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Judgment
ORDER
These two Appeals are listed together for orders, because they engage consideration of the common question of law. Though the facts involved are marginally different, for the purposes of brevity, a common Judgment is being rendered in these two Company Appeals.
The Appellant in the Company Appeal CA (AT) (CH) (Ins) No.226/2024 puts a challenge to the Impugned Order of 18.04.2024, as it has been rendered in CP(IB) No.119/2021, as a consequence to which the application under Section 95 of I & B Code, 2016, stood admitted as against the Appellant, the personal guarantor.
In the connected Company Appeal being CA (AT) (CH) (Ins) No.227/2024 too, the respective Appellant puts a challenge to the Impugned Order dated 18.04.2024, as it was passed in CP(IB) No.118/2021, whereby the Appellant, the personal guarantor has been admitted to the proceedings under Section 95 of the Insolvency and Bankruptcy Code of 2016.
The facts of the case are the following: -
The original borrower of the loan, was Splendid Metal Private Limited (SMPL) which later on was renamed as Thalaivar Steels Limited. It went into CIRP on 04.09.2019 on admission of Section 7 application by NCLT, Hyderabad Bench in CP(IB)666/7/HDB/2018. The borrower had obtained some funding from Respondent No.1 and other members of the consortium, from time to time. Consequently the Respondent No.1, who claims himself to the Financial Creditor, being a member of the consortium of the Financial Creditors, invoked the Guarantee executed by the personal guarantors / Appellants by making a demand vide Form B Demand Notice dated 24.12.2020 under Rule 7(1) of I & B (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules 2019. As the personal guarantors failed to pay the demand amount, Respondent 1 initiated proceedings under Section 95 of the I & B Code on 19.04.2021 before NCLT, Hyderabad. Based on such NCLT vide its order dated 09.07.2021 ordered interim moratorium and asked IRP to submit report under Section 99 of the Code. The Applicants also filed IAs challenging the maintainability of the respective Company Petition. After hearing both sides and considering the report of IRP NCLT, Hyderabad passed orders under Section 100 of the I &B Code admitting the petition for initiating personal insolvency against the Appellants.
It is the case of the Appellants that as per the demand notice dated 24.12.2020, the date of default is 01.09.2012 and therefore, the proceedings under Section 95, has to be barred by limitation. It has been argued to the contrary by the Respondent contending thereof that owing to the fact that though the credit was sanctioned to the tune of Rs.136 crores vide sanction letter dated 02.01.2008, at the request of Corporate Debtor and the guarantors the same had been renewed/enhanced from time to time on various dates, the last being on 17.08.2012 under consortium arrangements and these were secured by the Appellants herein by way of guarantee, that because of failure of Corporate Debtor to repay in time, the irregular portion in the loan accounts were restructured under Master Restructure Agreement for which the Appellants herein executed a Deed of Guarantee on 29.03.2013, that on 22.05.2013 a Supplementary Agreement for Reschedulement of term loan and agreements for interest term loan & working Capital term loan were executed by the Corporate Debtor with the consortium and the Agreement of Guarantee was executed by the Appellants executed, that on 13.02.2015 Supplemental Master Restructuring Agreement was executed with the Corporate Debtor with the Appellants executing Personal Guarantee Agreement, that the Appellants subsequently executed revival letters dated 26.02.2016 and 16.12.2017 and that it is clear from the above that the Appellants had undertaken to pay the amount in case of Default by Corporate Debtor on receipt of a Demand Notice in terms of Guarantee Agreements executed by them.
