Chirag Vinod Pitte vs Indian Overseas Bank & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI I.A. No. 5749 of 2023 Company Appeal (AT) (Insolvency) No.1401 of 2023 (Arising out of Order dated 10.10.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-II, CP(IB)/380(MB)/ 2023)

IN THE MATTER OF: Chirag Vinod Pitte, Suspended Director of Shrivallabh Pittie South West Industries Limited Having office at: 97, Maker Tower 'F', Cuffe Parade Mumbai 400005. ... Appellant

Versus

1. Indian Overseas Bank, Maker Tower "E", 5th Floor, Cuffe Parade, Mumbai, Maharashtra 400005. 2. Mr. Avil Jerome Menezes, Interim Resolution Professional Shrivallabh Pittie South West Industries Limited 106, 1st Floor, Kanakia Atrium 2, Cross Road A, Behind Courtyard Marriott, Chakla, Andheri East, Mumbai - 400093. ... Respondents

Present:

For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Chirag Madan, Mr. Aditya Shukla, Ms. Ravleen Sabharwal, Mr. Agam Maloo, Mr. Prakhar Tandon, Mr. Rahul Agarwal, Mr. Randeep Sabharwal, Mr. Manav Sharma, Advocates For Respondents: Mr. J. Rajesh, Mr. Aniket Mookherjee and Mr. Jaitegan Singh Khurana, Advocates

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Suspended Director of the Corporate Debtor has

been filed challenging the order dated 10.10.2023, admitting Section 7

Company Appeal (AT) (Insolvency) No.1401 of 2023 1 Application filed by Indian Overseas Bank (Respondent No.1 herein). The

Appellant aggrieved by admission of Section 7 Application has come up in

this appeal.

2. Brief facts of the case necessary to be noticed for deciding the Appeal

are:

(i) The Corporate Debtor - Shrivallabh Pittie South West

Industries Limited has availed various facilities from the Indian

Overseas Bank in a consortium towards Working Capital

Facility. Respondent No.1 provided a sum of Rs.63 crores to

the Corporate Debtor against the stock and receivables not

exceeding 180 days. Credit facilities were sanctioned to the

Corporate Debtor starting from 03.11.2021 and thereafter from

time to time. The credit facilities were revised by amended

Sanction Letter dated 14.08.2020.

(ii) Respondent No.1 classified the account of the Corporate

Debtor as Non-Performing Asset ("NPA") on 02.05.2022 with

effect from 31.03.2022 on account of default committed by

Corporate Debtor in paying the amount due and payable. The

Indian Overseas Bank by notice dated 29.07.2022 demanded

payment of Rs.67,12,33,943.83/- as on 30.06.2022 within 10

days. Respondent No.1 also issued notice under Section 13,

sub-section (2) of the SARFAESI Act, 2002. Dated 24.11.2022,

claiming an outstanding amount of Rs.69,38,78,239/-.

Company Appeal (AT) (Insolvency) No.1401 of 2023 2

(iii) The Corporate Debtor vide reply dated 06.12.2022 to Section

13(2) notice, raised various reasons for not been able to pay

the amount. It was stated in the reply that Corporate Debtor

is making best endeavour to pay the amount.

(iv) Company Petition under Section 7 was filed by Indian Overseas

Bank against the Corporate Debtor in May 2023. On

18.05.2023, notice was issued to the Corporate Debtor. On

20.06.2023, direction was issued to issue fresh notice. On

20.07.2023, the Adjudicating Authority granted last and final

opportunity to file reply. On 25.08.2023, although, the

Counsel for the Corporate Debtor was present, but no reply

was filed. Opportunity was prayed, which was granted by the

Adjudicating Authority. The Corporate Debtor did not file

reply. The Adjudicating Authority heard Section 7 Application

and by order dated 10.10.2023, admitted Section 7

Application.

(v) Aggrieved by which order, this Appeal has been filed.

