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in

NCLT, BENGALURU BENCH rr

OF CU Lr C.P.(IB)No.196/BB/2020

IN THE NATIONAL COMPANY LAW TRIBUNAL

BENGALURU BENCH

C.P. (IB) No.196/BB/2020

U/s 7 of IBC, 2016
R/w Rule 4 of I&B (AAA) Rules, 2016
In the matter of:

Shree Ashraya Souhard Credit Society Ltd.

Reg. off at CTS No.107,
Arjun Sankul,
1st Floor Dane Galli,
Shahapur, Belagavi,
Karnataka -590003 Petitioner/Financial Creditor

Versus

Shree Ashraya Infra-Con Ltd.

Reg. off at No.322,
Audumbar Savali, Roy Road,
Tilakwadi, Belagavi,
Karnataka -590006 Respondent/Corporate Debtor

Order Pronounced on: 06tu1ApriI, 2021

Coram: 1. Hon'ble Shri Rajeswara Rao Vittanala, Member (Judicial);
2. Hon'ble Shri Ashutosh Chandra, Member (Technical)

Parties/Counsels Present (Throuqh Video Conferencing):

For the Petitioner Mr. S. Vivekananda. Adv.

For the Respondent Mr. Kiran K. Kulkarni, Adv.

ORDER

Per: Ashutosh Chandra, Member (Technical)

1. C.P. (lB) No.196/BB/2020 is filed byShreeAshraya Souhard Credit Society

Limited (hereinafter referred to as 'Petitioner/Financial Creditor') U/s 7 of the

IBC, 2016, R/w Rule 4 of the l&B (Application to Adjudicating Authority)
Rules, 2016, by inter alia seeking to initiate Corporate Insolvency Resolution
iProcess (ClRP) in respect of Shree Ashraya Infra-Con Limited, on the
'a — - ground that it has committed default for total amount of Rs 12,09,45,192/-
•/ /RI: \- \ .
4.

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(Rupees Twelve Crore Nine Lakh Forty Five Thousand One Hundred and
Ninety Two Only) as on 31.03.2020.

2. Brief facts of the case, as mentioned in the Company Petition, are as follows:

(1) The Petitioner was a Co-operative Society registered under the name
and style of Ashraya Co-operative Credit Society Limited, under
Karnataka Co-operative Societies Act, 1959. Subsequently the
Petitioner got registered under Karnataka Souharda Sahakari Act, 1997
and changed its name to 'Shree Ashraya Souhard Credit Society
Limited'.
(2) The Respondent is a company engaged in the business of Real Estate
and Construction. It was initially a Partnership Firm under name and style
'Ashraya Constructions' and later got converted as a Public Limited
Company under name and style of 'Shree Ashraya Infra-Con Limited'
under the Companies Act, 1956.
(3) The Petitioner Society and Corporate Debtor had some common
directors and the Petitioner had been engaged in the activity of accepting
deposits and lending loans. The Co-operative Society! Petitioner has
large base of depositors who have put in their money under various
deposit schemes.
(4) It is submitted that the Financial Creditor had provided secured cash
credit facility to the tune of Rs.14 Cr before conversion of the Corporate
Debtor from Partnership firm to a Public Limited Company (i.e prior to
06.08.1997). The Respondent obtained 4 cash credit facilities on
08.05.2000, 24.01.2008, 29.08.2009 and 02.04.2010 bearing loan
account numbers 03, 19, 110 and 12 respectively. Three loan accounts
numbered 03, 19, 110 were closed by merging them with loan account
number 12 on 02.03.2012. Due to such arrangement, the entire loan
amount claimed herein was not disbursed in a single tranche. The money
was funded in various tranches as and when required for the completion
of the projects of the Respondent. Copy of the Loan statement as on
02.06.2020 is annexed to the Petition.

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(5) It is also stated that since the management of Petitioner and the

Respondent is the same, the Corporate Debtor was able to pool in huge
investment from large number of small investors who are low and middle
class individuals, through the society. These investments from
individuals were diverted to the Corporate Debtor without following due
procedure. Copy of the Loan Agreement dated 02.04.2010 executed by
the Petitioner in favour of the Respondent is annexed to the Petition.
(6) It is submitted that on conversion of the partnership firm into the

