Srei Equipment Finance Limited vs Uday Narayan Mitra Interim Resolution ...

Comp. App. (AT) (Ins) No. 770 of 2023 & I.A. No. 2694 of 2023 IN THE MATTER OF: SREI Equipment Finance Ltd. ...Appellant

Versus

Uday Narayan Mitra Interim Resolution ...Respondent Professional of ARSS Infrastructure Projects Ltd.

Present: For Appellant : Mr. Sanjeev Sen, Sr. Adv. with Mr. Anirban Bhattacharya, Mr. Ankit Kohli, Mr. Rajeev Chowdhary, Ms. Anjali Singh & Radha Gupta, Advocates For Respondent : Mr. Anand Varma, Ms. Apoorva Pandey, Mr. Ayush Gupta, Advocates for RP

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 18.04.2023 passed by

the Adjudicating Authority (National Company Law Tribunal, Cuttack

Bench) by which an application bearing I.A (IB) No. 11/CB/2023, filed by

the Appellant under Section 60(5) of the Insolvency and Bankruptcy Code,

2016 (in short 'Code') r/w Rule 11 of the NCLT Rules, 2016 (in short ' Rules')

has been dismissed.

2. In brief, ARSS Infrastructure Projects Pvt. Ltd. (Corporate Debtor)

entered into an agreement bearing Contract No. 50430 with the Appellant

and availed an aggregate loan of Rs. 1,38,51,01,300/-. There were two more

loan agreements executed between the parties i.e. Contract Nos. 92744 and

Comp. App. (AT) (Ins) No. 770 of 2023 2

94261 on 22.09.2015 for sum of Rs. 20,00,00,000/- and 64,30,00,000/-.

The loan disbursed to the Corporate Debtor showing the contract no., loan

amount and date of contract is as under:-

Contract No. Debt Granted (in Rs.) Date of Contract

50430 1,385,101,300 03.09.2013

92744 20,00,00,000 22.09.2015

94261 64,30,00,000 22.09.2015

Total 2,22,81,01,300

3. The Corporate Debtor executed two deeds of hypothecation for the

agreements bearing Contract No. 92744 and 94261, two deeds of personal

guarantee for the agreements bearing Contract No. 50430 and 92744 in

favour of the Appellant. The Corporate Debtor also created relevant charge

for the agreements bearing Contract No. 94261 and 92744 in favour of the

Appellant and also submitted the relevant charge certificate to the Registrar

of Companies, Cuttack. The Liability under the loan agreements were

reflected in the balance sheet/annual reports for the year 2015-2016 in

which it is shown as long-term borrowings as rupee loan from NBFCs

(secured) as on 31.03.2016 of Rs. 196,07,50,906/-. For the purpose of

securing the repayment of the loan amount disbursed under the Contract

No. 92744 and 94261, the Appellant and the Corporate Debtor entered into

hypothecation agreements dated 22.09.2015 by which the Corporate Debtor

created a charge under Section 77 of the Companies Act, 2013 (in short

'Act') in favour of the Appellant over the Corporate Debtor's movable plant

Comp. App. (AT) (Ins) No. 770 of 2023 3

and machinery, machinery spares, tools and accessories and other movables

both present and future. The said charges were registered with the Registrar

of Companies, Cuttack and reflected in the records of the MCA. Since, the

Corporate Debtor could not adhere to the terms and conditions of the loan

agreements and started defaulting in the repayment of its dues. It

approached the Appellant for assigning its certain receivables and

represented that the receivables were unencumbered and the Corporate

Debtor had absolute right so assign the same. Thereafter, a deed of

assignment dated 29.03.2017 was entered into between the Appellant and

the Corporate Debtor and the said fact was recorded in the annual report for

the year 2016-17 stating thus 'that the company has entered into one time

settlement with SREI Equipment Finance Limited towards settlement of

debts of as on 28.03.2017, which is to be settled by way of assignment of

valid, genuine and legally enforceable receivables'.

4. The Appellant is stated to have not recovered any amount under the

deed of assignment rather it transpired later that the Corporate Debtor had

practiced fraud upon the Appellant by making misleading and false

representation in the said deed of assignment as it came to its knowledge

that the receivables assigned to the Appellant were already encumbered and

a charge was created in favour of the Financial Creditor being State Bank of

India. This fact came to the notice of the appellant through a letter dated

08.06.2017 issued by the SBI. The Appellant, through letter dated

17.06.2017, asked the Corporate Debtor to rectify the discrepancy and since

the Corporate Debtor failed to rectify the discrepancies, the Appellant vide

Comp. App. (AT) (Ins) No. 770 of 2023 4

its letter dated 15.06.2019, terminated the deed of assignment dated

23.09.2027 and called upon the Corporate Debtor to make the payment of

the outstanding dues as on 15.06.2019. The demand notice was sent on

15.07.2019 for repayment of entire outstanding dues which was ultimately

tried to be brushed aside by issuing letters dated 11.07.2019, 06.08.2019

and 05.09.2019 which were duly replied by the Appellant on 20.08.2019.

