Posco India Pune Processing Center Pvt. Ltd. vs Mr. Dhaval Jitendra Kumar Mistry & Ors.

Per: Justice Rakesh Kumar Jain:

The Appellant ‘POSCO India Pune Processing Center Pvt. Ltd.’ (Operational Creditor) filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short ‘Rules’) against the Respondent ‘Poggenamp Nagarsheth Powertronics Pvt. Ltd.’ (Corporate Debtor) for the resolution of a debt of Rs. 16,08,45,996/-. The said application was admitted on 22.01.2020 by the Adjudicating Authority (National Company Law Tribunal, Ahmadabad Bench) and an Interim Resolution Professional (IRP) was appointed. However, vide order dated 03.06.2020 the IRP was replaced by the RP.

The RP published Form-G to invite Expression of Interest (EOI) to submit the resolution plans and on 13.07.2020 a provisional list of Proposed Resolution Applicants (PRAs) was prepared and five days’ time was provided to raise any objection till 18.07.2020. The RP published the final list of PRAs on 28.07.2020 for submission of resolution plan which included the name of the erstwhile promoters of the Corporate Debtor. It is alleged that the Appellant, vide its letter dated 30.07.2020, raised objection about the ineligibility of the erstwhile promoters on the ground that they had given personal guarantee for the Corporate Debtor but the RP, vide email dated 12.08.2020, informed that Section 29A(h) of the Code do not apply in view of the fact that the Corporate Debtor is registered as MSME under MSME Act, 2006. It is alleged that the Appellant filed an application I.A. No. 514 of 2020 on 14.08.2020 for seeking a direction that RP cannot accept the resolution plan submitted by the erstwhile promoters because the Corporate Debtor does not have MSME status at the time of filing of the application under Section 9 of the Code and cannot take the benefit of Section 240A of the Code. The Adjudicating Authority, vide order dated 06.01.2021, observed that the Corporate Debtor at this stage cannot be treated as MSME and cannot take the benefit of MSME, in view of amendment brought vide notification issued on 01.06.2020 w.e.f. 01.07.2020 by taking its retrospective effect and admittedly on the date of filing of application under Section 9 of the Code the Corporate Debtor was covered under the criteria of MSME. Hence, the question of not accepting the resolution plan filed by the erstwhile promoters does not arise as the erstwhile promoters shall be ineligible under Section 29A of the Code to file the resolution plan. However, the application i.e. I.A. No. 514 of 2020, in which the aforesaid order was passed on 06.01.2021, was rejected being bad in the eyes of law and was not maintainable.

On 13.01.2021, in the 12^th Meeting of the CoC, the RP declared that the resolution plan of the erstwhile promoters has been approved and in respect of the order dated 06.01.2021, the CoC decided and issued a direction to the RP to seek clarification from the Adjudicating Authority regarding the ineligibility of the erstwhile promoters to submit the resolution plan in pursuance to which the RP filed a Pursis before the Adjudicating Authority on 16.01.2021 seeking clarification in respect of the order dated 06.01.2021.

While the Pursis was still pending, two applications came to be filed before the Adjudicating Authority i.e. I.A. No. 145 of 2021 by the Appellant for rejection of the application filed by the RP for approval of the resolution plan, inter alia, on the ground that the SRA was ineligible in view of Section 29A(h) of the Code and application I.A. No. 58 of 2021 was filed by the RP for seeking approval of the resolution plan submitted by the erstwhile promoters. Both the applications were taken up together by the Adjudicating Authority but I.A. No. 145 of 2021 was decided earlier then I.A. No. 58 of 2021. In I.A No. 145 of 2021 the following order was passed “Accordingly, I.A. No. 145 of 2021 is rejected and disposed of in terms indicated above” and I.A. No. 58 of 2021 was allowed with the following orders “Accordingly, I.A. No. 58 of 2021 in CP (IB) No. 268 of 2018 is allowed and stands disposed of in terms of the above directions.”

The present appeal has thus been filed by the Appellant to challenge the order passed in I.A. No. 145 of 2021 because if this appeal is allowed and it is held that the SRA was not eligible then the resolution plan submitted by the said SRA would automatically become redundant.

The main argument of the Appellant in this case is that the SRA was not eligible in view of Section 29A(h) of the Code.