3. The Appellant filed this Appeal challenging order dated 10.10.2023.

The Appeal was entertained by this Tribunal on 20.10.2023 on a statement

made on behalf of learned Counsel for the Appellant that the Appellant is

endeavouring to liquidate the dues of all the Banks, including Respondent

No.1 within two weeks. Noticing the above submission of learned Counsel

for the Appellant, Appeal was entertained and an interim order was passed

Company Appeal (AT) (Insolvency) No.1401 of 2023 3 on 20.10.2023. Paragraphs 5 to 8 of the order dated 20.10.2023 are as

follows:

"5. Learned counsel for the Appellant submits that Appellant is endeavouring to settle with all members of the Consortium and is in dialogue with the Lead Bank of the Consortium of Lender, which also includes Respondent No.1. Appellant has made submission that Appellant's endeavour is to liquidate the dues of all the Banks including the Respondent No.1 for which two weeks' time may be allowed. In view of the above submission, we are of the view that ends of justice be served in allowing two weeks' time to the Appellant.

6. In the meantime, the IRP shall ensure that the Corporate Debtor is run as a going concern, however, till the next date CoC be not constituted.

7. Issue notice to the Respondents. Respondents are allowed two weeks' time to file Reply. Two weeks' time is allowed to file Rejoinder.

8. Appellant is permitted to file Additional Affidavit within three weeks.

List this Appeal on 05.12.2023."

4. Subsequently, the Appeal was taken up on various occasion. The

Appellant sought liberty to file additional affidavit. An Application (IA

No.5749 of 2023) was also filed by Respondent No.1 in this Appeal, praying

for vacation of interim stay and direction to proceed with the Corporate

Insolvency Resolution Process ("CIRP"). Reply to the additional affidavit

was also filed by Respondent No.1 stating that although after admission of

Section 7 Application various OTS offers were given by the Appellant, but

they were not accepted by the Bank.

Company Appeal (AT) (Insolvency) No.1401 of 2023 4

5. We have heard Shri Abhijeet Sinha, learned Senior Counsel

appearing for the Appellant and Shri J. Rajesh, learned Counsel appearing

for Respondent No.1 - Indian Overseas Bank.

6. Learned Senior Counsel for the Appellant in support of his Appeal

submitted that the Appellant has endeavoured to service the debt from the

very beginning and during Covid-19, also the Corporate Debtor was able to

service the debt. It is submitted that observation of the Adjudicating

Authority that several opportunities were granted to the Corporate Debtor

to file reply is incorrect. On 06.10.2023, the Corporate Debtor ought to

have been granted second chance to file the reply. Until 2022, the

Corporate Debtor has paid an amount of Rs.64.60 crores towards the

principal and Rs.43.65 crores towards interest and Corporate Debtor

performance was affected during lockdown period from 23.03.2020,

resulting in huge loss. Several settlement talks were held between the

parties and the Appellant. The Bank informed the Corporate Debtor that

Corporate Debtor must improve the offer and entire OTS amount be

deposited within 90 days and minimal amount of upfront payment is 10%.

The Appellant revised its offer to Rs.120 crores towards the outstanding

dues of all the lenders under Consortium.

7. Learned Counsel appearing for the Bank, refuting the submissions

of the Appellant, submits that the Corporate Debtor has defaulted in

making payment and notice was issued for payment of entire dues on

29.07.2022. The Corporate Debtor did not reply to the notice. In reply to

SARFAESI notice dated 24.11.2022, a reply was received from the

Company Appeal (AT) (Insolvency) No.1401 of 2023 5 Corporate Debtor where outstanding debt was not disputed. The Appellant

cited various reasons for not been able to pay the amount. After order

dated 10.10.2023, on 13.10.2023, the Appellant issued a letter to

Consortium Lender, informing that an Oman based investor has shown

interest to acquire the units and also settle the Banks outstanding at

around Rs.150 crores. However, the said offer was rejected. In Appeal on

20.10.2023, the Appellant undertook to liquidate the debt within two weeks

and on the said statement, an interim order was granted by this Tribunal.