Company, the CD which was under the same management as that of the
Petitioner, deliberately did not create a charge on the assets of the CD
on the outstanding amount of Rs.11,16,40,133.80 as on the date of
conversion. Copy of Balance Sheet submitted to the office of ROC while
converting the Partnership Firm into the Company is enclosed with the
Petition.
(7) The Petitioner has issued various letters dated 22.08.2016, 19.04.2017

calling upon the Corporate Debtor to repay the loan amounts and the
Respondent has issued Reply letters dated 22.09.2016 and 02.05.2017.
However, the monies have not been repaid till date. Copies of the
aforementioned letters are annexed to the Petition.
(8) Finally, The Petitioner issued Notice dated 01 .03.2018 calling upon the

Corporate Debtor to make payment. However, the notice was returned

on 10.03.2018 with an endorsement, "not claimed". In the said Notice,
the Petitioner has claimed a sum of Rs.8,11,05,806/- as total payable
amount and further interest of 15% p.a. Copy of the Legal Notice dated
01.03.2018, RPAD returned undelivered dated 10.03.2018 with
endorsement 'Not Claimed' is enclosed with the Petition.
(9) It is submitted that the depositors of the Petitioner Society approached

the Registrar of Co-operative Society and expressed their grievance

before him. The Registrar after hearing the parties appointed Special
Officer to facilitate holding of elections in the Petitioner society to appoint
new Board of Directors in the Petitioner to regularise operations of
innciaI Creditor. Elections could not be held because of lack of interest
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from the members of the Financial Creditor. Thereafter Liquidator was

appointed on 14.01.2019 to recover the pending due and settle the dues
of large number of individual investors. Copy of Liquidation order dated
14.01.2019 passed by Sub-Registrar of Co-operatives, Belgaum District,
is annexed to the Petition.
(10) It is submitted that the Petitioner has huge number of small depositors

who have invested their hard earned money in the society and all the
investments are matured and due to be repaid. However, CD is not going
forward to repay the loan of the Petitioner. As on 31.03.2020, the money
due and receivable from the CD stands at Rs.12,09,45,192/-. Copy of
computation chart of loan amount is annexed to the Petition.
(11) It is submitted that the Balance Sheet of the CD for the year ending
31.03.2018 makes it very clear that the CD is commercially insolvent and
is unable to pay its debts. It is just and equitable to initiate CIRP against
the CD in order to secure the interest of large section of general public
who have invested their savings on trust with the society and invite a
Resolution Plan for the CD. Copy of the Balance Sheet of CD for the
financial year ending 31 .03.2018 is annexed to the Petition.

3. The Corporate Debtor, has filed the below stated submissions:

(1) It is submitted that the Petitioner has already filed proceedings bearing
No. DRL/ABN/2145/2014-2015 against the Respondent and others,
before the Departmental Arbitrator of Co-op Societies claiming Rs.14
Crore which was already disposed as withdrawn on 27.06.2015 by the
Arbitrator.
(2) It is submitted that the Respondent availed Cash Credit facility for a limit
of Rs.14 Cr from the Petitioner after providing relevant documents and
had mortgaged 2 prime properties bearing CTS No. 3436-A, 3438 and
3436-F situated at Gondhali Galli, Belgaum at the time availing the loan.
These properties were enough to cover cash credit facility.
(3) It is submitted that the Respondent was receiving advance amounts for
its construction projects, and monies were accordingly deposited in the
."Cash Credit facility That the account was well within the upper limits of

,( I

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Rs.14 Cr as credits were being made regularly. Copy of Statement of

Account of the Respondent produced by the Petitioner makes it clear.
Further, the loan account was never classified as NPA at any point of
time and the respondent was never called upon by any letter informing it
that it was in arrears or default of loan. The Respondent has never fully
utilised the cash credit facility since the sanction of the loan.
(4) It is submitted that the common Directors on Board of the Petitioner and

Respondent who were in minority in the Respondent could not digest the
fact that the Respondent was engaged in its dream project 'Ashraya
Enclave' which was being built in prime locality. These Directors created
hurdles and spread rumours of bankruptcy of the Respondent and
eventually decided to recall the cash credit facility as they believed that
the Respondent would be unable to complete the project without the CCL
of the Petitioner society.
(5) The Directors of Petitioner Society started harassing the Respondent

Company demanding closure of CCL account and also for repayment

knowing fully well that it was a classic account without any default. The
proceedings bearing No. DRL/ABN/No2145 of 2014-15 before Senior
Inspector of Co-op Societies of Dy. Registrar of Co-op Societies at
Belagavi and Departmental Arbitrator Belagavi for recovery of loan
despite there being no default were initiated in November 2014 despite
having received Rs.49 Lakh in May 2014, Rs.4.42 Cnn September2014.
The proceedings had huge impact on the Respondent's project which
slowed down and the construction cost increased which affected the
Respondent's financial health. The matter before the Departmental
Arbitrator was contested by the Respondent. The Petitioner sought
permission vide application dated 27.06.2015 to withdraw the petition on
the ground that they had resolved to recover the loan amount by
persuasion and compromise. The matter was disposed vide order dated
27.06.2015 permitting the petitioner to withdraw the petition.
6).The Respondent states that one "The Belgaum Vyapari Multi purpose
Co-Qp Society Ltd' showed interest to purchase flats in the project

