Archisha Steels Pvt. Ltd vs State Bank Of India & Anr

(Arising out of Order dated 11th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in C.P. (IB)/2054/MB/2018)

IN THE MATTER OF:

Archisha Steels Private Limited ...Appellant

Vs

State Bank of India and Anr. ....Respondents

Present:

For Appellant: Mr. Rajeeve Mehra, Senior Advocate with Mr. Arvind Kr. Gupta, Ms. Henna George and Ms. Smiti Tewari, Advocates.

For Respondents: None.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

Pursuant to an application filed under Section 7 of the Insolvency

and Bankruptcy Code, 2016 ('I&B Code' for short) by the 'State Bank of

India'- 'Financial Creditor', the Adjudicating Authority (National Company

Law Tribunal), Mumbai Bench, Mumbai, by impugned order dated 11th

July, 2018 initiated the 'Corporate Insolvency Resolution Process' against

'Uttam Galva Metallics Limited'.

Company Appeal (AT) (Insolvency) No. 440 of 2018 2

2. The Appellant, a Shareholder has challenged the aforesaid order

dated 11th July, 2018, on the ground that the Adjudicating Authority failed

to appreciate that out of two 'Credit Rating Agencies' the 'ICRA' accorded an

'investment grade' rating to their 'Resolution Plan' while 'India Ratings &

Research' gave rating of below investment grade. Since the two credit

rating agencies had submitted diverging views, according to Appellant, the

'State Bank of India' could not have relied upon them to reject the

restructuring plan of 'Uttam Galva Metallics Limited'.

3. The other ground taken is that the 'Uttam Galva Metallics Limited'-

('Corporate Debtor') had already identified an investor who is a customer of

Turkey's second largest and Government owned Bank i.e. 'Ziraat Bank'. The

said investor had shown its willingness to settle the entire debt owed to the

consortium of lenders of Appellant and Appellant accordingly addressed a

letter to the consortium including the 'State Bank of India' to cooperate

with the Appellant in the settlement process and to defer the hearing of the

petition for the duration of the settlement process.

4. Learned counsel appearing on behalf of the Appellant submitted that

the rejection of the restructuring plan of the 'Corporate Debtor' was unfair

and illegal as the two agencies were not ad idem on their assessment of the

restructuring plan. Therefore, according to him, the 'State Bank of India'

ought to have appointed a third credit rating agency.

Company Appeal (AT) (Insolvency) No. 440 of 2018 3

5. Further, according to him, the 'Corporate Debtor' was never informed

or made aware that the reports of the credit rating agencies would be

essential for the rejection/ approval of its restructuring plan.

6. The 'Corporate Debtor' was also not informed of the criteria and the

method being used by the credit rating agencies to evaluate the

restructuring plan.

7. It was further submitted that the conduct of the 'State Bank of India'

is unfair and the debt is not due or payable, as the 'Corporate Debtor' had

plans to execute and implement an extremely viable expansion plan for

which the 'State Bank of India' along with the consortium was to disburse

loans under a Rupee Term Loan Facility dated 10th October, 2014.

According to the aforesaid facilities agreement, the debt to equity ratio was

to be maintained at 2:1 and accordingly, the Promoters of the 'Corporate

Debtor' infused an amount of Rs. 575 Crores.

8. We have heard learned counsel for the Appellant and perused the

records.

9. From the record we find that the Respondent- 'State Bank of India'

claimed to have a financial debt of Rs. 306,85,08,344/- as was due from

'Uttam Galva Metallics Limited'- ('Corporate Debtor').

10. In Form-1 vide Part IV "Particulars of Financial Debt" has been

shown total amount of debt granted/ disbursed to the 'Corporate Debtor'

Company Appeal (AT) (Insolvency) No. 440 of 2018 4

which is equivalent to Rs. 461,38,69,230/-. However, the 'Financial

Creditor' claimed the "debt in default" of Rs. 306,85,08,344/-.

11. The particulars of the Security held by the 'Financial Creditor' have

been shown in Form-1 and noticed by the Adjudicating Authority. As it was

not disputed that there is a debt and default and record being complete, the

Adjudicating Authority admitted the application under Section 7 of the 'I&B

Code'.

12. In "Innoventive Industries Limited Vs. ICICI Bank and Another−

(2018) 1 SCC 407", the Hon'ble Supreme Court held as follows:

"28. When it comes to a financial creditor

triggering the process, Section 7 becomes

relevant. Under the explanation to Section

7(1), a default is in respect of a financial debt

owed to any financial creditor of the

corporate debtor- it need not be a debt owed

to the applicant financial creditor. Under

Section 7(2), an application is to be made

under sub-section (1) in such form and

manner as is prescribed, which takes us to

the Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016. Under

Rule 4, the application is made by a financial

Company Appeal (AT) (Insolvency) No. 440 of 2018 5

creditor in Form 1 accompanied by

documents and records required therein.

Form 1 is a detailed form in 5 parts, which

requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II,

particulars of the proposed interim resolution

professional in part III, particulars of the

financial debt in part IV and documents,

records and evidence of default in part V.

Under Rule 4(3), the applicant is to dispatch

a copy of the application filed with the

adjudicating authority by registered post or

speed post to the registered office of the

corporate debtor. The speed, within which

the adjudicating authority is to ascertain the

existence of a default from the records of the

information utility or on the basis of evidence

furnished by the financial creditor, is

important. This it must do within 14 days of

the receipt of the application. It is at the

stage of Section 7(5), where the adjudicating

authority is to be satisfied that a default has

occurred, that the corporate debtor is entitled

Company Appeal (AT) (Insolvency) No. 440 of 2018 6

to point out that a default has not occurred in

the sense that the "debt", which may also

include a disputed claim, is not due. A debt

may not be due if it is not payable in law or

in fact. 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 of receipt of a notice

from the adjudicating authority. Under sub-

section (7), the adjudicating authority shall

then communicate the order passed to the

financial creditor and corporate debtor within

7 days of admission or rejection of such

application, as the case may be."

13. It is not the case of the Appellant that there is no debt payable in law

or in fact. Whatever grounds have been taken relate to legality of order of

rejection dated 22nd December, 2017 by the 'State Bank of India' relating to

restructuring plan which cannot be decided in the application under

Section 7 of the 'I&B Code' as the Adjudicating Authority is not

authorized/competent to determine the legality of the order of rejection of

Company Appeal (AT) (Insolvency) No. 440 of 2018 7

restructuring plan dated 22nd December, 2017. Whether the refusal to

disburse the committed loan amounts led to complete failure of the

'Corporate Debtor's expansion plan also cannot be taken into consideration

to hold that there is no debt due and payable.

14. In the present case, as we find no case made out by the Appellant to

interfere with the impugned order, the appeal is dismissed. However, in the

facts and circumstances of the case, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

30th November, 2018

AR

Company Appeal (AT) (Insolvency) No. 440 of 2018