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In the matter of: M/s. Malabar Hotels Private Limited & Another

    IBA. No. 324 of 2019

    Decided On, 05 May 2020

    At, National Company Law Tribunal Chennai

    By, THE HONOURABLE MR. R. VARADHARAJAN
    By, JUDICIAL MEMBER & THE HONOURABLE MR. B. ANIL KUMAR
    By, TECHNICAL MEMBER

    For the Appearing Parties: Pawan Jhabakh, Ashwin Raman, Jose John, Joshua, Advocates.



Judgment Text

1. This Application has been filed invoking the provisions of Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code-2016”) in the format as prescribed under Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as “AAA Rules”) by the Applicant viz., M/s. Vijayalakshmi Enterprises (hereinafter referred to as “Financial Creditor”) against M/s. Malabar Hotels Private Limited (hereinafter referred to as “Corporate Debtor”). The Financial Creditor seeks to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, declare moratorium and appoint Interim Resolution Professional.2. Part-I of the Application sets out about the Financial Creditor from which, it is evident that the Financial Creditor is a Registered Partnership Firm. Part-II of the Application gives all the particulars of the Corporate Debtor from which it is evident that the Corporate Debtor is a Private Limited Company with CIN:U5510TN2002PTC048987 which was incorporated on 23.05.2002 and that its Authorized share capital and paid up capital is Rs.44,00,00,000/- and Rs.43,55,65,208/- respectively. The Registered Office of the Corporate Debtor as per the Application is stated to be situated at #1238, Old Mahabalipuram Road, Semmencherry, Chennai – 600 119.3. Part-III of the Application shows that the Financial Creditor has proposed the name of one Mr. Sambasivam Kannan as the “Interim Resolution Professional” (IRP). From Part-IV of the Application, it is seen that a sum of Rs.45,98,973/- including interest is being claimed as total debt which is due and payable by the Corporate Debtor to the Financial Creditor.4. The Learned Counsel for the Financial Creditor submitted that they have granted a loan of Rs.50,00,000/- to the Corporate Debtor on 08.05.2014 and the loan amount was to be repaid by the Corporate Debtor in 10 instalments starting from 08.06.2014 till 08.03.2015. It was submitted that, the interest portion of Rs.10,00,000/- was deducted upfront and a sum of Rs.40,00,000/- was disbursed to the Corporate Debtor on 08.05.2014. Further, it was submitted that the Corporate Debtor has issued a Promissory Note dated 08.05.2014 and a Confirmation of Payment letter dated 08.05.2014 and also the Corporate Debtor has drawn cheques in favour of the Financial Creditor reflecting the loan amount.5. The Learned Counsel for the Financial Creditor submitted that the Corporate Debtor has made part payments, in which certain payments were adjusted towards delayed interest and certain payments were adjusted towards the principal amount. Further, due to the failure of the Corporate Debtor to make any further payments, the Financial Creditor issued a winding up notice under Section 433 and 434 of the Companies Act, 1956 on 31.10.2015 and subsequently filed the Company petition before the Hon’ble Madras High Court, which is numbered as Company Petition No.76 of 2015.6. It was further submitted by the Learned Counsel for the Financial Creditor that pursuant to the proceeding, the Corporate Debtor made a part payment of Rs.2,00,000/- on 10.04.2017 and the said sum was adjusted towards the delayed interest. In the meantime, this Tribunal on 16.08.2017 initiated the Corporate Insolvency Resolution Process (in short “CIRP”) of the Corporate Debtor in TCP/198/(IB)/ CB/2017 and as a result thereof, the Company Petition No.76 of 2015, which was pending before the Hon’ble Madras High Court was withdrawn by the Financial Creditor by a memo dated December 2017 without prejudice to the rights of the Financial Creditor, to file their claim before the IRP.7. The Learned Counsel for the Financial Creditor submitted that, pursuant to the initiation of the CIRP of the Corporate Debtor, the Financial Creditor has filed has filed its claim before the Resolution Professional on 05.10.2017 and since the Resolution Professional has not considered the claim of the Financial Creditor and has not issued any reply to the same, the Financial Creditor was compelled to file CA/125/IB/2018 before this Tribunal and by its order dated 05.07.2018 this Tribunal directed the Financial Creditor to approach the Resolution Professional for necessary action.8. The Learned Counsel for the Financial Creditor submitted that in the meanwhile this Tribunal vide its order dated 17.09.2018 passed in MA/264/IB/2018, had approved the Resolution Plan in relation to the Corporate Debtor. It was submitted by the Learned Counsel for the Financial Creditor that as per Clause 4 of the Resolution Plan the claim of the Financial Creditor is categorized as “Disputed Claim” and it states that the same shall be paid on the basis of the outcome of the adjudication of the legal proceedings.9. Under these circumstances, the Financial Creditor has stated that the total principal outstanding due and payable by the Corporate Debtor us Rs.30,00,000/- and the interest payable on the principal outstanding is sRs.15,98,973/- and as such has claimed a total sum of Rs.45,98,973/- as due and payable by the CorporateDebtor to the Financial Creditor.10. The Learned Counsel for the Corporate