Sandeep Kumar Bhagat vs Punjab National Bank

[Arising out of Impugned Order dated 23rd August 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Guwahati Bench, Guwahati in Company Petition (I.B.) No. 24/GB/2019]

IN THE MATTER OF:

Sandeep Kumar Bhagat Ex-Director Shree Sai Smelters India Limited R/o Verdaman Apartment Janki Path, Ganeshpuri Guwahati - 781006 Distt. Kamrup (Metro), Assam ...Appellant

Versus

Punjab National Bank Head Office: Plot No.4, Sector - 10 Dwarka, New Delhi - 110075 Branch Office: Fancy Bazar, LIC Building S.S. Road, Fancy Bazar, Guwahati - 781001 ...Respondent

Present:

For Appellant : Mr Saurabh Jain, Mr Nishant Das and Ms Bhavishya Singh, Advocates

For Respondent : Ms Jainikr Mohan, Advocate

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

This Appeal emanates from the Impugned Order dated 23rd August

2019 passed by the Adjudicating Authority/National Company Law

Tribunal, Guwahati Bench, Guwahati in Company Petition (I.B.) No.

Company Appeal (AT) (Insolvency) No. 1005 of 2019 1 of 14 23/GB/2019, whereby the Adjudicating Authority has admitted the

Application under Section 7 of the Insolvency and Bankruptcy Code, 2016

(in short 'I&B Code')and appointed the Interim Resolution Professional. 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 Appellant is the suspended Director of the Corporate Debtor

Shree Sai Smelters (India) Limited, which availed specific credit facility to

the tune of Rs 15,25,00,000/- (Fifteen crores twenty-five lacs)on different

dates from 20th May 2005 to 20th August 2014 from the Respondent Bank.

The account of the corporate debtor was classified as NPA on account of

alleged default occurred on 27th July 2015.

3. It is contended that the Respondent Bank/financial creditor had filed

Application before the Adjudicating Authority (NCLT), Guwahati Bench

under Section 7 of the I&B Code claiming amount of Rs. 17,52,42,104.49.

The Petition was filed on 19th May 2018 and date of default as mentioned in

the Application is 27th July 2015.

4. The Appellant contends that during the pendency of the Petition

Respondent Bank entered into OTS. However, the Respondent Bank did not

withdraw the Petition and suddenly on 29th July 2019 issued a letter asking

them to deposit the balance amount as per terms of OTS. But later on,

another notice about the revocation of OTS was sent on 31st July 2019. The

corporate debtor received the said letter on 07th August 2019.

Company Appeal (AT) (Insolvency) No. 1005 of 2019 2 of 14

5. The Appellant pleaded that the Respondent Bank has not given a

reasonable time to the corporate debtor and has acted arbitrarily; that

during consideration of OTS, the Appellant on behalf of all the three

companies handed over Rs. one Crore to the Respondent Bank on 19th

August 2019 as part payment against OTS. By accepting the part

consideration in connection with the OTS, the Respondent Bank has taken

the settlement; the Petition is barred by limitation as per Section 238-A of

the Code, read with Article 137 of the Limitation Act; the particulars of Form

2 are incomplete. Therefore, the Application filed under Section 7 of the

Code could not have been admitted; the applicant has failed to satisfy the

compliance of Section 7(5)(a) of the Code; Para VI of Form 2 is not proper

and cannot be treated as a valid declaration; the Hon'ble Guwahati High

Court in Writ Petition (C) No.6029 of 2019 has directed parties to maintain

status quo. Therefore, the Tribunal should have waited for further orders of

the Guwahati High Court; the OTS cannot be treated as an admission of

liability.

6. The Appellant contended that the Learned Adjudicating Authority has

failed to consider that the Petition is barred by the Limitation Act. The loan

was sanctioned in 2004, various enhancements are up to 11th June 2012,

and alleged restructuring happened in 25th July 2014, whereas the Petition

was filed on or after 09th July 2018. Therefore, the claim of the Respondent

Bank is hopelessly time-barred.

