Indiabulls Housing Finance Limited vs Dr. Subhash Chandra

LIST OF DATES AND EVENTS

Part-III

WRITTEN SUBMISSIONS ON BEHALF OF THE FINANCIAL CREDITOR

1.

The present Written Submissions are being filed by the Financial Creditor in terms of directions of this Hon'ble Tribunal dated 22.04.2022.

2.

That the Financial Creditor has filed the present application ("The Application") under section 95 of the Insolvency and Bankruptcy Code, 2016 ("The Code"). The facts leading up to the filing of The Application are set out hereinafter.

3.

The Financial Creditor had entered into a loan agreement dated 13.12.2016 ("Loan Agreement") with one Vivek Infracon Pvt. Ltd. ("Corporate Debtor") The said loan agreement is at Annexure A-11 of the Affidavit of Counsel, at page 4. By virtue of the said agreement, the Financial Creditor had lent an amount of Rs. 170,00,00,000/- (Rupees One Hundred and Seventy Crore Only) to the Corporate Debtor ("Loan Amount"). The sanction letter in respect of the Loan Amount is at Annexure A-1 of The Application, at page 24.

4.

In order to secure the Loan Amount, the Respondent/ Personal Guarantor herein executed a Deed of Guarantee ("Personal Guarantee") dated 05.12.2018 (Annexure A-3 of The Application, at page 61). As per Schedule I of the Personal Guarantee (at page 72 of The Application), the guarantee amount stood at Rs. 726,00,00,000/- (Rupees Seven Hundred and Twenty Six Crore Only), which included the Loan Amount, as is evident from schedule II along with the Personal Guarantee (at page 73 of The Application), which clearly mentions the Loan Agreement.

5.

The Personal Guarantee was invoked by the Financial Creditor by notice dated 04.02.2019 (Annexure A-4 at page 77 of The Application). The same was, inter alia, addressed to the Respondent (Annexure A-4, page 77 of The Application at page 78). Further, in the said notice, it was clearly mentioned that the Personal Guarantee stood invoked in view of the failure of the Corporate Debtor to pay the outstanding amount to the Financial Creditor (Annexure A-4, page 77 of The Application at page 80).

6.

Further, the Financial Creditor has also issued a demand notice dated 18.01.2022 (Annexure A-12 of the Affidavit of Counsel, at page 37), as per Form B under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, upon the Respondent/Personal Guarantor. In the said demand notice, it is clearly mentioned (at page 38) that the said notice is in respect of the default committed by the Corporate Debtor in repayment of the Loan Amount.

7.

Additionally, it is apposite to mention here that an application for initiating insolvency against the Corporate Debtor, being C.P. (IB) 236/2022 titled "Indiabulls Housing Finance Limited vs. Vivek Infracon Private Limited" is pending before the National Company Law Tribunal, Principal Bench, New Delhi, wherein the notice was issued on 01.04.2022. Copies of the order dated 01.04.2022 issuing notice upon the Corporate Debtor and order dated 11.04.2022, directing the Corporate Debtor to file its reply are annexed herewith as Annexure P-1 (Colly).

8.

The present Application has therefore, been filed before this Hon'ble Tribunal in accordance with Section 60(2) which mandates that an application relating to resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor of a corporate debtor shall be filed before such National Company Law Tribunal where CIRP or liquidation proceeding of such corporate debtor is pending.

9.

Therefore, the Application fulfils the requirements under Section 95 of the Code. Further, as per the judgment of the Hon'ble National Company Law Tribunal ("NCLAT") in Ravi Ajit Kulkarni vs. State Bank of India (Company Appeal (AT) (Insolvency) No. 316 of 2021, at Paras 41, 42), limited notice to the Personal Guarantor only for securing his presence has been issued to him. Consequently, since at the stage of appointment of the resolution professional, no hearing is to be afforded to the Personal Guarantor, this Hon'ble Tribunal ought to proceed under Section 97 of the Code. Further, it is pertinent to mention that, disputes, if any, can be raised by the Personal Guarantor only at the stage of Section 100.

10.

The contention made on behalf of the Personal Guarantor that an application under Section 95 of the Code can only be filed in case the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor has been commenced and undergoing falls foul of the following judgments:

a)

PNB Housing Finance Limited vs. Mohit Arora (Company Petition No. (IB)-395(ND) 2021) wherein it was observed: " Hence we conclude that in a situation where Application(s) in relation to the Corporate Debtor for initiation of CIRP is pending at National Company Law Tribunal (NCLT) then, initiation of CIRP of the Corporate Debtor is not a prerequisite for maintainability of an application under Section 95 of the IBC, 2016 filed for initiating IR Process against the Personal Guarantor of that Corporate Debtor before the NCLT." (para 33).

b)

Rohit Nath vs. KEB Hana Bank Ltd., (C.R.P (PD) No. 1289 of 2021), it was observed: "The text of Section 60(2) discloses that Section 60 of the Code would apply to an individual only if there is a corporate insolvency resolution process pertaining to the corporate entity which is the principal debtor, that has been filed or commenced..." (para 22)

11.

In view of the above, it is humbly submitted that this Hon'ble Tribunal may kindly be pleased to appoint a Resolution Professional, in respect of the Personal Guarantor, as per section 97 of The Code.

WRITTEN SUBMISSIONS ON BEHALF OF THE RESPONDENT / PERSONAL GUARANTOR

1.

The instant Application has been preferred on behalf of the Financial Creditor under Section 95 of the Insolvency & Bankruptcy Code, 2016 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.

2.

It is stated that the instant Application has been preferred against the Respondent / Personal Guarantor purportedly in regard and

3. Essential Facts

3.1.

Corporate Debtor - Vivek Infracon Pvt. Ltd. (@ pg. 2)

3.2.