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Ashraya Enclave. The buyer informed the Respondent that they had
invested in fixed deposits with the Petitioner Society to the tune of
Rs.75,26,6231- and offered to encash the amount from the petitioner
society. They also offered to transfer the amount in their FDR lying with
the Petitioner into Cash Credit loan account of Respondent and to pay
the balance consideration if any to the Respondent. The Buyer vide letter
dated 14.07.2016 called upon the Petitioner to liquidate the deposits and
credit the entire FDR proceeds amounting to Rs.1,20,00,5361- with
interest to their savings account and further also requested them of
having issued a cheque of their savings account in the name of the
respondent company and asked them to credit the amount to the cash
credit loan account of Respondent. This arrangement would have
reduced the loan amount from the CCL. The Respondent issued letter
dated 25.07.2016 calling upon the Petitioner to credit the amount FDR
proceeds of the Buyer to the CCL account of Respondent. Another letter
demanding liquidation of FDR was issued on 30.05.2018 by the Buyer to
the Petitioner. It is submitted that the Petitioner had no right to refuse to
carry out the requests of their customers. Another FO Holder 'The
Gajanana Multipurpose Souharda Sahakara Niyamit' issued letter dated
28.05.2018 to Petitioner to transfer FD amount of Rs.1,29,31,312/- plus
interest after maturity to CCL account. Similar efforts were undertaken
by 'Navahind Co-operative Credit Society' vide letter dated 14.09.2016.
Other FDR Holders Smt. Vijaya ParshuramChavan and Venugrammaulti
purpose Society Ltd also expressed to liquidate the FDR's. The
Petitioner has not performed its obligation of liquidating the FDR's on
demand.
(7) It is submitted that there is no clarity as to amount payable from the
statement of accounts from the Petitioner as they have also included time
barred debt of Rs. 1.92 Cr for the I St time which was never claimed before
in the Arbitration petition. Therefore there exists a dispute as per section
5 (6) (a) of the Code, in the amount of debt claimed by the Petitioner.

/A

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(8) It is further submitted that section 7 proceedings under IBC, 2016 should

not be used to shut down a company or as blackmail tactics as an

inappropriate substitute for debt enforcement forcing an existing viable
business out of market place.
(9) In response to Letter dated 22.08.2016 issued by Petitioner to

Respondent seeking proposal for closure of loan, the Respondent vide

letter dated 22.09.2016 requested to consider their counter claim raised
in arbitration proceedings as well as requested them to transfer the
amounts of the FD holders to CCL account as requested by FD holders.
The Petitioner kept mum regarding this issue and kept on demanding
closure of loan account.
(10) It is submitted that the Petitioner adopted pick and choose policy in

deciding to liquidate FDR's. While the FDR holders willing to purchase

property from Respondent were not entertained in their requests for
liquidating the FDRs, one 'Shree Siddha Bhairavnath Co-op Society Ltd'
an FDR holder was allowed to liquidate its FDR and adjust against other
pending loans. Further, the Petitioner owned commercial premises ad-
measuring 1825 sq.ft in building known as 'Ashraya Empire' situated at
Khanapur. The said property was sold by the Petitioner for a sum of
Rs.2,00,75000/-. The buyer had FDR with the Petitioner to the tune of
Rs.1,64,75,611/- which was adjusted by the Petitioner society against
the sale of the property in October 2017 which clearly demonstrates
Petitioner's adjustments to accommodate other transactions and
deliberately not liquidate the FDR's of holders who are willing to
purchase property in the Respondent's project. Copy of Sale Deed
between the Petitioner and Shree Siddha Bhairavnath Co-op Society Ltd
is annexed to the objections.
(11) A Special Officer was appointed under the Karnataka Cooperative

Societies Act. The Special Officer after assuming charge again filed
recovery proceedings before the Deputy Registrar of Cooperative
Societies! Sahakari, Souharda Court at Bengaluru. The Special Officer
referring to the background and facts of the case sought recovery

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of a sum of Rs.6,72,72,0961- and an additional amount of

