Bhavesh Harkishandas Mehta vs Kookmin Bank & Anr.

Ashok Bhushan, J.

These three Appeals involving common question of law have been heard together and have been decided by this common judgment.

Necessary facts giving rise to these Appeals are;-

We have heard Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant in Company Appeal (AT) (Insolvency) Nos. 75 & 77 of 2024 and Shri Krishnendu Datta, Learned Senior Counsel for the Appellant in Company Appeal (AT) (Insolvency) No.1341 of 2023. We have also heard Shri Akshay Sapre, Learned Counsel appearing for Kookmin Bank in Company Appeal (AT) (Insolvency) Nos.75 & 77 of 2024 and Shri Ankur Mittal, Learned Counsel appearing for the State Bank of India. Shri Abhishek Anand, Learned Counsel has also appeared for Respondent No.2 in Company Appeal (AT) (Insolvency) No.1341 of 2023.

Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant in support of the Appeals submits that the Appellants i.e. Bhavesh Harkishandas Mehta and Atul Harkishan Das Mehta executed a Deed of Personal Guarantee dated 24.11.2022 to the Financial Creditor in respect to the credit facility extended by the Financial Creditor to the Corporate Debtor-‘Compuage Infocom Limited’. Financial Creditor issued a demand notice to the Personal Guarantor, Appellant herein on 29.03.2023 and thereafter filed an application under Section 95 on 31.10.2023 against the Appellant. Another Financial Creditor i.e. ‘Plus Unified Engaugement Services Pvt. Ltd.’ initiated Section 7 proceedings against the Corporate Debtor which was ongoing before Court V of the NCLT, Mumbai wherein NCLT, Court V passed an order on 02.11.2023 initiating Corporate Insolvency Resolution Process (CIRP). It is submitted that Section 9 application was heard on 12.12.2023 by Court-III and order has been passed on 18.12.2023. It is submitted that as per Section 60(2) of the IBC, the application filed under Section 95 was required to be heard by Court V of the NCLT Mumbai Bench where the proceedings under Section 7 against the Corporate Debtor were pending. The order dated 18.12.2023 passed is without jurisdiction. Learned Counsel for the Appellant in support of his submission relied on three judgments of this Tribunal which shall be referred hereinafter.

Shri Krishnendu Datta, Learned Senior Counsel appearing for the Appellant in Company Appeal (AT) (Insolvency) No. 1341 of 2023 submits that the insolvency petition had been filed by the Financial Creditor against the Corporate Debtor- ‘AA Estates Private Limited’ which proceedings are pending in NCLT, Court-V, Mumbai Bench. The State Bank of India filed an application under Section 95 of the Code against the Appellant as Personal Guarantor on 20.01.2022 in which NCLT, Court-1, Mumbai Bench issued notice on 20.06.2022 while insolvency proceeding against the Corporate Debtor was commenced by NCLT, Court-V on 06.12.2022. The order was passed on 17.08.2023 by the NCLT, Court-1, Mumbai Bench appointing an IRP. It is submitted that the insolvency proceedings under Section 7 being pending in NCLT, Court-V, NCLT Court-1, Mumbai Bench had no jurisdiction to pass order in Section 95 application filed by the SBI. It is submitted that as per sub-section (1) of Section 60, the Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. Thus, both for insolvency resolution and personal guarantor proceedings shall be placed before same Bench of NCLT as per Section 60(1). It is submitted that Section 60(2) provides that where a CIRP proceeding of a Corporate Debtor is pending before a NCLT, an application relating to the personal guarantor shall be filed before such NCLT, clearly means that such Bench of NCLT where insolvency proceedings are pending. It is submitted that the clear intendment of sub-section (2) of Section 60 is that both the proceedings should be heard by same Bench. It is submitted that there was no necessity for sub-section (2) of Section 60 unless legislature intended that both the proceedings should be heard by same court. It is submitted that although legislation is example of a bad drafting but intendment of legislature is clear that both insolvency proceedings and proceedings against personal guarantor should be heard by the same court. In event both the proceedings are held in different courts of the same NCLT Bench, the purpose and object shall not be fulfilled. Learned Senior Counsel for the Appellant has also referred to a ‘Discussion Paper of Insolvency and Bankruptcy Board of India’ dated 27.09.2023 on the subject discussion paper on appointment of RP, sharing of report prepared by the RP with the personal guarantor and mandating summoning of meeting of the creditors. Counsel for the Appellant has also placed reliance on two judgments of this Tribunal which shall be referred to hereinafter.

