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Judgment
ORDER
The case is fixed for pronouncement of the order. The order is pronounced in the open court, vide separate sheet.
The Present Application is filed under Section 95 of the Insolvency and Bankruptcy Code. 2016 (hereinafter referred to as IBC, 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 by State Bank of India (hereinafter referred to as "Financial Creditors") for the purpose of initiating insolvency process against Mr. Rohit S Sharma (hereinafter referred to as "Personal Guarantors") for a default amount of Rs.27,19,11,952.01/- including interest, penal interest, devolvement of Bank Guarantee & other charges. The date of default is stated to be 28.06.2017.
In so far as the Personal Guarantor to Corporate Debtor is concerned, the Hon’ble Supreme Court of India in the matter of Lalit Kumar Jain vs. Union of India & Ors. in the Transferred Case (Civil) No.245/2020 has upheld the vires of the notification issued by the Central Government vide S.O. 4126(E) dated 15.11.2019, in so far as it relates to coming into force of Insolvency and Bankruptcy Process of Personal Guarantors to Corporate Debtor. Thus, when a Corporate Insolvency Resolution Process in relation to Corporate Debtor is pending before this Adjudicating Authority, then as per Section 60(2) of IBC, 2016 the NCLT would be competent forum to file an Application for Personal Guarantor in relation to such Corporate Debtor. The Corporate Insolvency Resolution process in respect of CLS Industries Private Limited (herein after referred to as “Corporate Debtor”) was ordered by this Adjudicating Authority on 02.09.2020. Hence, the present application in respect of the Insolvency and Bankruptcy proceedings of the Personal Guarantor of the Corporate Debtor is filed by the Creditor before this forum.
The Financial Creditor had granted term loan and Cash Credit facilities amounting to Rs.11,50,00,000/, Rs.16,34,00,000/- and Rs.18,55,00,000/- to the Corporate Debtor vide sanction letter dated 02.02.2011, 15.02.2012 and 24.08.2016 respectively. The Personal Guarantor had executed Deed of Guarantee dated 02.02.2011, 10.02.2012 and 28.03.2014 for availing loan facility provided by the Financial Creditor. Thereafter, the account of the Corporate Debtor was declared as Non-Performing asset by Financial Creditor on 28.06.2017.
Subsequently, the Financial Creditor issued notice under section 13(2) & 13(4) of SARFAESI Act, 2002 on 03.07.2017 and 06.10.2017 seeking repayment of dues of Rs.14,91,03,319.84/- and started recovery proceedings in DRT-Ahmedabad.
Thereafter, the Financial Creditor filed petition under section 7 of IBC, 2016 bearing CP(IB) No. 607 of 2019 against the Corporate Debtor for defaulting in paying the financial debt of Rs.20,53,85,216/-. The said petition was admitted vide order dated 02.09.2020 and Corporate Insolvency Resolution Process was initiated against the Corporate Debtor.
Due to non-payment of the amount by the Corporate Debtor, the Financial Creditor has filed this application for initiation of Insolvency Resolution Process against the Guarantor under Section 95(1) of IBC, 2016. The Financial Creditor invoked the personal guarantee and issued demand notice to the Respondent on 03.08.2021 under Rule 7(1) of the Insolvency and Bankruptcy Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. The demand notice was delivered to the Respondent on 06.08.2021.
