Case Law Details
IDBI Bank Limited Vs Wind World (India) Infrastructure Private Limited (NCLT Mumbai)
NCLT Mumbai held that application under section 7 of the Insolvency and Bankruptcy Process for initiation of Corporate Insolvency Resolution Process [CIRP] against Wind World (India) Infrastructure Private Limited [Corporate Debtor] admitted since Financial Creditors have proved existence of debt and default.
Facts- The Present Company Petition is filed u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’/ ‘the Code’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by IDBI Bank Limited (‘the Financial Creditor/Petitioner’) for initiating Corporate Insolvency Resolution Process (‘CIRP’) against Wind World (India) Infrastructure Private Limited (‘the Corporate Debtor/Respondent’) for a default amount of 55,19,28,246.50/- including interest as on 29th May 2018.
Conclusion- It is clear that the Adjudicating Authority only has to determine whether the “debt” was due and remained unpaid. If the adjudicating authority is of the opinion that a “default” has occurred, it has to admit the application. In the present case, sufficient evidence has been adduced by the Petitioner to prove the debt and default.
Held that the Financial Creditors have proved existence of debt and default. Further the debt is in excess of Rs. 1 Crore and thus above the threshold limit mandated in Section 4(1) of the Code. Also, the Petition filed is within limitation. Therefore, we hereby admit this company petition and also looking at the consent given by the Insolvency Professional, we hereby appoint Megha Agrawal as an IRP, with a direction to the Financial Creditors to pay remuneration to the IRP and his expenses until the constitution of CoC. Accordingly, this company petition is admitted.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The Present Company Petition is filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’/ ‘the Code’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by IDBI Bank Limited (‘the Financial Creditor/Petitioner’) for initiating Corporate Insolvency Resolution Process (‘CIRP’) against Wind World (India) Infrastructure Private Limited (‘the Corporate Debtor/Respondent’) for a default amount of 55,19,28,246.50/-(Rupees Fifty-Five Crores Nineteen Lakh Twenty-Eight Thousand Two Hundred Forty-Six Rupees and Fifty paise Only) including interest as on 29th May 2018.
Brief Facts as per the Petition:
2. It is submitted that Wind World India Ltd. (“WWIL”) is the holding company of the Corporate Debtor and the NCLT, Ahmedabad Bench vide order dated February 20, 2018, initiated CIRP against the WWIL.
3. It is submitted that in June 2012, the Corporate Debtor approached the Petitioner for sanction of credit facilities in order to finance the substation and transmission line project aggregating 400 MVA situated at multiple sites, viz. Lalpur, Gujarat, Sipla, and Jaisalmer, Rajasthan. Accordingly, the Financial Creditor sanctioned Term Loan of Rs. 65 Crores with an inner limit of Rs. 50 Crores for LC/LoU for BC to the Corporate Debtor via Sanction letter dated June 28, 2012 (Exhibit “B” is a copy of the Sanction Letter dated June 28, 2012). Further, the Corporate Debtor through its Board Resolution dated July 26, 2012, accepted terms and conditions of the Sanction Letter dated June 28, 2012 (Exhibit “C” is a copy of the Board Resolution dated July 26, 2012).
4. In furtherance to the aforesaid, and on the terms and conditions as set out for the enhancement, the following documents were executed:
i. Loan Agreement dated August 1, 2012 executed by Financial Creditor and the Corporate Debtor.
ii. Trust and Retention Account Agreement dated August 1, 2012 executed by Corporate Debtor.
iii. Undertaking dated August 1, 2012 executed by the Managing Director by Mr. Ajay Mehra.
iv. Undertaking dated August 1, 2012 for Non-Disposal of Shareholding dated August 1, 2012 executed by the Corporate Debtor, Mr. Yogesh Mehra and Mr. Ajay Mehra.
v. Undertaking dated August 1, 2012 to create Mortgage by the Corporate Debtor.
vi. Undertaking dated August 1, 2012 to Negative Lien by the Corporate Debtor.
5. It is submitted that by and under Hypothecation Agreement dated August 1, 2012, the facilities were inter alia secured by hypothecation by way of first charge on all of the Corporate Debtor’s movables including movable machinery, machinery spares, tools and accessories, present and future, created by the Corporate Debtor in favour of the Financial Creditor and on the stock of raw material, semi-finished goods and finished goods and book-debts of the Corporate Debtor. The charge over the movable assets of the Corporate Debtor was also registered with the Registrar of Companies via Form 8 dated August 1, 2012. By and under Guarantee Agreement dated August 1, 2012, Mr. Yogesh Mehra inter alia has guaranteed the repayment of the Term Loan Facility of Rs.65 Crores together with interest, banking and other charges and expenses, costs etc., on the terms and conditions as detailed therein. By and under Guarantee Agreement dated August 1, 2012, Mr. Ajay Mehra inter alia has guaranteed the repayment of the Term Loan Facility of Rs.65 Crores together with interest, banking and other charges and expenses, costs etc., on the terms and conditions as detailed therein. By and under Guarantee Agreement dated August l, 2012, WWIL inter alia guaranteed the repayment of the Term Loan Facility of Rs.65 Crores together with interest, banking and other charges and expenses, costs etc., on the terms and conditions as detailed therein.
