Bank Of Baroda vs R. Srikanth Reddy & Anr.

PER: BENCH

The instant petition is filed under section 95 of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as ‘the Code’] 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 [hereinafter referred to as ‘Personal Guarantors Insolvency Rules, 2019’] seeking an order for initiation of Insolvency Resolution Process against R. Srikanth Reddy, who is a Personal Guarantor of M/s VNR Infrastructure Limited [hereinafter referred as ‘Corporate Debtor’].

It is to be noted that the petitioner/ Bank had sanctioned working capital facilities of Rs.56,00,00,000/- under a Consortium of Bankers led by State Bank of India (total limit for Consortium of Banks is Rs.720 crores) to the Corporate Debtor. The petitioner/ Bank has also sanctioned two term loans of Rs.19 crores to the Corporate Debtor. Respondent no.1, along with others, executed Deed of Personal Guarantee dated 30.01.2014 in favour of Consortium of Bankers, including the Financial Creditors herein, guaranteeing payment of Rs.720 crores, under which they undertook to pay, on demand, to the lenders, all the amounts due, in case any default in repayment occurs on the part of or committed by the Corporate Debtor.

It is averred that after availing the said credit limits, respondent no.2 failed to adhere to the sanction terms. Consequently the accounts of the Corporate Debtor were declared as Non-performing Asset (NPA) on 29.07.2015 as per the RBI Guidelines.

The Financial Creditor/ Bank, after classification of the accounts as NPA, has filed recovery proceedings before the Debt Recovery Tribunal (DRT), Hyderabad against the Corporate Debtor and the guarantors, including respondent no.1 herein, for recovery of Rs. 73,09,14,586.87 paise and future interest thereon at the rate of 17.10% per annum from the date of order till the date of realization. The DRT, Hyderabad has granted recovery certificate vide its order dated 30.05.2019.

The Corporate Debtor has also filed a Company Petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 before this Tribunal for initiation of Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor. This Tribunal, vide its order dated 10.02.2017 admitted the said application for initiating CIRP of the Corporate Debtor.

Since no viable resolution plan was found, liquidation process of the Corporate Debtor was initiated vide order of this Tribunal dated 24.08.2017.

Respondent No. 1 was issued a demand notice dated 29.09.2020 by the Financial Creditor, demanding payment of the outstanding dues of Rs.110,86,73,102/- as on 07.09.2020, in terms of Regulation 7 of the IBBI (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. However, the Respondent failed to pay the said amount, despite service of demand notice.

Cause of action for this application arose on 30.05.2019 when the DRT gave its judgment in favour of the Financial Creditor, and on 29.09.2020 when Demand Notice was issued by the Financial Creditor and is still continuing with no payments made by the Respondent no. 1. In view of the aforesaid, the financial creditor has filed this Application.

The petitioner/ Bank has produced the following documents to prove existence of debt and the amount in default:

Respondent no.1, in his Counter dated 03.11.2021, denied the averments made by the petitioner, submitting that Deed of Guarantee was signed by respondent no.1 along with four other guarantors. However, the Financial Creditor / Bank chose to file Company Petition against respondent no.1 herein leaving other creditors unscathed. Respondent no.1 has relied on a letter dated 14.09.2012 addressed by the Director, Finance of respondentno.2 to the petitioner/ Financial Creditor, requesting the Financial Creditor to release his Personal Guarantee. The respondent has also submitted that pursuant to the execution and signing of Deed of Guarantee dated 30.01.2014, he has not signed any letter of acknowledgement. Respondent no.1 has also submitted that he has tendered his resignation to the Corporate Debtor on 08.09.2014 from the post of Director with a request to forward the same to the petitioner/ Bank. The respondent mainly relied on the issue of limitation as he contended that he has not signed any document other than the Deed of Guarantee dated 30.01.2014.

The petitioner in his rejoinder dated 28.02.2022, contended that holding the position of Director in a company and being a guarantor for the credit facilities are two distinct matters and even after his resignation as Director, respondent no.1 continues to be guarantor for the credit facilities and his liability does not come to end with his resignation. The petitioner has also contended that the present Company Petition is not barred by limitation as the petitioner/ Bank has filed OA No.638 of 2016 before the DRT, Hyderabad against the borrower and guarantor. The DRT, Hyderabad vide its order dated 30.05.2019 allowed the OA holding that:

The petitioner/ Financial Creditor has relied on decision in Dena Bank Vs. C. Shiva Kumar Reddy and another, (2021) 10 SCC 330:

Shri Rajesh Chillale, Resolution Professional vide his Report dated 17.01.2022 has recommended for acceptance of application filed by the creditor on the following grounds:

The total amount of debt including interest or penalties due and payable by the personal guarantor is Rs.109,99,73,102/-(Rupees one hundred and nine crores ninety nine lakhs seventy three thousand one hundred and two only).

Respondent no.1 has filed Counter dated 11.05.2022 in response to the Report dated 17.01.2022 of the Resolution Professional and has raised contentions almost similar to those raised in his Counter dated 03.11.2021.

In light of the aforesaid factual matrix and after hearing Shri VVSN Raju, learned counsel for the Financial Creditor and Ms. K. Srilatha, learned counsel for respondent no.1/ Personal Guarantor, the points that arise for our consideration are:

Whether insolvency process can be ordered against respondent no.1/ Personal Guarantor under section 95 of the Insolvency and Bankruptcy Code, 2016.