5. It is pertinent to mention that vide order dated 08.10.2021, the

Adjudicating Authority, Kolkata Bench, admitted the application filed under

Section 227 of the Code by the Reserve bank of India bearing C.P. (IB) No.

294/KB/2021 against the Appellant and Rajneesh Sharma was appointed

as the Administrator. It is also pertinent to mention that CIRP was also

initiated of the Corporate Debtor vide order dated 30.11.2021 and Uday

Narayan Mitra was appointed as Interim Resolution Professional (in short

'IRP') who made a public announcement on 04.12.2021, calling upon the

stakeholders, to submit their claims with proof. Pursuant thereto, the

Appellant issued an email submitting its claim in Form C to the IRP.

However, after some communication, the IRP through its email dated

28.01.2022 informed the Appellant that its claim has been rejected. This led

to the filing of the application bearing I.A (IB) No. 64/CB/2022 seeking a

direction to the IRP to admit the claim of the Appellant for a sum of Rs.

919,78,94,038/- and further to stay the meeting of the CoC till disposal of

the said application. The application was dismissed on 10.05.2022 by the

Adjudicating Authority which led to the filing of the appeal bearing CA (AT)

Comp. App. (AT) (Ins) No. 770 of 2023 5

(Ins) No. 640 of 2022 under Section 61 of the Code. The said appeal was

allowed on 30.08.2022 with the following order:-

1. This appeal is directed against the order dated 10.05.2022 passed by the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench, Cuttack) by which an application filed by the Appellant against the order of rejection passed by the RP to admit their claim was dismissed.

2. In brief, M/s ARSS Infrastructure Projects Ltd. (Corporate Debtor) was admitted to Corporate Insolvency Resolution Process (in short 'CIRP') by the Adjudicating Authority on 30.11.2021 and Uday Narayan Mitra, was appointed as Interim Resolution Professional (in short 'IRP') and was ultimately appointed as Resolution Professional ('RP'). He made a public announcement on 04.12.2021 for inviting the claims and in response to which the Appellant filed their claim in form-c of a sum of Rs. 919,78,94,038 as Financial Creditor of the said Corporate Debtor. However, the RP rejected the application for claims vide his letter dated 28.01.2022. Aggrieved against the said decision of the RP, the Appellant filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2017 (in short 'Code') Read with Rule 11 of the NCLT, Rules 2016 (in short 'Rules') before the Adjudicating Authority by way of CP (IB) No. 34/CB/2022. The said application has been rejected only on the ground that the claim submitted by the Appellant to the RP was time barred.

3. In brief, the Appellant entered into the following contracts with the Corporate Debtor, namely, "(i) Contract dated 03.09.2013 bearing contract No. 50430 by which the corporate debtor availed loan facility of Rs. 138,51,01,300/-. (ii) Contract dated 22.09.2015 bearing contract No. 92744 by which the Corporate Debtor availed loan Rs. 20,00,00,000/- (iii) Contract dated 22.09.2015 bearing contract No. 94261 by which the corporate debtor availed loan of Rs. 64,30,00,000/-. (iv) Further the Corporate Debtor executed two deeds of Hypothecation dated 22.09.2015 executed in response to loan document No. 92744 and No. 94261, hypothecating the plants and machineries and other machineries, movables of corporate debtor."

4. In the normal circumstances, the amount involved in the first contract dated 03.09.2013 could have been recovered within a period of three years up to 03.09.2016 and the amount involved in the contract dated 22.09.2015 with the period of 22.09.2018, however, according to the Appellant, in so far as, the contract dated 03.09.2013 is concerned, before the period of three years

Comp. App. (AT) (Ins) No. 770 of 2023 6

could have expired for the purpose of recovery of said amount, the said amount was acknowledged in the 16th annual report of the year 2015-2016 as a loan from the NBFCs (Secured) as Rs.1,960,750,906. It is, thus, submitted that since aforesaid acknowledgment was on 31.03.2016 and it was prior to the expiry of period of limitation on 03.09.2016, therefore, the period of limitation further extended till 31.03.2019. It is further submitted that in so far as, the contract dated 22.09.2015 is concerned, the limitation was to expire on 22.09.2018 but in between on

29.03.2017 the Corporate Debtor had entered into an agreement of assignment with the Appellant in which it was specifically averred that "(3). ARSS has defaulted in repayment of the loans and the lease rentals in the manner provided in the respective loan/lease agreements and as on 29th March, 2017 a sum of Rs. 240.30 Crores is outstanding from ARSS, the details whereof are provided in Schedule I hereto (finance dues) which ARSS acknowledge and admit as due and outstanding. (4). ARSS is entitled to receive amounts equal to approximately Rs. 1071.22 Crores under the various contracts executed by it with its clients/customers. All these contracts are valid subsisting and legally binding ARSS has represented to SREI that the aforesaid sum of Rs. 1071.22 represents valid, genuine and legally enforceable receivables, recoverable by ARSS from its customers in terms of the contracts entered into by it with them (Receivables). ARSS also, as on the date of the execution of the present agreement has instituted proceedings at various forum for recovery of these Receivables. ARSS has represented that the Receivables are free from all Encumbrances (as defined hereinafter). The Details of the Receivables along with the details of the contracts pursuant to which ARSS is entitled to the Receivables and the details of the proceedings pending at various forums for recovery of the Receivables are set out in Schedule II herein."