Rs.1,92,20,1191- with interest from 21.05.2018. The Respondent states
that the Special Officer included an amount of Rs.71,48,8151- along with
interest which was actually a rebate given by the earlier BOD of the
Petitioner Society in the year 2012. The amount was sought in recovery
proceedings after 6 years from the rebate being given to Respondent.
Further, several other properties, personal properties of Directors were
also sought to be attached in a malafide manner inspite of having availed
the loan by hypothecating property worth Rs.5.72 Cr.
(12) It is submitted that on the direction of Deputy Registrar, the Petitioner
reworked the loan account from 2010 and submitted a statement of
account along with a list of FD holders considering all the amounts of the
FD holders and Rs.1,97,31,316.80 was shown as due and payable as
on 20.12.2018.
(13) It is submitted that the statement of account maintained with the
Petitioner Society shows that as on 31.03.2018 a sum of
Rs.6,68,62,504.80 as due. However the computation of loan amount as
per page 216 of the petition depicts a different picture where balance due
as on 31 .03.2018 is Rs.8,66,92,215/- which runs contrary to the account
statement produced by the Petitioner and claim amount in dispute before
Dy. Registrar of Co-op societies.
(14) It is submitted that the Petitioner's claim is barred by limitation as
Petitioner seeks to include Rs.1,92,20,1191- which was agreed to be a
rebate to the Respondent in the year 2012 and the said amount was
never claimed by the Petitioner in proceedings before Departmental
Arbitrator. The said claim has been raised only before Dy. Registrar and
in this petition.
(15) Through Additional Objections filed by the Respondent, it is submitted
that Petitioner first issued notice in 2014 and since then there have been
exchange of various legal notices, correspondences and even court
notices. The Respondent has received notices! letters !summons sent by
'Nthe Petitioner. There is no reason for the Respondent to refuse any
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notices issued by the petitioner. Further it is pointed out that the Demand
Notice sent by the Petitioner bears the date 01.03.2018. However, the
acknowledgement annexed to the notice reflects that the postal
authorities have tried to serve the notice on 03.02.2018 and 05.02.2018
which is one month prior to the issuance of notice which creates
suspicion as to whether the notice was issued at all. Copies of Demand
Letter dated 07.10.2014 and summons issued by Departmental
Arbitrator are annexed to Additional Objections to establish that notices
were received in all other matters and there is no need to refuse any
subsequent notice of demand.

4. The Petitioner filed Rejoinder with the below stated submissions:

( 1) It is submitted that the Petitioner being a Souharda Credit Co-operative

society, some of the Directors of the respondent company were also on
the Board of the Petitioner Society and were in control of the
management of the Petitioner Society, they ensured that huge amounts
were received as deposits from a large number of people and public by
the Petitioner society and all the said funds were given as loan to the
Respondent company in contravention to the Chapter 22 Clause 49 and
50 of the bye-laws of the Petitioner Society and section 17 & 18 of the
Karnataka Souharda Sahakari Act, 1997 and Section 58 of Karnataka
Co-operative Societies Act, 1959. The Petitioner was unable to repay the
deposits due and outstanding since 2012-13. There are many small
depositors whose money was not repaid by the Petitioner Society on
account of which, on approaching the Registrar of Co-operative societies
Limited, the Sub-Registrar of Belagavi District, vide order dated
14.01 .2019 deemed it proper to order liquidation of Petitioner society.
Sri. Srikanth Baruve, divisional officer, Karnataka State Souharda Co-
operative Societies, Belgaum was appointed as the liquidator. Copy of
the order dated 14.01.2019 is annexed to the petition.
(2) It is submitted that at the behest of the Respondent, several FDR holders
t&ted making demands of liquidation of their FDRs by issuing letters
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(3) It is submitted that it is the proposal of the Respondent that the Petitioner
should liquidate FDRs of the 24 FDR Holders/Purchasers of
Respondent's project properties as requested by the depositors and to
deposit the same into the CCL Account of the Respondent which will
reduce Respondent's liability under the CCL. This proposal is
unacceptable and cannot be entertained by the Petitioner since the
Petitioner society is in liquidation and there are around 6002 FDR holders
aggregating to Rs.22,39,81,1191- whose right to receive their dues will
be affected. The Liquidator does not have a complete picture as to the
settlement in respect of all the depositors in the Petitioner Souharda
Cooperative Society and in such scenario if the demands of the
Respondent are agreed to, then it clearly would be preferential
transaction.
(4) It is submitted that it is well settled position of arbitration proceedings,
civil suits, proceedings before the DRT, SARFAESI proceedings or any
other proceedings would not be a bar for initiating action under the code,
2016.
(5) It is submitted that 5 Directors of the Respondent Company were also on
the board of the Petitioner Society and were in control of management
of the Petitioner Society. The Respondent Company was in a position to
obtain huge loan with rebate being provided with such wrong means. The
Respondent used Petitioner to collect huge deposits from public which
were used siphoned into the Respondent Company.
(6) It is submitted that the Petitioner Co-operative Society has lent mostly
the entire money to the Respondent herein and not to any other
individual or organization which cannot be justified under the Karnataka
Souharda Sahakari Act, 1997. Very few loans were given to persons
other than the Respondent, and they were mostly customers of the
Respondent Company. The Directors of Respondent on board of
Petitioner ensured rebate of Rs.71,48,815/- was given to the
Respondent on 31.03.2012 without taking any approval of general body
eeting of the Petitioner Society. Further, the Respondent through its

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directors ensured that it did not have to register the mortgage by way of
deposit of title deeds and no charge was registered with ROC thereby
putting the petitioner Souharda to huge risk.
(7) It is submitted that in so far as the allegation by Respondent about the

sale of property to and credit of deposits of Shree Siddha Bhairavnath

Society, the resolution for the same was made and signed by the
common directors wherein it was the Respondent Company's directors
leading the action of the petitioner society for effecting the said sale and
credit of deposits. Respondents are taking undue benefit of separate
entity principle.
(8) It is submitted that about 264 of the depositors even approached the

Addl. District Consumer Disputes Redressal Forum, Belgavi and the Ld.
Forum, in 40 cases directed the Petitioner Society to repay the amounts
due. Copies of few notices received from the District consumer forum are
annexed to the Rejoinder. It is submitted that the Petitioner Souharda
Society has been exploited as a vehicle for generating funds for the
Respondent company as the deposits of Petitioner were lent only to
Respondent and no other Company.
(9) Additional Rejoinder is filed by the petitioner to refute the claims made

by the Respondent in the Additional Statement of Objections. It is

submitted that the Petitioner had issued notices to Respondent calling
upon to pay the amounts due. The final notice was issued on 01.03.2018
claiming Rs.8,11,05,8061- annexed at page 72 of the Petition was sent

to the Respondent by Registered Letter Acknowledgement due (RLAD)

on 02.03.2018. The seal of postal department on the envelope shows
that the post was returned on 10.03.2018. However, due to the
inadvertence of the postal authorities the date of service has been
wrongly mentioned as 03.02.2018 and 05.02.2018 in place of
03.03.2018 and 05.03.2018 on the postal acknowledgement. The postal
receipt however shows that the letter was sent on 02.03.2018. It is further
stated that since the petition is filed under section 7 of the Code, 2016 a
dmand notice is not contemplated. Even prior to the said notice, several

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notices have been sent to the Respondent demanding payment of the

amounts due.

5. The Respondent filed Sur Rejoinder reiterating its stance and refuting the
claims of the Petitioner, and both the parties have filed their written
submissions.

6. As per the Respondent, since the Petitioner in all its notices has never
mentioned the words due and default and it has always used the word
"outstanding amount" which suggests that the amount is outstanding but not
due and payable, no demand has been made. As per the Respondent the
Loan account has never been classified as NPA and there is no default as
the Respondent was paying the loan amounts and was well within the credit
limit of Rs.14 Cr. Further, there no term specified in the loan documents. In
fact, it has paid Rs.4.5 cr. on 01.09.2014. However, within a month, on
07.10.2014 notice was issued to the Respondent which shows that there
was no procedure followed to classify the Respondent as Defaulter. Further,
if the notice dated 07.10.2014, if considered to be rightly issued, becomes
the date of default and the limitation period for the Petitioner to file this
petition is 07.10.2017.

7. The Respondent submits that the right to sue accrues to the Petitioner only
after classifying the loan account as NPA. Further, Notice dated 01.03.2018
does not say that the respondent is a defaulter in repayment of loan. Instead,
it is stated that the Respondent has not paid regular loan instalment and
there is an outstanding. The said notice cannot be relied to prove default on
part of the Respondent as the covenants of the notice do not explicitly
mention that the Respondent was a defaulter. It looks like a friendly request.

8. The Petitioner initiated action way back in November 2014 by filing dispute
before Departmental Arbitrator. The same was withdrawn stating that the
matter is settled and later letters dated 22.08.2016 and 19.04.2017
esting to close the CCL account. Later Notice dated 01.03.2018 is
Tii4cf\which also does not say default. Further, this Notice was never

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9. Claiming the rebate amount of Rs.1 .6 Cr which was rebated in 2012 after 6

years, is barred by limitation and the entire claim under section 7 IBC ought
to be set aside.

