Bahadur Ram Mallah vs Asset Reconstruction Company ...

[Arising out of the Impugned Order dated 14.11.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Kolkata Bench in C.P.(IB) No. 1593/KB/2018] In the matter of: Bahadur Ram Mallah, Ex-Director, Uniworth Textiles Limited, Aged about 62 years, R/ o Village & Post - Azmatgrah, District - Azamgarh Uttar Pradesh Email: uniworthtextileslimited@gmail.com ...Appellant Versus 1. Assets Reconstruction Company (India) Limited The Ruby, 10th Floor 29, Senapati Bapat Marg, Dadar (West), Mumbai - 400 028 Email: cs@arcil.co.in ...Respondent No.1

2. Uniworth Textiles Limited (under CIRP), Through its Insolvency Professional Entity, M/s. Kanchansobha Debt Resolutions Advisors Private Limited, Address - Unit No. 1507, 15th Floor, B wing, ONE BKC Plot No. C-66, G-Block, BKC, Bandra (East), Mumbai-400051 Email: contact@kanchansobha.com

...Respondent No. 2

Present: For Appellant : Mr. Arvind Nayar Sr. Advocate with Mr. Narendra M Sharma, Mr. Ankur Sood, Ms. Shubhangi Tiwari, Mr. Shubham and Ms. Sahana Sathija Narayanan, Advocates.

For Respondent : Mr. Abhirup Dasgupta, Mr. Ishaan Duggal and Ms. Ruchi Goyal, Advocates for R1. JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

14.11.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Kolkata Bench-I) in

C.P.(IB) No.1593/KB/2018. By the impugned order, the Adjudicating Authority

has admitted the Section 7 petition filed by the Financial Creditor admitting the

Corporate Debtor into Corporate Insolvency Resolution Process ("CIRP" in

short). Aggrieved by the impugned order, the present Appeal has been preferred

by the Suspended Director of the Corporate Debtor.

2. The salient facts of the case which are relevant to be noticed for deciding

this appeal are as briefly outlined below:

 ICICI Bank and IFCI Ltd. sanctioned certain loan facilities to the Corporate

Debtor-Uniworth Textiles Ltd. ("UTL" in short).

 In the year 2004, proceedings under Sick Industrial Companies Act, 1985

(SICA) was initiated by the Corporate Debtor. The account of Corporate

Debtor was declared NPA on 31.08.2007.

 The loan of ICICI and IFCI was assigned in favour of the Asset

Reconstruction Company (India) Ltd. ("ARC" in short) on 31.03.2004 and

12.01.2007 respectively. The SICA proceedings were however abated by

the Appellate Authority (AAIFR) in 2013.

Page 2 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025  On 05.09.2014, the ARC had filed an Original Application No. 162 of 2014

before the DRT for initiation of SARFAESI proceedings. On 04.12.2018,

the DRT decided OA No. 162 of 2014 in favour of ARC and directed the

Corporate Debtor to pay a sum of Rs 211.86 Cr. This order has been

challenged before the DRAT.

 On 19.09.2016, the Uniworth Group of Companies made a Global offer of

Settlement ("GSA" in short) to the ARC for an amount of Rs 75 Cr. Acting

upon the terms of the GSA, Uniworth Group paid Rs 51.10 Cr. to the ARC.

 On 22.11.2018, ARC issued a letter for revocation of the terms of

settlement on ground of default in the payment of debt by the Corporate

Debtor.

 On 27.11.2018, the ARC filed a Section 7 petition against the Corporate

Debtor for Rs 205 Cr.

 On 17.03.2020, the Adjudicating Authority dismissed the Section 7

application by holding it as time-barred.

 On 10.07.2023, this Tribunal set aside the order of the Adjudicating

Authority. Holding the Section 7 petition filed by the ARC as not time-

barred, this Tribunal remanded the matter back to the Adjudicating

Authority for decision on merit.

 The appeal filed by the Corporate Debtor against the order of this Tribunal

dated 10.07.2023 was dismissed by the Hon'ble Supreme Court on

13.10.2023.

 On 14.12.2024, the Adjudicating Authority after hearing the matter afresh

admitted the Corporate Debtor into CIRP.

Page 3 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025  Aggrieved by the impugned order, the present Appeal has been preferred

by the Suspended Director of the Corporate Debtor.

