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Judgment
Ashok Bhushan, J
This Appeal has been filed by the Suspended Director of the Corporate Debtor challenging order dated 11.07.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Allahabad Bench, Prayagraj by which Section 7 application filed by the Financial Creditor Piramal Capital and Housing Finance Limited has been admitted. Aggrieved by the order this Appeal has been filed. Brief facts necessary to be noticed for deciding this appeal are:
(i) A Loan Agreement was entered between Crystal Facilities Management Private Limited (hereinafter referred to as Principal Borrower) and Dewan Housing Finance Corporation Limited on 29.03.2018. Mortgage Loan was sanctioned for Rs.35 Crores.
(ii) A Deed of Corporate Guarantee was executed on 29.03.2018. The Corporate Debtor M/s Earthbuild Greencity Private Limited was one of the Corporate Guarantor of the loan.
(iii) Default was committed in repayment of the loan. On 22.02.2020, a notice was issued by the Dewan Housing Finance Corporation Limited to the Principal Borrower as well as the Mortgagors and Guarantors including M/s Earthbuild Greencity Private Limited (Corporate Guarantor) by which notice borrower as well as Corporate Guarantor were asked to pay Rs.37,17,10,172/- within seven days of the receipt of the notice. No payment was made in pursuance of the demand notice.
(iv) The Financial Creditor issued another notice dated 12.02.2021 which was addressed to the Corporate Guarantors and other Guarantors and Borrower asking for payment of Rs.43,23,76,718/- within 15 days.
(v) In the Corporate Insolvency Resolution Process of DHFL, Resolution Plan submitted by Piramal Capital and Housing Finance Limited was approved, whose name was subsequently changed to Piramal Capital and Housing Finance Limited.
(vi) Application under Section 7 was filed by the Piramal Capital and Housing Finance Limited, the Financial Creditor against the Corporate Debtor - M/s Earthbuild Greencity Private Limited on which CP (IB) No.59/ALD/2022 was registered. Another application was filed by the Financial Creditor against the Principal Borrower M/s Crystal Facilities Management Private Limited being CP (IB) No.439/ND/2022.
(vii) In CP (IB) No.59/ALD/2022 notices were issued to the Corporate Debtor. None appeared on behalf of the Corporate Debtor. The Adjudicating Authority passed an order for substituted service on 07.12.2022 against the Corporate Debtor, in pursuance of which, notices were published in the newspapers; Times of India, Lucknow Edition on 13.01.2023 and Amar Ujala, Lucknow Edition on 12.01.2023. Affidavit of service was filed before the Adjudicating Authority by the Financial Creditor. The Adjudicating Authority even after affidavit of service gave further opportunity to the Corporate Debtor to file Reply. When no reply was filed, the Adjudicating Authority proceeded ex-parte against the Corporate Debtor by order dated 16.05.2023.
(viii) The Adjudicating Authority by order dated 11.07.2023 admitted Section 7 application and appointed the IRP. Appellant aggrieved by the order has come up in this appeal.
We have heard Shri Gaurav Mitra, learned counsel for the Appellant, Shri Jayant K. Sud, learned senior counsel appearing for Respondent No.1 and Mr. Amar Vivek and Ms. Ritika Gaur, learned counsel for Resolution Professional.
Shri Gaurav Mitra, learned counsel for the Appellant submitted that the Guarantee was invoked against the Corporate Debtor by notice dated 12.02.2021 which notice has been brought on the record at Annexure A-4 in the appeal filed by the Appellant and it is submitted that the guarantee having been invoked on 12.02.2021 i.e. during 10A period, application filed by the Financial Creditor is barred by Section 10A. It is further submitted that notice dated 22.02.2020 was not served on the Corporate Debtor. It is submitted that invocation of guarantee being during 10A period, application was liable to be rejected on this ground.
