Reliance Commercial Finance Ltd vs Dorde Jog Builders Pvt Ltd

Reliance Commercial Finance Limited, (Formerly known as Reliance Capital Limited) 7th Floor, B-Wing, Trade World, Kamala Mills Compound, S.B. Marg, Lower Parel Mumbai - 400013 ...Appellant

Versus Darode Jog Builder Private Limited, Darode Jog House, 1212, Apte Road, Deccan Gymkhana, Pune-411004 ...Respondent

Present: For Appellant: Mr. Nikhil Nayyar, Sr. Advocate with Mr. Mahesh Agarwal, Ms. Himanshu Satija, Ms. Geetika Sharma, Mr. Shivam Shukla and Mr. Archit Jain, Advocates. For Respondent: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Agam H. Maloo, Mr. Abhinav Agarwal, Ms. Shruti Pandey and Mr. Kaustubh Kandpile, Advocates.

ORDER

Ashok Bhushan, J:

1. This Appeal has been filed by the Financial Creditor against the Order

dated 11th July, 2022 passed by the Adjudicating Authority (National

Company Law Tribunal, Mumbai Bench, Court-III) in CP(IB) 498/MB/2020.

2. Brief facts of the case necessary to be noticed for deciding this Appeal

are:

 The Appellant-Financial Creditor has sanctioned Term-Loan of Rs. 10.5

Crores and Rs. 8.5 Crores to the Corporate Debtor on 29th July, 2013. -2-

On 17th March, 2017 and 25th February, 2017 respectively the Loan

Account of the Corporate Debtor in respect to above noted sanctioned

Term-Loan were declared Non-Performing Assets.

 On 04.11.2019, the Appellant preferred Section 7 Application (C.P. (IB)

498/MB/2020) in which an Amount of Rs. 15,79,41,658/- was claimed

as 'due and payable' by the Corporate Debtor.

 The Company Petition was adjourned on several occasions. On 06th

July, 2022 during hearing of the Company Petition, Corporate Debtor

acknowledged its liability to pay and made an offer of Rs. 12.75 Crores

to be paid within 45 days. The Adjudicating Authority on 06th July, 2022

directed the Learned Counsel for the Financial Creditor to obtain

appropriate instructions. It was also observed that if the Settlement did

not take place, the Company Petition would automatically be admitted

on the next date of hearing.

 On the next date of hearing i.e. 11th July, 2022, the Corporate Debtor

submitted that Corporate Debtor is ready and willing to deposit the

entire amount of Rs. 15,79,41,658/- within 45 days. Learned Counsel

for the Financial Creditor submitted that Financial Creditor is not

willing to settle the matter. The Adjudicating Authority after obtaining

the details of the Bank Account of the Financial Creditor ordered that if

the Corporate Debtor does not deposit within 45 days the said amount,

the Financial Creditor shall be at liberty to file Application for

restoration of the Company Petition, the Company Petition was disposed

of.

Company Appeal (AT) (Insolvency) No. 1005/2022 -3-

 Aggrieved by the Order dated 11th July, 2022, the Financial Creditor has

come up in this Appeal.

3. Mr. Nikhil Nayyar, Sr. Advocate appearing for the Appellant submits

that the Adjudicating Authority committed error in disposing of the Company

Petition whereas the Financial Creditor has expressed its unwillingness to

settle the matter with the Corporate Debtor. It is submitted that the

Adjudicating Authority could not have permitted the Corporate Debtor to

deposit the amount in the Bank Account of the Financial Creditor.

4. Mr. Ramji Srinivasan, Sr. Advocate for the Respondent refuting the

submissions of Learned Sr. Counsel for the Appellant submits that the

Learned Counsel for the Financial Creditor on 11th July, 2022 made the

statement that they are not willing to settle the matter since they have no

confidence on the Corporate Debtor in view of the past conduct of the

Corporate Debtor. It is submitted that the unwillingness is only due to the

reason that Corporate Debtor was not offering the entire amount and further

has not settled the matter in spite of taking several adjournments. It is further

submitted that Respondent has financial capacity to deposit the entire

amount. Learned Counsel for the Respondent has produced the photocopy of

Bank Drafts totalling to an amount of Rs. 15,79,41,658/- in the name of the

Appellant, prepared dated 23rd August, 2022/22nd August, 2022.

