Rakesh Wadhawan vs Bank Of India & Anr

[Arising out of Order dated 20th August 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai in Company Petition (I.B.) No. 27 of 2019]

IN THE MATTER OF:

Mr Rakesh Wadhwan Shareholder (Housing Development & Infrastructure Ltd.) Wadhwan House, 32/A, Golf Links, Union Park Bandra West, Mumbai - 400050 ...Appellant

Versus

1. Bank of India Head Office at Star House C-5, G-block Bandra Kurla Complex Bandra Mumbai - 400051 ...Respondent No.1

2. Mr Abhay Narayan Manudhane Interim Resolution Professional 201, Shubh Ashish, 129, Model Town Andheri West, Mumbai - 400053 Maharashtra, India ...Respondent No.2

Present:

For Appellant : Dr U.K. Chaudhary, Senior Advocate with Mr Farman Ali and Mr Ashish Verma, Advocates

For Respondent : Mr Arun Kathpalia, Senior Advocate with Ms Meghna Rao, Advocate for R-2. Mr A.K. Mishra, Advocate for R-1. Mr Saurabh Upadhyay and Ms Pallavi Pratap, Advocates for Intervenors. Mr Rana Mukherjee, Senior Advocate

[Per; V. P. Singh, Member (T)]

This Appeal emanates from the Order of admission Dt. 20th August

2019 passed by the Adjudicating Authority/National Company Law

Company Appeal (AT) (Insolvency) No. 906 of 2019 1 of 8 Tribunal, Mumbai Bench, Mumbai in Company Petition (I.B.) No. 27 of

2019, whereby the Adjudicating Authority has admitted the Application

under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short „I&B

Code') against Housing Development & Infrastructure Limited ("HDIL"). The

Parties are represented by their original status in the Company Petition for

the sake of convenience.

2. These brief facts of the case are as follows:

The Respondent No.1 Bank of India filed an Application for Initiation

of Corporate Insolvency Resolution Process on the ground that the

Corporate Debtor committed default on 04th December 2018 in repayment of

facilities granted to the extent of Rs. 522,29,06,768/-, under Section 7 of

the Insolvency and Bankruptcy Code, 2016.

3. The Petitioner had subscribed to the issue of Non-convertible

Debentures (from now on will be referred to as NCD‟s) offered by the

Corporate Debtor to the extent of Rs.248,63,00,000/-. Further, the

Petitioner executed the Term Loan facility to the extent of Rs.20,66,59,553/-

to the Corporate Debtor. The Corporate Debtor with a view to enhancing the

long term resources of the Company for financing the working capital

requirements requested the lenders to subscribe to the debentures. The

Lenders agreed to subscribe 1,15,000- NCD‟s of Rs.10,00,000/- each

aggregating to Rs. 1150/- Crores and Green Shoes Options of Rs.517/-

Crores (Five Hundred Seventeen Crores only). Out of the said debentures,

the Petitioner alone has subscribed to the extent of Rs.422.50 Crores. The

debentures were secured interalia by mortgage of the properties. The

Company Appeal (AT) (Insolvency) No. 906 of 2019 2 of 8 Debenture Trust Deed dated 22nd March 2010, and other security

documents were executed and after that amount was disbursed by the

Petitioner. However, the Corporate Debtor committed default in debt

servicing, and its account was classified as NPA.

4. The IDBI Trustee, i.e. the trustee of the debenture holders, issued a

notice of demand on 08th July 2015 on behalf of Debentures Holders

including the Petitioner/Respondent for an amount of Rs. 616,91,40,462.26.

But the Corporate Debtor has failed to pay in terms of the demand.

Therefore, on 06th December 2016, the IDBI Trusteeship Services Limited

took possession of the mortgaged properties.

5. The Petitioner filed a Company Petition No.1788 of 2018 under

Section 7 of the Code for Initiation of CIRP. During the pendency of the

Petition, the Corporate Debtor proposed to settle the matter by submitting

OTS dated 31st August 2018. Resultantly, the Petition was withdrawn. After

that, the Corporate Debtor again committed default in making payment as

per terms of OTS. The Corporate Debtor issued, post-dated cheques which

were all also dishonoured. Therefore, the Petitioner vide letter dated 04th

December 2018 revoked the OTS and called upon the Corporate Debtor to

pay off Rs.522.30 Crores. The said amount is inclusive of interest.

6. After that, the Petitioner/Respondent filed the second Petition, which

was admitted by the impugned Order and moratorium order was passed

against the Corporate Debtor. The Appeal is filed mainly on the ground that

impugned Order is in violation of the Principles of Natural Justice by not

Company Appeal (AT) (Insolvency) No. 906 of 2019 3 of 8 allowing the Appellant Company to submit its Reply to the Company Petition

No. 27 of 2019.

7. The Appellant has claimed that the Adjudicating Authority has failed

to appreciate that the Application under Section 7 of the I&B Code read with

Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 is not complete. Further, the common Loan Agreement dated

13th October 2006 was made and executed by the Petitioner Bank and 17

other banks, but the Petitioner Bank has alone initiated the proceeding

without taking consent of the other banks. No opportunity was given by the

Adjudicating Authority to the Corporate Debtor to file a reply.

8. We have heard the arguments of the Learned Counsel for the parties

and perused the records.

9. The Learned Counsel for the Appellant/Corporate Debtor emphatically

raised the issue of the violation of the Principle of Natural Justice and stated

that the Order had been passed without affording an opportunity to the

Corporate Debtor to file Reply. It is further contended that the Adjudicating

Authority has not given any finding of debt and default, and the Order has

been passed even though the application was not complete.

