Vineet Khosla vs Edelweiss Asset Reconstruction ...

[Arising out of Order dated 15.03.2019 passed by National Company Law Tribunal, Principal Bench, New Delhi in Company Petition No.(IB)- 866(PB)/2018]

IN THE MATTER OF: Before NCLT Before NCLAT

Mr. Vineet Khosla --- Appellant Shareholders and (ex) Director Margra Industries Ltd. A-501 The Villas

Versus

1. M/s. Edelweiss Applicant/ Respondent No.1 Asset Reconstruction Financial Creditor Company Ltd. Edelweiss House, Off C.S.T. Road, Kalina Santa Cruz (East) Mumbai - 400098

2. Margra Industries Respondent/ Respondent No.2 Ltd. Corporate Debtor Administrative Office: D-328 Defence Colony New Delhi

3. Mr. Rajender --- Respondent No.3 Kumar Girdhar, Interim Resolution Professional Oshiwara Mahada 2

Complex, Building No.5 Aster CHS, Flat No.205, 2nd Floor, New Link Road, Osjiwara Andheri (West) Mumbai 400053

For Appellant: Shri Pulkit Deora, Advocate

For Respondent: Shri Sanjay Bhatt, Advocate with Ms. Kiran Sharma, CS (Respondent No.1)

Shri I.P.S. Oberoi, Advocate (Respondent No.2) for RP

JUDGEMENT

A.I.S. Cheema, J. :

1. Respondent No.1 - Edelweiss Asset Reconstruction Company Ltd.

(Edelweiss - in short) - Financial Creditor filed Company Petition No.(IB)-

866(PB)/2018 before the Adjudicating Authority (National Company Law

Tribunal, Principal Bench, New Delhi) under Section 7 of the Insolvency

and Bankruptcy Code, 2016 (IBC - in short) against Respondent No.2 -

Margra Industries Ltd. - Corporate Debtor, which has been admitted vide

Impugned Order dated 15th March, 2019. Respondent No.3 - Mr. Rajender

Kumar Girdhar, came to be appointed as Interim Resolution Professional

(IRP). Being aggrieved, the Appellant - Mr. Vineet Khosla - Ex. Director of

the Corporate Debtor has filed this Appeal.

Company Appeal (AT) (Ins) No.441 of 2019 3

2. In the Application under Section 7 filed in Form 1, Edelweiss claimed

to be assignee of the loan which was taken by Corporate Debtor by way of

financial assistance from Exim Bank. The bank had sanctioned financial

assistance amounting to Rs.389 Lakhs in terms of Rupee Loan Agreement.

Later on, further financial assistance was extended amounting to Rs.550

Lakhs and Foreign Currency Term Loan Agreement was also executed.

Corporate Debtor executed agreement of hypothecation of movable assets

and also deed of guarantee was executed. Later on immovable property

was also mortgaged and charge created.

3. The Financial Creditor claimed that Exim Bank filed O.A. 177/2001

before DRT, Delhi - II. The Bank also filed O.A. 251/2003 before DRT,

Mumbai - II. DRT at Mumbai passed Order with regard to payments to be

made by the Corporate Debtor. The Order was passed in 2004. Settlement

terms were filed in O.A. 177/2001 at DRT, Delhi between Exim Bank (the

assignor of Edelweiss) and the Corporate Debtor and the amount specified

was to be paid by 12th September, 2012 and consent decree came to be

passed. However, OTS failed for want of repayment by the Corporate

Debtor. Then on 2nd January, 2014, Exim Bank assigned the debt along

with underlying rights, title and interest. On request of Corporate Debtor,

the Appellant gave extension of time for payment on 5 occasions to the

Corporate Debtor. The last extension was granted in 2015 which was valid

till 31st March, 2016. The Section 7 Application claimed gross amount to

Company Appeal (AT) (Ins) No.441 of 2019 4

be in default of Rs.44,20,38,989/-. The Application was supported by the

necessary documents (Annexures 1 to 29).

4. The learned Adjudicating Authority heard the Financial Creditor and

the Corporate Debtor and considered the dispute raised, examined the

Application submitted in Form supported by the necessary documents and

found that the Financial Creditor had placed voluminous record with

overwhelming evidence to support the claim as well as to prove the default.

Adjudicating Authority referred to the assignment deed in favour of

Edelweiss and noted that it was duly stamped and registered with

registering authority in Noida. Adjudicating Authority found that under

Sub-Section (7) of Section 5 of the IBC Code the term "Financial Creditor

includes a person to whom financial debt has been legally assigned or

transferred". It was held that the outstanding loan amount has been duly

assigned by Exim Bank to Edelweiss and Edelweiss came within the

definition of "Financial Creditor".