6. It is submitted that by and under Mortgage Deeds dated January 10, 2014 and January 20, 2014, charge was created over certain lands/properties in order to secure the facilities. Further, the Financial Creditor vide letter dated July 10, 2014 cancelled the proportionate loan amount of Rs.10.25 crores and reduced the facility to Rs.54.75 crores and modified the terms of the sanction of the Term Loan Facility. Since the Corporate Debtor failed to create the security in favour of the Financial Creditor within the permitted timeline, as per the sanction terms set out in the Sanction Letter dated July 28, 2012, the undisbursed facility of Rs. 6 crores was cancelled by the Financial Creditor by its letter dated April 25, 2015, and the total facility was further reduced to Rs. 48.75 crores. Out of the aforesaid reduced facility of Rs.48.75 crore, the dates of disbursement are as under:
| Date | Amount |
| 07-08-2012 | 20,00,00,000/- |
| 08-08-2012 | 12,50,00,000/- |
| 31-01-2013 | 16,25,00,000/- |
| Total | 48,75,00,000/- |
7. The Petitioner contended that, the Corporate Debtor has committed default in its payment obligations, hence, the account of the Corporate Debtor was classified as NPA with effect from August 31, 2016. Consequently, the Petitioner has issued – Recall Notice dated February 13, 2017; SARFAESI Demand notice under Section 13(2) dated February 27, 2017; and Notice dated March 4, 2017 invoking the guarantees. Subsequently, the overdues were cleared by Corporate Debtor and the account was upgraded to performing category during March 2017. However, due to subsequent defaults on the part of the Corporate Debtor, the account of the Corporate Debtor was again classified as NPA on May 29, 2018. As a result, the Financial Creditor reinitiated legal action through issuance of a recall notice on July 5, 2018 and Notice under Section 13(2) of SARFAESI dated July 27, 2018.
8. It is submitted that vide Acknowledgement of Debt and Confirmation of Security Letter dated June 1, 2018, the Corporate Debtor has acknowledged the debt of 20,89,63,643.50/- as on May 31, 2018 and also acknowledged the debt in its audited Balance Sheet for the year ended March 31, 2019, March 31, 2020, March 31, 2021, March 31, 2022 and March 31, 2023 where the debt is shown under the head of “long term borrowings”.
9. Hence the petitioner has filed the present petition under section 7 of the IBC, 2016.
Reply of the Respondent:
10. It is submitted that the WWIL (formerly known as Enercon India) is in the business of developing wind farms for its customers and thereafter operating and maintaining the wind turbine generators under the agreements (“O&M Agreements“) entered into between WWIL and its respective O&M customers. The O&M Agreements also require WWIL to maintain and provide access to the power evacuation infrastructure facilities that include transmission lines and substations to evacuate the electricity generated by the wind turbines of its O&M customers. The Corporate Debtor is a fully owned Special Purpose Vehicle established with the primary objective of constructing and operating Power Transmission Lines and Power Switchyards (Sub-Stations) essential for the integration and pooling of power generated by customers of WWIL’s wind energy projects.
11. The National Company Law Tribunal, Ahmedabad Bench, initiated CIRP of the WWIL vide order dated 20.02.2018. The Financial Creditor/ petitioner is also a member of the Committee of Creditors (“CoC”) of WWIL having voting right at 23.76%. It is submitted that the Resolution Plan which was approved by the CoC has considered the investments made in the Corporate Debtor as an Asset. However, the Adjudicating Authority rejected the Resolution Plan of WWIL vide order dated 24.08.2022. Subsequently, the appeals have been filed before the Hon’ble Appellate Authority (NCLAT) by the RP of WWIL as well as the CoC and are pending.
12. It is submitted that, before the initiation of the CIRP, WWIL was paying usage charges under the Facility Usage Agreement to the Corporate Debtor, and the Corporate Debtor, in turn, was servicing its debt obligations towards the Financial Creditor. Further, it is contended that the RP of WWIL stopped the payment of usage charges for the services availed to the Corporate Debtor as per the directions of the CoC, of which the Financial Creditor was the lead member. Therefore, post the stoppage of the usage charges to the Corporate Debtor, which was its only source of revenue, the Corporate Debtor could not service the debt of the Financial Creditor, resulting in the loan account becoming an NPA.
13. It is submitted that since WWIL is currently undergoing CIRP, admitting the present petition would violate Section 14 of the IBC and would disrupt WWIL’s possession and control of the infrastructure. It is contended that the WWIL is enjoying the power evacuation infrastructure set up by the Corporate Debtor without payment of usage charges and claiming a set off. The lenders of WWIL have refused to pay the past dues as well as charges payable to the Corporate Debtor during the CIRP, which are due and payable, under Section 14(2) of the IBC. In view thereof, IREDA, being one of the co-lenders, has filed an Interlocutory Application, being I.A. No. 51 of 2021, seeking a direction to RP of WWIL to pay usage charges to the CD, which is pending before the NCLT, Ahmedabad.
14. It is submitted that the WWIL had extended a loan of Rs. 198.99 Crores to the Corporate Debtor, in addition to the loan of 65 Crores sanctioned by the Financial Creditor, out of which an amount of Rs. 48.75 Crores was disbursed. The total EMI/interest/outgoing to service the debt of the Financial Creditor was an interest payment of Rs. 30 Lakhs p.m. and a principal component of Rs. 1.90 Crores per quarter, whereas the usage charges payable by WWIL to the Corporate Debtor were Rs. 2 Crore p.m., i.e., Rs. 24 Crores annually. The problem has arisen because WWIL is under CIRP, and the lenders of WWIL are not willing to release the funds, notwithstanding the usage of the power evacuation infrastructure, thereby causing a default on the part of the Corporate Debtor, which has no other assets.
