Insolvency & BankruptcyAuthorised Person under Insolvency & Bankruptcy Code

In State bank of India V Indo Alusys Industries Ltd.,NCLT (Principal Bench),C.P. NO. IB-925 (PB)/2020 AND I.A. 1437/2021, the bench decided upon as to who is an authorised person under Insolvency & Bankruptcy Code & Rules made thereunder

BACKGROUND

The State Bank of India (“the Applicant”) has filed an Application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (“the I&B Code”), read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“the Rules”), through its Authorised Representative Mr. Shambhu Kumar Singh. The Applicant has, inter alia, prayed for the initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Respondent company, Indo Alusys Industries Ltd (“the Respondent”).

The Applicant claimed to be the ‘Financial Creditor’ of the Respondent, who had availed credit facilities, namely Working Capital and Term Loan, from the Applicant and the Consortium Member Banks, being the Mysore and Bikaner & Jaipur branches, falling under the Applicant’s leadership.

The Applicant further stated that, in the process of availing such credit facilities, the Respondent had duly agreed to all the terms & conditions imposed by way of the Sanction Letters and amendments thereto issued by the Applicant. All the documents executed, details of the securities held and services availed by the Respondent, as well as copies of the relevant Financial Contracts were also placed on record by the Applicant.

The Applicant, thus, filed for the initiation of CIRP against the Respondent and on account of the Respondent’s failure to adhere to the repayment schedule as well as the failure to clear its corporate debt.

ARGUMENTS BY THE RESPONDENT

The Respondent challenged the Application by stating:

1. That the filing of the Application was not formally authorised by the Applicant and was not in compliance with the provisions of the I&B Code as well as the Rules that require proper disclosure of the person duly authorized to file such an Application. The Respondent, in this regard, placed reliance on the judgement in the case of Palogix v. ICICI [Company Appeal (AT) (Insol.) No. 30 of 2017].

2. That the Application is barred by law since, according to the Applicant’s Demand Notice itself, the alleged date of the Respondent’s default is 03.06.2020, and, thus, falls within the Moratorium period prescribed under the Insolvency & Bankruptcy (Amendment) Ordinance, 2020.

3. That the Applicant has not adhered to the format prescribed for the Insolvency proceedings.

4. That the Applicant has not taken the approval of the Joint Lenders Forum (“JLF”) before filing the Application.

5. That the alleged default of the Respondent is, in fact, due to the actions of the Banks themselves, which form a part of the Consortium of Banks under the Applicant’s leadership and, therefore, the Respondent cannot be held liable for a situation self-created by the Applicant.

6. That the management of the Respondent company is committed to its revival and is well-poised to “revive its fortunes”. Further, the Respondent also contended that its management is actively involved in discussions with the Applicant as well as other Banks in the consortium to resolve the issue at hand.

RESPONSE BY THE APPLICANT

1. The Applicant controverted the Respondent’s reliance on the Palogix Case (Supra) and instead relied on the exception to the rule stipulated therein, whereby it was held that –

“If an officer, such as Senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a proceeding for ‘Corporate Insolvency Resolution Process’ against the person who has taken loan, in such case the ‘Corporate Debtor’ cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate ‘Corporate Insolvency Resolution Process’, in spite of default of debt.”

Further, the Applicant also highlighted Regulations 76 & 77 of the State Bank of India Regulations. The former duly prescribes the rank and category of the persons authorized to sign the bank receipts and other documents of the Applicant, and the latter authorizes the same persons to be signatories to plaints filed by the Applicant as well.

2. The Applicant countered the Respondent’s argument that the Application fell within the moratorium period. The Applicant, instead, argued that the Demand Notice dated 03.06.2020 referred to by the Respondent is merely a letter demanding the repayment of credit, but cannot in and of itself be used as the material date for the calculation of period of default.

The Applicant also highlighted that it was evident from the records published by the Information Utility NESL that the actual date of default is recorded as 23.09.2019, and that the same has been mentioned in the Demand Notice as well.

3. The Applicant also refuted the Respondent’s contention that the Application was invalid for the want of correct procedure under the I & B Code. The Applicant rooted this counterargument in a detailed analysis of the requisite procedure prescribed by the I & B Code.

The Applicant clarified that neither was the Applicant required to submit an affidavit under Form 1 nor was the Application “beyond the prescribed form” as contended by the Respondent. Therefore, it concluded that there was no technical or judicial error in the Application and the same was liable to be allowed.

4. The Appellant contended that the Respondent’s argument that the Application was liable to be shot down for the want of approval by the JLF is not maintainable, since it was well within the knowledge of the Respondent that the JLF had approved of the present proceedings.

5. Refuting the Respondent’s contention that the default had occurred as a result of a self-created situation on part of the Applicant/other Consortium Member Banks, the Applicant contended that such allegations would not fall within the scope and purview of the present proceedings. The Applicant firmly stated –

“The CD is at liberty to initiate appropriate remedies available under the Law in case it has any such grievances from the FC but the said allegations cannot be adjudicated in the present proceedings.”

DECISION & FINDINGS

The NCLT noted that the facts relating to the existence of the loan as well as the Respondent’s default were clear and amply available on the record. Further, the NCLT also held that the Respondent’s arguments were all adequately countered by the Applicant.

It was also noted that the Respondent’s argument, that the Applicant was itself responsible for the conditions that led to the default, was implicitly an admission and acknowledgement of such default on the Respondent’s part. Further, the NCLT took note of the fact that despite the Respondent’s contention that it was willing to settle the debt with the Applicant, there is no material on record to show that it has made any efforts in this regard.

The NCLT, thus, held that the Applicant was well within its rights to initiate proceedings against the Respondent, especially when the Respondent has failed to utilize any of the multiple opportunities provided to it for making the repayment. The Application was allowed accordingly.

AMLEGALS REMARKS

The judgement in this case can play a crucial role in shaping the jurisprudence surrounding CIRP applications, especially in terms of clarification of who can be an ‘Authorized Person’ according to the procedure laid down by the I&B Code as well as the Rules.

Although this case does not primarily deal with substantive questions of the law under the I&B Code, it does shape and outline the rules concerning the procedure for CIRP Applications. Procedural laws and regulations play a pivotal part in such rampant corporate disputes, since procedural discrepancies can cast doubts on the veracity of the very arguments raised by the parties. This case, thus, clarifies the rules of Section 7 of the I & B Code as well as Rule 4 of the complementary Rules and lays down the law to be followed in the future by the NCLT while adjudicating upon disputes of a similar nature.

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