Icici Bank Ltd vs Shailendra Ajmera, Resolution ...

[ arising out of Order dated 12th March, 2019 by NCLT, Mumbai Bench, in M.A. No. 874 of 2018 in CP (IB) No(s). 1371 & 1372/I&BP/NCLT/MAH/2017 ]

In the matter of :

ICICI Bank Ltd. Through its Authorized Signatory ICICI Bank Towers, Bandra Kurla Complex, Bandra (East), Mumbai-400 051 ... Appellant

Versus 1. Mr. Shailendra Ajmera, the Resolution Professional of Ruchi Soya Industries Limited 301 Mahakosh House, 7/5 South Tukoganj, Nath Mandir Road, Madhya Pradesh, India. Indore- 452 001

2. Committee of Creditors Through IDBI Bank ...Respondents

Present:

For Appellant : Mr. Arun Kathpalia, Senior Advocate with Mr. Shantanu Chaturvedi, Mr. Nikhil Mathur, Advocates

Respondents: Mr. Abhinav Vasisht, Senior Advocate with Mr. Swapnil Gupta, Ms. Ankita Sinha, Ms. Akshita, Ms. Rajdipa Behura and Mr. P. Kani, Advocates for Respondent No.1 Mr. Nakul Sachdeva, Ms. Ambika Singh Pratiyush and Mr. A. Sahay, Advocates for Respondent No. 2 2

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In the 'Corporate Insolvency Resolution Process against M/s. Ruchi

Soya Industries Limited (Corporate Debtor), the 'Resolution Professional' filed

an application under Section 43(1) of the 'Insolvency & Bankruptcy Code,

2016 (for short, 'the I&B Code') for seeking reversal of the amounts debited

from the account of the 'Corporate Debtor' maintained with the 'ICICI Bank

Limited' before the 'insolvency commencement date' and alleged to have been

utilised against the payment of dues made by the 'Corporate Debtor' in favour

of the 'ICICI Bank Limited' pursuant to 'Letter of Credit (LoC) issued by the

'ICICI Bank'. The said application having allowed by impugned order dated

12th March, 2019 the Appellant has challenged the same.

2. The present proceeding relates to transactions dated 8th December,

2017; 11th December, 2017 and 14th December, 2017 which were the

transactions undertaken by the Appellant pursuant to the 'Working Capital

Consortium Agreement' dated 15th May, 2013 entered into between the

Appellant and the 'Corporate Debtor' and the 'Renewal Credit Arrangement'

dated 20th June, 2017 executed between the Appellant and the 'Corporate

Debtor' providing overall limit of 'Letter of Credit' facility for the period ending

15th December, 2017.

3. The main plea taken by the Appellant - ICICI Bank is that the

'Resolution Professional' before filing an application under Section 43(1) of the

I&B Code formed no opinion independently nor afforded an opportunity to the

Appellant to explain about the transactions in question.

Company Appeal (AT) (Insolvency) No. 370 of 2019 3

4. It was submitted that three transactions aforesaid were not 'preferential

transactions' and were made in usual course of the business. It was

submitted that none of the correspondence made between the Appellant and

the Respondent, 'Resolution Professional' alleged that the aforesaid three

transactions are 'preferential transaction'. On the contrary, vide an e-mail

dated 26th December, 2017, the 'Resolution Professional' requested the

Appellant to grant 'Letters of Credit' or in the alternative, transfer the funds

to other banks, who would be willing to issue 'Letters of Credit'.

5. It was also submitted that only on Appellant's refusal to do so by e-mail

dated 27th December, 2017, on account of reasons as stated above, the

'Resolution Professional without forming any opinion or communication to the

Appellant filed an application under Section 43(1) of the 'I&B Code' alleging

the three transactions aforesaid as 'preferential transactions', which

according to Appellant is an after thought.

6. It was further submitted that the 'Resolution Professional' as also the

Adjudicating Authority have failed to notice the transactions, in question, do

not come within the ambit of Section 43(2) of the 'I&B Code' and were made

in usual course of the business.

7. Learned counsel for the Appellant relied on Clause 10 (iii) of the

Agreement, which stipulates :

"iii) Without prejudice to the said Bank remedies for

recovery of the aforesaid amounts, they shall be

entitled to debit such amounts to any of the Cash credit

Account(s) or other Account(s) and the same shall bear

interest at the rate(s) applicable to such Facilities and

Company Appeal (AT) (Insolvency) No. 370 of 2019 4

all such amounts shall be and always to deemed to

have been secured by the securities agreed to be

created for the said Facilities."

Therefore, according to the learned counsel for the Appellant, it has a

contractual right under clause 10.3 of the Agreement to debit any amount

which is lying in the current accounts of the 'Corporate Debtor'. Further,

according to him, there is no application filed by the 'Corporate Debtor' to

renew or to issue fresh 'Letters of Credit' under the agreement and, therefore,

the 'Resolution Professional' cannot take advantage of the fact that the

Appellant justifiably refused to issue fresh 'Letters of Credit'.