7. The Respondent contends that the Appellant is Ex-Director of three

Companies namely, Shree Sai Prakash Alloys Private Limited, Shree Sai

Company Appeal (AT) (Insolvency) No. 1005 of 2019 3 of 14 Rolling Mills (India) Private Limited and Shree Sai Smelters (India) Limited.

Since all the Companies failed to maintain financial discipline, their

accounts were classified as NPA on account of default which occurred on

27th July 2015.. Since all the three Companies were unable to regularize

their accounts despite several requests, the Bank was forced to approach

NCLT, Guwahati Bench by filing an Application CP(I.B.) No. 23/GB/2019

under Section 7 of the Code.

8. The Appellant admitted the liabilities of all the three Companies by

submitting a consolidated OTS for an amount of Rs.60 Crores, which was

approved by the Bank on 27th December 2018. The same was also accepted

by the Appellant on 10th January 2019. However, the Appellant failed to

adhere to the terms and conditions of the OTS. As such, the Bank revoked

the OTS on 31st July 2019 and the same was also conveyed to the Appellant.

9. It is further contended that during the pendency of the Appeal, the

Appellant again approach the Respondent Bank for the revival of the OTS by

tendering cheque of Rs. One Crore as part payment towards OTS on 10th

October 2019. Since the offered amount was too low, and the Appellant had

earlier failed to comply with the terms and conditions of the OTS; therefore,

the Bank did not consider OTS again.

10. The Respondent Bank has admitted in the Written Submissions, "that

the Appellant admitted the liabilities of all the three Companies by submitting

a consolidated OTS for an amount of Rs.60 Crores with the Respondent Bank

which was sanctioned by the Bank on 27th December 2018. The same was

Company Appeal (AT) (Insolvency) No. 1005 of 2019 4 of 14 also accepted by the Appellant on 10th January 2019. However, the Appellant

failed to adhere to the terms and conditions of the OTS. As such, the

Competent Authority of the Bank revoked the OTS on 31st July, 2019 and the

same was also conveyed to the Appellant".

11. It is further stated in the Written Submissions of the Respondent "that

during the pendency of the present proceedings, the Appellant again

approached the Respondent Bank for the revival of earlier OTS by tendering a

cheque for Rs. One Crore as partial payment of OTS on 10th October 2019.

Since the amount offered was on a lower side, and the Appellant had failed to

comply the earlier terms and conditions of OTS, the Competent Authority of

Bank did not deem it fit to consider it again. The said decision was conveyed

by the Respondent Bank vide their letter dated 16th October 2019".

12. Based on the above submissions, it is undisputed that the

consolidated amount of Rs.60/- crores was offered by the Appellant for the

outstanding dues of all the three Companies through OTS and this offer was

accepted by the Bank on 27th December 2018. It is also on record that the

corporate debtor acknowledged its liability by submitting OTS on 13th March

2018. Copy of acknowledgement latter is on page 77 of the paper book. It is

also admitted fact that during the pendency of Appeal, again the Appellant

made an offer to abide terms of earlier OTS. The Appellant paid Rs. One

Crore as part of OTS on 10th October 2019 and this amount was accepted by

Respondent.

Company Appeal (AT) (Insolvency) No. 1005 of 2019 5 of 14

13. It is also apparent after the revocation of OTS, the Appellant during

the pendency of the Appeal made a second attempt to renew the OTS. In

response to this, the Appellant made a payment of Rs. One Crore, which was

accepted by the Bank. By taking of Rs. One Crore in response to earlier

OTS, it is clear that respondent Bank agreed to renew the terms of OTS.

14. In all these Appeals different Companies are involved, but the

Directors of the suspended Boards are common, and the Appellant as

Director of the suspended Board of all the three companies has challenged

the admission order. In all these matters, similar orders have been passed

on 23rd October 2019, admitting the Section 7 of the Insolvency and

Bankruptcy Code, 2016.

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

and perused the records.