Learned counsel appearing for the Respondent refuting the submission of learned counsel for the Appellant submits that notice dated 22.02.2020 was issued to the Principal Borrower as well as Corporate Guarantor (Corporate Debtor) and both the Principal Borrower and the Corporate Debtor were asked to pay the outstanding dues which stood invoked on 22.02.2020, which was much before the 10A period. The application was fully maintainable and is not hit by Section 10A. It is submitted that in the Section 7 application, the Appellant has also brought on record the certificate of National E-Governance Services Limited (NeSL) which also prove the default against the Principal Borrower as well as the Corporate Debtor, who was Guarantor of the loan. It is submitted that against the Principal Borrower also Section 7 application was filed which has been admitted by the Adjudicating Authority by order dated 19.01.2023. In proceeding against the Principal Borrower, notice dated 22.02.2020 was referred and relying on the said notice, the Adjudicating Authority has admitted Section 7 application.
We have heard learned counsel for the parties and perused the record.
The Adjudicating Authority in the impugned order has returned finding that despite opportunities, no appearance was made on behalf of the Corporate Debtor. Respondent has also filed its reply in this appeal, where the Respondent has brought on the record the order of the Adjudicating Authority dated 07.12.2022, where the Adjudicating Authority has permitted for substituted service. Order dated 07.12.2022 is as follows:
ORDER
It is stated by Ld. Counsel for the petitioner that the notice issued to respondent was received back with report that address is not complete. So, it is requested by the Ld. Counsel for the petitioner that substituted mode of service may be allowed.
Ld. Counsel for the petitioner is directed to publish the notice in two newspapers one in 'Hindi' and other in 'English', the circulation of which is prevalent in the locality where the registered office of the corporate debtor is situated, within one week and report be filed along with affidavit of service one week before the next date of hearing.
Let the matter be listed on 10th February, 2023.
Respondent has also brought on the record Affidavit of Service which indicate that notice was published in two newspapers one in Hindi Amar Ujala, Edition Lucknow on 12.01.2023 and in English Times of India, Edition Lucknow on 13.01.2023. Despite publication of notice in the newspapers, the Corporate Debtor did not appear before the Adjudicating Authority and raised any defense.
It is also relevant to notice that against the Principal Borrower, Section 7 application has already been admitted where proceedings were initiated relying on notice dated 22.02.2020. The order passed in the CIRP of the Principal Borrower in Section 7 application dated 19.01.2023 has been brought on record by the Appellant in its appeal as Annexure -2. Para 1(v) notices the case of the Financial Creditor where notice dated 22.02.2020 has been noted. Para 1(v) of order dated 19.01.2023 is as follows:
v. That the Applicant / Financial Creditor had issued a recall notice dated 22.02.2020 to the Corporate Debtor, for an amount of Rs. 37,17,10,172/- (Rupees Thirty Seven Crores Seventeen Lakhs Ten Thousand One Hundred and Seventy Two) as on 22.02.2020. The said amount incorporated the principal outstanding, interest, default interest and other charges. Despite receipt of the said recall notice, the Corporate Debtor continued to be in default and failed to pay the outstanding amounts. The Corporate Debtor continues to be in default and miserably failed to discharge the said liability and the said amount remains to be paid and due. Thus, the Corporate Debtor is commercially insolvent and is not in a position to meet its liabilities.
With regard to notice dated 22.02.2020 two submissions have been made by the Appellant. The first submission is that notice dated 22.02.2020 was not notice for invoking guarantee of the Corporate Guarantor and guarantee of the Corporate Debtor was only invoked by notice dated 12.02.2021. Secondly, the notice dated 22.02.2020 was never served on the Corporate Debtor. The copy of notice dated 22.02.2020 has not been filed along with the appeal, however, the Respondent in his reply has brought on record the said notice as Annexure R-10. Notice dated 22.02.2020 has been addressed to Principal Borrower as well as Mortgagors and Corporate Guarantors including the Corporate Debtor M/s Earthbuild Greencity Private Limited. In Para 6 and 7 of the notice following has been stated:
vi. In view of the foregoing, we hereby call upon the Borrower, the Mortgagors and the Guarantors named in this notice, to pay the outstanding amount of Rs.37,17,10,172/-(INR Thirty Seven Crore Seventeen Lakhs ten thousand one hundred seventy two) as on (Feb 22, 2020 in your loan account plus other charges and interest accrued till the date of Loan closure, within 7 (seven) days from the receipt of this notice.
