CIRP against Corporate Debtor admitted as debt and default proved by way of ledger confirmation

Invent Assets Securitisation And Reconstruction Private Limited Vs C M Smith And Sons Limited (NCLT Ahmedabad)

NCLT Ahmedabad held that application under section 7 of the Insolvency and Bankruptcy Code, 2016 [IBC] against Corporate Debtor [M/s. C M Smith and Sons Limited] for initiation of Corporate Insolvency Resolution Process [CIRP] admitted as debt as well as default is established by way of ledger confirmation.

Facts- This Application is filed under section 7 of the Insolvency and Bankruptcy Code, 2016 by the Financial Creditor/ Petitioner for initiation of Corporate insolvency Resolution Process (CIRP) against the Corporate Debtor i.e. M/s. C M Smith and Sons Limited for total amount in default is Rs. 97,54,43,527.49/-as on 31.03.2024. The date of default is 10.01.2019.

Conclusion- Held that the Petitioner has also filed the Audited balance sheet for the F.Y. 2020-21, wherein, the Corporate Debtor has admitted and acknowledged its liability. The Corporate Debtor further acknowledged the liability by ledger confirmation lastly on 01.04.2022. An application was initially filed on 11.04.2023 bearing CP(IB) No. 135 of 2023 before the Court-I, Ahmedabad Bench which was dismissed for want of NeSL Certificate. The Petitioner further filed this petition on 16.05.2024, even after the date of filing of this application taking into consideration it is well within the limitation of acknowledgement of debt by the Corporate Debtor. Vide order dated 27.10.2023, an earlier petition was dismissed on the ground that NeSL record of default i.e. Form-D was not filed therefore, alongwith this application the same has been attached as Annexure -“X”. It shows status “Deemed to be Authenticated” confirming the date of default as 10.01.2019. Thus, the earlier defect of the application has been cured. The Petitioner also produced Registered Deed of Assignment, Certificate of Registration for Modification of Charge as Annexure- “ZA”. Hence, the debt as well as default is there by way of ledger confirmation. The debt was acknowledged and therefore the application is liable to be in allowed. Thus, the Respondent/ Corporate Debtor- M/ s. C M Smith and Sons Limited is admitted in the Corporate Insolvency Resolution Process under Section 7 of the IBC, 2016.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

1. This Application is filed under section 7 of the Insolvency and Bankruptcy Code, 2016 ( hereinafter referred to “as the code”) by the Financial Creditor/ Petitioner for initiation of Corporate insolvency Resolution Process (hereinafter referred to as “CIRP”) against the Corporate Debtor i.e. M/s. C M Smith and Sons Limited for total amount in default is Rs. 97,54,43,527.49/-as on 31.03.2024. The date of default is 10.01.2019.

2. Perusal of Part-I of the Form-1 indicates that the Petitioner/Financial Creditor is a financial Institution. The registered office of the Financial Creditor is situated at Bakhtawar, Suite-B, Ground Floor, Backbay Reclamation, 229, Nariman Point, Mumbai City, Mumbai, Maharashtra-400021.

3. The application is affirmed by Ms. Priti Lothey, Authorized Representative of Financial Creditor, who is authorized under Authority letter dated 15.05.2024 placed at page-27.

4. Perusal of Part-II it reveals that the Respondent/Corporate Debtor is M/ s. C M Smith and Sons Limited (CIN: U17297GJ1998PLC034205) is the Corporate Debtor of the Petitioner/Financial. Creditor. The date of incorporation is 01.06.1998. Registered office of the Corporate Debtor is Dashrath Wadi, Court Road, Nadiad, Dist. Kheda, Gujarat-387001.

5. Perusal of Part-III of the Form-1 reveals that the Applicant/Financial Creditor has nominated Mr. Janak Jagjivan Shah, having Registration No. IBBI/IPA-001/IP-P 02626/ 2022-2023/14085 (Email: gmail.com) to act as Interim Resolution Professional (“IRP”). He has filed his written communication annexed with the Application as per the requirement of Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

6. Perusal of Part-IV of the Form-1 reveals that the Applicant/Financial Creditor has granted various credit facilities to the Corporate Debtor.

7. It is stated that the Loan Recall Notice was issued by the Financial Creditor which is dated 15.20.2021 is annexed as Annexure-S page (232).

