Rajeswara Rao Vittanala, Member - (1.) The present application bearing CA No. 57 of 2017 in CP(IB) No. 01/HDB2017 filed by Edelweiss Asset Reconstruction Company Limited, the applicant/Financial Creditor, under Section 60(5)(C) of IBC, 2016, R/w Rules, 14 and 34 of NCLT Rules, 2016 by inter-alia seeking to declare three assignment agreements, all dated 24th November, 2016 entered into between Respondent No. 2 & 3 as invalid and un-reliable for the purpose of determining claims against Corporate Debtor under CIRP admitted as CP(IB) No. 01/HDB/2017; inclusion of respondent No. 3 as financial creditor etc.
(2.) Brief facts as stated by the applicant, which are relevant to issue raised in present case, are as follows: (1) The Applicant (is an asset reconstruction company), incorporated and constituted under the Companies Act, 1956 and having its registered office at Edelweiss House, Off CST Road, Kalina, Mumbai, Maharashtra 400 098. The Applicant has become one of the largest secured financial creditors of the Respondent No. 1-Corporate Debtor, i.e. Synergies-Dooray Automotive Limited (Corporate Debtor) vide an Assignment Agreement dated January 6, 2014, executed with Exim Bank which was one of the original lenders of the Corporate Debtor. The total amount claimed by the Applicant against the Corporate Debtor as on January 23, 2017 as per the revised proof of claims submitted by the Applicant on February 20, 2017 to the Respondent No. 1/the Interim Resolution Professional (IRP) is Rs. 88,20,28,260.97 (Rupees Eighty Eight Crores Twenty Lakhs Twenty Eight Thousand Two Hundred and Sixty and Ninety Seven Paise Only). (2) The Respondent No. 1 is the Corporate Debtor in respect of which the Corporate Insolvency Resolution Process (CIRP) is ongoing under the IBC pursuant to the order dated January 23, 2017 passed by this Hon'ble Tribunal. (3) The Respondent No. 2 is a related party of the Corporate Debtor as defined under Section 5(24) of the IBC having its registered office at the address mentioned in the cause title. The Respondent No. 2 also allegedly holds a share in the Corporate Debtor's total debt. The Applicant states that the calculation of the total claim of the Respondent No. 2 against the Corporate Debtor as determined, verified and admitted by the IRP is questioned. (4) The Respondent No. 3 is a Non-Banking Financial Company incorporated under the Companies Act, 1956 having its registered office at the address mentioned in the cause title. The Applicant states that the Respondent No. 3 came into the picture insofar as the Corporate Debtor is concerned only on November 24, 2016 vide three Assignment Agreements, all dated November 24, 2016 (collectively, said Assignment Agreements) that the Respondent No. 3 has entered into with the Respondent No. 2, and by way of which the Respondent No. 2 has purportedly assigned a substantial portion of its share in the Corporate Debtor's total debt to the Respondent No. 3. (5) The Applicant states that it is also pertinent to note that various banks/financial institutions/asset reconstruction companies in the year 2008, 2011 purportedly assigned their debts in respect of the Corporate Debtor to the Respondent No. 2 (which acquired it by entering into a onetime settlement with the said creditors). The Applicant states that these purported assignment of debts from various banks/financial institutions/asset reconstruction companies to the Respondent No. 2, which is not a bank/financial institution and/or asset reconstruction company, but a related party of the Corporate Debtor, took place prior to the Applicant becoming a financial creditor of the Corporate Debtor. The Applicant further states that the assignment agreements executed between the banks/financial institutions/asset reconstruction companies and the Respondent No. 2 in 2008, 2011 are inadequately stamped, unregistered and not legally enforceable. The Applicant craves leave to refer to and rely upon documents pertaining to the aforementioned purported assignment of debts as and when produced. (6) The Applicant states that on November 24, 2016, i.e. immediately prior to the reference of the Corporate Debtor the Respondent No. 2 & No. 3 entered into the said Assignment Agreements by which the Respondent No. 2 has assigned nearly 92.93% (as per Form A filed in BIFR) of its share in the total debt of the Corporate Debtor to the Respondent No. 3. Assignment Agreements in question were entered with the mala fide and ulterior motive of fraudulently abusing provisions of the IBC to the detriment of the Applicant as and when the Corporate Debtor initiates proceedings under the IBC after the abatement of the BIFR reference. (7) The Applicant states that public announcement of initiation of CIRP and call for submissions of claims under section 15 of the IBC read with regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulations) was made by the IRP on January 28, 2017 in Deccan Chronicle, wherein the insolvency commencement date was mentioned as January 25, 2017 with the estimated date of closure of IRP as July 23, 2017. Accordingly, the Applicant electronically submitted its proof of claim dated February 6, 2017 in the format provided in Form C of the CIRP Regulations along with the supporting documents vide its email dated February 7, 2017 in accordance with Regulation 8 of the CIRP Regulations to the IRP. However, the Applicant thereafter noticed that there was an error in the calculation of the total amount due from the Corporate Debtor to the Applicant as on January 31, 2017 in Clause 4 of proof of claim dated February 6, 2017. Accordingly, the Applicant by its email dated February 20, 2017 submitted its revised claim amounting to Rs. 88,20,28,260.97 (Rupees Eighty Eight Crores Twenty Lakhs Twenty Eight Thousand Two Hundred and Sixty and Ninety Seven Paise Only) and requested the IRP to revise the total claim of the Applicant against the Corporate Debtor in accordance with Regulation 14 (2) of the CIRP Regulations. (8) It is alleged that Respondent No. 2 had entered into the said Assignment Agreements with the Respondent No. 3 in a fraudulent attempt to reduce the voting share of the Applicant in the committee of creditors of the Corporate Debtor under the IBC. The Applicant raised objection to it. (9) The applicant filed C.A. No. 43 of 2017 in CP (IB) No. 01/HDB/2017 by objecting continuation of Insolvency proceedings. (10) It is a settled principle of law that what may not be done directly cannot be allowed to be done indirectly. The Applicant states that prior to the execution of the said Assignment Agreements, the Respondent No. 2 allegedly held a major share of the total debt of the Corporate Debtor. It is a matter of fact that the Respondent No. 2 is a related party of the Corporate Debtor. The Respondent No. 2 being a related party of the Corporate Debtor is not permitted to participate or vote in the meetings of the Committee of Creditors of the Corporate Debtor as expressly stated in the proviso to Section 21(2) of the IBC. Therefore, it necessarily follows that the Respondent No. 3 having been assigned the debt-holding of the Respondent No. 2, cannot be permitted to do what the Respondent No. 2 itself cannot do under law, i.e. to participate and vote in the meetings of the Committee of Creditors, which the IRP has illegally permitted during the meeting of the Committee of Creditors on February 22, 2017. (11) BIFR was also not informed when the alleged assignments Agreement were executed.
(3.) Sri Chidambaram, the learned PCS for SCL, Respondent No. 2, on the other hand, has strongly opposed the application and also filed a reply dated 3rd June, 2016. The following are his main contentions: (1) It is stated that M/s. Synergies Dooray Automotive Ltd., (SDAL) who is the Petitioner/Corporate Debtor had 7 creditors namely : EXIM Bank, HSBC, Indian Overseas Bank, Andhra Bank, State Bank of India IDBI and ICICI. Out of these 7 creditors, ICICI assigned its debt to ARCIL and HSBC assigned its debt to J.P. Morgan Chase Bank, Indian Overseas Bank, Andhra Bank, State Bank of India, IDBI and ARCIL assigned their debt to SCL, and J.P. Morgan Chase Bank assigned its debt to a Securitization Company called Alchemist Asset Reconstruction Company Ltd. (AARC) (2) Thereafter, EXIM Bank assigned its debt to Edelweiss Asset Reconstruction Company (EARC), who is the Applicant herein. Subsequent to the assignment of EXIM Bank's debt to EARC, SCL assigned the debt of ICICI, SBI and IDBI to Millennium Finance Ltd. (MFL) vide three Deeds of Assignment dated 24.11.2016. Therefore, the List of Creditors as on date are: EARC: AARC: MFL & SCL. (3) That as per the Master Restructuring Agreement, EARC represented less than 9% of the creditors of SDAL. Even now as per the List of Creditors prepared by the Resolution Professional in accordance with the provisions of the IBC, 2016, EARC represents less than 10% of the creditors of SDAL Admittedly, in the Master Restructuring Agreement, which executed way back in 2007, and even now, i.e. in 2017, EARC continues to be a minority creditor of SDAL. (4) SCL was created as a Special Purpose Vehicle (SPV) having the approval of all the Lenders of the Corporate Debtor. It was in furtherance of the restructuring scheme of the Corporate Debtor, that it was mutually decided between the Debtor and its Creditors that the unit of the Corporate Debtor shall be leased to the said SPV i.e. SCL to ensure continued operations of the Corporate Debtor and its sustained rehabilitation under the CDR Scheme. It is clear that the Applicant is trying to retract back on the said consent, which otherwise the Applicant is bound by, since its assignor had also expressly