Rajesh Ravji Patel vs Pegasus Assets Reconstruction Private ...

(Arising out of the Impugned Order dated 27th October, 2023 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Mumbai Bench-I in CP (IB) No. 9/MB/2023]

IN THE MATTER OF: Rajesh Ravji Patel Suspended Director of Vilsons Roofing Product Pvt. Ltd. Address: Omkar, 1140, E Ward, Lohia Lane, Sykes Extension, Kolhapur, Maharashtra - 416 001 ...Appellant

Versus

1. Pegasus Assets Reconstruction Pvt. Ltd. (Acting in its capacity as a trustee of Pegasus Group Twenty-Eight Trust 4) Address: 507, Dalamal House, Jamnalal Bajaj Marg, Nariman Point, Mumbai, Maharashtra - 400 021

Also at: 55-56, 5th Floor, Free Press House Nariman Point, Mumbai, Maharashtra - 400 021 ...Respondent No.1

2. Vandana Garg Interim Resolution Professional of Vilsons Roofing Product Pvt. Ltd. Address: Unit No. 307, 3rd Floor, Exgellencia Lodha Supremus 2, Wagle Estate, Panchpakhadi, Thane, Maharashtra-400 604 ...Respondent No.2

Present:

For Appellant : Mr. Kunal Tandon, Mr. Kunal Kanungo, Ms. Richa Sandilya, Ms. Tanushree Sogani, Mr. Atishay Jain, Ms. Bhavna Vijay, Advocates

For Respondent : Mr. Dinkar Singh, Mr. Rohit Singh, Advs. for R-1 Mr. Rajeev K. Panday, Mr. Rajeev M. Roy, Mr. Akhilesh Chadha, Advocates for R-2 JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

The present Appeal challenges the Order of the National Company Law

Tribunal, Mumbai (NCLT) dated 27.10.2023 (hereinafter referred to as the

"Impugned Order") in Company Petition No. 9 of 2023 (hereinafter referred to

as "the said Company Petition") filed by Respondent No.1. The Impugned

Order initiated the Corporate Insolvency Resolution Process (CIRP) of Vilson

Roofing Product Pvt. Ltd. (hereinafter referred to as "the Corporate Debtor")

and appointed Respondent No.2 as the Interim Resolution Professional (IRP).

The Appellant is a suspended director of the Corporate Debtor.

Grounds of Appeal

2. The Respondent No.1 claims to be the Assignee of Shamrao Vithal Co-

operative Bank Ltd. (hereinafter referred to as "the said Bank"). The

Corporate Debtor allegedly defaulted on a secured term loan and cash credit

facility advanced by the said Bank. Respondent No.1 asserts that it was

assigned the debt owed by the Corporate Debtor to the said Bank.

3. Respondent No.1's case before the Hon'ble NCLT was that the

Corporate Debtor was in receipt of and defaulted on a secured term loan and

cash-credit facility advanced by the Shamrao Vithal Cooperative Bank Ltd.

The Corporate Debtor's account was classified as an NPA on 31.08.2018 by

the bank. The date of default mentioned in part-IV of the Company Petition

is 30.04.2018. The loan, along with underlying securities/rights, was

assigned to Respondent No.1 via an Assignment Agreement dated

27.02.2020. Part payments were made towards the loan in 2020. The loan

Company Appeal (AT) (Insolvency) No. 1523 of 2023 2 of 13 was restructured by Respondent No.1 on 27.03.2021 under a Sanctioned

Restructuring Plan. The Corporate Debtor defaulted on the terms of the

Sanctioned Restructuring Plan, leading to a notice issued on 21.07.2021 by

Respondent No.1 to clear the outstanding dues. The Corporate Debtor sought

additional time to clear the dues via a letter dated 26.07.2022. The

Sanctioned Restructuring Plan was purportedly cancelled by Respondent

No.1 on 26.08.2022, with amounts already received adjusted against the

outstanding liability. Subsequent payments of Rs. 10 lakhs on 30.08.2022

and Rs. 43 lakhs on 15.09.2022 were made by the Corporate Debtor. Further

proposals by the Corporate Debtor were not accepted by Respondent No.1.

