M. K. Dhir vs Punjab National Bank

IN THE MATTER OF: 1. Shri M. K. Dhir S/o Late Shri D. C Dhir, 14, navjivan Vihar, New Delhi - 110017 ...Appellant No.1

2. Shri Harsh Dhir S/o Shri M.K.Dhir 14, navjivan Vihar, New Delhi - 110017 ...Appellant No.2

3. Smt. Shilpi Dhir, W/o Shri Harsh Dhir 14, navjivan Vihar, New Delhi - 110017 ...Appellant No.3

Versus 1. Punjab National Bank Asset Recovery Management Branch, 1st Floor, Rajendra Bhawan, Rajendra Place, New Delhi - 110025 ...Respondent No.1

2. M/s. Dhir Global Industria Pvt. Ltd Registered Office at: 14, navjivan Vihar, New Delhi - 110017

Service through: Shri Vijay Kumar Gupta, Insolvency Resolution Professional ...Respondent No.2

Company Appeal (AT)(Ins) No.453 of 2021

Page 1 of 19 Present: For Appellant: Mr. M. Dutta, Mr. Vivek Malik, Mr. Karan Aggarwal, Advocates For Respondent: Mr. RP Vats, Mr. Yash Tomar, Mr. Prakhar Shrivastava, Mr. Apoorv Sarvaria, Advocates for R1/PNB. Mr. Abhishek Anand, Mr. Tanveer Oberoi, Advocates for R- 2/RP

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The appeal has been filed by the 'Appellants' under Section 61 of the

'Insolvency and Bankruptcy Code, 2016' (in short 'Code') against the

impugned order dated 24.05.2021 passed by the 'Adjudicating Authority'

(National Company Law Tribunal), New Delhi (Court No.IV ) in Company

Petition No. IB- 699/ND/2019.

2. The Adjudicating Authority while passing the 'Impugned Order' dated

24.05.2021 in Company Petition No. IB- 699/ND/2019 had, inter alia,

observed the following at para 14 to 20:-

"14.That in the present case, the date of default was

mentioned as the date of declaration of NPA as 02.12.2016.

In view of the quashing of the declaration of the account of the

corporate debtor as NPA, the date of default now can be

considered as date of default as recorded in the certificate of

Company Appeal (AT)(Ins) No.453 of 2021

Page 2 of 19 information utility services which is 03.09.2016. The

application is filed on12.03.2019, which is well within the

period of limitation and not barred by law.

15.The registered office of corporate debtor is situated in Delhi

and therefore this Tribunal has jurisdiction to entertain and

try this application.

16. The Applicant is entitled to claim its dues, establishing the

default in payment of the financial debt beyond doubt. The

application is complete hence in the light of above facts and

records the present application is admitted.

17. The Applicant has proposed the name of Mr. Vijay Kumar

Gupta as Insolvency Resolution Professional, who is be and

hereby appointed as IRP of corporate debtor, having

registration number IBBI/IPA-001/IP-P01387/2018-

19/12134 (email -guptavk995@gmail.com) as the Interim

Resolution Professional subject to the condition that no

disciplinary proceedings are pending against such an IRP

named who may act as an IRP in relation to the CIRP of the

Respondent and specific consent is filed in Form 2 of

Insolvency and Bankruptcy Board of India (Application to

Adjudicating Authority) Rule, 2016 in relation to specifically

the corporate debtor and the applicant herein and make

disclosures as required under IBBI (insolvency Resolution

Company Appeal (AT)(Ins) No.453 of 2021

Page 3 of 19 Process for Corporate Persons) Regulations, 2016 within a

period of one week from the date of this order.

18. We direct the Financial Creditor to deposit a sum of Rs. 2

lacs with the Interim Resolution Professional namely Mr. Vijay

Kumar Gupta to meet out the expense to perform the functions

assigned to him in accordance with regulation 6 of Insolvency

and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Person) Regulations, 2016. The needful

shall be done within three days for the date of receipt of this

order by the financial Creditor. The amount however be

subject to adjustment by the Committee of Creditors as

accounted for by Interim Resolution Professional and shall be

paid back to the Financial Creditor.

19. As a consequence of the application being admitted in

terms of Section 7(5) of IBC, 2016 moratorium as envisaged

under the provisions of Section 14(1) shall follow in relation to

the Corporate Debtor prohibiting proviso (a) to (d) of the Code.

However, during the pendency of the moratorium period,

terms of Section 14(2) to 14(4) of the Code shall come in vogue.

