IBC: Uttam Galva Steels Challenges Deutsche Bank’s Move To Initiate Insolvency 

Deutsche Bank AG has moved an insolvency application against Uttam Galva Steels Ltd. at the National Company Law Tribunal to recover dues against the foreign currency-denominated loans its Singapore branch extended.

Uttam Galva Steels—which had entered into a $20-million credit facility agreement with the lender for its capital and operational needs—had challenged the maintainability of the bank’s application under section 7 of the Insolvency and Bankruptcy Code. The section allows financial creditors to file insolvency application. It argued that the bank was an operational creditor and can’t file claims as a financial creditor. The steelmaker has, however, now dropped this claim.

This isn’t the first time lenders have sought initiation of insolvency proceedings against Uttam Galva Steels. State Bank of India withdrew its application against the company in November 2018 after the bank received repayments from Arcelor Mittal on dues owed by the steelmaker. Two other group companies—Uttam Value Steels and Uttam Galva Metallics—have also undergone insolvency resolution process.

Here are the key arguments made by the parties:

Deutsche Bank’s Arguments

Deutsche Bank said in its petition that Uttam Galva Steels had taken foreign currency-denominated loans from its Singapore branch as an external commercial borrowing under a credit facility agreement in 2013, which was enhanced to $20 million.

Uttam Galva Steels entered into a transaction for purchase of goods and services from Japan’s Mitsui Company under a letter of credit facility from Punjab National Bank. The company directed Deutsche Bank to make payments to PNB on its behalf. The steelmaker, however, started defaulting on its obligations under the credit facility agreement, following which Deutsche Bank sent a notice of termination to it in February 2016.

Deutsche Bank initiated insolvency proceedings against the company in November 2018 after several notices seeking repayment elicited no response from the company.

The counsel for Deutsche Bank argued that:

• Uttam Galva Steels had admitted in emails that the bank was a financial creditor by accepting that the payments were made to service interest.
• Its claims were within the limitation period applicable for insolvency application and isn’t time-barred.
• Accounting treatment given to the bank’s loan in Uttam Galva Steel’s books cannot override the fact that the bank was a financial creditor.

Uttam Galva Steel’s Counter

The counsel for Uttam Galva opposed Deutsche Bank’s application on the following grounds:

• An unstamped document cannot be admissible as evidence under the Indian Evidence Act. Deutsche Bank had relied on an unstamped credit facility agreement as its primary evidence. Although the agreement was executed in Singapore, it must have been stamped as it related to a transaction in Maharashtra. Therefore, the bank’s application must be quashed.
• The claim for recovery of debt was time-barred and not maintainable under the IBC. Deutsche Bank’s claim wasn’t made within the three-year period.

The tribunal will now hear the matter in February.