16. Learned Counsel for the Appellant emphasized on the non-compliance

of the provision of Section 7(5)(a) of the Insolvency and Bankruptcy Code,

2016:

"Section 7(5) of the I&B Code is as under:

Sec 7(5) Where the Adjudicating Authority is satisfied that--

(a) a default has occurred and the Application under sub-section (2)

is complete, and there is no disciplinary proceedings

pending against the proposed resolution professional, it

may, by order, admit such Application; or

Company Appeal (AT) (Insolvency) No. 1005 of 2019 6 of 14

(b) default has not occurred or the Application under sub-section (2)

is incomplete or any disciplinary proceeding is pending against

the proposed resolution professional, it may, by order, reject such

Application:

Provided that the Adjudicating Authority shall, before rejecting the

Application under clause (b) of sub-section (5), give a notice to the

applicant to rectify the defect in his Application within seven

days of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from

the date of admission of the Application under sub-section (5).

(7) The Adjudicating Authority shall communicate--

(a) the order under clause (a) of sub-section (5) to the financial

creditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial

creditor, within seven days of admission or rejection of such

Application, as the case may be."

Section 7(5)(a) provides that where the Adjudicating Authority is

satisfied that the default has occurred and the Application under Section (2)

is complete and no disciplinary proceeding pending against the proposed

Resolution Professional, it may, order, admits such Application.

Company Appeal (AT) (Insolvency) No. 1005 of 2019 7 of 14 Therefore, a petition under Section 7 can be admitted by the

Adjudicating Authority if it is complete and satisfies the parameters as laid

down in Section 7(5)(a) of the Code. In this case, the Appellant alleges that

Form 2 prescribed under the Adjudicating Authority Rules, which was filed

along with the Application, copy of which is Annexure-A3 annexed with the

Appeal, is not proper. The Photostat copy of Annexure A3 is as under:

Company Appeal (AT) (Insolvency) No. 1005 of 2019 8 of 14 On perusal of the declaration by the proposed Insolvency Resolution

Professional, it appears that the proposed IRP Mr Anil Agarwal has not given

declaration that no disciplinary proceeding is pending against him. It is also

evident that the declaration of proposed Insolvency Resolution Professional,

Annexure A3, is not in prescribed Form 2 under the Adjudicating Authority

Rules. Therefore, as per the Ist provisio to Section 7(5) of the Code, the

Adjudicating Authority should have issued notice to the Applicant/Petitioner

to rectify the Application within seven days. But in the instant case, the

Company Appeal (AT) (Insolvency) No. 1005 of 2019 9 of 14 Adjudicating Authority has not taken into consideration the statutory

provision of Sub Clause (5)(a) of Sec 7 of the Code and passed the Admission

Order.

17. Learned Counsel for the Appellant further emphasizes that the

Adjudicating Authority has failed to appreciate that Hon'ble Guwahati High

Court in Writ Petition (C) No.6029 of 2019 is seized of the matter and had

directed the parties to maintain status quo. A copy of the Order of Hon'ble

High Court, Annexure A-8, is annexed with the Petition, which shows that

the above Writ Petition, which was filed on behalf of all the three

Companies, the Hon'ble High Court had passed the order of status quo.

Copy of order above dated 19th August 2019 of the Hon'ble High Court is as

under:

"After hearing the arguments advanced by Mr Choudhury, I am of the

view that before passing any further order in the matter, the

Respondent Bank must be heard.

In the view of the above, Registry to list this case on 26th August, 2019

for motion as a fixed item.

The Petitioner to serve a copy of the Writ Petition by hand upon

the Branch Manager, PNB, Guwahati Branch, intimating him

about the pendency of this proceeding and the next date fixed in

Company Appeal (AT) (Insolvency) No. 1005 of 2019 10 of 14 the matter, so as to enable the Bank to appear before this Court

on the next date.

Till 26th August, 2019 parties to maintain status quo in the

matter."

18. In the Impugned Order, the adjudicating authority has mentioned that

the Corporate Debtor gained so much time on the pretext of settlement and

also by filing Writ Petition before the Hon'ble High Court of Meghalaya at

Shilong and it is high time to put an end to this matter.

19. It is undisputed that by order of the Hon'ble High Court dated 19th

August 2019 parties were directed to maintain status quo till 26th August

2019. However, the Adjudicating Authority, without taking the status quo of

the High Court, passed the Order of Admission on 23rd August 2019.

