Srei Equipment Finance Ltd vs Uday Narayan Mitra

SREI Equipment Finance Ltd. ...Appellant

Versus

Uday Narayan Mitra ...Respondent IRP of ARSS Infrastructure Projects Ltd.

For Appellant: Mr. Krishnendu Dutta, Sr. Advocate with Mr. Anirban Bhattacharya, Mr. Dhruv Sachdeva, Mr. Ankit Kohli, Rajat Sinha, Advocates. For Respondents: Mr. Abhijeet Sinha, Mr. Anand Varma and Ms. Apoorva Pandey, Advocates

ORDER

Per: Justice Rakesh Kumar Jain.

30.08.2022: 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 2

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 3

contract dated 03.09.2013 is concerned, before the period of three years 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 4

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 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:-

5 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 theorder dated 23.03.2020 relaxing limitation. The aforesaid Misc ellaneous 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.

6 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, notwithsta nding 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 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, 7

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 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 8

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 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 9

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 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 10

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 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.

11

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.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

SC/RR