Arun Rathi & Anr vs Indian Overseas Bank & Anr

Arun Rathi & Anr. ...Appellants

Vs

Indian Overseas Bank & Anr. ....Respondents

Present: For Appellants: Mr. M. Chandrasekhar and Mr. Pundreek Dwivedi, Advocates. For Respondents: Ms. Niti Jain, Advocate.

ORDER

31.05.2019: Having heard learned counsel for the Appellant and learned

counsel for Indian Overseas Bank and being satisfied of the grounds, delay of six

days in preferring the appeal is condoned. I. A. No. 1837 of 2019 stands disposed

of.

2. This appeal has been preferred by Director of 'M/s Rathi TMT Saria Pvt.

Ltd.' (Corporate Debtor), against order dated 16th April, 2019 passed by the

Adjudicating Authority (National Company Law Tribunal) Principal Bench, New

Delhi initiating Corporate Insolvency Resolution Process against the Corporate

Debtor pursuant to application under Section 7 of the Insolvency and

Bankruptcy Code, 2016 filed by the Respondent - Indian Overseas Bank.

3. Learned counsel appearing on behalf of the Appellant submits that there

is dispute about the debt amount. This apart the Adjudicating Authority failed

to consider that by Sanction letter dated 3rd May, 2016, which was not filed by

the Bank, they reduced the sanctioned credit facility. In the said letter it was

not mentioned that the account of the Corporate Debtor has been declared Non- -2-

Performing Asset (NPA) and the sanctioned credit facility is in nature of

restructuring.

4. We have heard learned counsel for the Appellant and learned counsel for

Indian Overseas Bank.

5. On the record we find that as per the Financial Creditor the account of the

Corporate Debtor was declared as Non-Performing Asset (NPA) with effect from

1st December, 2015. The Corporate Debtor having defaulted, the Financial

Creditor issued notice under Section 13(2) of the Securitization and

Reconstruction of Financial Assets and Enforcement of Security Interest Act,

2002 (SARFAESI) on 24th April, 2017. Inspite of that payment having not made,

action was taken under Section 13(4) of the SARFAESI Act, 2002 on 27th July,

2017.

6. The Appellant has not disputed that the Corporate Debtor defaulted in

paying the debt (loan amount). The only ground is taken is about the dispute

relating to quantum of payment. In the case of "Innoventive Industries Ltd.

Vs. ICICI Bank and Ors. reported in (2018)1 SCC 407", the Hon'ble Supreme

Court observed and held as follows:-

"27. The scheme of the Code is to ensure that when a default

takes place, in the sense that a debt becomes due and is

not paid, the insolvency resolution process begins.

Default is defined in Section 3(12) in very wide terms as

Company Appeal (AT) (Insolvency) No. 609 of 2019 -3-

meaning non-payment of a debt once it becomes due and

payable, which includes non-payment of even part

thereof or an instalment amount. For the meaning of

"debt", we have to go to Section 3(11), which in turn tells

us that a debt means a liability of obligation in respect of

a "claim" and for the meaning of "claim", we have to go

back to Section 3(6) which defines "claim" to mean a right

to payment even if it is disputed. The Code gets triggered

the moment default is of rupees one lakh or more (Section

4). The corporate insolvency resolution process may be

triggered by the corporate debtor itself or a financial

creditor or operational creditor. A distinction is made by

the Code between debts owed to financial creditors and

operational creditors. A financial creditor has been

defined under Section 5(7) as a person to whom a

financial debt is owed and a financial debt is defined in

Section 5(8) to mean a debt which is disbursed against

consideration for the time value of money. As opposed to

this, an operational creditor means a person to whom an

operational debt is owed and an operational debt under

Section 5(21) means a claim in respect of provision of

goods or services.

Company Appeal (AT) (Insolvency) No. 609 of 2019 -4-

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 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,

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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 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.

Company Appeal (AT) (Insolvency) No. 609 of 2019 -6-

7. In view of the aforesaid decision even if the loan amount is disputed as we

find that the amount is more than Rupees One Lakh (in present case more than

Rs.75 Crore), we hold that the application under Section 7 was rightly admitted

by the Adjudicating Authority.

8. The other ground taken by the Appellant that the application was not filed

by the authorized person cannot be entertained the application having been filed

by one of the officers of the Bank.

9. In absence of any merit, the appeal is dismissed. No costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice A. I. S. Cheema] Member (Judicial)

(Kanthi Narahari) Member (Technical) am/sk

Company Appeal (AT) (Insolvency) No. 609 of 2019