Mere Possession Over Assets Of Corporate Debtor Under SARFAESI Act Does Not Bar Filing Of Petition U/S 7 Of IBC: NCLT Kolkata

Brief Facts

The Corporate Debtor Roadwings International Pvt. Ltd. by way this application preferred under Section 65 of the I&B Code against the Financial Creditor Srei Equipment Finance Limited has sought for rejection of the company petition being C.P. (IB) No. 224/KB/2023, on the ground that there is no existence of debt and default as claimed in the company petition and the financial creditor has fraudulently and maliciously preferred the Section 7 application for initiation of CIR Process in respect of the corporate debtor.

The claim of the Financial Creditor against the Corporate Debtor arises from the agreements which were executed between the parties pursuant to the financial assistance for purchasing various assets, on being approached by the Corporate Debtor to the Financial Creditor.

Contentions

The Applicant submitted that vide an order dated August 11, 2023, in C.P. (IB) No. 294/KB/2021, the Adjudicating Authority approved the resolution plan. In terms of the Resolution Plan, the Financial Creditor is entitled to recover the debts owed by the Corporate Debtor.

Per contra, the Respondent submitted that the debt and default arisen out of the four agreements in dispute were settled and paid off by the corporate debtor and there is no debt and default in respect those four agreements as claimed by the financial creditor.

That the financial creditor has preferred the present company petition on 04.11.2023 through one Sohan Kumar Jha whose authorization is invalid and ended on the date of approval of the resolution plan by this Adjudicating Authority, i.e., on 11.08.2023. Thus, the company petition is not maintainable due to lack of valid authorization. .

NCLT's Analysis

The tribunal noted that financial liability in respect of agreements which were subject matter of the Arbitration Proceedings had already been discharged therefore there was nothing to consider for the tribunal.

Whether Allegations Of Fraud Can Be Adjudicated In A Summary Proceeding

While refuting the contention of the applicant that the awards were obtained by fraud, the tribunal observed that it is a settled position of law that this Adjudicating Authority in a summary proceeding cannot adjudicate a disputed questions of facts and decide on issues relating to allegation of fraud.

The tribunal noted that in Shelendra Kumar Sharma v. DSC Ltd, 2019 the NCLAT has held that wherein it has been held that “whether the documents are forged or not is concerned, it cannot be determined by the Adjudicating Authority or this Appellate Tribunal and therefore, the Adjudicating Authority rightly not deliberated on such issue.

The tribunal also noted that these awards were challenged before the High Court seeking stay on the awards but the court refused to grant an interim stay.

Whether Mere Possession Of Assets Of The Corporate Debtor Under SARFAESI Act Bars Filing Of Petition Under Section 7 Of The Code

The tribunal noted that a secured creditor having possession over the assets of the corporate debtor does not lose its rights to file an application under Section 7 of the Code. It is also axiomatic that a secured creditor in the event, the borrower fails to discharge his liability, can always seek a remedy under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This is also settled position of law that proceedings under SARFAESI Act is separate and independent with regard to I&B Code process.

The tribunal further noted that in A. Navinchandra Steels Private Limited vs. SREI Equipment Finance Limited and Ors., 2021 has observed that Section 7 is an independent proceeding, as has been held in catena of judgments of this Court, which has to be tried on its own merits. Any "suppression" of the winding up proceeding would, therefore, not be of any effect in deciding a Section 7 petition on the basis of the provisions contained in the IBC.

Based on the above, the tribunal while refuting the submission of the corporate debtor that the applicant was already in possession of the assets which bars filing of a petition under section 7 observed that mere possession of the security assets of the corporate debtor, right of a secured creditor to move an application under Section 7 of the I&B Code does not efface, as a Section 7 proceeding is an independent process.

Whether Section 11 Of The Code Prohibits One Corporate Debtor From Filing Petition Under Section 7 Against Another Corporate Debtor

The tribunal moved to address the contention of the corporate debtor that present application is not maintainable in view of section 11 of the Code since a resolution plan had already been approved in respect of the corporate debtor.

The tribunal referred to section 11 of the Code and noted that it transpires from the language that the Section 11(b) of the Code, employs that a corporate debtor, who has completed its corporate insolvency resolution process twelve months preceding the date of making of the application, shall not be entitled to make an application for initiating CIRP.

The provision thus disables a corporate debtor in respect of whom a resolution plan has been approved under Chapter III-A, twelve months preceding the date of making of the application, from preferring an application for initiation of CIRP.

Second Explanation of Section 11 is further referred which envisages that for the purposes of this section, it is clarified that nothing in this section shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate insolvency resolution process against another corporate debtor. Notably, clause (a) to (d) of Section 11 of the Code includes the clause (ba), the tribunal noted.

It was argued that since section 11 (ba) was introduced after the second explanation therefore former will not be governed by the latter.

The tribunal while refuting this contention as well observed that the legislature would have expressly intended not to make the second explanation applicable to Section 11(ba) which has come later, then a clarificatory explanation would have been inserted against the Section 11(ba).

However, if we literally go by the language of the statute, the second explanation leaves no ambiguity or ambivalence that nothing in the section 11 of the Code shall prevent a corporate debtor referred to in clauses (a) to (d), which includes Section 11(ba) that has been later introduced, from initiating CIR Process against another corporate debtor.

To buttress its conclusion, the tribunal referred to oft-quoted maxims which are reproduced as under-A verbis legis non recedendum est”, which means “from the words of the law, there must be no departure and Expressio unius est exclusio alterius”, that means “whatever has not been included has by implication been excluded.

In the present case, resolution plan in respect of Srei Equipment who is the financial creditor herein, had been approved on 11.08.2023 and the present company petition has been filed on 04.11.2023. A combined reading of Section 11(b), (ba) and the second explanation implores makes it clear that the Section 11 (a) to (d) does not prevent the corporate debtor to initiate CIRP against another corporate debtor. In view of such, the present interlocutory application is disposed of.

Case Title: SREI Equipment Finance Ltd. v. Roadwings International Pvt. Ltd.

Case Reference: I.A. (IB) No. 1268/KB/2024 in Company Petition (IB) No. 224/KB/2023

Judgment Date: 21/11/2024