Siemens Financial Services Private Limited vs C. V. Paulson & Anr.

Per: Ashok Kumar Borah, Member (Judicial)

Since common issues and laws are involved in both applications, they have been taken up together and a common order is passed in these cases.

These Applications have been filed by the Applicant (Creditor) M/s.

Siemens Financial Services Private Limited under Section 95 (1) of the Insolvency and Bankruptcy Code, 2016 (I&B 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 (Personal Guarantors Insolvency Rules) against Mr. C.V. Paulson [CP(IB)/11/KOB/2021] and Mrs. Smitha Ajith [ CP(IB)/12/KOB/2021], Personal Guarantors of the Corporate Debtor M/s. Ceevees Imaging and Healthcare Research Private Limited, for initiating Insolvency Resolution Process. The brief facts leading to the present application are as under: -

The Corporate Debtor, Ceevees Imaging and Healthcare Research Private Limited availed credit facilities of Rs. 4,86,00,000/- (Rupees Four Crore and Eighty-Six Lakhs Only) from the Creditor for purchase of Siemens refurbished Biograph 6 Tru Point Eco + First Syngo MM workplace with local bought outs with a repayment period of 66 months vide sanction letter dated 18.04.2016 and Loan Agreement bearing Number A8233810 dated 24.11.2016.

The Respondents Mr. C.V.Paulson and Mrs. Smitha Ajith executed a personal guarantee to the Corporate Debtor with a guarantee agreement on 24.11.2016.

The accounts of the Corporate Debtor became NPA on 22.11.2017. The total amount due as on 12.10.2020 is Rs.7,56,38,33 1/- which includes the future Principal. The amount of defaulted/overdue as on 12.10.2020 was Rs.5,54,43,195/-. The Creditor invoked the personal guarantee and issued notice under Section 13(2) of SARFAESI Act. In order to initiate the Resolution Process under Section 95(1) of the Insolvency and Bankruptcy Code, 2016, as a pre-condition demand notice was issued under Rule 7(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of the personal guarantor to Corporate Debtor) Rules, 2019. The demand notice was delivered to the Respondents on 12.12.2010. Since personal guarantors did not make payment even after receiving the notice, the applicant has filed the present application to initiate Corporate Insolvency Resolution Process under Section 95(1) of the Code read with Rule 7(2) of the Rules.

Since the Resolution Professional himself has filed the petitions, and he has filed the declaration as required along with these applications, this Tribunal decided to appoint the same person as the Resolution Professional in these cases.

The respondents appeared through counsel and filed a counter stating that Section 60 (2) makes it clear that the right of a Creditor to initiate the Insolvency Resolution Process against a personal guarantor under Section 95 of the IBC is available only to such creditor who has invoked Corporate Insolvency Resolution Process (CIRP) or liquidation proceedings against a Corporate Debtor and is pending before this Tribunal. The date of filing of this application to initiate Insolvency Resolution Process against the personal guarantor of M/s. Ceevees Imaging and Healthcare Research Private Limited by Siemens Financial Services Private Limited, is 15.06.2021. As on this date, no Corporate Insolvency Resolution Process or liquidation proceedings is pending against the Corporate Debtor, M/s. Ceevees Imaging and Healthcare Research Private Limited before this Tribunal. Hence no cause of action has accrued to the Creditor for filing these petitions before this Tribunal.

The Respondents have referred to a decision of the coordinate Bench -NCLT Mumbai, in Altico Capital India Ltd. v Rajesh Patel (C.P. 293 of 2020) decided on 09.07.2021, wherein the Tribunal confirmed and asserted the legal position that for moving an application under Section 95(1) of the IBC for initiating Insolvency Resolution Process against a Personal Guarantor of the Corporate Debtor (CD), the pendency of CIRP against the said CD is a pre-condition. He has also referred to a judgment of the Hon'ble Apex Court in Lalit Kumar Jain versus Union of India & Others., (2021) 9 SCC 321, in which the Apex Court conclusively stated that under Section 60(2) of the IBC, insolvency proceedings can be initiated before NCLT against the personal guarantors of Corporate Debtors facing insolvency proceedings.

