HDFC Bank Ltd vs Mr. Himanshu Singh

This is an application filed by HDFC Bank Ltd (hereinafter referred to as the Applicant/Financial Creditor/Applicant Bank) under Section 95 of the Insolvency and Bankruptcy Code (hereinafter referred to as the Code) r/w Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantor to Corporate Debtor) Rules, 2019. The prayer made is to initiate the Insolvency Resolution Process against the Respondent/ Personal Guarantor, Mr. Himanshu Singh who stood as Personal Guarantor to the credit facilities availed by the Corporate Debtor i.e., M/s Kriti Prakashan Pvt. Ltd.

On presentation of the application, this Tribunal vide order dated 16.02.2024 appointed the Resolution Professional Mr. Mukesh Kumar Jain to file report under Section 99 of the Code, which has been filed on 11.03.2024.

The Applicant, in its application under Section 95 of the Code, has submitted that a cash credit facility amounting to Rs. 13 Crores was granted to the Corporate Debtor, as per a sanction letter dated 18.07.2018, and was secured by a deed of hypothecation dated 18.07.2018. The cash credit facility is secured by an equitable mortgage over immovable properties. In addition, the said credit facility is further secured by cross-collateralization involving fixed assets of two companies, namely, Spond Publishers Pvt. Ltd. and 5e Education Pvt. Ltd., wherein the Respondent/Personal Guarantor serves as one of the Directors.

The Applicant further asserts that the guarantor executed a letter of continuing guarantee on 18.07.2018 in relation to the aforementioned facility extended between HDFC Bank Ltd. and the Corporate Debtor, M/s Kriti Prakashan Pvt. Ltd. Additionally, under Clause 7 of the said letter dated 18.07.2018, the guarantee remains in full force and effect until the Borrower is fully discharged of all liabilities under the credit facility by the Bank and such discharge is confirmed in writing by the Bank.

However, after availing the aforesaid Credit facility, the Principal Borrower failed to maintain the financial discipline as per the terms and conditions of the sanction letter dated 18.07.2018 to which the facility became irregular. The Corporate Debtor after being unable to meet its repayment obligations was classified as NPA on 28.09.2019.

Subsequently, the Applicant/Financial Creditor filed an application bearing OA No. 1740 of 2019 with the Debts Recovery Tribunal, Lucknow, on 19.12.2019, which is pending adjudication.

It is submitted that the letter of Continuing Guarantee dated 18.07.2018 provides that, in the event of default by the Borrower in repaying the dues to the Applicant Bank or in discharging its liabilities under the facility, the Guarantor(s) shall, upon the first demand by the Applicant Bank, immediately pay the said dues. The decision of the Applicant Bank regarding such default or failure by the Borrower, and the amount claimed, shall be final, conclusive, and binding on the Guarantor(s).

Following the classification of the Corporate Debtor as a Non-Performing Asset (NPA) on 28.09.2019, the Applicant/Financial Creditor issued a Recall Notice cum Invocation of Guarantee dated 03.12.2019, demanding repayment of the total outstanding loan amount of Rs. 8,63,15,671.18/- as of 31.10.2019, with further interest accruing from 01.11.2019. The notice called upon the Corporate Debtor and the Personal Guarantors to repay the outstanding dues within 7 days of the notice. However, no payment was made in response to the demand.

The Applicant/Financial Creditor served a demand notice on 27.08.2022 upon the Respondent/Personal Guarantor under Form-B in terms of Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtor) Rules, 2019 (hereinafter referred to as 'AA Rules, 2019') demanding payment of Rs. 8,63,15,671.18/- as on 31.10.2019 along with interest, penal interest and other charges.

However, the Respondent/ Personal Guarantor failed to repay the outstanding debt within 14 days from the receipt of the demand notice to the Applicant Bank as per the provisions of the Code. In response, the Respondent/Personal Guarantor, through a letter dated 22.09.2022, denied the allegations made in the demand notice, claiming it to be incomplete and fraudulently constructed. The Respondent/Personal Guarantor further requested the invocation of the arbitration clause for a fair and amicable resolution of the present dispute.

In the case of the Corporate Debtor, a Corporate Insolvency Resolution Process (CIRP) was filed before this Tribunal in C.P. (IB) No. 33/2021, filed by the Small Industries Development Bank of India (SIDBI) against M/s Kriti Prakashan Pvt. Ltd/Corporate Debtor. However, by way of an order dated 18.09.2023 in Company Appeal (AT) (Ins) No. 708/2022, the Hon'ble NCLAT stayed the CIRP since the settlement of the debt with the Primary Financial Creditor/SIDBI had been made, and an withdrawal application under Section 12A of the Code was filed by SIDBI before this Tribunal. The Applicant, however, has filed an objection to the withdrawal application, which is currently pending adjudication.

