Pawan Kumar vs Central Bank Of India

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.1095 of 2024 (Arising out of Order dated 14.05.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Chandigarh Court-I, in CP(IB) 184/CHD/PB/2020 and CP No.351/Chd/PB/2018)

IN THE MATTER OF: Pawan Kumar ...Appellant Versus Central Bank of India & Ors. ...Respondents

Present: For Appellant : Ms. Eshna Kumar and Ms. Jasleen Singh Sandha, Advocates. For Respondent : Ms. Yaehartha Gupta and Mr. Mayuresh, Advocates for PNB/ R2. Mr. Rajesh Rattan, Mr. Anuj Jain, Advocates for R3. Mr. Anant Gautam, Mr. Dinesh Sharma, Advocates for Indian Bank.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by Suspended Director of the Corporate

Debtor - M/s Kaur Sain Spinners Ltd., challenging order dated

14.05.2024 passed by Adjudicating Authority in

CP(IB)No.184/CHD/PB/2020 admitting Section 7 Application filed by

Punjab National Bank (Successor of Oriental Bank of Commerce) and

order dated 14.05.2024 passed in CP No.351/Chd/Pb/2018 disposing of

Section 7 Application filed by Central Bank of India as infructuous, in

view of order passed in Section 7 Application of Punjab National Bank. In

the proceedings Central Bank of India has been referred to as Respondent

Company Appeal (AT) (Ins.) No.1095 of 2024 1 No.1; Oriental Bank of Commerce, as Respondent No.2 and Mr. Nipan

Bansal, IP as Respondent No.3. The Memo of Parties is not described

properly. Accordingly, we direct that the Memo of Parties of the Appeal be

corrected, Central Bank of India as Respondent No.1; Punjab National

Bank as Respondent No.2 and Mr. Nipan Bansal, IRP as Respondent

No.3.

2. Brief background facts giving rise to the Appeal need to be noticed:

(i) The Corporate Debtor ("CD") was extended a loan by

Consortium of Bank, consisting of Oriental Bank of

Commerce and Central Bank of India by an Agreement dated

06.03.2017.

(ii) Central Bank of India declared the account of Corporate

Debtor as NPA with effect from 30.09.2017. The Oriental

Bank of Commerce, the lead Bank also declared the account

of Corporate Debtor as NPA on 31.08.2017. Central Bank of

India filed OA No.3000 of 2018 before Debts Recovery

Tribunal ("DRT") for recovery of its outstanding dues.

Oriental Bank of Commerce also filed OA No.3249 of 2019

against the CD.

(iii) Section 7 Application was filed by Central Bank of India

praying for initiation of CIRP against CD on 19.09.2018.

Section 7 Application was also filed by Oriental Bank of

Commerce (Now Punjab National Bank) against the CD.

Company Appeal (AT) (Ins.) No.1095 of 2024 2

(iv) In the proceedings before DRT a Decree was passed in favour

of Central Bank of India for Rs.49,44,65,248/-. For

execution of Decree obtained by Central Bank of India,

recovery proceedings were initiated by Proclamation of Sale

by Recovery Officer for two assets of the CD at Samarala and

Doraha. On certain objections, by order dated 25.10.2021,

Auction proceedings was put on hold by order dated

28.10.2021 and the Proclamation of Sale was cancelled.

Central Bank of India filed Civil Writ Petition No.22367 of

2021 in the Punjab and Haryana High Court, Chandigarh

challenging order dated 25.10.2021 and 28.10.2021.

Recovery Officer subsequently cancelled the auction on

24.04.2023.

(v) The CD also filed Civil Writ Petition No.11117 of 2022 in the

Punjab and Haryana High Court for setting aside notice dated

11.05.2022 issued by Tehsildar-Executive Magistrate,

Samrala for physical possession of property pursuance to

order dated 07.12.2021 passed by Additional Magistrate

under Section 14 of the SARFAESI Act, 2002.