8. It is stated that the Corporate Debtor has approached Indian Bank in the year 2007, under State Bank of India Consortium, for grant of financial assistance by passing a resolution. Indian Bank had granted Term Loan of Rs. 18,32,00,000/- (Rs. Eighteen Crores Thirty Two lacs only) and Working Capital Limit of Rs. 2,50,00,000/- ( Rs. Two Crores Fifty lacs) to the Corporate Debtor vide sanction letter dated 24.11.2007.

9. The Credit facilities were revised and enhanced from time to time by Indian Bank. On 10.03.2014, the Corporate Debtor passed a Board Resolution and acknowledged existing credit facilities issued by Indian Bank. It was provided that in the said Resolution that Corporate Debtor is authorized to avail additional credit facilities. The Corporate Debtor has acknowledged that Indian Bank has advanced following credit facilities:

Furthermore, Corporate Debtor has also resolved to avail additional Demand Overdraft Facilities to the tune of Rs. 2,25,00,000/- (Rupees Two Crores Twenty Five lacs) in the Resolution dated 10.03.2014. Therefore, the total facility availed by the Corporate Debtor from Indian Bank or total amount of Debt granted by India Bank is as under:

The Corporate Debtor has agreed to pay penal interest @ 2% per annum on the overdue amount in case of default.

10. It is stated that the Credit facilities availed from Indian Bank on 11.03.2014 was acknowledged and secured by way of execution of following documents :

i. Revival letter executed by the Corporate Debtor

ii. Seventh Supplemental Term Loan/ Corporate Loan Consortium Agreement

iii. Seventh Supplemental Joint deed of hypothecation

iv. Deed of Guarantee (executed by (1) Mr. Ratilal C Smith (2) Mrs. Madhuben R. Smith & Mr. Ashwin Ratilal Smith)

v. Consent letter for disclosure of name, information and data of guarantors.

vi. Inter Se agreement between the lenders of SBI consortium including Indian Bank

11. It is stated that after availing the above said facilities the Corporate Debtor failed and neglected to repay the same in accordance with terms and conditions of the credit facilities. The Corporate Debtor has defaulted from November, 2014. On 12.02.2015 Corporate Debtor classified a “Non-Performing Asset” by Indian Bank. Thereafter, vide registered Deed of Assignment dated 13.07.2016 registered with the Sub-registrar Nadiad under Sr. 4287, the Indian Bank has assigned its debt to the Financial Creditor with all the underlying securities. The Deed of Assignment executed in favour of Financial Creditor is within the knowledge of the Corporate Debtor as well as the Guarantors and same is not disputed.

12. It is stated that vide letter dated 03.10.2016, the Corporate Debtor approached to Financial Creditor to settle the dues of Indian Bank of Rs. 17,18,00,000/- (Rupees Seventeen Crores Eighteen lakhs only). The Financial Creditor accepted the OTS proposal vide letter dated 22.12.2016 with certain conditions. In view of that, the Corporate Debtor made payment of Rs. 98,00,000/- on 22.12.2016. However, Corporate Debtor has failed to pay the instalment that was due and payable on 10.01.2019 to the tune of Rs. 47,00,000/- (Rupees Forty seven lacs) in accordance with the OTS sanction letter dated 22.12.2016, therefore, default commenced from 10.01.2019.

13. It is stated that vide letter dated 17.12.2020, the Corporate Debtor once again acknowledged its liability and informed Financial Creditor that they will repay the outstanding dues. Under this circumstances, on 15.02.2021, Financial Creditor issued recall of loan cum invocation of guarantee notice wherein Corporate Debtor was duly informed that the arrangement for settlement dated 22.12.2016 stood withdrawn in view of the default in payment of instalment dated 10.01.2019 and Corporate Debtor was liable to pay all the dues & liabilities as per original terms of contract. Hence, on 13.01.2021, Financial Creditor filed Original Application under Section 287 of 2021 before Ld. Debts Recovery Tribunal at Ahmedabad-I for recovery of outstanding debt from the Corporate Debtor under Section 19 of Recovery of Debts and Bankruptcy Act, 1993. The said OA is pending for adjudication.