Since the entire amount of debt is still not realized, the Applicant/Financial Creditor has filed the present petition u/s 95 of the Code r/w rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 on 11.08.2023.

This Tribunal vide order dated 16.02.2024, had appointed Mr. Mukesh Kumar Jain as Resolution Professional having Registration No. IBBI/IPA-001/IP-P-01960/2020-2021/13089 having his address T-1, 3rd Floor, Pankaj Arcade, Plot No. 16 , Sector-5, Dwarka, Delhi-110075 to examine the petition and file his report, having AFA valid upto 30.06.2025.

The Resolution Professional has filed the report u/s 99(1) of the Code on 11.03.2024 before this Tribunal.

This report has been prepared by the Resolution Professional in compliance to our order dated 16.02.2024 after giving opportunity to the Respondent/Personal Guarantor vide the letter dated 20.02.2024 issued by him to the Respondent/Personal Guarantor to explain and provide the details of repayment along with the proof of repayment and other details as required by him. After examining and analyzing all the details collected from the Applicant/Financial Creditor as well as the Respondent/Personal Guarantor, the Resolution Professional submitted the report under section 99(1) of the Code recommending for admission of this application u/s 100 of the Code to start the Insolvency Resolution Process against the Respondent/Personal Guarantor.

The ground(s) for the admission of the present application as provided in the said report are reproduced verbatim as follows: -

The Personal Guarantor/Respondent had filed a reply against the recommendations made in the report under section 99 of the IBC on the following grounds:-

a. The Respondent contends that the report submitted under Section 99 of the Code is time-barred, as Section 99(1) requires the Resolution Professional (RP) to submit the report "within ten days of his appointment." However, the RP filed the report in compliance with the Tribunal's order dated 16.02.2024 on 11.03.2024. Therefore, the report should be rejected for violating the statutory requirement under Section 99(1) of the IBC, 2016, with regard to the filing timeline.

b. The Respondent further contends that the present application is not maintainable because the demand notice was issued and signed by the Applicant’s Advocate, Ms. Shreya Chaudhary. The notice lacks any supporting resolution or authority letter from the Applicant Bank authorizing Ms. Chaudhary to issue the demand notice in Form-B. The Respondent relies on Senthil Kumar Karmegam vs. Dolphin Offshore Enterprises (Mauritius) Pvt. Ltd. [Company Appeal AT (Insolvency) No. 154 of 2017], which held that an insolvency resolution process cannot be initiated based on a demand notice sent by an advocate of the operational creditor without evidence that the advocate holds any position with or in relation to the operational creditor.

c. The Respondent argues that there is no existing contract of guarantee between the parties, and the nature of the guarantee must be determined through the clauses of the deed of guarantee, rather than by the letter of continuing guarantee dated 18.07.2018. Furthermore, the Respondent submits that the Applicant/ Financial Creditor has failed to provide any documentation demonstrating how the guarantee was invoked, which would establish the liability of the Respondent/Personal Guarantor in the present proceedings.

d. The Respondent contends that the terms of the contract of guarantee have not been complied with by the Applicant/Financial Creditor; therefore, no amount is due and payable to the Applicant/Financial Creditor by the Respondent/ Personal Guarantor. As a result, the application filed is liable to be rejected.

e. The Respondent further contends that the application is barred by limitation, as the three-year limitation period commences from the date of default. In this instance, the date of default specified in the demand notice (Form-B) dated 27.08.2022 is 28.09.2019 and the application filed under Section 95 of the Code is on 11.08.2023, thereby exceeding the prescribed limitation period. The Respondent relies on Mr. CL Sharma v. Bank of Maharashtra and Anr, NCLAT New Delhi, Company Appeal (AT) (Insolvency) No. 316 of 2024 with Company Appeal (AT) (Insolvency) No. 317 of 2024, and Bank of Baroda v. Rajiv Rai (CP/89/IB/2021), NCLT Chennai. Furthermore, the Respondent/Personal Guarantor submits that the Applicant failed to demonstrate any acknowledgment of debt by the Respondent/Personal Guarantor in the present proceedings.

f. The Respondent submits that the vakalatnama filed in the application is defective, as it lacks the requisite court fees and welfare stamps. Additionally, the authorization for assignment submitted by the Resolution Professional has also expired.

g. The Respondent also emphasizes that they proposed a one-time settlement offer to the Applicant on behalf of the Corporate Debtor.