15. It is submitted that Section 7 of the Insolvency and Bankruptcy Code (IBC) confers discretionary powers upon this Tribunal. It is further contended that the Corporate Debtor is a viable going concern and that the alleged default has arisen solely due to the wrongful actions of the lenders of WWIL, who after effectively depriving the Corporate Debtor of its sole revenue source, has now initiated the present petition under Section 7 of the IBC. It is argued that if all amounts – past, present, and future – due to the Corporate Debtor from WWIL are duly paid, no default would subsist. Accordingly, it is submitted that the present company petition is liable to be dismissed.
16. It is contended that the action of the Financial Creditor is an act of arm twisting to recover its dues and not for the resolution of the Corporate Debtor, which is in violation of the objective of IBC. Reference is made to judgment of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd versus Union of India WP(C) 99/2018 – 2019 4 SCC 17 – (Para. 27-28) and Vidarbha Industries Power Limited Vs. Axis Bank Limited Civil Appeal No. 4633 of 2021 – 2022 8 SCC 352 (Para. 75 to 90).
17. It is submitted that the petition has been filed by the Financial Creditor for recovery of monies and that the Hon’ble Supreme Court in various judgments have held that IBC is not intended to be a substitute to a recovery forum and thus, cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. In this regard, reliance is placed on the judgment of the Hon’ble Supreme Court in the matter of Invent Asset Securitisation and Reconstruction Pvt. Ltd. vs Girnar Fibres Ltd. Civil Appeal No. 3033 of 2022 SCC OnLine SC 808.
18. The Financial Creditor also filed OA 761/2019 (now TA No. 139 of 2022) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, before DRT, Delhi. Such initiation of recovery actions by the Financial Creditor evidences that the present Section 7 is in furtherance to the recovery mechanism under Section 19 OA before DRT. The said OA is pending consideration before DRT, Delhi, and the factum of such pending recovery action before DRT has been concealed from this Tribunal so as to advance its case under IBC before this Tribunal.
19. It is submitted that in March 2024, the Financial Creditor assigned its debt in WWIL, amounting to Rs. 746.69 crores, to the National Asset Reconstruction Company Limited (NARCL). The Financial Creditor was aware that the assets of the Corporate Debtor are crucial to the resolution of WWIL. Accordingly, until the said assignment, the Financial Creditor not only refrained from initiating recovery proceedings against the Corporate Debtor but also dissuaded the other two lenders- IREDA and Edelweiss-from taking any recovery measures, in order to safeguard the resolution efforts of WWIL. However, after assigning the debt of WWIL to NARCL and having no financial interest therein, the Financial Creditor has filed the present petition to recover Rs. 20.66 crores from the Corporate Debtor, and that this action is taken without awaiting approval of WWIL’s Resolution Plan.
20. It is submitted that the IREDA who is another Financial Creditor of the WWIL had initiated action under the SARFAESI Act by issuing an Expression of Interest seeking a new operation and maintenance operator replacing the existing operation and maintenance operator. Against the said action of IREDA, WWIL had moved an application with NCLT to restrain IREDA from taking any steps with respect to the change of the operator. The NCLT dismissed the said application. The appeal filed against the said order was also dismissed by the Hon’ble NCLAT. Thereafter, an appeal no. 11036 of 2024 in the matter of “Wind World (India) Limited versus Indian Renewable Energy Development Agency Limited & Anr was filed by WWIL before the Hon’ble Supreme Court of India, wherein the Hon’ble Supreme Court vide order dated 18.10.2024 directed as follows:
“In view of the peculiar facts of the present case, we do not think it is necessary to issue notice in the present appeal. However, it will be open to the appellant Wind World (India) Limited, to move the adjudicating authority to ensure that the Facility Use Agreement, which enables the appellant to transmit electricity to the substations owned by respondent no. 2 Wind World (India) Infrastructure Private Limited, is not disturbed or cancelled. If any such application is filed. it will be considered and decided in accordance with law. We also record the statement made by the learned counsel appearing for respondent no. 1, Indian Renewable Energy Development Agency Limited, that if any such application is filed, the said respondent will take a practical and objective view.
Recording the aforesaid, the present appeal is dismissed. Pending application(s), if any, shall stand disposed of.”
(Emphasis applied)
21. It is contended that the above order shows that the Hon’ble Supreme Court took cognizance of the fact that any disturbance or cancellation of the Facility Use Agreement would be prejudicial to the ongoing CIRP of WWIL and ensured that the Facility Use Agreement, which enabled WWIL to transmit electricity to the substations owned by the Corporate Debtor is not disturbed or cancelled. Thus, Admission of the present petition would be in contravention and an over reach to the order of Hon’ble Supreme Court and could lead to the disturbance or cancellation of the Facility Use Agreement and hence it is liable to be rejected.
22. It is submitted that in the present case, the Financial Creditor has sought initiation of CIRP of the Respondent, with respect to alleged default as on 29.05.2018 i.e., the date when the loan account of the Corporate Debtor was declared as NPA. Therefore, in terms of Article 137 of the Limitation Act, the cause of action, allegedly arose on 29.05.2018 and the period of limitation began running from 29.05.2018 itself. Therefore, as per the Limitation Act, the period of limitation, for filing the captioned Petition, admittedly stood expired on 29.05.2021. However, it is submitted that the Financial Creditor has filed the captioned Petition only on 06.07.2024. Therefore, the Petition is filed much beyond the period of limitation and thus, not maintainable. In this regard, reliance is placed on judgment of the Hon’ble Supreme Court in the matter of B.K. Educational Services Pvt. Ltd. versus Parag Gupta and Associates (AIR 2018 SC 5601).