Respondent No.1 then filed Company Petition No. 9 of 2023 under Section 7

of the IBC before the Hon'ble NCLT.

4. Several contentions were raised by the Corporate Debtor before the

Hon'ble NCLT, which were not properly appreciated. Specifically, the Hon'ble

NCLT failed to consider:

4.1. Incorrect Date of Default: Respondent No.1 had sanctioned a new

payment plan to the Corporate Debtor by way of restructuring. Any default

could only occur when there was non-payment of the debt due under the

restructuring plan. Therefore, the date of default could only be the date of

non-payment under this plan, not before.

4.2. Determination of Default Date: It is settled law that the Adjudicating

Authority cannot determine and proceed on a date of default different from

the date stated by the Petitioner in the Company Petition.

Company Appeal (AT) (Insolvency) No. 1523 of 2023 3 of 13 4.3. Improper Basis for Default: Respondent No.1 proceeded on the basis

of a default arising from the classification of the account as a Non-Performing

Asset (NPA) (on 30.08.2018) by the original lender, which occurred prior to

the restructuring. This basis is incorrect, rendering the Company Petition

not maintainable. Acting on a default date predating the Sanctioned

Restructuring Plan was erroneous. The Hon'ble NCLT failed to consider that

the restructuring of the loan altered the basis for determining default. The

purported date of default prior to the loan restructuring cannot be the basis

for initiating CIRP against the Corporate Debtor.

4.4. Acknowledgment of Debt: The finding that part payments by the

Corporate Debtor constituted an acknowledgment of debt leading to an

extension of the limitation period was incorrect.

4.5. Barred by Limitation: The claim of Respondent No.1 is barred by

limitation. The purported date of default is 30th April 2018, but the Petition

was filed on 15th December 2022, more than three years after the alleged

date of default. The finding that the Petition was within the limitation period

was erroneous.

4.6. Compliance with Circular: Respondent No.1, as an Asset

Reconstruction Company, failed to comply with the Master Circular on Asset

Reconstruction Companies dated 10.02.2022.

4.7. Clause 7 Interpretation: The reliance on Clause 7 of the Sanctioned

Restructuring Plan for determining the date of default under Section 7 of the

IBC was misplaced.

Company Appeal (AT) (Insolvency) No. 1523 of 2023 4 of 13 4.8. Lack of Evidence: Respondent No.1 did not place any document on

record to substantiate the default date of 30.04.2018.

4.9. Service of Petition: Under Rule 4(3) of the Application to Adjudicating

Authority Rules, 2016, every Petition must be served upon the Insolvency

and Bankruptcy Board of India before filing with the NCLT.

4.10. Malicious Intent: The Petition was filed with malicious intent, given

that the Corporate Debtor is a solvent company with over 137 employees.

4.11. Hon'ble Supreme Court Precedents: The Hon'ble NCLT failed to

correctly appreciate the law laid down by the Hon'ble Supreme Court in

Vidharbha Industries Power Ltd. vs. Axis Bank Limited (Civil Appeal

No. 4633 of 2021) and M. Suresh Kumar Reddy vs. Canara Bank & Ors.

(Civil Appeal No. 7121 of 2022).

5. In light of the above grounds, the Appellant, being a suspended

director of the Corporate Debtor, prays that the Impugned Order dated

27.10.2023 admitting Company Petition No. 9 of 2023 and initiating CIRP

against Vilson Roofing Product Pvt. Ltd. be set aside.

Case of Financial Creditor / Respondent No 1

6. Respondent No. 1 (hereinafter referred to as the "Financial Creditor")

is an Asset Reconstruction Company (ARC) registered with the Reserve Bank

of India (RBI) under Section 3 of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002.

