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Judgment
PER: BENCH
This instant petition is filed by the Financial Creditor under Section 95 read with section 60(2) of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) read with Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 (hereinafter referred to as “Personal Guarantors Insolvency Rules, 2019), seeking an order for initiation of the Insolvency Resolution Process (“IR Process”) against Mr. Kollipara Ravi Kumar, who is the Personal Guarantor of M/s. Sri Pavana Keerthi Hotels India Private Limited (hereinafter referred to as “Corporate Debtor”).
Averments made by the Petitioner:
It is averred that the Petitioner vide its Sanction letter dated 20.09.2014 has sanctioned working capital facility consisting of Cash Credit facility with a limit of Rs.19.28 cores for the purpose of establishment of the hotel. The term loan was repayable in 94 monthly instalments commencing from June 2015, the repayment period would end in the month of March 2021 and the term loan is repayable with interest which was lined to the base rate with a spread of 3% and 0.5% of TP.
It is averred that corporate debtor had failed to honor its obligations under Composite Deed of Hypothecation for all facilities dated 20.10.2014 executed between the financial creditor and corporate debtor. The loan account of Respondent No.2 was declared as the renewal sanction also failed the accounts were classified as NPA on 29.09.2015.
It is averred that the bank recalled the term loan and filed OA 403 of 2017 on the file of the DRT Hyderabad-1 claiming an amount of Rs.32,19,88,213/- as on the date of the suit and interest thereon on contractual rate against Corporate Debtor and Guarantors. The Hon’ble DRT after adjudicating the matter granted decree on 09.02.2019 along with Recovery Certificate on 09.07.2019 for the said amount, then the Recovery Officer attached to the DRT on 22.07.2020 issued a demand notice to the judgment debtors for the payment of the said amount.
It is averred that the erstwhile Andhra Bank assigned the debt portfolio of the Corporate Debtor in favour of the Financial Creditor vide its assignment agreement dated 27.09.2017 which was duly registered with the sub registrar concern and by virtue of this assignment the Financial Creditor entered into the shoes of erstwhile Andhra Bank and entitled to recover the total dues with up to date interest as decreed by the Hon’ble DRT. An amount of Rs. 25,71,79,268/- as on 06.06.2017 and interest thereon from that date @12% simple rate is due and payable by the Corporate Debtor.
It is averred that Respondent No.1, Personal Guarantor executed a Deed of Guarantee was also invoked by the Financial Creditor by making a demand vide Form B Demand Notice dated 29.12.2021 under Rule 7(1) of the Insolvency and Bankruptcy Rules, 2019 on Respondent No.1 for making payment with up to date interest.
It is averred that the amounts which are due and payable by the Respondent No.1 in the capacity of Personal Guarantor to the Financial Creditor as on 30.11.2021 is Rs. 37,02,00,931/- + interest and charges from 31.11.2021 as per the Personal Guarantee Agreements executed by him and also liable to pay interest on the said amount from the said date and also other charges and expenses.
It is averred that the Respondent No.2 was referred to this Tribunal for CIRP process vide CP (IB).No. 153/7/HDB/2021 and the same was admitted on 11.04.2022. The Respondent no.1 being the personal guarantor, failed to pay the outstanding amount, financial creditor herein while invoking the provisions of the I&B Code, 2016 had vide Form B demand notice dated 22.07.2020 issued to the personal guarantor , i.e Respondent No.1 requesting him to honor the terms of the agreement. Despite receipt of the demand notice, Respondent No.1 did not pay any amount. Thus the present application for initiation of insolvency resolution process with respect to personal guarantor.
The Petitioner attached the following documents to prove the existence of debt and amount in default: -
Term (Composite) Agreement dated 06.10.2014.
Guarantee Letters by Guarantors dated 20.10.2014
Credit Sanction intimation for term loan dated 20.09.2014
Mortgaged Documents dated 12.12.2014, 22.10.2014
Board Resolution passed for availing loan dated 27.09.2014
Demand Notice issued under SARFEASI Act dated 02.11.2015
Reply to the Demand Notice dated 28.12.2015
Assignment Agreement dated 27.09.2017
Board Resolution authorizing Sri K V Ramakrishna Prasad dated 20.09.2018
Order of Hon’ble Debt Recovery Tribunal – I Hyderabad dated 19.02.2019.