Shri Mr. Akshay Sapre, Learned Counsel appearing for Kookmin Bank refuting the submissions of the Counsel for the Appellant submits that sub-section (2) of Section 60 provides that where a corporate insolvency resolution process proceeding is pending against the Corporate Debtor before a NCLT, an application relating to the personal guarantor of such Corporate Debtor shall be filed before such NCLT. It is submitted that the provision only contemplates filing of an application before such NCLT. The provision never intended that both the applications are to be filed in the same court room. It is submitted that the Bench of NCLT is defined in IBC as well as the NCLT Rules 2016. NCLT Mumbai Bench is one of the Benches of the Tribunal which has been defined as the Adjudicating Authority for the area as contained in the notification. It is submitted that the interpretation put by Counsel for the Appellant of sub-section (2) of Section 60 is erroneous. It is not in the domain of an applicant to file an application before a particular court. Filing of the application is always in the Registry of the NCLT and which court shall hear the application is the internal domain of the NCLT. The interpretation put by the Appellant is not in accord with the scheme. Counsel has also distinguished cases relied by Counsel for the Appellant in support of his submission, it is submitted that none of the judgments support the interpretation put by Appellant.

Shri Ankur Mittal, Learned Counsel appearing for the State Bank of India refuting the submissions of the Appellant submits that the NCLT, Mumbai Bench is a Bench of the NCLT which has been notified by the notification dated 01.06.2016 issued by the Central Government in exercise of powers under sub-section (1) of Section 419 of the Companies Act, 2013. It is submitted that the NCLT Mumbai Bench which is located at Mumbai has territorial jurisdiction over State of Chhattisgarh, State of Goa and State of Maharashtra. All applications pertaining to the aforesaid geographical area has to be filed before the NCLT Mumbai Bench. It is submitted that the expression ‘shall be filed’ as occurring in sub-section (2) of Section 60 only refers to filing to the NCLT Bench and not to a particular Court. The NCLT Mumbai Bench for the purpose of effective adjudication and to deal with the workload, is sitting in multiple combinations i.e. in five courts. Separate courts of NCLT Mumbai Bench have not been notified under any separate gazette notification. All the courts functioning in Mumbai NCLT constitute part of NCLT Mumbai Bench only. In the present case, the CIRP proceedings and proceedings under Section 95 have been proceeded by the same Bench i.e. NCLT Mumbai Bench, which court shall hear the matter is the matter of internal arrangement of the NCLT and depends on general and special orders issued by the President of the NCLT or the members authorised. Learned Counsel for the Respondent has also referred to Section 421 of the Companies Act, 2013. It is submitted that the judgments relied by the Appellant are distinguishable and does not support the submission of the Appellant.

We have considered the submissions of the Counsel for the parties and perused the record.

The questions to be answered in this Appeal are:

Both the questions being inter-related, we proceed to consider the above questions together.

NCLT has been constituted under Section 408 of the Companies Act, 2013. Section 408 of the Companies Act is as follows:-

Section 419 of the Companies Act, 2013 provides for ‘Benches of Tribunal’. Central Government by Notification can constitute such number of Benches of the Tribunal as specified under Section 419. Sub-section (1), (2) and (3) of Section 419 are as follows:-

As per Section 419 of the Companies Act, the Central Government has issued notification dated 01.06.2016 constituting 10 Benches of NCLT. Notification dated 01.06.2016 is as follows:-

We, in the present case, are concerned with NCLT Mumbai Bench. NCLT Mumbai Bench transacts its business by two members out of which one is Judicial Member and another is Technical Member sitting in different Courts. The powers of the Tribunal as per sub-section (3) of Section 419 shall be exercisable by Benches consisting of two Members out of whom one shall be a Judicial Member and the other shall be a Technical Member.

Sub-section (1) of Section 419 which empowers Central Government to constitute Benches of the Tribunal and sub-section (3) provides the powers of the Tribunal shall be exercisable by Benches consisting of two Members.