(vi) In the proceedings under Section 7 filed by Oriental Bank of

Commerce, an interim order was issued by the Adjudicating

Authority directing that assets of the CD be not alienated. In

Section 7 Applications, filed by Central Bank of India and

Oriental Bank of Commerce, replies were filed by the CD and

both the Applications were heard by the Adjudicating

Company Appeal (AT) (Ins.) No.1095 of 2024 3 Authority. On 14.05.2024, order was passed by National

Company Law Tribunal, Chandigarh Bench, Court-I,

admitting Section 7 Application filed by Punjab National Bank

(Successor of Oriental Bank of Commerce), initiated CIRP and

appointed the Interim Resolution Professional (Respondent

No.3 herein).

(vii) Both the Writ Petitions, which were filed, being Writ Petition

No.22367 of 2021 filed by Central Bank of India and Writ

Petition No.11117 of 2022 filed by the CD, were heard by

Punjab and Haryana High Court and by order dated

24.05.2024, both the Writ Petitions were disposed of. The

High Court did not interfere with the order cancelling the

auction and affirmed the order for refund of the amount of

auction money of Rs.37.60 crores. The High Court also

noticed initiation of CIRP by order dated 14.05.2024 and held

that both the Writ Petitions have become infructuous.

(viii) This Appeal has been filed by the Suspended Director of the

Corporate Debtor on 28.05.2024, challenging the order

admitting Section 7 Application.

3. We have heard learned Counsel for the parties.

4. When the Appeal was heard by this Tribunal on 29.05.2024, a

submission was advanced by learned Counsel for the Appellant that two

assets of the CD have already been auctioned and an amount of Rs.136

crores have been recovered and Bank is taking steps to recover the dues

Company Appeal (AT) (Ins.) No.1095 of 2024 4 by means of proceedings under Section 7, which are subject matter of writ

petition. Noticing the above submission, this Tribunal passed an interim

order on 29.05.2024, directing the IRP, not to take any further steps in

pursuance of impugned order dated 14.05.2024 passed in

CP(IB)No.184/CHD/PB/2018. Notices were also issued. Both Central

Bank of India and Punjab National Bank have filed reply. The IRP has

also filed its reply.

5. Learned Counsel for the Appellant challenging the order admitting

Section 7 Application submits that the lead Bank, i.e. Oriental Bank of

Commerce (now Punjab National Bank) had taken steps to restructure the

debt and on 16.07.2018 a proposal for restructuring was accepted by the

lead Bank. It is submitted that Central Bank had no jurisdiction to file

Section 7 Application and it was only lead Bank, who as per inter-se

Agreement, can take steps for enforcement of the securities. The Central

Bank having already initiated proceedings before DRT, could not have

filed Section 7 Application. Section 7 Application has been filed as a

recovery measure. The auction of the assets, which was conducted by the

Central Bank was for very low amount. It is submitted that against the

order passed by the Punjab and Haryana High Court dated 24.05.2024,

the Appellant has filed Special Leave Petition (Civil) Diary No(s).28586 of

2024, which has been disposed of on 22.07.2024 by the Hon'ble Supreme

Court, where it was observed that Petitioner shall be at liberty to apprise

the Tribunal about the estimated market value of the property and/ or

take other initiatives, for revival of the industry. The Appellant has

Company Appeal (AT) (Ins.) No.1095 of 2024 5 submitted OTS proposal both to the Oriental Bank of Commerce as well

Central Bank of India, which need to be considered and proceedings to be

withdrawn.

6. Learned Counsel for the Central Bank of India opposing the

submission of learned Counsel for the Appellant submits that the

Appellant by misstatement of facts has obtained an interim order on

29.05.2024. There was no recovery of Rs.136 crores as submitted by the

Appellant and as noted in paragraph 2 of the order dated 29.05.2024. In

fact the auction was held on 05.11.2021 for Rs.37.60 crores, which

auction was subsequently cancelled on 24.04.2023. The Punjab and

Haryana High Court has already decided both the Writ Petitions on

24.05.2024. The refund of auction money from the auction purchaser

has also been affirmed by the High Court, thus, no money has been

recovered by the Central Bank of India and the Appellant by misstatement

has obtained the interim order. It is submitted that Decree was already

passed by the DRT for an amount of Rs.49,44,65,248/- for recovering the

debt. It is submitted that Section 7 Application filed by the Central Bank

of India has been dismissed as infructuous in view of order dated

14.05.2024 passed in the Company Petition filed by Punjab National

Bank. It is submitted that there is debt and default and Adjudicating

Authority has rightly admitted Section Application. It is further

submitted that OTS proposal submitted by the Appellant is wholly

insufficient.

