Citation Codes

Equivalent Citations

citation codes

Case Number

CP(IB)/84(CHE)/2021

Attorney(S)

Mr. R. Imayavaramban, Advocate,
Mr. A.S. Saihish Kumar, PCS, for the Corporate Applicant;

Judges

S. Ramathilagam, Member (Judicial)
Anil Kumar B., Member (Technical)

Acts

sub-Section (1) of Section 31
Section 13(4) of the SARFAESI Act, 2002
Section 10 of the Code,
Section 13(2) of SARFAESI Act, 2002.5.
Section 10 of IBC, 2016.12.
Act, 1993; SARFAESI Act, 2002;
Section 19 of DRT Act, 1993
provisions of sub-section (1)
Section 14(4) of the Code
Section 19 of the DRT Act, 1993
Section 15, 17, 18 of the Code
Section 10 of the Code.14.

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Smart Summary

Structured Summary of the Opinion — JR Foods Limited (Section 10 IBC)

Factual and Procedural Background

This opinion concerns an Insolvency & Bankruptcy Application filed under Section 10 of the Insolvency & Bankruptcy Code, 2016 by JR Foods Limited ("the Corporate Applicant") seeking initiation of the Corporate Insolvency Resolution Process (CIRP).

Key factual and procedural points drawn from the opinion:

Corporate Applicant: JR Foods Limited, a private limited company incorporated on 20.08.1993 (CIN: L15142PY1993PLC000911). Registered office stated as JK Towers, 100 Feet Road, Pondicherry - 605 013.
The Operational Creditor proposed Mr. B. Ramanakumar as Interim Resolution Professional (IRP), and his written consent in Form-2 was filed.
Default disclosed: total amount of default of Rs. 53,38,06,704/- as on 02.01.2019, supported by listed documents including:
- Certificate of modification of charge in favour of Vijaya Bank (now Bank of Baroda) dated 07.10.2018 for Rs. 55.18 crore;
- Letter dated 30.03.2019 from Vijaya Bank, Pondicherry Branch intimating default of Rs. 35,88,73,191.65/- under Section 13(2) of the SARFAESI Act, 2002.
The Applicant filed audited financial statements for the year ended 2019-2020 and audited provisional financial statements for 01.04.2020 to 31.01.2021 reflecting the default.
Shareholders passed a special resolution on 03.12.2021 in an Extra-Ordinary General Meeting to initiate CIRP under Section 10.
An earlier Company Petition CP/989/(IB)/CB/2019 under Section 10 had been dismissed by the Tribunal on 08.05.2020; that dismissal formed part of the disputing parties' submissions in this matter.

Legal Issues Presented

Whether the Section 10 application filed by JR Foods Limited is maintainable and liable to be admitted notwithstanding pending or initiated proceedings under the SARFAESI Act, 2002.
Whether a prior dismissal of an earlier Section 10 petition (order dated 08.05.2020) prevents the Corporate Applicant from filing a fresh Section 10 application.
Whether the material on record establishes existence of debt and default such that the Adjudicating Authority is bound to admit the Section 10 application (subject to eligibility under Section 11).

Arguments of the Parties

Vijaya Bank / Bank of Baroda (Respondent) — Summary of Arguments

Objected that the present application was filed to sidestep proceedings already initiated by Bank of Baroda under the SARFAESI Act, 2002, which were at an advanced stage.
Pointed out that the Applicant had earlier filed Company Petition CP/989/(IB)/CB/2019 under Section 10 which was dismissed by the Tribunal on 08.05.2020, and that the Applicant had not challenged that dismissal before the Appellate Tribunal but instead filed this fresh application, and therefore sought rejection of the present application.

Corporate Applicant — Summary of Arguments

Contended that the Corporate Applicant had not suppressed the existence of the earlier dismissal order or the pending SARFAESI proceedings; these facts were disclosed in the synopsis filed with the application.
Submitted that the dismissal order of 08.05.2020 was communicated beyond 30 days from pronouncement, preventing the Corporate Applicant from preferring an appeal within time before the Appellate Tribunal.
Argued that pending SARFAESI proceedings would not prevent filing a fresh Section 10 application before the Tribunal, relying on decisions of the Appellate Tribunal including "Leo Duct Engineers & Consultants Limited v. Canara Bank and Standard Chartered Bank" and "Unigreen Global Private Limited v. Punjab National Bank".

