Essel Group's Shirpur Gold Refinery, NCLT Initiates Insolvency Proceedings Following ₹92 Crore Default

Subhash Chandra-promoted Essel Group's Shirpur Gold Refinery Limited (SGRL) has been admitted for corporate insolvency resolution following an application filed by Prudent ARC at the Mumbai bench of the National Company Law Tribunal (NCLT).

The application arose after SGRL defaulted on dues of approximately ₹92 crore, which included a ₹65-crore loan and accumulated interest of ₹27 crore up to October 14, 2021. To secure this loan, SGRL had pledged to maintain its own excess shares and those of Zee Media, Zee Entertainment, and Dish TV India, totaling ₹32.50 crore.

The NCLT appointed Ashish Vyas as the interim resolution professional (IRP) for the corporate insolvency resolution process (CIRP). The division bench, comprising judicial member KR Saji Kumar and technical member Sanjiv Dutt, noted that the financial creditor had successfully demonstrated and proved the debt and default. The bench also noted that Shirpur admitted to the outstanding debt and satisfied the requirements for admission under Section 7 of the Insolvency and Bankruptcy Code (IBC).

This order followed the issuance of an interim order-cum-show-cause notice by securities market regulator Sebi in April 2023 against Shirpur and its associates for allegedly diverting funds to promoter firms.

The application for CIRP, originally filed by Industrial Finance Corporation of India (IFCI) and later replaced by Prudent ARC Limited, alleged a total default amount of ₹91.98 crore, which included the principal and accrued interest calculated at 14% per annum. The default was based on a ₹65-crore loan sanctioned by IFCI to Shirpur, which became a non-performing asset (NPA). Despite multiple attempts by the debtor to settle the matter through one-time settlement proposals, these were rejected by the creditors.

Contentions of the parties:

Prudent contended that the loan agreement, despite being insufficiently stamped, constituted a valid and enforceable document under IBC proceedings. It also argued that the debtor's default on interest payments from July 2019 and the principal amount due from October 2019 justified the NPA classification.

On the other hand, Shirpur argued that the default date was incorrectly stated and that the loan agreement was not enforceable due to insufficient stamping. It also contended that the rejection of its OTS proposals demonstrated a lack of intention to settle, which should not justify the initiation of CIRP.

Decision of the NCLT:

The NCLT addressed the contention raised by Shirpur regarding the incorrect date of default. The NCLT found that the date of default mentioned by Prudent as 31.12.2019, the date on which the Shirpur's account was classified as Non-Performing Asset was accurate. Shirpur argued that the actual date of default should be 15.07.2019, when it failed to pay outstanding interest. However, the NCLT observed that the account's classification as NPA was a valid date of default for initiating insolvency proceedings.

The NCLT referred to the judgment of the Principal Bench of the NCLAT, New Delhi in Milind Kashiram Jadhav v. State Bank of India and Anr., which held that the date of NPA classification serves as a valid "date of default" for initiating insolvency proceedings.

The NCLT also addressed the issue of the insufficiently stamped Loan Agreement. Shirpur argued that the agreement was not enforceable due to insufficient stamping under the Maharashtra Stamp Act, 1958. However, the NCLT held that the issue of stamp duty was not relevant in the context of an IBC proceeding, which is summary in nature. It referred to Madras High Court's decision in SpiceJet Limited v. Credit Suisse AG and the Supreme Court's ruling in In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, which clarified that non-stamping or inadequate stamping is a curable defect and does not render the document void ab initio or unenforceable.

Regarding the non-acceptance of the One-Time Settlement proposal, the NCLT referred to the Supreme Court's decision in Bijnor Urban Cooperative Bank Limited, Bijnor and Ors. v. Meenal Agarwal and Ors., which held that granting the benefit under One Time Settlement is subject to eligibility criteria and the bank's commercial wisdom. It also referred to Principal Bench of the NCLAT's decision in Sanjeev Mahajan v. India Bank (Erstwhile Allahabad Bank) & Anr., which stated that a financial creditor cannot be compelled to accept a lesser amount under OTS despite being able to recover the entire loan amount by auctioning the secured property.

Therefore, the NCLT admitted the application for initiating CIRP against Shirpur. The NCLT declared a moratorium under Section 14 of the IBC and prohibited the institution or continuation of suits or proceedings against Shirpur.

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Case Title: Prudent Arc Limited vs Shirpur Gold Refinery Limited

Case Number: CP (IB) No. 250/MB/2022

Advocate for the Financial Creditor: Adv. Nausher Kohli a/w Adv. Harsh L. Behany and Adv. Saloni Manjrekar i/b. HN Legal.

Advocate for the Respondent: Adv. Ashish Pyasi a/w. Adv. Vinita Melvin i/b. ANB Legal.

Click Here To Read/Download Order or Judgment