20. In terms of above order, the Application stands admitted

in terms of Section 7(5) of IBC, 2016. A copy of the order shall

be communicated to the Applicant as well as to the Corporate

Debtor above named by the Registry. In addition, a copy of

Company Appeal (AT)(Ins) No.453 of 2021

Page 4 of 19 the order shall also be forwarded to IBBI for its records.

Further the IRP above named be also furnished with copy of

this order forthwith by the Registry."

3. The Appellants are 65% 'Shareholders' of the Respondent No.1 Company (R1)

even Appellant No.1 is the 'Promoter' and 'Managing Director' of the

Respondent No.1 Company. The Respondent No.2 (R2) was incorporated in

the year 1998 and was functioning as 100% export oriental manufacturing

unit engaged in manufacturing of conventional men's wear, comprising of

jackets, trousers and coats and he was supplied to leading brands of the

Company across the world. Their turnover is approx. Rs. 76 Crore and is

having net profit of the 15% of the turnover. The R1- Bank has unlawfully

and illegally declared the Respondent companies account as 'Non-Performing

Asset' (NPA) on 02.12.2016 and initiated proceedings under the Securitisation

and Reconstruction Of Financial Assets And Enforcement Of Security Interest

Act, 2002 (for short SARFAESI Act, 2002). It is also submitted by the

Appellants that on their petition under Section 17 of the SARFAESI Act, 2002

in SA No.91/2017 dated 20.03.2018, the 'Presiding Officer, DRT-II Delhi' has

passed the following orders:

"20. As seen from the above factual and legal position, the

security applicants have established from the Statement of

Account that the account was wrongly notified as NPA on

02.12.2016 and, as such, the entire action initiated by the

Respondent Bank is vitiated and by the wrong declaration of

Company Appeal (AT)(Ins) No.453 of 2021

Page 5 of 19 the account as NPA further proceedings under Section 13(4) of

the SARFAESI Act are unsustainable. Accordingly, points No.(i)

& (ii) are answered in favour of the security applicants and

against the Respondent Bank.

21. The Security applicants have claimed a sum of Rs.98.11

crores as damages on account of various acts of omission and

commission on the part of the Respondent bank. However, they

have not produced any document to sustain their counter claim.

Therefore, the security applicants have failed to make out a

case for set off and, as such, this point is answered against

them and in favour of the respondent bank.

22. In the result, the present S.A is allowed and it is held that

the declaration of the account of security applicants as NPA is

illegal and, consequently, the proceedings taken under Sections

13(2), 13(4) of the SARFAESI Act and for sale of the secured

asset are hereby quashed. However, this does not prevent the

respondent bank from declaration of the account as NPA as per

RBI guidelines and to act in accordance with law. In the

peculiar facts and circumstances of the case, the parties are left

to bear their own costs. File be consigned to records".

4. The Appellants have also pointed out that the impugned order failed to

appreciate that with the date of NPA 02.12.2016 being prohibited and

precluded from being treated as the date of "default", subsequent "defaults"

Company Appeal (AT)(Ins) No.453 of 2021

Page 6 of 19 were equally prohibited under the doctrine / principle of "Nullssuss

Commodum Capere Postest De Injuria Sua Propria" that no man shall take

advantage of its own wrong. The Hon'ble Supreme Court in (2017) 11 SCC

447, explaining the maxim held

"It is settled principle of law that a man cannot be

permitted to take undue and unfair advantage of his own

wrong to gain favourable interpretation of law. It is sound

principle that he who prevents a thing from being done

shall not avail himself of the non-performance he has

occasioned. To put it differently, "a wrongdoer ought not

be permitted to make a profit out of his own wrong".

The Appellants have accordingly submitted that such proceedings under the

Code are without merit, jurisdiction and beyond the provisions of the Code

and is seeking setting aside of the impugned order dated 24.05.2021.

5. It is submitted by the R1 - Bank that NPA has no bearing on Section 7 of the

Code. Section 7 of the Code deals with 'Debt' and 'Default' even dispute does

not come within its domain and have cited the judgment of Hon'ble Apex

Court in 'Laxmi Pat Surana Vs. Union Bank of India' 2021 SCC Online SC

267. It has been stated by the R1 that it is clearly established by the report

of the 'Information Utility' that the date of default is 03.09.2016. The report

of the 'Information Utility' is one of the evidences that can be used by the

Bank/ Financial Creditor to prove the existence of default. The application

has been filed on 12.03.2019 within a period of 3 years as required under

Company Appeal (AT)(Ins) No.453 of 2021

Page 7 of 19 Section 7 of the Code R/w Article 137 of the Limitation Act. The NPA is only

for the purpose of SARFAESI Act, 2002 and the same has nothing to do with

the proceedings under the Code. The proceedings under the Code and

SARFAESI Act, 2002 are independent and separate proceedings. The

Adjudicating Authority has rightly held that they are concerned only with

'default'. The Appellants is nowhere confirming that they have not

committed any default or that no amount is due and payable under law.