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Unigreen Global Private Limited v. Punjab National Bank	- Where the Adjudicating Authority is satisfied that there is a debt and default and the Corporate Applicant is not ineligible under Section 11, the Authority must admit the application (unless incomplete). - Proceedings under Section 13(4) of SARFAESI Act or suits under Section 19 of DRT Act pending are not grounds to reject a complete application under Section 10. - Such proceedings cannot proceed once a moratorium is ordered. - Section 238 of the IBC provides that IBC provisions override inconsistent provisions of other laws.	The Court expressly relied on and applied the principles in this decision to hold that pending SARFAESI proceedings do not preclude admission of a complete Section 10 application and to justify that the present petition should be admitted.
Leo Duct Engineers & Consultants Limited v. Canara Bank and Standard Chartered Bank	- Cited by the Corporate Applicant in support of the proposition that pending SARFAESI proceedings do not prevent initiation of a Section 10 application.	The opinion records that the Applicant relied on this decision; the Court's reasoning primarily cites and applies the Unigreen decision. The Leo Duct decision is noted as relied upon by the Applicant but is not separately analyzed in detail in the text of the opinion.

Court's Reasoning and Analysis

The Court's analysis proceeded in a sequential manner grounded on the materials placed on record and relevant precedent:

Documentary evidence: The Court observed that the documents filed (including the notice dated 30.03.2019 from Vijaya Bank, audited financial statements, and the special resolution passed by shareholders) made it evident that the Corporate Debtor had committed default in repayment to the Bank and established the existence of debt and default.
On the objection related to a prior dismissal: The Court noted that the earlier order dated 08.05.2020 in IBA/989/2019 was dismissed on a technical ground — non-disclosure of material particulars — and that such a dismissal does not prevent a Corporate Applicant from filing a fresh application under Section 10 of the Code.
On the objection related to pending SARFAESI proceedings: The Court examined the Appellate Tribunal's decision in Unigreen Global Private Limited v. Punjab National Bank, extracting and relying upon the principles that (a) where debt and default are established and the applicant is not ineligible, the Adjudicating Authority must admit the application; (b) actions under SARFAESI or proceedings under DRT Act do not constitute grounds to reject a complete Section 10 application; and (c) the moratorium under the Code will prevent continuation of such proceedings in view of Section 238 which makes the Code override inconsistent provisions of other laws.
Application of precedent to facts: Applying Unigreen to the present facts, the Court concluded that the Company application was required to be admitted under Section 10 of the Code because the conditions described in Unigreen (existence of debt and default and no disqualification under Section 11) were satisfied on the record before the Bench.
Appointment and directions: The Corporate Applicant had proposed Mr. B. Ramana Kumar (Registration No. IBBI/IPA-001/IP-P00657/2017-2018/11140, Mobile: 9841113024, e-mail: ramanakumar@ovopaxlegal.com) as Interim Resolution Professional and filed his written consent (Form-2). The Court appointed the proposed IRP to carry forward the CIRP, take steps under Sections 15, 17 and 18 of the Code, and file his report within 20 days.
Consequences of admission: The Court set out that the Board of Directors' powers stand superseded upon initiation of CIRP and described the moratorium consequences under Section 14 (including the suspension of suits, transfer/encumbrance of assets, actions to enforce security interests under SARFAESI, and recovery of leased property), along with the exceptions and clarifications provided under Sections 14(2), 14(2A), 14(3) and duration under Section 14(4).

Holding and Implications

Holding: The Petition is ADMITTED under Section 10 of the Insolvency and Bankruptcy Code, 2016, and the moratorium provided under Section 14 of the Code is declared to be in effect as of the date of this order.

