Mahesh Kumar Sureka vs Sber Bank & Ors

[Arising out of Order dated 16th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in CP (IB) No. 543/KB/2017]

IN THE MATTER OF:

Mahesh Kumar Sureka ...Appellant

Vs.

SBER Bank & Ors. ...Respondents

Present: For Appellant: - Mr. S.N. Mukherjee, Senior Advocate with Mr. Pulkit Deora, Mr. Shaunak Mitra, Mr. Abishek Kumar, Mr. Abhimanyu Bhandari and Mr. Shivam Takiar, Advocates.

For Respondents: - Mr. Gyanendra Kumar, Ms. Anuradha Mukherjee, Ms. Shikha Tandon, Ms. Stuti Bhatnagar, Advocates. Mr. Ajay Kumar Jain, Advocate for Respondent no.2.

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by Mr. Mahesh Kumar Sureka,

Director of Varrasana Ispat Limited ('Corporate Debtor') against the order

dated 16th November, 2017 passed by the Adjudicating Authority

(National Company Law Tribunal), Kolkata Bench, Kolkata, whereby and

whereunder the application preferred by SBER Bank ('Financial Creditor')

under section 7 of the Insolvency and Bankruptcy Code, 2016

Company Appeal (AT) (Insolvency) No. 319 of 2017 2

(hereinafter referred to as "I&B Code") has been admitted, order of

'Moratorium' has been passed and 'Interim Resolution Professional' has

been appointed with certain directions.

2. Learned counsel appearing on behalf of the Appellant submitted

that the 'Financial Creditor' has already filed application under Section

19 of the Recovery of Debts Due to Banks and Financial Institutions Act,

1993 (DRT Act), which is pending.

3. It was further submitted that in respect of the 'Corporate Debtor' a

meeting of the consortium members of Joint Lenders Forum (JLF) was

convened on 30th July, 2014 consisting of Corporation Bank Limited,

UCO Bank, Indian Overseas Bank, Central Bank of India and United

Bank of India. The 'Financial Creditors' were informed about its intention

to present a Corrective Action Plan (CAP) in view of the worsening

scenario in the steel industry sector both globally as well as domestically

which was adversely affecting the performance of the 'Corporate Debtor'.

In spite of the same, the 'Financial Creditor' approached the Adjudicating

Authority under section 7, which has been admitted by the Adjudicating

Authority without taking into consideration the aforesaid facts.

4. Learned counsel appearing on behalf of the Appellant submitted

that there is no default as per sub-section (12) of Section 3 as the

'Corporate Debtor' was under restructuring and in view of the decision

taken by the Joint Lenders Forum. But such submissions cannot be

accepted, as it is not in dispute that there was debt and the 'Corporate

Company Appeal (AT) (Insolvency) No. 319 of 2017 3

Debtor' failed to pay the debt to the 'Financial Creditor' within the time,

which resulted in default and giving rise to the proceeding under Section

19 of the DRT Act. So far as the decision of the Joint Lenders Forum is

concerned, on such ground an application under Section 7 cannot be

rejected, in view of decision of the Hon'ble Supreme Court in "M/s.

Innoventive Industries Ltd. Vs. ICICI Bank & Anr.─ 2017 SCC OnLine

SC 1025", wherein the Hon'ble Supreme Court observed and held:

"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 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

Company Appeal (AT) (Insolvency) No. 319 of 2017 4

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.

28. When it comes to a financial creditor triggering

the process, Section 7 becomes relevant. Under the

explanation to Section 7(1), a default is in respect of a

financial debt owed to any financial creditor of the

corporate debtor- it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in such

form and manner as is prescribed, which takes us to

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Under Rule 4,

the application is made by a financial creditor in Form

1 accompanied by documents and records required

therein. Form 1 is a detailed form in 5 parts, which

Company Appeal (AT) (Insolvency) No. 319 of 2017 5

requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II,

particulars of the proposed interim resolution

professional in part III, particulars of the financial

debt in part IV and documents, records and evidence

of default in part V. Under Rule 4(3), the applicant is

to dispatch a copy of the application filed with the

adjudicating authority by registered post or speed

post to the registered office of the corporate debtor.

The speed, within which the adjudicating authority is

to ascertain the existence of a default from the records

of the information utility or on the basis of evidence

furnished by the financial creditor, is important. This

it must do within 14 days of the receipt of the

application. It is at the stage of Section 7(5), where the

adjudicating authority is to be satisfied that a default

has occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the sense

that the "debt", which may also include a disputed

claim, is not due. A debt may not be due if it is not

payable in law or in fact. The moment the

adjudicating authority is satisfied that a default has

occurred, the application must be admitted unless it

is incomplete, in which case it may give notice to the

Company Appeal (AT) (Insolvency) No. 319 of 2017 6

applicant to rectify the defect within 7 days of receipt

of a notice from the adjudicating authority. Under

sub-section (7), the adjudicating authority shall then

communicate the order passed to the financial

creditor and corporate debtor within 7 days of

admission or rejection of such application, as the case

may be."

5. In this case, as default is apparent and the Adjudicating Authority

is satisfied that a default has occurred, the application being complete,

the Adjudicating Authority rightly admitted the application.

6. Next, it was contended that the Authorised Representative of the

'Financial Creditor' has not signed Form 1 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

However, it has been pointed out by the Respondent ('Financial Creditor')

that Form 1 has been signed by the Chief Executive Officer of the Bank.

7. In "Palogix Infrastructure Private Limited Vs. ICICI Bank

Limited─ Company Appeal (AT) (Insol.) No. 30 of 2017", this Appellate

Tribunal by its judgment dated 20th September, 2017 held as follows:

"37. As per Entry 5 & 6 (Part I) of Form No.1,

'Authorised Representative' is required to write his

name and address and position in relation to the

'Financial Creditor'/Bank. If there is any defect, in

Company Appeal (AT) (Insolvency) No. 319 of 2017 7

such case, an application under section 7 cannot be

rejected and the applicant is to be granted seven days'

time to produce the Board Resolution and remove the

defect.

38. This apart, if an officer, such as senior Manager

of a Bank has been authorised to grant loan, for

recovery of loan or to initiate a proceeding for

'Corporate Insolvency Resolution Process' against the

person who have taken loan, in such case the

'Corporate Debtor' cannot plead that the officer has

power to sanction loan, but such officer has no power

to recover the loan amount or to initiate 'Corporate

Insolvency Resolution Process', in spite of default of

debt.

39. If a plea is taken by the authorised officer that

he was authorised to sanction loan and had done so,

the application under section 7 cannot be rejected on

the ground that no separate specific authorization

letter has been issued by the 'Financial Creditor' in

favour of such officer designate."

8. In the present case, as the Chief Executive Officer of the Bank has

signed Form 1, the application under Section 7 of the 'I&B Code' cannot

Company Appeal (AT) (Insolvency) No. 319 of 2017 8

be rejected. We find no merit in this appeal. It is accordingly dismissed.

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

order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

NEW DELHI 3rd April, 2018 AR

Company Appeal (AT) (Insolvency) No. 319 of 2017