Aditya Birla Finance Limited (Now known as Aditya Birla Capital Limited) vs MPG Realty Private Limited

The instant Company Petition is filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity “the Code”) read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, by Aditya Birla Finance Limited, a company incorporated under the Companies Act, 1956 (hereinafter referred to as ‘Financial Creditor’), represented by Shri Jahirul Laskar authorized vide board resolution dated 11.05.2022, seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against MPG Realty Private Limited (“Corporate Debtor”).

The Corporate Debtor was incorporated on 17.04.2009, having CIN: U70102DL2009PTC189454 under the Companies Act, 1956. Its registered office is at Office No. 208, Second Floor, Plot No.20, Parmesh Business Towers, Karkardoma Community Centre, East Delhi - 110092. Since, the registered office of the Corporate Debtor is situated at Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent Corporate Debtor under sub-section (1) of Section 60 of the Code. The Authorized Share Capital of the Corporate Debtor is Rs. 1,25,00,000/- (One Crores and Twenty-Five Lakhs). The Paid-Up Capital of the Corporate Debtor is Rs. 1,05,000/- (One Lakhs and Five Thousands). The present petition was filed on 27.02.2023 before this Adjudicating Authority on the ground that the Corporate Debtor has defaulted to make a payment of Rs. 81,28,48,834.85/- (Rupees Eighty-One Crores Twenty-eight Lakhs Forty-Eight Thousand Eight Hundred Thirty-four and Eighty-Five Paisa Only).

The averments made by the applicant in the application and argued by the Ld. Counsel for the applicant are summarized hereunder: -

The details of transactions leading to the filing of this petition as averred by the Financial Creditor is as follows:

The defence placed by the Corporate Debtor in its reply and submissions made and argued by the Learned Counsel of the Corporate Debtor are summarized hereunder: -

The details of the submissions made by the Corporate Debtor are as follows:

We have heard the Learned Counsels for the Financial Creditor and the Corporate Debtor and perused the averments made in the petition, reply and rejoinder.

In order to ascertain whether this petition falls within the ambit of Section 7 of the Insolvency and Bankruptcy Code, 2016, it must be examined whether there exists a financial debt owed to the Financial Creditor and default in its repayment as contemplated under Section 3 of the Code, and whether the Applicant-Financial Creditor is qualified to initiate proceedings under Section 7 against the Corporate Debtor.

In the present case, the Corporate Debtor has contended that the Corporate Guarantee executed on 06.06.2018 stood discharged upon the grant of a fresh loan facility, i.e., the Guaranteed Emergency Credit Line (GECL) Facility sanctioned on 29.12.2020 to the principal borrower, Sequel Buildcon Pvt. Ltd., without the consent of the Corporate Debtor. It is submitted that since the Corporate Debtor was not a party to the Facility Agreements executed in 2020 and 2021 relating to the GECL extension, the Guarantee executed in 2018 cannot extend to such subsequent facilities. Per Contra, the Applicant Financial Creditor while relying on Clause 3 of the Corporate Guarantee Agreement dated 06.06.2018 stated that there will be no discharge from guarantee obligations without the concurrence of Financial Creditor except in accordance with the provisions of the Indian Contract Act, 1872, or any statutory modification or re-enactment thereof. Clause 3 of the Guarantee Agreement is reproduced below:

A bare perusal of Clause 3 makes it clear that the circumstances relied upon by the Corporate Debtor do not absolve or discharge the Guarantee. There is no material to show that the Guarantee Agreement was novated or that the Guarantor was discharged in accordance with law.

The Corporate Guarantee executed by the Corporate Debtor is an unconditional and irrevocable guarantee. In terms of Section 128 of the Indian Contract Act, 1872, the liability of the guarantor is co-extensive with that of the principal borrower, unless otherwise provided by the contract. Therefore, the Corporate Debtor/Guarantor cannot evade its obligations arising from the Guarantee Agreement dated 06.06.2018. Further, the GECL Facility was an independent emergency credit facility introduced under the Atma Nirbhar Bharat scheme to mitigate financial distress caused by the COVID-19 pandemic. It being a distinct facility sanctioned by the Financial Creditor, it does not lead to novation of the original loan terms. Hence, no novation can be inferred in respect of the Guarantee executed in 2018.

