Bharti Defence And Infrastructure ... vs Edelweiss Asset Reconstruction ...

Company Appeal (AT) (Insolvency) No. 71 of 2017 (Arising out of Order dated 6th June, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in Company Petition No. 292/I&BP/NCLT/MAH/2017]

In the matter of: Bharti Defence and Infrastructure Limited Appellant Vs. Edelweiss Asset Reconstruction Company Limited Respondent

Present: For Appellant : Shri Arun Kathpalia, Senior Advocate assisted by Ms. Saumya, Ms. Nidhi Nagpal and Ms. Tanushree Nigam, Advocates.

For Respondent: Shri Ramji Srinivasan, Senior Advocate assisted by Shri Animesh Bisht, Shri Karan Khanna, Shri Sohil Yadav and Shri Tushar Bhardwaj, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

Respondent- M/s. Edeiweiss Asset Reconstruction Company

Limited ('Financial Creditor) filed an application under Section 7 of the

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

Code") for initiation of 'Corporate Insolvency Resolution Process' against

Appellant-M / s. Bharti Defence and Infrastructure Limited- ('Corporate

Debtor'). After notice and hearing the parties, the Adjudicating Authority

(National Company Law Tribunal), Mumbai Bench, Mumbai by impugned 2

order dated 6th June, 2017 admitted the application, declared the

Moratorium, appointed 'Interim Resolution Professional' and passed

prohibitory orders in terms of 'I&B Code'. The said order is under

challenge in this appeal.

2. Learned counsel appearing on behalf of the Appellant-'Corporate

Debtor' submitted that the application under Section 7 was not

maintainable as the Respondent-'Financial Creditor' failed to produce the

record or evidence of default in terms of Clause (a) of sub-section (3) of

Section 7 of the 'I&B Code'.

3. It was submitted by learned counsel for the Appellant-'Corporate

Debtor' that by virtue of Notification dated 30th March, 2017, the

provisions contained in Chapter-V of Part- IV of 'I&B Code' relating to

information utility has been notified. The 'information utility' is to be

registered under Section 210 of the 'I&B Code'. Under Section 215 of the

'I&B Code', a 'Financial Creditor' is required to submit in a prescribed

form to the 'information utility', financial information and information

relating to assets in relation to which any security interest is created.

Upon such financial information being submitted by the 'Financial

Creditor', an application is maintainable to the 'information utility' under

Section 216 of the 'I&B Code' for modification and/or rectification of error

in such financial information. Such application for

modification/ rectification can be filed by "a person" (which expression

necessarily includes a 'Corporate Debtor'). These provisions provide an 3

opportunity to a 'Corporate Debtor' to apply and/or seek

modification/ rectification in case of an error in the financial information

submitted by 'Financial Creditor' under Section 215 of the 'I&B Code'

before the same is regarded by the Adjudicating Authority as record of

default for the purpose of Section 7(3)(a) thereof. Accordingly, in the

absence of record of the default recorded with the information utility, no

application can lie before the Adjudicating Authority.

4. According to learned counsel for the Appellant- 'Corporate Debtor',

in the present case, the 'Financial Creditor' has merely recorded in its

application alongside column at Serial No.3 of Part-V of Form-1 (framed

under Rule 4 of Insolvency Rules) that it is not applicable, without stating

any reason in support thereof.

5. It was further contended that no regulations have been framed by

the Insolvency and Bankruptcy Board of India ("Board") under Clause (f)

of sub-section (2) of Section 240 of the 'I&B Code' for specifying "such

other record of evidence of default" for the purpose of Clause (a) of sub-

section (3) of Section 7 and therefore, in the absence of such regulations

specifying any "record or evidence of default' as contemplated under

Clause (a) of sub-section (3) of Section 7, the petition was not

maintainable.