7. The Learned Adjudicating Authority, in Paragraphs 3 to 23 of its

judgment dated 27th October 2023, has recorded the facts of the case. These

Company Appeal (AT) (Insolvency) No. 1523 of 2023 5 of 13 facts have not been disputed by the Appellant. Therefore, for the sake of

brevity, the facts are not repeated herein.

8. Non-Dispute on Key Facts by Appellant:

8.1. The Appellant has not disputed the classification of the Corporate

Debtor's account as a Non-Performing Asset (NPA) on 31st August 2018 by

the Assignor Bank, which occurred due to the default committed by the

Corporate Debtor in payment of outstanding amounts.

8.2. The Appellant has also not disputed that the account of the Corporate

Debtor, after assignment, was restructured by the Financial Creditor upon

the request of the Corporate Debtor via a sanction letter dated 27th March

2021, and modified by a letter dated 30th March 2021 (Sanctioned

Restructuring Plan). The salient features of the Sanctioned Restructuring

Plan were:

o Admission of liability by the Corporate Debtor as on 31.12.2019,

amounting to Rs 30,33,02,248.17 plus further fees, charges, and

interest as per the terms of the loan documents executed with the

Assignor Bank.

o The cutoff date for restructuring was 17.03.2021.

o In the event of default, the sanction was to be revoked, and the

original liability as on the cutoff date plus accrued interest was to

be reinstated.

Notices and Subsequent Correspondence

9. The Appellant has not disputed the Financial Creditor's letter dated

10.05.2022, advising the Corporate Debtor to clear the overdue amount

Company Appeal (AT) (Insolvency) No. 1523 of 2023 6 of 13 immediately and comply with the restructuring terms, failing which the

Financial Creditor would take appropriate action as per the Sanctioned

Restructuring Plan.

10. Continuous default by the Corporate Debtor led the Financial Creditor

to issue a seven-day notice on 21.07.2022 to clear the overdue amount,

failing which the restructuring plan would be cancelled.

11. On 26.07.2022, the Corporate Debtor requested additional time to

clear outstanding dues and to avoid cancellation of the restructuring plan.

12. The Financial Creditor cancelled the Sanctioned Restructuring Plan on

26.08.2022. Consequently, the original liability as on the cutoff date plus

accrued interest was reinstated, with adjustments for amounts already

received against the total outstanding liability.

13. Post-cancellation, the Corporate Debtor made payments of Rs

10,00,000 on 30.08.2022 and Rs. 43,00,000 on 15.09.2022.

14. The Financial Creditor, by letter dated 16.09.2022, informed the

Corporate Debtor that the Sanctioned Restructuring Plan had been

cancelled, and payments made post-cancellation would be adjusted against

dues without reviving the restructuring plan.

15. Despite further proposals by the Corporate Debtor to clear dues, these

were rejected by the Financial Creditor by letter dated 31.10.2022.

Application Under Section 7 of IBC

Company Appeal (AT) (Insolvency) No. 1523 of 2023 7 of 13

16. In light of the above, the Financial Creditor filed an application under

Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), to initiate the

Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor

for defaulting on the facility availed.

Defense Raised by Corporate Debtor

17. The Corporate Debtor raised two primary defenses before the

Adjudicating Authority:

a) The Petition was barred by limitation.

b) The default basis, NPA classification, did not subsist post-

restructuring of the loan.

Findings of the Adjudicating Authority:

18. The Adjudicating Authority found the existence of debt and default

corroborated by records and undisputed that the amount was disbursed to

the Corporate Debtor, who defaulted in repayment.

19. The Petition was deemed within the limitation period. Although the

default date was 30.04.2018, the NPA date was 31.08.2018. The limitation

period extended due to the restructuring of the debt acknowledged on 27th

March 2021 and modified on 31st March 2021.