It was further contended by Respondent’s Counsel that they issued legal notice on 20.04.2018 on the Corporate Debtor and the Appellants to pay the dues and as no repayment was forth coming, after initiating CIRP proceedings against the Corporate Debtor, issued a Demand Notice dated 24.12.2020 in Form B against the Personal Guarantors / Appellants herein and subsequently on 19.04.2021 filed Company Petition for initiating Personal Insolvency Resolution Process against the Appellants. He has further contended that in light of the Judgment of Hon’ble Apex Court in the matter of Margaret Lalita Samuel Vs Indo Commercial Bank Limited (AIR 1979 SC 102) it is a settled position that the cause of action against guarantors who executed continuing Guarantee arises on the date of demand and the date of demand / cause of action in this Company Petition being 20.04.2018, it is clear that the Company Petition has been filed well within the limitation period and that the date of default mentioned in the demand notice, that is, 01.09.2012 is by oversight.
It was contended by Respondent No.1 herein, who was one of the members of the consortium of Financial Creditors that on the basis of the report submitted by the Resolution Professional, under Section 99 of the Insolvency and Bankruptcy Code and because of the fact that the Appellant according to the Resolution Plan report was held to be a defaulter qua the parameters adopted for the purposes of holding the Appellant as to be a defaulter, the initiation of proceedings under Section 95 of I & B Code, 2016, is substantiated.
The Appellant's case was that there were certain admitted facts at the hands of the Financial Creditor which will initiate against the order passed under Section 100 of the I & B Code. For example, in the Demand Notice as it was issued on 24.12.2020, the date of default has been shown to be 01.09.2012, while the due date of amount outstanding is shown to be with the effect from 01.01.2013. This alone, as per the contention of the Appellant would vitiate the entire proceeding of Section 95 and the entire proceedings will be barred by limitation. Because as per the notice of demand issued by the Respondent under Section 8 on 24.12.2020, the date of default is shown as to be 01.09.2012, then filing of the proceedings by way of Company Petition in each of the two Company Appeals on 19.04.2021, would be barred by limitation and can not be proceeded with, and hence it deserves rejection.
In order to further strengthen the aforesaid argument, the Appellant contended, that apart from the fact that the Demand Notice of 24.12.2020 referred to the date of default as 01.09.2012, even the petition which was filed in Form C by Respondent No.1 mentions the due date of default as to be 20.04.2018 and 24.12.2020 respectively and no explanation is given to the reference of the date of 01.09.2012 and 01.01.2013 in the Demand Notice.
This is sought to be countered by the Respondent/Financial Creditor, stating that the said date of 01.09.2012 which was mentioned in the Demand Notice may not be taken as to be a date of default because that was mentioned by mistake and what us given in Form C may be taken as date of default. This has been vehemently opposed by the Appellant, contending thereof that the Respondent cannot be permitted to take a divergent stand, from what they have mentioned in the demand notice issued under Section 8 on 24.12.2020, that Respondents cannot now change date of default to that date as mentioned in Form C, issued by the Respondent by stating that the date of default as mentioned in the demand notice was by virtue of the mistake. This defense cannot be accepted for the reason being that proceedings drawn under Section 95, since has a vital bearing on the Appellant, and the laxity on the part of the Respondent for the purpose of determining the date of default to justify the initiation of proceeding under Section 95, cannot be permitted and that they cannot be permitted to take a stand that the date referred in Demand Notice was by virtue of a mistake.
On the initiation of the Company Petition Proceedings before NCLT, Hyderabad, the Appellants were noticed and upon the service of notice, the Appellants had filed a detailed objection by way of Counter Affidavit in Company Petition dated 11.12.2021. The Appellant in the Counter Affidavit thus filed to the proceedings under Section 95 of I & B Code, had raised a preliminary objection to the following effect that: -
(1)The Petition is liable to be dismissed as the petitioner has not followed the necessary rules which were mandatory for the initiation of the proceedings owing to the non-impleadment of the necessary party, thus the proceeding of the Company Petition suffered from the vices of the non-joinder of necessary party, because other Financial Creditors who were the members of the consortium were not made as a party to the proceedings.
(2)That the Company Petition as preferred under Section 95 of I & B Code, by the Respondent herein, deserves to be dismissed, as the petition was filed without there being any valid authority vested with the Respondent to initiate the proceedings and thus the Company Petition deserves to be dismissed in limine.
(3)That the petition is liable to be dismissed as the Application preferred under Section 95 of I & B Code, itself was barred by limitation and owing to the Judicial precedence laid down by the Hon’ble Apex Court in the matter of B.K. Educational Services Private Limited Vs Parag Gupta and Associates, the proceedings ought not to have been even entertained since being barred by limitation owing to the fact, that in the Demand Notice issued under Rule 7(1) of I & B Rules 2016, the Respondent himself has accepted that the date of default happened to be of 01.09.2012, which was now sought to be controverted by the Respondents by virtue of the contents given in Form C issued by Respondent No.1.
(4)That the Company Petition as drawn by the Respondent under Section 95 of I & B Code, is liable to be rejected as it was incomplete and there was a massive suppression of the material facts having bearing over the proceedings, besides this Company Petition is liable to be dismissed on the question of lack of jurisdiction, because under clause 22 of the Guarantee Agreement as executed between the Personal Guarantors and the Financial Creditor, the Jurisdiction itself was determined by the signatories to the agreement whereas the petition under Section 95 of I & B Code, has been initiated before a forum which was not the agreed forum between the parties as per the Guarantee Agreement and therefore the proceeding would be vitiated and should not be permitted to be continued.
Furthermore, that the Company Petition as preferred by the Respondent is liable to be rejected as the petitioner has not secured the required documents through their free consent, which was a condition precedent, and rather procurement of a document was a motivated attempt to initiate a proceeding under Section 95 of I & B Code, and hence the proceedings would be vitiated.
The Appellants have further contended that despite of the aforesaid facts, as it was shown to be pleaded by them in the Counter preferred, in the respective Company Petitions, the Learned Adjudicating Authority by virtue of the Impugned Judgment dated 18.04.2024, as respectively rendered in the two Company Petitions, has proceeded to allow the same and permitted to initiate the proceedings under Section 95 of I & B Code, by passing order Section 100(1) of the I & B Code.
There are various grounds which are contended by the Learned Counsel for the parties. Particularly the Learned Counsel for the Appellants has submitted that if the Counter Affidavit preferred by the Appellants to the proceeding under Section 95, is taken in its entirety the basic issue which they had agitated and which goes to the root of the proceedings was its maintainability, which was not even touched or dealt with by the Learned Adjudicating Authority while rendering the Impugned Judgment of 18.04.2024, even though it had taken cognizance of the objection preferred by the Appellants by way of the Counter Affidavit as it finds reference in Para 15, 16 & 17 of the Impugned Judgment which is extracted hereunder: -
“15.The petition is not maintainable as the PG has not given any Personal Guarantee for debt being claimed by the applicant. It is stated that the reliance upon the Personal Guarantee dated 13.02.2015 is totally ill-founded, as it was exclusively for securing the amount to be advanced under the Supplemental Master Restructuring Agreement and the applicant Bank has never acted upon the terms of Supplemental Agreement as failed to disburse amounts as per agreement dated 13.02.2015.
16.It is contended that the petition is miserably barred by limitation, as the Demand Notice dated 24.12.2020, which mentions the date of default as 01.09.2012 and whereas the application has been filed on 19.04.2021 i.e., after 8 years and the applicant has mentioned dated of default as 20.04.2018 and 24.12.2020 to misdirect this Adjudicating Authority.
17.It is submitted that in present application the CD account was restructured vide agreement dated 29.03.2013 as the loan accounts of CD became irregular and thus the date of default mentioned by applicant as 01.09.2012 in the notice of demand dated 24.12.2020, which abundantly makes it clear that the accounts of the CD were wrongly and illegally classified as a NPA on 28.12.2015 and did not act under the Supplemental Agreement dated 13.02.2015”.