6. Reliance was also placed on Rule 239(i)(c) of the 'I&B Code'

whereunder the Central Government is empowered to frame rules only

with respect to the form, manner and fee for making application before 4

the Adjudicating Authority for initiating 'Corporate Insolvency Resolution

Process' by 'Financial Creditor'. According to Learned Counsel for the

appellant, the power under Section 239 cannot be construed to include

specification of the records of default, which are required to be submitted

to the Adjudicating Authority under sub-section (3) of Section 7. The

power is conferred only with the Board under Clause (1) of sub-section (2)

of Section 240. Therefore, Regulation 8 of the Insolvency Regulations,

which specify the records of default to be submitted to the 'Insolvency

Resolution Process' at a later stage, cannot be made applicable in the pre-

admission stage of furnishing evidence before the Adjudicating Authority.

7. Furthermore, according to the learned counsel for the Appellant-

'Corporate Debtor', sub-section (2) of Section 7 cannot be read in isolation

with sub-section (3) of Section 7 of the 'I&B Code', Parliament has

explicitly conferred separate powers, on one hand to the Central

Government under clause (c) of sub-section (1) of Section 239 to frame

Rules and to the Board under Section 240 to frame Regulations specifying

the 'other record' or 'evidence of default'.

8. It was further contended that the details in terms of Form 1

prescribed under Rule 4 of the Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016 (hereinafter referred to as

"Adjudicating Authority Rules") is required to be given, the provision

being mandatory.

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9. In reply, learned counsel appearing on behalf of the Respondent-

'Financial Creditor' submitted that the Adjudicating Authority is required

to ascertain only the existence of default from the documents filed by the

'Financial Creditor' by way of an application filed under Section 7 in Form

1. Sub-section (2) of Section 7 provides that such an application must

be in the form and manner as may be prescribed. Therefore, according to

the learned counsel for the Respondent-'Financial Creditor', the form and

manner of such application and the documents to be supplied therewith

have, as prescribed under the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 are required to be followed.

10. It was further contended that Form 1 of the 'Adjudicating Authority

Rules' set out the form and manner in which an application under Section

7 is required to be filed. The said Form 1 expressly and unambiguously

lists out the content of the application including, Part V of Form 1 and

the documents that are to be annexed to the application as the evidence

of default.

11. It was also submitted that the Respondent-'Financial Creditor' has

filed an application under section 7 of the 'I&B Code' in Form-i of the

'Adjudicating Authority Rules' and enclosed the records in terms of said

Rules and therefore, the Form was complete and the Adjudicating

Authority rightly admitted the application.

12. Similar issue fell for consideration before this Appellate Tribunal

"Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Limited" in Company Appeal (AT) (Insolvency)

No. 44 of 2017, this Appellate Tribunal by Judgment dated lith August,

2017 observed and held as follows: -

"16. 'Financial Creditor' along with the application

required to be furnished information and other facts as

prescribed under sub-section (3) of Section 7. Where the

Adjudicating Authority is satisfied that a default has

occurred and the application under sub-section (2) is

complete, and there are no disciplinary proceedings

pending against the proposed resolution professional, it

can admit such application and in case the application is

incomplete, required to provide 7 days' time to complete

the record and on failure is to dismiss the application.

17. The aforesaid facts are to be considered from the

procedure for initiation of corporate insolvency resolution

process by 'financial creditor' as mandated under Section

7 of 'I & B Code', and quoted below: -

"7. (1) A financial creditor either by itself or jointly with

other financial creditors may file an application for

initiating corporate insolvency resolution process against

a corporate debtor before the Adjudicating Authority

when a default has occurred.

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Explanation. --For the purposes of this sub-section, a

default includes a default in respect of a financial debt

owed not only to the applicant financial creditor but to

any other financial creditor of the corporate debtor.

(2) The financial creditor shall make an application under

sub-section (1) in such form and manner and

accompanied with such fee as may be prescribed.

(3) The financial creditor shall, along with the application

furnish--

(a) record of the default recorded with the

information utility or such other record or evidence

of default as may be specified;

(b) the name of the resolution professional proposed

to act as an interim resolution professional; and

(c) any other information as may be specified by the

Board.