On presentation of the application by the Applicant/Financial Creditor, this Tribunal vide order dated 15.12.2021 appointed Mr. Sunil Kumar Kedia having Registration No.IBBI/IPA-001/IP-P00028/2016-17/10064 as Interim Resolution Professional (hereinafter referred to as "IRP"). This Tribunal also directed the IRP to file his report within 10 days from date of his appointment as IRP of the Personal Guarantor. The Interim Resolution Professional has filed the report before this Tribunal on 29.12.2021 vide Inward No. D2743 recommending the acceptance of the application filed under Section 95 of IBC, 2016. The recommendation of IRP is as follows:
“I have examined the application filed by State Bank of India (Creditor) in Form C and found that it is complete to the extent information available with them. The debtors and creditors relationship is established on the basis of agreements / deed executed by M/s. CLS Industries Private Limited (Corporate Debtor) and by Mr. Rohit Sharma (Personal Guarantor). The debt in default claimed by the State Bank of India (Creditor) is still exists. The Guarantor, Rohit Sharma is personally liable to pay the debt in default of Corporate Debtor M/s. CLS Industries Limited. The application filed by creditor satisfied the requirement set out in Section 95 of IBC 2016 and information asked from the creditors has been provided by them to me. On the basis of the above facts, I recommend that the application may be accepted for initiation of Insolvency Resolution Process against Rohit Sharma.”
The Respondent/Personal Guarantor filed an affidavit in reply dated 24.05.2022 before this Tribunal on 21.06.2022 under diary no. D3348 and raised following objections:
The present application is barred by limitation as the guarantee was invoked by Financial Creditor in June, 2017 and the present application has been filed on 14.11.2021 i.e. after expiry of 3 years from the date of invocation of guarantee.
The present application is not maintainable as the demand notice issued by Mr. Sunil D. Rachchh has been issued without any authority. Reliance is placed on Senthil Kumar Karmegam Vs. Dolphin Offshore Enterprises (Mauritius) Pvt. Ltd. And Ors., Company Appeal AT (Insolvency) No. 154 of 2017.
There is no valid authority given to Mr.Sunil D Rachchh to file the present application. Reliance is placed on Travancore Vs. Kingston Computers India Pvt. Ltd., 2011 11 SCC 524. Further, the report of IRP Mr.Sunil Kumar Kedia, Insolvency Professional is incorrect as the debt is disputed and the same has become time barred.
The order dated 09.12.2021 passed by this Tribunal wherein interim moratorium was declared and IRP was appointed to file a report is in breach of principle of natural justice therefore, the proceedings are required to be set aside.
The Applicant has failed to serve a copy of application on IBBI Board therefore, the application is required to be rejected in view of breach of Rule 9.
The Financial Creditor filed a rejoinder to the reply dated 06.08.2022 before this Tribunal on 10.08.2022 under diary no. D4560 and made following submissions:
It is denied that the application is barred by the law of Limitation. The default occurred in the account of the Corporate Debtor on 01.09.2017 in that case the limitation would expire on 01.09.2020. Further, from the date of NPA i.e. 28.06.2017 the limitation would expire on 28.06.2020 and from the date of issuing notice under section 13(2) dated 03.07.2017 the limitation would expire on 03.07.2020 and the application is filed on 17.11.2021. However, in view of order dated 23.09.2021 passed by the Hon’ble Supreme Court in M.A. No. 665/2021 in SMC (C) No. 3 of 2020 (Cognizance for extension of limitation) the claim is within the period of limitation.
The respondent did not file reply on the demand notice therefore, the respondent is barred to take alleged contention of issuing demand notice without any authority.
The application is filed by authorized person of bank namely, Mr. Sunil D. Rachchh, Assistant General Manager in Grade of SMGS-V. The said person has the authority to sign the present application on behalf of the State Bank of India as per the Gazette Notification dated 02.05.1987 in State Bank of India General Regulation, 1955 (Part-III Section 4).
It is denied that report of IRP is incorrect. The IRP before preparing the report gave opportunity to Respondent and asked Respondent to provide information/documents. However, the Respondent did not provide any information.
It is specifically denied that order dated 09.12.2021 is in breach of principle of natural justice.
The Applicant has served the copy of application upon IBBI on 24.11.2021 and the copy of service has already been placed on record.
The Applicant states that the Respondent have raised only technical issues and have not disputed the fact of the existence of loan agreement, disbursement of loan amount and existence of the guarantee deed. The default had been accepted by the Respondent and thus, prays to allow the application.
