Raj Radhe Finance Limited vs Shree Shrinathji Spintex Pvt. Ltd. & Anr

[Arising out of order dated 10.10.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Ahmedabad Bench (Court-II) in I.A. No. 660 of 2020 in CP (IB) 574 of 2018]

IN THE MATTER OF:

Raj Radhe Finance Limited Gundala Road, Survey No. 461, Near Khedut Solvant, Behind Gujarat Ginning, Gondal, District Rajkot PIN 360311. ...Appellant

Versus

1. Shrinathji Spintx Pvt. Ltd. Gundala Road, Survey No. 461, Near Khedut Solvant, Behind Gujarat Ginning, Gondal, District Rajkot PIN 360311. 2. Bank of Baroda (erstwhile Dena Bank), Baroda Bhavan, R C Dutt Road, Alkapuri, Baroda-390007 Also at: "Gondal Branch" at Bhagwat Bazar, Gondal, District Rajkot-360311. ...Respondents Present:

Appellant: Ms. Honey Satpal, Mr. Nipun Singhvi, Mr. Vishal J. Dave, Advocates. 2

For Respondents: Ms. Anshula Grover and Ms. Nitika Grover, Advocates for R-1

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

10.10.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench,

Court-II) in I.A. No. 660 of 2020 in CP (IB) 574 of 2018. By the Impugned

Order, the Adjudicating Authority rejected the said I.A. No. 660 of 2020 filed

by Raj Radhe Finance Limited/Appellant to restore the CP(IB) No. 574 of 2018

which had been filed by Bank of Baroda, the original applicant and dismissed

for non prosecution. Aggrieved by this impugned order, the present appeal

has been preferred by the Appellant.

2. Coming to the factual matrix of the matter, we notice that the Bank of

Baroda, the original petitioner, had given a loan to the Corporate Debtor. The

Bank of Baroda-Present Respondent No.2 filed a Section 7 application vide

Company Petition No. 574/2018 against Corporate Debtor-Present

Respondent No. 1 before the Adjudicating Authority. Bank of Baroda had in

the meantime assigned the loan to the Appellant which is a Non-Banking

Finance Company vide an assignment agreement dated 30.09.2019. Bank of

Baroda as the original petitioner filed a pursis on 26.06.2020 before the

Adjudicating Authority bringing on record the assignment of the debt to the

Appellant. The Appellant had filed I.A. No 779/2019 in the main company

Company Appeal (AT) (Insolvency) No. 1485 of 2022 3

petition. The I.A. No. 779/2019 came up for hearing before the Adjudicating

Authority on 03.08.2020 but was adjourned. Thereafter I.A. No. 779/2019

was taken up for hearing again by the Adjudicating Authority on 25.08.2020

on which date the main company petition was also heard. The main company

petition was dismissed for non-prosecution. The I.A. No. 779/2019 was also

dismissed as infructuous since the main company petition stood dismissed.

The Appellant had also filed another I.A. with the NCLT Registry seeking

substitution of the Appellant in place of the Bank of Baroda in the main

company petition which application was however numbered as I.A. No.

887/2020 after dismissal of the main company petition and remained

unheard. After the main company petition was dismissed, the Appellant filed

I.A. No. 660/2020 on 28.09.2020 seeking restoration of the main company

petition. The restoration application has been rejected by the Adjudicating

Authority vide impugned order dated 10.10.2022. Aggrieved by the impugned

order, the present appeal has been preferred.

3. Making her submissions, the Learned Counsel for the Appellant stated

that the loan of the Corporate Debtor along with underlying security had been

assigned to the Appellant vide an assignment agreement entered into with the

Bank of Baroda. It was submitted that this position in respect of debt

assignment had been correctly appreciated by the Adjudicating Authority. Yet

when the main company petition of Section 7 of IBC filed by the Bank of

Baroda was dismissed by the Adjudicating Authority for non-prosecution, the

Appellant in spite of being a valid assignee was deprived from seeking

restoration of the main company petition on the ground that the name of the

Company Appeal (AT) (Insolvency) No. 1485 of 2022 4

Appellant was not brought on record during the pendency of the main

company petition and hence ineligible to file the restoration application. It was

emphatically asserted that the Appellant was all along pursuing its interests

in the right earnest having initially filed I.A. No 779/2019 in the main

company petition and also filed a substitution application and cannot be

blamed of negligence in enforcing their legal rights. It is also their case that

they have the right to pursue their legal remedies under IBC and unless the

restoration application is allowed their interests would be prejudicially

affected. Assailing the impugned order, it was vehemently contended that the

decision of the Adjudicating Authority is contrary to established principles of

law. In support of their contention, reliance has been placed on the judgement

of this Tribunal in the matter of Siti Networks Ltd vs Assets Care and

reconstruction Enterprises Ltd in CA (AT)(Ins)No.1499/2022 wherein it

has been held that there is no prohibition in the IBC or any of the Regulations

from continuation of proceedings by an assignee once the assignee steps into

the shoes of the assignor by virtue of assignment.