23. It is further contended that, even if it is presumed on the basis of an arguendo, that the Applicant herein is entitled to exclusion of the COVID Period from 15.03.2020 till 28.02.2022, as laid down by the Hon’ble Supreme Court in the matter of Suo Moto WP(C) No. 03 of 2020, even then, the captioned Petition filed is beyond the prescribed period of limitation. It is submitted that even after excluding the period from 15.03.2020 till 28.02.2022 from the period of limitation, the extended period of limitation stood expired on 01.05.2022. Therefore, the captioned Petition is beyond the period of limitation, even after excluding the period of COVID-19 Pandemic and hence, deserves to be rejected.
24. It is submitted that the Financial Creditor has relied upon statement of accounts of the Corporate Debtor contained in electronic form to establish the alleged debt and default on part of the Corporate Debtor. However, the Financial Creditor has failed to satisfy the conditions under Section 65B as no certificate under Section 65B of the Evidence Act is annexed with the instant petition. Further, the Hon’ble Supreme Court of India in various judgements has clarified the position that a certificate under Section 65B (4) is mandatory, and a condition precedent to the admissibility of evidence by way of electronic record.
25. It is submitted that in view of the aforesaid, the instant petition filed by the Financial Creditor is liable to be dismissed by this Tribunal.
Written Submissions of the Financial Creditor:
26. Since the first default was on February 28, 2018, the account of the Corporate Debtor was declared as NPA on May 29, 2018. It is submitted that the Hon’ble Supreme Court in the case of Laxmi Pat Surana vs. Union Bank of India (2021) 8 SCC 481 (para 43) has recognized that the date of NPA “can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 IBC”.
27. It is submitted that it is an admitted position that there is debt and default of over INR 1 crore by the CD, which has been continuously acknowledged by the CD through various documents such as:
i. Acknowledgment of debt and confirmation of security dated June 1, 2018 [Petition/Ex. W/Pg.222]
ii. Balance Sheet for the year ending March 31, 2019 [Petition/Ex. X/Pg.233,240]
iii. Balance Sheet for the year ending March 31, 2020 [Petition/Ex. X/Pg.255,265]
iv. Balance Sheet for the year ending March 31, 2021 [Petition/Ex. X/Pg.279,289]
v. Balance Sheet for the year ending March 31, 2022 [Petition/Ex. X/Pg.304,314]
vi. Balance Sheet for the year ending March 31, 2023 [Petition/Ex. X/Pg. 332,342]
Hence, the Corporate Debtor has continuously acknowledged the debt since the first default on February 28, 2018 and the date of the NPA on May 29, 2018, and therefore, the Company Petition is well within the period of limitation. Additionally, NESL Report is “Authenticated”, showing the date of default as May 29, 2018 (i.e. the date of the NPA) and showing the total outstanding amount as INR 53.56 crores, as on that date [Petition/Ex. Z/Pg.382].
28. With regard to the Corporate Debtor’s contention regarding non-payment of dues by the holding company, it is submitted that the CIRP initiated against the WWIL was on account of defaults in a separate independent loan, and the lenders were rightly entitled under the IBC to initiate appropriate proceedings for the insolvency of the WWIL. The fact that the Corporate Debtor could not make payment due to the insolvency of the WWIL is not the fault of the Financial Creditor.
Written Submissions of the Respondent:
29. It is also submitted that pursuant to the filing of the present Petition, in 29th CoC meeting of WWIL dated 22nd May 2025, the RP of WWIL raised the concern regarding payment of the Rs. 2,00,00,000/- (Rupees Two Crore Only) per month to the Respondent herein. The minutes of the said meeting reflects a dialogue was initiated with a view to resolving the ongoing deadlock with regard to payment of usage charges by WWIL to WWIIPL. The relevant extract from the said minutes records as follows:
“The authorized representative of IDBI, Ms. Tiwari (GM of IDBI Bank, the Applicant in the impugned matter) suggested that the lenders of WWIL and WWIIPL come together to formulate a fair and amicable solution for all stakeholders. She emphasized that the current deadlock is proving ineffective for all parties involved. In response, Mr. Panicker stated that to ensure business continuity, a payment of INR 2 crores per month (excluding GST) is being proposed. Additionally, NARCL suggested that WWIIPL ‘s lenders should convene a Joint Lenders Meeting (JLM) to explore a more constructive and workable solution on this”
30. Pursuant to the aforesaid discussions, National Asset Reconstruction Company Limited (“NARCL”) has filed an Intervention Petition being Inv P. No. 6 (AHM) of 2025 in IA 1826/2024 before the NCLT. The Petitioner herein has also filed an Intervention Petition being Inv P. N. 3 (AHM) of 2025 to the said Application of the RP of WWIL.
31. It is submitted that the availability and continued functioning of substation infrastructure is critical for the continuity of WWIL’s O&M business, and any disruption would jeopardize the resolution process of WWIL. Therefore, the service provided by the Corporate Debtor to WWIL is essential for the effective corporate insolvency resolution of WWIL and shall not be terminated or suspended during the moratorium period, qualifying as an essential service under Section 14(2) of the IBC. In this regard reliance is placed on the following judgments;
a. Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Others vs· Maharashtra State Electricity Distribution Company Limited – 2022 SCC OnLine NCLAT 4321–Relevant Para 8 to 14.
b. Damodar Valley Corporation Through its Authorized Representative vs Cosmic Ferro Alloys Limited Through its Managing Director and Another- 2021 SCC OnLine NCLAT 2455 – Relevant Para No. 25.