The expression ‘Benches’ has been defined in the IBC under sub-section (2) of Section 3 which is as follows:-

Section 5(1) defines ‘Adjudicating Authority’. Section 5(1) is as follows:-

From the above definition, it is clear that the ‘Adjudicating Authority’ is a NCLT which is constituted under Section 408 of the Companies Act, 2013 and the ‘Bench’ means a Bench of the Adjudicating Authority i.e. a Bench of NCLT. Under Section 419, Central Government has constituted Benches of the NCLT.

Now we come to Section 60 of the Code. Section 60 is part of Chapter VI which deals with ‘Adjudicating Authority for Corporate Persons’. Sub-section (1) and (2) of Section 60 are as follows:-

Section 60(1) provides that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. Thus, Section 60(1) provides for Adjudicating Authority where insolvency proceedings or proceedings against personal guarantor has to be initiated. NCLT thus is a NCLT which has territorial jurisdiction over the corporate persons. Sub-section (2) of Section 60 falls for consideration in the present case. Sub-section (2) of Section 60 provides that where a corporate insolvency resolution process of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution of a personal guarantor, as the case may be, of such corporate debtor shall be filed before such National Company Law Tribunal. Sub-section (2) uses two expressions before NCLT i.e. ‘a’ and ‘such’. The provision makes it clear that when insolvency resolution process of a corporate debtor is pending before a NCLT, an application relating to insolvency of personal guarantor shall be filed before such NCLT. Uses of expression ‘a’ and ‘such’ makes it clear that both the proceedings have to be before the same NCLT.

Both the parties have referred to the judgment of this Tribunal in “State Bank of India, Stressed Asset Management Branch vs. Mahendra Kumar Jajodia, Personal Guarantor to Corporate Debtor- Company Appeal (AT) (Insolvency) No.60 of 2022” decided on 27.01.2022. Sub-sections (1) and (2) of Section 60 came for consideration in the above judgment where following has been laid down in paragraphs 7 and 8:-

In the above case, the Adjudicating Authority has rejected the application under Section 95 filed against the personal guarantor on the ground that no insolvency proceedings are pending. Adjudicating Authority held that unless the proceedings are pending, no application can be filed under Section 95 which interpretation was disapproved by this Tribunal in the above case. While considering sub-sections (1) and (2) of Section 60 in the above context, above observations were made in paragraphs 7 and 8. Sub-section (2) of Section 60 when uses expression NCLT, use of NCLT clearly contemplates also a Bench of NCLT. As in the present case, the applications have been filed before the NCLT, Mumbai Bench.

NCLT Rules framed under Section 469 of the Companies Act, 2013 also defines ‘bench’ in sub-rule (7) of Rule 2, which is as follows:-

From the definition of ‘bench’ as contained in the IBC as well as NCLT Rules, 2016 read with Sections 408 and 409, it is clear that the word ‘bench’ refers to a bench of NCLT as constituted under Section 419. The expression ‘bench’ as contained in IBC and NCLT Rules 2016 as well as under Section 419 of the Companies Act, 2013 only refers to Bench of NCLT. The legislature never contemplated NCLT for courts of particular Bench of NCLT sitting in composition of two members in a court, court of NCLT hearing a petition or application was not under contemplation in sub-section (2) of Section 60. Sub-section (2) of Section 60 refers to NCLT which includes also a bench of NCLT, hence, the bench shall mean a bench constituted under Section 419.

We have noticed that Section 419(3) provides that the powers of the Tribunal shall be exercisable by Benches consisting of two Members out of whom one shall be a Judicial Member and the other shall be a Technical Member. The above provision was for the purposes of laying down how the power of NCLT shall be exercisable. The expression ‘benches’ as occurring in Section 419(3) has to be read along with the expression ‘benches’ as used in Section 419(1) of the Companies Act, 2013. Principal bench as well as the benches of the tribunal constituted under Section 419(1) has to exercise jurisdiction by two members; one judicial member and one technical member.

We may also refer Rule 16 of the NCLT Rules, 2016 which provides for ‘functions of the President’. Rule 16 of the NCLT Rules, 2016 is as follows:-

All powers regarding functioning of the NCLT is to be under the special and general orders of the President. The President is a head of the NCLT and exercises general superintendence and control over the administrative functions of the Members, Registrar, Secretary and other staff of the Tribunal. The NCLT including its benches function under general superintendence and control under the President. The President is master of the Roster with regard to cases filed before the NCLT and its benches. Allocation of work in NCLT and its benches is as per the general and special order of the President.