However, for last six months, the Appellant has been unable to liquidate

the debt. Several OTS offers were made, including the offer dated

27.12.2023 of Rs.115 crores towards the dues of all Lenders, which was

rejected. On 31.01.2024, the Appellant made an offer of Rs.120 crores to

settle the dues of the Lenders, however, the proposal is still to be submitted

with upfront payment of 10% of the dues. On 31.01.2024, Respondent

No.1 informed the Appellant that proposal be made along with 10% upfront

payment and entire payment must be made within 90 days. The Appellant

did not submit any proposal with 10% upfront payment and did not issue

any further communication. In the Joint Lenders Meeting held on

28.03.2024, all the Consortium Members informed that no OTS proposal

was pending with them. It is submitted that debt and default being proved,

the Adjudicating Authority did not commit any error in admitting Section 7

Application.

8. We have considered the submissions of learned Counsel for the

parties and have perused the record.

Company Appeal (AT) (Insolvency) No.1401 of 2023 6

9. The sanction of facility by the Consortium Bank, including by

Respondent No.1 is not disputed. Last revised sanction was issued by

Respondent No.1 on 14.08.2020. Respondent No.1 declared the account

of Corporate Debtor NPA by letter dated 02.05.2022 with effect from

31.03.2022. Notice was issued on 29.07.2022 by the Bank, demanding

payment of Rs.67,12,33,943.83/- as on 30.06.2022 within 10 days. Notice

under SARFAESI Act was also issued on 24.11.2022. Notice dated

29.07.2022 was not replied, however, notice dated 24.11.2022 was replied

by letter dated 06.12.2022. In the letter dated 06.12.2022 issued by the

Corporate Debtor to Respondent No.1, replying to the notice under Section

13, sub-section (2), the Corporate Debtor did not deny the obligation to

make the payment. It will be relevant to notice the reply given by Corporate

Debtor dated 06.12.2023 from paragraph 13 to 21, which are as follows:

"13. We say that the delay if any, in non-payment or non-servicing of loans and facilities is not owing to any intentional or deliberate act on the part of the company. We say that the company has endeavoured to make all payments due and payable to you.

14. We say that the Joint Lenders Meeting of the Borrower Company was held on 03.11.2022 to discuss the developments in the account and recovery action. The Borrower Company officials attended the meeting to represent their viewpoint for South Unit and Jhalawar Unit. During the meeting, the company apprised the lenders that Company had started approaching Strategic Investors.

15. In this regard, the Borrower Company had appointed Edelweiss Group to scout for Investors. The Company could generate initial interest from two investors, one of whom has already shared the Term Sheet and basis the discussions, received their offer.

Company Appeal (AT) (Insolvency) No.1401 of 2023 7

16. Pertinently as per Term Sheet, the Investor had proposed an investment of Rs.23 crores (Rupees Twenty-Three Crores Only) by way of Equity and Optionally Convertible Debentures, apart from Rs.5 crores (Rupees Five Crores Only) of Working Capital support, thus totaling to a sum of Rs.28 crores (Rupees Twenty Eight Crores Only).

17. As you are aware that due to Pandemic, the business had suffered, and therefore, more time was required to process the resolution of the account. Therefore, the present representation should be considered.

18. The Borrower has actively taken steps to arrive at a sustainable solution for the continuing financial and Cash Flow issues faced by the Company to resolve the problems in the long run. The delay, if any, was therefore wholly unintentional and not deliberate, and the proposal mentioned above of the Strategic Investor would demonstrate that the Borrower Company has endeavored to make all payments due and payable.

19. As the priority of the Bank is to recover its dues without taking recourse to litigation, including recourse mentioned under the provisions of the SRFAESI Act, we request that the factum regarding the proposal of the strategic Investor should be taken into consideration.

20. We say that in the aforesaid circumstances and specifically when restructuring plan/ resolution Plan is being actively pursued and discussed there seems no legitimate/ legal requirement to initiate SARFAESI proceedings by way of issuing the Notice under reply. We categorically say that the said Notice under reply is premature, misconceived and unwarranted at this point of time.

21. Accordingly, in the facts and circumstances as discussed above, we humbly request you to recall the Notice under Reply."