4. Refuting the submissions made by the Appellant, the Learned Counsel

for the Respondent No.1 submitted that though there was admittedly an

assignment agreement between Bank of Baroda and the Appellant, however,

no steps were taken by the Appellant to bring on record the assignment

agreement or for substitution of the Appellant in place of Bank of Baroda

during the pendency of the main company petition. It was also contended that

the substitution application was filed on 28.08.2020 which was after the

hearing of the main company petition had concluded. Thus, when the

Company Appeal (AT) (Insolvency) No. 1485 of 2022 5

Adjudicating Authority was unaware of any substitution application, it did

not commit any error in rejecting the restoration of the main company petition

which had been dismissed on grounds of non-prosecution by the original

applicant. Moreover, since the main company petition had already been

disposed of, the I.A. filed for substitution had become infructuous. It was also

pressed hard that since the Appellant was not a party to the main company

petition, the Appellant was not eligible to file an application for restoration

under Rule 48 of the NCLT Rules, 2016. Furthermore, the substitution

application having been moved after delay of 11 months, the restoration

application was rightly not allowed in the absence of sufficient cause

explaining the delay.

5. We have heard Learned Counsel of both parties and perused the records

carefully.

6. We notice from the material placed on record that the main company

petition came up for hearing for the first time on 19.08.2019. The Bank of

Baroda did not appear before the Adjudicating Authority on any hearings after

25.02.2020. It is an undisputed fact that before the Section 7 application

could be adjudicated by the Adjudicating Authority, the original petitioner,

Bank of Baroda had assigned the loan to the Appellant by way of a registered

assignment agreement dated 30.09.2019 as placed at page 65 of Appeal Paper

Book ('APB' in short). In terms of the Clause 2.1 of the assignment agreement,

the entire debt had been assigned in favour of the assignee with all rights,

title and interest in the financing documents, all agreements, deeds and

documents related thereto and all collateral and underlying security interest

Company Appeal (AT) (Insolvency) No. 1485 of 2022 6

and/or pledges created to secure and/or guarantees issued in respect of

repayment of the loans which the assignee is entitled to. This assignment

agreement also stipulated at Clause 6.1 that the assignor would cooperate

with the assignee in any legal proceedings for enforcement of the loans or the

underlying security interest and/or pledges created to secure and/or

guarantees and in any recovery proceedings.

7. It is also an undisputed fact that Bank of Baroda as the original

petitioner had filed pursis on 26.06.2020 before the Adjudicating Authority in

the main company petition bringing on record the fact of assignment of debt

to the present Appellant. Thus, in our considered opinion, there is no reason

to believe that the Adjudicating Authority was unaware of the assignment of

the debt by the original applicant, Bank of Baroda.

8. That the Appellant in turn was keen and vigilant about protecting its

own interests as an assignee is also evident from the factum that the

Appellant had filed I.A. No 779/2019 in the main company petition. When the

I.A. No. 779/2019 came up for hearing before the Adjudicating Authority on

03.08.2020, we also notice that it was brought to the knowledge of the

Adjudicating Authority by the Corporate Debtor that the original applicant,

Bank of Baroda, had already assigned the debt to the Appellant and that a

pursis had been filed to that effect by them. The relevant extracts of the orders

of the Adjudicating Authority is as follows:

"Learned lawyer, Mr. Arjun Sheth appeared on behalf of Applicant and submitted that the Respondent/Original Petitioner has already assigned his debt, to that effect he has

Company Appeal (AT) (Insolvency) No. 1485 of 2022 7

filed a pursis. However, as a last chance, the matter is adjourned.

Meanwhiule, the Applicant is directed to inform the Respondent along with copy of order of CP(IB) 574/2018.

List the matter on 25.08.2020."

9. The Adjudicating Authority after noting the submission made by the

Corporate Debtor with respect to the pursis filed by the Bank of Baroda,

adjourned the matter, since Bank of Baroda was not present. Thereafter I.A.

No. 779/2019 came up next for hearing by the Adjudicating Authority on

25.08.2020 on which date the main company petition was also heard and

separate orders were passed. At the time of hearing the main company

petition, Learned Counsel for the Corporate Debtor again made a submission

that Bank of Baroda had assigned its debt to the Appellant and that a copy of

the letter of the Bank of Baroda showing that they had assigned and

transferred the account to the Appellant had been annexed. However, the

Adjudicating Authority after taking note of the fact that Bank of Baroda was

not present during the hearing, in spite of notice having been issued to them,

decided to dismiss the Section 7 application. As regards I.A. No.779/2019,

though the Learned counsel for the Appellant was present during the hearing,

the I.A. was dismissed as infructuous on the ground that the main company

petition had been dismissed for non-prosecution.