20. Clause 7 of the Sanctioned Restructuring Plan legally entitled the

Financial Creditor to revoke the sanction upon default and reinstate the

original liability as on the cutoff date.

Objection on Limitation

21. The Corporate Debtor argued that limitation should be counted from

the default date (30.04.2018). However, even if the limitation period

Company Appeal (AT) (Insolvency) No. 1523 of 2023 8 of 13 commenced on 30.04.2018, acknowledgment of debt by the Corporate Debtor

on 27th March 2021 extended the limitation period, making the filing of the

Petition on 15.12.2022 timely.

22. The Respondent submits that the Supreme Court's order dated 10th

January 2010, in Suo Moto Writ Petition (C) No. 3 of 2020, excluded the

period from 15.03.2020 to 28.02.2022 for limitation purposes.

Legal Right Under Sanctioned Restructuring

23. The Respondent exercised its legal right under Clause 7 of the

Sanctioned Restructuring to revoke the restructuring upon default,

reinstating the original liability plus interest.

24. The Corporate Debtor's failure to meet the restructuring terms led to

the revocation, and subsequent letters from the Corporate Debtor requesting

additional time were not grounds for continuation of the restructuring plan.

25. In view of the admitted facts, the documentary evidence, and the

justified findings of the Adjudicating Authority, the Financial Creditor

submits that the present appeal is devoid of merit and should be dismissed

in the interest of justice.

Appraisal:

26. Heard the Learned Counsel for the Appellant and the Respondent,

perused the documents, pleadings and reliance placed in support of their

case.

27. Upon reviewing the submissions and documentary evidence, the

Tribunal finds that Appellant has not disputed on Key Facts including the

classification of the Corporate Debtor's account as NPA on 31.08.2018, the

Company Appeal (AT) (Insolvency) No. 1523 of 2023 9 of 13 restructuring of the debt by Respondent No.1 on 27.03.2021, modified by a

letter dated 30.03.2021, which included the admission of liability by the

Corporate Debtor amounting to Rs. 30,33,02,248.17 plus further fees,

charges, and interest.

Date of Default and Limitation Period

28. The Petition was filed under Section 7 of the IBC, which requires

establishing the existence of a default. The date of default is mentioned as

30.04.2018 in the Petition, whereas the NPA classification occurred on

31.08.2018. The primary contention of the Appellant is the incorrect date of

default. The Corporate Debtor, raised an objection that the limitation was to

be counted from date of default 30th April, 2018, as declared in the

Application and not from the date of declaration of NPA as on 31st August,

2018. It is admitted that the Financial Creditor, in the Application,

mentioned date of default as 30th April, 2018. However, the application was

not barred by the Limitation, even if the date of default is taken as 30th April,

2018. The three years Limitation period was to be reckoned from 30.04.2018,

which would have been culminated on 29.04.2021, but the date of filing of

the Petition, was 15.12.2022. Looking in the facts of the case we find that

the period of limitation was extended, pursuant to the restructuring of debt,

vide letter dated 27th March, 2021, and further modified vide letter dated 31st

March, 2021. By this, the corporate debtor acknowledged its liability as on

31.12.20219, to the extent of Rs. 30,33,02,248.17. Thus, there was due

acknowledgment of debt/liability, by the corporate debtor, prior to expiry of

limitation period on 29.04.2021, even if the date of default is taken as

30.04.2018. Therefore, we find that the Adjudicating Authority has correctly

Company Appeal (AT) (Insolvency) No. 1523 of 2023 10 of 13 concluded that the limitation period was extended due to the restructuring

of the debt acknowledged on 27.03.2021, thus making the filing of the

Petition on 15.12.2022 within the limitation period. The part payments made

by the Corporate Debtor post-cancellation of the restructuring plan do not

alter this acknowledgment.

