Unity Small Finance Bank Limited vs Privilege Industries Ltd.

Per: Anuradha Sanjay Bhatia, Member (Technical)

This Company Petition is filed by Punjab & Maharashtra Co-operative Bank Ltd (hereinafter called “Petitioner”) seeking to initiate Corporate Insolvency Resolution Process (CIRP), against Privilege Industries Ltd. (hereinafter called “Corporate Debtor”) alleging that the Corporate Debtor committed default on 30.06.2012 to the extent of Rs. 103,52,99,832.53/- inclusive of interest and charges. This Petition has been filed by invoking the provisions of Section 7 Insolvency and Bankruptcy Code, 2016 (hereinafter called “Code”) read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The captioned Petition was originally filed through the Administrator of Punjab and Maharashtra Co-operative Bank Limited (“PMC”) which has now merged with Unity Small Finance Bank by way of a scheme of amalgamation approved and notified by the Reserve Bank of India (RBI) on 25th January 2022. Pursuant thereto, an Interim Application being 624 of 2022 was preferred before this Hon’ble Tribunal to bring Unity Small Finance Bank on record. The said Application has been allowed by this Tribunal vide its Order dated 11th March 2022. Pursuant thereto, the name of Unity Small Finance Bank (“Applicant”) has been substituted in place of PMC.

In the requisite Form-1, under the head “Particulars of Financial Debt” the amount claimed to be in default is Rs. 103,52,99,832.53/- inclusive of interest and charges. The details of the same are as follows:

The listed documents annexed by the Petitioner on which the Petitioner relied are as follows:

a. A copy of the Bank Sanction Letter dated 04.11.2011 for Bank Overdraft limit upto Rs. 35 Crores

b. A Copy of the Sanction Letter dated 07.01.2013 for Bank Overdraft limit of additional Rs. 10 Crores.

c. A Copy of the Certificate of the Financial Creditor under the Banker’s Book Evidence Act.

d. A copy of the final notice to the Corporate Debtor dated 07.10.2019 before taking action under SERFAESI.

e. A copy of the letter from the Corporate Debtor dated 23.10.2019 for request of One Time Settlement.

f. A copy of the letter from the Financial Creditor dated 04.11.2019 for refusal of One Time Settlement.

g. A copy of the record of default registered with NESL.

h. A Copy of the Bank Statements of overdraft account from 15.01.2009 to 31.03.2015.

j. A Copy of balance confirmation letter dated 07.08.2019 and 11.07.2018

The Petition reveals that the Corporate Debtor is in the business of manufacturing of beverages and had approached the Petitioner with the request for the overdraft facility. The Petitioner had opened the overdraft account having overdraft account number 002140700010307 and had started extending the overdraft facility with effect from 15.01.2009. The sanction letter, issued on 04.11.2011 for Rs. 35 crores and an enhancement of Rs. 10 crores, issued on 17.01.2013, totalling to a total sanction of Rs. 45 crores were placed before us. The enhanced sanction amount of Rs 10 crores were secured by a mortgage deed dated 07.02.2013. The Petitioner submitted that a substantial amount of overdraft facility in form of overdraft was extended from 15.01.2009 to 31.03.2012, to the extent of Rs. 35.49 crores. The Corporate Debtor defaulted on 30.06.2012 breaching the overdraft sanction limit of 35 crores and had consistently failed to service the account. Subsequently, the overdraft account of the Corporate Debtor become Non-Performing Asset (NPA) on 30.09.2012.

Initially, the captioned Petition was filed by the Administrator of Punjab and Maharashtra Cooperative Bank (PMC). Thereafter, the Reserve Bank of India (RBI) vide Order dated 25th January 2022 sanctioned the scheme of amalgamation of PMC with Unity Small Finance Bank Limited. Accordingly, Application was preferred before this Hon’ble Tribunal for amendment, and Order allowing the amendment of cause title was passed by this Hon’ble Tribunal on 21st April 2022.

Applicant submits that the default occurred on 30th June 2012. It is also submitted that the claim is well within the period of limitation.

