Loan Sanction Letter, Loan Agreement, Statement Of Account, And Copy Of Notice U/S 13(2) OF SARFAESI Constitute “Such Other Record” U/S 7(3)(A) Of IBC: NCLT Mumbai

Background Facts

In June 2020, Indiabulls Housing Finance Limited (“Financial Creditor”) sanctioned a loan of Rs. 190,00,00,000 and entered into a loan agreement with borrower M/s Gnex Realtech Private Limited, and co-borrowers Essel Home Private Limited (as co-borrower) and Primcomm Media Distribution Ventures Private Limited (“Corporate Debtor”).

The Corporate Debtor failed to pay interest and/or principal payable on the due dates and an Event of Default occurred as per the Loan Agreement. Subsequently, the account of the Corporate Debtor was classified as a Non-Performing Asset in September 2021. The Financial Creditor also issued a notice to all the borrowers including the Corporate Debtor under SARFAESI in January 2022.

Subsequently, the Financial Creditor filed an application under section 7 of the Code seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor, over a total default of Rs. 2,60,98,26,700 (including interest, TDS, Non-SCC charges, penal charges etc.).

The Corporate Debtor argued that the Financial Creditor had failed to furnish the “record of default” under section 7(3)(a) of the Code and prayed for dismissing the application. It contended that the claim was neither based on a record of the default recorded with the Information Utility nor was it based on any other record or evidence demonstrating default as per Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“Regulation 2A”). It further argued that the Loan Agreement was insufficiently stamped under the provisions of Maharashtra Stamp Act, 1958 and therefore was legally inadmissible and unenforceable.

NCLT Verdict

The NCLT admitted that the Financial Creditor had not submitted a “record of default” recorded with the Information Utility nor any evidence as specified under Regulation 2A. However, it noted that the Financial Creditor had submitted several documents including the loan sanction letter, loan agreement, statement of account evidencing the disbursement of the loan amount, copy of the notice under section 13(2) SARFAESI, and revised repayment schedule.

The NCLT held that these documents constituted “such other record” as required under section 7(3)(a) of the Code and dismissed the contention raised by the Corporate Debtor.

It also rejected the argument made by the Corporate Debtor regarding insufficient stamping of the Loan Agreement by relying on the judgement of the National Company Law Appellate Tribunal in Ashique Poonamparambath v. Federal Bank, (2021) SCC Online NCLAT 1769. It held that there were sufficient documents like loan sanction letter, loan disbursement proof, notice under section 13(2) SARFAESI, revised repayment schedule, and Corporate Debtor's own conduct of making statements before NCLT about part payment of the loan, that establish the existence of debt and default.

It relied upon the judgment of the Supreme Court in Innoventive Industries Limited v. ICICI Bank and Anr. (2018) 1 SCC 407, to hold that it only had to determine if the “debt” was due and remained unpaid to admit the application. It found sufficient evidence to prove the debt and default and therefore admitted the application and initiated CIRP proceedings against the Corporate Debtor.

In conclusion, the NCLT held the documents submitted by the Financial Creditor to be “such other record” under section 7(3)(a) of the Code, initiated CIRP proceedings against the Corporate Debtor and appointed Mr. Ravi Prakash Ganti as the Interim Resolution Professional.

Case Title: Indiabulls Housing Finance Limited v. Primcomm Media Distribution Ventures Private Limited

Case No.: C.P.(IB)-246(MB)/C-III/2022

Counsel for the Applicant: Adv. Ahsan Allona i/b JSA

Counsel for the Respondent: Adv. Vinita Melvin i/b ANB Legal

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