5. We have considered the submissions of Learned Counsel for the parties

and have perused the record.

6. In the present case, Section 7 Application was filed claiming an amount

of Rs. 15,79,41,658/-. On the earlier date, when the Company Petition was

Company Appeal (AT) (Insolvency) No. 1005/2022 -4-

taken i.e. on 06th July, 2022, Corporate Debtor came with an offer of Rs. 12.75

Crores to be paid within 45 days on which, Court directed the Financial

Creditor to obtain instructions. Amount of Rs. 12.75 Crores which was offered

on 06th July, 2022 by the Corporate Debtor was not the entire amount claimed

by the Financial Creditor in the Application. But on the next date i.e. 11th July,

2022, when the case was taken, Learned Counsel for the Corporate Debtor

submitted that Corporate Debtor is now ready to deposit the entire amount

within 45 days. The Adjudicating Authority noticed the submission of Learned

Counsel for the Financial Creditor which was to the following effect:

"...Mr. Ayush J. Rajani, Counsel appearing for the

Financial Creditor submitted that the Financial

Creditor is not willing to settle the matter as they have

no confidence on the Corporate Debtor in view of the

past conduct of the Corporate Debtor..."

7. Immediately after noticing the above statement of Learned Counsel for

the Financial Creditor, the statement of Learned Counsel for the Corporate

Debtor has been recorded to the following effect:

"...After making the above statement by counsel

appearing for the Financial Creditor, Mr. Prakhar

Tandon, Counsel appearing for the Corporate Debtor

on instructions assured the Financial Creditor as well

as this Bench that his client is ready and willing to

deposit the entire amount of Rs. 15,79,41,658/-

claimed in the above Company Petition, instead of Rs.

Company Appeal (AT) (Insolvency) No. 1005/2022 -5-

12.75 Crores offered earlier within 45 days from

today...."

8. The Adjudicating Authority after noticing the aforesaid statements,

passed over the matter and asked the Financial Creditor to furnish the Bank

Account which details were given and the Adjudicating Authority giving details

of the Account in the Order, directed the Corporate Debtor to deposit the

amount within 45 days.

9. Submission of the Appellant is that since the Appellant expressed its

unwillingness to settle the matter, the course adopted by the Adjudicating

Authority is impermissible. The present is a case where the Adjudicating

Authority has not directed the Financial Creditor to enter into settlement with

the Corporate Debtor, the Adjudicating Authority has only recorded the

statements of the Corporate Debtor that they are ready to deposit the entire

defaulted amount within 45 days and has permitted the Corporate Debtor to

deposit the amount within 45 days. The Adjudicating Authority by the same

order has also granted liberty to the Financial Creditor to revive the Company

Petition if the amount is not paid within 45 days.

10. In a recent Judgement, Hon'ble Supreme Court had occasion to consider

the jurisdiction of the Adjudicating Authority while considering the Section 7

Application i.e. Judgment of the Supreme Court dated 12th July, 2022 in Civil

Appeal No. 4633 of 2021 in the matter of "Vidarbha Industries Power

Limited Vs. Axis Bank Limited". In the case before the Supreme Court,

Section 7 Application was admitted by the Adjudicating Authority against

which an Appeal was filed before the NCLAT where the prayer to stay the

Company Appeal (AT) (Insolvency) No. 1005/2022 -6-

initiation of Section 7 Proceeding was refused. Challenging the Order of the

Appellate Tribunal, the Appeal was filed before the Supreme Court where

Hon'ble Supreme Court had occasion to consider the ambit and scope of

Section 7 of the IBC, 2016.

