Pawan Rajgaria Suspended Director Of ... vs Canara Bank And Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.386 of 2024 (Arising out of Order dated 02.02.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Division (Special) Bench, Court No.II, Kolkata in Company Petition (IB) No.284/KB/2022)

IN THE MATTER OF: Pawan Rajgaria Suspended Director of Ananya Wood Private Limited, R/o Flat No. 13B, 13th Floor, Tower-1, 16A, Gurusaday Road, Kolkata 700019 ... Appellant

Versus

1. Canara Bank, having its Head Office at Bangalore in the State of Karnataka and carrying on business through its different branches including one named Asset Recovery Management Branch at 21, Camac Street, P.S.- Shakespeare Sarani, Kolkata- 700 016.

2. Ananya Wood Private Limited Through its Interim Resolution Professional Mr. Anil Agarwal, AAA Insolvency Professionals LLP, Address: Mousami Apartment, 158, Ballygunge Circular Road, Gr. Floor, Kolkata 700027. ... Respondents

Present:

For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Ms. Pallavi Pratap, Mr. Arik Banerjee, Ms. Muskan Jain, Mr. Shaunak Ghosh, Saheli Sen and Mr. Rajib Mullick, Advocates.

For Respondents: Mr. Dipankar Das and Ms. Sanjana Nandi, Advocates for R-1. Mr. Aditya Gauri and Mr. Amar Vivek, Advocates for RP.

Company Appeal (AT) (Insolvency) No.386 of 2024 1 JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by Suspended Director of the Corporate Debtor has been

filed challenging order dated 02.02.2024 passed by National Company Law

Tribunal, Division (Special) Bench, Court No.II, Kolkata, admitting

Application under Section 7 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as the "IBC") filed by the Canara Bank, the Financial

Creditor.

2. Brief facts necessary to be noticed for deciding the Appeal are:

(i) The Canara Bank sanctioned Cash Credit Limit of Rs.6 crores

and FLC of Rs.4 crores, totaling Rs.10 crores to the Corporate

Debtor on 28.08.2016. Working Capital Consortium was also

executed on 23.12.2016 for Rs.42.30 crores, in which

Financial Creditor had sanctioned Rs.7 crores and State Bank

of India Rs.35.30 crores. Supplemental Working Capital

Consortium Agreement was also executed from time to time.

The Financial Creditor last renewed the Sanctioned Facilities

for one year vide its letter dated 26.07.2019.

(ii) The account of Corporate Debtor was declared as

Non-Performing Asset ("NPA") by the Financial Creditor on

14.02.2020.

(iii) Notice under Section 13, sub-section (2) of the SARFAESI Act,

2002 was issued by the Financial Creditor on 18.02.2020.

Company Appeal (AT) (Insolvency) No.386 of 2024 2 Thereafter, Original Application was filed before the Debts

Recovery Tribunal by the Financial Creditor.

(iv) M/s Rajgaria Timber Private Limited & Anr. filed a Writ Petition

Appeal, being APO No.111 of 2020. M/s Rajgaria Timber

Private Limited questioned the steps taken by the Financial

Creditor under the SARFAESI Act and an issue was raised in

the Appeal that Appellant - M/s Rajgaria Timber Private

Limited was entitled for 270 days credit. The Appeal was

disposed of, directing the State Bank of India ("SBI") to decide

the issue raised in the Writ Petition, which is still pending

before the SBI.

(v) On 15.02.2022, a letter was issued by Financial Creditor to the

Corporate Debtor as well as Corporate Guarantors, informing

the dues as on 14.03.2022 of Rs.12,86,89,020.28/-, which was

requested to be paid within 10 days. Notice was given that

failing the payment, the Bank shall take steps under the IBC.

(vi) No payments having been made, Section 7 Application was

filed by the Financial Creditor, claiming a debt of

Rs.13,78,35,737.34/- as on 31.08.2022, mentioning the date

of default as 14.02.2020. Notice was issued in Section 7

Application, to which reply was filed by the Corporate Debtor.

Rejoinder affidavit was also filed by the Canara Bank.

(vii) The Adjudicating Authority vide order dated 02.02.2024

admitted Section 7 Application holding that debt and default

Company Appeal (AT) (Insolvency) No.386 of 2024 3 has been proved by the Financial Creditor. The Suspended

Director of the Corporate Debtor aggrieved by the admission of

Section 7 Application has come up in this Appeal.

3. We have heard Shri Abhijeet Sinha, learned Senior Counsel

appearing for the Appellant; Shri Dipankar Das and Ms. Sanjana Nandi,

learned Counsel appearing for Financial Creditor and Shri Aditya Gauri,

learned Counsel for RP.