consented to the same. Therefore, the lease in favour of SCL and the continuation of the same is actually abiding by the Master Restructuring Agreement and the subsequent CDR Scheme in letter and spirit. (5) It is also pertinent to state that having voting rights is a secondary issue and admittedly SCL is also a Financial Creditor of the Corporate Debtor and all Financial Creditors should collectively work towards the resolution of the Corporate Debtor since the liquidation value of the Corporate Debtor is less than Rs. 7 Crores and if the Corporate Debtor is forced into liquidation, then Financial Creditors like SCL and the Applicant herein would not be able to recover their legitimate dues. The Application smacks of mala fide. It is strongly denied all allegations made by the applicant with regard to three Assignment Agreements in question and the allegation of related party etc as they are baseless and un-tenable. (6) A Deed of Assignment entered into between two parties cannot be challenged by a rank outsider, who is not even a party to the said assignment. Permitting a third party to challenge the assignment between two Financial Creditors would set a dangerous precedent which could be exploited by fraudulent and mala fide parties like EARC. (7) Admittedly, SCL is a related party to the Corporate Debtor. However, the debt of the Corporate Debtor held by SCL has been assigned to a complete third party, which is a Non Banking Financial Company (NBFC), registered with the Reserve Bank of India and also with SEBI. EARC has failed to bring on record any evidence to demonstrate that the assignee of SCL is a related party to the Corporate Debtor. EARC is only raising frivolous allegations, which are wholly unsubstantiated. In the absence of any proof to establish that the assignee of SCL is a related party as defined under Section 5(24) of the Code, the allegation that MFL ought not to have any voting share in the committee of creditors deserves to be rejected in totality. (8) EARC has also sought to project that the Assignment of Debt to SCL from the assignors, i.e. SBI, IDBI and ARCIL (formerly ICICI) is unregistered. This is a self defeating and frivolous argument which also deserves to be rejected in totality. For the sake of arguments, if it is considered that the assignment from the original creditors of the Corporate Debtor to SCL is invalid, that would revert back the position to as existed in the Master Restructuring Agreement, which included ICICI, SBI, IDBI, IOB, Andhra Bank, HSBC and EXIM Bank. Even in such a scenario, the assignors of SCL and MFL, all being Banks would be unrelated parties permitting them to have voting share in any meeting of the Committee of Creditors. Even in such a scenario, EARC as an alleged Lender would continue to be a minority having less than 9% voting share. Therefore, this argument is untenable and deserves to be rejected out rightly. (9) That with respect to the timing of the assignment, no fault can be found since the said assignments have been made in the ordinary course of business without any fraud or malice as is being alleged by EARC. In fact, there was no restraint order passed by BIFR about any assignment of financial debt to any other unrelated financial creditor. Such an argument that SCL preempted the notification of the Repeal Act is outrageous and untenable. Such frivolous arguments and allegations against SCL, give rise to suspicion regarding the locus and intention of EARC, who had also taken assignment of debt during the pendency of the matter before BIFR. That apart from the above, the assignment of debt by EARC, apart from being suspicious is also blatantly in the teeth of the status quo order passed by the Debts Recovery Tribunal at Visakhapatnam. Without prejudice to the same, it is reiterated that the assignment of debt from one part to another cannot be challenged before this Hon'ble Tribunal. (10) In the instant application under reply, EARC has also raised objection pertaining to the continuation of lease in favour of SCL. It is not understood as to how the said objection has relevance to the adjudication of the instant Application which seeks to challenge the assignment of debt from SCL to an unrelated NBFC. However, it is submitted that the Resolution Professional of the Corporate Debtor is duty bound to ensure that the Company continues to function on a "going concern basis". Even during the pendency of the reference of SDAL before BIFR, the land of SDAL was leased to SCL, which was functioning to ensure that SDAL continues to receive lease rentals, which will ensure its survival. Instead of giving any fruitful or meaningful suggestion regarding the same at the first meeting of the Committee of Creditors, EARC continued to crib and put a spanner in the works by disagreeing with every proposal put forth therein.;