14. It is stated that Audited Balance sheet for the F.Y. 2020-2021, the liabilities of the Corporate Debtor has been reflected. That the outstanding amount is to be re-paid from the Financial Year commencing from F.Y. 2017-18 in percentage of 3.96%, 4.48%, 6.69%, 45.46% and 39.41%. Therefore, there is clear acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963.

15. It is stated that even after acknowledgment of debt/liability Corporate Debtor has failed in repayment of outstanding debt. That as on 31.03.2023 an amount of Rs. 83,42,16,343.73/-(Rupees Eighty Three Crores forty two lacs sixteen thousand three hundred forty three) .

16. It is stated that the Financial Creditor has filed Company Petition No. 135 of 2023 before this Tribunal. The same was dismissed vide order dated 27.10.2023 on the ground of non-filing of NeSL record of default i.e. Form -D However, liberty was granted to file a fresh application. On 28.03.2024 the Financial Creditor received a copy of record of default as registered under Form-D with NeSL.

17. Reply was filed by the Respondent/ Corporate Debtor on 04.03.2025 with the Tribunal. Reply has been affirmed by one Mr. Ashwin Smith in the capacity of Ex-Director of the Company. It was submitted that the claims and the contentions and allegation made in the application are not admitted. It is further stated that earlier petition under the SARFESAI are entirely different and that to without any basis. It is submitted that the considering a false claim amount and the paid up capital of the petitioner is Rs. 177,27,79,650/-hence with respect it is in violation of mandatory provisions of Section 186(2) of the Companies Act, 2013 and for violation there is a penalty clause u/s. 186(13) of the Companies Act, 2013. The Corporate Debtor relied upon the judgment of Hon’ble Supreme Court in the matter of Asha John Divyanathan vs Vikram Malhotra and Ors. in CA NO. 9546 of 2010. It is also submitted that the petitioner is claiming to be Asset Reconstruction Company under SARFESAI, 2002 but even under the said SARFESAI the said companies are required to be registered under the Companies Act, which is mandatory provision. It is also submitted that there is no default much less there is no ascertainment of default amount as well as the purported NPA which was already declared later on payment came to be made even to the petitioner and the petitioner has recovered its purported claim by consciously selling to another ARC and hence this petition could not be filed for the recovery of debt. Mr. Mahendra Lodha controlling majority shareholders to the tune of 78% of the equity shares of the Respondent and hence the petitioner becomes related party as at the dictate of such majority shareholders initiating the actions which is admittedly not for the purpose of triggering CIRP and hence the present petition deserves to be dismissed.

18. Rejoinder to the reply of un-amended Petition was filed by the Petitioner/ Financial Creditor on 21.05.2025 with the Tribunal.

19. Heard the submissions of Ld. Counsels of both the parties and perused the documents on record. The acceptance of loan and other facilities are not denied by the Corporate Debtor. According to the Petitioner there was a default in making payment from November-2014 and from February-2015, the Indian Bank classified account of the Corporate Debtor as “Non-Performing Asset” on 12.0.2015. The Indian Bank further assigned the debt to financial creditor by Registered Deed of Assignment dated 13.07.2016. It was intimated to the Corporate Debtor therefore, Corporate Debtor has given an OTS proposal, which was accepted by the Petitioner on 22.12.2016. Accordingly, some payment was made by the Corporate Debtor. The last payment was received on 17.09.2018. The next instalment was due on 10.01.2019, which was not paid and therefore default commenced from 10.01.2019. According to the Petitioner, the Corporate Debtor acknowledged the debt on 17.12.2020 by way of letter. For nonpayment of settlement dues the OTS proposal was cancelled. The Petitioner has initiated recovery proceeding before the Debts Recovery Tribunal.

20. The Petitioner has also filed the Audited balance sheet for the F.Y. 2020-21, wherein, the Corporate Debtor has admitted and acknowledged its liability. The Corporate Debtor further acknowledged the liability by ledger confirmation lastly on 01.04.2022. An application was initially filed on 11.04.2023 bearing CP(IB) No. 135 of 2023 before the Court-I, Ahmedabad Bench which was dismissed for want of NeSL Certificate. The Petitioner further filed this petition on 16.05.2024, even after the date of filing of this application taking into consideration it is well within the limitation of acknowledgement of debt by the Corporate Debtor. Vide order dated 27.10.2023, an earlier petition was dismissed on the ground that NeSL record of default i.e. Form-D was not filed therefore, alongwith this application the same has been attached as Annexure -“X”. It shows status “Deemed to be Authenticated” confirming the date of default as 10.01.2019. Thus, the earlier defect of the application has been cured. The Petitioner also produced Registered Deed of Assignment, Certificate of Registration for Modification of Charge as Annexure- “ZA”. Hence, the debt as well as default is there by way of ledger confirmation. The debt was acknowledged and therefore the application is liable to be in allowed.