32. The Respondent has also relied on the judgment of the Hon’ble Supreme Court in the matter of Mardia Chemicals Vs. Union of India, 2004 (4) SCC 311 at Para 71 wherein it was held that the Lenders owes a duty to act fairly and in good faith, and that there has to be a fair dealing between the parties and that the financing institution are not free to ignore performance of their part of the obligation as a party to the contract.
33. Furthermore, the Respondent has reiterated that the Insolvency and Bankruptcy Code (IBC) is not a recovery mechanism, and has submitted that the present matter warrants the exercise of this Tribunal’s discretionary powers under Section 7 of the IBC.
Analysis & Findings
34. Heard Ld. Counsel for the parties and perused the record. We have given our thoughtful consideration to the arguments advanced and material placed on record.
35. The Financial Creditor submits that the Respondent has defaulted in repaying the debt, following which the loan account was classified as a Non-Performing Asset (NPA). Consequently, the present petition under Section 7 has been filed to initiate the Corporate Insolvency Resolution Process (CIRP) against the Respondent. Per contra, the Respondent contends, inter alia, that the present petition is barred by limitation and violates Section 14 of the IBC, and is therefore liable to be dismissed.
36. In this case, the issues for determination can be reduced as under:
ii. In the facts and circumstances of the case, whether the provisions of Section 14(2) put fetters in respect of initiation of CIRP of the Respondent herein?
ii. In the facts and circumstances of the case, whether the Petition is hit by limitation?
iv. Whether the Petition under Section 7 is maintainable when the holding Company of the Corporate Debtor is in CIRP?
iv. In the facts and circumstances of the case, whether the Petition is filed for the recovery of the outstanding dues and not resolution?
Determination as to issue No. 1
37. It is submitted that, the Corporate Debtor is a subsidiary of the WWIL and vide order dated February 20, 2018, WWIL has been admitted into CIRP. Therefore, admitting the present petition would violate section 14 and disrupt WWIL’s possession and control of the infrastructure. Further, the WWIL is enjoying the power evacuation infrastructure set up by the Corporate Debtor without payment of usage charges and claiming set off and the lenders of WWIL have refused to pay the past dues as well as charges payable to the Corporate Debtor during the CIRP, which are due and payable, under Section 14(2) of the IBC. The Respondent also submitted that the availability and uninterrupted operation of substation infrastructure are crucial for the effective corporate insolvency resolution of WWIL, and therefore, such services shall not be terminated or suspended during the moratorium period, as they constitute an essential service under Section 14(2) of the IBC. Reliance is also placed on the orders passed in Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Others vs. Maharashtra State Electricity Distribution Company Limited – 2022 SCC OnLine NCLAT 4321 (Para 8 to 14) and Damodar Valley Corporation Through its Authorized Representative vs. Cosmic Ferro Alloys Limited Through its Managing Director and Another- 2021 SCC OnLine NCLAT 2455 (Para No. 25).
38. It is a fact of this case that the Corporate Debtor is a wholly-owned subsidiary of WWIL and vide order dated 20.02.2018 WWIL has been admitted into CIRP and accordingly the moratorium under Section 14 of the IBC is in force in respect of WWIL. The Corporate Debtor operates as a fully owned Special Purpose Vehicle (SPV) and is established solely for the purpose of constructing and maintaining Power Transmission Lines and Sub-Stations to be used as power evacuation infrastructure by the WWIL. These facilities are crucial for the integration and pooling of power generated by the customers of WWIL’s wind energy projects. Given the peculiar nature of the infrastructure and the Respondent’s constitution, the infrastructure of the Respondent could only be used by the WWIL.
39. Given the background and the inter-dependence of the Respondent Company vis-à-vis WWIL, the business of WWIL if impacted adversely would impact the business of the Respondent Company as well. However, since the Respondent herein has referred to the provisions of Section 14(2) of the IBC and has accordingly contended that the instant Petition is not admissible on account of inter-dependence as mentioned hereinabove coupled with provisions of Section 14(2) of the IBC, therefore, it would be relevant to refer to the provisions of Section 14(2) of the IBC which for ease of reference is extracted hereinunder:
“(2). The Supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during the moratorium period.
(2-A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods and services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances, as may be specified.”
40. The plain reading of the provisions of Section 14(2) and 14 (2-A) make it abundantly clear that these provisions are for the benefit of the Company which is admitted into CIRP and for the purposes of keeping it as going concern certain supply of goods or services are considered essential or critical. In the facts of the case, the infrastructure of the Respondent is specifically created for pooling and evacuation of power generated by WWIL and as such, its infrastructure could in that manner be considered as specific and committed only for the provision of services by the Respondent to WWIL. Under the circumstances, it would be the case of WWIL not to disrupt or discontinue the services provided by the Respondent herein to WWIL and not otherwise.
41. As regards the payment of dues arising from such rendering of services to WWIL which is in CIRP and therefore in moratorium, it is stated that the RP of the WWIL should pay commensurating charges to the Respondent Company and having not paid or paying would warrant the Respondent Company to seek appropriate relief before the NCLT in the CIRP proceedings of WWIL. However, the provisions of Section 14(2) or 14(2-A) do not provide anywhere that on account of such non-payment of the dues, the services ought to continue as the provisions of Section 14(2-A) clearly provide that under the circumstances of non-payment from the Corporate Debtor (WWIL), the supply even during the moratorium could not be disrupted. It’s a different matter, under the peculiar facts and circumstances of the case, that neither such supply of services by the Respondent herein could be disrupted nor it is the case of the Respondent that they have attempted to do so to generate revenue from some other party.