If 'debt' is legally due and payable and 'default' has been committed, the

provisions of the Code get triggered and have accordingly, supplemented the

stand of the Adjudicating Authority. It was also submitted by the R1- Bank

that the question of rightful or wrongly declaration of NPA is pending before

the 'Debt Recovery Appellate Tribunal' (DRAT) which is the forum to decide

any such plea.

6. The Respondent No.2 - Resolution Professional of the Corporate Debtor (CD)

(under CIRP) has stated that after his appointment as IRP, he has made a

public announcement on 29.05.2021 inviting claims from creditor in various

newspapers. The RP has stated that he has visited the registered office of the

CD and the factory situated in Udyog Vihar Gurugram Haryana. The factory

had 20-30 employees and security guards. The RP has also submitted that

the Appellants in this case have not provided information & documents

pertaining to the CD and no assistance has so far been extended to the

Insolvency Professional.

Company Appeal (AT)(Ins) No.453 of 2021

Page 8 of 19

7. We have heard Ld. counsels for both the parties and have analysed the

information provided by them and the relevant provisions of the Code and are

having the following observations:

a. It appears that the packing credit of Rs.42 lakh was disbursed by the

R1-Bank on 07.03.2016 and the due date of recoupment amount of

that was 03.09.2016 but the Borrower i.e. the Appellants/CD (under

CIRP) could not ship the goods and failed to adjust the packing

credit/repayment thereof within 03.09.2016 and as a result of the 'RBI

Guideline dated 01.07.2015', the account became NPA after 90 days

i.e. 02.12.2016.

b. As per the Application filed by PNB/Financial Creditor to initiate CIRP,

in Part-IV, the following information has been provided:

Particulars of Financial Debt

1. Total amount of Debt Rs.30,75,00,000.00 Crore.

granted, date(s) of That the CD was enjoying disbursement various credit facilities from Financial Creditor. These credit facilities were enhanced/ renewed/ reviewed from time to time Last Sanction on 11.03.2016

2. Amount claimed to be in Total amount claimed:

default and the date on Rs.28,96,32,153.00 as on which default occurred 31.01.2019.

(attach the workings for Date of default is 02.12.2016 computation of amount i.e. the Date of NPA and days of default in tabular form) c. As per 'National e-Governance Service Limited Report' dated

25.02.2020 record of default in the matter of CD is indicated hereunder:

2012.2021.

Company Appeal (AT)(Ins) No.453 of 2021

Page 9 of 19 Company Appeal (AT)(Ins) No.453 of 2021

Page 10 of 19 Company Appeal (AT)(Ins) No.453 of 2021

Page 11 of 19 d. The DRT has not confirmed in the above stated order that the default

has not been committed and no amount is due and payable. What it

has done, it has set aside the classification of the NPA only for the

purpose of the SARFAESI Act and the said order is under challenge in

an appeal before the DRAT.

e. It is a settled law that default is committed first and second stage comes

as NPA, if it is not regularized in between the period of default and

within 90 days thereafter. In order to bring clarity and brevity on the

subject Section 3(11), Section 3(12), Section 5(7), Section 5(8) and

Section 7 of the Code is reproduced below for brevity and clarity:

"Section 3(11) - "debt" means a liability or obligation in

respect of a claim which is due from any person and

includes a financial debt and operational debt;

Section 3(12) "default" means non-payment of debt when

whole or any part or instalment of the amount of debt has

become due and payable and is not paid by the debtor or

the corporate debtor, as the case may be;

Company Appeal (AT)(Ins) No.453 of 2021

Page 12 of 19 Section 5(7) -"financial creditor" means any person to

whom a financial debt is owed and includes a person to

whom such debt has been legally assigned or transferred

to;

Section 5(8) -"financial debt" means a debt alongwith

interest, if any, which is disbursed against the consideration

for the time value of money and includes--

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance

credit facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility

or the issue of bonds, notes, debentures, loan stock or any

similar instrument;

(d) the amount of any liability in respect of any lease or hire

purchase contract which is deemed as a finance or capital

lease under the Indian Accounting Standards or such other

accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables

sold on nonrecourse basis;