3. Assailing the impugned order, Shri Arvind Nayar, the Ld. Sr. Counsel for

the Appellant submitted that the Adjudicating Authority has admitted the

Section 7 application without going into the merits of the matter at a time when

this Tribunal had remanded the matter back to the Adjudicating Authority on

10.07.2023 to decide the matter on merit un-influenced by any observations

made by this Tribunal. The Adjudicating Authority rather than applying its mind

independently has instead adjudicated upon the matter merely by adopting the

same rationale followed by this Tribunal in its order of 10.07.2023. It was further

submitted that the Section 7 petition had been filed by the ARC while

suppressing the material fact that a GSA proposal had been entered into between

the Corporate Debtor and ARC, which GSA had been acted upon by both the

parties with ARC having already accepted settlement amount of Rs 51.10 Cr.

However, the Financial Creditor-ARC revoked the GSA unilaterally. Though this

revocation of GSA was contested by the Corporate Debtor in their letter dated

14.12.2018, the Adjudicating Authority erroneously misconceived this letter to

be an acknowledgement of debt and default. Thus, rather than endeavouring to

examine the facts to undertake determination of the issue of debt and default,

instead, the Adjudicating Authority has summarily concluded the issue of debt

and default. It was also stated that even though the amount due in terms of the

GSA exceeded Rs 1 Cr., the Section 7 petition was not maintainable, since the

claim of the ARC arose on account of default in payment of settlement amount

which was not in the nature of financial debt as defined under the provisions of

Page 4 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 IBC. The nature and character of outstanding liability on account of violation of

the GSA proposal had altered the character of the original debt. Furthermore,

since both the parties had entered into a GSA, the original debt had ceased to

exist and therefore the ARC was estopped from claiming the original amount of

debt. It was also contended that while for the purposes of considering the issue

of limitation, an acknowledgement in the Balance sheet can be construed as an

admission of the jural relationship between debtor and creditor but for purposes

of considering admission of Section 7 application, the admission of liability

requires to be unambiguous and unequivocal. It was asserted that since the

Annual Reports of the Corporate Debtor in the Balance sheets contained specific

denial of any liability qua the ARC, it was wrong on the part of the Adjudicating

Authority to have concluded that the Corporate Debtor had admitted debt

liability qua the ARC.

4. Refuting the contentions raised by the Appellant, Shri Abhirup Dasgupta,

Ld. Counsel for the Respondent submitted that the Adjudicating Authority had

not committed any error in admitting the Section 7 application since there was

a clear incidence of debt and default for an amount exceeding the minimum

threshold criteria of Rs 1 Cr. prescribed under Section 4 of the IBC. It was also

pointed out that when the Section 7 application came up for hearing before the

Adjudicating Authority in the first instance, the Appellant had given up all other

defences except the ground of limitation. While looking into the limitation aspect,

this Tribunal in the exercise of its appellate jurisdiction had also noticed that

the Balance sheet of the Corporate Debtor contained acknowledgment of debt

and default. The Adjudicating Authority thus cannot be said to have erred by

Page 5 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 having relied on the Balance sheet of the Corporate Debtor of 2018-19 to

conclude that loans taken by the Corporate Debtor had been acknowledged

therein and that the loan had become due for repayment. It was further pointed

out that the DRT in its order dated 04.12.2018 in O.A. No. 162 of 2014 had also

decreed in favour of the ARC directing the Corporate Debtor to pay a sum of Rs

211.86 Cr. with future interest towards the outstanding liability. This decree of

DRT also clearly established debt and default. It was emphatically asserted that

the orders of the DRT had also been noticed by the Hon'ble Supreme Court in its

order dated 13.10.2023. Even though the order of the DRT has been challenged

by the Corporate Debtor before the DRAT, there being no stay on the decree of

the DRT, the debt and default is subsisting. The Corporate Debtor has also not

been able to controvert that there has been a default in discharging the debt

obligations. That only part payment of GSA has been made has also not been

disputed. That the liability arising out of the GSA still needs to be discharged

has neither been denied. In such circumstances, merely by contesting that the

revocation of GSA was unilateral and that there was breach of settlement

obligations by the Financial Creditor, is not sufficient ground for disallowance of

the Section 7 application.

5. We have duly considered the arguments advanced by the Learned

Counsel for both the parties and perused the records carefully.

6. The short issue for our consideration is whether in the given set of facts

and circumstances, the Adjudicating Authority was correct in holding that the

Financial Creditor-ARC has been able to set out a case of debt and default

Page 6 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 above the threshold level and that the Section 7 application was maintainable

for the original amount of debt prior to the GSA.

7. The first issue for our consideration is whether there was a debt and

default by the Corporate Debtor qua ARC which had arisen on account of the

breach of the GSA.

8. It is the case of the Appellant that the Adjudicating Authority had wrongly

admitted the Section 7 application filed by the ARC basis the purported failure

of the GSA and alleged default in payment of settlement amount as claimed by

ARC. Submission was pressed that it was wrong to contend that the GSA had

been breached by the Corporate Debtor when substantial payment of Rs 51.10

Cr. had been made by them to the ARC in terms of the GSA entered into by the

Uniworth Group of Companies which included the Corporate Debtor. When the

ARC had accepted a hefty sum as part of the GSA, the ARC was estopped from

resiling from the contractual term laid down under the GSA. Moreover, as the

ARC had accepted settlement amount of Rs 51.10 Cr. beyond the cut-off date of

25.02.2017, the ARC had voluntarily waived the date of performance. Moreover,

it was the ARC which had failed to comply to the GSA obligations for not

withdrawing the legal proceedings against the Corporate Debtor; failure to keep

the reciprocal promise of release of security besides non-issue of No Dues

Certificate (NDC). It was vehemently contended that though the GSA was a

binding contract between the two parties, the ARC had unilaterally revoked the

GSA on 22.11.2018. This revocation was contested by the ARC on 14.12.2018.

Yet the Adjudicating Authority mistakenly construed this letter to be an

acknowledgement of debt on the part of the Corporate Debtor.

Page 7 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025

9. Per contra, it is the contention of the Respondent that the GSA entered

into with the Uniworth Group of Companies was a company wise settlement.

Hence, the acknowledgment letter issued by the Uniworth Group of Companies

was as much an acknowledgement of liability on the part of the Corporate

Debtor. It was submitted that the contention of the Appellant that ARC had

breached the GSA obligations is baseless. The security interest in terms of GSA

was to be released by ARC only after full payment in terms of GSA was received.

Since only part payment was made by the Corporate Debtor, it tantamount to

non-compliance on the part of the Corporate Debtor to fulfil their obligation

under the GSA. Since the GSA had failed, ARC had revoked the GSA vide letter

dated 22.11.2018 and the default amount having crossed the threshold limit of

Rs 1 Cr., the Adjudicating Authority committed no mistake in admitting the

Section 7 application.

10. At this juncture, we may notice the findings returned by the Adjudicating

Authority on the breach of the GSA and the resultant default. The relevant

excerpts of the impugned order are as extracted below:

"18.2 Against the Settlement offered for an amount of Rs.75 crores for 5 group companies, the amount payable under the terms of settlement is more than 1 crore which crosses the minimum threshold.

18.3 The Corporate Debtor has duly acknowledged that the terms of settlement stands revoked.

.......

20.2 The issues voiced by the Corporate Debtor with regard to group settlement and not individual company settlement has been adequately dealt with by the Hon'ble NCLAT. Hon'ble NCLAT in no uncertain terms has held that it is an individual company wise settlement, and the view stands affirmed by the Hon'ble Supreme Court too.

20.3 The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation Page 8 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted."

11. When we look at the material on record, it is pertinent to note that it was

the Corporate Debtor which had made the offer for the GSA to the ARC on

19.09.2016 in view of their financial constraints and had proposed settlement

amount of Rs 75 cr towards settlement of dues of each of the companies

separately. For reasons of clarity, we wish to reproduce the relevant extracts of

the letter dated 19.09.2016 hereunder:

19th September 2016

To, Mr. Vinayak Bahuguna The CEO & Managing Director, Arcil Dear Sir.

Sub: Settlement of Dues of Uniworth and its Group/Associate Companies promoted by A. P. Lohia and others.

This is with reference to the above subject. Please refer to our letter dated February 17, 2016 wherein we had submitted our settlement proposal of Rs.60.00 crore which was further enhanced to Rs. 70.00 crore vide our letter dated August 8, 2016. After our discussions, and meetings with you and your officials we improved the offer to Rs.71.50 crore vide our letter dated August 18, 2016 for your consideration towards the settlement of dues of below mentioned companies pertaining to Uniworth Limited and its group and associate companies. However, the same was rejected at your end. We request you to please give due consideration to our final offer of Rs. 75.00 crore. We request you to please consider this offer at your end for approval and for us to settle the dues of the company. The proposed settlement amount is payable against the debt assigned to Arcil by the various banks. The settlement amount of Rs. 75.00 crore shall be payable as follows:-

Sr. No. Company Name Amount (Rs. in crore) 1 Uniworth Limited 50.50 2 Uniworth Textile Limited 21.00 3 Uniworth International 0.10 Limited Page 9 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 4 Indoworth India Limited 1.00 5 For settlement of Corporate 0.40 Guarantee extended by Uniworth Limited for securing financial assistance provided by bank to Uniworth Apparel Limited 6 Texprint Overseas Limited 2.00# Total 75.00