42. In Appeal filed by WWIL bearing no. 11036 of 2024 in the matter of “Wind World (India) Limited versus Indian Renewable Energy Development Agency Limited & Anr”, the Hon’ble Supreme Court vide order dated 18.10.2024 have directed as follows:
“In view of the peculiar facts of the present case, we do not think it is necessary to issue notice in the present appeal. However, it will be open to the appellant Wind World (India) Limited, to move the adjudicating authority to ensure that the Facility Use Agreement, which enables the appellant to transmit electricity to the substations owned by respondent no. 2 Wind World (India) Infrastructure Private Limited, is not disturbed or cancelled. If any such application is filed. it will be considered and decided in accordance with law. We also record the statement made by the learned counsel appearing for respondent no. 1, Indian Renewable Energy Development Agency Limited, that if any such application is filed, the said respondent will take a practical and objective view.
Recording the aforesaid, the present appeal is dismissed. Pending application(s), if any, shall stand disposed of.”
(Emphasis applied)
43. It can be seen from the aforesaid directions of the Hon’ble Supreme Court that it will be open to the appellant Wind World (India) Limited, to move the adjudicating authority to ensure that the Facility Use Agreement, which enables the appellant to transmit electricity to the substations owned by Wind World (India) Infrastructure Private Limited, is not disturbed or cancelled. Accordingly, it is open to the WWIL to move such application before the Adjudicating Authority. It is not known whether such an application has been moved or not and whether any decision has been taken in this regard by the RP/CoC of WWIL.
44. Under any circumstance and in any given situation, the fact remains that the infrastructure of the Respondent is in use of WWIL and no payment is being received by the Respondent which has eventually led to the default by the Respondent in payment of the outstanding amounts to the Petitioner herein. The entirety of facts and circumstance do not suggest that owing to the provisions of Section 14(2), there is any hinderance in initiation of CIRP in the case of the Respondent.
45. As regards the judgments relied upon in the cases of Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Others vs. Maharashtra State Electricity Distribution Company Limited – 2022 SCC OnLine NCLAT 4321 (Para 8 to 14) and Damodar Valley Corporation Through its Authorized Representative vs. Cosmic Ferro Alloys Limited Through its Managing Director and Another- 2021 SCC OnLine NCLAT 2455 (Para No. 25), it is stated that there is no deferring opinion or position being taken in this case which hold that during the period of moratorium, if services which are essential or critical are used by the Corporate Debtor under CIRP then commensurating payment should be made, failing which, the services could be discontinued by the service provider. In the facts of the present case, the appropriate relief, if required could be sought before the Adjudicating Authority of WWIL, either before or even after the Respondent, if admitted into CIRP.
46. In view of the facts and circumstances in the case and discussion hereinabove, the issue No. i is answered in negative.
Determination as to issue No. ii
47. It is contended by the Respondent that the present petition is barred by limitation and reliance is placed on judgment of the Hon’ble Supreme Court in the matter of K. Educational Services Pvt. Ltd. versus Parag Gupta and Associates (AIR 2018 SC 5601). It is noted that the Petitioner declared NPA of the corporate debtor’s loan account on 29.05.2018 and the declaration as NPA is not disputed by the corporate debtor before the competent authority of the IDBI. Additionally, the Corporate Debtor has acknowledged the debt of Rs.20,89,63,643.50/- vide acknowledgement of Debt and Confirmation of Security Letter dated June 1, 2018. Further, the Financial Creditor has filed OA 761/2019 (now TA No. 139 of 2022) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, before DRT, Delhi. This suit is still pending before the Debt Recovery Tribunal.
48. The Hon’ble Supreme Court in the matter of Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal & Anr. [(2021) 6 SCC 366 considered the question whether an entry made in a balance-sheet of a corporate debtor would amount to an acknowledgment of liability under section 18 of the Limitation Act. The Hon’ble Supreme Court in this case considered this issue and observed as follows:-
“14. Several judgments of this Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation “Act. Thus, in Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402, this Court held:
12. The entries in the books of accounts of the appellant would amount to an acknowledgment of the liability to M/s Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963 and extend the period of limitation for the discharge of the liability as debt.. ”
49. Thereafter, in the same judgment the Hon’ble Supreme Court held as follows:-
“22. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements expressly recognised by Section 134 (7). Equally, the auditor’s report may also enter caveats with regard to acknowledgments made in in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills (supra), that there is a compulsion of law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been ener4ed into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act”
50. Section 18 of the Limitation Act, 1963 is as follows:-
“18. Effect of acknowledgment in writing.— (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.
Explanation. —For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right,
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf, and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.”
51. Thus, it is clear that before the expiration of prescribed period for an application in respect of any right, an acknowledgment of liability of such right made in writing signed by the party against whom such right is claimed, shall permit a fresh period of limitation to be computed from the time when the acknowledgment was so signed.
52. The IDBI Bank declared the loan account of the corporate debtor as NPA on 05.2018 and declaration of NPA has not been declared as illegal or incorrect. Therefore, the limitation for section 7 application starts from 29.05.2018. As per Article 137 of the Limitation Act, 1963 the period of limitation prescribed for an application under section 7 of IBC is three years. Therefore, the limitation of section 7 application would be valid upto 28.05.2021. Before the expiry of the limitation period, the balance sheet for FY 2020-21 annexed as Ex. X at Pg. 279-289 of the Petition and the Note 14, forming part of the financial statement clearly mentions the amount of long-term borrowings from the IDBI as Rs. 20,66,20,336/-. This balance sheet is for the year ending 31.03.2021 and therefore, the limitation of the loan under section 7 application is extended for three years from 31.03.2021 upto 31.03.2024. It is noted that while this limitation period was running, another acknowledgment was made by corporate debtor in its balance sheet for the FY 2021-22, wherein again the long-term borrowings from IDBI for the year ended on 31.03.2022 has been shown as Rs. 2066.32/- Lakhs under Note 14. Hence, the limitation period again got extended from 31.03.2022 for another three years, upto 31.03.2025.