A Rejoinder has been filed by the Resolution Professional on 24.07.2024 countering all the contentions raised in the Reply of the Respondent/Personal Guarantor. The Resolution Professional has made the following averments in the Rejoinder:

a. It is submitted that the argument raised by the Respondent/Personal Guarantor regarding the failure to submit the report within the 10-day timeline specified in Section 99(1) of the Code is a mere façade, as the alleged delay was caused by the Respondent/Personal Guarantor's non-cooperation in providing the necessary information. Pursuant to the order dated 16.02.2024, the Resolution Professional requested relevant information required for the report under Section 99 of the Code through various emails dated 20.02.2024, 26.02.2024, and 05.03.2024, but received no response. Thus, the Respondent/Personal Guarantor cannot take undue advantage of its own wrongful actions to evade the provisions of the Code.

b. It is also submitted that it is a well-established principle of construction that the contract must be read as a whole, and the parties' intentions should be derived from the language used within the contract, rather than its title. Therefore, the letter of continuing guarantee dated 18.07.2018 can be termed as a Contract of guarantee and consequently, by virtue of the said letter dated 18.07.2018, the Respondent/Personal Guarantor has explicitly bound himself to the terms of the agreement and agreed to remain liable for the dues owed by the Principal Borrower.

c. It is further submitted that the Applicant/Financial Creditor initially invoked the guarantee through a recall notice dated 03.12.2019 for the payment of an outstanding amount of Rs. 8,63,15,671/-, which is still yet to be paid. Therefore, the contention raised by the Respondent/Personal Guarantor that the guarantee has not been invoked by the Applicant/Financial Creditor is erroneous.

d. The Resolution Professional further states that, according to the judgment passed by the Hon’ble Supreme Court on 10.01.2022 in Re: Cognizance for Extension of Limitation (Suo Moto Writ Petition (C) No. 3 of 2020), the period from 15.03.2020 to 25.03.2022 has been excluded, thus rendering the present petition filed by the Applicant/Financial Creditor within the limitation period and maintainable.

e. With regards to the Respondent's contention of clear establishment of debt and default, it is strongly submitted that the liability of the Guarantor is co-extensive with that of the Principal Borrower. Since the debt and default by the Principal Borrower are duly admitted and undisputed, the Respondent/Personal Guarantor cannot evade liability to the Applicant/Financial Creditor.

In Pursuance of the directions passed by this tribunal vide order dated 08.10.2024, the Personal Guarantor/Respondent of the Corporate Debtor has submitted his written submission which has been duly recorded under Dairy no. 2247 on 25.10.2024 and has been taken into consideration.

RESPONDENT/PERSONAL GUARANTOR

The Personal Guarantor/Respondent had also filed a written submission in compliance with order dated 30.01.2024 and made submissions against the application filed under section 95 of the Code on the following grounds:-

b. The Respondent submits that the application under Section 95 is not maintainable, as there is no ongoing CIRP against the Corporate Debtor. In the absence of such proceedings, the application against the Respondent/Personal Guarantor is barred under Section 60(2) of the IBC. Further, the Respondent asserts that the present proceedings constitute harassment, as no recovery steps have been initiated by the Applicant/Financial Creditor against the Corporate Debtor, the primary debtor.

c. The Respondent further submits that this Tribunal lacks jurisdiction over the present application, asserting that the appropriate forum is either the Civil Court or the Debt Recovery Tribunal (DRT). Additionally, since the Applicant/Financial Creditor has already initiated recovery proceedings before the DRT in Lucknow, which is pending adjudication, the present application violates the interest of justice and should be immediately stayed.

We have heard the submissions of the Applicant/Financial Creditor and perused the Report received under Section 99 of IBC, 2016 filed by the RP recommending admission of the Section 95 Application and initiation of the IR process against the Personal Guarantor for the purpose of passing of order u/s 100 of the Code.

After perusing the record, concerning the present petition filed by the Financial Creditor U/s 95 of the Code. We find that the personal guarantor, Mr. Himanshu Singh, executed a letter of continuing guarantee on 18.07.2018, in favor of the Applicant/Financial Creditor to secure the repayment of the principal amount of the cash credit facility for Rs. 13 crores, along with interest, payable by M/s Kriti Prakashan Pvt. Limited in relation to the sanction letter dated 18.07.2018. The terms of the guarantee clearly indicate that it is irrevocable, the Guarantors' obligations are unconditional, and the guarantor shall pay the Applicant/Financial Creditor on its first demand. Additionally, the guarantee remains valid until the borrower has fully repaid the loan.

Further, it is to be noted that, in compliance with the order dated 16.02.2024, the RP submitted a report u/s 99 of the Code with recommendations for admitting the present matter and initiating the insolvency resolution process against the Personal Guarantor.