10. This brings us to the question whether the Appellant had taken

appropriate steps to substitute itself in place of the original applicant, Bank

of Baroda. It is the case of the Appellant that their counsel was present during

Company Appeal (AT) (Insolvency) No. 1485 of 2022 8

the hearing of the main company petition who informed the Adjudicating

Authority that pursuant to the assignment agreement they had already filed

an I.A. with the NCLT Registry seeking substitution of the Appellant in place

of Bank of Baroda in the main company petition but the said IA was yet to be

numbered and notified for hearing. Nonetheless, when we peruse the order

sheet, no such presence of the Counsel for the Appellant has been recorded

by the Adjudicating Authority in their order dated 25.08.2020. Since no

presence is recorded on the order sheet and there is nothing to show that any

steps were taken by the Appellant to mark their attendance or to move any

application for correction of the said omission, we would prefer to go by the

court records which does not take note of the presence of the Learned counsel

for the Appellant.

11. However, even if we discount the presence of the Counsel of the

Appellant on 25.08.2020 when the main company petition was heard, we

cannot lose sight of the fact that an I.A. for substitution had been filed by the

Appellant though undeniably the physical filing of the same seems to have

taken place on 28.08.2020 which was post dismissal of the main company

petition. The said application which got subsequently numbered as I.A. No.

887/2020 has been placed on record at pages 96-98 of the APB wherein it

has been inter-alia prayed by the Appellant that the Adjudicating Authority

may permit the substitution of the name of Bank of Baroda with that of

Appellant in the main application.

12. This clearly shows that the Appellant was diligent and vigilant in

pursuing the main company application and had taken steps to file the

Company Appeal (AT) (Insolvency) No. 1485 of 2022 9

substitution application. Want of diligence or wilful inaction is attributable

only when something that is required to be done is not done at all or not done

in a timely manner. We do not find any such delay or negligence on the part

of the Appellant to deprive him of his statutory and legitimate right to

prosecute the main company petition.

13. That the Appellant was not negligent or slack in protecting its interests

is also borne out from the fact that after the main company application was

dismissed, the Appellant filed I.A. No. 660/2020 on 28.09.2020 seeking

restoration of the main company petition as placed at pages 141-149 of APB.

The prayers in IA 660/2020 were for recall of the order dated 25.08.2020

passed by the Adjudicating Authority in main company petition 574/2018

and for restoration of main company petition. In I.A. 660/2020, averment was

made that the Appellant had filed an I.A. for substitution in the main company

petition as Bank of Baroda had already assigned the debt, which assignment

had already been brought to the notice of Adjudicating Authority by filing a

pursis. It was also submitted that if the main company petition is not restored,

it would cause grave prejudice to the Appellant.

14. The Adjudicating Authority however dismissed the restoration

application after hearing IA 660/2020. We notice that the Adjudicating

Authority in the impugned order, on the one hand, has held that the Appellant

had stepped into the shoes of the Bank of Baroda and had the same right

against the Corporate Debtor as that of Bank of Baroda including all rights

exercisable under the IBC. Yet, on the other hand, it has dismissed the

restoration application on the ground that since the main company petition

Company Appeal (AT) (Insolvency) No. 1485 of 2022 10

was not filed by the Appellant, it was not eligible to file the restoration

application. It was also held that the Appellant was not a party in the main

company petition at any point of time nor was it a party to the said

proceedings until its dismissal. Hence, Appellant cannot be treated as the

original applicant of the main company petition and hence the said petition

cannot be restored by the Appellant. The Adjudicating Authority further held

that in terms of Rule 48 of NCLT rules, 2016, only the original applicant can

approach or file an application before the Adjudicating Authority for

restoration of the application. The original application has been dismissed on

ground of non-appearance of the Bank of Baroda and since in this application,

the Appellant was not a party, it could not have filed the restoration

application.

15. When we analyse the facts on record, we find that it is an undisputed

fact that the Bank of Baroda had assigned the debt to the Appellant during

the course of pendency of the main company petition. The Bank of Baroda

being the original petitioner had filed a pursis to the effect that the debt had

been assigned to the Appellant. The above mentioned pursis was also brought

to the notice of the Adjudicating Authority on 03.08.2020 by the Corporate

Debtor which was prior to the dismissal of the main company petition. More

significantly, we need to take cognisance of the affidavit filed by the Bank of

Baroda in IA 660/2020 as placed at page 192-193 of APB wherein it has

stated:

"2. I state that I am filing this short affidavit for limited purpose of stating and declaring before this Hon'ble Adjudicating Authority that the Bank of Baroda has been lender in relation

Company Appeal (AT) (Insolvency) No. 1485 of 2022 11

to the debts which are not assigned under the deed of assignment dated 30.09.2019 read with the correction of Assignment Deed dated 30.03.2021 in favor of Raj Radeh Finance Limited is the Assignee of the entire financial debt together with underlying securities in relation to present Corporate Debtor.