Company Appeal (AT) (Ins.) No.1095 of 2024 6

7. Learned Counsel for the Punjab National Bank (Successor of

Oriental Bank of Commerce) has also filed reply. It is submitted that

Punjab National Bank filed Section 7 Application on account of default in

payment of the dues by the CD. The CD has committed default in paying

its debt towards several facilities extended by Punjab National Bank to the

CD in the year 2017. Total dues were Rs.246,30,21,036/-, for which

Section 7 Application was initiated. The account of CD was declared as

NPA on 31.08.2017. The SARFAESI proceedings were also initiated. It is

submitted that the Corporate Debtor has committed default and Section 7

Application has been rightly admitted by the Adjudicating Authority.

8. Learned Counsel for the IRP has also filed reply.

9. We have considered the submissions of learned Counsel for the

parties and perused the record. Section 7 Application, which was filed by

the Oriental Bank of Commerce, was filed in the year 2020 claiming

default of Rs.246,30,21,036/-, in which Section 7 Application, a reply was

filed and after hearing the parties, the Adjudicating Authority after finding

debt and default has admitted Section 7 Application. The proceeding for

auction, which was initiated in pursuance of Decree passed by DRT on

02.03.2020 on the Application filed by Central Bank of India, where

assets were auctioned on 05.11.2021 for an amount of Rs.37.60 crores,

has now stand cancelled on 24.04.2023. The Writ Petition, which was

filed by Central Bank of India being Writ Petition No.22367 of 2021 and

Writ Petition No.11117 of 2022 filed by the CD were both heard and

decided on 24.05.2024 by the Punjab and Haryana High Court. The High

Company Appeal (AT) (Ins.) No.1095 of 2024 7 Court in the order dated 24.05.2024 has noted the order dated

14.05.2024, by which Section 7 Application was admitted. The High

Court has held in the judgment that by virtue of order of admission under

Section 7 of IBC, both the Writ Petitions have become infructuous. The

High Court in its order dated 24.05.2024 has also noted that auction

stand cancelled and the direction has been issued to refund the amount

to the auction purchaser. It is useful to notice paragraphs 17 to 19 of the

judgment, which are as follows:

"17. Learned counsel for petitioner -- Bank as well as other two banks do not deny that order dated 24.04.2023 whereby auction in favour of respondent No. 9 has been set aside has not been subjected to challenge and said order stands as on today having attained finality.

18. Learned counsel for petitioner in CWP-22367-2021 and IRP representing petitioner in CWP-11117-2022 are unable to deny that in view of order dated 14.05.2024 passed by learned NCLT, both the writ petitions are indeed rendered infructuous.

19. In our considered opinion, there is no merit in the objection raised by learned counsel for IRP appointed by learned NCLT qua the prayer for release of bid amount by respondent No. 9. Factual aspect of auction having been conducted on 05.11.2021, pursuant to orders of this court in CWP-22367-2021, subsequent decision on the objections by Recovery Officer and setting aside of auction proceedings as well as sale in favour of respondent No. 9 vide order dated 24.04.2023 passed by Recovery Officer, is also a matter of record. With passing of order dated 24.04.2023, which as per information provided to us, stands unchallenged as on date, sale of property in question in favour of respondent No. 9 clearly does not exist. It is a matter of record that refund of the amount in question has been ordered vide order dated 24.04.2023.

