NCLT Mumbai Initiates Insolvency Proceedings Against Nirmal Lifestyle (Kalyan) Pvt. Ltd.

Background Facts

Nirmal Lifestyle (Kalyan) Pvt. Ltd. ("Corporate Debtor") is engaged in the business of real estate development and had availed financial facilities amounting to Rs. 84,23,75,000/- from Srei Equipment Finance Ltd. ("Financial Creditor") vide a Loan Agreement dated 05.08.2019. The loan installments were due and payable from 05.02.2020 onwards, however, the Corporate Debtor failed to meet the repayment obligations.

The Financial Creditors filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of CIRP against the Corporate Debtor for a default of Rs. 7,87,50,000/-. The Date of Default was mentioned as 05.02.2020.

Contentions Of The Corporate Debtor

The Corporate Debtor submitted that it had requested the Financial Creditor for restructuring the Loan amount due to the financial disruptions caused by COVID 19 pandemic and resultant lockdown. Reliance was placed on the Supreme Court judgment in Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited, 2019 12 SCC 697 and Mobilox Innovations Private Limited v. Kirusa Software Private Limited, 2018 1 SCC 353, wherein it was held that IBC is not intended to be substitute to a debt recovery forum.

The Corporate Debtor argued that the petition was hit by Section 10A of the IBC as a part of the default had occurred between 05.04.2020 and 05.09.2020 which was the prohibited period for initiation of CIRP. Submissions were also made in respect of the documents being insufficiently stamped, the Financial Creditor failing to pay the adequate stamp duty on the said Loan Agreement and also charging exorbitant and unreasonably high rate of interest from the Corporate Debtor.

It was further submitted that the Financial Creditor had agreed to advance a loan amount of Rs.2,25,00,000/- to one Sujyoti Developers Private Limited (SDPL) which is the sister concern of the Corporate Debtor. The Financial Creditor issued a sanction letter dated 15.06.2020 in favour of SDPL sanctioning the same loan amount.

Decision Of The Adjudicating Authority

The Adjudicating Authority observed that two defaults in Loan repayment dated 05.02.2020 and 05.03.2020 were amounting to Rs. 1,12,50,000/-. The remaining repayment defaults between 05.04.2020 and 05.09.2020 were hit by Section 10A of the IBC and therefore, could be considered as default.

The Bench observed that the actual default made by the Corporate Debtor was Rs.1,12,73,387/- along with interest and hence CIRP could be initiated, as the default meets the minimum threshold of Rs. 1 Crore.

Accordingly, CIRP was initiated against the Corporate Debtor and Mr. DilipKumar Natvarlal Jagad has been appointed as the Interim Resolution Professional.

Case Title: Srei Equipment Finance Limited v Nirmal Lifestyle (Kalyan) Private Limited, CP (IB) No.1337/MB/2020

Counsel For the Petitioner: Mr. Rohan Agarwal, Advocate.

Counsel For the Respondent: Mr. Gaurav Joshi, Senior Counsel with Ashok Paranjape.

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