He further drew the attention of this Tribunal to the Judgment Impugned, while supporting his argument from the perspective that in the absence of any finding having being recorded to the contrary to the grounds taken by the Appellant in the Counter Affidavit, thus preferred before the Learned Adjudicating Authority, it will absolutely vitiate the Impugned Judgment, since having been rendered without application of mind and coupled with the fact that in the absence of the aforesaid arguments pleaded having not been dealt with by the Learned Adjudicating Authority it would render the Judgment to be perverse and vitiated, particularly when the contention was specifically raised by the Appellant, from the perspective as to whether at all the proceeding under Section 95 of I & B Code, could have been initiated when there was an apparent bar of limitation, which itself was a disputed fact as it was agitated before the Learned Adjudicating Authority.
On the contrary, the Learned Counsel for the Respondent to the Company Appeal, has submitted that the arguments extended by the Appellant pertaining to the grounds taken in the Counter Affidavit submitted before NCLT, Hyderabad may not at all be sustainable and secondly, he submits that even if it presumed that those grounds are prima facie valid grounds, they all still can be taken into consideration by the Appellate forum. He submits that since the Appellate forum being an extension of the principal forum, where the Company Petition was decided and being the court of fact and law, the documents which were required to be scrutinized in support of the aforesaid contentions raised by the Appellant in the Company Petition, could very well be scrutinized by this Tribunal too. He submits that since the Appellate forum being an extension of the principal proceedings of the Learned Adjudicating Authority, under the provisions contained under Order 41 Rule 31 of the CPC, the Appellant Court too can formulate the questions and deal with the issues, which allegedly were left unanswered by NCLT, while dealing with the propriety of the Impugned Judgment under challenge. This logic proposed by Learned Counsel for the Respondent in the context of the provisions contained under Order XLI Rule 31 of CPC, would not be acceptable for the reason being as under: -
That the analogy of Order XLI Rule 31 only contemplates a precautionary measure for the Appellate forum, that too, at the stage when the Appellate court is dealing with an issue already decided. In that eventuality, the Appellate court will have to formulate a point of determination which is in controversy in relation to all the issues already decided by the Learned Adjudicating Authority and then the Appellate forum is required to deliberate on the same. The Respondent’s Counsel suggests this Tribunal to invoke provisions of Order XLI Rule 31 of CPC under the presumption that if said provision is read in the context of the provision contained under Section 108 of the CPC, the powers of the Appellate court would be wide enough to scrutinize the documents for the purposes of answering the questions raised by the Appellant in the Counter Affidavit, a task which should have been done by NCLT. This does not appear to be a valid suggestion.
The provisions contained under Section 424 of the Companies Act do not contemplate adoption of procedures laid down in CPC 1908. The relevant section is extracted hereunder: -
“Procedure before Tribunal and Appellate Tribunal.—
(1)The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act and of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.
(2)The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:—
(a)summoning and enforcing the attendance of any person and examining him on oath;
(b)requiring the discovery and production of documents;
(c)receiving evidence on affidavits;
(d)subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or a copy of such record or document from any office;
(e)issuing commissions for the examination of witnesses or documents;
(f)dismissing a representation for default or deciding it ex parte;
(g)setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and
(h)any other matter which may be prescribed. 216
(3)Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction,—
(a)in the case of an order against a company, the registered office of the company is situate; or
(b)in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.
(4)All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code (45 of 1860), and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)”.