The Development Management Agreement dated 02.07.2021 executed between the Principal Borrower and Adhikari Infrastructure Pvt. Ltd. was a voluntary commercial arrangement of the Principal Borrower which does not affect the obligations of the Guarantor. Further, the NoC dated 01.07.2021 issued by the Financial Creditor explicitly clarifies that the said NoC shall not be construed as any extension/waiver/change in any terms of the sanction conditions/repayment schedule/Transaction Documents. Since no variation in the primary guarantee obligations under the Facility Agreement dated 06.06.2018 has been established by the Corporate Debtor, thus, it cannot claim discharge under Section 133 of the Indian Contract Act, 1872.

The Ld. Counsel for the Corporate Debtor has further relied upon the order of the Hon’ble NCLAT dated 25.07.2023, wherein the time was granted to the Principal Borrower to complete the project through Reverse CIRP, protecting the interest of all stakeholders. However, the pendency of Reverse CIRP cannot constitute a ground to disregard the present insolvency petition filed against the Corporate Debtor/Guarantor for the outstanding dues of Principal Borrower. It is settled law that insolvency proceedings against a guarantor are maintainable independent of CIRP/Reverse CIRP proceedings initiated against the principal borrower, and such consideration is irrelevant at the admission stage.

Upon perusal of the material placed on record, including the Facility Agreement dated 06.06.2018, Guarantee Deed dated 06.06.2018, the Statement of Accounts (Annexure A-14), and the computation sheet (Annexure A-9), a prima facie case of financial debt and default exceeding the threshold of Rs. 1 Crore is established. The invocation notice (Annexure A-15) demonstrates compliance with statutory requirements. The contention of the Corporate Debtor that the Demand certificate was not issued in the prescribed format cannot be sustained since the Code does not prescribe any demand notice be issued to Corporate Guarantors. The issues of demand notice is only limits to enforcing legal rights under section 128 of the Contract Act, 1872, which can be seen as intimation of invocation. Thus, the said contention of the Corporate Debtor holds no merit.

Since the Applicant is a Financial Creditors and the debt owed by the Corporate Debtor is a Financial Debt, and there has been a default, as stipulated in Sections 3(12), 5(7) and Section 5(8) of the I & B Code, the ingredients of Section 7 stands satisfied.

As regard to the Corporate Debtor’s contention that applicant has made a mala fide attempt to file duplicate claims with respect to the same debt on same facts and for the same default, it is pertinent to note that under section 128 of the Indian Contract Act, 1872 the liability of the surety is coextensive with that of the principal debtor, unless otherwise provided under the contract. The Hon'ble Supreme Court in the matter of Laxmi Pat Surana Vs. Union Bank of India & Anr. (2021) 8 SCC 481 wherein it was held that the liability of the ‘Corporate Guarantor’ is `coextensive' with that of the ‘Principal Borrower’ and that acknowledgment given by the ‘Principal Borrower’ also binds the ‘Corporate Guarantor’. The relevant extract of the said judgment is reproduced below:

Further, the Hon’ble Supreme Court in the BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. and Anr., (2024) ibclaw.in 170 SC observed that the scheme of I & B Code, 2016 permits the Financial Creditor to initiate separate or simultaneous insolvency proceedings against the Principal Borrower and its Corporate Guarantor. The relevant extract of the aforesaid precedent is reproduced below: “Sub-section (2) of Section 60 contemplates separate or simultaneous insolvency proceedings against the corporate debtor and guarantor. Therefore, sub-section (3) of Section 60 provides that if CIRP in respect of the corporate guarantor is pending before an adjudicating authority and if the CIRP against the corporate debtor is pending before another adjudicating authority, CIRP proceedings against the corporate guarantor must be transferred to the adjudicating authority before whom CIRP in respect of the corporate debtor is pending. Thus, consistent with the basic principles of the Contract Act that the liability of the principal borrower and surety is co-extensive, the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor.”