5. Counsel for the Appellant has submitted that the limitation had, thus, again started to run from 29.03.2017 till 29.03.2020. It is further submitted that before the expiry of period on 29.03.2020, the Supreme Court passed an order on 22.03.2020 in Suo Motu Writ Petition (C) No. 3 of 2020 that the period of limitation shall continue to run till 15.03.2021 and ultimately up to 28.02.2022 with extra 90 days. The order of the Hon'ble Supreme Court is also reproduced as under:-

"This Court has taken Suo Motu cognizance of the situation arising out of the challenge faced by the country on account of Covid-19 Virus and resultant difficulties that may be faced by litigants across the country in filing their petitions/applications/suits/appeals/all other proceedings

Comp. App. (AT) (Ins) No. 770 of 2023 7

within the period of limitation prescribed under the general law of limitation or under Special Laws (both Central and/or State).

To obviate such difficulties and to ensure that lawyers litigants do not have to come physically to file such proceedings in respective Courts/Tribunals across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings.

We are exercising this power under Article 142 read with Article 141 of the Constitution of India and declare that this order is a binding order within the meaning of Article 141 on all courts/tribunals and authorities.

This order may be brought to the notice of all High Courts for being communicated to all subordinate Courts/Tribunals within their respective jurisdiction.

6. The Hon'ble Supreme Court in M.A No. 21 of 2022 in M.A No. 665 of 2021 in SMW(C) No. 3 of 2020 has passed another orders on 01.10.2022, which is reproduced as under:-

1. In March, 2020, this Court took Suo Motu cognizance of the difficulties that might be faced by the litigants in filing petitions/applications/ suits/ appeals/ all other quasi proceedings within the period of limitation prescribed under the general law of limitation or under any special laws (both Central and/or State) due to the outbreak of the COVID-19 pandemic.

2. On 23.03.2020, this Court directed extension of the period of limitation in all proceedings before Courts/Tribunals including this Court w.e.f. 15.03.2020 till further orders. On 08.03.2021, the order dated 23.03.2020 was brought to an end, permitting the relaxation of period of limitation between 15.03.2020 and 14.03.2021. While doing so, it was made clear that the period of limitation would start from 15.03.2021.

3. Thereafter, due to a second surge in COVID-19 cases, the Supreme Court Advocates on Record Association (SCAORA) intervened in the Suo Motu proceedings by filing Miscellaneous Application No. 665 of 2021 seeking restoration of

Comp. App. (AT) (Ins) No. 770 of 2023 8

theorder dated 23.03.2020 relaxing limitation. The aforesaid Miscellaneous application No.665 of 2021 was disposed of by this Court vide Order dated 23.09.2021, wherein this Court extended the period of limitation in all proceedings before the Courts/Tribunals including this Court w.e.f 15.03.2020 till 02.10.2021.

4. The present Miscellaneous Application has been filed by the Supreme Court Advocates-on-Record Association in the context of the spread of the new variant of the COVID-19 and the drastic surge in the number of COVID cases across the country. Considering the prevailing conditions, the applicants are seeking the following:

i. allow the present application by restoring the order dated 23.03.2020 passed by this Hon'ble Court in Suo Motu Writ Petition (C) NO. 3 of 2020 ; and ii. allow the present application by restoring the order dated 27.04.2021 passed by this Hon'ble Court in M.A. no. 665 of 2021 in Suo Motu Writ Petition (C) NO. 3 of 2020; and iii. pass such other order or orders as this Hon'ble Court may deem fit and proper.

5. Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M.A. No. 21 of 2022 with the following directions:

I. The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings.

II. Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022.

III. In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwit hstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply.

IV. It is further clarified that the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing

Comp. App. (AT) (Ins) No. 770 of 2023 9

the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

6. As prayed for by learned Senior Counsel, M.A. No. 29 of 2022 is dismissed as withdrawn."

7. It is further argued that the period of limitation has also to be looked into when the claim is submitted to the RP and in this regard, he has relied upon a decision of the Hon'ble Supreme Court in the case of GPR Power Solutions Pvt. Ltd. through Mr. S. Damodaran Vs. Supriyo Chaudhuri (RP of Rohit Ferro Tech limited & Ors., 2021 SCC Online SC 1328.

8. Counsel for the Appellant has also argued that the Appellant is a victim of fraud at the hands of the Corporate Debtor who had entered into assignment agreement dated 29.03.2017 with it and then it came to know from the letter dated 08.06.2017 written to it by the State Bank of India that it had mortgaged the same property to the Bank as well. The said letter is reproduced as under:-

The Head, SREI Equipment Finance Pvt. Ltd.