The learned counsel for the Respondents in their counter further stated that the borrower, in January 2016 had contacted Siemens Ltd/Siemens Healthcare Pvt. Ltd for purchase of PET-CT, SPECT-CT and therapy units and a quotation was received on 10.02.2016. Siemens also offered to provide financial assistance through one of its group company, Siemens Financial Services Ltd. Siemens Financials Services Pvt. Ltd sanctioned 90% of the invoice value (cost of main equipment+ local accessories+ installation) as a loan to Ceevees Imaging and Healthcare Research Pvt. Ltd at an interest rate of 13.25% with 66 months’ tenor on 18.04.2016. Since the lower price offered for the PET-CT equipment was accepted, a the loan agreement with Siemens Financial Services Pvt. Ltd was signed by the borrower on 24.11.2016 and the guarantee agreement was also signed on the same day, though machinery was not installed. Thirteen installments were paid and the creditor accepted the same without any objection. Thereafter, in the flood, the machinery was damaged for which Siemens Ltd., the manufacturer of the machinery, its associate company, Siemens Financial Services Pvt. Ltd and the borrower are equally liable.

The learned counsel argued that as the dispute regarding fixing the responsibility and liability for damage caused to the machinery could not be mutually settled, Arbitration Request No. 17 of 2021 and Arbitration Request No. 32 of 2021 have been filed which are pending before the Hon'ble High Court. Respondents also stated that the loan agreement and the loan guarantee agreement were executed on 24-11-2016 and the basic condition is that the machinery should be insured which has not been complied with. Neither the borrower nor the lender took any measure to ensure insurance coverage for the machinery.

The learned counsel further argued that under Section 141 of the Contract Act, 1872, a surety is entitled to the benefit of creditor's securities but if due to the negligence of the creditor, if the security loses its value, then the surety is discharged to that extent to the liability of the security. In the circumstances, the guarantor stands discharged of his liabilities under the guarantee agreement.

When the Creditor filed these CP (IB)s, this Tribunal vide order dated 18.11.2021 allowed the same and Shri. Vinod P. V, an Insolvency Professional through whom these petitions have been filed, was appointed as the Resolution Professional and directed him to file a report within 10 days from the date of receipt of that order. Accordingly, the Resolution Professional filed a report on 08.12.2021 in which it is stated as under:

In view of the above, an amount of Rs. 7,35, 98,176 / - is outstanding from the personal guarantor as on 12.10.2020 on account of default by the applicant, which are supported by documents.

We have heard Shri. Vinod Padinhare Veetil, who is the RP in these matters and the learned counsel for the Respondents/Personal Guarantors Mr. Jacob Mathew Manalil and have perused the whole case records including the documents appended thereto.

On going through the averments in the IBA, the reply of the Respondents as also the report of Resolution Professional narrated above, we are of the considered opinion that this is a fit case for admission and proceed against the Personal Guarantors/ Respondents and initiate Corporate Insolvency Resolution Process against them.

With regard to the contention of the respondents that the right of a Creditor to initiate the Insolvency Resolution Process against a personal guarantor under Section 95 of the IBC is available only to such a creditor who has invoked Corporate Insolvency Resolution Process (CIRP) or liquidation proceedings against a Corporate Debtor and is pending before this Tribunal, we rely on the judgement of Hon’ble National Company Law Appellate Tribunal (‘NCLAT’) in the matter of State Bank of India v. Mahendra Kumar Jajodia (Company Appeal (AT) Insolvency No. 60 of 2022). The Hon’ble NCLAT on 27 January 2022 ruled that an application filed under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (‘NCLT’) for initiating Insolvency Resolution Process (‘IRP’) against the personal guarantor to the Corporate Debtor (‘CD’) cannot be rejected solely because no liquidation or Corporate Insolvency Resolution Process (‘CIRP’) proceedings of the CD are pending before the NCLT. An appeal has been preferred by the respondents therein before the Hon’ble Supreme Court of India (Civil Appeal No(s). 1871-1872/2022), wherein it is held by the Hon’ble Supreme Court that “they do not see any cogent reason to entertain the Appeals. The judgment impugned does not warrant any interference.” This decision came after several contradictory decisions by NCLTs and High Courts on this issue. Hence, the contention of the Respondents that this Tribunal cannot admit these petitions cannot be accepted.

