Pijush Banerjee vs If&Fs Financial Services Limited

[Arising out of Order dated 28.10.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench (Court-I), Kolkata in I.A. (IB) No. 318/KB/2022 in CP (IB) No.347/KB/2020]

IN THE MATTER OF:

Pijush Banerjee Being a member of the suspended Board of Directors of E Village Kendra Limited Residing at 23B, Lala Babu Lane, Cossipore H.O. Kolkata - 700 002, West Bengal. ...Appellant

Versus

IL & FS Financial Services Limited Having its registered office at IL & FS Financial Centre Plot No. C-22, G Block, Bandra Kurla Complex, Bandra E, Mumbai - 400 051. ...Respondent

Present: For Appellant: Mr. Debal Banerjee, Sr. Advocate with Mr. Soumya Dutta, Mr. Siddhant Upmanyu, Advocates. For Respondents: Mr. Krishnendu Datta, Sr. Advocate with Mr. Raunak Dhillon, Ms. Isha Malik, Mr. Nihaad Dewan, Advocates

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by the Suspended Director of the

Corporate Debtor - E Village Kendra Limited challenging the order dated

28.10.2022 passed by the Adjudicating Authority (National Company Law

Cont'd.../ -2-

Tribunal), Kolkata Bench, Court-I admitting Section 7 application filed by

IL & FS Financial Services Limited. Brief facts of the case are:

(i) The Financial Creditor - IL & FS Financial Services Limited

sanctioned Infrastructure Term Loan of Rs.90 Crores in favour

of the Corporate Debtor by Sanction Letter dated 15.01.2018.

A Loan Agreement dated 26.03.2018 was entered between the

Corporate Debtor and the Financial Creditor. Another

Infrastructure Term Loan of Rs.280 Crores in favour of the

Corporate Debtor by way of Sanction Letter dated 24.03.2018

and a Loan Agreement dated 29.03.2017.

(ii) The Corporate Debtor executed a Deed of Undertaking dated

26.03.2018 in respect of Infrastructure Term Loan facility of

Rs.90 Crores. Similarly, the Corporate Debtor executed a Deed

of Undertaking dated 29.03.2017 in respect of Infrastructure

Term Loan facility of Rs.280 Crores.

(iii) The amount was disbursed by the Financial Creditor to the

Corporate Debtor as per the facility letters read with the Loan

Agreement. The Corporate Debtor was required to pay interest

in respect of the facilities.

(iv) On failure of the Corporate Debtor to pay interest, notice dated

22.11.2018 was issued by the Financial Creditor demanding

payment of overdue amount. Subsequent to notice dated

22.11.2018, the Financial Creditor exercised its first remedial

option under the Loan Agreements dated 26.03.2018 and

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29.03.2017 demanding full payment of the amount disbursed

under Infrastructure Term Loans and notices dated

23.11.2018 and 27.11.2018 were issued demanding payments

by the Financial Creditor.

(v) The Corporate Debtor having defaulted in making the

payment, application under Section 7 was filed by the

Financial Creditor in January, 2020.

(vi) The Adjudicating Authority issued notice to the Corporate

Debtor, who appeared before the Adjudicating Authority and

filed its reply dated 29.12.2020. Rejoinder was also filed on

behalf of the Financial Creditor. The Adjudicating Authority

after hearing the parties vide the impugned order dated

28.10.2022 has admitted Section 7 application.

(vii) Aggrieved by the order admitting Section 7 application this

Appeal has been filed.

2. We have heard Shri Debal Banerjee, learned senior counsel for the

Appellant and Shri Krishnendu Datta, learned senior counsel appearing for

the Respondent.

3. Shri Debal Banerjee, learned senior counsel appearing for the

Appellant submits that the Financial Creditor in support of Section 7

application has not filed any statutory certificate as required by Section

65B(4) of the Evidence Act, 1872. The Financial Creditor was required to

file the certified copies as prescribed under clause (3) of Section 2 of the

Bankers Book Evidence Act, 1891 and in absence of such certified copies

Company Appeal (AT) (Insolvency) No. 1383 of 2022 -4-

the Court should not be obliged to admit Section 7 application. No Balance

Sheet admissible as evidence was annexed with the Section 7 application,

hence, the application was liable to be rejected. Referring to statement of

disbursement to the Corporate Debtor as annexed by the Financial Creditor

alongwith the Rejoinder affidavit, it was submitted that said statement was

a statement prepared only by IL & FS and was not a statement issued by

the Bank. It is submitted that application under Section 7 was incomplete,

hence, deserved rejection. Certificate under Section 65B (4) of the Evidence

Act was mandatory to verify the computer generated documents or books

of ledger. There was no compliance of Section 7(3) of the Code. Column 7

of Form 1 Part V requires copies of entries in a Bankers Book in accordance

with the Bankers Book Evidence Act, 1891.

4. Learned counsel for the Respondent refuting the submissions of

learned counsel for the Appellant contends that there was ample evidence

attached alongwith Section 7 application to prove debt and default and no

error has been committed by the Adjudicating Authority in admitting

Section 7 application. It is submitted that requirement of filing certified

copy of the entries in the account of the Bankers Book has been added by

Regulation 2A to the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 by

amendment w.e.f. 13.11.2020 which was not applicable at the time when

Section 7 application was filed. Hence, it was not mandatory to file the

copies of entries in Bankers Book in accordance with Bankers Book

Evidence Act, 1891. In reply filed by the Corporate Debtor there was no

Company Appeal (AT) (Insolvency) No. 1383 of 2022 -5-

denial to the facility and Loan Agreement executed between the parties.