2nd& 3rd Floor, House No. HIG-1, BDA Housing Colony, Jayadev Vihar Bhubaneswar - 751 013 Dear Sir, ARSS Infrastructure Projects Ltd. (AIPL) Settlement of dues of SREI Equipment Finance Pvt. Ltd. Under OTS & Assignment of Receivables under arbitration

ARSS Infrastructure Projects Ltd. has availed huge credit facilities both Fund Based and Non-Fund Based consisting of Working Capital and Term Loans under Consortium arrangements. As per the documents executed from time to time by the Company with individual as well as the Consortium Lenders, all the Current Assets inclusive of Stock, VVIP, Debts Bills Receivables (present & future) are

Comp. App. (AT) (Ins) No. 770 of 2023 10

first charged to Consortium Lenders on pari-passu basis for working capital facilities and 2nd charge on pari-pasu basis for the term loans.

02. We understand that AIPL has availed some term fiancé from your company for acquiring fixed assets like construction equipments and vehicles. In order to settle the dues to SREI, the company (AIPL) has assigned receivables under arbitration in favour of SREI Equipment Finance Pvt.

Ltd. Since all the current assets inclusive of receivables present & future are assigned to the consortium Banks, assignment of receivables in favour of 3rd party without the consent of existing lenders is in violation of the hypothecation agreement and will be void ab-initio.

03. This is for your information.

Your Faithfully

Deputy General Manager"

9. It is further argued that after the aforesaid letter and the enquires made by the Appellant it terminated the assignment agreement vide its letter dated 15.06.2019:

"Ref/ARSS-110524/19-20 Date: 15-06-2019 To, ARSS INFRASTRUCTURE PROJECTS LIMITED PLOT NO 38, SECTOR-A, ZONE-D, MANCHESWAR INDUSTRIAL ESTATE BHUBANESWAR ODISHA PIN- 751010 Sub: Termination of Assignment Agreement dated 29th March, 2017 Dear Sir, Please refer to the duly registered Assignment Agreement dated 29th March, 2017 entered between SREI Equipment Finance Ltd. (SREI) and ARSS Infrastructure Projects Ltd. (ARSS) regarding the assignment of receivables of 13 nos. of claim of ARSS Infrastructure Projects Ltd as detailed under the Schedule - I hereunder.

Though ARSS has specifically represented and undertaken under clause 5.2 of the said Assignment Agreement that the said receivables are free from all encumbrances and they have not created any rights on the said receivables in favour of any third party, but on the contrary it is evident from the letter received from SBI, claiming the assignment of

Comp. App. (AT) (Ins) No. 770 of 2023 11

receivables made in favour of SREI is void-ab-initio, that charges and encumbrances was already in existence on the said receivables when those were assigned to SREI, and thus ARSS has acted with malafide intention to deprive and cheat SREI. Charges created by ARSS on the said receivables in favour of its working capital lenders; was deliberately supressed at the time of Execution of the said Assignment Agreement, and its tantamount to misrepresentation and suppression of material facts, and thus it is an Event of Default under clause 7.1.1 (i), (ii), (v) & (xiii) of the said Assignment Agreement:

Furthermore, though ARSS has undertaken under clause 6.l of the said Assignment agreement that it will provide all the material information to SREI regarding the said receivables, but there were deliberate and wilful breach of such covenants from ARSS and all the material documents and information regarding the said claims was not been provided to SREI, despite of our repeated follow ups. Such deliberate and wilful breach of contractual obligation by ARSS amounts to be Events or Default under clause 7.1. 1(iii), (vii) & (xiii) of the said Assignment Agreement.

It is also observed that though under Clause no. 6.2.1 ARSS has undertaken to provide all the necessary assistance and support to SREI in prosecution of the arbitrations relating to the said receivables and also for their expeditious settlement, but surprisingly it is noticed that barely there is any assistance and/or support from ARSS regarding those ARSS, and as a result, in spite of SREI's whole hearted efforts, in terms of time and money, there is no significant achievements in the said arbitration proceedings. Such deliberate and wilful breach of contractual obligation by ARSS not only caused further financial losses, but also amounts to be Events of Default under clause 7.1.1(iii). (vii) & (xiii) of the said Assignment Agreement"

10. In the background of the aforesaid facts and circumstances, the Appellant has, thus, submitted that the RP has committed an error in not appreciating the aforesaid facts and circumstances before rejecting its claim vide its order dated 28.01.2022 as also the Adjudicating Authority has erred in dismissing the claim on the ground that it is barred by limitation.

11. In reply, Counsel for Respondent has vehemently argued that contract of loan between the parties had become insignificant after the execution of assignment of agreement on 29.03.2017 and

Comp. App. (AT) (Ins) No. 770 of 2023 12

as a matter of fact the loan was discharged. It is further submitted that the assignment agreement is a novation of contract and had created a fresh relationship between the parties discharging the old loan of the Appellant given to the Corporate Debtor. It is also submitted that result of the said assignment is evident from the 17th Annual Report of the year 2016-17 in which the non-current portion of the long-term borrowings pertaining to the NBFCs (Secured) has been shown as nil. However, he has been candid enough to admit that the Corporate Debtor had created a charge over the receivables both in favour of the Banks for the purpose of obtaining loan from them and also in favour of the present appellant in order to discharge the liability of the loan taken by them. Counsel for Respondent has also argued that termination ipso-facto could not have taken place until and unless the Appellant had approached the proper forum for which the Corporate Debtor has invoked the arbitration.