10. The Petitioner states that the Respondent has not denied the debt. It is only

proposing that the loan amount may be settled by way of adjusting few
deposit holder's money against their purchase of property! flat of the
Corporate Debtor. However, this is not permitted by law since the Petitioner
is under liquidation and it would amount to preferential payment to few
deposit holders whereas there are 6002 depositors and their interest would
be jeopardised. Further, on point of non-classification of the Respondent's
loan account as NPA, it is submitted that section 3(12) of the code makes it
clear that default means non-payment of debt when whole or any part or
instalment of the amount of debt has become due and payable and not paid
by the debtor or Corporate Debtor as the case may be. Nowhere in the
Code, 2016 it has been mentioned that classification of loan as NPA is
mandatory to maintain a Petition under section 7 of the Code, 2016.

11. Clause 4 of the Hypothecation Agreement makes it clear that the loan

becomes payable on demand and such demand for repayment has been
made on 22.08.2016, 19.04.2017 and 01 .03.2018. Further, RBI norms are
not applicable to the Petitioner society, hence the classification of loan as
NPA as per RBl guidelines does not arise at all.

12. It is submitted that the Respondent has admitted the debt in its Balance

Sheet for year ending 31.03.2018 however proposes to settle the debt in a
way not permissible under law. On 04.12.2017 the Petitioner received
Rs.8,32,413,'- against the outstanding loan after which no payments were
received and Final Notice was issued on 01.03.2018 which was returned as
'Not Claimed' on 10.03.2018. Therefore the date of default, cause of action
arose on 10.03.2018 and the petition is filed on 16.06.2020 which is well
within the period of limitation.

.Tesect of the contention

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I\aIready been initiated before Dy. Registrar, IBC proceedings should not be
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admitted, the Petitioner relies on the decision of the Hon'ble NCLAT in Mr.
Vineet Khosla v. Edeiweiss Asset Reconstruction Company Ltd., in
Company Appeal (AT) (Ins) No.441/2019 held that there is no provision
which bars referring to IBC if already relief has been sought or pending in
another forum. Rather, as per section 238 of IBC, the provisions of IBC shall
have effect notwithstanding anything inconsistent therewith contained in any
other law for time being in force. In this decision it has been made clear that
there is no substance in the argument that if dispute is already pending in
another forum, IBC cannot be invoked.

14. It is stated that all efforts of settlement have failed. Memo dated 22.02.202 1
has been filed by the Petitioner annexing the settlement proposal of the
Respondent where the Respondent is willing and ready to pay Rs.1.97Cr.
and the remaining amount to be adjusted from the deposits of the FOR
holders. The Reply issued by the Petitioner to the Respondent that the FDR
Holder's deposits cannot be liquidated and transferred to CCL account of
Respondent and hence the proposal is unacceptable.

15. Heard Mr. Vivekananda .S, learned Counsel for the Petitioner, and Mr. Kiran
K Kulkarni, learned Counsel for the Respondent, through Video
Conferencing. We have carefully perused the pleadings of the parties, and
the extant provisions of the Code and the law.

16. So far as the law with regard to initiation of CIRP is concerned, Hon'ble
NCLAT vide order dated 15th May, 2017 passed in Company Appeal (AT)
(Insolvency) No.1 & 2/2017 in the case of M/s.lnnoventive Industries Limited
vs. IC/Cl Bank & Anr. has dealt the issue of admission of a case filed under
Section 7 of the Code, under Paras 55 to 58, which are extracted below:

"55. Process of initiation of Insolvency Resolution process by

a financial creditor is provided in Section 7 of the l&B Code.
As per sub-section (1) of Section 7of the I&B Code, the trigger
for filing of an application by a financial creditor before the
Adjudicating Authority is when a default in respect of any
financial debt has occurred. Sub-section (2) of Section 7

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provides that the financial creditor shall make an application

in prescribed form and manner and with prescribed
documents, including:

i. "record of the default" recorded with the information

utility or such other record or evidence of default as
may be specified;
ii. The name of the resolution professional proposed to
act as an interim resolution professional; and
iii. Any other in formation as may be specified by the
Board.