# The amount of Rs.2.00 crore is over and above the amount realized by Arcil from Sale of assets of the Company.

 The settlement amount of Rs. 75.00 crore shall be payable as under:

o Rs. 11.25 Crore upon handing over in Principle Sanction Letter and o Rs. 63.75 Crore on or before February 25, 2016

 We shall keep in abeyance all charges, litigation and cases of whatsoever nature filed by us at various forums for the assets of Indoworth India Limited, Uniworth Limited, Uniworth Textile Limited, Texprint Overseas Limited, Uniworth Apparels Limited and Uniworth International Limited and/or any other related/ associated company during the course of the settlement period and the same shall be adhered by Arcil as well. We shall withdraw and so shall Arcil after satisfactory completion of the settlement process.  Further after full and final payment of Rs. 75.00 crore Arcil shall issue No Dues Certificate for all the companies mentioned above except Uniworth Apparels Limited and will release all personal and corporate guarantee/s extended in respect of above companies.

As it was earlier conveyed to your goodselves that the condition of the business is deteriorated. Further the units are only working on demand based condition and due to the same the assets have started getting deteriorated. We urge you to consider this sympathetically. With a lot of difficulty we have stretched the offer to Rs. 75.00 crore. Hope to hear positively from your end and resolve the matters amicably.

For Uniworth Group (Emphasis supplied)

12. A bare reading of this letter makes it amply clear that in terms of this offer

of settlement, only after a full and final payment of Rs. 75 cr was made by the

Corporate Debtor that the ARC was required to issue NDCs for all the companies

Page 10 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 mentioned above except Uniworth Apparels. The other obligation which was

incumbent on both parties was to withdraw all litigation but only after

satisfactory completion of the settlement process.

13. Now that we have noticed the genesis of the settlement offer and the terms

thereof, to remove all doubts in our minds, we now need to notice whether it was

ripe for the ARC to issue NDC in respect of the Corporate Debtor and withdraw

all legal proceedings. To find an answer as to whether a breach of GSA had taken

place and whether the Corporate Debtor had duly acknowledged that the GSA

stood revoked, we may peruse the letter of revocation issued by the ARC on

22.11.2018 and the response of the Corporate Debtor thereto on 14.12.2018.

Both these letters are as reproduced below:

"BGVII/NS/FY19/2738 November 22, 2018 Dear Sir, Revocation of Settlement

We hereby refer to your offer letter dated September 19, 2016 and our in principle sanction letter dated November 08, 2016 (copy enclosed) regarding the OTS of the debt of Uniworth Ltd, Uniworth Textile Ltd, Uniworth International Ltd, Texprint Overseas Ltd and Indoworth India Ltd.

Further to the said letters, Uniworth Ltd, Indoworth India Ltd and Uniworth International Ltd have paid Rs.51.10 crore as under:

Company Name Amount (Rs. crore) Uniworth Limited* 50.00

Indoworth India Limited # 1.00 Uniworth International Limited # 0.10

Total 51.10

* The amount payable by Uniworth limited as part of OTS is Rs.50.50 crore of which Rs.50 crore has been paid so far.

Page 11 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 # The amounts have been paid in full in terms of OTS and NDC's have been issued.

The amounts payable by Uniworth Textiles Ltd viz Rs. 21.40 crore and Texprint Overseas Ltd viz Rs.2.50 crore aggregating to Rs.23.90 crore as per terms of OTS have still not been paid although the due date to pay the same was February 25, 2017.

Kindly note that inspite of our repeated reminders and various discussions from time to time you (Uniworth Textiles Ltd and Texprint Overseas Ltd) have failed and neglected to make payment of these amounts within agreed timeframe.

In view of the above we are constrained to hereby recall the said terms of settlement and the same stands revoked w.e.f. the date of this letter in respect of OTS granted to Uniworth Textiles Ltd and Texprint Overseas Ltd. We, therefore, call upon you (Uniworth Textiles Ltd and Texprint Overseas Ltd) to pay the outstanding amount as on September 26, 2018 of Rs. 795,61,06,937/- i.e. total dues of Uniworth Textiles Ltd being Rs. 402,05,64,202/- and total dues of Texprint Overseas Ltd being 393,55,42,735/- on or before November 23, 2018 failing which Arcil shall pursue legal action for recovery of the outstanding dues under applicable laws.