4. Shri Abhijeet Sinha, learned Senior Counsel challenging the

impugned order, submits that Section 7 Application filed by Canara Bank

was barred by Section 10A. It is submitted that the Financial Facilities

granted to the Corporate Debtor was renewed by letter dated 26.07.2019

for one year i.e. upto 25.07.2020. Hence, the default, if any, would have

been only on 25.07.2020, which date was during 10A period, the

Application was liable to be rejected as barred by Section 10A. Date of NPA

declared by the Canara Bank as 14.02.2020 was also not in accordance

with law. It is submitted that Corporate Debtor was allowed only 180 days

usance period for Letter of Credit, whereas the Appellant was entitled for

270 days usance period. Reference has been made to the Writ Petition of

the Appellant filed in the Calcutta High Court as well as Writ Petition filed

by the Corporate Debtor before the Hon'ble Supreme Court where various

issues including the declaration of NPA have been questioned. It is

submitted that Adjudicating Authority committed error in only referring to

APO No.111 of 2020 filed by M/s Rajgaria Timber Private Limited, whereas

the Corporate Debtor has also filed Writ Petitions raising various issues.

Company Appeal (AT) (Insolvency) No.386 of 2024 4

5. The learned Counsel appearing for the Financial Creditor, refuting

the submissions of learned Counsel for the Appellant, submits that date of

NPA being 14.02.2020, there is no question of Application being barred by

Section 10A. The fact that renewal of Sanction was granted for one year on

26.07.2019, in no manner shall make the date of default as 25.07.2020, as

contended by the Appellant. The Corporate Debtor was sanctioned usance

period of 180 days since inception. The Corporate Debtor's account was

declared NPA due to default committed by the Corporate Debtor. The

Financial Creditor served upon the Corporate Debtor several notices

including the notice under Section 13, sub-section (2) of the SARFAESI Act.

The Appeal, which was filed in the Calcutta High Court by M/s Rajgaria

Timber Private Limited has nothing to do with the Financial Creditor as the

said proceedings were against the SBI and not between the Corporate

Debtor and the Canara Bank. It is submitted that according to own

showing of Appellant, Writ Petition filed by the Corporate Debtor before the

Hon'ble Supreme Court was dismissed as withdrawn, which order has been

brought on record by the Appellant itself in the additional affidavit. It is

further submitted that in Part-IV of Section 7 Application, 14.02.2020 was

mentioned as date of default, hence, there is no occasion to hold

Application being barred by Section 10A.

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

parties and haver perused the records.

7. We may first notice the Part-IV of the Application under Section 7

filed by Financial Creditor, where particulars of financial debt and date of

Company Appeal (AT) (Insolvency) No.386 of 2024 5 default have been mentioned. Part-IV, Item-2, mentioning about the

amount of claim and date of default is as follows:

"2 AMOUNT CLAIMED TO BE Rs,13,78,35,737.34 as on 31.08.2022 IN DEFAULT AND THE and the default occurred on 14.02.2020 DATE ON WHICH THE when the account was declared NPA. DEFAULT OCCURRED Copies of the calculation sheets showing (ATTACH THE WORKINGS workings for computation of amount and FOR COMPUTATION OF days of default have been annexed hereto AMOUNT ANP DAYS OF and marked as annexure - I."

DEFAULT IN TABULAR FORM)

8. The Application under Section 7, thus, clearly mentions that date of

default was 14.02.2020, when the account was declared NPA. The

Financial Creditor was fully entitled to file Section 7 Application, treating

the date of default as 14.02.2020. The Hon'ble Supreme Court in Laxmi

Pat Surana vs. Union Bank of India and Anr. - (2021) 8 SCC 481 in

paragraph 43 has held following:

"43. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 IBC. However, Section 7 comes into play when the corporate debtor commits "default". Section 7, consciously uses the expression "default" -- not the date of notifying the loan account of the corporate person as NPA. Further, the expression "default" has been defined in Section 3(12) to mean 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. In cases where the corporate person had offered guarantee in respect of loan

Company Appeal (AT) (Insolvency) No.386 of 2024 6 transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt...."

9. It is further relevant to notice that date of NPA mentioned was not for

the first time mentioned in Section 7 Application. The Financial Creditor

has initiated proceedings under the SARFAESI Act against the Corporate

Debtor before the Debts Recovery Tribunal, referring to Notice under

Section 13, sub-section (2) of SARFAESI Act and the date of NPA was

mentioned as 14.02.2020. The sheet-anchor submission of learned

Counsel for the Appellant is on renewal letter dated 26.07.2019 issued by

the Syndicate Bank (now Canara Bank). It is useful to notice the letter

dated 26.07.2019, relevant extracts of which are as follows:

"MID CORPORATE SHAKESPEARE SARANI BRANCH 26 Sahkespeare Sarani, Dimple Court 1st Floor Kolkata ZOOOI7 Ph No: 033.22903852, Mob: 0943305841 Email: br.9768@syndicatebank.co.in Ref No.: SL 008/9768/MCB/AWPL/2019 26.07.2019