Section 29A(h) is reproduced as under: -

According to the Appellant, the SRA had given a guarantee dated 03.06.2015.

The said letter dated 03.06.2015 is also reproduced as under: -

The aforesaid letter was written by Gauttam Nagarsheth, Managing Director, Gaurang Nagarsheth, Director and Parshva Nagarsheth, Director. This issue has been hammered a lot by the Appellant as it goes to the root of the case because if it is held that the Respondent had given their personal guarantee in favour of the creditor on behalf of the Corporate Debtor on 03.06.2015 then their case would be covered by Section 29A(h) of the Code and they would be held to be ineligible to submit a resolution plan.

On the other hand, Counsel for the Respondent No. 2 has submitted that the RP has declared that it has received expression of interest from two interested parties i.e. PRAs Gauttam Nagarsheth and Gaurang Nagarsheth as one party and the Appellant as the other. It was made clear that any objection to the inclusion or exclusion of a prospective resolution applicant in the provisional list may be made alongwith supporting documents within five days from the date of issue of the provisional list i.e. up to 18.07.2020. The RP had complied with Regulation 36A(10)(11)&(12) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 (Regulations) but no objection was filed by the Appellant. It is rather submitted that the Appellant never furnished the plan and was interested only in the disqualification of Respondent No. 2 as it wanted to drive the company into liquidation. It is further submitted that the letter dated 03.06.2015 is not a guarantee but it is only an intention to execute a personal guarantee in case of the happening of an event. It is further submitted that such a guarantee has to be invoked by the creditor and remained unpaid in full or part.

In order to appreciate, the rival contention in this regard, the language of the letter dated 03.06.2015 has to be appreciated. Counsel for the Respondent has rightly argued that Section 29A(h) of the Code talks of an event which has already taken place i.e. “has executed (a guarantee)” whereas letter dated 03.06.2015 says that “in case of failure on the part of POGGEN-AMP to pay to POSCO-IPPC the said outstanding dues, as mentioned herein, we (the undersigned) shall provide/execute Personal Guarantees in our respective individual capacities in favour of POSCO-IPPC within 30 days from the date of such failure”. A close scrutiny of the aforesaid language used in the letter dated 03.06.2015 indicates that Respondent No. 2 had not executed any guarantee rather it had offered to execute a guarantee in case of the happening of a particular event. There is no other document placed on record besides the letter dated 03.06.2015 to clinch this issue that personal guarantee had already been executed by Respondent No. 2 at the time when they had submitted their resolution plan and that guarantee had been invoked by the creditor and the amount remained unpaid in full or part, therefore, was ineligible in view of Section 29A(h) of the Code.

In such circumstances, we do not find any substance in the arguments raised by Counsel for the Appellant for the purposes of reversing the order in the application which has been allowed by the impugned order.

The other submissions made by the Appellant that vide the impugned order, the earlier order dated 06.01.2021 has been reviewed whereas it is argued by the Respondent that the said order does not discuss the letter dated 03.06.2015 or the provision of Section 29A(h) of the Code, therefore, there is no question of any finding which has been reviewed.

As regard res-judicata, it is submitted that the issue of guarantee was decided at the stage of admission whereas the case of the Respondent is that it was not a party, therefore, there is no question of any res-judicata.

After perusal of the record, we are satisfied that neither the issue of review nor res-judicata is made out on the facts and circumstances of the present case. Lastly, the Appellant has tried to argue that the Respondent No. 2 was not entitled to the benefit of Section 240A(1) of the Code whereas the case of Respondent No. 2 is that it is not seeking the benefit of Section 240A(1) and has neither claimed such a benefit. It is rather submitted that the letter of MSME was withdrawn.

As a matter of fact, from the perusal of the entire record, we have found that the whole case of the Appellant to dislodge the claim of the SRA revolves around the letter dated 03.06.2015 i.e. alleged personal guarantee, in order to attract the rigour of Section 29A(h) of the Code but since, Respondent No. 2 had not executed any guarantee, vide letter dated 03.06.2015, rather it was stated that it may execute a guarantee on failure of certain event that may happen at the instance of the Corporate Debtor, therefore, Section 29A(h) was not at all attracted to the present lis.

Having observed it repeatedly, we are of the considered opinion that there is no error in the order impugned herein at the instance of the Appellant and therefore, the appeal is found without any merit and the same is hereby dismissed. No costs.