Central Bank of India vs Alfonso

Central Bank of India, the Financial Creditor / Applicant herein has filed this application under Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and Section 95(1) of Insolvency and Bankruptcy Code, 2016 against Mrs. Alfonso, Respondent / Personal Guarantor herein for initiating Insolvency and Resolution Process against the Respondent / Guarantor.

Part 1 of the application sets out the details of the Applicant / Financial Creditor i.e. Central Bank of India. Its business address is at 48/49, Montieth Road, Egmore, Chennai – 600 008 within the jurisdiction of this Tribunal. Part 2 of the application sets out the details of the Personal Guarantor namely Ms. Alfonso residing at No.6, First Floor, Wellington Estate, 53, Ethiraj Salai, Egmore, Chennai - 600008. In part 3 of the application, the Applicant has given the particulars of debt i.e. total debt (including interest or penalties) Rs. 1,60,87,73,025/- payable by the guarantor, the date on which the debt was due i.e. 15.02.2021 and the date on which the default occurred i.e. 27.06.2019.

It is stated that at the request of the Corporate Debtor i.e. M/s. Oceanic Edibles International Ltd., and the Personal Guarantors including Ms. Alfonso, the Applicant along with other Consortium Banks sanctioned the working capital facility. The Corporate Debtor executed the loan documents. The Respondent Ms. Alfonso executed the deed of guarantee dated 21.07.2014 guaranteeing the repayment of working capital facilities. It is stated that operation and conduct of the loan account became irregular and the account became NPA on 10.09.2013. The Consortium Banks filed O.A. No. 335 of 2015 for recovery of the outstanding dues before DRT-2 Chennai against the Corporate Debtor and the Guarantors. The DRT passed the final order on 21.02.2019 in favour of the consortium banks for Rs. 103,04,18,350.73 together with future interest at the rate of 12% per annum (simple), from the date of filing of O.A till the date of realization in full, jointly and severally against the Corporate Debtor and the Guarantors including Ms. Alfonso. The DRT also issued recovery certificate in DRC No. 313/2019 on 27.06.2019.

It is stated that as per Section 19(22-A) of Recovery of Debts and Bankruptcy Act, 1993, the recovery certificate issued by the Presiding Officer under Section 19(22) of the Act shall be deemed to be a decree or order of the Court for the purpose of initiation of Insolvency proceedings against the personal Guarantor. It is stated that on 27.06.2019 a notice was issued to the Corporate Debtor and the Guarantors including Ms. Alfonso calling upon them to deposit the amount and the interest.

It is stated that one of the consortium member i.e. ICICI Bank Ltd filed an application under Section 7 in CP/563/2017 before the Tribunal against the Corporate Debtor for initiation of CIRP which was allowed by the Tribunal vide order dated 13.09.2017. On an application filed by the RP for liquidating the Corporate Debtor, the Tribunal passed an order for liquidation of the Corporate Debtor.

It is stated that the IBC came into effect on 01.12.2016 and the provisions of Part III relating to personal insolvency of the Corporate Debtor were brought into force w.e.f. 01.12.2019. Prior to such dates, there was no occasion to initiate the personal insolvency proceedings against the Guarantor.

It is stated that the Applicant issued Form-B Demand Notice to the Respondent / Guarantor on 08.12.2020 which was received by the Guarantor, but the Guarantor / Respondent did not make the payment and therefore she is liable to pay a sum of Rs. 153,83,32,173/- as on 23.09.2020 together with interest.

On this application, a report under Section 99 of IBC was called from the IRP Kasi Viswanathan S appointed vide order dated 21.07.2022. The IRP submitted the report interalia that on an application filed by one of the consortium members i.e. ICCI Bank Limited, CIRP was initiated against the Corporate Debtor. It was not successful and consequently the Corporate Debtor landed into liquidation vide order dated 10.12.2018 which process is still going on. It is stated that the DRT-II at Chennai also passed an order in O.A. No. 335 of 2015 in favour of the Financial Creditors holding the Corporate Debtor, Corporate Guarantor and Personal Guarantors liable to pay a sum of Rs. 103.04 Crores together with interest at the rate of 12% per annum from the date of filing the OA till the date of realization. It is stated that in terms of the order dated 21.02.2019, DRT-II at Chennai issued a recovery certificate vide DRC. No. 313/2019 on 27.06.2019 making all jointly and severally liable to pay the amount. It is stated that the recovery officer then directed the Corporate Debtor, Corporate Guarantors and Personal Guarantors vide notice dated 27.06.2019 to appear before the DRT and submit compliance report of payment. It is stated that neither the compliance was submitted nor the amount was paid. It is stated that the Financial Creditor/Applicant sent a notice to the Personal Guarantor Ms. Alfonso on 08.12.2020, but she did not pay any amount. It is stated that as per the break up provided a sum of Rs. 153,83,32,173/- is due against the Guarantor.

It is stated that in the Application, the date of default is mentioned as 27.06.2019 which is the date on which the debt recovery certificate was issued by the DRT-II. Though the demand notice dated 08.12.2022 caused by the Applicant shows the default date as 10.09.2013 which was the date of NPA classified in the books of the Bank, but right to claim the amount pursuant to the debt recovery certificate accrued on 27.06.2019. It is stated that the application has been filed on 28.02.2021 in which, the default date has been taken as 27.06.2019, the date on which the debt recovery certificate was issued.

Even after giving enough opportunities to file the reply, the Respondent failed to do so.

We have heard Ld. Counsel for the Applicant and perused the report of IRP.

