T. Johnson vs Phoenix Arc Pvt. Ltd. & Anr

[Arising out of order dated 9th October, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, in C. P. No. 587/I&BP/2018]

IN THE MATTER OF:

T. Johnson, Majority Shareholder & Managing Director, St. John Freight Systems Limited, 106, J/66, Millerpuram, Tuticorin - 628008. ....Appellant

Vs

1. Phoenix ARC Pvt. Ltd., Dani Corporate Park, 5th Floor, 158, CST Road, Kalina Santa Cruz (E), Mumbai - 400 098.

2. St. John Freight Systems Limited, Through Mr. R. Venkatakrishan, Interim Resolution Professional of St. John Freight Systems Limited Partner of RVKS & Associates, Chartered Accountants, "RANGAS" # 1/4, 4th Main Road, R. A. Puram, Chennai - 600 028. ....Respondents

Present:

For Appellant: Mr. Atul Sharma, Mr. S. C. Dass, Mr. Pushkar Sood and Mr. Harshit Kher, Advocates. For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Suresh Dutta Daboal and Ms. Sonakshi Dhiman, Advocates for Phoenix. Mr. Aditya Verma, Mr. Shrey Patnaik, Advocates for RP. -2-

BANSI LAL BHAT, J.

This appeal, filed by 'T. Johnson', majority shareholder and erstwhile

Managing Director of 'M/s St. John Freight System Limited' (hereinafter

referred to as 'Corporate Debtor') seeks to assail the legality and correctness

of order of admission of application of Respondent No. 1 - 'Phoenix ARC Pvt.

Ltd.' (hereinafter referred to as the 'Financial Creditor') filed under Section 7

of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Code') vide order dated 10th December, 2018 passed by the Adjudicating

Authority (National Company Law Tribunal), Division Bench Chennai by

virtue whereof the application of Financial Creditor came to be admitted

with consequential slapping of moratorium and appointment of Interim

Resolution Professional as a sequel to the order of admission. The

impugned order has been assailed on the grounds that claim in the

application filed by the Financial Creditor was grossly exaggerated and

barred by limitation.

2. The undisputed facts germane for disposal of instant appeal require to

be noticed. The 'Corporate Debtor' secured loan from 'State Bank of

Travencore' (hereinafter referred to as 'Bank') somewhere in 1999. Total

amount of loan granted was Rs.59.35 Crores. The credit facility extended to

the 'Corporate Debtor' came to be renewed or enhanced from time to time. It

Company Appeal (AT) (Insolvency) No. 32 of 2019 -3-

is not in controversy that such credit facilities were duly secured by pledging

of core immovable assets in the form of mortgage of immovable properties

and hypothecation of stock, receivables and other assets. Account of the

'Corporate Debtor' came to be declared as a Non-Performing Asset (NPA) by

the 'Bank'. It happened on 30th September, 2015. Admittedly, the 'Bank'

assigned the account of 'Corporate Debtor' to 'Phoenix ARC Pvt. Ltd.'

(Financial Creditor) on 31st March, 2016 in terms of Letter of Assignment.

According to notice issued by the 'Financial Creditor' u/s 13(2) of

SARFAESI Act, 2002, the total amount of default as on 30th November, 2016

was Rs.60,92,44,653/- which the 'Corporate Debtor' failed to pay and the

same aggregated to Rs.73,08,54,170/- as on 15th March, 2018 when the

application for initiation of Corporate Insolvency Resolution Process was

filed.

3. The Adjudicating Authority, upon hearing the parties and

consideration of the matter dismissed the plea of limitation and objection

regarding inflation of claim set up by the 'Corporate Debtor' and passed the

impugned order of admission. In arriving at its finding on the issues raised,

the Adjudicating Authority was largely influenced by the documents

including revival letter dated 20th February, 2016, balance confirmation

dated 22nd February, 2016 executed by the 'Corporate Debtor' and factum of

last payment having been made by the Corporate Debtor on 14th November,

2017.

4. Heard learned counsel for the parties and perused the record.

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5. Learned counsel for the Appellant submits that the impugned order

cannot be sustained as the claim in the application was time barred and

there was no debt payable in law. He submits that the issue was raised

before the Adjudicating Authority, who failed to properly consider the same.