11. Hon'ble Supreme Court in paragraph 56 of the Judgement noticed the

following:

"56. Both, the Adjudicating Authority (NCLT) and the

Appellate Tribunal (NCLAT) proceeded on the premises

that an application must necessarily be entertained

under Section 7(5)(a) of the IBC, if a debt existed and

the Corporate Debtor was in default of payment of

debt. In other words, the Adjudicating Authority (NCLT)

found Section 7(5) (a) of the IBC to be mandatory. The

Adjudicating Authority (NCLT) was of the view that

Section 7(5)(a) did not admit any other interpretation,

with which the Appellate Tribunal (NCLAT) agreed."

12. Hon'ble Supreme Court did not approve the view of the Adjudicating

Authority that what is required to be seen in Section 7 Application is debt and

default and on satisfaction of debt and default, the 'Corporate Insolvency

Resolution Process' (CIRP in short) would trigger. Supreme Court held that

even after debt and default is there, Adjudicating Authority has to require to

apply its mind to relevant factors including the feasibility of the initiation of

CIRP. In paragraph 61 and 62 of the Judgment, following has been observed:

Company Appeal (AT) (Insolvency) No. 1005/2022 -7-

"61. In our view, the Appellate Authority (NCLAT) erred

in holding that the Adjudicating Authority (NCLT) was

only required to see whether there had been a debt and

the Corporate Debtor had defaulted in making

repayment of the debt, and that these two aspects, if

satisfied, would trigger the CIRP. The existence of a

financial debt and default in payment thereof only

gave the financial creditor the right to apply for

initiation of CIRP. The Adjudicating Authority (NCLT)

was require to apply its mind to relevant factors

including the feasibility of initiation of CIRP, against an

electricity generating company operated under

statutory control, the impact of MERC's appeal,

pending in this Court, order of APTEL referred to above

and the over all financial health and viability of the

Corporate Debtor under its existing management.

62. As pointed out by Mr. Gupta, Legislature has, in its

wisdom, chosen to use the expression "may" in Section

7(5)(a) of the IBC. When an Adjudicating Authority

(NCLT) is satisfied that a default has occurred and the

application of a Financial Creditor is complete and

there are no disciplinary proceedings against proposed

resolution professional, it may by order admit the

Company Appeal (AT) (Insolvency) No. 1005/2022 -8-

application. Legislative intent is construed in

accordance with the language used in the statute."

13. In the facts of the above case, the Supreme Court set aside the Order of

the Adjudicating Authority and the Appellate Tribunal and remanded the

matter to the Adjudicating Authority to reconsider the Section 7 Application.

In the facts of the present case, the Adjudicating Authority has only given an

opportunity to the Corporate Debtor to deposit the entire defaulted amount

for which Section 7 Application was filed, within 45 days with liberty reserve

to the Financial Creditor to revive the Section 7 Application in event the

amount is not deposited.

14. In event, in consequence of the Order of the Adjudicating Authority, the

Corporate Debtor deposits the entire defaulted amount whether still the

Adjudicating Authority was required to necessarily admit the Section 7

Application. The answer would be obviously no. When the Corporate Debtor

has complied to deposit the entire defaulted amount of the Financial Creditor

as permitted by the Adjudicating Authority, no purpose and occasion shall

survive to still proceed with the Insolvency Resolution of the Corporate Debtor.

The proceeding under Section 7 are proceeding for resolution of the insolvency

of the Corporate Debtor. We do not find any error in the course adopted by the

Adjudicating Authority to ascertain as to whether the Corporate Debtor can

comply to deposit the entire defaulted amount in the Bank Account of the

Financial Creditor.

15. The interest of the Financial Creditor is fully protected since liberty has

already been granted to the Financial Creditor to revive the Application under

Company Appeal (AT) (Insolvency) No. 1005/2022 -9-

Section 7 of the IBC, 2016 in event, the amount is not deposited within 45

days. We thus do not find any good ground to interfere with the Order

impugned in the present Appeal. In event, the Corporate Debtor does not

deposit the amount, it is always open for the Financial Creditor to approach

the Adjudicating Authority as per liberty granted by the Adjudicating

Authority.

With the above observations, the Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Mr. Barun Mitra] Member (Technical)

New Delhi 19th September, 2022.

Basant

Company Appeal (AT) (Insolvency) No. 1005/2022