12. We have heard Counsel for the parties and perused the record with their able assistance.

13. The issue involved in this case is as to whether the amount claimed by the Appellant could have been rejected by the RP on the ground of limitation despite the fact that the loan amount has been repeatedly acknowledged by the Corporate Debtor and also by the termination of assignment agreement the loan was revived?

14. From the resume of the facts, we do not appreciate the act and conduct of the Corporate Debtor in this case in entering into the assignment agreement dated 29.03.2017 knowing fully well that it had already created a charge over the receivables of the consortium of banks who had separately given the loan to it. Besides this, the RP has also failed to appreciate the fact that the loan advanced by the Appellant to the Corporate Debtor was extended from time to time in view of the acknowledgement i.e. in the year 2015-16 the said loan had been shown in the accounts of the Corporate Debtor as outstanding by which the period was extended from 13.03.2016 to 01.03.2019 pertaining to the loan advanced on 03.09.2013 and the amount of loan which was advanced on 22.09.2015 for which the limitation was up to 22.09.2018 was extended because of execution of assignment deed on 29.03.2017 from which it was extended up to 29.03.2020. In the said assignment deed the Corporate Debtor has categorically admitted its liability but showed its inability to pay of the debts itself and had asked the Appellant herein to recover the said amount from their customers and clients. The very fact that the limitation provided in the aforesaid contracts were expiring during the period of Covid-19, the order passed by the Hon'ble Supreme

Comp. App. (AT) (Ins) No. 770 of 2023 13

Court in Suo Motu Writ Petition (Civil) No. 3 of 2020 extended the limitation up to 15.03.2021 and thereafter up to 28.02.2022 with 90 days extra. In this manner, the application filed by the Appellant before the RP was well within the limitation and has wrongly been rejected by it without considering the same.

15. No other point has been raised.

16. In view of the aforesaid discussion, the present appeal is hereby allowed and the impugned order is set aside."

6. It is pertinent to mention that the order dated 30.08.2022 attained

finality as it was not challenged in appeal. However, after the order dated

30.08.2022, the Appellant, through email dated 09.09.2022, requested the

Respondent to reconstitute the CoC and invite the Appellant to the meeting.

It is urged that the Respondent did not give any favourable reply. The

Appellant filed an application bearing I.A. No. 3615 of 2022 seeking

clarification of the final order dated 30.08.2022 and similarly, on

10.10.2022, the Respondent also filed I.A. No. 3869 of 2022 for the same

purpose. Both the applications were disposed of on 18.10.2022 with the

following order:-

"This order shall dispose of two applications i.e. I.A. No. 3615 of 2022 filed by the Appellant and I.A. No. 3869 of 2022 filed by the RP.

In brief, M/s ARSS Infrastructure Projects Ltd. (Corporate Debtor) was admitted to Corporate Insolvency Resolution Process (in short 'CIRP') by the Adjudicating Authority on 30.11.2021 and Uday Narayan Mitra, was appointed as an Interim Resolution Professional (in short 'IRP') and ultimately appointed as Resolution Professional ('RP'). The Appellant filed their claim in form-c of a sum of Rs. 919,78,94,038 as Financial Creditor of the Corporate Debtor but the said claim was rejected by the RP on 28.01.2022. The Appellant challenged the decision of the RP by way of an application filed under Section 60(5) of the Code before the AA which was rejected on the ground that it was barred by limitation.

Comp. App. (AT) (Ins) No. 770 of 2023 14

Aggrieved against the order of the Adjudicating Authority, the Appellant preferred an appeal before this Tribunal, which was allowed vide order dated 30.08.2022 holding that the application filed by the Appellant before the RP was well within limitation.

After the order dated 30.08.2022, the Appellant approached the RP on 09.09.2022 through email requesting him that in view of the order of this Tribunal, the CoC be reconstituted and he be invited in the meeting. It was also requested that till then no steps be taken in regard to resolution plan, if any. In response to the email dated 09.09.2022 of the Appellant, the RP replied on 11.09.2022, that in the order of the NCLAT there is no specific direction to reconstitute the CoC of Corporate Debtor and that the order of this Tribunal is being put up before the CoC as well as to the legal team for further course of action and shall revert back to the Appellant soon. However, the Appellant is aggrieved that the RP did not revert back thereafter and is afraid that in the meantime the proceeding in regard to resolution plan, if any, may not be completed. Consequently, the Appellant has filed the application bearing I.A. No. 3615 of 2022, invoking Rule 31 of the NCLAT, Rules for seeking clarification of the order dated 30.08.2022 as to whether it automatically enjoins the RP to reconstitute the CoC of the Corporate Debtor by including the Appellant in the CoC and to refrain from convening any other meeting till the disposal of the application.

At the same time, an application bearing I.A. No. 3869 of 2022 is filed by the RP invoking Rule 11 of the NCLAT Rules, 2016 seeking clarification of the order dated 30.08.2022 as to whether the claim submitted by the Appellant which has now been declared within limitation can be admitted without verifying the same.