Direct consequences and practical implications set out by the Court in the opinion:

An Interim Resolution Professional (Mr. B. Ramana Kumar) is appointed and shall undertake the functions and duties as required under the Code, including filing his report within 20 days.
The powers of the Board of Directors of the Corporate Debtor are superseded upon initiation of CIRP.
A moratorium under Section 14 is effective: suits and proceedings against the Corporate Debtor are stayed; transfer/encumbrance/alienation of assets is prohibited; actions to enforce security interests under SARFAESI are restrained; and recovery of property by owners/lessors in possession is restricted, subject to the statutory exceptions.
The Registry is directed to communicate the order to the Corporate Debtor and to forward a copy to the Insolvency and Bankruptcy Board of India (IBBI); the IRP is to be furnished with a copy and to communicate initiation of CIRP to the Registrar of Companies concerned.

The opinion applies existing Appellate Tribunal authority (notably Unigreen) to the present facts and admits the petition; it does not purport to lay down novel legal principles beyond application of those authorities. The opinion does not state that it is creating or announcing new precedent.

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Jr Foods Ltd., In Re

S. Ramathilagam, Member (Judicial):— Under Consideration is an Insolvency & Bankruptcy Application filed u/s 10 of the Insolvency & Bankruptcy Code, 2016 (“the Code”) by one JR Foods Limited (in short, “the Corporate Applicant”) for initiation or” Corporate Insolvency Resolution Process (CIRP) under Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity, “I&B Rules, 2016’), following a default in meeting the financial obligations to its Financial Creditors (Secured/Unsecured Creditors) and Operational Creditors and other Creditors as shown in the Company Petition filed in Form-6.

2. From Part-I of the application, it is seen that the Corporate Applicant is a Private Limited company incorporated on 20.08.1993 bearing CIN : L15142PY1993PLC000911 and the Registered Office of the Corporate Applicant as per the application is stated to be situated at JK Towers, 100 Feet Road, Pondicherry - 605 013.

3. From Part-II of the application, it is seen that the Operational Creditor has proposed one Mr. B. Ramanakumar as the Interim Resolution Professional and has also filed his written consent in Form-2.

4. Part-Ill of the application, discloses the details of the total amount of default of Rs. 53,38,06,704/- as on 02.01.2019. The list of documents to prove the existence of debt as follows:

a) Copy of certificate of modification of Charge in favour of Vijaya Bank (Now Bank of Barcda) dated 07.10.2018 for Rs. 55.18 crore.

b) Copy of letter dated 30.03.2019 issued by Vijaya Bank, Pondicherry Branch intimating default of Rs. 35,88,73,191.65/- under Section 13(2) of SARFAESI Act, 2002.

5. The Applicant has filed audited financial statements for the year ended 2019-2020 and audited provisional financial statements for the period 01.04.2020 to 31.01.2021 reflecting the default of payment to the Financial Creditor.

6. The Applicant Company has also placed, the special resolution passed by the Shareholders of the Corporate Applicant in the Extra-Ordinary General Meeting held on 03.12.2021 for initiating a Corporate Insolvency Resolution process under Section 10 of the Code.

7. The documents filed along with the typed-set of the document, more particularly the notice dated 30.03.2019 caused by the Vijaya Bank it is evident that the Corporate Debtor has committed default in repayment of the amount to the Vijaya Bank.

8. At this instance Learned Counsel appeared on behalf of the Vijaya Bank (Now Bank of Baroda) objected that the present application is filed only to side-step the process already initiated by the Bank of Baroda under the SARFASEI Act, 2002, which is at an advanced stage and further submitted that the Applicant herein had already filed Company Petition CP/989/(IB)/CB/2019 under Section 10 of IBC, 2016 and the same was dismissed by this Tribunal vide order dated 08.05.2020 and the Applicant herein had not yet challenged the above-said order before the Appellate Tribunal instead filed this fresh application before this Tribunal and sought rejection of the Application.

9. In reply, the Learned Authorised Representative for the Corporate Applicant submitted that the Corporate Applicant had not suppressed the facts about the earlier dismissal order of this Tribunal dated 08.05.2020 in IBA/989/2019 and the pending SARFASEI proceedings against the Corporate Applicant and it has been stated in the synopsis filed along with the application.