Yours faithfully, Jigar Dalal Vice President"

(Emphasis supplied)

14. From a reading of the above letter, it is clear that the ARC has in clear and

unambiguous terms stated that NDCs have been issued for those companies

whose settlement amount has been paid while the amounts payable by

Uniworth Textiles Ltd of Rs. 21.40 crore as per terms of GSA had still not been

paid. The letter also clearly stated that if payments were not made by

23.11.2018, ARC would proceed with legal action for recovery of the

outstanding dues against the Corporate Debtor.

15. The receipt of the letter of 22.11.2018 was acknowledged by the Corporate

Debtor on 14.12.2018 which letter is as reproduced below:

Page 12 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 "December 14 2018 Dear Mr. Dalal,

This has reference to your letter No. BGVII/NS/FY 19/2738 dated November 22 2018. We wish to inform you that while we have received the NO DUE CERTFICATE for Indoworth India Ltd. and Uniworth International Ltd. as mentioned in your said letter, we have not yet received the NO DUE CERTIFICATE in favour of Uniworth Ltd.

Therefore, we would request you to issue NO DUE CERTIFICATE in favour of Uniworth Ltd. and send to us at the earliest and oblige.

For UNIWORTH LTD."

(Emphasis supplied)

16. From a plain reading of the above letter, it is clear that the Corporate

Debtor had only adverted attention to the fact that the ARC had already given

NDC in respect of Indoworth India Ltd. and Uniworth International Ltd. besides

requesting for issue of NDC for Uniworth Ltd. for which substantial payment had

been made. However, there is no objection made whatsoever to the outstanding

settlement amount claimed by the ARC as payable in respect of the Corporate

Debtor-Uniworth Textiles and the resultant default. In such a situation where

the Corporate Debtor did not make the payments as contemplated in the GSA

allowing them to take a stance that the ARC cannot claim revocation of GSA is

an illogical and absurd argument. If the Corporate Debtor was seriously

contesting the revocation of settlement, as has been contended by the

Respondent, they would have at least adverted reference to payments made on

their behalf towards entire settlement amount or asked the ARC to issue their

NDC. This letter does not even make a whisper of protest that that there was

non-compliance of GSA by the ARC or that they did not accept the unilateral

Page 13 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 revocation of GSA by ARC. The tone and tenor of the response does not indicate

even a muted objection to the revocation of the GSA thus betraying undertone of

implicit acceptance. In these circumstances, we are inclined to agree with the

Adjudicating Authority the Corporate Debtor had acknowledged that the

settlement was revoked by the ARC.

17. This brings us to the next strand of argument canvassed by the Appellant

that once both parties had entered into the GSA, the original debt had ceased to

exist as it was subsumed under the GSA. Since the original debt had ceased to

exist between the parties on their having entered into the GSA, the balance

amount payable under the settlement had acquired a character which was

different from a financial debt. The amount payable under the GSA was not a

'financial debt' in terms of Section 5(8) of the IBC. No Section 7 application could

have therefore been maintained on grounds of violation of the GSA. The

Adjudicating Authority had committed a grave error in permitting the ARC to

enforce the GSA by allowing them to file a Section 7 petition. In support of their

contention, reliance has been placed on the judgment of this Tribunal in the

matter of Amrit Kumar Agarwal Vs Tempo Appliances Pvt. Ltd. in

CA(AT)(Ins)No. 1005 of 2020 and Trafigura India (P) Ltd. Vs TDT Copper

Ltd. in CA(AT)(Ins)No.742 of 2020.

18. Rival submission was made by the Respondent that even if a Settlement

Agreement between the parties failed, the Financial Creditor is not barred from

filing a Section 7 application on the basis of original financing documents. The

GSA having failed in the instant case, the ARC was well within its rights to file

the Section 7 application. In support of their contention, reliance has been

Page 14 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 placed on the judgement of this Tribunal in Priyal Kantilal Vs IREP Credit

Capital Pvt. Ltd. in (CA)(AT)(Ins) No. 1423 of 2022.

19. Before we proceed to answer whether the Section 7 application in its

present form as filed by ARC was maintainable or not, we may first begin by

looking at the Section 7 application filed by the ARC which is as reproduced

hereunder.

PART IV PARTICULARS OF FINANCIAL DEBT

Total amount of (i) Rs. 41,50,00000/- together with further contractual

1. debt granted interest till date of payment and / or realization in the date(s) of facts and circumstances stated hereinafter; disbursement (ii) IFCI Ltd and ICICI Ltd had from time to time sanctioned diverse credit facilities, the first of such sanction was made in 1992.