Letter given by the Company for settlement of the dues dated 16.01.2020
Demand Notice issued by Recovery Officer DRT for Decreed amount dated 22.07.2020.
Statement of default recorded at CIBIL dated 31.03.2020
Form B demand notice dated 29.12.2021 along with postal receipts and tracking report sent to Indian and USA Address.
Statement of Accounts
Counter filed by Respondent No.1/Personal Guarantor
It is stated that all the averments and allegations made by the petitioner are baseless. It is stated that the Demand Notice was issued on 01.11.2015 and in suppression of the said fact, the financial creditor to mislead this Tribunal stated in Part-III of Form-C, under the heading particulars of the Debt, that the default accrued on the date on which 15 days’ time period has been expired from the demand notice dated 22.07.2020 issued by the Recovery Officer of DRT-I, Hyderabad.
It is stated that the dates on which the default took place and the cause of action began to run which exhausted the prescribed limitations:
| Sl. No. | Date of Event | Particulars of Event | Date of Expiry of Limitation |
|---|---|---|---|
| 1. | 31.10.2015 | Account of the Corporate Debtor is declared as NPA | Cause of Action began to run |
| 2. | 01.11.2015 | Demand Notice u/s.13(2) of the SARFAESI Act, 2002 was issued to the Personal Guarantors | 31.10.2018 |
| 3. | 06.10.2014 | General Form of Guarantee is invoked on 01.11.2015 | 31.10.2018 |
| 4. | 25.02.2022 | Demand Notice in Form-B (Rule-7 of the IBC rules 2019) is served on the Personal Guarantor after expiry of limitation of 3 years from the date of first invocation of the Guarantee on 01.11.2015 |
It is stated that in Articles 55, 113 and 137 of the Limitation Act, clearly specifies that cause of action in respect of the breach any agreement or contract will began to run from the date the cause of action arise. It is further stated that the present petition is time barred, as the Personal Guarantor had never admitted or acknowledged the alleged debt during the period from 31.10.2015 to 31.10.2018 (3 years) and prayed to dismiss the petition as barred by limitation with costs.
It is stated that, in Syndicate Bank Vs. Channaveerappa Beleri & Ors (Appeal (civil) 6894 of 1997, the Hon’ble Supreme Court held that :
“9.A guarantor's liability depends upon the terms of his contract. A continuing guarantee' is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time- barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract."
Similarly at paragraph 11 it is observed as follows:
“11.But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the Bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in Bradford [(1918) 2 KB 833: 88 LJKB 85: 119 LT 727 (CA)] and Hartland [(1863) I H & C 667: 7 LT 792], the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.”
It is stated that, when the demand is made by the creditor on the guarantor on 01.11.2015 pursuant to classification of Loan Account as NPA on 31.10.2015, the guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years thereafter i.e., on or before 31.10.2018 under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor and if such debt had already become time-barred against the guarantor on 31.10.2018, the question of creditor again demanding payment thereafter under the guise of Section 95 of the IBC law, against the guarantor would not arise.
It is stated that according to the financial creditor, the alleged debt was assigned by the erstwhile Andhra Bank on 27.09.2017 and therefore assuming that the financial creditor has a cause of action to initiate the CIRP proceedings against the Personal Guarantor on 27.09.2017, still the present petition is barred by limitation as the cause of action is ended on 26.09.2020 and apparently the present company petition since before this Tribunal on 21.05.2022 the same is manifestly barred by limitation.
It is stated that the Respondent No.2 has filed an Appeal before the Hon’ble NCLAT, Chennai Bench in Company Appeal (AT) (CHE) 224 of 2022 against CIRP order made by this Tribunal and the Appellate Court passed interim direction that the Committee of Creditors shall not proceed further till 19.09.2022 and further directed the Resolution Professional of this Respondent No.2 Company to maintain as a going concern.
It is stated that the present petition is filed under section 95, 96(1), 97(5), 99(1), 99(2) and 100 of the Code, the vires of which is under challenge in a batch of Writ Petitions pending before the Hon’ble Supreme court of India in WP(Civil) No. 307 of 2022 and batch, wherein the Hon’ble Supreme court vide its orders dated 29.04.2022 was pleased to pass interim direction as follows:
“In the meanwhile, petitioner shall not transfer, alienate, encumber, or dispose of any of his properties or his legal rights or beneficial interest therein and the resolution professional shall nor proceed with filing of the report.” Therefore stated that all further proceedings in this petition and the impugned order dated 21.06.2022 passed by this Tribunal shall be deferred till the Hon’ble Supreme Court of India finally adjudicates the Constitutional Vires of the Sections 95, 96(1), 97(5), 99(1), 99(2) and 100 of the Code in Writ Petitions in WP(Civil) No.307 of 2022 and batch.
It is stated that the guarantee given by the respondent herein under the General Form of Guarantee dated 06.10.2014, it is categorically mentioned in clear language that, the “Provided nevertheless that our liability under this Guarantee shall not exceed in the whole sum of Rs.19,28,00,000/- (Rupees Nineteen Crores Twenty-Eight Lakhs Only) apart from and in addition to all interest, Banking, Law and other costs, charges and expenses above referred to”. Therefore, the demand of Rs.37.00 Crores by the Financial Creditor is illegal and against the Terms & Conditions of the guarantee executed by the Respondent and prayed to dismiss with exemplary costs.
4. Report filed by the Respondent No.2/Resolution Professional of Corporate Debtor:
It is stated that the Resolution Professional submits report with recommendations for acceptance of the application for initiating insolvency resolution process against Mr. Kollipara Ravi Kumar, Personal Guarantor to the Corporate Debtor for recovery of unpaid dues aggregating Rs.38,83,26,522/- (Rupees Thirty-Eight Crores Eighty-Three Lakhs Twenty-Six Thousand Five Hundred and Twenty-Two Only) with interest and costs up to 12.07.2022.
It is stated that in terms of Section 43 of Indian Contract Act, 1872, which reads as:
“43. Any one of joint promisors may be compelled to perform –
When two or more persons make a joint promise, the promise may, in the absence of express agreement to the contrary, compel any (one or more) of such joint promisors to perform the whole of the promise.” As one of the personal guarantors, the Respondent no.1 is liable jointly and severally to discharge the un-discharged liability of the Respondent No.2.
It is stated that the relevant evidence of default or non-payment of debt is evidenced through the Statement of account up to 12.07.2022 sent by the Financial Creditor to the Resolution Professional, advising that no repayments were received into the accounts of the Corporate Debtor/ Respondent No.2, after the demand notice dated 29.12.2021 raised. Therefore, the Resolution Professional recommends for the admission of the Petition against the Respondent No.2 and prayed to commence moratorium on the Respondent No.2 as enshrined in Section 101(1) of the IBC, 2016.
5. Rejoinder filed by the Petitioner to the reply filed by the Respondent No.1/Personal Guarantor
It is stated that after invoking the Guarantee, the Respondent No.1 failed to pay to the Creditor and failed to honor its commitment under the said Guarantee Deed. The Judgment of the Debts Recovery Tribunal-I, Hyderabad dated 19.02.2019 and the notice issued by the Recovery Officer dated 22.07.2020 have given fresh cause of action for filing the Company Petition against the Respondent No.1.
It is stated that the Hon’ble Supreme Court in the matter of Dena Bank Vs. C.Shivakumar Reddy and Anr. 2021 SCC Online SC 543 (Para No.141) decided on 04.08.2021, held that a Judgment and order/decree of the Debts Recovery Tribunal and Recovery Certificate give rise to a fresh cause of action from the date of such Judgement and order/decree/issuance of recovery certificate. Further, as per the suo moto order issued by the Hon’ble Supreme Court in the matter of Miscellaneous Application No. 21 of 2022 in Miscellaneous Application No. 665 of 2021 in Suo Moto Writ Petition (C) No. 3 of 2020 on 10.01.2022 the limitation period with effect from 15.03.2020 to 28.02.2022 has been saved and the said period has to be added to the limitation period.
