V. R. Hemantraj vs Stanbic Bank Ghana Ltd

(Arising out of Order dated 27.04.2018 passed by the Adjudicating Authority (National Company Law Tribunal), Chennai Bench, Chennai in the Insolvency Petition being C.P.No.CP/670(IB)/2017)

In the matter of: V. R. Hemantraj, Shareholder of Rajkumar Impex Pvt Ltd, 4th Floor, Old No.93, New No.119, St Mary's Road, Abhiramapuram Chennai 600018, Tamil Nadu Appellant

Versus

1. Stanbic Bank Ghana Ltd, Stanbic Heights, 215 South Liberation Link, Airport City, ACCRA, Ghana. Respondent No.1

2. Deepa V Ramani IRP of Rajkumar Impex Pvt Ltd. 40, TNHB Complex, No.180, LUZ Church Road, Chennai-600004 Tamil Nadu Respondent No.2

Present:

For Appellant: Mr. S.N. Jha, Sr. Advocate and Mr. Mohan Parasaran, Sr. Advocate with Mr. Pawan Jhabakh, Ms Radhika Bali, Ms Shruti Iyer, Mr.Anandh K and Mr. Harsh Jha, Advocates.

For Respondents: Mr Anirudh Wadhwa, Mr. Anirudh Krishnan, Mr Hiresh Chowdhry, Mr. Vipul Kumar, Mr Keerthi Kiran and Ms Sneha Pradeep, Advocates for R-1. Ms Deepa V Ramani, RP (R-2).

Company Appeal (AT) (Insolvency) No.213/2018 2

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J

The application under Section 7 of the Insolvency & Bankruptcy Code,

2016 (I&B Code for short) was filed by the -Stanbic Bank Ghana Limited

(financial creditor) for initiation of corporate resolution process against 'M/s

Rajkumar Impex Pvt Ltd' (Corporate Debtor) having admitted by the

Adjudicating Authority (National Company Law Tribunal), Chennai Bench,

Chennai by impugned order dated 27.4.2018. The appellant, a shareholder of

Corporate Debtor filed this appeal on following grounds:-

(i) The 1st respondent do not come within the meaning of 'financial

creditor' as defined under Section 5(7) r/w Section 5(8) of the I&B Code;

and

(ii) In absence of document of debt or default, the application preferred

by the 1st respondent, was not maintainable.

3. Appellant has filed the 'Medium term loan' which shows that 'M/s

Rajkumar Impex Ghana Ltd', a subsidiary of 'M/s Rajkumar Impex Pvt Ltd'

(Corporate Debtor) was granted loan to the extent of US$ 5,300,000.00 (Five

million three hundred thousand United States dollars) by "Stanbic Bank

Ghana Limited" (1st respondent). It is also not in dispute that 'M/s Rajkumar

Impex Pvt Ltd', is the holding company of 'Rajkumar Impex Ghana Limited',

who executed 'guarantee' in favour of "Stanbic Bank Ghana Limited" (1st

respondent), and became the 'corporate guarantor'. In the aforesaid

background, we hold that the 1st Respondent comes within the meaning of

Company Appeal (AT) (Insolvency) No.213/2018 3

'Financial Creditor', as defined under Section 5(7) read with Section 5(8)(h) of

I&B Code.

4. Learned Senior Counsel appearing on behalf of the appellant submitted

that the Adjudicating Authority has not recorded their satisfaction as required

under Section 7(5) of the I&B Code. Reliance has been placed on the Hon'ble

Supreme Court in the Innoventive Industries Ltd Vs ICICI Bank (2018) 1

SCC 207. It was also submitted that the satisfaction of the Adjudicating

Authority is a condition precedent for initiating any Corporate Insolvency

Resolution Process but nothing of the kind even as an empty formality has

been recorded in the impugned order. Therefore, according to him the

initiation of the Corporate Insolvency Resolution Process is illegal and void ab

initio.

5. It was further submitted that the document relied upon by 1st

Respondent is a 'foreign decree' of the High Court of Justice, Queens Bench

Division Commercial Court which is an ex-parte decree. The said decree can

not be treated to be a record of default. It is only a declaration entitling the

applicant to a certain sum of money.

6. However, we are not inclined to accept the aforesaid submission, as a

record of decree, is a proof of 'debt' and the record of default is required to be

enclosed separately to suggest that no payment has been made in terms of

decree.