Per contra it is submitted on behalf of the Respondent - Financial Creditor

that apart from execution of revival letter dated 20th February, 2016 and

balance confirmation letter dated 22nd February, 2016 by the Corporate

Debtor, the last payment having been made as recently as on 14th

November, 2017, it is manifestly clear that the Financial Creditor's claim is

well within the period of limitation.

6. We have given our anxious consideration to the arguments advanced

at the Bar. Even a cursory look at the record placed before the Adjudicating

Authority as also before this Appellate Tribunal brings it to fore that the

factum of State Bank of Travancore from whom the loan was raised as far

back as 1999 as a duly secured debt was renewed from time to time and

finally in the year 2015, and upon declaration of the account of Corporate

Debtor as NPA on 30th September, 2015 same being assigned to the

Respondent - Financial Creditor, is an admitted position. Apart from the

revival letter and the balance confirmation letter executed by the Corporate

Debtor in February, 2016, there is an admission on the part of Corporate

Debtor as emanating out of the 'Summary of differences' forming part of the

written submissions of the Appellant before the Adjudicating Authority at

page 121 of the paper book, which acknowledges balance as according to

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Appellant at Rs.58,53,69,581/- on 15th March, 2018 though disputing the

correctness of balance worked out by the Financial Creditor at

Rs.73,08,04,386/- as on 15th March, 2018. It is also an admitted fact that

Corporate Debtor made the last payment on 14th November, 2017. One

more material fact requiring to be noticed is the case put forth by the

Corporate Debtor that subsequent to assignment of debt by State Bank of

Travancore in favour of the Respondent - Financial Creditor in terms of

Assignment Deed dated 31st March, 2016, the Corporate Debtor paid off an

amount of Rs.1.38 Crores to the Respondent - Financial Creditor. The

assignment of debt essentially being a transaction between the Creditor and

the Assignee and assignment being recognized by the I&B Code as a valid

mode of transfer of right across the ambit of Section 5(7) bringing it within

the fold of 'Financial Creditor', does not affect the liability and obligations of

the Corporate Debtor to discharge the debt. In the face of such huge

documentary evidence and stand taken by the Corporate Debtor before the

Adjudicating Authority and the Appellant before this Appellate Tribunal the

inevitable conclusion is that the plea of limitation is unfounded. The claim

has rightly been held to be within the period of limitation and on this score

no fault can be found with the impugned order as regards initiation of

Corporate Insolvency Resolution Process. The contention raised is

accordingly repelled.

7. In so far as gross exaggeration of claim on the part of Respondent -

Financial Creditor is concerned, same appears to be based on a pure

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surmise. The Appellant has resorted to conjecture which is attributable to

pure fancy/ imagination. There is no basis to arrive at a conclusion that

subsequent to declaration of the loan account of Corporate Debtor as NPA,

the loan was assigned by the Bank to the Respondent - Financial Creditor

for a sum of Rs.39.90 Crores. Assuming though not holding that it was so,

still it does not dilute the liability of Corporate Debtor who is under an

obligation to discharge the outstanding debt in full. The consideration for

assignment of debt is of no relevance in so far as the liability and obligation

on the part of Corporate Debtor is concerned. The assignment only changes

the hands of the creditor clothing the assignee with authority to enforce the

claim. The liability in regard to claim as regards the Corporate Debtor

remains intact and does not get diluted in any manner whatsoever. The

Adjudicating Authority has the jurisdiction to initiate Corporate Insolvency

Resolution Process by passing order of admission on an application of the

Financial Creditor or it Assignee if the amount of debt exceeds Rupees One

Lakh. Admittedly, the debt in respect of default allegedly exceeded the

prescribed amount of Rupees One Lakh. Admission of a claim pursuant to

collation and verification of claims by the Resolution Professional is a matter

to be dealt with when the Corporate Insolvency Resolution Process is

underway. Same is irrelevant at the stage of admission of application under

Section 7 of the I&B Code. The challenge on this score is also without

substance.

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8. In view of the foregoing discussion, we find no merit in this appeal.

The impugned order, in our considered opinion, does not suffer from any

legal infirmity. In so far as grievance against the Resolution Professional is

concerned, the Adjudicating Authority shall look into the same and take

appropriate steps to ensure that the Resolution Process is handled in a fair

and transparent manner. With these observations, the appeal being devoid

of merit, is dismissed. There shall be no orders as to costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[Balvinder Singh] Member (Technical)

NEW DELHI

7th May, 2019

AM

Company Appeal (AT) (Insolvency) No. 32 of 2019