SI. Nature of Sanction Disbursement No. facility limit (in Date crores) 1 Term Loan 20.00 Debt admitted 2 Corporate 10.00 Debt admitted Loan (Term Loan 3 Corporate 5.00 Debt admitted Loan (Term Loan) 4 Corporate 6.5 Debt admitted Loan (Term Loan) Total: 41.50

The terms and conditions governing the said sanction/ renewal would appear from the Loan Agreement A copy of the same is annexed with this application.

Thereafter by a deed of assignment dated 12.01.2007 the said IFCI Ltd assigned its account to the petitioner and by deed of assignment dated 31.03.2004 ICICI

Page 15 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 Bank Ltd assigned its account to the petitioner. The Corporate Debtor Company has acknowledged the dues of the financial creditor vide its letter dated 11 th November, 2016. A copy of the same is annexed hereto.

2. Amount claimed There is now a total sum of Rs.205,83,38,833/-

to be in default (Rupees Two hundred five crores eighty three lakhs and the date on thirty eight thousand eight hundred eighty three Only) which the default due and payable by the corporate debtor to the occurred (attach financial creditor to whom the debt was assigned by the workings for Industrial Finance Corporation of India Ltd and Computation of Industrial Credit and Investment Corporation of India amount and Ltd as on 05.09.2014 together with further contractual days of default in interest as agreed upon per annum (compounded tabular form) monthly) till date of payment and/or realization.

Perusal of the Section 7 application makes it clear that it is not based on the

default of the GSA but founded on the original financial debt which was extended

by the ICICI and IFCI to the Corporate Debtor which had been subsequently

assigned to the ARC.

20. This issue has been squarely covered on similar set of facts by the

judgement of this Tribunal in Priyal Kantilal supra wherein the inapplicability

of the judgement of this Tribunal in Amrit Kumar Agarwal supra which has

been relied upon by the Appellant has also been discussed. The relevant portions

of the said judgement is as extracted hereunder:

"12. The judgement which has been relied by Learned Counsel for the Appellant "Amrit Kumar Agrawal" (supra) was a case where section 7 application was filed on the ground of default in payment of settlement agreement where the court held that default in payment of settlement agreement does not constitute a financial debt. The facts of the present case are clearly distinguishable. Present is not a case where Section 7 Application has been filed only on the ground of default in the settlement agreement rather section 7 application has been filed on the basis of original financial debt which was extended by the Financial Creditor to the Page 16 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 Corporate Debtor. The mere fact that in earlier company petition, consent terms was arrived, which consent terms was breached by the corporate debtor, the financial debt which was claimed by the financial creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting such interpretation shall be giving premium to the corporate debtor who breach the consent terms. Another judgement which has been relied on by Learned Counsel for the Appellant is "Dr. Gopal Krishnan MS", (supra) which is also judgement relying on "Amrit Kumar Agrawal". The court in the facts of the said case came to the conclusion that debt is not a financial debt. The above judgement is also clearly distinguishable."

21. The facts of the case in Trafigura India judgement supra which has

been relied upon by the Corporate Debtor is also distinctive and has no relevance

in the instant case since in that case the settlement agreement was not

predicated on the operational debt arising out of the Master Sale Agreement.

Having seen the Section 7 application and the binding precedent of Priyal

Kantilal judgement supra, we are of the considered view that the Respondent

cannot be held to be precluded in any manner from being entitled to initiate a

Section 7 application against the Corporate Debtor in the facts of the present

case. The nature of debt which has been claimed under Section 7 application is

a financial debt. Simply because an GSA was entered into between the parties

which GSA suffered breach, the nature of debt shall not get changed. That does

not in any way destroy the character of ARC as a creditor or the character of the

money due to it from the Corporate Debtor as a debt. Hence the contention of

the Appellant that the Section 7 petition is not maintainable lacks force. The

right of the financial creditor would not be wiped out nor the nature and

character of the financial debt would change by the mere fact of entering into

Page 17 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 the GSA and any contrary interpretation would provide undue advantage to the

Corporate Debtor and frustrate the objective of IBC.

22. This brings us to the last issue as to whether there was debt which was

due and payable and default in the payment thereof.

