AGROHA PAPER INDUSTRIES PRIVATE LIMITED VS BANK OF MAHARASHTRA CA AT )Ins) 1342/ND/2023
Facts:
1) Appeal is filed against order passed by the Adjudicating Authority in C.P. (IB) No. 72/ALD/2022. By the impugned order, the Adjudicating Authority dismissed the Section 10 application filed by the Corporate Applicant seeking to initiate Corporate Insolvency Resolution Proceedings (‘CIRP’ in short) against itself.
Issue: Whether the appeal can be allowed ?
Argument:
Appellant:
1) Counsel submitted that Corporate Debtor had filed an application under Section 10 of IBC for initiation of CIRP against itself. The reason given by the Corporate Debtor for filing the Section 10 application was fiscal distress and suffering of business losses triggered by the Covid pandemic. The net worth having suffered an erosion, it was not in a position to repay the loan which it had availed from the Respondent-Bank of Maharashtra which led to the Respondent Bank declaring the account of the Corporate Applicant as NPA on 28.10.2018. It is further submitted that thereafter the Respondent Bank issued a Demand Notice on 11.01.2019 under Section 13(2) of the SARFAESI Act, 2002. In their reply to the demand notice, the Corporate Debtor had sought additional loan facility from the Respondent Bank which proposal was not accepted by the Respondent Bank. Though having defaulted in making repayment of outstanding loan to the Respondent Bank but being of the view that the Corporate Debtor company had fair chance of revival, the Appellant filed Section 10 application under IBC.
2) It was submitted that Section 10 application was complete in all respects and all documents/information as envisaged under Section 10 of the IBC had been provided, it was vehemently contended that the Respondent Bank had no valid grounds to object to the Section 10 application specially when the twin ingredients of existence of debt and default stood established and the Corporate Debtor applicant was not disqualified in any manner whatsoever under Section 11 of the IBC to file the Section 10 application.
Respondent:
1) Counsel submitted that Appellant had defaulted in repaying the loan facility which had been secured by them from the Respondent Bank. Repeated notices were issued to the Corporate Debtor prior to their declaration as a wilful defaulter but they intentionally failed to appear before the Bank authorities for hearing. The Respondent Bank therefore invoked Sections 13(2) and (4) of the SARFAESI Act and after issue of notice took possession of the properties of the Appellant mortgaged to the Bank and placed notice of sale/public auction. The sale bid had also been confirmed to the successful bidder before the filing of Section 10 application.
Decision; NCLAT dismissed the appeal.
Rationale:
1) NCLAT noted that much before the Section 10 application was filed by the Appellant, the Respondent Bank had issued notices to the Appellant for personal hearing before declaring the Appellant to be a wilful defaulter. We also find that the Adjudicating Authority took notice of the fact that the Appellant Company failed to appear before the Respondent Bank in spite of notices having been issued to them twice and gave a slip to the proceedings initiated by the Wilful Defaulter Identification Committee of the Respondent Bank. Even after being declared a defaulter, the Appellant continued not to respond to the notices issued by the Respondent Bank. Moreover, while on the one hand it was dodging the notices for appearance, on the other hand, it was making strenuous efforts to enter into some sort of settlement with the Respondent Bank.
2) It held that Adjudicating Authority rightly deprecated the Appellant Company for having filed the application under Section 10 of IBC after unsuccessfully trying at pre-empting recovery proceedings undertaken by the Respondent Bank. We are therefore inclined to agree with the Adjudicating Authority that the bonafide of the Appellant in filing of the Section 10 application was doubtful and that the filing was done for reasons other than insolvency resolution and therefore deserves to be dismissed.
Order:
