Ifci Ltd vs Golf Technologies Pvt. Ltd

(Arising out of Order dated 31st May, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, in (IB)- 515(ND)/ 2017)

IN THE MATTER OF:

IFCI Limited ...Appellant

Vs

M/s. Golf Technologies Private Limited ....Respondent

WITH

Company Appeal (AT) (Insolvency) No. 498 of 2018

(Arising out of Order dated 30th May, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, New Delhi in (IB)-516 (ND)/ 2017)

IN THE MATTER OF:

IFCI Limited ...Appellant

Vs

M/s. Cedar Infonet Pvt. Ltd. ....Respondent

Present:

For Appellant: Mr. Sushil Gupta, Mr. Ashok Kumar Goel, Mr. Rishi Singh, Mr. Atishay K. Prasad, Advocates.

For Respondent: None. 2

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In both the appeals, as Appellant is common and on common ground

applications filed under Section 7 of the Insolvency and Bankruptcy Code,

2016 ("I&B Code" for short) have been rejected, they were heard together

and are being disposed of by this common judgment.

Company Appeal (AT) (Insol.) No. 497 of 2018

2. This appeal has been preferred against the order dated 31st May,

2018 passed by the Adjudicating Authority (National Company Law

Tribunal), New Delhi Bench, in (IB) No. 515/ND/2017, rejecting the

application preferred by the Appellant- ('Financial Creditor') under Section

7 of the 'I&B Code'.

3. The Appellant- 'IFCI Limited' filed petition for initiation of 'Corporate

Insolvency Resolution Process' against 'M/s. Golf Technologies Pvt. Ltd.'-

('Corporate Debtor') as a 'Financial Creditor' on the ground of failure of the

'Principal Borrower'- 'M/s. Cedar Infonet Private Limited' to pay the

financial debt of Rs.12,24,62,314/- inclusive of interest owned by it out of

the financial assistance extended to it in the form of term loan of Rs.50

Crore vide sanction letter dated 23rd August, 2010, corporate loan vide

sanction letter dated 11th May, 2011 not exceeding to Rs.100 Crores, out of

which only Rs.20 Crores was disbursed to the said principal borrower, as

'M/s. Golf Technologies Pvt. Ltd.'- ('Corporate Debtor') had executed a

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 3

registered deed of mortgage incorporating covenants of guarantee dated

19th October, 2012 to secure the repayment of loan and advances

aggregating to Rs.150 Crores granted by Appellant- 'IFCI Limited' to 'M/s.

Cedar Infonet Private Limited'- ('Principal Borrower').

4. The Adjudicating Authority by impugned order dated 31st May, 2018

rejected the application under Section 7 on the ground that the application

under Section 7 against the 'Principal Borrower' ('M/s. Cedar Infonet

Private Limited') has already been rejected.

Company Appeal (AT) (Insol.) No. 498 of 2018

5. In this appeal, the Appellant- 'IFCI Limited' has challenged the order

dated 30th May, 2018 whereby the application under Section 7 of the 'I&B

Code' filed against 'M/s. Cedar Infonet Private Limited' has been rejected on

the ground that the Appellant did not file alongwith the application details

of the accounts of the Respondent showing value of the invoked shares and

the remaining balance, if any, after giving credit in respect of the value of

invoked shares. Suh finding has been given taking into consideration the

report of CIBIL dated 6th November, 2017 which mentions that there are

"no delinquencies reported on the borrower ('Corporate Debtor') either

current or for the last 24 months" in respect of "your institution"

(Appellant/ 'Financial Creditor').

6. According to the Appellant- 'IFCI Limited', it granted three loans to

'M/s. Cedar Infonet Private Limited' ('Principal Borrower'/ 'Corporate

Debtor') on 29th August, 2008, 30th August, 2010 and 19th May, 2011,

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 4

respectively. The details of same were shown in the paper book and have

been enclosed in the paper book of the appeal.

7. For default of payment by 'M/s. Cedar Infonet Private Limited', the

Appellant- 'IFCI Limited' filed an application under Section 7 of the 'I&B

Code' which was dismissed by the Adjudicating Authority on the ground

that substantial part of the loan is repaid and no delinquencies are

reported in the CIBIL Report.

8. Learned counsel appearing on behalf of the Appellant submitted that

the Adjudicating Authority has grossly erred in concluding that as the

substantial portion of debt was recovered and, therefore, the Appel was not

maintainable. It was submitted that under the provisions of the 'I&B Code',

what is required for maintaining the Insolvency Petition is the default of

more than Rs.1 Lakh and in the present case admittedly, the default is

more than Rs.12 Crores, which is a substantial amount to be paid by the

'Corporate Debtor'.

9. It is further submitted that the Appellant has not willfully

suppressed any information from the Adjudicating Authority as the sale of

pledged shares is a matter of historic event which took place and the

amount claimed in the petition is only after giving effect to the sale of the

pledged share.

10. Learned counsel for the Appellant submitted that whether the shares

pledged were invoked on the same day when pledged or were invoked on or

after the date when the default occurred was the issue before the

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 5

Adjudicating Authority. The Adjudicating Authority heavily relied on the

chart as placed by the 'Corporate Debtor' (M/s. Cedar Infonet Private

Limited') for holding that the substantial debt has been paid off.

11. A bare perusal of the chart as on 1st September, 2008, it is clear a

total of 58,50,000 shares were invoked. Even we accept the plea taken by

the Respondent that the second loan was availed on 30th August, 2010 and

1,08,50,000 of Tulip shares were pledged pursuant to loan availed on 29th

August, 2008, and were extended as security for the second loan, such

submission is against the Share Pledge Agreement dated 30th August, 2010.