(4) The Adjudicating Authority shall, within fourteen days

of the receipt of the application under sub-section (2),

ascertain the existence of a default from the records of an

information utility or on the basis of other evidence

furnished by the financial creditor under sub-section (3).

(5) Where the Adjudicating Authority is satisfied that-- 8

(a) a default has occurred and the application under

sub-section (2) is complete, and there is no

disciplinary proceedings pending against the

proposed resolution professional, it may, by order,

admit such application; or

(b) default has not occurred or the application under

sub-section (2) is incomplete or any disciplinary

proceeding is pending against the proposed

resolution professional, it may, by order, reject such

application:

Provided that the Adjudicating Authority shall,

before rejecting the application under clause (b) of sub-

section (5), give a notice to the applicant to rectify the

defect in his application within seven days of receipt of

such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall

commence from the date of admission of the application

under sub-section (5).

(7) The Adjudicating Authority shall communicate--

(a) the order under clause (a) of sub-section (5) to the

financial creditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the

financial creditor, within seven days of admission or

rejection of such application, as the case may be." 9

18. It is well settled that rules of procedure are to be

construed not to frustrate or obstruct the process of

adjudication under the substantive provisions of law. A

procedural provision cannot override or affect the

substantive obligation of the adjudicating authority to

deal with applications under Section 7 merely on the

ground that Board has not stipulated or framed

Regulations with regard to sub-section 3(a) of Section 7.

The language of Section 240, whereby Board have been

empowered to frame regulations is clear that the said

regulation should be consistent with the 'I & B' Code and

the rules made thereunder by the Central Government.

20. The rules framed by the Central Government under

Section 239 having prescribed the documents, record and

evidence of default as noticed above, we hold that in

absence of regulation framed by the Board relating to

record of default recorded with the information utility or

other record of evidence of default specified, "the

documents". 'record' and 'evidence of default'prescribed

at Part V of Form-1, of the Adjudicatory Rules 2016 will

hold good to decide the default of debt for the purpose of

Section 7 of the 'I & B Code'.

10

21. We further hold that the 'Regulations framed by the

Board' being subject to the provisions of 'I & B Code' and

rules framed by the Central Government under Section

239, 'Part V of Form - 1' of Adjudicating Authority Rules,

2016 framed by Central Government relating to

'documents', 'record' and 'evidence of default', will

override the regulations, if framed by the Board and if

inconsistent with the Rule. However, it is always open to

Board to prescribe additional records in support of

default of debt, such as records of default recorded with

the information utility or such other record or evidence of

default in addition to the records as mentioned in Part V

of Form-I.

22. 1 At this stage, it is pertinent to note that the Board

has also framed Insolvency Resolution Process for

Corporate Persons, Regulations, 2016 ('Corporate

Persons Regulation'for short). It has come into force since

Notification dated 30th NOvember 2016 was issued.

Regulation 8 of 'Corporate Persons Regulation', 2016

relate to claims by 'Financial Creditor'. Regulation 11(2)

relates to existence of debt due to 'Financial Creditor',

which is to be proved on the basis documents mentioned

therein and quoted below: -

11

"8. Claims by financial creditors.

(1) A person claiming to be a financial creditor of the

corporate debtor shall submit proof of claim to the interim

resolution professional in electronic form in Form C of the

Schedule:

Provided that such person may submit supplementary

documerts or clarifications in support of the claim before

the constitution of the committee.

(2) The existence of debt due to the financial creditor may

be proved on the basis of-

(a) the records available with an information utility, if

any; or

(b) other relevant documents, including -

(i) a financial contract supported by financial statements

as evidence of the debt;

(ii) a record evidencing that the amounts committed by the

financial creditor to the corporate debtor under a facility

has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not

been repaid; or 12

(iv) an order of a court or tribunal that has adjudicated

upon the non-payment of a debt, if any."