It is stated that the Respondent No.2 has filed an Appeal before the Hon’ble NCLAT, Chennai Bench in Company Appeal (AT) (CHE) 224 of 2022 against CIRP order made by this Tribunal in C.P. (IB).No. 153/2021 against the Respondent No.2. This contention is also not sustainable in law in view of the decision by the Hon’ble NCLAT, Delhi and concurred by the Hon’ble Supreme Court in the matter of State Bank of India Vs. Mahendra Kumar Jajodia, 2022 SCC Online NCLAT 58 (Para 11). The Hon’ble NCLAT’s observation as concurred by the Apex Court is the said matter is as follows:
"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 05 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" Therefore, the Company petition is well maintainable against the Respondent no.1 inspite of the Appeal filed which is pending before the Hon'ble NCLAT, Chennai.
It is stated that the extent of liability of the Respondent No.1 to the Petitioner as made in Para No.14 is also unsustainable as the Guarantee Deed executed by the Respondent No.1 clearly mentions the nature of liability, principal amount of Rs.19.28 Crores, interest, costs, charges, expenses, etc. Under the Guarantee Deed, the Respondent No.1 undertook that the said sum of Rs.19.28 Crores is apart from and in addition to all interest, banking, law and other costs, charges and expenses. It is further prayed to admit the Application and order initiation of Insolvency Resolution Process against the Respondent No.1.
Pursuant to framing of Personal Guarantors Insolvency Rules, 2019 which came into effect, permitting the Petitioner Bank to institute IR Process against the Personal Guarantors, the Petitioner Bank issued a demand notice dated 29.12.2021 to the Personal Guarantor, in Form B of the Code demanding payment of the amount in default along with acknowledgement receipt.
On presentation of this instant petition, this Adjudicating Authority on 21.06.2022 granted interim moratorium and has appointed Shri. Govada Venkata Subba Rao, as Resolution Professional, directing him to file his report within ten days from the date of his appointment, in terms of the Section 99 of the Code, 2016 and directed the Petitioner to issue notice to the Personal Guarantor and notice was sent through registered post and the same was delivered. The Resolution Professional has filed his report, recommending the admission of the Petition under Section 95 of the Code, 2016. The Resolution Professional in his report stated that the Petitioner has sent the demand notice in Form-B dated 29.12.2021. Based on the facts the RP is recommending for approval of the Petition filed by financial creditor against the personal guarantor Mr. Kollipara Ravi Kumar, to the corporate debtor M/s.Sri Pavana Keerthi Hotels India Private Limited.
In the light of the aforesaid factual matrix the point arises for our consideration is:
Whether an Insolvency Resolution Process can be ordered against the Personal Guarantor under Section 100 of the Insolvency and Bankruptcy Code, 2016?
We have heard the Learned Counsel Shri VVSN Raju, for the Petitioner and Learned Resolution Professional/ Respondent No.2 Shri. Govada Venkata Subbarao and Learned Counsel for Respondent No.1 Shri P.Pratap, and perused the record.
At the outset it may be stated that the Petitioner Bank has initiated Corporate Insolvency Resolution Process against the Corporate Debtor i.e., M/s. Sri Pavana Keethi Hotels India Private Limited vide CP (IB) No. 153/7/HDB/2021 under Section 7 of the Code, 2016 which was admitted by this Adjudicating Authority vide order dated 11.04.2022 and the instant petition is initiated against the Personal Guarantor of the Corporate Debtor. However, Respondent No.1 has raised certain objections stating that OTS and resolution plan are under consideration and thus prayed to hold the instant Application. IRP in his report has observed that creditor has send demand notice in Form-B on 29.12.2021 to Respondent No.1 intimating the total amount of debt including interest or penalties due as on 29.12.2021 is Rs.37,02,00,931/-. But personal guarantor failed to repay the amount due towards the creditor within 14 days from the date of receipt of demand notice and recommended initiation of Insolvency Resolution Process against R-1 in terms of Section 99 (7) of IBC, 2016.
Therefore, in the light of un-deniable factors this Tribunal carefully examined the report of Resolution Professional. As per the report it is clear that the personal guarantor has not offered any repayment plan. Personal guarantor has not filed any objections to the report of the Resolution Professional. We therefore, find no reason to reject the report of Resolution Professional. Hence we admit the petition.
Therefore, in the light of our discussions above, on perusal of the record and case laws, we consider it is a fit case to order insolvency resolution process against Respondent No.1/Personal Guarantor.
Hence, the instant Company Petition vide CP (IB) No. 195/95/HDB/2022 filed under the provisions of Section 95 of Code, 2016 is hereby admitted under the provisions of Section 100 of the Code, 2016 and Insolvency Resolution Process is initiated against Mr. Kollipara Ravi Kumar, the Personal Guarantor, and moratorium is declared in relation to all debts, which begins from the date of admission of the instant petition and shall cease to have effect at the end of the period of 180 days, as provided under Section 101 of the Code, 2016. During the moratorium period-
Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;
The Creditors shall not initiate any legal action or legal proceedings in respect of any debt; and
The debtor shall not transfer, alienate, encumber or dispose of any of her assets or her legal rights or beneficial interest therein;
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.
The Petitioner herein, has proposed the name of Shri. Govada Venkata Subbarao, IBBI/IPA-003/IP-N00358/2021-2022/13753 insolvency Professional to act as Resolution Professional, who has given his consent dated 01.05.2022 in Form-A. Hence, this Tribunal appoints: Shri. Govada Venkata Subbarao, IBBI/IPA-003/IP-N00358/2021-2022/13753, email id: [email protected], Address: Rajiv Swagruha Apartments, Block A 05, Flot 106, Classic Diamond Towers, Anand Nagar, GSI Bandlaguda, Next to D-Mart, Hyderabad, Telangana – 500068, Mobile No.8019062958.
The Resolution Professional is directed to cause public notice published on behalf of the Adjudicating Authority within 7 days from the date of uploading of this order on the website of NCLT, Hyderabad, inviting the claims from all creditors, who shall register their claims as provided under Section 103 of the Code within 21 days of such issuance. The notice shall contain the necessary information as provided under Section 102(2) of the Code. The publication of notice shall be made in newspapers, one in English and other in vernacular (Telugu) which have wide circulation in the State where the Personal Guarantor and Corporate Debtor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry. One shall be placed on our website by the Registry and the other shall be affixed in the premises of this Adjudicating Authority.
The Resolution Professional in exercise of the powers conferred under the Section 104 shall prepare a list of creditors within 30 days from the date of the notice. The Personal Guarantor shall prepare, in consultation with the Resolution professional, a repayment plan containing a proposal to the creditors for restructuring of her debts or affairs as provided under Section 105 which shall include the provisions for payment of fee to the Resolution Professional. The Resolution Professional shall submit the repayment plan along with his report on the plan to this Adjudicating Authority within a period of 21 days from the last date of submission of claims as provided under Section 106.
In case the Resolution Professional recommends that a meeting of the creditors is not required to be summoned, he shall record the reasons thereof. If the Resolution Professional is of the opinion that the meeting of creditors should be summoned, he shall specify the details as provided under Section 106(3). The date of meeting shall not be less that fourteen days or more than 28 days from the date of submission of the Report under Sub-section (1) of Section 106 of the Code, for which at least 14 days’ notice to the creditors (as per the list prepared) shall be issued by all modes. Such notice must contain the details as provided under the provisions of Section 107 of the Code.
The meeting of the creditors shall be conducted in accordance with the provisions Sections 109, 110 and 111. The Resolution Professional shall prepare a report of the meeting of the creditors on repayment plan with all details as provided under Section 112 and submit the same to the Authority, copies of which shall be provided to the guarantor and the creditors. It is made clear that the Resolution Professional shall perform his functions and duties in compliance with the Code of Conduct provided under Section 208 of the Code.
The Petitioner is directed to communicate this order to the Resolution Professional appointed in the instant Company Petition immediately.