In the present case, the personal guarantee of the Corporate Debtor was invoked through a letter dated 03.12.2019. Further, a demand notice under Form-B, in accordance with Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtor) Rules, 2019, was duly served on the Personal Guarantor on 27.08.2022. The Respondent acknowledged receipt of this notice by responding on 22.09.2022, and subsequently on non-payment of the outstanding dues, the application under Section 95 of the Code was filed by the applicant on 11.08.2023. After considering the above details and taking into account the invocation of the guarantee against the Personal Guarantor and its subsequent acknowledgement, we find that the present Application has been filed within the limitation period after considering the exclusion period as provided in the judgement passed by the Hon’ble Apex Court in SUO MOTU WRIT PETITION (C) NO. 3 OF 2020 titled IN RE: COGNIZANCE FOR EXTENSION OF LIMITATION for calculating the limitation.

It is stated in para 5 of the judgement that the Hon’ble Supreme Court directs that the period between 15.03.2020 till 28.02.2022, shall be excluded for the purpose of limitation. The relevant paragraph is reproduced below: -

If limitation as pleaded by the Personal Guarantor starts from 28.09.2019 which is mentioned as the date of default in Form B, the Application should have been filed within three years from that date i.e. by 27.09.2022. However, before this date, covid pandemic started and certain period falling within covid period has been excluded by the Suo Moto order of the Hon’ble Supreme Court, which is reproduced in above para.

Keeping in view the above details of the limitation period exclusion/extension as ordered in the Suo Moto Order of the Hon’ble Supreme Court, if limitation is counted from 28.09.2019, the total 169 days would have expired by 15.03.2020 and 927 days would have remained out of total period of 3 years 1096 days. Thus, total limitation period as per Suo Moto Order of the Hon’ble Supreme Court, would get extended by 927 days for invoking the guarantee against the personal guarantor by virtue of aforesaid judgement. The period of limitation would again commence from 28.02.2022 till 13.09.2024 for the purpose of invoking the guarantee. The Applicant invoked the guarantee on 27.08.2022 and the application is filed on 11.08.2023. Thus, it is clearly established that the guarantee against the Personal Guarantor was invoked well within limitation period on 27.08.2022 by issuing notice in Form B and thereafter, this application is filed on 11.08.2023 which is also well within the period of limitation.Upon the borrower’s failure to repay the debt, the Applicant issued a Demand Notice in Form B on 27.08.2022 under Rule 7(1) of the Insolvency and Bankruptcy Rules, 2019. However, no payment was received towards the outstanding amount of Rs. 8,63,15,671.18/- as on 31.10.2019 including till date interest, penal interest, and other charges.

With respect to the jurisdiction, Personal Guarantor took the plea that this application filed under section 95 is not maintainable as there is no ongoing CIRP proceeding against the Corporate Debtor and hence in the absence of such proceeding, the application against the Respondent/Personal Guarantor is barred under Section 60(2) of the IBC. As per the Ld. Counsel of the Respondent/Personal Guarantor, the jurisdiction for this case is with the Debt Recovery Tribunal (hereinafter referred to as “DRT”) or Civil Court, and since an application has already been filed before the DRT Lucknow, the present application filed before this tribunal violates the interest of justice. In view of the said contention raised by the Respondent/Personal Guarantor, it has been observed that as per section 60(1) of the Code, 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 persons is located. As the registered office of the Corporate Debtor i.e. M/s Kriti Prakashan Private Limited is VEDANG TOWER,

226020, Uttar Pradesh, India, it falls within the jurisdiction of NCLT Allahabad, and therefore as per section 60(1) of the Code, the jurisdiction of the Personal Guarantor of this Corporate Debtor will also lie with NCLT Allahabad. Moreover, it is also important to note that a CIR Process was filed before this Tribunal in C.P. (IB) No. 33/2021, by the Small Industries Development Bank of India (SIDBI) against the Corporate Debtor. However, by way of an order dated 18.09.2023 in Company Appeal (AT) (Ins) No. 708/2022, the Hon'ble NCLAT stayed the CIRP since the settlement of the debt with the Primary Financial Creditor i.e., SIDBI had been made, and subsequently, a withdrawal application under Section 12A of the Code was filed by SIDBI, which is still pending for adjudication before this Tribunal. Further the initiation of insolvency against the Personal Guarantor was started by issuing notice in Form B when the CIR Process against the Corporate Debtor was going on. Therefore, once the process u/s 95 for initiation of insolvency against the Personal Guarantor has started during the pendency of the CIR Process against the Corporate Debtor for which he has given guarantee, subsequently application u/s 95 can be very well filed against that Personal Guarantor in the same NCLT in which the CIR Process against the Corporate Debtor was going on at the time of issuance of notice under Form B, if he does not make payment of unpaid debt in default demanded in the said notice. Therefore, we find that the Application under section 95 against the Personal Guarantor under consideration in this order, has been correctly filed before this NCLT that has jurisdiction over the Corporate Debtor for which this Personal Guarantor has given guarantee, whether her jurisdictional authority is considered as per the provision of section 60(1) or section 60(2) of the Code.