5. With regard to the dispute raised by the Corporate Debtor that

incorrect amount had been claimed, it has been held by Adjudicating

Authority that dispute over the quantum of default cannot be a ground to

reject the Application under Section 7 as determination of quantum of

financial debt is not in the domain of Adjudicating Authority. It was also

observed that the Corporate Debtor would be free to raise objection

regarding mismatch of dues and excess before the Resolution

Professional/Committee of Creditors. Adjudicating Authority also found

Company Appeal (AT) (Ins) No.441 of 2019 5

that the transaction showed that loan was disbursed against consideration

for time value of money with a clear commercial effect of borrowing. It has

been found that the record shows that Corporate Debtor availed the loan

facility and committed default in repayment of huge outstanding financial

debt. Consequently, Adjudicating Authority admitted the Application.

6. In Appeal, the Appellant for Corporate Debtor is claiming and it has

been argued that following questions are involved in the present matter:-

"

Sl. POSITION/SUGGESTED

No. QUESTION ANSWER OF THE HUMBLE

APPELLANT

1. Question No.1:

Whether the resolution of A resolution professional

disputes between the cannot fill the shoes of a

financial creditor and the judicial forum that is already

corporate debtor can be seized of a dispute.

subjected to adjudication by

the Resolution Professional if

they already be pending

before another judicial forum,

all the more so when the

claim of the corporate debtor

Company Appeal (AT) (Ins) No.441 of 2019 6

be far larger than that of the

financial creditor?

2. Question No.2:

Whether the provisions of the The primary purpose of the

IBC can be invoked when it is IBC is to provide a mechanism

already known to the whereby, through resolution of

financial creditor that there is the claims of the creditors, an

no possibility whatsoever of attempt is made at the survival

keeping the Company as a of the Company, by retain it as

"going concern" while finding a "going concern", even if under

any resolution, and its sole different Management.

aim is to liquidate the The IBC cannot be invoked if

remaining assets? the sole intent is to put the

remaining assets of the

financial debtor to auction.

In the present case, the

financial creditor has already

obtained orders from DRT for

appointment of a Receiver for

the purpose of auction of its

remaining assets.

Company Appeal (AT) (Ins) No.441 of 2019 7

3. Question no.3:

Whether NCLT should have Hon'ble NCLT was made fully

respected the principles aware that the issue of whether

underlying the comity of not the assignment was proper

courts, and should have was under examination by

awaited the decision of the DRT. This being so, by the

DRT insofar as its finding on principle of comity of courts, it

the legality of the assignment should not have decided the

of the debt from the original question.

lender (i.e. Exim Bank) to

Respondent No.1?

"

It is argued that if there is already a dispute pending and under

consideration in another Forum like DRT, the Application under Section 7

could not have been moved by the Financial Creditor as it would

tantamount to Resolution Professional replacing judicial Forum which was

considering the dispute. It is also argued that the object of IBC is to provide

for resolution so that the Company can be saved and the Company could

be kept as a going concern. The Counsel submitted that the Financial

Creditor had already obtained Orders from DRT for disposing properties of

the Corporate Debtor and Section 7 Application was filed to get disposed

the remaining assets of the Corporate Debtor and in such set of facts,

Section 7 could not have been invoked as it is against the object of IBC.

Company Appeal (AT) (Ins) No.441 of 2019 8

The learned Counsel stated that whether or not there was a proper

assignment done in favour of Edelweiss, was being looked into by DRT and

when this is so, Adjudicating Authority should not have dealt with and

held that there was proper assignment.

7. We have gone through the matter and heard the submissions made.

We are not convinced with the submissions that only because the Financial

Creditor had moved for relief before DRT, it could not have resorted to

proceedings under the IBC. There is no provision which bars referring to

IBC if already relief has been sought or pending in another Forum. Rather,

under Section 238 of IBC, the provisions of IBC shall have effect,

notwithstanding anything inconsistent therewith contained in any other

law for the time being in force or any instrument having effect by virtue of

any such law. Once the Application under Section - 7, 9 or 10 is admitted,

moratorium prohibiting the other pending actions gets attracted under

Section 14. Under Section 14, institution of suits or continuing of pending

suits or proceedings against the Corporate Debtor including execution of

any Judgement, Decree or Order in any Court of law, Tribunal, Arbitration

Panel or other authority gets hit by the moratorium and cannot be

proceeded further till moratorium is in force. As such, there is no

substance in the argument that if dispute is already pending in another

forum, IBC cannot be invoked.

8. We find no force in the arguments that Adjudicating Authority could

not have looked into the question whether the debt has been duly assigned

Company Appeal (AT) (Ins) No.441 of 2019 9

to Edelweiss. The Adjudicating Authority referred to the documents of

assignment and provisions under Section 5(7) to conclude that the

financial debt had been legally assigned and Edelweiss was coming within

the definition of Financial Creditor.