56. The procedure once an application is filed by the financial

creditor with the Adjudicating Authority is specified in sub-
section (4) of Section 7 to sub-section (7) of Section 7 of the
Code. As sub-section (4) of Section 7 of the l&B Code:

"(4) The Adjudicating Authority shall, within fourteen days of

the receipt of the application under sub-section (2), ascertain
the existence of a default from the records of an information
utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3)."
57. Sub-section (5) of Section 7 of the l&B Code provides for
admission or rejection of application of a financial creditor.
Where the Adjudicating Authority is satisfied that- the
documents are complete or incomplete.
58. The Adjudicating Authority post ascertaining and being
satisfied that such a default has occurred may admit the
application of the financial creditor. In other words, the statue
mandates the Adjudicating Authority to ascertain and record
satisfaction as to the occurrence of default before admitting
the application. Mere claim by the financial creditor that the
default has occurred is not sufficient. The same is subject to

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the Adjudicating Authority's summary adjudication, though

limited to 'ascertainment' and 'satisfaction'."

The Hon'ble Supreme Court has also upheld the above judgement
in Civil Appeal Nos.8337-8338 of 2017 vide judgment dated 31St August,
2017. The Hon'ble Supreme Court has adverted to Section 7, at para 28,
which reads as under:

"28. When it comes to financial creditor triggering the process,

Section 7 becomes relevant. Under the explanation to Section
7(1), a default is in respect of a financial debt owed to any
financial creditor of the Corporate Debtor — it need not be a
debt owed to the applicant financial creditor. Under Section
7(2), an application is to be made under sub-section (1) in
such form and manner as is prescribed, which takes us to the
Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016. Under Rule 4, the application is made
by a financial creditor in Form I accompanied by documents
and records required therein. Form 1 is a detailed form in 5
pats, which requires particulars of the applicant in Part I,
particulars of the corporate debtor in Part II, particulars of the
proposed interim resolution professional in Part III, particulars
of the financial debt in Part IV and documents, records and
evidence of default in Part V. Under Rule 4(3), the applicant is
to dispatch a copy of the application filed with the adjudicating
authority by registered post or speed post to the registered
office of the Corporate Debtor. The speed, within which the
adjudicating authority is to ascertain the existence of a default
from the records of the information utility or on the basis of
evidence furnished by the financial creditor, is important. This
it must do within 14 days of the receipt of the application. It is
at the stage of Section 7(5), where the adjudicating authority
is to be satisfied that a default has occurred, that the corporate
debtor is entitled to point out that a default has not occurred in

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the sense that the "debt", which may also include a disputed
claim, is not due. A debt may not be due if it is not payable in
law or in fact. The moment the adjudicating authority is
satisfied that a default has occurred, the application must be
admitted unless it is incomplete, in which case it may give
notice to the applicant to rectify the defect within 7 days of
receipt of a notice from the adjudicating authority. Under sub-
section (7), the adjudicating authority shall then communicate
the order passed to the financial creditor and corporate debtor
within 7 days of admission or rejection of such application, as
the case may be."

17. On perusal of the Loan Documents, the Demand Promissory notes issued

by the Respondent for Rs.14 Cr at the time of entering the Loan agreement,
Hypothecation Agreement and the pleadings, it is clear that the Respondent
has received Cash Credit Loan which is clearly in the nature of financial
debt. This is not denied by the Respondent. The debt arises at the time when
loan is granted. Therefore existence of debt is established. The question
that arises now is whether there is a default in repaying the financial debt.
Is it necessary that the Corporate Debtor be classified as Non-Performing
Asset to be called a defaulter.

18. One of the contentions of the Respondent is that the Respondent's loan

account was never declared as a Non-Performing Asset, nor was the term
"default" used in any of the letters issued by the Petitioner. It was only
making friendly requests. There was no term fixed for the loan and that the
Respondent has never utilised the entire facility and was always within the
14 cr. Limit. Further, the Respondent was paying amounts to the loan
account.

19. On a perusal of the loan documents, clause 4 of the Hypothecation

agreement provides that the loan shall be repayable on demand. The

•:,-q has demanded repayment and no payment in spite of the demand

I.(.v,'; - -;'\ 4makes the Respondent a defaulter. The Petitioner issued Letters of demand
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on 22.08.2016 and 19.04.2017. The Respondent paid Rs.8,32,4131-

towards the CCL on 04.12.2017 which was the last payment received by the
Petitioner. Thereafter, Notice dated 01.03.2018 was issued. The Notice was
returned with an endorsement 'not claimed' on 10.03.2018 which has been
considered as the date of default. It is not material that each demand letter
should use the word default, when the same is clear from records. That the
debt and default are accepted by the Respondent is clear from the fact that
it only seeks to settle the same with certain adjustments, which have not
been accepted by the Petitioner.