23. It is the case of the Appellant that the Adjudicating Authority has

committed a grave error in treating an acknowledgement of debt for the purposes

of Section 18 of the Limitation Act as admission of debt. In support of their

contention, reliance was placed on the judgment of the Hon'ble Supreme Court

in J.C. Budhraja vs. Chairman Orissa Mining Corporation Limited (2008)

2 SCC 444. Submission has been pressed by the Appellant that

acknowledgment of debt in the Balance sheet of Corporate Debtor at best suffices

to establish the jural relationship between the Corporate Debtor and Financial

Creditor for the purposes of limitation. But mere acknowledgment of debt in

Balance sheet is not sufficient for the purposes of considering a Section 7

application as admission of debt under Section 7 is required to be clear,

unambiguous, unqualified and unequivocal. It was submitted that the Annual

Reports in the Balance sheet of the Corporate Debtor clearly show that the

Corporate Debtor had contested the liability. It was pointed out that in some of

the Annual Reports of the Corporate Debtor, there is a specific denial of any

liability qua the ARC. The Annual Reports contain the following remarks: "The

Company has disputed the repayment of due. The loss and damages caused to

the borrower by the lender is much more than the amount lent. Hence, the figures

of the borrowed amount shown in the balance sheet after due adjustments with

the said loss and damages may result in entitlement to recover substantial amount Page 18 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 from the lender. Under these facts and circumstances, the figures of borrowed

amount in this balance sheet cannot be considered as admission, if any, of the

claim of the lender(s)." In view of this caveat, it is clear that the debt was disputed

and contested as not payable. Hence the Adjudicating Authority committed an

error in taking the view that the dues claimed by the ARC which form the basis

of the Section 7 application have been admitted by the Corporate Debtor.

24. Per contra, it is the contention of the Respondent that the Corporate

Debtor had not only acknowledged its debt owed to the ARC in their Balance

sheets from FY 2008-09 onwards but the very fact that the Appellant had offered

a settlement to the ARC and also made part payments in discharge of the GSA

obligations clearly tantamount to admission of liability on the part of the

Corporate Debtor. Moreover, the DRT in its order had issued a decree dated

04.12.2018 in favour of ARC directing the Corporate Debtor to pay a sum of Rs

211.86 cr. along with interest till realization. The existence of debt and default

stands decided and the quantum is clearly more than the threshold limit of Rs

1 cr and hence there is no infirmity in the order of the Adjudicating Authority

admitting the Section 7 application.

25. At this juncture, we may have a look at the manner in which the

Adjudicating Authority has treated the issue of debt and default while admitting

the Section 7 application.

18.1 The CD in its own balance sheet of 2018-2019 have acknowledged default in payment of dues to the financial creditor have also acknowledged that loans have become due for repayment as in Page No. 835 of the Supplementary Affidavit Vol-IV.

Page 19 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 18.2 Against the Settlement offered for an amount of Rs.75 crores for 5 group companies, the amount payable under the terms of settlement is more than 1 crore which crosses the minimum threshold.

20.1 The grounds taken by the Corporate Debtor have no relevance in the instant matter as the Corporate Debtor has acknowledged its debt and stated default in no uncertain terms.

20.3 The Corporate Debtor has duly acknowledged the contents of the letter of revocation being letter dated November 22, 2018, by its letter dated December 14, 2018. It has even acted in terms of the said letter of revocation of the terms of settlement, requested the Financial Creditor to issue NOC with regard to the two companies only who have paid their dues. Hence the default in regard to Uniworth Textiles is clearly admitted.

26. It may also be useful to take note of the letter of the Corporate Debtor

dated 11.11.2016 where it was admitted that the terms and conditions of the

Original Loan Agreement executed with the financial institutions whose debt had

been acquired by ARCIL would cease and come to an end only on payment of full

settlement consideration of Rs.75 Cr. The said letter is as reproduced hereunder:

To, 11th November 2016 Mr. Vinayak Bahuguna The CEO & Managing Director, ARCIL,

Subject:- Payment towards settlement of entire dues of Uniworth Limited, Uniworth Textiles Limited, Uniworth International Limited, Indoworth India Limited and Texprint Overseas Limited and their respective Guarantors (collectively referred to as "Uniworth Group")

Reference:- (i) Our Letter, inter alia, dated 19.09.2016 and subsequent discussions held in various meetings between the parties.

(ii) Your Letter No. BGVI/AD/FY17/2189 Dated 08/11/2016 recording in principal approval and settlement of dues of Uniworth Limited, Uniworth Textiles Limited, Uniworth International Limited, Indoworth India Limited and Texprint Overseas Limited and their respective Guarantors

Dear Sir,

Page 20 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 This refers to the captioned subject. Please find enclosed herewith Cheque bearing No. 000076 dated 11.11.2016 for a sum of Rs.11,25,00,000/- (Rupees Eleven Crores and Twenty Five Lakhs Only) drawn on Andhra Bank, Karaya Road Branch, Kolkata in favour of Asset Reconstruction Company (India) Limited (ARCIL) issued by Uniworth Securities Limited towards part consideration of settlement of dues of Uniworth Group namely,

1) Uniworth Limited

2) Uniworth International Limited

3) Indoworth India Limited

4) Uniworth Textile Limited

5) Texprint Overseas Limited

6) and their respective Guarantors

against total settlement consideration of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only). The sum of Rs.11,25,00,000/- (Rupees Eleven Crores and Twenty Five Lakhs Only) is being deposited representing 15% of the total settlement consideration of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only). This settlement amount of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only) is the entire consideration towards all the assets, rights and claims acquired by ARCIL from all the banks and financial institutions who have assigned their debt in favour of ARCIL in one or the other manner. .......