In order to substantiate the claim in the Petition, the Applicant has placed reliance on Sanction letters dated 04th November 2011 and 17th January 2013, Demand Promissory Note dated 04th November 2011, letter of continuing security for Rs. 35 Crores dated 04th November 2011 and Letter of Guarantee dated 04th November 2011. The Applicant has also placed reliance on registered mortgage deed dated 17th February 2013. It is also contended that there was disbursement made as late as on 6th March 2013 by PMC to the Corporate Debtor.

The Applicant has also placed reliance on the Balance Sheets of the Corporate Debtor for the financial years 2014-2015 and 2016-2017. These balance sheets record admission of part of the liability of the Corporate Debtor as claimed in the Petition. It is further submitted that between 12th September 2018 to 17th September 2018 payment of Rs. 33 Crores was made by the Corporate Debtor to PMC.

In addition to the above the Corporate Debtor has addressed letters confirming the balance due to PMC from time to time. Applicant places reliance on Balance confirmation letters dated 11th July 2018, for Rs. 106.75 Cr. and 07th August 2019 for Rs. 85.67 Cr. as issued by the Corporate Debtor. It is in view of the aforesaid documents that it is submitted that the claim is acknowledged from time to time.

Moreover, PMC had issued a notice dated 7th October 2019 to the Applicant. The Applicant places reliance on the reply given by the Corporate Debtor to this notice whereunder the Corporate Debtor has admitted that the loan is reflecting in the Balance Sheets and that the same is duly secured. Relevant extract of the letter is reproduced hereinbelow-

Since the Corporate Debtor had failed to make the payments of the debt, hence this petition is filed to initiate the CIRP against the Corporate Debtor.

The Corporate Debtor vide its Affidavit in reply (“Reply”) dated 25.08.2021 had denied each and every contention, allegation and averment contained in the Petition.

The Corporate Debtor submits that the Petitioner had failed to place on record a copy of the first sanction letter for sanctioning an overdraft limit of Rs. 30,00,00,000/-, which is not acceptable given that the Petitioner is a financial institution, required to have all necessary records.

The Corporate Debtor further submits that the said Overdraft loan account of the Respondent was declared NPA as on 30.09.2012, Hence, this petition is not maintainable.

The Corporate Debtor submits that in the additional affidavit filed by the Petitioner it is stated that there were payments made on regular basis by the Respondent and the last payment was made on 17.09.2018, is vague and does not specify when these ‘regular payments’ were made. The Corporate Debtor further submits that no payments were made at all between July 2012 and September 2018. While certain payments were made between 12.09.2018 and 17.09.2018, which would not have the effect of reviving the claim in accordance with the provisions of Section 19 of the Limitation Act, 1963.

The Corporate Debtor submits the tabulation chart of the ‘regular payments’ made from July 2012 and September 2018 as below:

Additionally, as per the contents of Part IV of Form 1 filed by the Petitioner, the principal amount/sanctioned amount is mentioned as Rs. 45,00,00,000/-, however, the Bank Statement/ Ledger annexed to the Petition shows that the sanction amount as on 23^rd February 2013 is Rs. 42,00,00,000/- which demonstrates that there are discrepancies pertaining to the amount of the purported financial debt and that the same is not crystallized.

In light of the above-mentioned facts and circumstances, it is prayed that this Hon’ble Tribunal may be pleased to dismiss the captioned Petition.

Upon perusal of the Petition and after hearing both the parties, it is an undisputed fact that the Petitioner had sanctioned an overdraft facility to the Corporate Debtor vide sanction letter dated 04.11.2011 and 17.01.2013, for an amount of Rs. 35 crores and 10 crores respectively. However, the Corporate Debtor was not able to repay the amount and an amount of Rs. 103,52,99,832.53/- (Including Interest) is due and outstanding.

In the light of above pleading, the substantial issue that needs to be decided by this Bench, in the matter, is whether the Financial Debt is barred by the limitation.