Though as per the procedure, notice in the application is to be issued and reply of both the parties is to be taken but Counsel for the parties have submitted that no reply is required to be filed as both the parties are concerned about the true import of the order and both the parties have filed the application for seeking clarification.

We have heard Counsel for the parties and after examining the decision of the Adjudicating Authority, prayer made in the appeal before this Tribunal and the order ultimately passed by this Tribunal on 30.08.2022, the decision of the RP as well as the Adjudicating Authority was not found correct to the extent they had rejected the claim of the Appellant as a stale claim on the

Comp. App. (AT) (Ins) No. 770 of 2023 15

ground of being barred by limitation and ultimately the decision taken by the RP as well as Adjudicating Authority was set aside.

As a consequence thereof, RP is obliged to accept the claim submitted by the Appellant but at the same time shall have a right to verify the claim on merits. However, the RP shall take a decision in regard to claim submitted by the Appellant on it merits on or before 31st October, 2022 without being influenced by his earlier view. However, till then the proceedings before the CoC regarding the consideration of Resolution Plan, if any, shall remain suspended."

7. Thereafter, the Respondent vide email dated 26.10.2022 raised

various queries and sought clarification from the Appellant and the

Appellant through its email dated 31.10.2022 sent clarification with respect

to the queries raised in the email dated 26.10.2022 but on 01.11.2022, the

Respondent rejected the claim of the Appellant. The Appellant filed

Contempt Petition No. 30 of 2022 on 07.11.2022 which was withdrawn on

16.12.2022 with liberty to assail the order dated 01.11.2022. The order

passed in the Contempt Petition is also reproduced as under:-

"After arguing sometime, Counsel for the Appellant after taking instructions, has prayed that he may be allowed to withdraw this contempt case in order to challenge the order dated 01.11.2022 passed by the RP before the Adjudicating Authority. However, he has earnestly requested that if any such application is filed before the Adjudicating Authority then that decided in a time bound manner.

At this stage, Abhijeet Sinha has put in appearance on behalf of the Respondent and submitted that he has no objection if the contempt case is withdrawn and if the Petitioner/Appellant intends to challenge the order passed by the RP before the Adjudicating Authority. It is submitted that he has no objection if the application to be filed by the Appellant is decided in a time bound.

In view of the aforesaid facts and circumstances, the contempt case is hereby dismissed as withdrawn. The Petitioner/Appellant

Comp. App. (AT) (Ins) No. 770 of 2023 16

may, if so advised, file an appropriate proceedings before the Adjudicating Authority to challenge the order dated 01.11.2022 in accordance with law.

At the same time, in case, any such application is filed within a week from today, the Adjudicating Authority is requested to make all efforts to decide the same within a month thereafter by giving opportunity to file reply. In this regard, Counsel for the parties have stated before us that they will give full cooperation to the Adjudicating Authority to decide the application within the time prescribed."

8. Thereafter, the Appellant filed the application bearing I.A. No. 11 of

2023 before the Adjudicating Authority to challenge the rejection of the

claim of the Appellant to the tune of Rs. 919,78,94,038/- which has been

dismissed by the impugned order dated 18.04.2023 and hence, the present

appeal.

9. Opening his argument, Counsel for the Appellant has referred to the

deed of assignment dated 29.03.2017 and drew our attention to its various

relevant clauses which are reproduced as under:-

"5. ARSS has in discharge of the Finance Dues owed by ARSS agreed 10 assign/transfer all its rights, title and interest on these Receivables and the underlying contracts pertaining to the Receivables in favour of Srei which shall be utilized towards settlement of the Finance Dues, 240.30 Crores (Rupees Two Hundred Forty Crore and Thirty Lakhs Only), being the amounts owed by ARSS to Srei. It is agreed by the parties that the receivables shall be utilized towards settlement of the dues of ARSS outstanding as set out herein before.

x x x

"Receivables" shall mean the amounts receivable by ARSS pursuant to the various contracts entered into by it with its customers, the details whereof are provided in Schedule II. Schedule II also provides details of the amount-realizable from each of the customer under such contracts. However, receivables shall also include any accretions thereto and any amounts paid

Comp. App. (AT) (Ins) No. 770 of 2023 17

by way of interest, damages, etc. and all sums awarded/paid/payable to ARSS whether pursuant to the contracts or Litigation or proceedings arising out of or negotiations or settlements arrived at in connection with the contracts set out in Schedule - II or otherwise,

x x x

3. Settlement ARSS has represented to Srei that the Receivables are valid, legally enforceable, genuine and free from air Encumbrances/charge of any Third Party. The Receivables arise out of legally valid and binding contracts entered into by ARSS with its customers. Based on the representation and assurance of ARSS and subject to satisfaction of the conditions precedent provided herein below, Srei is entering into this Agreement with ARSS to settle the Finance Dues on the terms contained herein:

x x x

5.2 Representation regarding the Receivables

5.2.1 ARSS represents that it has not created any security over the Receivables as mentioned in Schedule-ll and the Receivables are free and clear of all Encumbrances.

5.2.2 ARSS represent that they have not withheld and shall not withheld any information relating to the Receivables which may affect the execution of the Agreement by Srei ARSS has performed all its obligations under the contract underlying the Receivables and has not done any act or omission whereby the realization of the Receivables may be adversely affected.