To M/s Ananya Wood Private Limited Regd. Office Situated at, RAIKVA 3A Ram Mohan Mullick Garden Lane, 4th Floor Room No l0 Kolkata 700010

Subject: - Renewal df Your working capital limit under consortium banking arrangement

With reference to the above, the competent authority has sanctioned the renewal of working capital Limits to be valid for one year from oi date of sanction i.e., upto 25.07.2020 to M/s Ananya Wood Private Limited under consortium banking arrangement lead by State Bank of India on the terms and conditions mentioned below. A fresh and complete set of credit proposal shall be sent to us at least 45 days before the expiry of the limits,

Company Appeal (AT) (Insolvency) No.386 of 2024 7 to enable us to consider renewing the limits. Any breach in any of the terms and conditions relating thereto will be considered unauthorised.

(Rs. in Crore) Facility Limit ROI/Commn. Margin Security SODH 6.00 1 year MCLR 25% Primary: (8.60% p.a. at Hypothecation of present) + 3.20% entire current assets, + penal interest of Stock & Receivables 1.00% i.e. and other current 12.80% p.a. at assets both present present and future of the ILC/FLC 4.00 Usual 25% company on pari Commission Cash passu basis with SBI. Margin* Collateral: Mentioned below.

Penal interest of 1% for non conversion of agricultural land is charged in line with SBI.

.........."

10. The above letter indicates that working capital limit under

consortium banking arrangement was renewed for one year, i.e., upto

25.07.2020. The learned Senior Counsel for the Appellant sought to

interpret the date of default as 25.07.2020 on the basis of renewal letter.

Renewal of sanction for one year is the renewal of working capital limit, as

noted in the letter. Renewal of working capital limit is not relatable to the

default committed by the Corporate Debtor in fulfilling the obligations

under the Sanctioned Facilities. When on 14.02.2020, accounts of the

Corporate Debtor were declared as NPA, it clearly means that default was

committed by the Corporate Debtor in carrying out his financial obligations.

Renewal of sanction has nothing to do with the date of default committed

by the Corporate Debtor in fulfilling its financial obligations. Thus, the very

basis of the submission of learned Counsel for the Appellant that since

Company Appeal (AT) (Insolvency) No.386 of 2024 8 renewal of working capital limit was renewed for one year upto 25.07.2020,

hence, the date of default is 25.07.2020, has no basis and is to be rejected.

11. The learned Counsel for the Appellant has referred to Writ Petition

filed and the Appeal filed in the Calcutta High Court. The learned Counsel

for the Appellant has referred to order dated 19.10.2020 passed in

APO/111/2020, which was an Appeal filed by M/s Rajgaria Timber Pvt.

Ltd. & Ors. vs. State Bank of India & Ors., challenging order of learned

Single Judge dated 25.09.2020. The Calcutta High Court vide order dated

19.10.2020 has only directed the SBI to decide the issue with regard to

entitlement of the appellants to 270 days' credit. It is contended that the

said issue is pending consideration by the SBI. The said order passed by

the Calcutta High Court has no relevance with regard to issues raised in

the present Appeal. The Writ Petition was filed against the SBI, in which

Canara Bank was neither the party nor any order is issued to the Canara

Bank. The learned Senior Counsel for the Appellant in the additional

affidavit has referred to two Writ Petitions, which have been filed by the

Appellant in the Hon'ble Supreme Court, being Writ Petition (C) No.3 of

2021 in the matter of Ananya Woods Pvt. Ltd. vs. Union of India, in which

Writ petition filed under Article 32, the Canara Bank was not the party.

Further, the Writ Petition was dismissed as withdrawn. Further, another

Writ Petition was filed by the Corporate Debtor in the Hon'ble Supreme

Court under Article 32, being Writ Petition (C) No.1057 of 2023, which also

got dismissed as withdrawn on 06.10.2023. The Writ Petitions filed by the

Corporate Debtor in the Hon'ble Supreme Court were all dismissed as

Company Appeal (AT) (Insolvency) No.386 of 2024 9 withdrawn and we fail to see any relevance of the said proceedings before

Hon'ble Supreme Court with respect to issues, which have arisen in this

Appeal.

12. We, thus, are of the view that Application under Section 7 filed by

Canara Bank was not barred by Section 10A as contended by the Appellant.

The Adjudicating Authority having found the debt and default, has rightly

proceeded to admit Section 7 Application. In paragraph 16 of the order,

the Adjudicating Authority has noted all relevant factors to be considered

in Section 7 Application and has proceeded to answer the said issues in

favour of the Financial Creditor.

13. We, thus, do not find any error in the impugned order passed by the

Adjudicating Authority admitting Section 7 Application. There is no merit

in the Appeal. The Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

7th May, 2024

Ashwani

Company Appeal (AT) (Insolvency) No.386 of 2024 10