There is no denial of amount disbursed by the Financial Creditor. There is

also no denial to default committed by the Corporate Debtor and the

submissions which are now being advanced in support of the Appeal does

not make any ground to reject Section 7 Application.

5. We have considered the submissions of learned counsel for the

parties and perused the record.

6. Regulation 2A which has been added in Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 by amendment w.e.f. 13.11.2020 is as follows:

"[2A. Record or evidence of default by financial creditor. For the purposes of clause (a) of sub-section (3) of section 7 of the Code, the financial creditor may furnish any of the following record or evidence of default, namely:-

(a) certified copy of entries in the relevant account in the bankers' book as defined in clause (3) of section 2 of the Bankers' Books Evidence Act, 1891 (18 of 1891);

(b) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired.]"

7. The above requirement was not even applicable when the application

was filed under Section 7 by the Financial Creditor. Hence, the insistence

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of learned counsel for the Appellant for certified copy of entries of relevant

account of the Bankers Book as defined in Clause (3) Section 2 of the

Bankers Book Evidence Act, was not necessary requirement in facts of the

present case. The Appellant has also alongwith the Section 7 application

filed the copy of Sanction Letter dated 15.01.2018 and Sanction Letter

dated 24.03.2017 as Annexure-F and Annexure-H to the Section 7

Application. Further, the Loan Agreement dated 26.03.2018 and Loan

Agreement dated 29.03.2017 were annexed as Annexure-G and Annexure-

I.

8. In the Reply which was filed by the Corporate Debtor to Section 7

application, there was no denial of those documents. We, in this context,

need to refer to reply affidavit filed by the Corporate Debtor to Section7

application which is on the record as Annexure B to the Additional Affidavit

brought on record by the Appellant. Sanction Letter dated 15.01.2018 and

Sanction Letter dated 24.03.2017 has been referred to in the reply as well

as Loan Agreement. There was no denial of the Sanction Letter and Loan

Agreement executed. What was sought to be alleged that put options were

exercised by the Financial Creditor without the situation occurring for such

options in terms of the Loan Agreements dated 26.03.2018 and

29.03.2018. There being no denial of the Sanction Letters and the Loan

Agreements, the submission which is much pressed by learned counsel for

the Appellant is that the statement of disbursement is the statement which

has been prepared by the Financial Creditor itself and was not the

statement issued by a Bank.

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9. The Appellant in the Rejoinder filed before the Adjudicating Authority

has brought the statement of disbursement to the Corporate Debtor on the

record, which statement was prepared by the Financial Creditor itself and

bears seal and signature of the Financial Creditor. It is relevant to note

that said financial statement was supported by HDFC Bank statement

reflecting the transactions between the parties. There being no denial by

the Corporate Debtor to the disbursement by the Financial Creditor in the

reply, the Adjudicating Authority did not commit any error in admitting

Section 7 application.

10. Section 7(3) of the Code provides as follows:

"7(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;

(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."

11. The Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 provides for filing of Section 7 application in Form1

accompanied with the documents and records required therein. Part V of

the Form-1, Item No. 8 of Part V is as follows:

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8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT

12. The Part V also contemplates other documents in order to prove the

existence of Financial Debt, the amount and date of default, on basis of

which the Adjudicating Authority has come to the conclusion that the

Financial Creditor has successfully proved the debt and default. The most

important factor to be taken into consideration is that the Corporate Debtor

in its reply has neither denied debt nor the default. What is contended by

the Corporate Debtor is that it was not proved by the documents as

envisaged by Section 7 application. Section 7 application envisage other

documents also to prove the debt and default.

13. Learned counsel for the Appellant has placed reliance on judgment

of Hon'ble Supreme Court in "Arjun Panditrao Khotkar vs Kailash

Kushanrao Gorantyal, (2020) 7 SCC 1", where the Hon'ble Supreme

Court had occasion to consider Section 65B (4) of the Evidence Act, 1872.

The said judgment was delivered by the Hon'ble Supreme Court in

reference to trial of election petitions under the Representation of the

People Act, 1951. The above judgment in no manner help the Appellant in

facts of the present case which deals with requirement of filing of Section

7 application under the I&B Code.

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14. We have noticed that in the reply which was filed before the

Adjudicating Authority, the Corporate Debtor has also made allegations

against the Financial Creditor that the Financial Creditor itself is

undergoing insolvency resolution and there are serious allegations of fraud

and concealing information. Allegations of fraud and forgery are very easy

to make but very difficult to prove. In event, the case of the Corporate

Debtor is that the insolvency proceedings were initiated fraudulently or

with malicious intent for any purpose other than for resolution of

insolvency, it is always open for the Appellant to make application under

Section 65 of the Code before the Adjudicating Authority and it is for the

Adjudicating Authority to consider such application.

15. In view of the foregoing discussion, subject to the observations as

made above, we dismiss the Appeal.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

[Mr. Barun Mitra] Member (Technical) NEW DELHI

15th December, 2022

Archana

Company Appeal (AT) (Insolvency) No. 1383 of 2022