29. Additionally, the Hon'ble Supreme Court's order in Suo Moto Writ

Petition (C) No. 3 of 2020, which excluded the period from 15.03.2020 to

28.02.2022 for limitation purposes, further supports the timely filing of the

Petition. The Honourable Apex Court had issued direction that period from

15.03.2020 till 28.02.2022, shall stand excluded for the purposes of

limitation as may be prescribed under any special or general statute.

Legal Right Under Sanctioned Restructuring

30. Furthermore, Respondent No.1 exercised its legal right under Clause

7 of the Sanctioned Restructuring to revoke the restructuring upon default,

reinstating the original liability plus interest. The Corporate Debtor's failure

to meet the restructuring terms led to the revocation, and subsequent letters

from the Corporate Debtor requesting additional time were not grounds for

continuation of the restructuring plan.

Compliance with Circular and Other Grounds

31. The Appellant's contention regarding non-compliance with the Master

Circular on Asset Reconstruction Companies dated 10.02.2022 is not

substantiated with concrete evidence. Furthermore, the arguments about

malicious intent and lack of evidence are unsubstantiated, given the

documentary evidence presented by Respondent No.1.

Interpretation of Clause 7

Company Appeal (AT) (Insolvency) No. 1523 of 2023 11 of 13

32. Clause 7 of the Sanctioned Restructuring Plan explicitly provides that

in the event of default, the Financial Creditor has the legal right to revoke the

sanctioned restructuring and restore the original liability as on the cutoff

date. The Corporate Debtor's non-compliance with the restructuring terms

justified the revocation.

33. Further the Appellant has relied on the judgement of the Hon'ble Apex

Court in Vidharbha Industries Power Limited vs Axis Bank Limited

Civil Appeal NO. 4633 OF 2021 wherein it was held that discretionary

power vests with this Tribunal under Section 7 (5)(a). It was held that while

discretion is conferred on the Adjudicating Authority, such discretionary

power cannot be exercised arbitrarily or capriciously. However, in a later

judgement the Hon'ble Supreme Court in M. Suresh Kumar Reddy vs

Canara Bank & Ors. Civil Appeal No. 7121 of 2022 clarified the position

of law after considering the decision in case of Vidarbha Industries (Supra)

and held as under:

"13. Thus, it was clarified by the order in review that the decision in the case of Vidharbha Industries was in the setting of facts the case before this court. Hence, the decision in the case of Vidharbha Industries cannot be read and understood as taking a view which is contrary to the view taken in the cases of Innoventive Industries and E.S. Krishnamurthy. The view taken in the case of Innoventive Industries still holds good."

34. The Hon'ble Supreme Court further held that the decision in the case

of Vidarbha Industries cannot be read and understood as taking a view which

is contrary to the view taken in the case of Innoventive Industries and E.S.

Krishnamurthy. It finally held that the non-payment of a part of the debt

when it becomes due and payable will amount to default on the part of the

Company Appeal (AT) (Insolvency) No. 1523 of 2023 12 of 13 corporate debtor and an order under Section 7 Insolvency Bankruptcy Code

(" IBC ") must follow. So both these judgements do not support the case of

the Appellant.

Conclusion

35. In view of the admitted facts, documentary evidence, and the justified

findings of the Adjudicating Authority, the Appeal lacks merit. The Impugned

Order dated 27.10.2023, admitting Company Petition No. 9 of 2023 and

initiating CIRP against Vilson Roofing Product Pvt. Ltd., is upheld.

Order

36. The Appeal is dismissed with no order as to costs. The Corporate

Insolvency Resolution Process (CIRP) against Vilson Roofing Product Pvt. Ltd.

shall continue as per the Impugned Order dated 27.10.2023. The Interim

Resolution Professional (IRP) appointed by the NCLT is directed to proceed

with the CIRP in accordance with the provisions of the Insolvency and

Bankruptcy Code, 2016, and ensure compliance with all statutory

requirements.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Arun Baroka] Member (Technical) New Delhi 9th July, 2024 pks

Company Appeal (AT) (Insolvency) No. 1523 of 2023 13 of 13