8. Learned counsel for the 'Resolution Professional' submitted that for

deciding whether a transaction is 'preferential transaction' under Section 43,

following four ingredients are to be considered :

a) The 'Corporate Debtor' makes a transfer in respect of an existing

'financial debt' or other liability;

b) As a result of the payment made by the 'Corporate Debtor' the

person to whom the payment is able to recover than he would

have in the waterfall provided under Section 43 of the I&B Code'

c) The transfer or payment has been made in the relevant period i.e.

2 years in case of related parties and one year otherwise and

d) However, if the transfer is made in the ordinary course of

business of the 'Corporate Debtor', it would not be treated as a

preferential transaction.

Company Appeal (AT) (Insolvency) No. 370 of 2019 5

9. It was submitted that the 'Corporate Debtor', 'ICICI Bank' and 20 other

Banks had entered into a 'Working Capital Consortium Agreement' on 15th

May, 2013. In terms of said agreement, each bank sanctioned a limit for the

'Corporate Debtor' to draw on for working capital requirements including

issuance of 'Letters of Credit' to make various purchases of raw material

required by the 'Corporate Debtor'. Vide a sanction letter dated 20th June,

2017, the 'Letter of Credit' limit was renewed and extended to Rs. 563 Crores

by the 'ICICI Bank'. The Appellant's Bank agreed to provide 'Letter of Credit'

within the limit of Rs. 563 Crores. It was submitted that as per the ordinary

course of business between the 'Corporate Debtor' and the Appellant's Bank

once a payment is made under a 'Letter of Credit', subject to funds available

with the 'Corporate Debtor', it could repay the Bank. According to him, in

ordinary course of business the 'Letter of Credit' limits were nearly fully

utilized by the 'Corporate Debtor' between July, 2016 to November, 2017. It

was submitted that the application under Section 7 was admitted and order

was pronounced on 15th December, 2017. Therefore, according to the

'Resolution Professional' after the commencement of 'insolvency resolution

process' it was not open to the Bank to take steps pursuant to 'Letter of Credit'

exposing the 'Corporate Debtor' towards other liabilities. 'Letter of Credit' for

Rs. 540,40,41,255 Crores were given on 8th December, 2017, similarly a sum

of Rs. 483,63,38,646 Crores was received pursuant of 'Letter of Credit' dated

15th December, 2017 and additional amount of Rs. 65.98 Crores were also

deposited. Learned counsel for the 'Resolution Professional' referred to

Section 5(12) which provides the 'insolvency commencement date' and Section

14, pursuant to which the order of 'moratorium' was passed by the

Company Appeal (AT) (Insolvency) No. 370 of 2019 6

Adjudicating Authority prohibiting realization of the asset of the 'Corporate

Debtor'.

10. Relying on Section 43 which relates to 'preferential transactions' it was

submitted that three transactions in question were made prior to the

'insolvency commencement date' i.e. prior to appointment of 'Interim

Resolution Professional'.

11. Section 43 relates to 'preferential transactions and relevant time', as

quoted below :

"43. Preferential transactions and relevant

time

(1) Where the liquidator or the resolution

professional, as the case may be, is of the

opinion that the corporate debtor has at a

relevant time given a preference in such

transactions and in such manner as laid down

in sub-section (2) to any persons as referred to

in sub-section (4), he shall apply to the

Adjudicating Authority for avoidance of

preferential transactions and for, one or more

of the orders referred to in section 44.

(2) A corporate debtor shall be deemed to have

given a preference, if--

(a) there is a transfer of property or

an interest thereof of the corporate

debtor for the benefit of a creditor or a

Company Appeal (AT) (Insolvency) No. 370 of 2019 7

surety or a guarantor for or on account

of an antecedent financial debt or

operational debt or other liabilities owed

by the corporate debtor; and

(b) the transfer under clause (a) has the

effect of putting such creditor or a surety

or a guarantor in a beneficial position

than it would have been in the event of

a distribution of assets being made in

accordance with section 53.

(3) For the purposes of sub-section (2), a

preference shall not include the following

transfers--

(a) transfer made in the ordinary course

of the business or financial affairs of the

corporate debtor or the transferee;

(b) any transfer creating a security

interest in property acquired by the

corporate debtor to the extent that--

(i) such security interest secures new

value and was given at the time of or

after the signing of a security agreement

that contains a description of such

property as security interest and was

Company Appeal (AT) (Insolvency) No. 370 of 2019 8

used by corporate debtor to acquire such

property; and

(ii) such transfer was registered with an

information utility on or before thirty

days after the corporate debtor receives

possession of such property:

Provided that any transfer made in pursuance

of the order of a court shall not, preclude such

transfer to be deemed as giving of preference

by the corporate debtor.

Explanation.--For the purpose of sub-section

(3) of this section, "new value" means money or

its worth in goods, services, or new credit, or

release by the transferee of property

previously transferred to such transferee in a

transaction that is neither void nor voidable by

the liquidator or the resolution professional

under this Code, including proceeds of such

property, but does not include a financial debt

or operational debt substituted for existing

financial debt or operational debt.

