Ritesh Kumar Agrawal vs India Factoring And Finance Solutions ...

[Arising out of Order dated 11.11.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court I, in CP(IB)/1279/C-1/2019]

IN THE MATTER OF:

Mr. Ritesh Kumar Agrawal, Suspended Director Arcons Infrastructure and Constructions Pvt. Ltd. Son of Shri. Narbada Prasad Agrawal, Age 49, R/o Opp. DDC College, Vivekanand Colony, Nagpur Road, Chhindwara, Madhya Pradesh, 480001 ...Appellant Versus 1. M/s. India Factoring and Finance Solutions Pvt. Ltd., Registered Office at:00 401, Windsor House, Off. C.S.T. Road, Kalina, Santacruz (E), Mumbai - 400098

2. M/s. Arcons Infrastructure and Constructions Pvt. Ltd, Registered Office at, Building No. 104, 1st Floor, Mangalwari Commercial Complex, Sadar, Nagpur, Maharashtra - 440001 Represented by Mr. Prabhakar Bhat, Interim Resolution Professional.

Cont'd.../ -2-

3. Mr. Prabhakar Bhat, IRP, Arcons Infrastructure and Constructions Pvt. Ltd, 7, Shital, Plot No. 81, Behind Sies College, Sion (W), Mumbai - 400022 ...Respondents

Present:

For Appellant: Mr. S. Rajagopalan, Advocate

For Respondents: Mr. Sanjiv Sen, Sr. Advocate with Mr. Abhay Itagi, Mr. Mohd Azeem, Ms. Anjali Singh and Mr. Mridul Suri, Advocates for R-1.

JUDGMENT

ASHOK BHUSHAN, J.

1. This Appeal by Suspended Director of the Corporate Debtor-Arcons

Infrastructures and Constructions Pvt. Ltd. has been filed challenging

Order dated 11.11.2022 passed by National Company Law Tribunal,

Mumbai Bench, Court-I (hereinafter referred to as "The Adjudicating

Authority") admitting Section 7 Application of Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "The Code") filed by

the Respondent No.1-M/s. India Factoring and Finance Solutions Pvt.

Ltd.

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

Appeal are:-

a. Respondent No.1-M/s. India Factoring and Finance Solutions Pvt.

Ltd., the Financial Creditor is a company engaged in the business

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of providing factoring services to business entities in India under

the aegis of Factoring Regulation Act, 2011.

b. The Corporate Debtor -M/s Arcons Infrastructures and

Constructions Pvt. Ltd. entered into an Agreement for construction

of check post with IL&FS Transport and Network Limited (ITNL in

short). The Corporate Debtor approached the Financial Creditor for

availing financial assistance to meet their working capital

requirements. A Facility Letter dated 04th July, 2018 was issued by

Financial Creditor to Corporate Debtor. In pursuance of the Facility

Letter, a Factoring Agreement dated 05th July, 2018 was executed

between the Financial Creditor and Corporate Debtor. The

Corporate Debtor also drew a bill of exchange dated 09.07.2018 on

ITNL for an amount of Rs. 4,90,90,654/- in favour of Financial

Creditor which was due to be honoured on or before 05.01.2019.

The bill of exchange was drawn against receivables due and payable

to the corporate debtor by ITNL. INTL failed to honour the bill of

exchange therefore in view of the said default, the Financial

Creditor issued a notice dated 07.01.2019 calling upon them to pay

total amount of Rs. 4,46,55,873.64/- with further interest at the

rate of 14.50 % p.a.. The Financial Creditor in exercise of right

under Factoring Agreement issued notice dated 07.01.2019 calling

upon the Corporate Debtor to pay above amount.

c. Corporate Debtor admitted the debt. Corporate Debtor made certain

payments. All due debt having not been paid by Respondent No. 2,

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -4-

Financial Creditor filed an Application under Section 7 of the Code

on 25th March, 2019 before the NCLT, Mumbai.

d. In the Application, financial creditor claimed an amount of Rs.

4,52,13,711/- as on 28.11.2019. Reply was filed to Section 7

Application by the Corporate Debtor contesting the claim of the

Financial Creditor. The Reply stated that applicant has right to

recover the monies solely from ITNL. Liability under Factoring

Agreement being payable by ITNL, Application under Section 7 is

not maintainable.

e. The Adjudicating Authority after hearing the parties vide order

dated 11.11.2022 admitted Section 7 Application. Aggrieved by

which order, this Appeal has been filed.