Whether this petition is barred by law of limitation.

We consider the points and answer the same hereunder:

As regards Point-1, at the outset it may be stated that the respondent/ Corporate Debtor has filed CP (IB) No.12/10/HDB/2017 seeking CIRP under section 10 of the I&B Code, 2016 and this Tribunal has allowed the said petition and admitted the Corporate Debtor into CIRP vide its order dated 10.02.2017. A copy of the said order is at page 173 of this petition. The instant petition is instituted by the Financial Creditor against the Personal Guarantee of the Corporate Debtor. The IRP, in his report, has observed that the Creditor has sent Demand Notice in Form-B on 29.09.2021 to the Personal Guarantor and the personal guarantor to the Corporate Debtor failed to repay the amount due towards the creditor within 14 days of receipt of demand notice in Form-B.

This Tribunal has carefully examined the Report of the Resolution Professional and as per the Report it becomes clear that the Personal Guarantor has not offered any repayment plan. The Personal Guarantor has filed counter to the report of the RP, which is not tenable. We, therefore, do not find any reason to reject the report of the RP.

In light of our discussion above, having considered the submissions made by the Financial Creditor in the petition, the contentions raised by respondent no.1 in his Counter, the decisions relied on by the parties, we consider that it is a fit case to order CIRP against respondent no.1/ Personal Guarantor. We, therefore, answer Point-1 in affirmative.

As regards Point-2, the Hon’ble Supreme Court in its decision in Dena Bank Vs. C. Shiva Kumar Reddy and another, (2021) 10 SCC 330 (supra) has articulated that when certificate of Recovery is issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment. Therefore, the present petition is well within the period of limitation. Point-2 is answered accordingly.

Hence the Tribunal finds no reason to reject this petition.

The Financial Creditor/Petitioner herein has proposed the name of Shri Rajesh Chillale, having IBBI/IPA-001/IP-P00699/2017-2018/11226, e-mail: chillalerajesh[at]yahoo[dot]co[dot]in, to act as Resolution Professional. He has given his consent in Form-A dated 27.07.2021. His AFA is valid till 25.10.2023. Shri Rajesh Chillale has been appointed by this Tribunal as Resolution Professional vide order dated 01.09.2021 and he has filed Report dated 17.01.2022.

The petition i.e. CP (IB) No. 226/95/HDB/2021 filed under the provisions of Section 95 of IBC, 2016 is hereby admitted.

Consequently, the Insolvency Resolution Process is hereby initiated against the Personal Guarantor Shri R. Srikanth Reddy and the moratorium is declared, which begins with effect from the date of admission of the petition and shall cease to have effect at the end of the period of 180 days, as provided under Section 101 of IBC, 2016. During the moratorium period;

Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;

The creditors shall not initiate any legal action or legal proceedings in respect of any debt; and

the debtor shall not transfer, alienate, encumber or dispose of any of her assets or her legal rights or beneficial interest therein;

The provisions of this Section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

The Resolution Professional is directed to cause public notice published on behalf of the Adjudicating Authority within 7 days of uploading of this order on the website of NCLT, Hyderabad, inviting claims from all creditors, who shall register their claims as provided under Section 103 of the Code within 21 days of such issuance. The notice shall contain the necessary information as provided under Section 102 (2) of IBC, 2016. The publication of notice shall be made in newspapers, one in English and other in vernacular (Telugu) which have wide circulation in the State where the Debtor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry. One shall be placed on our website by the Registry and the other shall be affixed in the premises of this Adjudicating Authority.

The Resolution Professional, in exercise of the powers conferred under 104, shall prepare a list of creditors within 30 days from the date of the notice. The debtor shall prepare, in consultation with the Resolution Professional, a repayment plan containing a proposal to the creditors for restructuring of his debts or affairs as provided under Section 105 which shall include the provisions for payment of fee to the Resolution Professional. The Resolution Professional shall submit repayment plan along with his report on the plan to this Adjudicating Authority within a period of 21 days from the last date of submission of claims as provided under Section 106 of the I&B Code, 2016.

In case the Resolution Professional recommends that a meeting of the creditors is not required to be summoned, he shall record the reasons thereof. If the Resolution Professional is of the opinion that the meeting of creditors should be summoned, he shall specify the details as provided under Section 106(3) of the I&B Code, 2016. The date of meeting shall not be less than fourteen days or more than 28 days from the date of submission of the Report under Sub-Section (1) of Section 106 of the I&B Code, 2016, for which at least 14 days’ notice to the creditors (as per the list prepared) shall be issued by all modes. Such notice must contain the details as provided under the provisions of Section 107 of the I&B Code, 2016.

The meeting of the creditors shall be conducted in accordance with the provisions sections 109, 110 and 111 of the I&B Code, 2016. The Resolution Professional shall prepare a report of the meeting of the creditors on repayment plan with all details as provided under Section 112 of the I&B Code, 2016 and submit the same to the Authority, copies of which shall be provided to the guarantor and the creditors. It is made clear that the Resolution Professional shall perform his functions and duties in compliance with the Code of Conduct provided under Section 208 of IBC, 2016.

The Financial Creditor is directed to communicate this order to the Resolution Professional appointed in this case immediately.