The Corporate Debtor/Guarantor has further challenged the maintainability of the present petition on the ground that Clause 17.2 of the Corporate Guarantee Agreement dated 06.06.2018 provides for an arbitration mechanism. It is contended by the Ld. Counsel for the Corporate Debtor that initiation of proceedings under Section 7 of the IBC violates Section 8 of the Arbitration and Conciliation Act, 1996. However, the Hon’ble Supreme Court in Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund, (2021) 6 SCC 436, has categorically held that the Insolvency and Bankruptcy Code, 2016 has an overriding effect over the Arbitration and Conciliation Act, 1996 in view of Section 238 of the Code. The Hon’ble Supreme Court has clarified that the filing of an application under Section 8 of the Arbitration and Conciliation Act is an independent proceeding and does not impede or override adjudication under Section 7 of the IBC. Therefore, the presence of an arbitration clause in the Guarantee Agreement cannot operate as a bar to maintainability of a petition filed under Section 7 of the IBC. The relevant extract of the Hon’ble Supreme Court judgment in Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund (supra) is reproduced below:

In view of above findings of Hon’ble Supreme Court, the contention of the Corporate Debtor hold no ground and thus, cannot be relied upon.

The present petition made by the Financial Creditor is complete is all respects as required by law. The Petition established that the Corporate Debtor is in default of a debt due and payable and that the default is more than the minimum amount stipulated under Section 4(1) of the Code, stipulated at the relevant point of time. We are of the view that, admittedly the debt owed by the Corporate Debtor/Guarantor to the Financial Creditor is an amount of Rs. 81,28,48,834.85/- (Rupees Eighty-One Crores Twenty-eight Lakhs Forty-Eight Thousand Eight Hundred Thirty-four and Eighty-Five Paisa Only) which meets the threshold of Rs. One Crore.

In the light of the above facts and circumstances, and in terms of Section 7(5)

That the petitioner in part-III of the petition has proposed the name of M/s RR Insolvency Professionals LLP, as Interim Resolution Professional, having Registration Number IBBI/IPE-0056/IPA-1/2022-23/50009 and E-mail ID [email protected], is hereby appointed as an Interim Resolution Professional (IRP) for corporate debtor. Resolution Professional so appointed also directed to file Valid AFA along with requisite FORM 2 within the 5 days of receipt of this order.

We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:

It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government and the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3) (b) of the Code.

In pursuance of Section 13 (2) of the Code, we direct that public announcement shall be made by the Interim Resolution Professional immediately (within 3 days) as prescribed by Explanation to Regulation 6(1) of the IBBI Regulations, 2016) with regard to admission of this application under Section 7 of the Insolvency & Bankruptcy Code, 2016.

We direct the applicant Financial Creditor to deposit a sum of Rs. 2 Lakhs (Two Lakh Rupees) with the Interim Resolution Professional namely M/s RR Insolvency Professionals LLP to meet out the expenses to perform the initial functions assigned to him in accordance with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within three days from the date of receipt of this order by the Financial Creditor. The said amount, however, is subject to adjustment towards Resolution Process cost as per applicable rules.

The Interim Resolution Professional shall perform all his functions as contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations.

It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the ‘Corporate Debtor’. In case there is any violation committed by the ex-management or any tainted/illegal transaction by ex-directors or anyone else, the Interim Resolution Professional would be at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing appropriate orders.

The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor’ as a part of his obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

A copy of the order shall be communicated to the applicant, Corporate Debtor and IRP above named, by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. Applicant is also directed to provide a copy of the complete paper book to the IRP. A copy of this order is also sent to the ROC for updating the Master Data. ROC shall send compliance report to the Registrar, NCLT.

Accordingly, the instant application filed under Section 7 of the Code, 2016 bearing I.B. /152 (ND)/2023 stands admitted.

A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.