20. It is also seen that the Respondent has acknowledged the due amounts to
be payable on Souhard Co-Operative Society's demand as Rs.6,68,36,647/-
in Balance Sheet for year ending 31.03.2018. In such a scenario declaration
of NPA is not mandatory. The default has been established with irregular
payment of loan amounts and subsequent non-payment of amounts as seen
from the Statement of Accounts of the Corporate Debtor. Further, the RBI
norms on classification of NPA do not apply to Petitioner Society.

21. Any other contention that the Petitioner Society ought to liquidate the FOR
deposits of a few Deposit holders/buyers of the Respondent's project
properties cannot be entertained in view of the fact that the Petitioner is
under liquidation itself and there are many other FDR holders whose
interests will be affected by selective repayments of deposits. Any dispute
in this regard cannot be considered as this Adjudicating Authority is to only
determine the existence of financial debt and default as per the Code, 2016.
It is not a dispute resolution mechanism. In any case, the Petitioner's refusal
to liquidate some other accounts of FDRs has no bearing on the default
committed by the Respondent. It is explained that many have been
liquidated as a result of directions from the Consumer Disputes Redressal
Forum. In fact it goes to show that the Respondent is unable to carry on its
business unless funds are diverted by the Petitioner to it. The fact that there
is a clear debt and default above the thresh hold limit, it is not for this Tribunal
to compute the exact debt. Also, that several other proceedings for recovery
4have been initiated by the Petitioner, does not come in the way of the
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Petitioner initiating proceedings under the IBC. Further, the Respondent is

prima facie found to be insolvent with a deficit of Rs.1,11,28,096/ in the
reserves and surplus of the Company as On 31.03.2018 and with Cash in
hand of only Rs.16,777/-.
22.
The instant application is filed strictly in accordance with the extant
provisions of the Code, and debt and default are established and the
Petitioner has also suggested a qualified Resolution Professional namely
Shri. Han Babu Thota with Registration No. IBBI/IPA-002/Ip.
N 000 84/20172018/10225
who also filed written Consent in Form-2 on
29.05.2020, by inter alia declaring that no disciplinary proceedings pending
against him with the Board or the Indian Institute of Insolvency. Therefore,
he is provisionally eligible to be appointed as IRP.
Hence, the instant
Company Petition is fit case to admit by initiating CIRP appointing by IRP,
and declaring moratorium etc. in respect of the Corporate Debtor.
23. In view of the above facts and circumstances of the case, by exercising
powers conferred on this Adjudicating Authority, U/s 7(5)(a), and other
extant provisions of the IBC, 2016, we hereby admitted C.P.(IB)
No.1 96/BB/2020 by initiating Corporate Insolvency Resolution Process
(ClRP) in respect of Respondent/Corporate Debtor with the following
consequential directions:
1) Shri Han Babu Thota, bearing
Registration No. IBBI/IPA-002/Ip
N 000 84/2 017-2018/10225
who is qualified Resolution Professional, is
hereby appointed as Interim Resolution Professional, in respect of the
Respondent" Corporate Debtor namely Shree Aashraya Infra-Con
Limited to carry out the CIRP as mentioned under the Insolvency and

Bankruptcy Code, 2016 and various rules issued by IBBI from time to
time;
2) The following moratorium is declared prohibiting all of the following,
namely:

a) the institution of suits or continuation of pending suits or

proceedings against the Respondent/Corporate Debtor including

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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

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 Securitisation 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 Corporate

Debtor;
e) The supply of essential goods or seivices to the Corporate Debtor
as may be specified shall not be terminated or suspended or

interrupted during moratorium period;

f) 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;

g) The order of moratorium shall have effect from the date of such
order till the completion of the corporate insolvency resolution

process;
3) The lRP is directed to follow all extant provisions of the IBC, 2016 and a/l
extant rules including fees rules as framed by IBBI from time to time. The
IRP is hereby directed to file progress reports to the Adjudicating

Authority from time to time.

4) The Board of Directors and all the staff of Respondent/ Corporate Debtor
are hereby directed to extend full co-operation to the IRP, in carrying out
his functions as such, under the Code and Rules made by IBBI.

5) Post the case for report of IRP on 24.05.2021.

Sd!- Sd!-
ASHUTOSH CHANDRA RAJESWARA RAO VITTANALA
MEMBER, TECHNICAL MEMBER, JUDICIAL
CERTiFE) TO BE TRUE COPY
'V 9FTEORIGxN
Jc
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Dei5utv/. Reg!strar
Naona C pany Law Tribunat
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ngftr Bench