Bank Of Baroda vs Shri G. Praveen Kumar & Anr.

This application is filed by the Petitioner Bank of Baroda, Financial Creditor (FC) against Respondents 1 & 2, who are the Personal Guarantor (PG) and Corporate Debtor (CD) respectively, seeking for initiation of Personal Insolvency Resolution Process (PIRP) against Respondent No. 1/Personal Guarantor (PG) for the loan that was taken by the second Respondent. Though R2 is is figured as a party, no relief is claimed against it.

The facts, on the basis of which, the above mentioned relief is sought for are as follows:

ii) Respondent No. 1 is one of the Personal Guarantors (PG) for the credit facilities granted to Respondent No. 2, Corporate Debtor (CD). On request of the CD, the FC sanctioned fund based and non-fund based credit facilities amounting to Rs. 75 crores, out of which the working capital facility of Rs. 56 crores was sanctioned under a Consortium Agreement and were sanctioned under Multiple Banking Arrangement.

iii) Subsequent to the issuance of sanctioned letter, the consortium bankers, including the FC, had entered into a Working Capital Consortium Agreement dated 30/01/2014 with the CD, for sanctioning of working capital credit facilities of Rs. 720 crores, of which, the FC had sanctioned Rs. 56 crores. The company also executed a Deed of Hypothecation dated 31/01/2014 in favour of the consortium bankers.

iv) The PG executed a deed of personal guarantee dated 30/01/2014 in favour of the consortium bankers and 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 CD. The CD availed the said credit facilities, but, failed to comply with the terms and conditions of the loan documentation and defaulted in repayment of the loan amount as per the said terms and conditions. As a result, the accounts of the CD were classified as non-performing asset (NPA) as per the guidelines issued by the RBI.

vi) As Respondent No. 2’s capital was substantially eroded, a reference was made to the Board for Industrial and Financial Reconstruction (BIFR) u/s 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985. Thereafter, while the said proceedings were pending, BIFR was dissolved with effect from 01/12/2016 after notifying the IBC, 2016.

vii) Recovery proceedings were filed before the DRT, Hyderabad against the CD and the Guarantors, including Respondent No. 1 and in O.A. No. 638 of 2016, the DRT was issued recovery certificate on 22/01/2020 favouring the applicant bank.

viii) The liability of the guarantor is coextensive with that of the borrower. A demand notice was issued to Respondent No. 1 on 20/09/2020 and again on 06/05/2022, but, the Respondent failed to pay the amount. Hence, this application.

Respondent No. 1/Personal Guarantor has filed Counter, wherein, it was contended that the Tribunal has passed the order of liquidation process against Respondent No. 2 and e-auction was conducted by the Liquidator and the sale of the assets of the CD was completed by the Liquidator. Therefore, the liquidation process of Respondent No. 2 having stood completed with the sale of the assets, this application against Respondent No. 1 is not maintainable.

It is submitted that at the time of sanctioning of loan/credit to Respondent No. 2, it was well within the knowledge of the Petitioner that guarantee of Respondent No. 1 alone would not suffice to repay its debts, as Respondent No. 1 has limited assets and all the assets taken together could not assure the repayment of the debt owed by Respondent No.2 to the applicant. Therefore, the present application filed by the Petitioner is just to harass Respondent No. 1.

The contention of the Applicant that the liability of the guarantor is coextensive with that of the borrower is untenable in the light of the fact that even as on the date of taking guarantee, the applicant was aware that the assets of the respondent were limited. Most of the investments of Respondent No. 1 were made in the company’s name, i.e. Respondent No. 2, which is already liquidated.

If this application is allowed and in case the repayment plan is not submitted by the PG, if, bankruptcy proceedings are initiated, it would lead to a situation that PG cannot be appointed or act as public servant and cannot stand for elections to any public office as per section 140 of the IBC, 2016 and loses his reputation.

It is submitted that the account of Respondent No. 2 was classified as non-performing account and the company was admitted into CIRP on 9^th February, 2017. As per the resolution process, a strategic proposal for revival and reconstruction, was submitted, which was rejected by the bankers.

The other contentions made in the counter are not found to be relevant for deciding this application.

Heard both the counsel and perused the record. During the hearing, the ld. Counsel for the PG, at the outset, contends that there is no CIRP ordered against CD and hence, this application is not maintainable. In this connection, we refer to the judgment of the NCLT, Principal Bench, New Delhi in CP (AT) (Insolvency) No. 60 of 2022 in the matter of State Bank of India, Stressed Asset Management Branch Vs. Mahendra Kumar Jajodia, PG to the CD, on which reliance was placed by the counsel for the OC, wherein it was held that sub-section 2 of section 60 does not in any way prohibit filing of proceedings u/s 95 of the Code even if no proceedings are pending before NCLT. It was explained that the use of words “a” and “such” before NCLT clearly indicate that section 60(2) was applicable only when a CIRP or liquidation proceeding of a CD is pending before the NCLT. The object is that when a CIRP or liquidation proceeding of a CD is pending before NCLT, the application relating to insolvency process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT. This was to avoid two different NCLT to take up CIRP of CG. Hence, in the light of the above, this application can be entertained in spite of the CD not being taken into CIRP. However the facts mentioned in the counter show that the liquidation of the CD was also ordered and CP No. 12/10/2017 moved for CIRP is also before this Tribunal.

The next contention that was raised by the PG is that all the assets of the PG were brought to sale and, hence, this application is not maintainable. But, he fails to answer the query posed to him with regard to personal guarantee given to CD for which the PG is personally liable to pay the debt. Hence, the said contention also gets marginalized.

As regards the limitation, it is seen that DRT has issued recovery certificate on 22/01/2020 and, hence, application can be filed within three years from the date of issuance of recovery certificate by the DRT and, therefore, this application filed by the Petitioner is well within the limitation.

In view of the above mentioned facts, we hereby allow this application.

The Company Petition is admitted. The initiation of Individual Insolvency Resolution Process shall commence from this date and shall be completed within 180 days hence.

Therefore, by exercising powers under Section 100 of the Code, we pass the following orders: