Neeta Chemicals (I) Pvt. Ltd vs State Bank Of India

[Arising out of Order dated 14th August, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP No.(IB)/128/10/HDB/2017]

IN THE MATTER OF:

Neeta Chemicals (I) Pvt. Ltd. ...Appellant

Vs.

State Bank of India ...Respondent

Present: For Appellant: - Shri Alok Dhir, Ms. Varsha Banerjee, Shri Milan Singh Negi and Shri Kunal Godhwani, Advocates.

For Respondent:- Shri A. Vasisht, Senior Advocate assisted by Ms. P. Singh, Shri M. Singh, Ms. G. Shahi, Shri Manmeet Singh, Shri Anugrah Robin Frey and Ms. Geetanjali Shahi, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

M/s Neeta Chemicals (I) Private Limited ('Corporate Applicant') filed

an application under section 10 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as "I&B Code"). On notice and hearing the

'Financial Creditor' (State Bank of India), the Adjudicating Authority

(National Company Law Tribunal), Hyderabad Bench, Hyderabad,

Company Appeal (AT) (Insolvency) No. 174 of 2017 2

dismissed the application with cost by impugned order dated 14th August,

2017 with the following observations:

"16. It is to be mentioned here that the loans in

question were availed by the Corporate Debtor in the

year 2009-10, which are collaterally secured by way

of equitable mortgage by deposit of title deeds

/registered mortgage. And loans in question are

classified as NPA as early as on 26.12.2013.

Subsequently SARFASEI proceedings as detailed

supra are initiated, which are in advanced stage of E-

auction. As pointed out by the Learned Counsel for

the Respondent/Bank, the instant application is filed

only to scuttle the proceedings of SARFAESI. The

Corporate Debtor has not taken any steps to clear

even a part of loan and surprisingly and

mischievously trying to deny the loans in question. It

is un-heard that such a stand of denial is taken where

in public sector Banks and public money is involved.

Financial discipline demands that there should not be

denial simply for the sake of denial in case where

money is taken. It is very surprising to note the

attitude of the Corporate Debtor before the Bank by

way of replies as stated supra and filing the instant

application to misuse and abuse the process of law

Company Appeal (AT) (Insolvency) No. 174 of 2017 3

under IBC. This Bench will not be a party to permit

the Corporate Debtor to misuse provisions of IBC for

its selfish ends, and that too against public interest.

It is relevant to point out here that Courts/Tribunal is

ultimate custodian of public funds.

17. As stated supra, all the provisions of IBC have

to be taken into consideration, while deciding issues

raised in cases filed under provisions of IBC. Sections

60(5), 65 and 66 of IBC conferred wide powers on

Adjudicating Authority to analyze the issue(s) raised

in a given case, and decide it as per merits. We are

not inclined to accept the contention of the learned

counsel for the Corporate Debtor/Applicant that

Adjudicating Authority shall admit the case, once the

application is complete as averred by the applicant in

the application. The Adjudicating Authority should

apply law correctly, and it cannot act mechanically in

entertaining application(s) under IBC, which will have

serious repercussions on the parties. In the instant

case, as stated supra, the public money involved is

more than Rs. 324 Corers, and the Corporate Debtor

is making frivolous and un-tenable contentions. We

have no doubt in our mind that the present application

is filed on frivolous and mischievous grounds with a

Company Appeal (AT) (Insolvency) No. 174 of 2017 4

malafide intention and un-clean hands to take

advantage of provisions of IBC, 2016. Therefore, it is

a fit case to impose exemplary costs for invoking

provisions of IBC.

19. In the above circumstances, we are of the

considered view that the Corporate Debtor has failed

to satisfy the Adjudicating Authority as per various

provisions especially Section 10 of IBC, for admission

of the case. Therefore, it is not a fit case to admit the

case.

20. As stated supra, the account of Corporate

Debtor was classified as NPA as early as 26.12.2013

and bank has spent sufficient time, money and

energy to recover the debt from the Corporate Debtor,

which could be seen from the pre-paras. In the

interest of the case, we would like to narrate few

important steps taken by the bank such as number of

default notices issued to the Corporate Debtor, legal

notices issued to the Corporate Debtor and also to the

guarantors, demand notice issued under section 13(2)

of the SARFAESI Act. The Demand notice got

published in Deccan Chronicle and Eenadu in

January, 2013, rejoinder issued on 04.032017,

Possession Notice dated 17.042017 got issued under

Company Appeal (AT) (Insolvency) No. 174 of 2017 5

Rule 8(1) of Security Interest (Enforcement) Rules,

2002 and again published in Indian Express and

Andhra Jyothy in April, 2017, Notice Prior to Sale

under Rule 8(5) and 8(6) of Security Interest

(Enforcement) Rules in May 2017 and E-auction sale

notice in July, 2017 etc, which involved substantial

cost to the Financial Creditor / Bank. Therefore, we

impose a cost of Rs. 10 lakhs on the Corporate Debtor.

21. In the result, the Company petition bearing CP

(1B) No. 128/10/HDB.2017 is dismissed with a cost

of Rs. Ten lakhs to be paid to SBI/Financial Creditor

on or before 31st August, 2017."

2. Learned counsel for the Appellant submits that the impugned order

has been passed on frivolous grounds which cannot be taken into

consideration, though the application under Section 10 of the 'I&B Code'

was complete in all aspects.

3. On the other hand, according to Respondent ('Financial Creditor')

there is significant suppression of liability in the application filed by the

Appellant under section 10 of the 'I&B Code' making it incomplete and

liable to be rejected.

4. It was submitted that the Appellant has grossly understated the

outstanding amount owed to the Respondent in the Form 6, while the

Company Appeal (AT) (Insolvency) No. 174 of 2017 6

Appellant has admitted an amount of Rs. 324 crores as on 15th June,

2017. In fact, the Appellant owed more than the admitted amount as far

back as 31st October, 2016 when the demand notice was issued by the

Respondent. It was submitted that the outstanding liability amount had

increased to Rs. 329,71,74,696/- as evidenced from the notice issued on

3rd August, 2017 under Section 13(2) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 (hereinafter referred to as "SARFAESI Act").

5. The Appellant has highlighted the facts relating to SARFAESI

proceedings and action taken thereunder. It is also stated that the

Appellant has already filed a suit under section 19 of the Recovery of

Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act) in

S.A. No. 240 of 2017 challenging the securitization proceedings initiated

by the Respondent ('Financial Creditor').

6. Learned counsel for the Respondent submitted that there are other

instances which shows malafide on the part of the Appellant.

7. Similar issue fell for consideration before this Appellate Tribunal in

"M/s. Unigreen Global Private Limited Vs. Punjab National Bank &

Ors.─ Company Appeal (AT) (Insolvency) No. 81 of 2017", wherein

this Appellate Tribunal, by its judgment dated 1st December, 2017 taking

into consideration the provisions of Section 10 of the 'I&B Code' and

other relevant provisions, observed and held as follows:

Company Appeal (AT) (Insolvency) No. 174 of 2017 7

"20. Under both Section 7 and Section 10, the two

factors are common i.e. the debt is due and there is a

default. Sub-section (4) of Section 7 is similar to that

of sub-section (4) of Section 10. Therefore we, hold

that the law laid down by the Hon'ble Supreme Court

in "Innoventive Industries Ltd. (Supra) is applicable

for Section 10 also, wherein the Hon'ble Supreme

Court observed as "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 applicant to

rectify the defect within 7 days of receipt of a notice

from the adjudicating authority" .

21. In an application under Section 10, the

'financial creditor' or 'operational creditor', may

dispute that there is no default or that debt is not due

and is not payable in law or in fact. They may also

oppose admission on the ground that the Corporate

Applicant is not eligible to make application in view of

ineligibility under Section 11 of the I & B Code. The

Adjudicating Authority on hearing the parties and on

perusal of record, if satisfied that there is a debt and

default has occurred and the Corporate Applicant is

not ineligible under Section 11, the Adjudicating

Company Appeal (AT) (Insolvency) No. 174 of 2017 8

Authority has no option but to admit the application,

unless it is incomplete, in which case the Corporate

Applicant is to be granted time to rectify the defects.

22. Section 10 does not empower the

Adjudicating Authority to go beyond the records as

prescribed under Section 10 and the informations as

required to be submitted in Form 6 of the Insolvency

and Bankruptcy (Application to the Adjudicating

Authority) Rules, 2016 subject to ineligibility

prescribed under Section 11. If all informations are

provided by an applicant as required under Section

10 and Form 6 and if the Corporate Applicant is

otherwise not ineligible under Section 11, the

Adjudicating Authority is bound to admit the

application and cannot reject the application on any

other ground.

23. Any fact unrelated or beyond the requirement

under I & B Code or Forms prescribed under

Adjudicating Authority Rules (Form 6 in the present

case) are not required to be stated or pleaded. Non-

disclosure of any fact, unrelated to Section 10 and

Form 6 cannot be termed to be suppression of facts or

to hold that the Corporate Applicant has not come

with clean hand except the application where the

Company Appeal (AT) (Insolvency) No. 174 of 2017 9

'Corporate Applicant' has not disclosed

disqualification, if any, under Section 11. Non-

disclosure of facts, such as that the 'Corporate

Debtor' is undergoing a corporate insolvency

resolution process; or that the 'Corporate Debtor' has

completed corporate insolvency resolution process

twelve months preceding the date of making of the

application; or that the corporate debtor has violated

any of the terms of resolution plan which was

approved twelve months before the date of making of

an application under the said Chapter; or that the

corporate debtor is one in respect of whom a

liquidation order has already been made can be a

ground to reject the application under Section 10 on

the ground of suppression of fact/not come with clean

hand.

24. 1st Respondent -financial creditor has

referred to pendency of a Civil Suit between 'Mayank

Maheshwari v. Anurag Garg' and another suit

between 'Sh. Jagar Nath Mehto v. Vedika Overseas

Tradex Ltd.' . Pendency of such suits cannot be a

ground to deny admission of an application under

Section 10, if all the information in terms of Section 10

of the I & B Code and Form 6 has been supplied by a

Company Appeal (AT) (Insolvency) No. 174 of 2017 10

Corporate Applicant/Corporate Debtor and the

application is otherwise complete. Non-mentioning of

suit(s) pending between the parties cannot termed to

be suppression of facts nor can be a ground to reject

the application. In fact, once the application under

Section 10 is admitted, all such related proceedings,

including suits for recovery of moveable or immovable

property of the Corporate Debtor and other proceeding

cannot proceed further in any Court or Tribunal or

Authority in view of order of 'moratorium' as may be

declared under Section 13 and prohibition that may

be imposed under Section 14 of I & B Code.

25. Similarly, if any action has been taken by a

'Financial Creditor' under Section 13(4) of the

SARFAESI Act, 2002 against the Corporate Debtor or

a suit is pending against Corporate Debtor under

Section 19 of DRT Act, 1993 before a Debt Recovery

Tribunal or appeal pending before the Debt Recovery

Appellate Tribunal cannot be a ground to reject an

application under Section 10, if the application is

complete.

26. Any proceeding under Section 13(4) of the

SARFAESI Act, 2002 or suit under Section 19 of the

DRT Act, 1993 pending before Debt Recovery Tribunal

Company Appeal (AT) (Insolvency) No. 174 of 2017 11

or appeal pending before Debt Recovery Appellate

Tribunal cannot proceed in view of the order of

moratorium as may be passed.

32. In view of the provisions aforesaid, we hold

that, if any winding up proceeding has been initiated

against the Corporate Debtor by the Hon'ble High

Court or Tribunal or liquidation order has been

passed, in such case the application under Section 10

is not maintainable. However, mere pendency of a

petition for winding up, where no order of winding up

or order of liquidation has been passed, cannot be

ground to reject the application under Section 10."

8. It is not the case of the 'Financial Creditor' (State Bank of India)

that a winding up proceeding under the Companies Act or liquidation

proceeding under the 'I&B Code' has been initiated against the

'Corporate Debtor'. Therefore, the 'Corporate Applicant' is eligible to file

application under Section 10 of the 'I&B Code', if there is a debt and

default.

9. Further, as we find that the Adjudicating Authority has noticed the

extraneous factors unrelated to the Resolution Process not required to be

disclosed in terms of Section 10 or Form 6, we hold that the Adjudicating

Authority erred in rejecting the application on the ground of suppression

of facts.