The proceedings in the present matter was put on hold since the Constitutional Validity of the Sections 94 to 100 relating to the insolvency of personnel Guarantor was pending before the Hon’ble Supreme Court in the matter of Dilip B. Jiwrajka V/s Union of India & Ors. in WP(civil)No. 1281 of 2021.
The Hon’ble Supreme Court in the judgement of Dilip B. Jiwrajka V/s Union of India & Ors. in WP(civil)No. 1281 of 2021 dated 09.11.2023 upheld the Constitutional Validity of the Sections 94 to 100 and the Conclusion of the Judgments are as follows:
i.No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC;
ii.The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application; iii. The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;
iv.The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;
v.There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;
vi.No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;
vii.The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 to determine whether to accept or reject the application;
viii.The purpose of the interim moratorium under Section 96 is to protect the debtor from further legal proceedings; and
ix.The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.
We have heard the learned counsel for both the parties and perused the documents on record. We have also gone through the report dated 29.12.2021 filed by the IRP. It is noted under section 128 of Indian Contract Act, 1872 that when a default is committed, the Principal Borrower and Surety are jointly and severally liable to Creditor and Creditor has the right to recover its dues from either of them or from both of them simultaneously. For benevolent reference, the said section of Indian Contract Act, 1872 is reproduced below:
“The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract.”
From the report of IRP, it is clear to us that:
IRP has recommended to accept the application for the reason as stated in the report dated 29.12.2021.
The Respondent has admitted to have executed the Guarantee Agreement.
The Applicant has demanded the amount outstanding from the Respondent vide Demand Notice dated 03.08.2021.
Resolution Professional report states that no evidence was placed before him by the Respondent having paid the amount demanded by the Applicant and as such in over view entire amount demanded is unserviced as on the date of order.
In view of the foregoing we are left with no other choice but to order as under:
I. Initiate Insolvency Resolution Process against the Respondent/Personal Guarantor 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 1BC, 2016. During the moratorium period,
Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed, and
The creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt; and
The debtor shall not transfer, alienate, encumber, or dispose of any of his assets or his 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.
II. The Resolution Professional viz., Mr. Sunil Kumar Kedia having Registration No.IBBI/IPA-001/IP-P00028/2016-17/10064, office at 210B, 21st Century Business Centre, Near Udhna Darwaja, Surat-395002 (e-mail id: [email protected]] who was appointed when the Section 97 application was allowed vide Order dated 07.03.2022, is directed to cause a public notice published on behalf of the Adjudicating Authority within 7 days of passing this Order on the website of the NCLT Ahmedabad Bench, inviting claims from all Creditors, within 21 days of such issue The notice under Sub Section (1) of Section 102(2) shall include: -
details of the order admitting the application;
particulars of the resolution professional with whom the claims are to be registered; and
the last date for submission of claims.
III. The publication of notice shall be made in two newspapers, one in English and 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.
IV. The Resolution Professional in exercise of the powers conferred under Section 104 shall prepare a list of creditors on the basis of
the information disclosed in the application filed by the debtor under Sections 94 or 95. as the case may be, and
claims received by the Resolution Professional under Section 102 within 30 days from the date of the notice.
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:
carry on the debtor's business or trade on his behalf or in his name: or
realise the assets of the debtor; or
administer or dispose of any funds of the debtor.
The repayment plan shall include the following, namely; -
justification for preparation of such repayment plan and reasons based on which the creditors may agree upon the plan;
provision for payment of fee to the Resolution Professional;
such other matters as may be specified.
V. 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.
VI. 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 summoned, he shall specify the details as provided under Section 106(3) of IBC, 2016. The date of meeting should not be less than 14 day 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.
VII. 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 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 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.
VIII. The Resolution Professional shall submit his periodic reports before this Tribunal, every 30 days.
IX. The Registry is directed to communicate a copy of order, report and application within seven working days and upload the same on the website immediately after the pronouncement of order.
In terms of the above, CP(IB)/243(AHM)/2021 filed under Section 95 of the IBC, 2016 is admitted and the Insolvency Resolution Process stands initiated against the Applicant/Personal Guarantor.