Please also note that the terms and conditions of the Original Loan Agreement/Deed of Guarantees executed with the respective banks/ financial institutions whose debt has been acquired by ARCIL will cease and comes to an end after conclusion of the final Agreement and on payment of full settlement consideration of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only). It is agreed and understood that no further action, claim or legal proceedings shall be raised or initiated by ARCIL, any of the bank/ financial institutions whose debts have been assigned to ARCIL or whose assets or the secured assets are acquired by ARCIL The sum of Rs.75,00,00,000/- (Rupees Seventy Five Crores Only) as agreed is towards full and final settlement consideration of all claims, rights as existing or may exist in future against the Uniworth Group and five companies mentioned in your letter dated 08.11.2016 or any of its guarantors.

For Uniworth Group (Emphasis supplied)

27. When we look at the material on record, we find that it is an admitted fact

that the GSA entered into both parties provided for a settlement amount of Rs Page 21 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 75 Cr. of which the amount paid by the Corporate Debtor was only Rs 51.10 Cr.

Only part payment had been made towards satisfaction of the full and final claim

of the financial creditor in terms of the settlement agreement. The ARC in their

letter of 22.11.2018 as at para 13 supra had clearly pointed out that the amounts

payable by the Corporate Debtor was Rs. 21.40 cr. There has been no specific

denial that this amount was not due nor has any proof been submitted of

payments to the tune of Rs. 21.40 cr. having been made. Even though the

Corporate Debtor has challenged maintainability of the Section 7 petition on the

ground that the breach of GSA cannot revive the original debt but nowhere has

it denied debt and default. The event of default is therefore a glaring fact.

Moreover, the DRT decree clearly establishes debt and default. Even though the

order of DRT has been appealed against, the order of the DRT has not been

stayed by the DRAT. This does not in any way obliterate the fact that debt qua

the ARC subsists. More significantly, when the DRT decree passed on

04.12.2018 has been noticed also by the highest court of the land in Civil Appeal

No.6175/2023, it does not lie in the mouth of the Appellant to state that this

decree has not been referred to by the Adjudicating Authority in coming to the

decision of debt and default. The order of the Hon'ble Supreme Court is

reproduced below:

"In view of the peculiar facts and circumstances of the case, including the factum that the One Time Settlement proposal was moved by a group of companies, of which the appellant-Uniworth Textiles Limited is also a member, and the Debts Recovery Tribunal has passed the decree on 04.12.2018, we do not find any good ground and reason to interfere with the impugned judgment and hence, the present appeal is dismissed."

Page 22 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025

28. The scheme of the IBC as to when a financial creditor can trigger the

provisions of Section 7 against the Corporate Debtor has been elaborately

explained in the judgement of the Hon'ble Supreme Court in Innoventive

Industries Ltd. Vs ICICI Bank (2018) 1 SCC 407 wherein it has been observed:

"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 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.

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 Page 23 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025 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.

..... ..... ......

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".

29. Under the ambit of Section 7 of the IBC, the Adjudicating Authority is to

only determine whether a default has occurred and whether the debt, which even

if disputed, remains due and unpaid. The moment the Adjudicating Authority is

satisfied that a default has occurred, the Section 7 application is to be admitted

unless it is incomplete. In the present matter, the Adjudicating Authority has

rightly concluded that it was satisfied that a debt had arisen qua ARC; that a

default on the part of the Financial Creditor-Appellant has occurred and the

default is above the threshold limit of Rs. 1 crore. Since debt and default is

clearly established, we are of the considered opinion that there is no infirmity in

the impugned order admitting the Section 7 application. Page 24 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025

30. In view of the above discussions, facts and circumstances, we therefore

affirm the findings of the Adjudicating Authority and are of the considered

opinion that there are no good reasons to interfere with the impugned order. In

the result, the appeal being devoid of merit is dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 03.04.2025

Abdul/Harleen

Page 25 of 25 Company Appeal (AT) (Insolvency) No. 66 of 2025