12. In spite of service of notice, the Respondents in both the appeals have

not appeared. Notices returned un-served and, therefore, it was ordered to

make publication in the newspapers-- one in English ('The Times of India',

New Delhi and NCR Region) and another in Hindi ('The Hindustan', New

Delhi and NCR Region). In spite of publication in the Newspapers, both the

'Principal Borrower' and the 'Corporate Debtor' not appeared.

13. From the record, we find that the Adjudicating Authority has failed to

appreciate the fact that the invocation of pledged shares could not have

taken place before the default. Repayment clause in the sanction letter at

pages 109 & 117 of the paper book dated 23rd August 2010 and 11th May,

2011 respectively reads as under:

"The loan of Rs.50 Crores shall be paid in four quarterly

installments after a moratorium of one year from the date of

disbursement."

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 6

14. The letter dated 11th May, 2011 reads as under:

"The loan of Rs.100 Crores shall be repaid in eight quarterly

installments of Rs.12.5 Crore each after a moratorium of one

year from the date of disbursement."

15. Clause 3.1 of the Pledge Agreement relates to remedy in case of event

of default. As per Clause 3.2 of the Share Pledge Agreement while dealing

with consequences of invocation the same reads as under:

"3.2.1. Irrespective of anything contained in this

Agreement, on invocation of pledge, the shares comprised

in the Collateral will not become the property of the Lender,

even though transferred or Credited to the account of the

Lender with the Depository. The Lender will not be

required to acquire any such shares in their own individual

account or on account of any funds or client accounts that

are managed by the Lender.

3.2.2. The economic risk attached to the said shares

comprised in the Collateral (including due variations in

market price) will continue to be the account of the Pledgor

until such time as they are actually sold to a third person.

3.2.3. Any appreciation and/or depreciation in the price

of the said shares between the time of invocation and the

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 7

sale of such shares will continue to be to the account of the

Pledgors."

16. The aforesaid clause makes it clear that it is date of sale of share

which matters and not the date of invocation. Further due credit has been

given in respect of sale of share which is reflected at page nos. 130 and 137

of the paper book of the Summary of outstanding amount, where the

under-noted mentions that more than Rs.25 Crores were credited in the

account of the 'Corporate Debtor'.

17. On 5th June, 2012 i.e. prior to date of default which is 16th August,

2012 the 'Corporate Debtor' had written a letter to the 'Financial Creditor'

(the Appellant herein), relevant portion of which reads as under:

"We have paid back loan of Rs. 12.5 Crore from the

corporate loan of Rs.50 Crore. We request you to release

the proportionate number shares of Tulip Telecom Limited

that were pledged against the loan amount."

18. The aforesaid letter clearly proves that the shares were not invoked

and sold on the date of pledge. If the shares were invoked on the date of

pledge, then such shares can't be released.

19. It has been brought to our notice that in O.A. No. 274/2014 filed by

the Appellant- 'IFCI Limited' before the Debts Recovery Tribunal-I, Delhi,

against 'M/s. Cedar Infonet Private Limited' ('Principal Borrower'/

'Corporate Debtor') under Section 19 for recovery of Rs.7,19,05,825.60 has

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 8

been decreed by the DRT by judgment dated 11th July, 2018 along with

pendente lite and future interest at the rate of 12% p.a. from 3rd September,

2014 till its realization.

20. In "Innoventive Industries Ltd. vs. ICICI Bank and Anr.− 2018 (1)

SCC 407", the Hon'ble Supreme Court held that 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 Rs.1 Lakh or more. The Hon'ble Supreme

Court further held that in the case of a 'Corporate Debtor' who commits a

default of the 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, which reads

as follows:

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a

debt becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as 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

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 9

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.

xxx xxx xxx

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

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 10

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."

21. From the record, as we find that there is a debt which is more than

Rs.1 Lakh and the matter has been brought to the notice of the 'Corporate

Debtor', we hold that the Adjudicating Authority wrongly rejected both the

applications under Section 7 preferred by the Appellant; one against the

'Principal Borrower'- ('M/s. Cedar Infonet Private Limited') and; another

against 'M/s. Golf Technologies Pvt. Ltd.'.

22. For the reasons aforesaid, we set aside both the impugned orders

dated 31st May, 2018 and 30th May, 2018 and remit the matter to the

Adjudicating Authority, New Delhi Bench, for admission of the case if

record is complete, after notice to the parties.

23. We make it clear that the application against the Principal Borrower'-

('M/s. Cedar Infonet Private Limited') which was filed by the Appellant-

'Financial Creditor' was rejected prior to the order dated 31st May, 2018

passed in the case of the Corporate Guarantor, the Adjudicating Authority

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018 11

will first take up the matter which was filed against 'Principal Borrower'-

('M/s. Cedar Infonet Private Limited') after notice to the parties. Once it is

admitted, the other case against the 'Corporate Debtor' should not have

been entertained for the same amount as the Appellant can claim only

before the 'Resolution Professional' and same debt amount cannot be

claimed in two different 'Resolution Process'.

Before admission of the case, it will be open to the parties to settle

the matter and in such case, the Appellant may withdraw the case. Both

the appeals are allowed with aforesaid observations and directions.

However, in the facts and circumstances of the case, there shall be no order

as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

23rd April, 2019

AR

Company Appeal (AT) (Insolvency) Nos. 497 & 498 of 2018