3. The Appeal was heard by this Tribunal on 07.12.2022. Appellant

offered to deposit the entire amount of Rs. 4,52,13,711/-. On 07.12.2022

following order was passed by this Tribunal:

"07.12.2022: Learned Counsel for the Appellant submits that the Appellant is ready to deposit the entire amount of Rs.4,52,13,711.60/- in the name of Respondent No. 1. He submits that the Demand Draft has already been prepared and he is ready to deposit before the Registrar of this Tribunal.

2. Learned Counsel for the Appellant is permitted to deposit the Demand Draft of the same amount drawn in the name of "The Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi" within a week.

3. Learned Counsel for the Appellant further submitted that there was no recourse provided, which is clear from

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -5-

the letter dated 04.07.2018 which is brought on record at page no. 117 of the paper book. Submission needs scrutiny.

4. Issue notice. Requisites along with process fee be filed within three days. Reply be filed by the Respondents within three weeks. Rejoinder be filed within two weeks thereof.

5. List the Appeal on 24.01.2023.

In the meantime, no further steps be taken in pursuance of the impugned order dated 11.11.2022."

4. In pursuance of above order, the Appellant has already deposited

the aforesaid amount.

5. Learned Counsel for the Appellant submitted that Factoring

Agreement dated 05th July, 2018 indicate that agreement was on no

recourse basis. It is submitted that agreement being on no recourse basis

there is no financial debt within meaning of Section 5(8)(e) of the Code.

He submits that Financial Creditor was to recover the amount only from

ITNL and the Adjudicating Authority committed error in admitting Section

7 Application of the Code. It is further submitted that appellant in the

Appeal has offered to deposit the amount of Rs. 4,52,13,711/- being the

amount claimed as default. It is submitted that Financial Creditor to

provide an undertaking that any amount received from ITNL received by

Financial Creditor shall be transferred to corporate debtor.

6. Learned Counsel for Respondent refuting the submissions of

Learned Counsel for the Appellant submits that Appellant in the Appeal

has pleaded that Appellant is ready to settle the claim for an amount of

Rs. 4,52,13,711/-. Appellant having expressly admitted the readiness to

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -6-

pay the outstanding dues it should not be allowed to assail the Order

admitting Section 7 Application. The amount of Rs. 4,52,13,711/- was

inclusive of Principal and Interest thereon at the rate of 14.50 % p.a. on

the date of filing of the Company Petition. If the Appellant is ready and

willing to pay said amount, nothing prevented the Appellant to make the

payment before/prior filing of Company Petition. It is submitted that

facility letter specified the interest rate, penalty interest. Facility letter

further provided that the Financial Creditor will have recourse to the

Corporate Debtor for receivables in respect of recourse condition.

Definition of Recourse in the Factoring Agreement is a right of the

Financial Creditor to require Corporate Debtor at any time forthwith upon

notice, to pay to Respondent No. 1 an amount qua to the prepayment

amount remaining unpaid. The submission of Appellant that the factoring

agreement was with no recourse basis is incorrect. When the debt and

default is proved, petition is bound to be admitted. The Corporate Debtor

has admitted and acknowledged the debt and default.

7. We have considered the submissions of Learned Counsel for the

parties and have perused the record.

8. The first submission which has been advanced by Learned Counsel

for the Appellant is that amount which is subject matter of Section 7

Application is not a Financial Debt within the meaning of Section 5(8)(e)

of the Code. Section 5(8)(e) provides as follows:

"Section 5: Definitions.

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -7-

(8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes-

(a)........

.....

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

......."

9. The above provision clearly indicates that receivables sold or

discounted other than any receivables sold on nonrecourse basis is

covered with the definition of Financial Debt. The submission of the

Appellant is that the agreement between the parties was agreement for

non-recourse basis. For considering the above submission, we need to

look into the Factoring Agreement which has been entered into between

the parties on 05th July, 2018. The Factoring Agreement clause 1.1.

contains definition clauses. Expression "Recourse" have been defined and

Recourse Date has also been defined in following manner:

""Recourse": means the right of India Factoring to require the Client at any time, forthwith upon notice, to pay to India Factoring an amount equal to the prepayment amount remaining unpaid in respect of any Approved Receivable, in addition to the amounts specified in Clause 13 of this Agreement; ""Recourse Date": means the date (if any) specified in paragraph 14 of the Schedule as such;"

10. Clause 12 of Factoring Agreement deals with "recourse and credit

protection". Clause 12.1 and 12.1.1 provides as follows:

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -8-

"12.1 Where Creditor Protection is zero, India Factoring shall have the right of Recourse against the Client in respect of:

12.1.1 each Receivable remaining unpaid after the Recourse date;"

11. Clause 12.1 itself indicates that India Factoring shall have the right

of recourse against the client. The client as per Factoring Agreement is

Arcons Infrastructures and Constructions Pvt. Ltd. The clause 12 as

noted above in the definition of recourse clearly indicates that agreement

between the parties was not any agreement which may be called as

agreement of non recourse basis. Thus, the Financial Debt which is

covered by Factoring Agreement is clearly covered within meaning of

Section 5(8)(e) of the Code and the Financial Creditor was entitled to

being recourse.

12. We thus do not find any substance in the submission of Learned

Counsel for the Appellant that Factoring Agreement was non-recourse

agreement.

13. We have noticed above that Appellant at the outset offered to

deposit amount of Rs. 4,32,13,711/- which was deposited under orders of

this Tribunal on 07.12.2022. The submission which has been pressed by

Learned Counsel for the Respondent is that while deciding the

Application filed by the Financial Creditor and delaying the matter, the

corporate debtor intend to absolve itself from liability to pay the interest

at the rate of 14.5 % p.a. It is submitted that amount which was claimed

in Section 7 Application was amount which was payable as on 28th

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -9-

January, 2019. The Financial Creditor is entitled to payment of entire

financial debt including interest at least upto that date.

14. We have considered the above submissions and perused the record.

Appellant having expressed willingness to make the payment of Principal

Amount as claimed in Section 7 Application, we are inclined to give an

opportunity to the Appellant to make the payment. Part-IV of the Section

7 Application gives the details of financial debt as claimed in the

Application. Part IV which gives the details of amount as claimed to be

debt and default is as follows:

"

2 Amount claimed to The total amount claimed to be in default and be in default by the the date on which Corporate Debtor is Rs.

the default 4,52,13,711.60/- (Rupees occurred (attach Four Crores Fifty Two Lakhs the working for Thirteen Thousand Seven computation of Hundred and Eleven only)

amount and dates as on 28.02.2019. The said of defaults in amount in default arises out tabular form) of the bills of exchange dated 09.07.2018 for amounts of Rs.

4,90,90,654/- (Rupees four crores ninety laksh ninety thousand six hundred and fifty four only). The amount demanded via legal notice dated 07.01.2019 was Rs.

4,46,55,874.64. However

Company Appeal (AT) (Insolvency) No. 1476 of 2022 -10-

the Respondent thereof repaid a sum of Rs.

2,21,730 and Rs. 2,73,195 on 15.01.2019 and 17.01.2019 respectively, After adjusting such repayments though including the interest, penalties etc the total sum due and payable towards the Facilities granted as recorded in FIU statement amounts to Rs. 4,52,13,711.60 (Rupees Four crore fifty two lakhs thirteen thousand seven hundred and eleven only) as on 28.01.2019. The bill of exchange dated 09.07.2018 became due and payable on 05.01.2019. The dates on which the default occurred qua the Respondent are the dates when the right of recourse in respect of the aforesaid bills of exchange was exercised against the Respondent vie legal notice i.e. 07.01.2019.

15. From aforesaid statement in Section 7 Application, it is clear that

amount of Rs. 4,52,13,711/- was amount as due on 28.01.2019. The

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Adjudicating Authority found the said amount due and payable, we see

no reason to take any different view. We however are of the view that

Financial Creditor will be entitled for payment of debt due along with

interest at least till the insolvency commencement date i.e. 11.11.2022. In

view of what has been stated above, we dispose of this Appeal with

following directions:

(i) The amount of Rs. 4,52,13,711.60/- under order of this

Tribunal dated 07.12.2022 deposited, be paid to Respondent No. 1;

(ii) In addition to aforesaid payment of Rs. 4,52,13,711.60/-, the

Appellant shall also make payment of simple interest at the rate of

14.50% p.a. till insolvency commencement date i.e. 11.11.2022

which payments shall be made to Respondent No. 1 within a period

of 3 months from today;

(iii) In event, the Appellant fails to comply to the direction no. (ii)

as above, the Adjudicating Authority shall consider to proceed

further with the Insolvency Resolution Process of the Corporate

Debtor;

(iv) Parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) NEW DELHI 04th July, 2023

Basant

Company Appeal (AT) (Insolvency) No. 1476 of 2022