5.2.3 ARSS represents that it has not and shall not create any Encumbrance, charge or security over the Receivables in favour of any Third Party. ARSS has not disposed of the Receivables or any part thereof to any Third Party and has not appropriated and shall not appropriate the same.

5.2.4 ARSS represents that the Receivables as detailed in Schedule - II are validly and legally enforceable and ARSS has not entered into any arrangement with or created any rights favour of any other person other than Srei respect of the Receivables. The contracts underlying the Receivables are valid, subsisting and legally enforceable.

5'2.5 ARSS has not assigned and agrees not to assign the Receivables to any person other than Srei.

Comp. App. (AT) (Ins) No. 770 of 2023 18

5.2.6 There are no Third Party Claims affecting the Receivables or their assign ability or recovery.

x x x

7. Default, Remedies And Termination

7.1 Events of Default

7.1.1 In addition to any other events described as constituting an event of default under the Agreement, the following events and occurrences shall constitute an Event of Default for purposes of this Agreement:

i) If ARSS has treated or caused to be created any Encumbrance on the Receivables or disposed it off to any Third Party.

ii) If the Receivables are subject to any Encumbrance whether created by ARSS or otherwise or their genuineness or validity or the validity or bona tides of the underlying contract is under dispute.

x x x

7.2 Consequences of Default

7.2.1 If one or more of the Events of Default specified in Clause 7.1 occur or are continuing, whether voluntarily or involuntarily,' then, without derogation from the rights mentioned in this Agreement and without prejudice to any, other right or action that Srei may be entitled to under law or this Agreement against ARSS even after allowance of 15 (fifteen) days remedial period towards- resolution of such event of default, Srei shall have the following rights:

i) Srei may, at its sole discretion take such other legal remedial action as Srei may deem fit. including specifically enforcing any right under applicable Law and in equity.

ii) the Existing Finance Agreements and all the obligations of ARSS under the Existing Finance Agreements shall automatically revive and become effective and Srei shall be entitled to exercise all the rights available to it against ARSS under the Existing Finance Agreements."

10. It is submitted that as per Clause 5.2.1, the Corporate Debtor

represented that it has not created any security over the receivables as

Comp. App. (AT) (Ins) No. 770 of 2023 19

mentioned in Schedule - II and the Receivables are free and clear of all

encumbrances. It was also stipulated that if the receivable are found subject

to any encumbrances, whether created by ARSS or otherwise or their

genuineness or validity or bonafide of the underlying contract is under

dispute then it shall be treated as an event of default and the consequence

of default was that the existing financial agreements and all the obligations

of the Corporate Debtor under the existing financial agreements shall

automatically revive and become effective and the Appellant shall be entitled

to exercise all the rights available to it against the Corporate Debtor under

the existing financial agreements.

11. It is submitted that the Corporate Debtor misrepresented the fact that

the receivables are unencumbered but the cat was out to the bag with the

letter dated 08.06.2017 of the SBI by which it was well-nigh proved that the

receivables were encumbered with the SBI as well and thus the clause

pertaining to default and its consequences came into operation and the

finance agreements (loan agreements) got revived automatically. In the

previous orders dated 30.08.2022 and 18.10.2022 it has been categorially

observed that the RP is obliged to accept the claim submitted by the

Appellant but shall have a right to verify the same. It is further submitted

that as per Section 3(11) of the Code, debt means a liability or obligation in

respect of a claim which is due from any person and includes a financial

debt and operational debt whereas as per Section 3(6) of the Code claims

means a right to payment whether or not such right is reduced to judgment,

fixed, disputed, undisputed, legal, equitable, secured or unsecured. It is

Comp. App. (AT) (Ins) No. 770 of 2023 20

further submitted that as per Section 18(1)(b) of the Code it is the duty of RP

to receive and collate all the claims submitted by creditors to him, pursuant

to the public announcement made under section 13 and 15 of the Code. It is

further argued that according to Regulation 8(2)(b)(i) of the IBBI (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 (in short