Thus, the procedural provisions of the CPC will not be applicable and will not govern the proceedings of the Appellate forum i.e., the present Tribunal as the provisions of Section 424 of the Companies Act, 2013. Therefore invoking the principles of Order XLI Rule 31 of CPC, in the context of provisions contained under Section 108 to deal with the contentions raised by the Appellant may not be desirable especially when the I & B Code in itself being a special statute has its own self-contained provisions and has got an overriding effect by virtue of the provisions contained under Section 238. The counsel for the Appellants states that proceeding under the provisions contained under Order XLI Rule 31 of CPC in the context of Section 95 of I & B Code, will entail extension of the Jurisdiction of the Appellate Forum to scrutinize the evidence and pleadings, which were not dealt by the Learned Adjudicating Authority and while this may address the lacuna committed by the Learned Adjudicating Authority, it will entail appreciation of elaborate evidence, on which the finding is to be recorded. Further, the necessary documents were not scrutinized for the purposes of analyzing as to whether the grounds taken in the Counter Affidavit were at all justified, under the given set of circumstances and the same could only be tested by the Learned Adjudicating Authority, being the first forum available where the documents could be scrutinized for appreciation as an evidence, for giving its logical interpretation as to what bearing it will have on the grounds taken by the Appellant in the said Counter Affidavit.
He further submits that if the scrutinization of those documents, under the given set of circumstances in the instant case leads to recording of findings, if any, then those finding would, not only impact the rights of the Appellant, but also the rights of the other parties too who have got an interest over the proceeding under Section 95 of I & B Code and who are not present before this Tribunal. Accordingly he contends that the Appellate forum ought to refrain itself from recording any finding on the document which may have a bearing over the rights of those parties who are not before the Appellate Tribunal and that, the appropriate forum for the purposes of scrutinising such documents for their impact on the present controversy would be the Learned Adjudicating Authority, because if scrutiny of the concerned documents which are to be taken as to be the basis for Adjudication, will result in affecting rights in rem it should be better scrutinized by the Learned Adjudicating Authority. Hence, he submits that owing to the aforesaid logic the appropriate recourse which should be resorted to this Tribunal is to remand the matter back to the NCLT, which would then scrutinize the concerned documents and record its findings while answering on the grounds put forth by the Appellants in their Counter Affidavit before it which are claimed to not answered by NCLT in the Impugned Judgment.
On the contrary, the Learned Counsel for the Respondent has argued that the implications of Order XLI Rule 31 of CPC, can still be attracted and exercised by the Appellate forum since being a continuation of proceedings and that the Appellate court itself can scrutinize the documents in order to arrive at the conclusion in order to fill up the procedural lacuna committed by the Learned Adjudicating Authority. To support his contentions he has referred to the Judgment in i.e., 1998 SCC Volume 8 Page 222 State of Punjab & Ors., Vs Bakshish Singh, the Respondent had contended that in the light of the ratio laid down by the aforesaid Judgment the powers of the Civil Court as contemplated under Order XLI Rule 33 of CPC, could be attracted to scrutinize the documents and to pass an order or decree. With all due reverence at our command the argument extended by the Learned Counsel for the Respondent being supported by the Judgment of State of Punjab & Ors., Vs Bakshish Singh, (supra) will not be attracted in the instant case for the reason being that the said dispute was emanating from a “service jurisprudence” where an aspect of “unauthorized absence of a delinquent” was being considered which was taken as to be the ground for dismissal of services. Further the said case was emanating from the proceedings which was been drawn under service jurisprudence and not under the Corporate Law or even from Civil Proceedings, and therefore it may not help in guiding as to whether the provisions of Order XLI Rule 31 CPC or Order XLI Rule 33 of CPC could at all be attracted for the purposes of adjudication of the instant Appeal as preferred by the Appellant against the Impugned Order.
