Whether S. 7 IBC petition is maintainable where financial creditor fails to enclose financial contract/documents along with the petition: NCLT examines 

National Company Law Tribunal

National Company Law Tribunal (NCLT): Coram of Judicial Member Ashok Kumar Borah and Technical Member Shyam Babu Gautam has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Bank of India (Financial Creditor) seeking to initiate Corporate Insolvency Resolution Process against VVVF (India) Limited (Corporate Debtor).

Factual Background

Applicant had sanctioned/revised/reviewed/continued various fund based and non-fund based working capital facilities to VVF (India) Limited for a sum of 283.65 Crore (Loan Amount).

In the petition, it was mentioned that the amount in default along with interest was INR 293, 42, 50, 526.79 (Financial Debt), which was due and payable by the Corporate Debtor in favour of the applicant.

Due to various defaults by Corporate Debtor, its account was classified as a Non-Performing Asset by the applicant.

As per the RBI guidelines, if a company failed to repay the loan liability sanctioned to the borrower under the corrective action plan, then the asset classification of the borrower will be considered from the cut-off date considered for the implementation of the corrective action plan (CAP).

In this account, under CAP, long term working capital loan was sanctioned in 2016 and due to payment default the Statutory Central Auditors of the Applicant classified the Corporate Debtor as an NPA from the implementation date of the CAP.

Further, corporate debtor issued a revival letter addressed to the applicant, confirming and admitting the existence of the various facilities and security documents availed by and executed by the Corporate Debtor and its Promoters.

Even the liability to the Financial Creditor was expressly admitted.

Financial Creditor and the Corporate Debtor had executed 14 agreements/contracts reflecting all amendments and waivers, which were forming part of the Financial Creditor’s pleadings.

Since the financial debt amount remained unpaid, the applicant filed the present petition.

Analysis, Law and Decision

The Tribunal opined that the petition was maintainable by law and the defenses raised by the Corporate Debtor were nothing but an attempt to delay the commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor.

Bench while analyzing the facts of the case, referred to the Supreme Court decision in Swiss Ribbons (P) Ltd. v. Union of India, WP (C) 99 of 2018, wherein the Constitutional validity of IBC was upheld, the position was very clear that unlike Section 9, there was no scope of raising a ‘dispute’ as far as Section 7 petition was concerned. As soon as a ‘debt’ and ‘default’ is proved, the adjudicating authority is bound to admit the petition.

Contention with respect to not attaching the documents as raised by the Corporate Debtor was dealt by the Supreme Court in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, Civil Appeal No. 1650 of 2020, where the same issue was raised and covered.

In Tribunal’s opinion, no dispute with respect to Corporate Debtor owing money to the Financial Creditor existed.

Further, the Coram added that, the Financial Creditor’s application was complete in all respects as required by law. It clearly showed that the Corporate Debtor was in default of a debt due and payable and the default was in excess of the minimum amount stipulated under Section 4(1) of IBC.

Hence, debt and default stood established.

Therefore, Tribunal ordered as follows:

(a)        Petition filed by the Bank of India, Financial Creditor, under Section 7 of the IBC read with Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (CIRP) against VVF (India) Limited the Corporate Debtor, is admitted.

(b)       There shall be a moratorium under Section 14 of the IBC, in regard to the following:

(i)  The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(ii)  Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;

(iii)  Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002;

(iv)  The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.

(c) Notwithstanding the above, during the period of moratorium:

(i)  The supply of essential goods or services to the corporate debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period;

(ii)  That the provisions of sub-section(1) of section 14 of the IBC  shall not apply to such transactions as may be notified by the Centre in consultation with any sectoral regulator;

(d) Moratorium shall have effect from the date of this order till the completion of the CIRP or until this Adjudicating Authority approves the resolution plan under Section 31 (1) of the IBC or passes an order for liquidation of Corporate Debtor under Section 33 of the IBC, as the case may be.

(e) Public announcement of the CIRP shall be made immediately as specified under section 13 of the IBC read with regulation 6 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

(f) Mr Avil Menezes appointed as Interim Resolution Professional of the Corporate Debtor to carry out the functions as per the IBC.

(g) During the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow.

(h) Financial Creditor shall deposit a sum of Rs 2,00,000 with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC).

[Bank of India v. VVVF (India) Ltd., 2021 SCC OnLine NCLT 452, decided on 23-9-2021]


Appearances:

For the Financial Creditor: Nausher Kohli, Nirav Shah and Viraj Gami i/b DSK Legal

For the Corporate Debtor: Mustsafa Doctor, Counsel i/b M/S Dhruve Liladhar & Co.

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