Prudent ARC Ltd. Vs. Indu Techzone Pvt. Ltd. - The residuary jurisdiction of NCLT Under Section 60(5)(c) of IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings.

NCLT Hyderabad (07.02.2022) in Prudent ARC Ltd. Vs. Indu Techzone Pvt. Ltd..(CP (IB) NO. 207/7/HDB/2021) held that;

• The residuary jurisdiction of NCLT Under Section 60(5)(c) of IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings.

• However, it is pertinent to mention that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. 

Excerpts of the order;

# 6. In the light of the contest put-forth by the Corporate Debtor, the points that emerges for consideration by this Tribunal is. 

• 1. Whether this Tribunal, under its residuary power contained in Section 60 (5) (C) of I&B Code, entertain the plea of legality or otherwise of the assignment of debt in favour of the Petitioner? 

• 2. Whether the documentary evidence furnished with application show that a debt is due and payable and has not been paid by the corporate debtor? 

 

# 7. We have heard the Learned Counsel for Financial Creditor, Shri Krishna randhi and Shi B. Anil Kumar, Learned Counsel for the Corporate Debtor, perused the record and the case law. 

 

POINT No.1 

Whether this Tribunal, under its residuary power contained in Section 60 (5) (C) of I&B Code, entertain the plea of legality or otherwise of the assignment of debt in favour of the Petitioner? 

 

# 8. At the outset it may be stated that, this being a petition filed under Section 7 of IBC at the behest of the financial creditor for initiation of CIRP against the Respondent/Corporate Debtor herein, as regards scope of enquiry in this petition, we refer to the authoritative ruling of the Hon'ble Supreme Court of India, in re, Mobilox, where in it was held that, 

• “On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e., payable interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." (Emphasis is ours). 

 

# 9. A mere perusal of the counter filed by the corporate debtor, especially para 9 reveals that corporate debtor in categorical and unambiguous terms admitted availing of term loan of Rs. 60 crores from M/s IDFC Ltd, the native lender, which is also the assignor of the subject debt in favour of the applicant herein. That apart, owing to non-payment of the outstanding dues, the loan account of Corporate Debtor was declared as Non Performing Asset (NPA) on 13.10.2013. Further, EARC filed OA No. 721 of 2015 before the Debts Recovery Tribunal, against the corporate debtor herein for the recovery of Rs. 49,12,33,098/- plus interest thereto. 

 

# 10. It is further stated that, while the OA was pending before DRT, EARC and the corporate debtor Indu Tech Zone entered into a Settlement of Financial Assistance on 12.03.2018 vide Edel ARC/3875/2017-18 (settlement letter). wherein the Corporate Debtor was to pay Rs. 15,00,12,830/- which includes outstanding debt of Rs. 40,64,41,066/- plus applicable interest at 15.5% originally owed to IDFC, in three trenches as under: - 

• (iv) First Instalment of Rs. 4,25,12,830/- and Rs. 25,00,000/- by 27.03.2018. 

• (v) Second instalment of Rs. 50,00,000/- by April, 2018. 

• (vi) Third instalment of Rs. 7,40,18,345/- and Rs, 2,59,81,655/ by 31.03.2020. 

 

# 11.  The settlement letter was filed with the DRT, and the same was recorded with the following clause, 

• "In the event of any default of payment of the amounts in accordance with the settlement letter, the settlement shall stand terminated automatically, without any further notice to Indu (Corporate Debtor) and EARC shall be entitled to recover the IDFC outstanding amount”. 

Therefore, it is as clear as crystal, that the financial debt in this case stands admitted. 

 

# 12. However, the Ld. Counsel for the Corporate Debtor would contend that the very assignment of the debt by the native lender in favour of the M/s EARC Limited, which in turn transferred its legally not enforceable rights to the Applicant herein, being illegal and violative of the provisions of SARFAESI Act, the subject debt also became illegal and un enforceable. 

 

# 13.  Ld. Counsel in support of his submission also relied on the ruling of Hon'ble Supreme Court of India, in the matter between ICICI Bank Limited vs. Official Liquidator of APS Star Industries Ltd. & Others. where in it was held that. 

• "Rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of contract”. 

 

# 14. Since, the question before us being, whether or not this Tribunal, under its residuary powers contained in section 60 (5) (C) of I&B Code can entertain the above plea challenging the legality of the clause relating to assignment contained in the Inter-Creditor Agreement dated 27.02.2009, we first refer to Section 60 of I&B Code, which is as below. 

60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located. 

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(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of 

• (a) any application or proceeding by or against the corporate debtor or corporate person; 

• (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and 

• (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. 

(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this part, the period during which such moratorium is in place shall be excluded. 

 

# 15. A mere look at the clause 5 (c) of section 60 of I&B Code, manifestly state that in order to exercise the residuary power as above, any question of priorities or any question of law or facts, should arise out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. Thus, the sine qua non, for exercising the residuary power being, the 'question must arise either out of or in relation to corporate debtor or corporate person , it is to be seen whether the above plea of the corporate debtor satisfies this test. 

 

# 16. The SARFEASI Act 2002, provides for acquisition of rights or interest in a financial asset by an Asset Reconstruction Company ARC. The relevant proviso is section 5 of the Act, which is as below. 

Acquisition of rights or interest in financial assets. 

(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution 

(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between hem; or 

(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them. 

(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub- section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets. 

(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers- of- attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub- section (1) and to which the concerned bank or financial institution is a party or which are in fa our of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they liad been issued in favour of securitisation company o reconstruction company, as the case may be. 

(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the hird proviso to sub section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986 ) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial ass t by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be. 

 

# 17. There is no quarrel that M/s EARC Limited which has assigned its rights to the applicant is an Asset Reconstruction Company and that the assignment agreement was only between the ARC and the native lander and the corporate debtor herein is not a party to the assignment agreement. Indisputably, the subject assignment agreement has been entered much prior to the initiation of the CIRP against the Corporate debtor herein. 

 

# 18. It is an admitted fact that on the strength of the very same assignment agreement the assignee financial creditor herein, has moved DRT, Hyderabad, for recovery of its dues against the very same corporate debtor herein, wherein, the corporate debtor has agreed to pay the sum of Rs. 15,00,12,830/- which includes outstanding debt of Rs. 40,64,41,066/- plus applicable interest at 15.5%, in trenches, however breached the agreement, which ultimate compelled the applicant herein to trigger CIRP against the corporate debtor. Therefore, having accepted to discharge the debt in a manner as afore mentioned, the corporate debtor, firstly, is estopped from questioning the locus, of the applicant. Nextly, from raising the question as to the legality of the said assignment or clauses of the said assignment. 

 

# 19. Even otherwise, it can easily be noticed that the question as to the legality of the assignment neither arose out of or in relation to the insolvency resolution proceedings of the corporate debtor herein, in as much as it was an independent agreement between the asset recovery company and the secured creditor. under the provisions of the SARFEASI Act. Thus, the so called question’ raised by the corporate debtor is undoubtedly extraneous to the insolvency resolution of the corporate debtor herein and invariably falls outside the scope of Section 5 (c) of section 60 of I&B Code. 

 

# 20. Hon'ble Supreme Court of India in the matter between, Tata Consultancy Services Ltd vs Vishal Ghisulal Jain Resolution Professional, held that, 

• “The residuary jurisdiction of NCLT Under Section 60(5)(c) of IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of NCLT were to be confined to actions prohibited by Section 14 of IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be exhaustive of the grounds of judicial intervention contemplated under IBC in matters of preserving the value of the corporate debtor and its status as a "going concern". We hasten to add that our finding on the validity of the exercise of residuary power by NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by NCLT. However, it is pertinent to mention that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta (Essar Steel (India) Ltd. (COC) v. Satish Kumar Gupta, MANU/SC/1577/2019 : (2020) 8 SCC 531: (2021) 2 SCC (Civ) 4431 

 

# 21. The case of hand squarely falls within the purview of the above ruling, hence we hereby hold that the above plea of the corporate debtor is liable to be rejected and we accordingly hereby reject the same. So much so, the only plea as above put forth by the Corporate Debtor, since held to be unsustainable. 

 

# 22. As regards to the ruling of Hon'ble Supreme Court of India, in the matter of ICICI Bank Limited vs. Official Liquidator of APS Star Industries Ltd. & Others, relied by the Corporate Debtor is concerned, it may be stated that the same is not at all applicable to the case in view of the total fact change situation of the present case. 

The Point is answered accordingly. 

 

Point No 2. 

Whether the documentary evidence furnished with application show that a debt is due and payable and has not yet been paid by the corporate debtor? 

 

# 23.  In our discussion under the above point, we have held that and the existence of financial debt and its default by the corporate debtor are ex facie, clear and stand admitted. We therefore, reiterate the said finding herein. The Point is answered accordingly. 

 

# 24. In the light of our discussion on the above points, we firmly hold that this is a fit case to order CIRP, against the CD herein. Hence, the Adjudicating Authority admits this Petition under Section 7 of IBC, 2016, declaring moratorium for the purposes referred to in Section 14 of the Code, with following directions: 

(1) The Bench hereby prohibits 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; Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under Securitization and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 (54 of 2002); the recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate Debtor; 

(2)  That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period. 

(3) That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 

(4) That the order of moratorium shall have effect from date of this order till the completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under Sub-Section (1) of Section 33, whichever is earlier. 

(5) This Bench hereby appoints Mr. Krishna Komaravolu, Insolvency Professional, having Registration No. IBBI/IPA-002/IP-N00562/2017 2018/11699, #R/o H.No. 7-1-214, Flat No. 409, Vamsikrishna contact no. 9010226641, email. Id. kkvolu@gmail.com, as Interim Resolution Professional. 

(6) That the Public announcement of Corporate Insolvency Resolution Process shall be made immediately as specified under section 13 of the code. 

(7) Registry of this Tribunal is directed to send a copy of this order to ROC, Hyderabad for marking appropriate remarks against the Corporate Debtor on MCA site as being under CIRP. 

 

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