ASK Investment Managers Ltd vs R Damodaran

The present Application CP(IB)/205/2022 has been filed u/s. 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC, 2016") read with Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 by ASK Investment Managers Limited (“Financial Creditor”) for initiating Insolvency Resolution Process against Shri R.Damodaran (“Personal Guarantor”) in respect of Principal Amount of INR 229,04,09,761 (Rupees Two Hundred and Twenty Nine Crore Four Lakh Nine Thousand Seven Hundred and Sixty One Only) as on 28.02.2022. The Date of Default, as specified in Part-III of the present Application is 31.01.2018, i.e. the date on which the Arbitration Award was passed. This Application has been filed on 21.04.2022.

Part – I of the application sets out the details of the Applicant / Financial Creditor. It has its registered office in Birla Aurora, 16 level, Office Floor 9, Dr. Annie Beasant Road, Worli, Mumbai – 400 030.

Part-II of the application sets out the details of the Personal Guarantor.The address of the Respondent is mentioned as New No.14, Old No.18, Crescent Park Street, T.Nagar, Chennai – 600 017.The Respondent stood as a Personal Guarantor in respect of the loans availed by M/s. Ambojini Properties Developers Private Limited, the Corporate Debtor.

In part–III of the application, the applicant has given the debt amount of Rs.229,04,09,761 (Rupees Two Hundred and Twenty-Nine Crore Four Lakh Nine Thousand Seven Hundred and Sixty One Only) as on 28.02.2022.

Part – IV of the Application sets out the details of the Resolution Professional. The Applicant has proposed Mr.Madhu Desikan with IBBI Registration No. IBBI/IPA-001/IP-P00579/2017-2018/11021 as the Insolvency Resolution Professional in respect of the Respondent /Personal Guarantor.

It is stated that the Corporate Debtor M/s. Ambojini Property Developers Private Limited was originally incorporated as a Partnership firm on 15.07.2009 in the name of M/s. Ambojini Property Developers and thereafter the said Partnership was converted into a Private Limited Company on 17.03.2011 in the name of M/s. Ambojini Property Developers Private Limited. In order to develop the lands into a project called “Sai Peace & Prosperity”, the Corporate Debtor approached the applicant for funding and resultantly the applicant and the promoters including the respondent entered into a Subscription & Share Holders Agreement (hereinafter referred to as “SSHA”) on 23.03.2011. Pursuant to the above SSHA, the applicant invested in the property an amount of Rs.49,50,00,000 (49,50,000 convertible Debentures of Rs.100/- each) and acquired 5,00,000 Equity Shares of Rs.10/- each totaling to Rs.50,00,00,000/-. On the same same day i.e., 23.03.2011, the respondent herein executed a deed of Personal Guarantee which is an unconditional and continuing guarantee, in favour of the applicant.

It is stated that in exchange of the investment, the Corporate Debtor had given certain rights to the applicant in the management of the affairs of the Corporate Debtor. Clause 15.2 (j) of SSHA provides for Events of Default, if all relevant approvals, including Projects Approvals, for the Project, including for construction, sale or other disposal of Flats in the project have not been obtained within 12 (twelve) months from the first Closing Date. It is stated that if the event of default has occurred, as per Clause 15.3 of SSHA, the Investor viz., applicant can inter-alia call upon the guarantees issued for the benefits of the Investors and enforce the equitable mortgage on the lands.

It is stated that the Corporate Debtor did not obtain requisite approvals / permissions for the development of lands for a long period of 5 years and failed to comply with terms of the SSHA.

It is stated that the promoters including the Personal Guarantor made representations to the applicant to cede its charge on the project land in favour of ICICI Bank as they were in the process of raising funds. It was under the instance, the applicant executed the discharge receipt on a categorical understanding that the Corporate Debtor shall repay the said amount along with the interest thereon upon execution of Discharge Receipt. However, there was no such repayment by the Corporate Debtor or the promoters.

It is stated that as there is continuous default on the part of the promoters in transgression of the terms of SSHA, an Exit Agreement was entered into by the parties on 06.07.2015 according to which the applicant was to be given an exit in the manner prescribed in it. It is stated that upon failure of the execution of Exit Agreement, the matter was referred to Arbitration by the parties concerned in terms of Clause 20.5 read with Clause 20.6 & 20.7 of SSHA comprising of 3 Arbitrators out of which (the Promoters and the Company had to appoint one arbitrator which the promoter having the right to appoint) and the Investor representative to (on behalf of itself and the Investor) appoint the second arbitrator and the arbitrators so appointed to appoint a third arbitrator who shall act as the Chairman of the Arbitral Tribunal. Accordingly, Arbitral Tribunal comprising of Hon’ble Mr.Justice Shivraj Patil (Retd), Hon’ble Mr.Justice K.Govindarajan (Retd) and Hon’ble Mr.Justice D.K.Desh Mukh (Retd) was constituted.

It is stated that said Arbitral dispute was decided in favour of the applicant vide order dated 31.01.2018 awarding Rs.155,32,56,626/-together with interest @ 4% p.a. on daily basis till expiry of 3 months from the date of award and 12% p.a. after expiry of 3 months from the date of award on the outstanding amount. The Arbitration Award is extracted hereunder:

It is stated that against the arbitration award, the Personal Guarantor along with others filed CARBPNo.705/2018 u/s 34 before the Hon’ble High Court of Bombay which is pending for admission and there is no stay against the award. It is stated that the applicant herein has filed two Execution Petitions before the Hon’ble High Court of Madras which are also pending for adjudication.

It is stated that Shri R.Damodaran, who is one of the Directors in the Corporate Debtor had stood as the Personal Guarantor as stated supra to the credit facilities availed by the Corporate Debtor as per the terms and conditions of SSHA.

Per contra, the respondent personal guarantor in his counter has stated that in the capacity of promoter he entered into the SSHA and executed the Personal Guarantee dt.23.03.2011 to the applicant. It is stated that the execution proceedings and IBC cannot go together. It is stated that he has filed the objections u/s 34 of the Arbitration and Conciliation Act before the Hon’ble High Court of Bombay and the same are pending adjudication. He referred to Clause of 2, 3 and 4 of the Discharge Receipt dt.04.10.2013 wherein it has been stated that the loan amount of Rs.50,00,00,000/- was repaid together with interest thereon in full to the mortgagee. The respondent has filed various pronouncements/orders in support of his defence.

The applicant in his rejoinder, with regard to the Discharge Receipt, has submitted that the promoters including the respondent had made representations to the applicant that they were in the process of raising funds from another lender viz., ICICI to infuse funds to CD and need to cede its charge and hence the applicant executed the discharge receipt on a categorical understanding that the CD shall repay the dues along with the interest thereon subsequent to the execution of discharge receipt.

Pursuant to the appointment of Mr. Madhu Desikan as Interim Resolution Professional (IRP) by this Tribunal vide order dated 20.12.2023, the IRP filed the report.

The IRP in his Report dated 11.02.2024, after due examination of the application, documents filed with the application, has submitted that the registration of the Discharge Receipt was to help the CD enabling to raise loans with M/s ICICI and after extensive contest by both sides before the Arbitrators, the Arbitration Award was passed on 31.01.2018 mentioning that the Personal Guarantor is liable jointly and severally with others to make good the amount claimed. Accordingly, based on the documents furnished, the personal guarantor is liable, jointly and severally with other parties to pay the Applicant the sum claimed amounting to Rs. 229,04,09,761 as on 28.02.2022. Further, the debts are owed by the Personal Guarantor and he has not paid the debts so far. The IRP has stated that the Arbitrators were the retired High Court Judges and main Arbitrator happened to be Retired Supreme Court Judge, and the matter were hotly contested between the Corporate Debtor, the respondent and others and Award was passed in favour of the Applicant. The IRP has thus recommended for acceptance of Application as per NCLT order dated 20.12.2023 passed in the instant CP (IB)/205/(CHE)/2022 filed u/s 95(1) of IBC filed by Financial Creditor.

The submissions advanced by the Learned Counsel for Applicant, counter filed by the respondent, Rejoinder and the report of the IRP were perused in detail.