20. The Appellant contends that the Petition is barred by the Limitation

Act. The loan is sanctioned in 2004, various enhancement up to 11th June

2012, and alleged restructuring happened on 25th July 2014, whereas the

Petition was filed on 09th July 2018. Therefore, the claim of the Respondent

Bank is time-barred. In this connection, it is further contended by the

Appellant that date of default as shown in Form 1 is 27th July 2015 and

Petition is filed on 09th July 2018. Therefore, it is clear that the Petition is

not time barred.

Company Appeal (AT) (Insolvency) No. 1005 of 2019 11 of 14

21. It is essential to mention that the Appellant has annexed a letter of

acknowledgement D.T. 13th March 20 which is at 18, page no 77 of the

paper book whereby the corporate debtor submitted One Time Settlement

offer to clear the outstanding dues of the Bank.

22. It is on record that on the day petition was admitted there was status

quo order by the Hon'ble High Court and which was in the knowledge of the

Adjudicating Authority. But the Adjudicating Authority admitted the Petition

by the impugned order dated 23rd August 2019. Learned Counsel for the

Appellant placed reliance on the Respondent's letter dated 29th July 2019,

which is at page 60 of the paper book. This letter shows that Bank has

addressed a letter to the Directors of all the three companies informing that;

"As per the terms of the conditions of above OTS, you have to deposit

Rs. 3/- Crores as upfront, Rs. 3/- Crore immediately after receiving of

sanction letter and minimum of Rs.1.50 Crore in each month. But it is a

matter of concern that after lapse of more than 6 months, you have

deposited Rs.6.79/- Crores against due amount of Rs.16.50 Crores till

July 2019."

23. It is also clear from the letter mentioned above that the OTS proposal

dated 06th August 2018 of Rs.60/- Crores in group account was accepted by

the Bank on 27th December 2018 and the Corporate Debtor has paid

Rs.6.79 Crores in furtherance of the OTS. It is also on record that the

Respondent Bank has further accepted a sum of Rs. One Crore on 21st

August 2019 regarding renewal of OTS. The cheque dated 21st August 2019

Company Appeal (AT) (Insolvency) No. 1005 of 2019 12 of 14 was encashed by the Bank even after revocation of the OTS during the

pendency of Section 7 of the Application.

24. On perusal of the record, it is apparent that after acceptance of OTS

for settling the dues of all the three companies in Rs. Sixty Crores, Bank has

received a substantial amount from the Corporate Debtor. It is also clear

that after making default in payment as per terms of OTS, the Corporate

Debtor further paid rupees One Crore to the Bank for renewing the OTS.

Bank even after accepting after rupees One Crore revoked the offer to renew

the OTS. Considering the present/prevailing economic scenario of the

country and downfall/slump in every business activity, we deem it fit and

proper to provide one more opportunity to the parties for considering the

OTS (One Time Proposal) in a fair, just, objective and dispassionate manner.

25. On perusal of the record that it is also evident that there is no proper

compliance under Section 7(5)(a) of the Insolvency and Bankruptcy Code,

but this defect in the Application is a curable defect which can be rectified.

It is also on record that the admission order was passed even after the

status quo order of the Hon'ble High Court.

26. In the circumstances, as stated above this Tribunal allows the instant

Appeal by setting aside the impugned order and matter is remanded back to

the Adjudicating Authority to pass an order afresh, after providing an

opportunity to the opposite party in the light of the directions given in the

body of the judgment. However, it is also made clear that the Adjudicating

Authority should provide one more opportunity for the parties to consider

Company Appeal (AT) (Insolvency) No. 1005 of 2019 13 of 14 the renewal of OTS and in the event of renewal of OTS, the said opportunity

may be utilised by the parties in right earnest, of course in true letter and

spirit. The parties are directed to appear before the Adjudicating Authority

(NCLT, Guwahati Bench) on dated 29th June 2020. No order as to costs.

[Justice Venugopal M.] Member (Judicial)

[V. P. Singh] Member (Technical

[Shreesha Merla] Member (Technical) NEW DELHI 18th JUNE, 2020

pks/nn

Company Appeal (AT) (Insolvency) No. 1005 of 2019 14 of 14