This is an application filed by the Corporate Debtor'V Hotels Limited' challenging the "Maintainability" of Section 7 Petition filed by the Financial Creditor,'Asset Reconstruction Company (India) Limited' in view of an order of the Hon'ble Bombay High Court in favour of the Corporate Debtor. The Petitioner in the main matter viz. 'Asset Reconstruction Company (India) Limited' (hereinafter as Financial Creditor) has furnished Form No. 1 under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter as Rules) in the capacity of "Financial Creditor" on 03.04.2018 by invoking the provisions of section 7 of the Insolvency and Bankruptcy Code (hereinafter as Code) against 'V Hotels Limited' (hereinafter as 'Corporate Debtor'). The registered address of the Corporate Debtor is stated to be Chandermukhi Building, (Basement), Behind Oberoi Hotel, Nariman Point, Mumbai.
2. In the requisite Form, under the head "Particulars of Financial Debt" the total amount of Debt granted is Rs. 129,00,00,000/- and the amount claimed to be in default is stated to be Rs. 149,91,24,581/-as on 31.03.2018.
A) Brief History of the case:
3. The Financial Creditor is the assignee of Bank of India, one of the original lenders to the Respondent, under BOI Assignment Agreement dated 31.12.2008. Bank of India along with Punjab National Bank, Union Bank of India, Vijaya Bank, Canara Bank and Indian Bank, together forming a consortium led by Bank of India, had sanctioned a loan collectively to the extent of Rs. 129 Crores vide Loan Agreement dated 08.CB.2002.
4. The Corporate Debtor, on 05.06.2003 entered into an ECB arrangement for USD 29,000,000/- with Abu Dhabi Commercial Bank (ADCB) to repay the loan under the Loan Agreement. In lieu of repayment, the Bank of India converted the facility under the Loan Agreement into non-fund based Bank guarantees for the same amount by way of a sanction letter dated 23.08.2003. The Loan Agreement was converted into a non-fund based bank guarantee facility vide a Deed of Variation dated 15.09.2003.
5. Subsequently, in terms of the Deed of Variation, the amount disbursed by Bank of India, under the Loan agreement was repaid in the year 2003 out of the funds disbursed to the Corporate Debtor by ADCB.
6. In the year 2008, the bank guarantee issued by Bank of India was invoked by ADCB and Bank of India made payment of Rs. 24,49,59,208/- on 02.09.2008. This amount constituted the debt amount claimed herein which was admittedly disbursed on 02.09.2008.
7. DRT proceedings were initiated against the Applicant/Corporate Debtor, which were taken to DRAT as well. As per the Financial Creditor, some amount was paid and some was left unpaid. Thus, the Section 7 petition is in respect of alleged defaults committed by the Corporate Debtor in repayment of the aforesaid loan amount.
B) MA 693 of 2018:
8. The present application in hand is with regard to an Order dated 25.04.2017 passed by the Hon'ble Bombay High Court in Writ Petition (L) No. 1046 of 2017 with Writ Petition No. 1100 of 2017 filed by the Corporate Debtor, whereby the 'Financial Creditor' has been restrained from initiating any coercive steps subject to deposit of money by the Applicant/Corporate Debtor and the said Writ Petitions were disposed off. It said:
"....We direct that in the event the compliance is reported of the Tribunal's order and our direction issued today, the first petitioner shall not initiate any coercive measures during the pendency of the appeal before the Debt Recovery Appellate Tribunal"
9. Therefore, this Application is filed by the Corporate Debtor praying for dismissal of the Company Petition No. 532 of 2018 on the ground that the insolvency proceedings being coercive in nature should not be initiated as directed by the Hon'ble High Court.
C) Submissions by the Applicant:
10. The Applicant/Corporate Debtor submits that it has duly deposited the amount and therefore the restrain imposed on the Financial Creditor not to initiate coercive proceedings and the order of the Hon'ble High Court now reached finality because the clarification as sought by the Financial Creditor had also been rejected.
11. It is further stated that the deposit of money as per the order of the Hon'ble Bombay High Court was only with the sole motive to save the asset of the company and therefore it was made clear that in case the amount stood deposited in the Hon'ble DRAT, then no coercive steps would be taken against the Applicant/Corporate Debtor.
12. It is submitted that despite the aforesaid order, the Financial Creditor now filed this Company Petition No. 532/2018 in this Tribunal, that is why the Applicant was forced to file a Contempt petition (Lodging) No. 45 of 2018 in the Hon'ble High Court.
