NCLT Mumbai Initiates Insolvency Process Against M/S S Kumars Ltd.

Background Facts

In the year 2009, SKM Fabrics Limited ("Principal Borrower") had approached the Central Bank of India ("Original Lender") with a request to advance loan. The Central Bank of India had sanctioned and disbursed loan to the Principal Borrower pursuant to a Sanction Letter dated 30.03.2009. The Principal borrower defaulted in repayment of debt to the Original Lender on 30.04.2010.

M/s S Kumars Ltd. ("Corporate Debtor") is a renowned textile manufacturing company based in Maharashtra, which has been in business for over 70 years. The Corporate Debtor had executed a Guarantee in respect of the loan availed by the Principal Borrower, vide a Deed of Corporate Guarantee dated 31.12.2011.

On 28.03.2014, the debt was assigned by the Central Bank of India to Edelweiss Asset Reconstruction Company Ltd. ("Financial Creditor") vide an Assignment Agreement. The original Lender also issued a letter dated 11.04.2014 to all the lenders/guarantors and borrowing companies, informing them regarding the assignment of its rights and liabilities to the Financial Creditor.

When Principal Borrower failed to repay its debt, the Financial Creditor issued a letter of Invocation of Corporate Guarantee dated 08.01.2015, recalling the payment of the outstanding dues from the Corporate Debtor. Further, a demand notice dated 08.01.2015 under Section 13(2) of the SARFAESI Act, 2002 was issued by the Financial Creditor.

Thereafter, the Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") seeking to initiate Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor, over a default of Rs. 4,14,29,20,070/-.

Contentions Of The Corporate Debtor

The Corporate Debtor argued that the Petition is time barred. The date of default was 30.04.2010 and the date of declaration of NPA was 30.06.2010. Further, the Financial Creditor has already approached the Debt Recovery Tribunal at that time. Merely because the IBC came to be notified subsequently, does not grant the Financial Creditor the right to file a time barred claim under IBC. Pendency of the proceedings before the DRT would not refresh the limitation period to approach NCLT.

Decision Of NCLT

The Bench observed that in the Annual Statements the Corporate Debtor had admitted the existence of the Corporate Guarantee amounting to Rs. 124 Crores. Also the Financial Statement of Accounts for year ending 31.03.2017 and 31.03.2018 shows that the Corporate Debtor had given a guarantee of Rs. 124 Crores for a secured loan.

Further, the Statement of Accounts from 28.03.2014 to 10.09.2019 show that Credit has been received in the account of the Corporate Debtor. The Bench held that the Principal Borrower and the Corporate Debtor have acknowledged the debt due. The Corporate Debtor is bound by acknowledgements made by the Principal Borrower according to the clause 21 of the Deed of Corporate Guarantee.

"Hence, it is seen from the records available that the Financial Creditor has established that the various term loan/other facilities were duly sanctioned and duly disbursed to the Corporate Debtor but there is no payment of Debt on the part of the Corporate Debtor. Hence, owing to the inability of the Corporate Debtor to pay its dues, this is a fit case to be admitted u/s 7 of the I&B Code."

The Bench admitted the petition under Section 7 of IBC and initiated CIRP against the Corporate Debtor. Mr. Anjan Bhattacharya has been appointed as the Interim Resolution Professional.

Case Title: Edelweiss Asset Reconstruction Co. Ltd. v M/s. S. Kumars Limited

Case No.: Company Petition No. (IB) -3707 (MB)/2019

Counsel For the Financial Creditor: Mr. Rohan Agarwal, Adv

Counsel For the Corporate Debtor: Mr. Amir Arsiwala, Adv

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