10. It is important to the point that prior to this Company Petition No.27

of 2019, another Company Petition No.1788 of 2018 was filed by the

respondent (Financial Creditor) against the Corporate Debtor under Section

7 of the Code, wherein the Corporate Debtor after putting appearance did

not oppose the Company Petition, but offered a One Time Settlement (OTS),

Company Appeal (AT) (Insolvency) No. 906 of 2019 4 of 8 which was approved by the Respondent Bank. After that, the Company

Petition No.1788 of 2018 was permitted to be withdrawn vide Order dated

25th September 2018 passed by the Adjudicating Authority. In compliance of

the OTS post-dated cheques were issued by the Corporate Debtor, which

were all dishonoured. In the circumstances, the second Company Petition

No.27 of 2019 under Section 7 of the Code is filed.

11. In the Company Petition No.27 of 2019, the Adjudicating Authority on

28th February 2019 passed the following Order;

"Both sides present. Counsel for the Corporate Debtor submits that they have the ability and desire to make the payment to the Petitioner in fact the Corporate Debtor has made the payments to the extent of Rs.691.00 Crores during the last 6 to 7 months to various financial institutions/Banks. Even though this Bench on 01.02.2019 adjourned the matter stating that no further time will be granted. It is the fit case for giving time as requested, considering the scope for settlement.

Accordingly, list this matter on 28.03.2019."

[Verbatim copy)

12. Thus, it appears that the contention of the Appellant that no

opportunity for filing reply is given is erroneous. It is clear that the

Corporate Debtor had ample opportunity to file Reply but chose not to do so.

On the contrary, the Corporate Debtor after putting an appearance in Court

showed his ability and desire to make payment to the Petitioner Bank. On

perusal of record from the paper book, it is apparent that again and again

time was granted to the Corporate Debtor from 01st February 2019 to 28th

Company Appeal (AT) (Insolvency) No. 906 of 2019 5 of 8 March 2019, in view of the possibility of the settlement. Appellant has also

annexed a copy of Order of the Adjudicating Authority dated 08th April 2019

which is at page no. 347 of the paper book. It appears that on 08th April

2019 the Adjudicating Authority granted further time upto 30th April 2019

for making payment of Rupees Forty-Seven Crores in compliance with OTS.

It is also on record that on 04th April 2019 both sides were represented

before the Adjudicating Authority. Still, despite the failure of the Corporate

Debtor in honouring the undertaking given to the Court, further three weeks

was given for making payment in pursuance of the settlement. Appellant

has also annexed a copy of a letter dated 26th July 2019 issued by the

Corporate Debtor for granting further time for payment of Rs.96.50 Crores

towards payment against One Time Settlement of NCD‟s and PMDO

facilities. Copy of this letter is annexed (AnnexureA-11) is on page 354 of

Appeal paper book. The above letter shows that the Corporate Debtor

further sought time up to 09th August 2019 for making payment in response

to the OTS. It is also on record that the Corporate Debtor again issued a

letter to the Respondent Bank requesting further time to pay the upfront

amount for consideration of OTS. All these correspondences clearly show

that the Corporate Debtor was granted several opportunities by the

Adjudicating Authority for arriving at a settlement. The second Petition was

filed after the non-adherence to the terms of OTS, settled in earlier company

petition No.1788 of 2018, which was withdrawn after Settlement in Court.

13. Based on the above discussion, it is beyond doubt that there was an

admission of debt and default of more than Rs.1,00,000/-. Still, despite

Company Appeal (AT) (Insolvency) No. 906 of 2019 6 of 8 taking several opportunities from the Adjudicating Authority for settlement

with the Financial Creditor, the Corporate Debtor defaulted in making the

payment. Therefore, the contention of the Appellant that Order has been

passed without affording an opportunity for filing Reply, in violation of the

principle of natural justice is without any basis.

14. It is the admitted position that for the same Financial Debt the earlier

Company Petition No.1788 of 2018 was filed against the Corporate Debtor,

which was not opposed and the Corporate Debtor offered One Time

Settlement. Based on that offer the Adjudicating Authority permitted the

withdrawal of the earlier Petition by its Order dated 25th September 2018.

15. It is also apparent that the Corporate Debtor in compliance of OTS

issued post-dated cheques which were returned, dishonoured and Petitioner

was constrained to file fresh proceeding under Section 7 of the Code, which

was numbered as 27 of 2019. In the second Petition again, the Adjudicating

Authority provided several opportunities to the Corporate Debtor

considering the scope of the settlement. However, after the failure of any

hope of settlement, the Order of admission was passed against the corporate

debtor.

16. It is pertinent to mention that statutory provision under the

Insolvency and Bankruptcy Code, 2016 does not permit to provide several

opportunities to Corporate Debtor in hope of the settlement. However, the

Adjudicating Authority has tried his best to afford ample opportunity to both

the parties to settle the matter amicably. But despite that, the Corporate

Company Appeal (AT) (Insolvency) No. 906 of 2019 7 of 8 Debtor has failed to make the payment or arrive at a settlement. In this case

debt is of more than Rupees One Lac; default in repayment of such debt is

admitted and application in Form-1 is also complete. Therefore the

Adjudicating Authority has admitted the Petition by the impugned Order.

17. In view of our finding as aforesaid, no interference is called for against

the impugned Order dated 20th August 2019. Therefore, Appeal fails. No

order as to costs.

[Justice Bansi Lal Bhat] Acting Chairperson

[V. P. Singh] Member (Technical)

[Alok Srivastava] Member (Technical) NEW DELHI 13th JULY, 2020

pks/gc

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