13. The Hon'ble High Court on 03.05.2018 directed the parties to seek clarification of the order of the Hon'ble High Court dated 25.04.2017 and also directed this Tribunal to postpone the hearing in the matter. Thereafter, the Financial Creditor moved the Hon'ble High Court in Writ Petition No. 1069 of 2017 seeking clarification vide Notice of Motion No. 261 of 2018 that whether they are entitled to maintain proceedings under section 7 of the Code. The clarification application was disposed off by the original Bench holding that the order does not need to be clarified and that availing of an independent remedy under a separate statute made by the parliament would not mean that the order passed by the original Bench is breached, much less wilfully. The Hon'ble Bombay high Court expressed a similar view while hearing the Contempt Petition. In the Contempt petition, it was directed that all the contentions raised in the contempt can be raised before the NCLT and consequently, the Applicant/Corporate Debtor withdrew the contempt petition and thus moving this application in hand challenging the maintainability of the original Section 7 petition.
14. The Corporate Debtor has placed reliance on the decisions as follows:
i. Anita International v. Tungabhadra Sugar works Mazddor Sangh [(2016) 9 SCC 44],
ii. Madalsa International Ltd. v. Central Bank of India [(1997) 4 Comp. LJ13 Bombay],
iii. Maharashtra Tubes Ltd. v. S.L.I. Corporation of Maharashtra,
iv. Bengal Immunity Ltd. v. Tata Pharma Ltd. [(1999) 21 SCL 24 (Calcutta)],
v. Cycle Corporation of India v. West Bengal Small Industries Development Corporation Ltd. [(2008) 87 SCL 267 (Calcutta)],
vi. Export Import Bank of India v. CHL Limited [2018 SCC Online NCLT 385],
vii. East Kajoria Collieries Pvt. Ltd,
viii. Trilok Chand Jain v. Swastika Strips Pvt. Ltd. [(1995) 82 Comp Cas 423],
The Corporate Debtor submits that the insolvency proceedings are coercive in nature and hence it was wrong on the part of the Financial creditor to act beyond the order passed by the Hon'ble High Court.
D) Submissions by the Respondent:
15. The Respondent/ Financial Creditor at the out set submits that the present application in hand is filed under Rule 11 of NCLT Rules, 2016. Rule 11 of NCLT Rules is not applicable on IBC proceedings as per Rule 10 of IBBI (Application to Adjudicating Authority) Rules, 2016.
16. It is further argued that the relief granted vide order dated 25.04.2017 of the Hon'ble High Court is confined to SARFAESI proceedings and is no bar to initiate Insolvency proceedings. The said order dated 25.04.2017 cannot be interpreted in a way which destroys the statutory rights of the Financial Creditor especially when such statutory rights are arising out of special law made by the Parliament i.e. IBC in the present case.
17. It has been clarified by the Hon'ble Bombay High Court in its order dated 15.06.2018 that "it would be open for the applicant in this motion especially to urge that proceedings under a law made by the Parliament and seeking to enforce the rights of the applicant thereunder would not mean the order of the Division Bench is breached and violated, much less intentionally and deliberately so as to be guilty of civil contempt".
18. It is further contended that the pendency of SARFAESI proceedings is no bar to initiate insolvency proceedings in view of overriding effect of the Code under section 238 and in view of various decisions viz. SREI Infrastructure Finance Ltd. v. K. S. Oils Ltd, Order dated 21.07.2017 passed by NCLT Ahmedabad Bench, Bharatbhai Vrajlalbhai Selani v. State bank of India Order dated 21.07.2017passed by NCLT Ahmedabad Bench, Anandram Developer Pvt. Ltd &Ors. v. The National Company Law Tribunal High Court &Ors. 142 CLA 485 (Mad.).
19. It is argued that the initiation of insolvency proceedings does not constitute a 'coercive measure'. It is submitted that the insolvency proceedings, similar to winding up proceedings, are not a mode for recovery of debt or to coerce the Corporate Debtor to make payments. The insolvency proceedings are initiated with an intention to achieve the object of the resolution of the corporate debtor. Mere filing of insolvency proceedings would not amount to the admission of insolvency. The corporate debtor gets ample opportunity to defend its case in case there is no default. However, if the default is in existence, the same can be curbed by the insolvency resolution process. Therefore, either way it is a win-win situation for the corporate debtor.
20. The Financial Creditor says that the present Miscellaneous application is an abuse of process of law. The corporate debtor has filed this MA in order to delay the time bound process prescribed under the Code.