Ld. Counsel for the Financial Creditor reiterated that the order of DRT and therefore the order of the DRT has become final. Ld. Counsel stated that the claim of the Financial Creditor as per the DRC is valid and proper.

Section 95 of IBC provides that a Creditor may apply either by himself or jointly with other Creditors to the Adjudicating Authority for initiating Insolvency Resolution Process under the Section by submitting an application. The application shall be accompanied with details and documents relating to the debts owed by the Debtor to the Creditors as on the date of the application; failure by the Debtor to pay the debt within a period of 14 days of the service of the notice of demand; and relevant evidence of such default or non-repayment of debt.

A perusal of the application and the documents would show that the Applicant / Financial Creditor along with other consortium Banks sanctioned the working capital facility in favour of the Corporate Debtor M/s. Oceanic Edibles International Ltd. The Guarantors including the Respondent Ms.Alfonso executed the deed of guarantee on 21.07.2014. The Corporate Debtor became irregular in repayment of debt and its account became NPA on 10.09.2013 which in the demand notice in the present application has been stated as the date of default. The consortium Banks filed O.A. No. 335 of 2015 for recovery of the outstanding dues before the DRT –II Chennai against the Corporate Debtor and the Guarantors including the Respondent. The DRT-II passed an order / decree on 21.02.2019 for Rs. 103,04,18,350.78 together with interest holding the Corporate Debtor and the Guarantors including the Respondent jointly and severally liable to pay the debt. The DRT-II issued debt recovery certificate in DRC No. 313/2019 on 27.06.2019 which is stated as date of default in the application by the Financial Creditor / Applicant. Section 19(22A) of RDB Act, 1993 provides that the recovery certificate issued by the Presiding Officer of the DRT under Section 19(22) of the Act shall be deemed as decree or order of the Court for the purpose of initiation of Insolvency proceedings against the personal guarantor.

In the instant case, before filing the application under Section 95 of IBC, the Applicant caused a demand notice on 08.12.2020 after getting the debt recovery certificate, calling upon the Respondent to pay the amount. In the demand notice issued in Form-B under Rule 7(1), total outstanding debt including interest or penalties / debt in default was stated as Rs. 153.83 Crores as on 23.09.2020. The date when the default occurred was stated as 10.09.2013 (date of NPA). The said notice also has a reference of the Tribunal order dated 13.09.2017 qua the CIRP of the Corporate Debtor, liquidation order dated 10.12.2018, debt recovery certificate No. 313/2019 dated 27.06.2019, deed of guarantee dated 21.07.2014 and O.A. No. 335 of 2015. It is not the case that the demand notice only has a reference of the date when the account of the Corporate Debtor became NPA. It also has a reference of the debt recovery certificate issued by DRT – II vide dated 27.06.2019 holding the Respondent jointly and severally liable with the Corporate Debtor and other Guarantors. It was held in the case of Dena Bank (Bank of Baroda) Vs. C. Sivakumar Reddy and another (supra) that non-payment of amount awarded under a decree, judgment or arbitral award would fall under the definition of financial debt and would give rise to a new cause of action to initiate insolvency proceedings under the Code. It was held that the recovery certificate in itself gives fresh cause of action to initiate CIRP. Admittedly, the date when the account became NPA gave rise to the Applicant to initiate proceedings but the debt recovery certificate issued by the DRT would give rise to a fresh cause of action for the Financial Creditor to initiate the insolvency proceedings, if the debt remains unpaid.

In the application under Section 95, in part 3, the Applicant has given the total debt / amount of debt as Rs. 160,87,73,025/- as on 15.02.2021 and the date, on which the debt became due / default occurred as 27.06.2019. The debt amount and the dates have been given on the basis of the debt recovery certificate issued by the DRT-II, Chennai. The variation in the amount as stated in the notice and the application is because of addition of interest on the principal amount due and payable by the Respondent from the date, the debt recovery certificate was issued as in the notice, the interest was calculated upto 23.09.2020 while in the application, the interest has been calculated upto 15.02.2021. The said variation cannot be construed as mismatch between the amounts stated in the demand notice and the application.

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 Creditor and the Creditor has the 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 present case, the debt amount is more than the threshold limit required for initiating Insolvency proceedings against the Personal Guarantor. The date of default is reckoned as 27.06.2019 i.e., from the date of issuance of Recovery Certificate. The present Application has been filed on 28.02.2021 i.e. within the limitation period of three years from the date of default.

In light of the afore-said discussions, the present Application i.e. CP(IB)/219(CHE)/2021 is admitted for initiating the insolvency resolution process against Ms. Alfonso viz. the Respondent herein. We hereby direct as follows;

a. Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed, and

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

c. The debtor shall not transfer, alienate, encumber, or dispose of any of his assets or his legal rights or beneficial interest therein:

d. 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.

a. details of the order admitting the application;

b. particulars of the resolution professional with whom the claims are to be registered; and

c. the last date for submission of claims.

a. the information disclosed in the application filed by the debtor under Sections 94 or 95 as the case may be, and

b. claims received by the Resolution Professional under Section 102 within 30 days from the date of the notice. The debtor shall prepare a repayment plan under Section 105, in consultation with the Resolution Professional, containing a proposal to the Creditors for restructuring of his debts or affairs.

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

a. carry on the debtor, business or trade on his behalf or in his name: or

b. realise the assets of the debtor; or c. administers or dispose of any funds of the debtor.

The repayment plan shall include the following, namely;

a. justification for preparation of such repayment plan and reasons based on which the creditors may agree upon the plan;

b. provision for payment of fee to the Resolution Professional; c. such other matters as may be specified.

Accordingly CP/IB/219/CHE/2021 stands admitted.