Nathella Sampath Jewelry Private Limited, In Re

S. Vijayaraghavan, Technical Member:— This Company Petition has been filed by Corporate Debtor M/s. NATHELLA SAMPATH JEWELRY PRIVATE LIMITED in Form 6 under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and supported by an affidavit to initiate Corporate Insolvency Resolution Process. The applicant has stated in the application that on the basis of Resolution passed by the Board of Directors dated 15/01/20I8 it was decided to initiate Corporate Insolvency Resolution Process before the NCLT. The applicant has also filed the copy of Board Resolution as Annexure-B. The applicant has stated in the petition that the default to Financial Creditors have been ascertained on the basis of the Corporate Debt Restructuring (CDR) Scheme approved by the Consortium of Lenders of the Company. The applicant has annexed the names and addresses for correspondence of the Financial and operational Creditors where default has occurred and mentioned in the petition indicating the default amount in Annexure C.

2. As on 15.01.2018

58 Financial Creditors amounting to Rs. 385.37 Crores 62 Operational Creditors amounting to Rs. 67.25 Crores Other payable for expenses (139) Rs. 8.32 Crores

3. The total numbers of financial creditors and operational creditors are given in the table above. The total amount in default for financial/operational creditors is shown as Rs. 461.40 Crores at page 3 of the petition. The dates on which the financial debts were incurred is furnished as Annexure D.

4. In addition an amount of Rs. 63.7 crores as on 15.01.2018 towards advance received from customers for supplies to be effected at a future date in form of cash, gold and include advances received on instalment basis to be repaid within 11 months. In addition, as on 31.03.2017 security deposits and interest payable thereon amounting to Rs. 3.4 crores have also been shown. As against this, the value of the inventories is shown as Rs. 31.8 crores only. In page 125 vide annexure I in the summary of assets, the total value of the assets has been shown as Rs. 51.76 crores as against the assets value of Rs. 91.69 crores made as on 31.03.2017 which shows a very sharp erosion in the value of assets within a relatively short span of time. In view of the sharp decline in the value of assets it is felt necessary to protect the interest of creditors and that of the middle and lower middle income groups who might have invested (gold savings scheme) of the corporate debtor.

5. In this case, the SBI (Financial Creditors) has stated that the application filed by the corporate applicant under Section 10 of the IBC is neither maintainable in law nor on facts of the case and the application has been filed with a malafide intention to scuttle the recovery proceedings initiated by the bank against the applicant and its guarantor.

6. It has been submitted that the SBI alongwith other members of the consortium like HDFC and Union Bank of India have extended various facilities upto a limit of Rs. 355 crores which has been sanctioned by the banks and availed by the corporate debtor. They have submitted that the credit facilities are secured by hypothecation of entire current assets of the applicant like raw materials, finished goods, receivable, plant and machinery etc. and credit facilities are also secured by the personal guarantee of the person as stated in their written submissions dt. 14.03.2018.

7. The State Bank of India has also made additional written submission wherein they have submitted that the object of this code is that the interest of all stakeholders, viz., share holders, creditors and workmen, are to be balanced with that of the company along with promoters/directors and others who have defrauded the banks. FIR was filed with the CBI and has been registered for various offences mentioned therein under Sec. 120B, read with Section 409, 420, 467, 468, 471 IPC and also under the FIR bearing No. 8 dated 24.03.2018.

8. The Company has also been making profit as could be seen from the balance-sheets for 2014-15 and 2015-16 on account of its operations and had incurred profits of Rs. 17.97 crores and Rs. 15.65 crores respectively.

9. The Company is having a negative cash flow for the year ended 31.03.2016 at Rs. 8.44 crores and for the previous financial year a positive net cash flow of Rs. 15.49 crores is shown in page 37 of the Typed Set. The total assets has been shown as Rs. 51.76 crores as on 15 January 2018 as against Rs. 91.69 crores for the year ended 31.03.2017 (page No. 125 of the typed set). The amount due to secured and unsecured has also been shown (unaudited financial statements) which amounts to Rs. 368.1 crore as on 15 January 2018 as against Rs. 364 crores for the year ended 31.03.2017 (page No. 113 of the typed set).