10. The Writ Petition was decided by the Punjab and Haryana High

Court on 24.05.2024. The submission made on behalf of the CD before

Company Appeal (AT) (Ins.) No.1095 of 2024 8 the Adjudicating Authority to defer the hearing of Section 7 Application,

has become infructuous. The Adjudicating Authority having found the

debt and default, we do not find any error admitting Section 7

Application. The submission of the Appellant that under inter-se

Agreement it was only the lead Bank, who could have taken steps, is also

without any substance, since lead Bank, i.e., Oriental Bank of Commerce

has also filed Section 7 Application, which has been admitted by the

impugned order. The submission of the Appellant that Section 7

Application was filed for recovery of dues and was not maintainable, also

cannot be accepted. It is well settled law that the fact that Financial

Creditor has initiated proceedings before the DRT does not preclude them

to take remedy under Section 7, which is a special remedy provided under

the IBC.

11. The learned Counsel for the Appellant has also referred to the order

of Hon'ble Supreme Court dated 22.07.2024. On 22.07.2024, the Hon'ble

Supreme Court has passed following order:

"1. The application for permission to file the Special Leave Petition is allowed.

2. We have heard Mr.P.S. Patwalia, learned Senior Counsel for the petitioner at a considerable length in support of his prayer that the High Court ought to have ordered a probe into the allegation of collusion between the bank officials and the auction purchaser. He has highlighted various circumstances in order to impress upon that the auction was a managed show, it lacked transparency and it was an covert attempt to grab the mortgaged property at a highly low rate. We are, however, not inclined to entertain this question in view of the fact that the order of the Recovery Officer cancelling the auction has been fully affirmed by the High Court. The

Company Appeal (AT) (Ins.) No.1095 of 2024 9 auction property has been restored to its original status and is now subject to such orders that may be passed by NCLT/NCLAT in the pending proceedings. The petitioner shall be at liberty to apprise the Tribunals about the estimated market value of the property and and/or other initiatives, as may be deemed appropriate, for the revival of the industry.

3. With these observations, the Special Leave Petition is disposed of.

4. As a result, the pending interlocutory applications also stand disposed of."

12. The Appeal which was filed by the Appellant before the Hon'ble

Supreme Court challenging order of Punjab and Haryana High Court

dated 24.05.2024 has not been interfered with by the Hon'ble Supreme

Court and the Hon'ble Supreme Court has also noticed the orders passed

by the NCLT and the pending proceedings. The observation of the Hon'ble

Supreme Court that "The petitioner shall be at liberty to apprise the

Tribunals about the estimated market value of the property and and/or

other initiatives, as may be deemed appropriate, for the revival of the

industry" are with respect to proceedings pending before the

NCLT/NCLAT.

13. The learned Counsel for the Appellant has also submitted that it

has submitted proposal before both the Financial Creditors for One Time

Settlement and in event the proposal is accepted, the Financial Creditors

may need to file an Application under Section 12-A of the IBC for

withdrawal of the proceedings. To the submission of the Appellant that

OTS proposal if accepted by Financial Creditors, there can be no

impediment in filing Section 12-A Application before the NCLT for

withdrawal of the proceedings through IRP by giving Form-FA, in

Company Appeal (AT) (Ins.) No.1095 of 2024 10 accordance with law, no exception can be taken. Learned Counsel for the

IRP has also submitted that some time may be provided for consideration

of Section 12-A Application.

14. In view of the foregoing discussion and our conclusion, we are of

the view that no grounds have been made out by the Appellant to interfere

with the impugned order admitting Section 7 Application by the

Adjudicating Authority. However, we are of the view that in event the OTS

proposal as submitted by the Appellant is accepted by Financial

Creditors, it shall be open for the Financial Creditors to file Application

under Section 12-A read with Regulation 30A of IBBI (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 within two

weeks from today. In event, the OTS proposal is not accepted by

Financial Creditors and Application is not filed within two weeks from

today, the IRP shall proceed in the CIRP of the CD in accordance with law.

With the liberty aforesaid, the Appeal is dismissed. There shall be no

order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) NEW DELHI

15th January, 2025

Ashwani

Company Appeal (AT) (Ins.) No.1095 of 2024 11