Debtor, now represented by the Resolution Applicant has filed its reply and submitted that there is no debt due from the Corporate Debtor to the Applicant as per Section 3(11) of IBC, 2016 and if at all any claims exist the same is barred by limitation. Further, it was submitted that the present Management of the Corporate Debtor has no records with regard to the claim made by the Financial Creditor and that during the time of CIRP, the Resolution Professional himself was unable to verify the claims made by the Financial Creditor.11. It was further submitted by the Learned Counsel for the Corporate Debtor that the Financial Creditor has filed the CA/125/IB/2018 since the claim of the Financial Creditor was not decided by the Resolution Professional and this Tribunal by its order dated 05.07.2018 had directed the Financial Creditor to approach the Resolution Professional for necessary action. In the meantime, this Tribunal vide its order dated 17.09.2018 passed in MA/264/IB/2018 had approved the Resolution Plan in relation to the Corporate Debtor. Subsequently, the Financial Creditor submitted the claim before the Resolution Professional on 10.10.2019. It was contended by the Learned Counsel for the Corporate Debtor that the Financial Creditor could have moved to NCLT at least during the time of approval of the Resolution Plan but chose to stay silent and the fact that the claim was submitted to the Resolution Professional on 10.10.2018 shows its failure to follow up the claim with the Resolution Professional.12. The Learned Counsel for the Corporate Debtor submitted that since the Resolution Professional has failed to recognize the claim of the Applicant, the Resolution Applicant has categorized the claim of the petitioner under the head “Disputed Creditor” in the Resolution Plan, wherein the Resolution Applicant has agreed to pay the amount to the Disputed Creditors on the basis of the outcome of the adjudication of the legal proceedings. Further, it was contended that as per Section 31(3) of IBC, 2016, the Resolution Plan approved by this Tribunal shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the Resolution Plan. Therefore, once the Resolution Plan is approved by this Tribunal, it becomes binding on all the creditors, including the Financial Creditor who has failed to prove its claim in accordance with the provisions of the Code. Further, it was submitted that the Resolution Applicant has not recognized the claim of the Financial Creditor and the Financial Creditor is also aware of the position of the Corporate Debtor and ought to have got its claim adjudicated in accordance with law.13. The Learned Counsel for the Corporate Debtor submitted that the right of the Financial Creditor is to adjudicate its claims and that this Tribunal has no jurisdiction to adjudicate a disputed debt and the same lies within the purview of the Civil Court. Further, it was contended that this Tribunal cannot enforce any liability which has not become final as per the terms of the Resolution Plan and moreover the Resolution Professional was unable to determine the validity of the claim of the Financial Creditor and the Financial Creditor has failed to substantiate its claim before the approval of the Resolution Plan. Under these circumstances, the Learned Counsel for the Corporate Debtor prayed for the dismissal of the Application filed by the Financial Creditor.14. The Learned Counsel for the Financial Creditor has filed rejoinder and submitted in reply that the amount claimed under this Application in the capacity of a Financial Creditor falls within the definition of “financial debt” and “claim” as provided under the provisions of the IBC, 2016. It was submitted that the present claim is not a disputed debt and the Financial Creditor has given the evidence of the financial transactions between the respective parties and the admission/existence of the debt between the parties.15. Heard the Counsels for both the parties and perused the records including the documents placed on file. The instant petition has been filed under Section 7 of the IBC, 2016 r/w Rule 4 of the IBBI (Application to Adjudicating Authority) Rules, 2016. The Rule 4 of the said rule is extracted hereunder;4. Application by financial creditor:-- (1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.16. In this context, it is relevant to refer to attendant Regulation 8 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 20168. Claims by financial creditors. (1) A person claiming to be a financial creditor, other than a financial creditor belonging to a class of creditors, shall submit claim with proof to the interim resolution professional in electronic form in Form C of the Schedule:Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee.(2) The existence of debt due to the financial creditor may be proved on the basis of—(a) the records available with an information utility, if any; or(b) other relevant documents, including—(i) a financial contract supported by financial statements as evidence of the debt;(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;(iii) financial statements showing that the debt has not been paid; or(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.The term ‘Financial contract’ is defined in clause (d) sub-section 1 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016;(d) “financial contract” means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment;17. Referring to the aforementioned Rule, it becomes clear that it is incumbent upon the Financial Creditor while filing this petition to place on record before this Authority, the ‘Financial Contract’ and demonstrate without any ambiguity from the financial contract, the amount disbursed as per the loan/debt, the tenure of the loan/debt, the interest payable and the conditions of repayment. In the present case, it is evident that the Financial Creditor has placed on record the Board Resolution passed by the Corporate Debtor requesting for the Loan Amount of Rs.50,00,000/- and has also attached the Promissory Notes, however, the Financial Creditor has failed to show that the amount has been disbursed by the Financial Creditor for time value of money and admittedly no loan agreement was entered into between the parties setting out the details of the tenure of the loan/debt, the interest payable and the conditions of repayment. On the other hand, it is assumed to be an oral loan agreement.18. In the matter of Prayag Polytech Private Limited—Vs—Sivalik Enterprises Private Limited in IB-312/(ND)/2019, the NCLT, New Delhi Bench has detailed certain essential conditions which are required to be satisfied by the Financial Creditor seeking to invoke the provisions of Section 7 of the IBC, 2016 and for initiation of the CIRP as against the Corporate Debtor, which are to the following effect;i) There must be a disbursal of the loan amount;ii) Such disbursal should be made against the consideration for time value of money; andiii) A default should have arisen either in payment of interest or in the payment of the principal amount or both on the part of the Corporate Debtor.19. All the above conditions at the very least, are required to be given by the Financial Creditor and the Financial Creditor is required to satisfy this Tribunal with the averments and documents backing such pleadings. As already stated, documents which are required to be submitted to substantiate a loan must be in the nature of the ‘Financial Contract’.20. Also in the matter of Prayag Polytech Private Limited – Vs— M/s. Good Marketing and Sales Private Limited, in IB-219/(ND)/2019, the NCLT, New Delhi Bench has dealt with the issue of ‘Financial Contract’ and has held that the primary onus about the details of the ‘Financial Contract’ and default is required to be demonstrated by the petitioner and in the instant case, the Financial Creditor, who is not able to place on record any ‘Financial Contract’, to demonstrate on its own the existence of ‘default’. The said view is also upheld by the Hon’ble NCLAT in Prayag Polytech Pvt. Ltd. –Vs— M/s. Good Marketing and Sales Private Limited, in Company Appeal (AT) (Insolvency) No.1307 of 2019 dated 25.11.2019, wherein the Hon’ble NCLAT has concurred with the view taken by NCLT, New Delhi, that the default as alleged cannot be determined in absence of any requisite document.21. Further, in relation to the amount which is payable to the Financial Creditor under the Resolution Plan, it is relevant to refer to the decision of the Hon’ble Supreme Court of India in the matter of Committee of Creditors of Essar Steel India Limited –Vs— Satish Kumar Gupta & Ors. in Civil Appeal No.8766-67 of 2019 at para 67 has held as follows:67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully takes over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This, the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count.22. It is an admitted fact that the Resolution Plan does not crystallize the amount that is due and payable to the Financial Creditor. Also the claim of the Financial Creditor, in the present application is squarely covered by the Judgment of the Hon’ble Supreme Court in para 67, which states that a successful resolution applicant cannot suddenly be faced

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with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertain amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. However, the Resolution Plan has a saving Clause for the Financial Creditor i.e. Clause 4 which states that the Disputed Creditors, i.e. the Financial Creditor herein, shall be paid on the basis of the outcome of the adjudication of the legal proceedings. The claim of the Financial Creditor was rejected by the Resolution Professional at the first instance in its entirety and based on the list of admitted claim given by the Resolution Professional, the Resolution Applicant has submitted the Resolution Plan to the Committee of Creditor and the same was also approved by this Tribunal, thereby the amount which is payable to be Financial Creditor has not been crystallized. The Financial Creditor ought to have approached the appropriate forum for the adjudication of the claim. However the Financial Creditor is now trying to adjudicate the amount that is due and payable by the Corporate Debtor to the Financial Creditor by filling this Application and by agitating this issue once again before this Tribunal. It is time and again reiterated that the proceedings before this Authority is of summary in nature and this Tribunal unlike the Civil Court cannot indulge in the luxury of taking evidence, oral or otherwise as to its existence.23. Thus, in view of the reasons stated above we are constrained to dismiss this Application, without costs. However this o0rder of dismissal as passed above will not shut out the right of the petitioner from seeking recourse before other forums subject to applicable laws.
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