Ashok Oswal vs Uco Bank & Anr

[Arising out of Order dated 30th October, 2018 passed by National Company Law Tribunal, Chandigarh Bench Chandigarh, in CP (IB) No. 136/Chd/Pb/2018]

IN THE MATTER OF:

Mr. Ashok Oswal 148/1, Oswal House, Maharani Jhansi Road, Civil Lines, Ludhiyana - 141001.

...Appellant

Vs

1. UCO Bank Head office: No. 10, BT Maharaj Sarani, Kolkata - 700 001. Branch Office: Civil Lines Bharat Nagar Chowk, Ludhiyana.

2. Mr. Hemanshu Jetley Resolution Professional, Oswal Spinning and Weaving Mills Limited, The Corporate Debtor SCO 131, Second Floor, Mansadevi Complex, Sector 5, Panchkula, Haryana.

....Respondents

Present:

For Appellant: Mr. Vipul Ganda and Ms. Shreya Jain, Advocates. Mr. Ashok Oswal, Appellant in person.

For Respondents: -2-

SUDHANSU JYOTI MUKHOPADHAYA, J.

UCO Bank (Financial Creditor) filed an application under Section 7 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B Code')

against 'Oswal Spinning and Weaving Mills Ltd.' (Corporate Debtor) which having

admitted on 30th October, 2018 by the Adjudicating Authority (National

Company Law Tribunal), Chandigarh Bench, Chandigarh, the present appeal

has been preferred by 'Mr. Ashok Oswal', Shareholder of the Corporate Debtor.

2. The case of the Appellant is that the Corporate Debtor to meet its working

capital requirement, availed the Export Packing Credit Facility and Cash Credit

Facility from UCO Bank, Civil Lines, Ludhiana. The Bank granted Foreign Bill

Negotiation Facility to the Corporate Debtor and as per the Export Packing Credit

Facility, the Corporate Debtor was to be repaid by discounting of the foreign

export bills of the Corporate Debtor with the Bank, backed by letter of credits

issued by reputed international banks, so as to reduce the risk involved in the

said transaction.

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3. The sanctioned account of Cash Credit Facility was Rs.2,00,00,000/- and

Export Packing Credit Facility was Rs.13,45,00,000/-. From the aforesaid

account a Term Loan of Rs.2,11,643/- was also taken.

4. The grievance of the Appellant is that the Corporate Debtor was surprised

and shocked to receive notice on 16th May, 2016 under Section 13(2) of the

SARFAESI Act, 2002 stating that the account of the Corporate Debtor has

become NPA on 30th September, 2015. It is stated that the account of the

Corporate Debtor was regular till July, 2015, except a minor delay in payment

of the overdue interest in the month of August, 2015, which was well within 90

days as per master circular. It is also alleged that UCO Bank filed an application

under Section 19(1) of the "Recovery of Debts Due to Banks and Financial

Institutions Act, 1993" before the Debt Recovery Tribunal, Chandigarh for

recovery of Rs.19,11,80,419.73/- which was inclusive of the Expert Pacing

Credit Facility account and Cash Credit Facility account. It is further stated that

the Corporate Debtor also filed counter claim of Rs.75,27,00,000/-against the

UCO Bank for the losses incurred by the Corporate Debtor due to the

unprofessional and arbitrary attitude of the Bank. However, it is accepted that

the counter claim filed by the Corporate Debtor has been rejected.

5. The UCO Bank subsequently filed application under Section 7 of the I&B

Code. According to the Appellant, the application was incomplete even after the

Bank was given numerous opportunities to correct it. Learned counsel for the

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Appellant submitted that the date of default was wrongly indicated as December,

2015 and also shown wrong date of NPA. The IBC Petition with details of charge

was not placed on record.

6. Learned counsel for the Appellant submitted that the Adjudicating

Authority failed to notice that the account of the Corporate Debtor was wrongly

declared as NPA and the petition under Section 7 was liable to be dismissed.

The Adjudicating Authority also failed to consider that there is disputed question

relating to amount as shown in the Section 7 petition. It was submitted that in

absence of definite amount and date of default, the petition under Section 7 was

not maintainable. Further according to learned counsel for the Appellant, after

initiating multiple recovery proceeding against the Corporate Debtor during last

three years, the application under Section 7 was not maintainable and provision

of Sub-Section (3) of Section 7 was not followed.

7. In "Innoventive Industries Ltd. Vs. ICICI Bank and Ors. reported in

(2018)1 SCC 407", the Hon'ble Supreme Court while dealt with Section 7 of the

I&B Code 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

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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.

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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,

within which the adjudicating authority is to ascertain

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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.

...x...x...x...

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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."

8. In the present case, as it is not disputed that there is a debt which is more

than Rs.1 Lakh and the Corporate Debtor failed to pay the debt, we hold that the

application under Section 7 was maintainable.

9. On 7th December, 2018, we observed that prima facie there is no merit in

the appeal but the counsel for the Appellant informed that the Appellant intends

to settle the matter therefore the matter was adjourned time to time. Even after

six months as the matter was not settled, we heard the case on merit. Mr. Vipul

Ganda, learned counsel for the Appellant initially argued the case and

subsequently submitted that Mr. Ashok Oswal is interested to argue the case on

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merit. Inspite of the fact that the Appellant - Mr. Ashok Oswal has appointed

the counsel, we allowed the Appellant to address on merit of the appeal.

Mr. Ashok Oswal wanted to read written argument instead of arguing the case

on merit. Nothing specific in his submission transpired. However, we allowed

him to file written submissions by 8th May, 2019. The same have been filed on

8th May, 2019 vide Diary No. 11961. The written submission are repetition of

the case put up by the Appellant which we have already referred in this

Judgment earlier. For reasons already discussed, we do not find substance in

the written submissions filed.

10. In the facts and circumstances and in absence of any merit, the appeal is

dismissed. No costs.

[Justice S. J. Mukhopadhaya] Chairperson

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

15th May, 2019

AM

Company Appeal (AT) (Insolvency) No. 763 of 2018