the debt herein has become time-barred.
It is further submitted that loan recall notices or One Time Settlements do not change the date of default and therefore the Financial Creditor cannot rely upon the loan recall notice.
We have duly considered the submissions of the Financial Creditor as well as the Corporate Debtor. Before going into the merits of the case, we deem it necessary to first consider the issue of limitation and date of default since the essence of the Corporate Debtor’s arguments is on limitation and date of default.
Ld. Counsel appearing for the Corporate Debtor argues that the date of default in the present case should be the date of the Arbitral Award, however, since the Financial Creditor has stated in the pleadings that the date of default is 12.11.2018, therefore, the present petition is hit by limitation. Ld. Counsel relies on Kotak Mahindra Bank Ltd. Vs. A. Balakrishnan & Anr. [Civil Appeal No. 689/2021] and the case of Dena Bank vs C. Shivakumar Reddy & Anr. [2021 SCC OnLine SC 543] to contend that the date of default should be the date of arbitral award.
We note that though the Financial Creditor in Part IV of the Petition has mentioned the date of default as 12.11.2018, the petition also mentions about the arbitration proceedings and the Arbitral Award dated 28.04.2022 is annexed to the Petition itself. Further, during the course of hearing, Ld. Counsel appearing for the Financial Creditor also made his submission that a fresh period of limitation starts from the date of passing of the Arbitral Award.
Per Contra, it is the case of the Corporate debtor that a categorical admission made in legal proceedings generally cannot be resiled or withdrawn as it is considered binding. Reliance is placed on Ramdas Dutta vs. IDBI Bank Limited [Company Appeal (AT) (Ins) No. 1285 of 2022].
This Adjudicatory Authority, while entertaining a petition under section 7 of the Code, has to examine whether debt and default are established and for this purpose, the Adjudicating Authority, besides hearing the parties, is also required to examine all the material placed on record to determine the admissibility of the petition.
We note that the amount of Rs. 100 crores was disbursed by the PMC Bank to the Corporate Debtor under a sanction letter dated 01.09.2018. As per the sanction letter, the loan carried an interest of 13% per annum. Further, repayment was to be made as per the following:
Repayment On Demand/ Permissible to repay in 60 Equated Monthly Instalments with Annual Review including moratorium period of 15 months. (Interest to be served during moratorium period)
As per the repayment schedule, the principal amount was payable either on demand or in 60 EMIs with moratorium period of 15 months. However, the said moratorium is not applicable for interest payments.
The loan recall notice dated 07.10.2019 sent by the PMC Bank to the Corporate Debtor indicates that the Corporate Debtor has defaulted in timely payment of interest. On continuing default by the Corporate Debtor, the PMC Bank initiated arbitration proceedings against the Corporate Debtor. The Ld. Arbitrator has passed the Arbitral Award dated 28.04.2022 in favour of the Financial Creditor.
The Financial Creditor has annexed the NPA Account Statement of the Corporate Debtor. As per the statement, the Corporate Debtor received the loan amount of Rs. 100 crores on 12.09.2018. The first monthly interest was due on 12.10.2018 and the Corporate Debtor had paid interest of Rs. 1,06,84,932 on 12.10.2018. Thereafter, the Corporate Debtor also made part payment of Rs. 19,65,96,986 on 31.10.2018. Thereafter, the Corporate Debtor failed to make pay interest for the next month and there onwards continued defaulting. Thus, default has been committed on 12.11.2018 i.e. the date of payment of monthly interest. The NeSL Report also states the date of default to be 12.11.2018. Further, the account of the Corporate Debtor was declared as NPA by PMC Bank on 12.02.2019. Thus, the date of default is 12.11.2018.
Considering that the date of default is 12.11.2018, we note that the period of limitation after taking into account the exclusion granted by Hon’ble Supreme Court in Suo Moto (supra) gets extended till 28.10.2023. In the meantime, the Arbitral Award dated 28.04.2022 was passed in favour of the Financial Creditor. It is no more res integra that an award or decree gives rise to a fresh cause of action and a fresh period of limitation. We refer to the observations of Hon’ble Supreme Court in Dena Bank (supra):
“130.In effect, this Court speaking through Nariman J., approved the proposition that an application under Section 7 or 9 of the IBC may be time barred, even though some other recovery proceedings might have been instituted earlier, well within the period of limitation, in respect of the same debt. However, it would have been a different matter, if the applicant had approached the Adjudicating Authority after obtaining a final order and/or decree in the recovery proceedings, if the decree remained unsatisfied. This Court held that a decree and/or final adjudication would give rise to a fresh period of limitation for initiation of the Corporate Insolvency Resolution Process.” (Emphasis Provided)
Following the ratio laid down by Hon’ble Supreme Court in Dena Bank (supra), the Arbitral Award has given the Financial Creditor a fresh cause of action and accordingly, a fresh limitation started from the date of the arbitral award, thereby extending the limitation. The present Petition has been filed on 09.11.2023. Therefore, we are satisfied that the present petition is within limitation.