53. It is observed from the section 7 application that it was filed on 06.07.2024, which is within the limitation period, which was extended upto 31.03.2025. Therefore, the present application is within the prescribed limitation period.
54. In the circumstances, the debt and default are clearly established in the present case and the petition is not barred by the limitation. Hence, the issue No. ii is answered in negative.
Determination as to issue No. iii
55. It is contended by the Respondent that the WWIL is into CIRP and admitting it into CIRP would impact the Resolution Proceedings of the holding Company (WWIL). It is further contended that the shares of the Respondent Company are held as assets of WWIL and in that manner, instant proceedings are in violation of moratorium under Section 14 of the IBC. In this regard, it is stated that the subsidiary and holding company are two separate legal entities and the holding company does not own the assets of the subsidiary. In this regard reliance could be placed on the judgment of Hon’ble Supreme Court in the case of Vodafone International Holdings B.V vs Union of India & Anr. civil appeal no.733 of 2012;
“58. Legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT AIR 1955 SC 74, this Court held that shareholders’ only rights is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders’ meeting. Refer also to Carew and Company Ltd. v. Union of India (1975) 2 SCC 791 and Carrasco Investments Ltd. v. Special Director, Enforcement (1994) 79 Comp Case 631 (Delhi).5
59. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any director if it so desires by a resolution in the General Body Meeting of the subsidiary.
Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary are allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries.”
(Emphasis Provided)
56. Further, reliance could also be placed on the order passed by the Hon’ble NCLAT in Ashok B. Jiwrajka, Director of Alok Infrastructure Ltd. vs. Axis Bank Ltd. Company Appeal (AT) (Insolvency) No. 683 of 2018;
“Having heard learned counsel for the parties, we find that a separate Corporate Insolvency Resolution Process has been initiated against ‘Alok Industries Ltd.’ (Holding Company). Subsequently, another Corporate Insolvency Resolution Process has been initiated pursuant to application filed by another financial creditor against ‘Alok Infrastructure Ltd.’ (Subsidiary of Alok Industries Ltd.). This appeal has been preferred by ‘Mr. Ashok B. Jiwrajka’, Director of ‘Alok Infrastructure Ltd.’ against order dated 24th October, 2018 whereby and whereunder Corporate Insolvency Resolution Process has been initiated against ‘Alok Infrastructure Ltd.’ (Subsidiary Company).
2. Learned senior counsel appearing on behalf of the Appellant submits that the insolvency resolution process should not continue till the Corporate Insolvency Resolution Process is decided under Section 31 in the case of ‘Alok Industries Ltd.’ (Holding Company). However, such submission cannot be accepted as a separate Corporate Insolvency Resolution Process has been initiated against another Corporate Debtor which is separate from the Corporate Insolvency Resolution Process initiated against ‘Alok Infrastructure Ltd.’, of which the Appellant is the Director.”
(Emphasis Provided)
57. Accordingly, such contentions advanced by the Respondents are not acceptable and in the aforesaid decisions, the Hon’ble Supreme Court as well as the Hon’ble NCLAT have clearly held that the subsidiary Company is a separate artificial juridical entity and the CIRP can separately be initiated against the holding Company as well as the subsidiary Company in case the other parameters and conditionalities of provisions of Section 7 of the IBC are met. Accordingly, the Issue No. iii is answered in affirmative.
Determination as to Issue No. iv.
58. The Respondent has contended that there are recovery proceedings initiated by the Financial Creditor before the DRT and thereafter, proceedings as sought to be initiated under the IBC by the same Financial Creditor. This very fact indicates that the proceedings initiated are not only in parallel in nature but are for the recovery of the outstanding dues and not for the resolution of the Respondent. In this regard reliance is placed on the following judgments;
a. Swiss Ribbons Pvt. Ltd versus Union of India WP(C) 99/2018 – 2019 4 SCC 17 – (Para. 27-28).
b. Vidarbha Industries Power Limited Vs. Axis Bank Limited Civil Appeal No. 4633 of 2021 – 2022 8 SCC 352 (Para. 75 to 90).
d.Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 (Para 33).
59. As far as the contention of the Respondent regarding parallel proceedings before the DRT is concerned, the same is not tenable as the proceedings under Insolvency and Bankruptcy Code are different than the DRT proceedings and the purpose of present proceedings is resolution of the Corporate Debtor and not recovery from the Corporate Debtor. We are supported by the order passed by Hon’ble NCLAT in the matter of Rakesh Kumar Gupta V. Mahesh Bansal & anr in Company Appeal (AT)(Insolvency) No. 1408 of 2019, dated 20.02.2020, wherein the Hon’ble NCLAT has held as follows:
“….Insolvency & Bankruptcy Code 2016 is subsequent Code to SARFAESI Act of 2002 and Recovery of Debts Due to Banks & Financial Institution Act, 1993 with provision of Moratorium under Section 14 and Section 238 giving the Provisions of the Code overriding effect on other laws. The Judgement relied on by Learned Counsel for Appellant does not appear to support the argument of learned Counsel for Appellant that if Bank had resorted to SARFAESI or proceeding before DRT, it is barred from resorting to IBC.