The learned counsel of the Petitioner has placed reliance on Sanction letters dated 04th November 2011 and 17th January 2013, Demand Promissory Note dated 04th November 2011, Letter of continuing security for Rs. 35 Crores dated 04th November 2011 and Letter of Guarantee dated 04th November 2011. The learned counsel of the Petitioner has also placed reliance on registered mortgage deed dated 17th February 2013. It is also contended that there was disbursement made as late as on 6th March 2013 by PMC to the Corporate Debtor.

The Petitioner has further placed reliance on the Balance Sheets of the Corporate Debtor for the Financial Years 2014-2015 and 2016-2017. These balance sheets record admission of part of the liability of the Corporate Debtor as claimed in the Petition. It is further submitted that between 12.09.2018 to 17.09.2018 payment of Rs. 33 Crores was made by the Respondent.

The learned counsel of the Petitioner has placed reliance on the reply given by the Corporate Debtor, to the notice dated 07.10.2019, issued by PMC Bank. In its reply dated 23.10.2019, the Corporate Debtor has admitted that the loan is reflecting in the Balance Sheet and same is duly secured. Relevant extract of the letter is reproduced below-

The learned counsel of the Petitioner relied on following table to substantiate that the claim is within limitation and there is extension from time to time –

The learned counsel for the Petitioner further submits that even if there

is no acknowledgment of liability, there is promise to pay the debt by

executing various documents in the subsequent years i.e.,

acknowledgment of debt in the form of balance confirmation letters,

dated 11.07.2018 and 07.08.2019. These documents executed between

the Petitioner and the Respondent are in the nature of contract between the parties to pay a time barred debt under Section 25(3) of Indian

Contract Act, 1872 which is reproduced hereinbelow –

The Petitioner has relied on the judgment of Hon’ble NCLAT Edelweiss

Assets Reconstruction Company Limited Versus Nishiland Park

Limited, Company Appeal (AT) (Insolvency) No. 528 of 2021, Relevant

extract is reproduced hereunder-

It is thus the Petitioner’s case that in view of the judgment of Hon’ble

NCLAT even if there is default and no acknowledgment, promise to pay

time barred debt as explained hereinabove is sufficient to pass order of

admission.

The date stated in the Petition is correct date of default. However, this

default was declared in 2019. Corporate Debtor who has availed the

facility, has signed documents after 2012 and has also given

acknowledgments after 2012, cannot be now permitted to contend that

the default took place in 2012 and therefore the Petition is barred by

limitation.

The Petition even otherwise satisfies that there were acknowledgments

from time to time. There are acknowledgments in balance sheets as well

as balance confirmation letters. Balance Sheet acknowledgment is also

admitted in the letter dated 23rd October 2019 addressed by the

Corporate Debtor. It is therefore now not open for the Corporate Debtor

to contend that the liability is not admitted or the same is time barred.

As far as argument of the Corporate Debtor that different stands are

taken at different points in time is concerned, the same has no bearing.

There are no inconsistent stands which are taken. Initially when the

Petition came to be filed it was contended by the Applicant that it is well

within the period of limitation. Then Corporate Debtor filed its objection

contending that it is barred by limitation and in response to the same, it

was initially contended that it is not barred as though the default

occurred in 2012 it came to knowledge only in 2019. Thereafter, on

Applicant having found the Balance Sheets, placed the same on record

and contended that in any case there are acknowledgments from time to

time, accordingly it is not barred by limitation. Further, the Applicant

contended in light of the recent judgment in the matter of Nishiland Park

that even Section 25 of the Contract Act comes to the rescue of Applicant.

These are not inconsistent stands but alternate arguments to

demonstrate that the Petition is maintainable.

In so far as the objection to filing of additional documents by the

Applicant after filing of the Petition is concerned, it is submitted that it

is well settled by the Hon’ble Supreme Court in the matter of Dena Bank

(now Bank of Baroda) v. C. Shivakumar Reddy and Another, (2021)

10 SCC 330 that there is neither any bar in law to the amendment of

pleadings in an Application under Section 7 or the filing of additional

documents, nor is there any prescribed time limit for the same.