Now moving on to the merits, we note that the Corporate Debtor in its written submissions has merely challenged the petition on its maintainability and has not denied the debt and default. It is apparent that the loan disbursement has never been in dispute between the parties. In fact, the Corporate Debtor has made interest and part payment towards the said loan on 12.10.2018 and 31.10.2018 respectively.
Moreover, the Arbitral Award dated 28.04.2022 clearly establishes the debt and default on part of the Corporate Debtor. We do not find any material placed on record to show that the Corporate Debtor had either discharged its liability or has preferred an appeal against the said arbitral award under section 34 of the Arbitration & Conciliation Act.
Also, the Financial Creditor by way of an affidavit has annexed the ‘Record of Default’ in Form D issued by the NeSL. The NeSL has remarked the default as ‘Authenticated’ showing date of default as 12.11.2018 and amount of default as Rs. 135,13,92,008.
It is a well-settled position that the Adjudicating Authority has to determine whether there is debt and default and if it is satisfied that a default has occurred, then the application under section 7 of the Code must be admitted unless it lacks other necessities as mandated thereunder. We are supported by the decision of Hon’ble Supreme Court in Innoventive Industries Limited vs. ICICI Bank and Anr [(2018) 1 SCC 407] wherein it was held as follows:
“28.… The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days receipt of a notice from the adjudicating authority.
30.On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”
Similarly, the Hon’ble NCLAT in M. K. Dhir vs. Punjab National Bank [Company Appeal (AT) (Ins) No. 453/2021, decided on 18.01.2022, held that “the criteria for initiation of the CIRP under the Code is limited to three things, (i) there is a debt due and payable in law and has not been paid, (ii) Default has occurred and (iii) Default is recorded with the Information Utility. In the present case, all the three criteria are met. The default amount is also above the threshold prescribed under section 4(1) of the Code. Hence, we are satisfied that the present Petition is maintainable.
In view of the facts and circumstances of the case and discussions hereinabove, the Company Petition bearing no. 1068 of 2023 is admitted and ordered as follows:
ORDER
The above Company Petition No. (IB) 1068 (MB)/2023 is hereby allowed and initiation of Corporate Insolvency Resolution Process (CIRP) is ordered against Excel Arcade Private Limited.
ii) The Petitioner has proposed the name of Mr. Vimal Kumar Agrawal, Registration No. IBBI/IPA-001/IP-P00741/2017-2018/11247, to be appointed as an Interim Resolution Professional (IRP) of the Corporate Debtor. The proposed IRP has filed his Written Communication dated 19.10.2023 in Form 2 as required under Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Written Communication is accompanied by AFA dated 25.12.2022. A revised AFA dated 19.12.2023 was also placed on record. Upon verification, we note that the AFA of the proposed IRP is valid upto 31.12.2025. Accordingly, we appoint Mr. Vimal Kumar Agrawal (vimal@vpagrawal.im) as the Interim Resolution Professional (IRP) to carry out the functions as per the Insolvency & Bankruptcy Code, 2016.
iii) The Financial Creditor shall deposit an amount of Rs. 5 Lakhs towards the initial CIRP costs by way of a Demand Draft drawn in favour of the Interim Resolution Professional (IRP) appointed herein, immediately upon communication of this Order. The IRP shall spend the above amount towards expenses and not towards fee till his fee is decided by the Committee of Creditors.
iv) There shall be a moratorium under section 14 of the Code prohibiting the following:
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 Securitization 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 supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.
vi) The provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
vii) The order of moratorium shall have effect from the date of pronouncement of this order till the completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under sub-section (1) of section 31 or passes an order for Liquidation of Corporate Debtor under section 33, as the case may be.
viii) The public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.
ix) During the CIRP period, the management of the corporate debtor will vest in the IRP/RP in terms of section 17 of the Code. The suspended directors and employees of the corporate debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP/RP.
The Registry shall send a copy of this order to the Registrar of Companies, Mumbai, for updating the Master Data of the Corporate Debtor.
xi) The Registry is further directed to communicate this order to the Financial Creditor, the Corporate Debtor and the IRP immediately.
xii) A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.
Accordingly, the Company Petition No. 1068 of 2023 is allowed.