9. In the matter of "Edelweiss Asset Reconstruction Company Ltd.

Versus Synergies Dooray Automotive Ltd. & Ors." in Company Appeal

(AT) (Insolvency) No. 169 of 2017 and others - by Judgement dated 14th

December, 2018, this Tribunal has held (in para - 66 of that Judgement)

with regard to Assignment Agreements that when the same are duly

executed with concerned authorities and are not questioned by the parties

to those proceedings, others would not have locus standi to question the

veracity of those documents on mere apprehensions or allegations of

malafides etc. It has been held that the person who is not party to the

Assignment Agreement, would not be able to raise apprehensions before

the Adjudicating Authority to adjudicate on the Assignment Agreements.

It was held that the Adjudicating Authority cannot enter into roving

enquiry on mere apprehensions and baseless allegations. In the present

matter, the Assignment Deed (Page 380 @ 411) shows that Exim Bank

executed Assignment Deed in favour of Edelweiss and the same was duly

registered. The document clearly refers in the schedule (Page 411) to the

Corporate Debtor and the debt assigned. The argument that the

Adjudicating Authority could not have looked into such document only

Company Appeal (AT) (Ins) No.441 of 2019 10

because some dispute was raised before DRT has no substance. We find

no reason to interfere with such findings of Adjudicating Authority.

10. The contention of the Appellant that if the Financial Creditor had

already got sold part of the assets of the Corporate Debtor, taking direction

from DRT, the Corporate Debtor could no more be kept a going concern

and so, IBC could not be invoked, also deserves to be rejected. At the stage

of admission of the Application under Section 7 of IBC, the Adjudicating

Authority need not enter into such disputes raised. Section 7 (4) and (5) of

IBC read as under:-

"(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).

(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

(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

Company Appeal (AT) (Ins) No.441 of 2019 11

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."

11. In the matter of "M/s. Innoventive Industries Ltd. Vs ICICI Bank

& Anr." in Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017 in

Judgement dated 15th May, 2017 passed by this Tribunal, it was held in

Para - 52 and 53 as under:-

"52. The insolvency resolution process under Section 7 or Section 9 of I&B Code, 2016 have serious civil consequences not only on the corporate debtor - company but also on its directors and shareholders in view of the fact that once the application under Sections 7 or 9 of the I&B Code, 2016 is admitted it is followed by appointment of an 'interim resolution professional' to manage the affairs of the corporate debtor, instant removal of the board of directors and moratorium for a period of 180 days. For the said reason also the Adjudicating Authority is bound to issue limited notice to the corporate debtor before admitting a case under section 7 and 9 of the 'I & B Code', 2016.

53. In view of the discussion above, we are of the view and hold that the Adjudicating Authority is bound to issue a limited notice to the corporate debtor before admitting a case for ascertainment of existence of default based on material submitted by the corporate debtor and to find out whether the application is complete and or there is any other defect required to be removed. Adherence to Principles of natural justice would not mean that in every situation the adjudicating authority is required to afford reasonable opportunity of hearing to the Corporate debtor before passing its order."

Company Appeal (AT) (Ins) No.441 of 2019 12

When the same matter was taken up before the Hon'ble the Supreme

Court of India vide Judgement dated 31st August, 2017 - (2018) 1 SCC

407, it was observed in para - 28 of the Judgement as under:-

"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 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 is 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 subsection (7), the adjudicating

Company Appeal (AT) (Ins) No.441 of 2019 13

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."

From the above, it is clear that at the stage of admission of

Application under Section 7, the requirement is to give limited Notice and

the considerations would be to see whether or not satisfaction by

Adjudicating Authority could be reflected on the basis of Sub-Section (5)

of Section 7. If there is a financial debt, which is more than Rs.1 Lakh and

there is a default and if the Application is complete, the Application would

have to be admitted. The Corporate Debtor is entitled to point out that a

default has not occurred in the sense that the 'debt' which may include a

disputed claim is not due. Corporate Debtor may point out that the debt is

not due by showing that it is not payable in law or in fact.

12. The Adjudicating Authority at that stage is not required to consider

if or not Resolution for a given Company would be possible or not and

whether or not it would be possible to keep it a going concern as the

Corporate Debtor is trying to claim. When efforts are being made to resort

to Section 230 of the Companies Act, 2016 even at the stage of liquidation,

to see if there could be compromise or arrangements with creditors as can

be seen from the Judgement of this Tribunal in the matter of "Y. Shivram

Prasad Vs. S. Dhanapal & Ors." in Company Appeal (AT) (Insolvency) No.

224 of 2018 dated 27th February, 2019, there is no substance in this claim

made by the Appellant that if it appears that there is no possibility of

Company Appeal (AT) (Ins) No.441 of 2019 14

keeping the Company a going concern, IBC cannot be invoked. We reject

the argument.

13. For the above reasons, we do not find any substance in this Appeal.

The Appeal is dismissed. No Orders as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Justice Bansi Lal Bhat] Member (Judicial)

[Kanthi Narahari] Member (Technical)

06th September, 2019

/rs/sk

Company Appeal (AT) (Ins) No.441 of 2019