Therefore, the Applicant was at liberty to place the documents on record

by way of an additional Affidavit.

The Petitioner has relied on S.S. Ghulam Mohiuddin Vs. S.S. Ahmed

Mohiuddind, 1971 (1) SCC 597 wherein the Hon’ble Apex Court has

held that the period of limitation ought to be calculated from the date of

discovery of the fraud by the Person affected by the fraud. Therefore, in

view of the above judgement and perusal of Section 17 of the Limitation

Act, 1953, coupled with the fact that the transaction documents

executed between the parties and the fraud came to be discovered by the

Petitioner in the year 2019. Along with this the execution of the

transaction documents also obligates the Respondent to pay a time-

barred debt as per provisions of Section 25 (3) of the Indian Contracts

Act, 1872. In view of the above, the Ld. Counsel for the Petitioner has

satisfied this Bench that the present Petition is not hit by the bar of

limitation. The relevant extract is below –

The Petitioner has also produced the Bank Statements at Annexures 11

and 12 of the company petition 1330 of 2020, substantiating the claim.

These statements of the accounts are further supported by certificate

annexed at Annexure 13 the company petition 1330 of 2020. NESL

Report is placed at Annexure 27 the company petition 1330 of 2020. This

Petition is therefore complete in all aspects and the same shall be

admitted.

The Bench further notes that Section 18 of the Limitation Act 1963

mentions the following: -

Further, the explanation of this section mentions ….

Therefore, this Bench is of view of that the there is an acknowledgement

of liability by the Corporate Debtor vide balance confirmation

certificate dated 07.08.2019 and 11.07.2018, which were duly signed

by the Corporate Debtor. Further, the Corporate Debtor in its reply has

also provided a tabulation chart of the ‘regular payments’ made by it

from July 2012 till September 2018, confirming the payments made on

account of the outstanding debt and also issued a letter dated

23.10.2019 for the request of One Time Settlement (OTS) with the

Petitioner however the same was rejected by the Petitioner vide letter

dated 04.11.2019.

Considering the above facts, we come to conclusion that the nature of

Debt is a “Financial Debt” as defined under section 5 (8) of the Code. It

has also been established that there is a “Default” as defined under

section 3 (12) of the Code on the part of the Debtor. The two essential

qualifications, i.e., existence of ‘debt’ and ‘default’, for admission of a

petition under section 7 of the I&B Code, have been met in this case. The

Petitioners have also suggested the name of proposed Interim Resolution

Professional in Part-3 of the Petition along with his consent letter in

Form-2.

As a consequence, keeping the aforesaid facts in mind, it is found that the

Petitioner has not received the outstanding Debt from the Corporate

Debtor and that the formalities as prescribed under the Code have been

completed by the Petitioner, we are of the considered view that this

Petition deserves ‘Admission’ by passing the following:

a. The above Company Petition No. 1330/IBC/MB/2020 is hereby

allowed and initiation of Corporate Insolvency Resolution Process

(CIRP) is ordered against Privilege Industries Ltd.

b. The IRP proposed by the Financial Creditor, Mr. Devendra Prasad,

having registration No. IBBI/IPA-002/IP-N00436/2017-

2018/11271, having address at Flat-1304. A Wing, Raheja

Ridgewood, Near Nesco, Goregaon (East), Mumbai -400063, having

email id - dp195709@gmail.com is hereby appointed as Interim

Resolution Professional to conduct the Insolvency Resolution Process

as mentioned under the Insolvency & Bankruptcy Code, 2016.

c. The Petitioner 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 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 CoC.

d. That this Bench hereby declare moratorium in terms of Section 14 of

Insolvency and Bankruptcy Code, 2016 prohibiting 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.

e. That 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.

f. That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.

g. That 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.

h. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.

j. Registry shall send a copy of this order to the Registrar of Companies, Mumbai, for updating the Master Data of the Corporate Debtor.

k. Accordingly, C.P. No. 1330/IBC/MB/2020 is admitted.

l. The Registry is hereby directed to communicate this order to both the parties and to IRP immediately.