The Benches of the NCLT may consist of two or more members posted at particular bench. In a particular bench business are transacted if there are more than two members in different court room. For example, in NCLT Mumbai Bench, there are five courts who are transacting business with regard to cases filed before NCLT Mumbai Bench.

Learned Counsel for the Appellant contends that what is contemplated under sub-section (2) of Section 60 is when a CIRP against the Corporate Debtor has been filed before one particular court of a bench of the NCLT, an application against personal guarantor should be filed in the same court of the NCLT.

When we look into the Scheme of the IBC and the Rules framed thereunder i.e. NCLT Rules 2016, it is clear that Section 60(2) only provided for filing of the application against personal guarantor before the same NCLT where insolvency resolution process against the corporate debtor is pending. Legislature neither contemplated nor intended hearing of both the applications by one particular court room. A bench of NCLT is a unit and filing of application and petitions are before the bench of the NCLT and not before a particular court. How the different courts transact their business and how the cases are listed before different court of a particular bench are delineated by general and special order passed by the President. An applicant who has filed an application before the NCLT has no right to claim that his application be heard by particular court of a bench. Transaction of business by different courts of bench of NCLT, as observed above, is in the domain of the President of the NCLT and sub-section (2) of Section 60 never intended to provide for hearing of a particular application by a particular court. In the legislative scheme, hearing of cases, applications and petitions by a particular court of NCLT Bench was not in contemplation nor the provision was made in that light. Submission of the Appellant that sub-section (2) of Section 60 is an example of bad drafting and what was intended by legislature was that both the proceedings should be heard by one court room cannot be accepted. All legislation has to be accepted to be enacted containing clear legislative policy and there is no warrant to accept the submission of the Appellant that sub-section (2) of Section 60 is an example of bad drafting. Where the petition filed for insolvency resolution under Sections 7, 9 and 10 as well as application filed under Section 95 against the personal guarantor are to be heard together or heard separately is a matter of general or special order issued by the President for hearing the application filed in a particular bench and no fetter can be read under sub-section (2) of Section 60 on exercise of general and special order passed by the President for hearing of the applications.

We, in the present case, have to answer the question raised by the Appellant that the order passed by a different court from one where insolvency application is pending, is without jurisdiction. We, thus, in the present case has to consider as to whether the order passed under Section 95 directing for appointment of a Resolution Professional for submitting a report is without jurisdiction only on the ground that it is passed by different court than one where insolvency application is pending. Whether the court where Section 95 application is pending was required to necessarily sent the proceedings before Court where insolvency proceedings is pending can be answered holding that since the court did not lack jurisdiction it was not necessary for the court to refuse to proceed to hear.

Now we come to the cases which have been relied by Counsel for the Appellant in support of his submission. The judgment of this Tribunal in Mahendra Kumar Jajodia (supra) was a case where this Tribunal were examining the question as to when no insolvency proceeding pending against corporate debtor whether an application under Section 95 can be entertained by the Adjudicating Authority. The Adjudicating Authority in the said case has refused to entertain the application against which Appeal filed was allowed by this Tribunal and it was held that even if no insolvency proceedings are pending against the Corporate Debtor, application under Section 95 can be entertained. In the above context, sub-section (2) of Section 60 was interpreted in Paragraphs 7 and 8 of the judgment, already noticed and extracted above. The judgment was not considering the issue which has been raised in the present appeal, hence, no assistance can be taken by the Appellant from the above judgment.

The next case of this Tribunal relied by the Appellant in “Schweitzer Systemtek India Pvt. Ltd. vs. Phoenix ARC Pvt. Ltd. & Ors.- 2017 SCC OnLine NCLAT 235”. In the above case, an order was passed by the Adjudicating Authority admitting Section 7 application and imposing an order of moratorium. The expression ‘its’ as occurring in Section 14 with regard to moratorium was under consideration in the above case. In the above context, Section 60 was also noticed by this Tribunal. Observation has been made on Section 60 in Paragraph 6 which is to the following effect:-

Learned Counsel for the Appellant has relied on the words ‘same very bench of the Adjudicating Authority’ as occurring in paragraph 6 of the judgment. The words ‘same very bench’ as occurring in Section 6 has to be understood as per the definition of bench as contained in the IBC. This Tribunal in the above case was not considering hearing of Section 95 application by a particular court and observation in paragraph 6 cannot be read to mean that what was held by this Tribunal was that the same bench of the NCLT should hear both the insolvency resolution process application as well as application against personal guarantor. Reliance on the said judgment is thus wholly erroneous.

Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant has placed reliance on judgment of the Hon’ble Supreme Court in “Amulya Chandra Kalita vs. Union of India and Ors.- (1991) 1 SCC 181”. In the above case, the question which came for consideration before the Hon’ble Supreme Court was that whether the Administrative Member of the Central Administrative Tribunal could alone decide the case in the face of the Hon’ble Supreme Court’ earlier decision in “S.P. Sampath Kumar v. Union of India-(1987) 1 SCC 124”. The Hon’ble Supreme Court answered the said question in holding that as per the provision of Administrative Tribunals Act, 1985, every bench of tribunal must consist of a Judicial Member and an Administrative Member, hence, the case could not have been disposed of by the Judicial Member alone. In paragraph 4, following was held:-

The question which arose for consideration in the above case was entirely different and has no bearing on the issue which has been sought to be raised in the present case. The above judgment is clearly distinguishable.

Another judgment of this Tribunal relied by the Appellant is “Monica Jajoo vs. PHL Fininvest Pvt. Ltd. & Anr.- 2023 SCC OnLine NCLAT 348” in which a two members bench was hearing a case arising out of a proceeding under Section 95 against personal guarantor. In the above case, application under Section 95 was heard by Court IV of NCLT, New Delhi by which order, proceedings were initiated and Resolution Professional was appointed. It was contended that the liquidation proceedings of the Corporate Debtor were pending in Bench III (Court III of the NCLT, New Delhi), hence, application under Section 95 with regard to which order was passed by Court IV of NCLT New Delhi is not in accordance with law. Judgment of this Tribunal in “Mahendra Kumar Jajodia” (supra) was relied. Two member bench in the aforesaid case noticed Section 60 of the IBC and made following observations in paragraphs 23 and 24:-

The above observations of this Tribunal indicate that what was held in the above case was on the basis of judgment of this Tribunal in “Mahendra Kumar Jajodia” (supra). We have already noticed that the judgment of this Tribunal in “Mahendra Kumar Jajodia” (supra) was not considering the issue which has arisen in the present case, hence, this Tribunal could not have relied in the said judgment for laying down the proposition as contained in paragraphs 23 and 24 noticed above. We have already held that the word ‘NCLT’ used in sub-section (2) of Section 60 refers to NCLT including its benches and was not to a particular court room. Thus, the conclusion to which this Tribunal arrived in “Monica Jajoo” case is not in accord with the statutory scheme delineated by the IBC. Reliance on judgment of this Tribunal in “Mahendra Kumar Jajodia” (supra) was misplaced, hence, two-member bench erred in laying down that sub-section (2) of Section 60 provides both in liquidation proceeding as well as Section 95 proceedings have to be heard by the same court of NCLT.

We, thus, are of the view that the judgment of this Tribunal in “Monica Jajoo” does not lay down the correct law. The interpretation which is sought to be advanced by the Appellant in event it is accepted shall lead to uncertainty and conflict regarding jurisdiction of a NCLT to entertain an application under Section 95. As observed above, all applications and petitions filed in NCLT including its benches have to be heard and decided as per the general and special order of the President. Applications are listed in different court of one bench of NCLT as per the general and special order of the President. When a matter is listed before a particular court of bench of NCLT, the Court where the matter is listed has necessarily jurisdiction to entertain it. The submission that court has no jurisdiction since application of insolvency is pending in different court of same bench if accepted the same will be contrary to general and special order of the President under which Section 95 application is listed in different court. We, thus, are of the view that in the facts of the present case, impugned order dated 18.12.2023 passed by Court III of the NCLT, Mumbai Bench was well within its jurisdiction. Similarly, the impugned order passed by NCLT, Court 1 dated 17.08.2023 was well within the jurisdiction of the court which passed the order. No infirmity can be found with the impugned order on the submission which has been advanced by the Appellant in the present appeal.

In view of the foregoing discussions, we answer both the above questions in following manner:-

In result, both the Appeals are dismissed. We make it clear that we have not gone into and considered the merits of the application under Section 95 filed by the Financial Creditor and it is for the Adjudicating Authority to proceed and decide the application in accordance with law.