7. In Innoventive Industries (Supra) the Hon'ble Supreme Court held as

follows:

Company Appeal (AT) (Insolvency) No.213/2018 4

"28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the

explanation to Section 7(1), a default is in respect of a

financial debt owed to any financial creditor of the

corporate debtor-it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in such

form and manner as is prescribed, which takes us to

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Under Rule 4, the

application is made by a financial creditor in Form 1

accompanied by documents and records required

therein. Form 1 is a detailed form in 5 parts, which

requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II, particulars

of the proposed interim resolution professional in Part

III, particulars of the financial debt in Part IV and

documents, records and evidence of default in Part V.

Under Rule 4(3), the applicant is to dispatch a copy of

the application filed with the adjudicating authority by

registered post or speed post to the registered office of

the corporate debtor. The speed, within which the

adjudicating authority is to ascertain the existence of

a default from the records of the information utility or

on the basis of evidence furnished by the financial

Company Appeal (AT) (Insolvency) No.213/2018 5

creditor, is important. This it must do within 14 days

of the receipt of the application. It is at the stage of

Section 7(5), where the adjudicating authority is to be

satisfied that a default has occurred, that the

corporate debtor is entitled to point out that a default

has not occurred in the sense that the "debt", which

may also include a disputed claim, is not due. A debt

may not be due if it is not payable in law or in fact.

The moment the adjudicating authority satisfied that a

default has occurred, the application must be admitted

unless it is incomplete, in which case it may give notice

to the applicant to rectify the defect within 7 days of

receipt of a notice from the adjudicating authority.

Under sub-section (7), the adjudicating authority shall

then communicate the order passed to the financial

creditor and corporate debtor within 7 days of

admission or rejection of such application, as the case

may be."

8. The aforesaid decision of the Hon'ble Supreme Court makes it clear that

on the basis of any record if the Adjudicating Authority is satisfied that there

is a 'debt' and default has occurred, the Adjudicating Authority is required to

admit the application.

9. Application under Section 7 is filed in Form I which is in 5 Parts. It is

not a recovery proceeding or a proceeding for determination of claim on merit,

Company Appeal (AT) (Insolvency) No.213/2018 6

which can be decided only by a court of competent jurisdiction. Application

under Section 7 or 9 or 10 of I&B Code being not money claim or suit and not

being an adversarial litigation, the Adjudicating Authority is not required to

write a detailed decision as to which are the evidence relied upon for its

satisfaction. The Adjudicating Authority is only required to be satisfied that

there is a 'debt' and default has occurred.

10. In the present case the Adjudicating Authority has held that "a prima

facie case has been made out" by the 1st Respondent/applicant. Such

observations having made, we hold that the Adjudicating Authority expressed

its final satisfaction both about existence of debt and default.

11. The learned Senior Counsel appearing on behalf of the appellant

submitted that the decree is an ex parte decree, but such issue can not be

decided while entertaining an application under Section 7 or by the

Adjudicating Authority or even by this Appellate Tribunal. The Adjudicating

Authority has not been empowered to give such declaration.

12. The decree passed by High Court of Justice, Queens Bench Division,

Commercial Court of England, can be challenged only before the Court of

Competent jurisdiction. The same cannot be assailed before the Adjudicating

Authority, till its existence is denied.

13. Admittedly 'M/s Rajkumar Impex Ghana Ltd', a subsidiary of the

Corporate Debtor, was granted medium term loan by 1st Respondent. It is

also not in dispute that 'M/s Rajkumar Impex Pvt Ltd' (Corporate Debtor)

which is the holding company of 'M/s Rajkumar Impex Ghana Ltd' has

executed a guarantee in favour of the 'Stanbic Bank Ghana Ltd' (1st

Company Appeal (AT) (Insolvency) No.213/2018 7

Respondent). The guarantee given by the Corporate debtor, is on record.

The decree passed by the High Court is an evidence in support of such

guarantee. As admittedly the debt amount has not been paid by the Corporate

Debtor, the Adjudicating Authority rightly admitted the application.

14. We specifically asked the learned senior counsel for the appellant as to

whether the 'corporate debtor' disputed the existence of debt or the default.

On the other hand, we find that the 'corporate debtor' has taken a plea that

there is no debt or that default has not occurred. As the appellant is silent on

such issue, in absence of any objection, we accept that the Corporate Debtor

has not disputed the question of debt and default.

15. We find no merit in this appeal. The appeal is accordingly dismissed.

No cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member (Judicial)

New Delhi

Dated: 29th August, 2018

Bm

Company Appeal (AT) (Insolvency) No.213/2018