…. The pendency of actions under the SARFAESI Act or actions “under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 does not create obstruction for filing an Application under Section 7 of Insolvency and Bankruptcy Code, 2016, specially in view of Section 238 of IBC. The Application is more to bring about a Resolution of Corporate Debtor than any penal action or any recovery proceedings. We do not find any substance in the Appeal. The Appeal is dismissed. No costs.”
60. It is pertinent to note that the primary objective of the Insolvency and Bankruptcy Code (IBC) is to facilitate the resolution of financially distressed companies, and having no other source of revenue as well as non-payment of dues by the Respondent clearly indicates that the Respondent is under financial distress and has clearly failed to make payments of the dues of the Financial Creditor. Therefore, it cannot be asserted that the present petition has been filed for the purpose of recovering dues. Accordingly, the issue No. iv is answered in negative.
61. The Respondent herein has also raised certain sundry issues which we deem appropriate to deal. The Respondent has contended that the Financial Creditor has failed to perform its obligations and has therefore, no rights to initiate proceeding under Section 7 of the IBC and has in support relied upon the judgment of the Hon’ble Supreme Court in the matter of Mardia Chemicals Vs. Union of India, 2004 (4) SCC 311. In this regard, it is stated that the Respondent has failed to establish particular terms and conditions which have been violated by the Financial Creditor and further specify as to what are the obligations which the Financial Creditor was supposed to perform and has failed in doing so. Hence, such submissions on part of the Respondent remain mere assertions and are in consequential in respect of the proceedings under Section 7 of the IBC.
62. It is also contended by the Respondent that the Financial Creditor has relied upon statement of accounts of the Corporate Debtor contained in electronic form to establish the alleged debt and default, but, failed to produce certificate as contemplated under Section 65B of the Evidence Act. However, it is pertinent to note that the Financial Creditor in compliance with section 7(3) has produced copies of entries in a Bankers Book in accordance with the Bankers Book Evidence Act, 1891 and the same are annexed as Exhibit BB (colly). Furthermore, in reply filed by the Corporate Debtor there was no denial of the credit facility availed by the Corporate Debtor as well as Loan Agreement executed between the parties. There is no denial of amount disbursed by the Financial Creditor. There is also no denial to default committed by the Corporate Debtor. Hence, the Respondent has failed to establish any ground to reject Section 7 Application. Additionally, the NESL report dated 21.05.2024, annexed as Exhibit Z to the Petition, records a default amount of Rs. 53,56,49,338.50/-and it has also not been disputed by the Respondent.
63. It is seen from the facts of the case that the essential ingredients required to initiate Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor, such as, Financial Debt defined u/s 5(8) & Default defined u/s 3(12) of the Code are proved by the Financial Creditor in the present case. The application made by the Financial Creditor is complete in all Respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Besides, the Company Petition is well within the period of limitation.
64. We rely on the judgement of the Hon’ble Supreme Court in the Innoventive Industries Limited vs. ICICI Bank and Another (2018)1 SCC 407, it was held that-
“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 receipt of a notice from the adjudicating authority.
30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”
(Emphasis Provided)
65. In view of the aforementioned judgement it is clear that the Adjudicating Authority only has to determine whether the “debt” was due and remained unpaid. If the adjudicating authority is of the opinion that a “default” has occurred, it has to admit the application. In the present case, sufficient evidence has been adduced by the Petitioner to prove the debt and default.
66. We are of the considered view that the Financial Creditors have proved existence of debt and default. Further the debt is in excess of Rs. 1 Crore and thus above the threshold limit mandated in Section 4(1) of the Code. Also, the Petition filed is within limitation. Therefore, we hereby admit this company petition and also looking at the consent given by the Insolvency Professional, we hereby appoint Megha Agrawal as an IRP, with a direction to the Financial Creditors to pay remuneration to the IRP and his expenses until the constitution of CoC.
67. Accordingly, this company petition is admitted by passing the following directions:
a. The above Company Petition (IB) 720(MB)2024 is allowed and initiation of Corporate Insolvency Resolution Process (CIRP) is ordered against Wind World (India) Infrastructure Private Limited.
b. This Bench appoints Megha Agrawal, having Registration No:
IBBI/IPA-001/IP-P01456/2018-2019/12272, email: ip.meghaagrawal@gmail.com; Address: 001, Shivranjini Apartments, in circle of Congress Nagar Garden, Congress Nagar, Nagpur, Maharashtra – 440012 as the Interim Resolution Professional to carry out the functions as mentioned under the Insolvency & Bankruptcy Code, 2016.
c. The Financial Creditor shall deposit an amount of 5 Lakhs towards the initial CIRP cost by way of a Demand Draft drawn in favour of the Interim Resolution Professional appointed herein, immediately upon communication of this Order.
d. That this Bench hereby directs operation of moratorium under section 14 of Insolvency and Bankruptcy Code, 2016 and prohibits the following:
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. That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.
f. That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
g. That the order of moratorium shall have effect from the date of pronouncement of this order till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub- section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, as the case may be.
h. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.
i. During the CIRP period, the management of the corporate debtor will vest in the IRP/RP. The suspended directors and employees of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP/RP.
68. Registry shall send a copy of this order to the concerned Registrar of Companies for updating the Master Data of the Corporate Debtor.
69. The Registry is hereby directed to communicate this order to both the parties and to IRP immediately. The Registry is further directed to send a copy of this order to the Insolvency and bankruptcy Board of India for their record.
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