10. In the circumstances mentioned above, it is proposed to admit the petition for initiating the Corporate Resolution Process and declare a moratorium and public announcement as stated in section 13 of IBC 2016 subject to the consent of the proposed IRP being obtained in Form-2 under Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The relevant sections 13 and 14 are reproduced below for the purpose of convenience.

13. Declaration of moratorium and public announcement

(1) The Adjudicating Authority. after admission of the application under section 7 or section 9 or section 10, shall, by an order-

(a) declare a moratorium for the purposes referred to in section 14;

(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15: and

(c) appoint an interim resolution professional in the manner as laid down in section 16.

(2) The public announcement referred to in clause (b) of sub-section (I) shall be made immediately after the appointment of the interim resolution professional.

14. Moratorium

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following. namely:—

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process.

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.”

11. Necessary public announcement as per section 15 of the IBC, 2016 may be made by the Company.

12. Company has also resolved to appoint Shri. N. Ravindranath, having registration No. IBBI/IPA-001/1P-P00645/2017-1.8/11099 and having address at No. 522/C, 2 Floor, 1 D Cross, 15 Main, 3 Stage, 4 Block, Basaveshwara Nagar, Bangalore 560 079 Email ravishendige@gmail.com to be appointed as Interim Resolution Professional for ascertaining the particulars of creditors and convening a Committee of Creditors for appointment of Resolution Professional and for evolving a resolution plan.

13. Shri. N. Ravindranath submitted his consent in Form-2 under Rule 9 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

14. The applicant/petitioner has also certified the fact that Shri. N. Ravindranath, is fully qualified and permitted to act as an Insolvency Professional in accordance with Code and the Associated Rules and Regulations.

15. The application for initiation of Corporate Insolvency Resolution Process is admitted along with the Proposal for appointing an IRP. The Interim Resolution Professional should convene a meeting of the Committee of Creditors and submit the resolution passed by the Committee of Creditors.

16. It has also been submitted by the SBI that the Section 10 petition has been filed only to scuttle the proceedings already initiated by the above banks under SARFAESI Act for realizing the dues and that the applicant has filed this petition with malafide intention. It has also been submitted that the financial creditors together have more than 75% floating share and that there is no purpose will be served by initiating CIRP in the above petition and that the application has been filed by the corporate debtor only to scuttle the proceedings already initiated by the above banks under SARFAESI act for realizing the dues. In view of this, the consortium has prayed the following:

a. Dismiss the above application bearing CP No. 129/2018 filed by the applicant for initiating Corporate Insolvency Resolution Process; and

b. In case the Hon'ble Company Law Tribunal admits the above application and impose moratorium, it is prayed that the Hon'ble Tribunal maybe pleased to appoint Sri. V. Mahesh as Insolvency Resolution Professional in this matter;

c. And pass such further or other orders as this Hon'ble Tribunal may deem fit and proper in the circumstances of the case.

17. In this case, the financial creditor SBI Consortium comprising of SBI, HDFC and Union Bank of India had sought for Rs. 355 crores. The financial creditor has sought to appoint Shri. V. Mahesh, Regn. No. IBBI/IPA-002/IP-N00307/2017-18/10865, Insolvency Professional, No. 39/19 Aspen Court, III Floor, 6 Main Road, RA. Puram, Chennai 600 028, Contact No. 044-24331082 Email:vmacsibc@vmacs.co.in as the IRP in this case. In this connection, it is noted that the committee of creditors once formed by the IRP can make recommendation for change in the IRP or by proposing a RP by way of continuing the IRP or by proposing by new name for appointment as Resolution Professional. Hence, the Tribunal is of the opinion that at this juncture, there is no need to interfere with the recommendation made by the corporate debtor for the appointment of IRP.

18. The issue of proposing an RP may be placed before the 1 meeting of the CoC.

19. The IRP may convene the meeting of the CoC and put up a report based on the minutes of the committee.