23. 'Form - C' attached to the Regulation relates to proof

of claim of 'Financial Creditor' whereunder at Serial No.

10, the 'Financial Creditor' is supposed to refer the list of

documents in proof of claim in order to prove the existence

and non-payment of claim dues to the 'Operational

Creditor'.

Therefore, the stand of the appellant that the Board

has not framed any Regulations, relating to clause (a) of

sub-section (3) of Section 7, cannot be accepted."

13. In the present case, the Appellant-'Corporate Debtor' has enclosed

the application preferred by the Respondent-'Financial Creditor' under

Section 7 in Form 1 as Annexure-A- 13 (Colly.). Therein the Respondent-

'Financial Creditor' at Part V has given the details of the particulars of

the 'Financial Debt' (Documents, Records and Evidence of default). In

• support of the details of security held by or created for the benefit of the

'Financial Creditor' 'mortgages', 'guarantees', 'share pledge' etc. has been

shown.

In support of record of default though nothing stated against Serial

No.3- 'Record of default with the information utility, if any', but against 13

Serial Nos. 7 and 8, the details of record of debt and default has been

mentioned, as quoted below: -

7. COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 189 1) (ATTACH A COPY) Copies of entries in the bankers book in accordance with the Bankers Book Evidence Act, 1891 have been annexed at Exhibit- '13"

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT The other documents that prove the existence of financial debt have been listed below:

1) Letter dated August 21, 2014 issued by the Corporate Debt Restructuring ("CDR") cell mentioning the failure of CDR approved package (pursuant to which the MRA was executed and the MRA Facilities were granted) in r elation to the Company/ Respondent

2) Letter dated June 09, 2015 issued by IDBI Bank Limited revoking the reliefs and sanctions provided to the Company! respondent.

3) Recall notice dated August 05, 2015 issued by IDBI Bank (the assignor) to the Company! Respondent directing the Company/ Respondent to inter alia make payment of the dues owed it in relation to the Facilities to IDBI Bank;

4) Letter dated August 25, 2016 issued by EARC instructing SBICAP Trustee Company ltd. (in its capacity, as a Security Trustee) to invoke pledge of shares of Nirupam Energy Projects Private Limited, Bharti Defence and Infrastructure Limited, Dhanashree Properties Private Limited, GOL Offshore Limited, Natural Power Ventures Private Limited, made in favour of inter alia IDBI Bank; 14

5) Letters dated August 25, 2016 issued by SBICAP Trustee Company Ltd. (the Security Trustee appointed to hold securities, on behalf of inter alia IDBI Bank, created by the Company) to respective shareholders for invoking pledge of shares of Nirupam Energy Projects Private Limited, Bharti Defence and Infrastructure Limited, Dhanashree Properties Private Limited, GOL Offshore Limited, Natural Power Ventures Private Limited, made in favour of inter alia IDBI Bank;

6) Order dated September 03, 2016 passed in the Notice of Motion (L) No. 92 of 2016 in Commercial Suit (L) No. 133 of 2016 filed before the Hon'ble Bombay High Court; and

7) Order dared September 20, 2016 passed in the Commercial Appeal (L) No. 26 of 2016 in Notice of Motion (L) No. 92 of 2016 in Commercial Suit (L) No. 133 of 2016 filed before the Hon'ble Bombay High Court.

8) The annual report of the Company for the financial year 2015-2016.

The copied of the aforementioned documents proving existence of financial debt have been annexed herewith at Exhibit- "14 Colly".

14. From the aforesaid fact, as we findthat the application preferred

by the Respondent-'Financial Creditor' under section 7 in Form 1 is

complete and there are records of debt and records of default, we hold

that the Adjudicating Authority rightly admitted the application and

passed the order of moratorium and prohibitory orders in accordance

with 'I&B Code'.

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15. We find no merit in this appeal. It is accordingly, dismissed.

However, in the facts and circumstances, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Balvinder Singh) Member(Technical)

NEW DELHI 17th October, 2017

AR