There is another reason for not to accept the ratio as propounded in the State of Punjab & Ors., Vs Bakshish Singh, to be applied in the instant Company Appeal, as preferred by the Appellant against the Impugned Judgment, the reason being that the Corporate Law coming under Schedule 7, entry 42, 44 of List I, would be the subject of the Central Government itself on which it could legislate while exercising its powers under Article 246 of the Constitution of India, since the same being falling under List I, the domain of Schedule 7 of the constitution and being the subject of the union, whereas the ratio in the Judgment of State of Punjab as relied by the Respondent will not be attracted for the reason that it pertains to service jurisprudence while is falling under the State list, that is, List of Schedule 7 of the Constitution of India. Therefore it is not advisable to intermix the two fields of Law, being exclusively operating into two separate lists of the Constitution of India i.e, List I and List II, for the purposes to suit the convenience of the argument of the Respondent Counsel, that the aforesaid ratio of the extension of the provision contained under Order XLI Rule 31 of CPC to be read with Order XLI Rule 33 of CPC to be read with Section 108 of the CPC, could be applied to for extension of the jurisdiction of the Appellate Tribunal, for appreciation of documents, which he contends thus that since it is an exclusive appreciation of documents which is required to be made by the Tribunal and no oral statements is to be recorded and therefore the same could still be exercised by the Appellate Jurisdiction which according to him will be a continuation of the proceedings.
There cannot be any dispute so far as the preposition advocated by the Learned Counsel for the Respondent is concerned in the context of the powers vested with the Appellate Jurisdiction, to act in continuation to the powers of the Learned Trial Court, which in the instant case would mean the Learned Adjudicating Authority. But then we cannot be oblivious of the fact that the documents which have to be taken into consideration for answering the preliminary objections raised by the Respondent in the Counter Affidavit, was not even dealt by the Learned Adjudicating Authority, and its appreciation would have an apparent bearing on the rights of other parties, who are not before this Tribunal. This Tribunal cannot act as a substitute to appreciate a document, which should have been otherwise done by the Learned Adjudicating Authority. Further, in view of the Judgment of Hon’ble Apex Court as reported in AIR 1981 Supreme Court Page 707 Kshitish Chandra Bose Vs Commissioner of Ranchi, where it contemplates that the most appropriate court in the hierarchy of the adjudication of the dispute from the perspective of appreciation of documents would be the Learned Trial Court and not the Appellate Court, where the issue could be considered. Owing to the fact that as per the scrutiny of the Impugned Judgment and in view of the finding which has been already made in Para 15, 16 & 17 of the said Impugned Judgment, the Learned Adjudicating Authority has not adverted itself and recorded its findings to the grounds taken by the Appellant in the Counter Affidavit, which requires consideration of both questions of fact and law for determining the aspect of jurisdiction and the aspect of limitation which is a mixed question of fact in law, the same could be best answered by the Learned Adjudicating Authority and not by this Appellate Tribunal even though the Appellate Tribunal could exercise its powers to appreciate the relevant documents, but not in the given set of circumstances where interpretation of a document may adversely affect the right of the parties who are not before this Tribunal or who are not party to the proceedings before the Learned Adjudicating Authority.
Since the Impugned Judgment is absolutely silent and has not recorded any finding , with regards to the grounds taken by the Appellants herein in their Counter Affidavit, which are vital in nature and which goes to the very genesis of the proceedings, as to whether at all the proceeding under Section 95 of I & B Code, could be sustained or not, the Appeals would stand allowed. The Impugned Judgment dated 18.04.2024 as rendered in CP(IB) No.119/2021 and the Impugned Judgment dated 18.04.2024 as rendered in CP(IB) No.118/2021 would hereby stand quashed.
The matter is remitted back to the Learned Adjudicating Authority with a request to redecide the issue based on pleadings as to whether at all the provisions contained under Section 95 of I & B Code, could be attracted in the light of the objection taken by the Appellant in the Counter Affidavit, after recording its finding on the grounds taken by the Appellant. We make it very clear that whatsoever observation which we have made, is exclusively for the purpose to answer the objection taken by the Counsel for the Respondent to the pleading raised by the Appellant in the Appeal, about the Judgment being perverse and based on non-consideration of specific grounds taken by the Appellant and that we have not ventured to answer the merits of the matter at all, which is to be exclusively decided by the Tribunal on its own merits and it is hoped and trusted that since the Company Petition itself happens to be of 2021, is the Learned Adjudicating Authority will endeavour to decide the matter as expeditiously as possible but within the reasonable time as construed by the Hon’ble Apex Court.