Wednesday, 17 November 2021

In the matter of: Nicco Corporation Limited - Lease rent due from FC, after moratorium can not be adjusted by FC in the loan account.

NCLT Kolkata (25.05.2017) In the matter of: Nicco Corporation Limited, [C.A. (IB) No. 196/KB/2017 in C.P. No.03 of 2017 ] held that;

  • In view of the above, after the declaration of Moratorium, such adjustment, as has been made by the Corporate Creditor, viz. Canara Bank is not permissible. Hence any amount required after the date of admission of the Insolvency Petition, will have to be refunded to the RP representing the Corporate Debtor. 


Excerpts of the order;

ORDER In this case, the Corporate Debtor M/s. Nicco Corporation Ltd had moved an Application under Section 10 of the IBC, which was admitted on 02/05/2017 and Shri Kunal Banerjee was made the IRP and subsequently, based on the recommendations of the Committee of Creditors, he was made the RP on 28/02/2017. In the instant Company Application the Corporate Debtor M/s. Nicco Corporation Ltd represented through the Resolution Professional Shri Kunal Banerjee has stated that the Respondent No. 1 is a banking company who has its Hare Street Branch in the ground floor of the premises, 'NICCO House', 2 Hare Street, Kolkata 700 001. The Respondent No.2 is the Chief Manager of the Hare Street Branch under whose directions, the business at the said Hare Street Branch is carried out. NICCO House, 2, Hare Street, Kolkata 700 001 is owned by the Corporate Debtor, i.e. Nicco Corporation Limited. The Respondent No. 1 is a leasee for an area of 6468 sq ft. in the ground floor and 2684 sq ft. in the mezzanine floor of the said premises under a registered Lease dated 6th April 2011. Pursuant to the said Lease dated 6th April 2011, the lease is valid upto to 28th February, 2018 and the Respondent No.1 was obliged to pay a lease rental of Rs. 3,06,900/- till February 2013 and thereafter is under an obligation to pay rent of Rs. 3,83,625/- plus applicable tax including KMC Tax per month to the Corporate Debtor for the period 01/03/2013 to 28/02/2018. 

 

# 2. The Corporate Debtor has also obtained credit facilities in the nature of Fund based loan of Rs. 18.344 crores and non fund based of Rs.31 crores aggregating to Rs. 49.344 crores from the Respondent No. 1 vide their sanction letter No. I/CR/RP/2009 dated 23/05/2009, details of which are provided in the sanction letter issued by the Respondent No.1 to the Corporate Debtor. The said loan amount was reduced by repayment by the Corporate Debtor from time to time. In this regard a copy of the aforesaid sanction letter is annexed with the Company Application and marked with the letter "C". 

 

# 3. The Respondent No. 1 is one of the consortium of banks of the Corporate Debtor out of a total of 12 Consortium Banks from whom the Corporate Debtor has obtained credit facilities. 

 

# 4. That due to continuous losses in business, the Net Worth of the Corporate Debtor got completely eroded as per audited accounts of the Corporate Debtor as on 31st March, 2011 due to very high losses suffered in the years 2008-09 and 2009-10 and the Corporate Debtor had filed a reference with the Hon'ble BIFR and the Hon'ble BIFR declared that the Corporate Debtor has become a sick industrial company vide order dated 23/08/2011. 

 

# 5. In this case the Applicant prayed for necessary direction upon the Respondent Bank to refund the sum of Rs.79,41,026, being the rental amounts from April 2015 to February 2017, to the Applicant as Resolution Professional of the Corporate Debtor, within 15 days from the communication of the order, to enable the Applicant to continue to run the Corporate Debtor as a going concern and defray at least the salaries and statutory liabilities of the Corporate Debtor till the Resolution Plan is finalized and implemented which is beneficial to all the concerned stake holders and thereafter make payment of rent on a regular basis to the Corporate Debtor. 

 

# 6. The Applicant also prayed for necessary orders restraining the Respondent Bank from adjusting the lease rental amount of Rs.3,83,625/- per month from May 2017 including Tax with the outstanding dues of the Respondent Bank and direct the Respondents to deposit the same with the Corporate Debtor in terms of the Lease dated 6th April, 2011. 

 

# 9. We have carefully gone through the Application, Reply and the arguments of the Counsels. In this connection it is also noted that in Agenda Item No. 13, the CoC has decided as under: 

  • "The Chairman informed the Committee that Canara Bank is holding lease rights for an area or 6468 sq ft. in the ground floor and 2684 sq ft. in the mezzanine floor of Nicco House under an Agreement to Lease dated 6th April, 2011. The Lease is valid till February, 2018. The current lease rent is Rs 3,83,625 plus Service Tax per month. He further informed that Canara Bank has stopped paying the lease rent from April 2015 and they have been adjusting the rent amount net of Service Tax and TDS against their outstanding loan. The total amount of lease rent withheld by Canara Bank till date amounts to Rs. 79,41,026 as provided in Annexure 10. 

  • The Chairman opined that such adjustment is not permissible under the IBC, 2016 and it was not permissible to be adjusted in such manner under the earlier procedure that was being carried out under BIFR. He was of the opinion that such adjustment may be construed to be a Preferential Transaction as per Section 43 of the IBC, 2016. He further opined that if at all the rent amount was to be adjusted, the same should have been adjusted against the loans of all the secured financial creditors in the proportion of their outstanding loans and Canara Bank on its own could not have adjusted it against their outstanding loan. 

  • Representative of Canara Bank mentioned that since Nicco account was classified as NPA, as per the guidelines of the bank, available funds were adjusted towards overdue accounts. 

  • The members of the Committee, however, concurred with the view of the Chairman and were of the opinion that such adjustment could not be made unilaterally. The Chairman requested Canara Bank to refund the entire amount of Rs.79,41,026 to the Company and not make any further adjustment of the lease rent but make the payment to the company. He further mentioned that the company is having no other source of income at present and release of this amount would mitigate the hardship of carrying out the minimum operations of the company for the next few months and cover expenses at least during the resolution process period. 

  • The representative of Canara Bank agreed to take up the issue with their appropriate authority. The Committee further authorized the Chairman to write to appropriate authority of Canara Bank requesting them to take necessary action in the matter." 

 

# 10. However the Tribunal RP is to be guided by the recommendations of the CoC. This matter has been raised before the adjudicating authority i.e. NCLT and hence it is directing as under: 

 

C.P. No.03 of 2017 was admitted on 18/01/2017 and the IRP Shri Kunal Banerjee was appointed on that date. 

 

In view of the above, after the declaration of Moratorium, such adjustment, as has been made by the Corporate Creditor, viz. Canara Bank is not permissible. Hence any amount required after the date of admission of the Insolvency Petition, will have to be refunded to the RP representing the Corporate Debtor. 

 

The directions will have to be complied within 20 days (Twenty days). The RP in consultation with the CoC may decide further course of action in the pending insolvency proceedings. 


In terms of the above direction, the Company Application being C.A. (IB) No. 196/KB/2017 is allowed and disposed of accordingly. 

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.