This instant CP originates from the Arbitration Award dt.31.01.2018. It is admitted fact that the Corporate Debtor had taken credit facilities by way of Subscriber and Share holders’ Agreement on 23.03.2011 and apparently failed to comply with the terms and conditions of SSHA and the respondent herein had given unconditional and continuing Personal guarantee to the applicant. The debt and default of the Corporate Debtor is established.

The IRP in his report has observed that the Applicant satisfies the requirement as set out in Section 95 of IBC, 2016. He has accordingly recommended for admission of the present application.

The Arbitral Tribunal in its Award dt.31.01.2018 has categorically

It is noticed that a Company Petition bearing No.CP(IB)/938/(CHE)/2018 filed by Nuvoco Vistas Corporation Limited, one of the operational creditors of the present Corporate Debtor, is pending before the NCLT, Bench-II Chennai in which CIRP against the Corporate Debtor has already been initiated vide order dated 09.09.2019.

It is stated by that applicant that consequent upon the initiation of CIRP of the Corporate Debtor, the applicant’s claim as Financial Creditor for Rs.182.53 crores, on the basis of Arbitration Award has been admitted. The successful Resolution Applicant, viz., M/s. Casa Grand has taken over the Corporate Debtor as a going concern. An amount of Rs.79.89 Crores is payable to the applicant and Rs.152.15 Crore (approx.) remains due and payable to the applicant from the respondent herein.

Section 128 of the Indian Contract Act, 1872, provides that when a default is committed, the Principal Borrower and Surety are jointly and severally liable to the Creditor and the Creditor has right to recover its dues from either of them or from both of them simultaneously. Section 128 of the Indian Contract Act, 1872 is reproduced hereunder:

In the instant case, the date of default is reckoned as 31.01.2018 i.e., the date on which the Arbitration Award was passed by the 3 members Arbitral Tribunal. The present Application has been filed on 21.04.2022. The Applicant is entitled to benefit of limitation from 15.03.2020 to 28.02.2022 as extended by Hon’ble Supreme Court in Suo Moto W.P. (Civil) No. 3 of 2020. Thus, considering the date of default and the date on which the Application has been filed, we are of the opinion that this Application is within the period of limitation.

In light of the afore-stated observations, the instant CP(IB)/205/(CHE)/2022 is admitted. The Insolvency Resolution Process stands initiated against Mr.R.Damodaran viz. the Respondent herein.

This Tribunal had appointed Mr.Madhu Desikan, IBBI / IPA-001 / IP-P-00579 / 2017-2018 / 11021 as Interim Resolution Professional vide order dated 20.12.2023. Thus, we appoint Mr.Madhu Desikan, IBBI / IPA-001 / IP-P-00579 / 2017-2018 / 11021 with AFA valid upto 31.12.2025 as Resolution Professional.

We hereby direct as follows;

a. Initiate Insolvency Resolution Process against the Respondent/Personal Guarantor. The moratorium in relation to all the debts is declared, from today i.e. date of admission of the application, and shall cease to have effect at the end of the period of 180 days, or this Tribunalpasses order on the repayment plan under Section 114 whichever is earlier as provided under Sec 101 of IBC, 2016. During the moratorium period,

b. The Resolution Professional viz. Mr.Madhu Desikan, IBBI / IPA-001 / IP-P-00579 / 2017-2018 / 11021 Insolvency Resolution Professional is directed to cause a public notice published on behalf of the Adjudicating Authority within 7 days of passing this Order on the website of the NCLT Chennai Bench, inviting claims from all Creditors, within 21 days of such issue. The notice under Sub Section (1) of Section 102(2) shall include: -

c. The publication of notice shall be made in two newspapers, one in English and other in Vernacular, which have wide circulation in the State where the Corporate Debtor and Personal Guarantor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry for the record.

d. The Resolution Professional, in exercise of the powers conferred under Section 104, shall prepare a list of creditors on the basis of:

The repayment plan may authorize or require the Resolution Professional to:

Accordingly, the IRP report filed in IA(IB)/596(CHE)/2024 is taken on record and IA is disposed of. CP (IB) / 205 / (CHE)/ 2022 stands admitted.