10. As noted above, the Corporate Debtor did not file any reply before the

Adjudicating Authority, although opportunity was granted by Adjudicating

Company Appeal (AT) (Insolvency) No.1401 of 2023 8 Authority. In the Appeal, as noted above on 20.10.2023, when the Appeal

was heard, the Appellant made a statement that he is ready to liquidate the

debt of all the Banks within two weeks. On that statement, the Appeal was

entertained and interim order was passed. During the pendency of this

Appeal, the Appellant has also made various OTS proposal to Respondent

No.1 and the Consortium Bank. Last such proposal was given on

31.01.2024, in which the Appellant offered to clear the entire debt of all the

Banks for an amount of Rs.120 crores. Earlier to that settlement, OTS

proposal was issued on 27.12.2023, which was also replied by the Bank on

20.01.2024, asking the Appellant to increase the offer. Again on

31.01.2024, the Appellant made an offer for Rs.120 crores towards the

outstanding dues of all the Lenders under Consortium, which letter was

responded back by the Bank, in which following was stated:

"BR/ARMB/359/2023-24 Date:31.01.2024 (Without Prejudice) To, M/s Platinum Textiles Limited

(Now known as M/s Shrivallabh Pittie South West Industries Limited) 97, Maker Tower "F"

Cuffe Parade, Mumbai-400 005.

Sir/ Madam

Sub: OTS Offer letter dated 31.01.2024 Reference-

a. Company OTS offer letter dated 27.12.2023 b. Our bank reply letter dated 20.01.2024 We invite reference to captioned subject and your OTS offer letter dated 31.01.2024. In this regard our bank, being the lead bank of the consortium wish to advise that-

i. The company should deposit 10% of the OTS offer along with the letter to following No-lien account of the bank-

Company Appeal (AT) (Insolvency) No.1401 of 2023 9 Account Name- IOB E-Auction EMD Account Account Number-199802000055555 IFSC Code- IOBA0001998 ii. The company to endeavour in making payment of the entire OTS within 90 days from the date of sanction.

iii. The Borrower Company/ Guarantors are requested to submit its latest Net worth certificate, Audited financials, and others relevant documents for processing of the OTS Proposal.

The letter is being issued without prejudice to proceed under various legal recourse available to lenders. Further, the OTS is subject to the approval of Competent authority.

Regards, Sd/-

Sudhanshu Tripathi Chief Manager"

11. An affidavit has been filed by the Bank that after the said letter dated

31.01.2024, neither any offer was made for deposit of 10% of the OTS, nor

any further steps have been taken by the Appellant. Respondent No.1 has

also brought on record Minutes of the JLM Meeting on 28.03.2024, in

which meeting Lenders participated and it was noted that no OTS proposal

by Appellant - Corporate Debtor is pending consideration before the

Members of the Consortium.

12. From the materials brought on record, it is clear that there is no

dispute to the outstanding amount due on the Corporate Debtor. Sequence

of events as noted above, clearly indicate that at no stage Corporate Debtor

has denied its liability. As noted above, in reply to the notice under Section

13, sub-section (2) of the SARFAESI Act, the Appellant cited reasons for not

making the payment, but liability to make payment was not denied. The

Adjudicating Authority by the impugned order has found that Financial

Company Appeal (AT) (Insolvency) No.1401 of 2023 10 Creditor has been able to establish the factum of existence of financial debt

and its default. The finding recorded by the Adjudicating Authority that

there is a financial debt, which is in default, does not warrant any

interference by this Tribunal in the present Appeal. Debt and default

having been proved, the Adjudicating Authority has rightly admitted

Section 7 Application filed by the Financial Creditor.

13. We, thus, are of the view that no grounds have been made out to

interfere with the impugned order in the present Appeal. There is no merit

in the Appeal. The Appeal is dismissed. Interim order stands vacated. In

view of the Appeal being dismissed, IA No.5749 of 2023 also stands

disposed of. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

10th May, 2024

Ashwani

Company Appeal (AT) (Insolvency) No.1401 of 2023 11