This issue is also covered by an order passed by the Hon’ble NCLAT, Chennai in the matter of Mahendra Kumar Agarwal versus PTC India Financial Services Ltd. & Ors. -Company Appeal (AT) (CH) (INS.) No. 8 of 2023. In this order ,the Hon’ble NCLAT was dealing with the appeal filed by a Personal Guarantor of GATI Infrastructure Bhasmey Power Pvt Ltd. challenging the order dated 21.02.2022 passed u/s 100 admitting the Personal Guarantor under PIRP by NCLT Hyderabad, on the ground that the impugned order was passed without any jurisdiction and in an erroneous manner as at the time of passing of the impugned order , no CIRP or liquidation process against the Principal Borrower /Corporate Debtor was going on at the time of filing of application seeking to initiate PIRP against the Personal Guarantor. The relevant paras of the said order dated 21.07.2022 of the coordinate bench NCLT Hyderabad is reproduced as under: -

The Hon’ble NCLAT after considering the above findings of the order of the NCLT Hyderabad and hearing to the arguments of the Ld. Counsels of the Appellant Personal Guarantor and Respondent Financial Creditor and Resolution Professional, upheld the order dated 21.07.2022 of the Coordinating bench NCLT- HYD passed in CP (IB) No. 335 / 95 / HDB / 2020, holding as under: -

We also placed our reliance on the judgment passed by the Hon’ble Apex Court in Lalit Kumar v. Union of India & Ors., reported in (2021) 9 SCC, wherein it was held as follows-:

Further, one of the contentions raised by the Ld. Counsel for the Personal Guarantor/ Respondent was that the present application is not maintainable as the demand notice was issued and signed by the Applicant’s Advocate, Ms. Shreya Chaudhary and therefore the said demand notice cannot be considered to be validly issued. The Ld. Counsel for RP had submitted that as per the prescribed format for issuance of Form-B the said form can be signed by the creditor or the person authorized on his behalf. It has been observed that the petition filed under section 95 of the Code has been based upon the Form-B signed by Ms. Shreya Chaudhary (Applicant’s Advocate) and this petition is duly signed by the Applicant/ Financial Creditor. Therefore, we don’t see any substantial ground in the contention raised by the Personal Guarantor/ Respondent.

Ld. Counsel for the Personal Guarantor/ Respondent, further argued that the report under Section 99 was not filed within the required ten-day period following the appointment of the Resolution Professional. It is observed that the Resolution Professional, in their report dated 11.03.2024, indicated that despite providing the Respondent with more than ten opportunities to supply the necessary information as mandated by Section 99(6) of the Code, no response was received. The Resolution Professional’s rejoinder, dated 24.07.2024, further affirms that the delay was due to non-cooperation by the Respondent/Personal Guarantor. Accordingly, as submitted by the Resolution Professional, the delay in submitting the report within the mandated 10-day period is attributable to the Respondent/Personal Guarantor, himself. Ld. Counsel for the Resolution Professional has argued that the Respondent/Personal Guarantor cannot be permitted to take advantage of his own wrong. The Respondent’s objection in this regard is therefore legally untenable. The delay in filing the report by RP was due to the Respondent's actions and lack of cooperation; thus, this objection cannot be considered.

As previously mentioned, the RP has submitted a report dated 11.03.2024, under Section 99 of the Code. The findings in the RP's report make it evident that:

Considering the above facts and circumstances and upon perusal of the documents on record, the CP (IB) No.55/ALD/2023 filed under Section 95 of the IBC, 2016 is hereby Admitted in accordance with the provision of Section 100 of the Code and accordingly, the Insolvency Resolution Process stands initiated against Mr. Himanshu Singh viz. the Respondent/Personal Guarantor herein. We hereby direct as hereinafter:

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.

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.

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.

CP (IB) No.55/ALD/2023 filed under Section 95 of the IBC, 2016 is admitted in accordance with Section 100 of the Code and the Insolvency Resolution Process stands initiated against the Respondent/Personal Guarantor.

List the matter on 10.12.2024 for further proceedings. Member (Technical) Member (Judicial)