vii. In the event of your failure to pay the said amount within 7 (seven) days, DHFL will be constrained to initiate appropriate legal proceedings against all of you including enforcement of our rights under the provisions of the SARFAESI Act/ initiate the proceedings under the Insolvency and Bankruptcy Code 2016 and all other Laws, as applicable, for recovery of the amount due and payable under the Loan A/c. as stated hereinabove.
The above notice clearly indicates that by the notice Borrower and Guarantors were asked to pay the outstanding amount and the notice clearly mention that in event of failure of payment within seven days, the Financial Creditor shall initiate proceedings under SARFAESI Act including proceedings under the I&B Code. We, thus, are of the view that notice dated 22.02.2020 was notice by which guarantee stood invoked and submission of the Appellant that said notice was not notice of invocation of guarantee, cannot be accepted.
In so far as, subsequent notice which was given to the Financial Creditor being notice dated 12.02.2021, it has been submitted by the Financial Creditor that since no payment was made in pursuance of the notice dated 22.02.2020 another letter was issued on 12.02.2021. Corporate Guarantee was thus invoked on 22.02.2020 and issuance of another notice shall not in any manner affect the right of the Financial Creditor to initiate proceeding under Section 7. Section 7 application filed by the Financial Creditor has been brought on record, which clearly mentioned the notice date as 22.02.2020 which has been referred as Recall Notice issued by the Financial Creditor. When Recall Notice has been issued by the Financial Creditor, the Principal Borrower and Guarantors, liability to pay arises on all and the submission of the Corporate Debtor relying on subsequent notice dated 12.02.2021 cannot affect the right of the Financial Creditor to initiate proceeding on the basis of notice dated 22.02.2020. Even though subsequent notice dated 12.02.2021 was during 10A period but Recall Notice having been issued on 22.02.2020, the Financial Creditor was entitled to initiate Section 7 proceedings against the Principal Borrower as well as the Guarantors.
When we look into the Section 7 application filed by the Financial Creditor, it is clear that claim is founded on Loan Recall Notice dated 22.02.2020 and date of default mentioned in the application was 15.04.2018. The submission of the learned counsel for the Appellant that Loan Recall Notice dated 22.02.2020 was not served on the Appellant does not impress us since the Appellant despite notice by the Adjudicating Authority did not appear and file any response before the Adjudicating Authority refuting the Recall Notice dated 22.02.2020 or to raise any defense to oppose Section 7 application. Inspite of the substituted service as directed vide order dated 07.12.2022, the Corporate Debtor never appeared before the Adjudicating Authority nor raised any defense nor refuted service of notice dated 22.02.2020.
From the facts brought on the record, it is clear that after April, 2018 no payments have been made either by the Principal Borrower or the Corporate Guarantor towards the loan. Certificate issued by NeSL was also brought on the record in support of Application under Section 7 where default has been proved. It is true that date of default i.e. 15.04.2018 was initially date of default of Principal Borrower but Loan Recall Notice had been issued on 22.02.2020 which was addressed to Principal Borrower as well as all Guarantors including the Corporate Debtor M/s Earthbuild Greencity Private Limited. The application filed by the Financial Creditor cannot be held to be barred by Section 10A.
In view of the foregoing discussion and conclusions, we are of the view that no grounds have been made out to interfere with the impugned order passed by the Adjudicating Authority admitting Section 7 application. Appeal is dismissed.