21. Rebutting the decisions produced on record by the Corporate Debtor in the matters of:
ix. Anita International v. Tungabhadra Sugar works Mazddor Sangh [(2016) 9 SCC 44],
x. Madalsa International Ltd. v. Central Bank of India [(1997) 4 Comp. LJ13 Bombay],
xi. Maharashtra Tubes Ltd. v. S.L.I. Corporation of Maharashtra,
xii. Bengal Immunity Ltd. v. Tata Pharma Ltd. [(1999) 21 SCL 24 (Calcutta)],
xiii. Cycle Corporation of India v. West Bengal Small Industries Development Corporation Ltd. [(2008) 87 SCL 267 (Calcutta)],
xiv. Export Import Bank of India v. CHL Limited [2018 SCC Online NCLT 385],
xv. East Kajoria Collieries Pvt. Ltd,
xvi. Trilok Chand Jain v. Swastika Strips Pvt. Ltd. [(1995) 82 Comp Cas 423],
xvii. S.P. Chengalvaray Naidu by LRS v. Jagannath by LRS &Ors. [(1994) 1 SCC 1],
xviii. State of Orissa v. Bhagaban Sarangi [(1995) 1 SCC 399],
The Financial Creditor submits that these case laws pertain to winding up or court sale/ auction sale/ execution of properties of the debtors. This is not case in hand. In all the case laws stated above, it has been held that the Insolvency proceedings are not coercive, unlike winding up proceedings. These proceedings do not result in sale/execution/distress of the corporate debtor. Hence, CIRP proceedings are/can in no way be held to be coercive measures.
22. It is contended by the Applicant that the NCLT proceedings are initiated in violation of the order of the Hon'ble High court and therefore are not sustainable in law. The words used by the Hon'ble High Court are 'any coercive measures' and Coercion as per Black's Law Dictionary is defined as compulsion, force, duress. In the present case, by filing Section 7 petition demanding the amount which was under restructuring and which was the subject matter of litigation before DRT and DRAT, the Corporate Debtor alleges that the Financial Creditor has resorted to coercive means.
23. Undoubtedly, we are bound by the decision of the Hon'ble High Court that no coercive measure can be taken against the Applicant/Corporate Debtor. However, after hearing the submissions made by both the sides, the question which arises and to be decided by this Bench is that whether initiation of Section 7 proceedings under IBC is a "coercive measure" or not ? Reliance has been placed on a number of judgements by the Applicant/Corporate Debtor, but coming directly on to the crux of the matter and relying on the judgement of the Apex Court in Swiss Ribbons Pvt. Ltd. &Ors. v. Union of India &Ors. [Writ Petition (Civil) No. 99 of 2018] Order dated 25.01.2019 upholding the Constitutional validity of IBC, wherein it was held that:
"As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern."
12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 of IBC is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends."
24. In view of the above decision, I am consciously inclined to interpret the order of Hon'ble Bombay High Court as not applying to the present proceedings due to the fact that mere filing of Insolvency Application does not prejudice the corporate Debtor as it is an efficacious remedy available to both the Financial Creditor as well as the Corporate Debtor, beneficial for both. The Corporate Debtor, in the insolvency proceedings, gets adequate right to be heard and in case no default has been committed by him, the petition shall be dismissed. On the other hand, in case of inability of the Corporate Debtor to pay the dues, this code again comes to its rescue as the code is not a "coercive measure" for the Corporate Debtor but for the defaulting management. What is sought to be achieved in the code is not shutting do
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wn of the Corporate Debtor, but reviving it by ousting the defaulter promoter/directors who were in control and management of the company, which took it down on its knees. The Financial Creditor is always at a receiving end under the Code if the claim is genuine. Henceforth, the objection raised regarding the maintainability of the present petition, stands rejected. MA 693/2018 is hereby Dismissed. 25. Ordered Accordingly. 26. In view of above, once the application challenging the maintainability now stands dismissed, therefore, the main Company Petition No. 532 of 2018 is to be listed for hearing to be decided on its merits. Accordingly, registry is directed to put up in the cause list on 06.05.2019. 27. In this manner, due compliance has been made of the directions issued by Hon'ble NCLAT vide Order dated 18.04.2019 in Company Appeal (AT) (Insolvency) No. 417 of 2019 that the application under section 7 of IBC be decided preferably by 01.05.2019 otherwise to pass an order by 17.05.2019. Since, the question of maintainability as raised in this application is to be decided first, therefore, on dismissal as above, the petition under section 7 of the Code is listed for hearing on 06.05.2019. Before part with, and not with the intention of defending the alleged delay, it is undesirable on the part of the parties to narrate wrong facts about the pendency of this petition. The "order sheet" date wise maintained are self-explanatory that on some occasions writ was pending before the Hon'ble High Court and on another occasion Contempt Petition was sub-judice, thus giving good reason for seeking number of adjournments. Be that as it was, now the issue of maintainability stood settled, hence carrying out the directions, main petition shall be disposed off expeditiously without granting adjournment.