NCLT, Mumbai Declares National Steel And Agro Industries Ltd. As Insolvent And Initiates CIRP

Facts Of The Case

On 26.05.2014, an agreement for credit facilities was executed among IDBI Bank Ltd., Bank of India, State Bank of India, State Bank of Travancore, Bank of Maharashtra, United Bank of India, Andhra Bank, Oriental Bank of Commerce, State Bank of Patiala, Central Bank India, Punjab National Bank ("Consortium") and National Steel & Agro Industries Ltd. ("Corporate Debtor"). The Consortium had sanctioned a credit facility amounting to Rs. 14,31,05,00,000/- to the Corporate Debtor, in which the Bank of India had sanctioned Rs. 125,00,00,000/-.

The total dues on 30.05.2019 stood at Rs. 127,80,95,977/- with further interest and expenses, which the Corporate Debtor failed to repay. Subsequently, the loan account of the Corporate Debtor was classified as Non Performing Asset ("NPA") on 30.09.2018.

The Bank of India had filed a petition under Section 7 of the IBC seeking initiation of CIRP against the Corporate Debtor, for non-payment of the dues. While the petition was pending adjudication, Bank of India had entered into an Assignment Agreement dated 29.09.2021 with JM Financial Asset Reconstruction Company Ltd. ("Financial Creditor"), whereby the financial debt owed by the Corporate Debtor was assigned to the Financial Creditor. The NCLT, Mumbai Bench ("Adjudicating Authority") had permitted substitution of the Financial Creditor in place of original lender, i.e. Bank of India, vide an order dated 21.01.2022.

Contentions Of The Financial Creditor

The Financial Creditor submitted that the Corporate Debtor had breached the terms of loan agreement, hence, the loan account was classified as NPA. The total dues on 30.05.2019 stood at Rs. 127,80,95,977 with further interest and expenses. It was further contended that the Corporate Debtor had admitted that Rs. 114.34 Crores as principal amount was in default as on 02.07.2018, in its Balance Sheet dated 31.03.2020.

Contentions Of The Corporate Debtor

The Corporate Debtor opposed the petition on the grounds of maintainability. It submitted that no document on record proved that the signatory to the petition was a person authorized to act on behalf of the Financial Creditor; the documents filed by the Financial Creditor were insufficiently stamped; and the Statements of Account were not certified as per the provisions of the Banker's Book of Evidence Act, 1891.

The Corporate Debtor also contended that it had submitted its One Time Settlement ("OTS") proposal to the Consortium which was constantly being negotiated and it had already deposited Rs. 15.85 Crores to the Consortium. It was submitted that as the OTS is at an advance stage, therefore, in the interest of justice an opportunity should be accorded to the Corporate Debtor to settle the debt. Additionally, it was contended that the admission of the petition would negatively impact the business as vendors/customers would stop dealing with the company and the operations would come to a standstill.

Decision Of The Adjudicating Authority

The Adjudicating Authority observed that the Financial Creditor had established that the Credit facilities were sanctioned as well as disbursed to the Corporate Debtor, and that the Corporate Debtor had defaulted in payment of the debt. Accordingly, the two essential qualifications, i.e. existence of 'debt' and 'default', for admission of a petition under Section 7 of the IBC were fulfilled.

It was further observed that the petition deserves 'admission' as the Corporate Debtor has failed to pay the outstanding amount to the Financial Creditor and the formalities prescribed under the IBC have been completed by the Financial Creditor. The Adjudicating Authority initiated CIRP against the Corporate Debtor and Mr. Dushyant C. Dave has been appointed as the Interim Resolution Professional (IRP).

Case title: JM Financial Asset Reconstruction Co Ltd. v National Steel & Agro Industries Ltd., CP (IB) 2067/MB/2019.

Counsel for the Financial Creditor: Senior Adv. Ravi Kadam, Adv. Rohit Gupta, Adv. Prakhar Tandon and Adv. Agam H Maloo.

Counsel for the Corporate Debtor: Adv. Devesh Juvekar and Adv. Dikshat Mehra.

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