10. It was further submitted that the above-said dismissal order was communicated beyond 30 days from the date of pronouncement of the order and the Corporate Applicant was unable to prefer an appeal before the Appellate Tribunal and further argued that the pending SARFASEI proceedings would not prevent the Applicant to file the present application under Section 10 before this Tribunal. In support of his argument, he relied on decisions of the Hon'ble Appellate Tribunal in “Leo Duct Engineers & Consultants Limited v. Canara Bank and Standard Chartered Bank” and “Unigreen Global Private Limited v. Punjab National Bank”

11. Having heard learned counsel for the parties, on a perusal of the documents placed on record, we see that order dated 08.05.2020 passed by this Tribunal in IBA/989/2019 was dismissed on the technical ground that the material particulars were not disclosed in the application and same would not prevent the Corporate Applicant to file a fresh application under Section 10 of IBC, 2016.

12. Coming to the next argument that regarding the pending SARFASEI proceedings is an extraneous factor and not required to be considered with respect to the application filed under Section 10 of IBC, 2016. We may also refer to a decision of Hon'ble Appellate Tribunal in “Unigreen Global Private Limited v. Punjab National Bank” which is extracted hereunder

“20. The Adjudicating Authority on hearing the parties and on perusal of record, if satisfied that there is a debt and default has occurred and the Corporate Applicant is not ineligible under Section 11, the Adjudicating Authority has no option but to admit the application, unless it is incomplete, in which case the Corporate Applicant is to be granted time to rectify the defects.

xxx xxx xxx

25. Similarly, if any action has been taken by a ‘Financial Creditor’ under Section 13(4) of the SARFAESI Act, 2002 against the Corporate Debtor or a suit is pending against Corporate Debtor under Section 19 of DRT Act, 1993 before a Debt Recovery Tribunal or appeal pending before the Debt Recovery Appellate Tribunal cannot be a Company Appeal (AT) (Insolvency) No. 100 of 2017 7 ground to reject an application under Section 10, if the application is complete.

26. Any proceeding under Section 13(4) of the SARFAESI Act, 2002 or suit under Section 19 of the DRT Act, 1993 pending before Debt Recovery Tribunal or appeal pending before Debt Recovery Appellate Tribunal cannot proceed in view of the order of moratorium as may be passed.

27. It is also desirable to refer to Section 238 of the I & B Code, as quoted below:

“238. Provisions of this Code to override other laws - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

In view of the aforesaid provision also, I & B Code shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force including DRT Act, 1993; SARFAESI Act, 2002; money suit etc.”

13. Applying the aforesaid judgment to the facts of this case, we are of the view that this Company application is required to be admitted under Section 10 of the Code.

14. The Corporate Applicant has proposed the name of Mr. B. Ramana Kumar having Registration No. IBBI/IPA-001/IP-P00657/2017-2018/11140 (Mob : 9841113024) (e-mail : ramanakumar@ovopaxlegal.com) as the Interim Resolution Professional (IRP) who has also filed his written consent in Form 2 of the Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016 which is placed at page 26 to 27 of the typed set filed along with the Application. The proposed IRP who is appointed shall take forward the process of Corporate Insolvency Resolution of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15, 17, 18 of the Code and file his report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.

15. As a consequence of the Application being admitted in terms of Section 10 of the Code, moratorium as envisaged under provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor:

a. The institution of suits or continuation of pending suits or proceedings against the respondent including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;.

b. Transferring, encumbering, alienating or disposing of by the respondent 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 respondent in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

d. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the respondent.

Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;

16. However during the pendency of moratorium period in terms of Section 14(2) and 14(3) as extracted hereunder:

(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.

(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.

(3) The provisions of sub-section (1) shall not apply to

(a) such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;

(b) a surety in a contract of guarantee to a corporate debtor.

17. The duration of period of moratorium shall be as provided in Section 14(4) of the Code which is reproduced below for ready reference:

(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.

18. Based on the above terms, the Petition stands admitted in terms of Section 10 of the Code and the Moratorium shall come into effect as of this date. A copy of the Order shall be communicated to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named shall also be furnished with copy of this Order forthwith by the Registry, who will communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.

Jr Foods Ltd., In Re

Structured Summary of the Opinion — JR Foods Limited (Section 10 IBC)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Vijaya Bank / Bank of Baroda (Respondent) — Summary of Arguments

Corporate Applicant — Summary of Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Jr Foods Ltd., In Re

Comments