21. Accordingly, in light of the above facts and circumstances, it is, hereby ordered as under: –

ORDER

(i) The Respondent/ Corporate Debtor- M/ s. C M Smith and Sons Limited is admitted in the Corporate Insolvency Resolution Process under Section 7 of the IBC, 2016.

(ii) As a consequence, thereof, the moratorium under Section 14 of the IBC, 2016 is declared for prohibiting all of the following in terms of Section 14(1) of the IBC, 2016.

a. 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;

b. transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

c. 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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

d. the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

e. The provisions of sub-Section (1) shall however, not apply to such transactions, agreements as may be notified by the Central Government in consultation with any financial sector regulator and to a surety in a contract of guarantee to a Corporate Debtor.

(iii) The order of moratorium shall have effect from the date of this order till the completion of the Corporate Insolvency Resolution Process or until this Adjudicating Authority approves the Resolution Plan under sub­section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33 of the IBC, 2016, as the case may be.

(iv) It is further directed that the supply of essential goods/ services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period as per provisions of sub­sections (2) and (2A) of Section 14 of IBC, 2016.

(v) As proposed by the Financial Creditor, we appoint Janak Jagjivan Shah, having Registration No. IBBI/IPA- 001/IP-P02626/2022-2023/14085 (Email: iprvcajanakshah@ gmail.com) under section 13 (1)(c) of the Code to act as Interim Resolution Professional (“IRP”) of Corporate Debtor, subject to the condition that no disciplinary proceedings are pending against him. He shall conduct the Corporate Insolvency Process as per the Insolvency and Bankruptcy Code, 2016 r.w. Regulations made thereunder.

(vi) The IRP shall perform all his functions as contemplated, inter-alia, by sections 17, 18, 20 & 21 of the IBC, 2016. It is further made clear that all personnel connected with the Corporate Debtor, its Promoter or any other person associated with the management of the Corporate Debtor are under legal obligation under section 19 of the IBC, 2016 for extending assistance and co-operation to the IRP. Where any personnel of the Corporate Debtor, its Promoter or any other person required to assist or co­operate with IRP, do not assist or co-operate the IRP is at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing an appropriate order.

(vii) This Adjudicating Authority directs the IRP to make a public announcement of the initiation of CIRP and call for the submission of claims under section 15 as required by section 13(1)(b) of the IBC, 2016.

(viii) The IRP is expected to take full charge of the Corporate Debtor assets, and documents without any delay whatsoever. He is also free to take police assistance in this regard, and this Court hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.

(ix) The IRP or the RP, as the case may be shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.

(x) The IRP shall be under duty to protect and preserve the value of the property of the Corporate Debtor and manage the operations of the Corporate Debtor as a going concern as a part of obligation imposed by Section 20 of the IBC, 2016.

(xi) The Financial Creditor is directed to pay an advance of Rs.1,00,000/- (Rupees One Lakh Only) to the IRP within a period of 7 days from the date of this order to meet the cost of CIRP arising out of issuing public notice and inviting claims etc. till the CoC decides about his fees/expenses.

(xii) The Registry is directed to communicate a copy of this order to the Financial Creditor, Corporate Debtor and to the IRP and the concerned Registrar of Companies, after completion of necessary formalities, within seven working days and upload the same on the website immediately after the pronouncement of the order. The Registrar of Companies shall update its website by updating the Master Data of the Corporate Debtor in MCA portal specific mention regarding admission of this Application and shall forward the compliance report to the Registrar, NCLT.

(xiii) The commencement of the Corporate Insolvency Resolution Process shall be effective from the date of this order.

22. Accordingly, CP (IB)/206 (AHM)2024 stands admitted. A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.