Company Appeal (AT) (Insolvency) No. 174 of 2017 12

10. So far as the penal action under Section 65 of the 'I&B Code' is

concerned, this Appellate Tribunal in "M/s. Unigreen Global Private

Limited (Supra)", observed and held as follows:

"35. To decide the question, whether impugned

order of penalty imposed by the Adjudicating

Authority under Section 65 of the I & B Code is in

accordance with law or not it is desirable to notice the

provision, as quoted below:

"65. (1) If, any person initiates the insolvency

resolution process or liquidation proceedings

fraudulently or with malicious intent for any

purpose other than for the resolution of

insolvency, or liquidation, as the case may be,

the Adjudicating Authority may impose upon

such person a penalty which shall not be less

than one lakh rupees, but may extend to one

crore rupees.

(2) If, any person initiates voluntary liquidation

proceedings with the intent to defraud any

person, the Adjudicating Authority may impose

upon such person a penalty which shall not be

less than one lakh rupees but may extend to

one crore rupees."

Company Appeal (AT) (Insolvency) No. 174 of 2017 13

36. Sub-section (11) of Section 5 defines "initiation

date" i.e. the date of initiation of corporate insolvency

resolution process and reads as follows:

"(11) "initiation date" means the date on which

a financial creditor, corporate applicant

or operational creditor, as the case may

be, makes an application to the

Adjudicating Authority for initiating

corporate insolvency resolution process;"

If sub-section (11) of Section 5 is read with

Section 65 it is clear that if a 'Financial Creditor', or

'Corporate Applicant' or 'Operational Creditor' makes

an application to the Adjudicating authority for

initiating Corporate Resolution Process or liquidation

proceedings fraudulently or with malicious intent for

any purpose other than for the resolution of

insolvency, or liquidation, the Adjudicating Authority

may impose upon such person a penalty which shall

not be less than one lakh rupees, but may extend to

one crore rupees in terms of sub-section (1) of Section

65. Similarly, if any person such as Corporate

Applicant initiates voluntary liquidation proceedings

with the intent to defraud any person, the

Adjudicating Authority may impose upon such person

Company Appeal (AT) (Insolvency) No. 174 of 2017 14

a penalty which shall not be less than one lakh

rupees but may extend to one crore rupees in terms of

sub-section (2) of Section 65.

37. From the aforesaid provision, it is clear that for

imposition of penalty under Section 65, the

Adjudicating Authority on the basis of record is

required to form prima facie opinion that the person

(Financial Creditor / Corporate Applicant /

Operational Applicant) has filed the petition for

initiation of proceeding "fraudulently" or "with

malicious intent" for the purpose other than the

resolution of the insolvency or liquidation or that

voluntary liquidation proceedings has been filed with

the intent to defraud any person.

38. No such penalty under sub-section (1) or (2) of

Section 65 can be imposed by the Adjudicating

Authority without recording opinion for coming to the

conclusion that a prima facie case is made out to

suggest that the person "fraudulently" or "with

malicious intent" for the purpose, other than the

resolution insolvency or liquidation or with the intent

to defraud any person has filed the application."

11. There is nothing on record to suggest that the 'Corporate Applicant'

has suppressed any fact or has not come with the clean hands. The

Company Appeal (AT) (Insolvency) No. 174 of 2017 15

Adjudicating Authority has also not held that the application has been

filed by the Corporate Applicant "fraudulently" or "with malicious intent"

for any purpose other than for the resolution process or liquidation or

that the voluntary liquidation proceedings have been initiated with the

intent to defraud any person. In the absence of any such grounds

recorded by the Adjudicating Authority, the impugned order cannot be

upheld.

12. For the reasons aforesaid, the impugned order dated 14th August,

2017 passed in C.P. No. (IB)/128/10/HDB/2017 is set aside. The case

is remitted back to the Adjudicating Authority for admission of the

application under Section 10, if the application is otherwise complete. In

case it is incomplete, the Adjudicating Authority will grant time to the

appellant to remove the defects.

13. The appeal is allowed. However, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member [Judicial]

NEW DELHI 22nd March, 2018 AR

Company Appeal (AT) (Insolvency) No. 174 of 2017