(4) A preference shall be deemed to be given at a

relevant time, if--

(a) it is given to a related party (other than

by reason only of being an employee),

Company Appeal (AT) (Insolvency) No. 370 of 2019 9

during the period of two years preceding

the insolvency commencement date; or

(b) a preference is given to a person other

than a related party during the period of

one year preceding the insolvency

commencement date."

12. Sub-section (3) (a) of Section 43 of the 'I&B Code' makes it clear that

'preferential transaction' does not include transfer made in the ordinary

course of the business or financial affairs of the 'Corporate Debtor' or the

transferee.

13. As per sub-section (4) of Section 43 of the 'I&B Code' preference shall

be deemed to be given at a relevant time, if it is given to a related party during

the period of 2 years preceding the insolvency commencement date; or a

preference is given to a person other than a related party during the

period of one year preceding the insolvency commencement date. In the

present case, the transactions were made by the Appellant Bank on 8th

December, 2017, 11th December, 2017 and 14th December, 2017, as per

'Renewal Credit Arrangement Letter' letter dated 20th January, 2017 which

was valid up to 16th December, 2017.

14. Admittedly, the Appellant Bank is not a related party and, therefore, for

the purpose of relevant time clause (b) of sub-section (4) of Section 43 of the

I&B Code can be said to be applicable i.e. period of one year of 'insolvency

commencement date'.

15. From e-mail dated 26th December, 2018 sent by 'Resolution

Professional', we find that on behalf of the 'Corporate Debtor', he requested

Company Appeal (AT) (Insolvency) No. 370 of 2019 10

the Bank to allow the 'Corporate Debtor' to purchase the goods on the basis

of 'Letter of Credit'. 'Letters of Credit' were earlier provided by the Bank

enabling the 'Corporate Debtor' to purchase goods allowing the Bank to debit

the amount from the account of the 'Corporate Debtor'.

16. From the aforesaid fact, it is evident that all the transactions made on

8th December, 2017; 11th December, 2017 and 14th December, 2017 were so

made in the ordinary course of business of the Bank as per request of the

'Corporate Debtor'.

17. From the record, we find that the application under Section 7 was

admitted on 8th December, 2017 and the 'Resolution Professional' was

appointed on the said date. The order was passed on 8th December, 2017 and

was pronounced on 15th December, 2017, and uploaded in the website.

Though Code of Civil Procedure, 1908 (CPC) is not applicable, Order XX

Rule 1 relates to pronouncement of judgment. As per proviso to Rule 1 (3)

therein, where a judgment is pronounced by dictation in open Court than

transcript of the judgment so pronounced after making necessary corrections

and if signed by the Judge, in such case it will date back to the date when it

was originally pronounced in the open court, which is 8th December, 2017 in

the present case.

18. Section 5(12) defines 'insolvency commencement date' means 'the date

of admission of application' for initiation of 'corporate insolvency resolution

process'. As per proviso thereto where the 'Interim Resolution Professional' is

not appointed on the date of admission, the 'insolvency commencement date'

is treated as the date on which the 'Interim Resolution Professional' is

appointed by the Adjudicating Authority, as quoted below:

Company Appeal (AT) (Insolvency) No. 370 of 2019 11

"5. Definitions.

In this Part, unless the context otherwise requires, -

"(12) "insolvency commencement date" means the

date of admission of an application for

initiating corporate insolvency resolution

process by the Adjudicating Authority under

sections 7, 9 or section 10, as the case may

be;

"Provided that where the interim resolution

professional is not appointed in the order admitting

application under section 7, 9 or section 10, the

insolvency commencement date shall be the date on

which such interim resolution professional is

appointed by the Adjudicating Authority;"

19. In the present case the application under Section 7 of the 'I&B Code'

was admitted on 8th December, 2017 and the 'Interim Resolution Professional'

was appointed on the same date. Therefore, we hold that 'corporate

insolvency resolution process' commenced on 8th December, 2017.

20. We have already held that all the three transactions, in question, were

made in ordinary course of business. This apart, we find that the transactions

made on 8th December, 2017; 11th December, 2017 and 14th December, 2017

are either on the date of commencement of the 'corporate insolvency

resolution process' or during the pendency of 'Corporate Insolvency

Resolution Process'.. Therefore, in terms of sub-section (4) of Section 43 of

Company Appeal (AT) (Insolvency) No. 370 of 2019 12

the 'I&B Code' the transaction, in question, cannot be treated to be made 'one

year preceding the insolvency commencement date'.

21. The Adjudicating Authority has failed to notice the fact that all the

transactions were made on or after the date of commencement of the

'corporate insolvency resolution process' and in ordinary course of business

and in view of such position the impugned order dated 12th March, 2019

cannot be upheld. We accordingly set aside the impugned order dated 12th

March, 2019 and allow the appeal. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

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

[ Kanthi Narahari ] Member (Technical) New Delhi

22nd August, 2019

/ns/

Company Appeal (AT) (Insolvency) No. 370 of 2019