3. I say that as Bank of Baroda has already assigned its debts together with underlying securities in favor of the Assignee viz the present applicant, the present application for restoration is made by the applicant.

4. I say that in the facts and circumstances, this Hon'ble Adjudicating Authority may be pleased to consider to grant the prayers in the present application."

The Adjudicating Authority in the impugned order has also unequivocally held

that the assignment of debt of the Corporate Debtor in favour of the Appellant

is not disputed. When Rule 48 of the NCLT Rules, 2016 does not act as a bar

on Bank of Baroda as the original petitioner to file an application seeking

restoration of the main company petition, given the terms of the assignment

agreement which also assigned the Appellant the legal right to file suits etc,

to our minds it is absurd to deny this right to the Appellant when his status

as an assignee is undisputed.

16. It also a fact that an I.A. had been filed by the Appellant vide IA No.

779/2020 in the main company petition. The Appellant had also made

appearance before the Adjudicating Authority in respect of the I.A. No.

779/2020 on 12.12.2019, 27.01.2020, 25.02.2020, 17.03.2020, 03.08.2020.

Each time the matter was adjourned as placed on record at pages 92, 279-

282 of APB. It is also an undisputed fact that an I.A. was filed by the Appellant

Company Appeal (AT) (Insolvency) No. 1485 of 2022 12

seeking substitution of the Appellant as the petitioner in place of Bank of

Baroda though the said application was not numbered until dismissal of main

company petition. This has also been conceded by the Corporate Debtor in

their reply affidavit to I.A. 887/2020 that an application seeking substitution

that been filed by the Appellant on the date of dismissal of the main company

petition. The relevant portion of the said affidavit reads as follows:

"6. During the pendency of the CP (IB) No. 574 of 2018, the

Original Petitioner/Opponent No. 2 Bank of Baroda (erstwhile

Dena Bank) CD received on letter dt. 08.11.2019 issued by

BOB to the CD and has informed that the account of the CD

with the BOB had purportedly come to be assigned to

applicant herein. Hereto annexed and marked as Annexure

A is a copy of the letter dated 08.11.2019 issued by BOB to

CD. In this regard, the Applicant moved an Application for

substituting the Original Petitioner i.e. Bank of Baroda with

the Applicant on 25.08.2020."

17. When we come to the definition of the word "applicant" in the NCLT

Rules, 2016 we find that Rule 2(4) defines "applicant" to mean a petitioner or

an appellant or any other person or entity capable of making an application

including an interlocutory application or a petition or an appeal under the

IBC. Tested against this definition of an "applicant", let us now see whether

the Appellant fits into this definition of an "applicant". We have before us an

Appellant who by virtue of an assignment agreement has already stepped into

Company Appeal (AT) (Insolvency) No. 1485 of 2022 13

the shoes of the original petitioner. This assignment has not only been

endorsed by the assignor but the assignment agreement between them has

also been acknowledged by the Corporate Debtor who has also chosen to place

the agreement on record before the Adjudicating Authority on 25.08.2020.

The Adjudicating Authority has also expressly acknowledged this position by

stating that following the assignment agreement, the Appellant had stepped

into the shoes of the original applicant, Bank of Baroda. The Adjudicating

Authority has further opined in the impugned order that the Appellant

enjoyed the same right against the Corporate Debtor as that of Bank of

Baroda. It also held that the Appellant as an assignee was entitled to all rights

exercisable under the IBC. That being the case, we are of the considered view

that the Appellant clearly qualifies to be an "applicant" under the NCLT Rules

and therefore enjoys the locus to file the restoration application before the

Adjudicating Authority.

18. When an application which is dismissed for non-appearance of the

petitioner can be restored on satisfying the Tribunal that he was prevented by

some sufficient cause from appearing before the Tribunal, likewise, in the

present facts of the case, opportunity ought not to be denied to the Appellant

from seeking restoration of the main company petition which has been

dismissed for non-prosecution by the original applicant. It is not in the

interest of justice to deny a person the opportunity to file an application for

restoration for no ostensible lapses.

19. Having considered the entirety of facts as on record, we are of the view

that the Adjudicating Authority was not correct in dismissing the application

Company Appeal (AT) (Insolvency) No. 1485 of 2022 14

for restoration. In the wake of the above discussion, the impugned order is set

aside. We feel that the main company petition should have been heard and

decided on merits. The matter is remitted to the Adjudicating Authority which

shall restore the main Company Petition and proceed to decide the same on

merits expeditiously after giving an opportunity of hearing to all concerned.

The appeal is allowed in these terms. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 03.04.2024 Ram N.

Company Appeal (AT) (Insolvency) No. 1485 of 2022