The provisions relating to the insolvency and bankruptcy process of personal guarantors to CDs came into force on 1 December 2019 vide a Central Government notification. Section 179, subject to provisions of section 60, vests the jurisdiction in Debt Recovery Tribunals (DRTs) to entertain insolvency matters of partnership firms and individuals. Section 60 of the Code clearly states that in relation to insolvency resolution and liquidation of corporate persons, including personal guarantors to CDs, NCLT shall be the Adjudicating Authority (‘AA’). Therefore, when provisions of Section 60 are attracted, Section 179 is rendered inapplicable.

Therefore, by relying on the judgment of Hon’ble NCLAT in the matter of matter of State Bank of India v. Mahendra Kumar Jajodia (Company Appeal (AT) Insolvency No. 60 of 2022) and the rejection of Civil Appeal filed by the Hon’ble Supreme Court, we Admit CP(IBC)/11/KOB/2021, and CP(IBC)/12/KOB/2021, filed under the provisions of Section 95 of IBC, 2016 and Section 100 of the IBC, 2016 and initiate Insolvency Resolution Process against the Respondents/ Personal Guarantors and moratorium in relation to all the debts is declared, from today i.e. date of admission of the application and shall cease to have effect at the end of the period of 180 days, or this Tribunal passes order on the repayment plan under Section 114 whichever is earlier as provided under Sec 101 of IBC, 2016. During the moratorium period;

The Resolution Professional viz., Mr.Vinod Padinhare Veettil, Insolvency Resolution Professional having Registration No: IBBI/IPA-002/IP-N00203/2017, office at 66/1058, First Floor, Veekshanam Road, Ernakulam North, Cochin, Kerala 682 018, who has filed these petitions and who was appointed when the Section 97 application was allowed vide Order dated 18.11.2021, is directed to cause a public notice published on behalf of the Adjudicating Authority within 7 days of passing of this Order on the website of the NCLT Kochi Bench, inviting claims from all Creditors, within 21 days of such issue. The notice under Sub-Section (1) of Section 102(2) shall include: -

The publication of the notice shall be made in two newspapers, one in English and the other in Vernacular which have wide circulation in the State where the Corporate Debtor and Personal Guarantor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry for the record.

The Resolution Professional in exercise of the powers conferred under Section 104 shall prepare a list of creditors on the basis of :

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. The repayment plan may authorize or require the Resolution Professional to: -

The Resolution Professional shall submit the repayment plan along with his report on the plan to this 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 called, he shall record the reasons thereof. If the Resolution Professional is of the opinion that a meeting of the creditors should be held, he shall specify the details as provided under Section 106(3) of IBC, 2016. The date of the meeting should not be less than 14 days or more than 28 days from the date of submission of the Report under Sub- Section (1) of Section 106 of IBC, 2016, 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 IBC, 2016.

The meeting of the creditors shall be conducted in accordance with Sections 108, 109, 110 & 111 of IBC, 2016. The Resolution Professional shall prepare a report of the meeting of the creditors on a repayment plan with all details as provided under Section 112 of IBC, 2016 and submit the same to this Tribunal, copies of which shall be provided to the Debtor, Personal Guarantors 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 IBC, 2016.

The Resolution Professional shall submit his periodic reports before this Tribunal, as per rules.