'Regulations') the Respondent was to take into account the financial contract

supported by financial statements for the purpose of evidence of the debt

and had no jurisdiction to adjudicate upon it to decide that the liability of

the Corporate Debtor has been discharged after the execution of the

assignment deed and also that there was some dispute in respect of

assignment deed which may be a subject matter of the arbitration. It is

further submitted that even if there is a clause for arbitration in the

agreement (assignment deed) yet no arbitrator was appointed, resorting to

Section 11 of the Arbitration and Conciliation Act, 1996 (in short 'Act 1996'),

therefore, the arbitration proceedings are not pending. Whereas the

Adjudicating Authority has rejected the application, firstly, on the issue as

to whether the termination of assignment agreement vide letter dated

15.06.2019 was valid and secondly, the rejection of claim by the RP under

the email dated 01.11.2022 is valid. It is submitted that the Adjudicating

Authority has committed an error in holding that the termination of the

agreement letter dated 15.06.2019 is not valid observing thus that the

Appellant should have approached Civil Court for the purpose of rescission

the contract. It is submitted that the Adjudicating Authority has failed to

appreciate the fact that it was provided in the agreement itself that in the

event of a failure, the financial contract would automatically revive and

Comp. App. (AT) (Ins) No. 770 of 2023 21

therefore, the letter dated 15.06.2019 was only a communication. It is

further argued that the Adjudicating Authority has committed an error that

the RP had no jurisdiction to do the adjudicatory work by holding that the

unilateral termination of assignment agreement vide letter dated 15.06.2019

is valid and the original debts are revived. Counsel for the Appellant has

submitted that the financial contracts were suspended with the execution of

the assignment deed as per which the Appellant was to settle its account

from the receivables of the Corporate Debtor which were repeatedly stated in

the agreement to be free from all encumbrances and it was agreed between

the parties that in case it is found to be otherwise, it would be treated an

event of default and the consequence of default was the revival of the

financial contracts automatically, therefore, RP should have performed his

duty in terms of Section 18(1)(b) on the basis of the financial contracts

which got revived and was not supposed to go into the fact as to whether the

termination effectuated by the letter dated 15.06.2019 was legal or illegal.

12. On the other hand, Counsel for the Respondent (RP) has argued that

it is not only the duty of the RP to collate the claims but also to verify the

same and during the process of verification he has found that vide letter

dated 11.07.2019 the Corporate Debtor had asked for the arbitration and as

per Section 21 of the Act, 1996 the arbitration commenced w.e.f.

11.07.2019. However, he could not deny the fact that the Arbitrator has not

been appointed in this case as no application was filed on behalf of the

Respondent for the said purpose. He has further argued that RP has

rejected the claim in accordance with law.

Comp. App. (AT) (Ins) No. 770 of 2023 22

13. We have heard Counsel for the parties and perused the record with

their able assistance.

14. There is no dispute to the fact that the Corporate Debtor had availed

the loan from the Appellant. It is also not in dispute that the Corporate

Debtor was unable to repay the loan and thus entered into a deed of

assignment on 29.03.2017. It is also not in dispute that the Corporate

Debtor represented to the Appellant that he had certain receivables which

are without any charge or encumbrance which may be received by the

Appellant for the purpose of settling the account and also agreed that in

case it is found to be otherwise then it would be termed as an event of

default and in the event of default the consequence would be the revival of

all the financial contracts automatically. There is also no dispute to the fact

that the SBI, lead consortium bank, vide letter dated 08.06.2017 informed

that the Corporate Debtor had also created a charge/encumbrance on the

receivables for the purpose of recovery of their dues. This fact triggered the

clause of event of default and as a consequence, the financial contracts were

automatically revived. The Corporate Debtor was pushed into CIRP vide

order dated 30.11.2021 and in response to the publication made by the IRP

of the Corporate Debtor, the Appellant submitted Form-C on 03.12.2021

claiming the amount in question which was initially rejected by the RP on

the ground of limitation but the said decision was reversed by the order

dated 30.08.2022 by this Appellate Tribunal and when the clarification was

sought, a further order was passed on 18.10.2022 for collating the claims.

The Appellant had to file a contempt petition because the previous orders

Comp. App. (AT) (Ins) No. 770 of 2023 23

were not followed in its letter and spirit but it ultimately filed the application

bearing I.A. No. 11 of 2023 by which prayer was made for admitting the

claim of Rs. 919,78,94,038/- which has been rejected. The Adjudicating

Authority rejected the application by its impugned order, inter alia, on the

ground that rejection of the assignment agreement vide letter dated

15.06.2019 was not valid. Whereas it is also a fact that there is a categoric

provision in the agreement itself that in the event of default, the existing

financial agreements and all the obligation of the Corporate Debtor under

the existing financial agreements shall automatically revive and become

effective and the Appellant shall be entitled to exercise all the rights

available to it against the Corporate Debtor under the existing finance

agreements. The word 'automatically' itself empowers the Appellant to put

up the claim, declaring that the assignment agreement has been violated by

the Appellant by making a false representation that their receivables were

not encumbered or charged. The Corporate Debtor has no doubt made the

misrepresentation in the deed of assignment which has become evident from

the letter of SBI dated 08.06.2017, therefore, finding recorded by the

Adjudicating Authority that the termination of the assignment was not valid

is neither here nor there. In so far as, the issue of arbitration is concerned,

admittedly, the arbitrator has not been appointed, no arbitration is pending

nor any effort has been made by the Respondent (Corporate Debtor) by filing

an appropriate application in terms of the Act of 1996, therefore, the RP has

committed an error in relying upon Section 21 of the Act, 1996. It is really

heartening to mention that this is the 3rd round of litigation at the instance

Comp. App. (AT) (Ins) No. 770 of 2023 24

of the Appellant in which the Appellant is only asking for admission of its

claim by the RP which has been rejected on the flimsy grounds.

15. Thus, in view of the aforesaid discussion, we are satisfied that there is

an error in the impugned order in rejecting the application filed by the

Appellant, therefore, the appeal is hereby allowed and the impugned order is

set aside, however, without any order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

New Delhi 09th January, 2024.

Sheetal

Comp. App. (AT) (Ins) No. 770 of 2023