Loan Agreement dated 13.12.2016 for an amount of Rs. 170,00,00,000/- (Rupees One Hundred and Seventy Crores Only)

3.3.

Deed of Guarantee dated 05.12.2018

4. Submissions on behalf of the Respondent / Personal Guarantor

A. The instant Application is not maintainable before this Ld. Tribunal and ought to be dismissed.

5.

Admittedly, no corporate insolvency resolution process and /or liquidation proceeding against the Corporate Debtor is pending before the Hon'ble NCLT.

6.

The Respondent / Personal Guarantor in the instant case is an "Individual".

7.

It is stated that PART - III of the IBC bearing heading "Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms" is applicable to insolvency proceedings against 'individuals'.

8.

By way of the Notification dated, 15.11.2019, various provisions of Part - III of the IBC was notified with effect from 01.12.2019, inter alia, including Sections 79, 95 and 179 of the IBC.

9.

As per Section 79(1) of the IBC: "Adjudicating Authority" for the purposes of Part - III of the IBC has been defined as under:

"(1)

"Adjudicating Authority" means the Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993."

10.

As per Section 95(1) of the IBC, a creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process. The relevant extract is reproduced as under:

"93.

(1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application."

11.

Furthermore, in terms of Section 179 of the IBC, the "Adjudicating Authority" in relation to insolvency matters of individuals is the Debt Recovery Tribunal and not the NCLT. This provision is subject to Section 60 of the IBC. The relevant extract of Section 179 IBC is reproduced hereunder:

"179.

(1) Subject to the provisions of section 60, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business or personally works for gain and can entertain an application under this Code regarding such person."

12.

Thus, on a conjoint reading of Section 95(1) with Section 79(1) and Section 179 of the IBC, a creditor may apply to the jurisdictional Debts Recovery Tribunal for initiating an insolvency resolution process against appropriate persons under Section 95 of the Code.

13.

It is stated that Section 179(1) of the IBC is subject to the provisions of Section 60 of the IBC.

14.

Section 60 of the IBC, which is included in Part II thereof, identifies the adjudicatory authority in relation to insolvency resolution and liquidation for corporate persons.

14.1.

Section 60(1) of the Code mandates that insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors, may be brought before the National Company Law Tribunal having territorial jurisdiction over the places where the registered office of the corporate person is located. However, a "corporate debtor" is defined in Section 3(8) of the IBC to mean a corporate person who owes a debt to any person and a "corporate person", in turn, is defined in Section 3(7) of the Code to mean a company, a limited liability partnership firm or any person incorporated with limited liability under any law for the time being in force but not including any financial service provider.

14.2.

The text of Section 60(2) provides that Section 60 of the Code would apply to an individual only if there is a corporate insolvency resolution process pertaining to the corporate entity which is the principal debtor. In such as case, as per Section 60(4) of the IBC, the NCLT shall be vested with powers of the DRT.

15.

It is stated that an 'individual' like the Respondent in the instant case is not a corporate debtor or a corporate person within the definitions ascribed to such expressions in the IBC. Furthermore, no "corporate insolvency process" and/or liquidation proceedings are pending against the Corporate Debtor. Thus, Section 60(1) of the IBC is not applicable to the Respondent and no proceedings can be instituted against the Respondent before the NCLT.

16. Ref:

i.

Lalit Kumar Jain Vs. Union of India [2021(9)SCC321] – Para 108 @ pg. 390

"Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with NCLT concerned seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT."

ii.

Rohit Nath Vs. KEB Hana Bank Ltd. [2021SCCOnelineMad2734] – Paras 12-23

iii.

Altico Captial India Ltd. Vs Rajesh Patel & Ors [CP293/2020] of NCLT, Mumbai. Appeal pending before NCLAT, no stay on the order.

iv.

Insta Capital Pvt. Ltd. Vs Ketan Vinod Kumar Shah [CP(IB)/1365/MB-IV/2020] – Paras 16-18

17.

The Hon'ble SC in Mahendra Kumar Jajodia Vs. SBI [Civil Appeal No. 1871-1872/2022] vide order dt. 21.03.2022 has stayed the operation of the judgment dt. 27.1.2022 passed by NCLAT in SBI Vs Mahendra Kumar Jajodia [Company Appeal (AT)Insolvency No. 60/2022]. The NCLAT vide judgment dt. 27.01.2022 inter alia, held that as under:

"The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. In result, we set aside the order dated 05th October, 2021 passed by the Adjudicating Authority. The Application filed by the Appellant under Section 95(1) of the Code is revived before the NCLT which may be proceeded in accordance with the law."

"10.

Sub-Section 1 of Section 60 provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person is located. The substantive provision for an Adjudicating Authority is Section 60, sub-Section (1), when a particular case is not covered under Section 60(2) the Application as referred to in sub-section (1) of Section 60 can be very well filed in the NCLT having territorial jurisdiction over the place where the Registered Office of corporate Person is located.

11.

The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. In result, we set aside the order dated 05th October, 2021 passed by the Adjudicating Authority. The Application filed by the Appellant under Section 95(1) of the Code is revived before the NCLT which may be proceeded in accordance with the law..."

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No(s). 1871-1872 OF 2022

MAHENDRA KUMAR JAJODIA ETC.

Appellant(s)

VERSUS

STATE BANK OF INDIA, STRESSED ASSET MANAGEMENT BRANCH

Respondent(s)

O R D E R

We have heard learned Solicitor General and learned senior counsel for the parties and perused the record. We do not see any cogent reason to entertain the Appeals. The judgment impugned does not warrant any interference.

The Appeals are dismissed.

...J. ( S. ABDUL NAZEER)

NEW DELHI MAY 06, 2022