(f) any amount raised under any other transaction, including

any forward sale or purchase agreement, having the

commercial effect of a borrowing;

Company Appeal (AT)(Ins) No.453 of 2021

Page 13 of 19 Explanation. -For the purposes of this sub-clause,- (i) any

amount raised from an allottee under a real estate project

shall be deemed to be an amount having the commercial

effect of a borrowing; and (ii) the expressions, "allottee" and

"real estate project" shall have the meanings respectively

assigned to them in clauses (d) and (zn) of section 2 of the

Real Estate (Regulation and Development) Act, 2016 (16 of

2016);

(g) any derivative transaction entered into in connection with

protection against or benefit from fluctuation in any rate or

price and for calculating the value of any derivative

transaction, only the market value of such transaction shall

be taken into account;

(h) any counter-indemnity obligation in respect of a

guarantee, indemnity, bond, documentary letter of credit or

any other instrument issued by a bank or financial

institution;

(i) the amount of any liability in respect of any of the

guarantee or indemnity for any of the items referred to in

sub-clauses (a) to (h) of this clause;

Section 7 - Initiation of corporate insolvency

resolution process by financial creditor.

Company Appeal (AT)(Ins) No.453 of 2021

Page 14 of 19 (1) A financial creditor either by itself or jointly with [other

financial creditors, or any other person on behalf of the

financial creditor, as may be notified by the Central

Government] may file an application for initiating corporate

insolvency resolution process against a corporate debtor

before the Adjudicating Authority when a default has

occurred.

[Provided that for the financial creditors, referred to in

clauses (a) and (b) of sub-section (6A) of section 21, an

application for initiating corporate insolvency resolution

process against the corporate debtor shall be filed jointly by

not less than one hundred of such creditors in the same

class or not less than ten per cent. of the total number of

such creditors in the same class, whichever is less:

Provided further that for financial creditors who are allottees

under a real estate project, an application for initiating

corporate insolvency resolution process against the

corporate debtor shall be filed jointly by not less than one

hundred of such allottees under the same real estate project

or not less than ten per cent. of the total number of such

allottees under the same real estate project, whichever is

less:

Company Appeal (AT)(Ins) No.453 of 2021

Page 15 of 19 Provided also that where an application for initiating the

corporate insolvency resolution process against a corporate

debtor has been filed by a financial creditor referred to in

the first and second provisos and has not been admitted by

the Adjudicating Authority before the commencement of the

Insolvency and Bankruptcy Code (Amendment) Act, 2020,

such application shall be modified to comply with the

requirements of the first or second proviso within thirty days

of the commencement of the said Act, failing which the

application shall be deemed to be withdrawn before its

admission.]

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;

Company Appeal (AT)(Ins) No.453 of 2021

Page 16 of 19

(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).

[Provided that if the Adjudicating Authority has not

ascertained the existence of default and passed an order

under sub-section (5) within such time, it shall record its

reasons in writing for the same.]

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

Company Appeal (AT)(Ins) No.453 of 2021

Page 17 of 19 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."

f. From the above, it is very much clear that Code is a complete Act itself.

What Section 7 of the Code requires that a Financial Creditor by filing

an application in the requisite format can initiate CIRP against the CD

when a Debt is due and payable in law and has not been paid and a

default has occurred, the Adjudicating Authority is to initiate CIRP if,

he finds default recorded in the Information Utility or evidence of

default. So, the criteria for initiation of the CIRP under the Code is

limited to three things, (i) there is a debt due and payable in law and

has not been paid (ii)Default has occurred (iii) Default is recorded with

the Information Utility. Here all the three criteria's are met and hence

initiation of CIRP by the Adjudicating Authority is in order. As far as

Company Appeal (AT)(Ins) No.453 of 2021

Page 18 of 19 issue of limitation is concerned the default has been committed on

03.09.2016 and the Application has been filed on 12.03.2019 hence, it

is within a period of 3 years as required under Section 238A of the Code

R/w 137 of the Limitation Act held by Hon'ble Supreme Court in

Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Private

Limited in Civil Appeal No. 6347 of 2019 & B.K.Educational Services

Pvt. Ltd. Vs. Parag Gupta And Associates in Civil Appeal No.23988 of

2017.

g. We accordingly, uphold the order dated 24.05.2021 of the Adjudicating

Authority. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Justice Jarat Kumar Jain] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

18th January, 2022

New Delhi

Raushan.K

Company Appeal (AT)(Ins) No.453 of 2021

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