Yes Bank Limited vs Mrs. Sakshi Jiwarajka

Per: - Coram.

This is an application filed under Section 95 of the 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 Debtors) Rules, 2019 (‘PGIRP Rules’) by YES Bank Limited (hereinafter referred to as “the Petitioner” or “the Financial Creditor”) for initiating the Personal Guarantor’s Insolvency Resolution Process (‘PGIRP’) against Mrs. Sakshi Jiwarajka (hereinafter referred to as "Personal Guarantor"). As stated in Part III of the Petition, the date on which default on the part of the Personal Guarantor occurred is June 26, 2019 and the amount in default is INR 32,36,25,431.67/- (Rupees Thirty-Two Crores, Thirty-Six Lakhs, Twenty-Five Thousand, Four Hundred and Thirty-One, and Sixty-Seven Paise only).

The Corporate Debtor, namely, JSK Marketing Ltd., availed financial assistance from the Applicant for an amount of INR 25,00,00,000/-, out of which the Cash Credit Facility was for INR 10,00,00,000/- and the Working Capital Demand Loan was INR 15,00,00,000/-, under the Master Facility Agreement dated 02^nd June, 2017.

The above credit facilities were secured, inter-alia, by the Deed of Personal Guarantee executed by the Respondent/Personal Guarantor in favour of the Applicant on 02^nd June, 2017.

As the Corporate Debtor failed to repay the dues of the Applicant, the accounts of the Corporate Debtor were classified as Non-Performing Asset (‘NPA’) on 30.06.2019 as per the guidelines of the Reserve Bank of India.

In view of the default in debt repayment by the Corporate Debtor and in pursuance of the Deed of Guarantee dated 02.06.2017, the Applicant invoked the personal guarantee executed by the Respondent vide Notice for invocation of Personal Guarantee dated June 18, 2019, whereby the Personal Guarantor was called upon to pay the total outstanding dues of INR 24,76,35,089.55/- together with interest, damages and charges within 7 days of the receipt of the notice.

As the Personal Guarantor failed to repay the debt despite being served with notice, the Applicant herein was constrained to file the above-captioned application seeking initiation of PGIRP of the Personal Guarantor. Hence this application. The Applicant states that this Tribunal initiated liquidation process against the Corporate Debtor vide Order dated 02.12.2021 in I.A. No. 2498 of 2020 in CP(IB) No. 1545/MB/2019.

This is an application filed by the Personal Guarantor seeking following reliefs: a) Recall the Order dated 24.08.2023 in which the Resolution Professional was appointed; and b) dismissal of the above-captioned petition, inter-alia, on the following grounds:

The Resolution Professional (‘RP’) was appointed by this Bench in the above-captioned Petition vide Order dated 24.08.2023. The learned RP has placed on record his Report dated 09^th September, 2023 filed u/s 99 of the Code. The said Report has recommended for admitting the Respondent-Personal Guarantor into PGIRP. The reasons for recommending admission of the Personal Guarantor into PGIRP which have been stated by the RP in his report are briefly reproduced hereinbelow:

a.) Counsel for the Petitioner submits that the contention of the Respondent that the Applicant has suppressed the fundamental fact that it has already enforced security interest of two properties under the SARFAESI Act, 2002, is false and misconceived. Counsel for the Petitioner states that the auction was done under the order of Hon’ble Debts Recovery Tribunal-I, Mumbai; however, the said auction was unsuccessful and as a result, the Applicant/Creditor was not able to realise any amount. It is further submitted that as of today, no recovery has been made from the said auction and, therefore, the Respondent’s contention that security interest of two properties has already been enforced is factually incorrect.

b.) Counsel for the Petitioner submits that the objection of Section 68 of the Transfer of Property Act, 1882 (‘TOPA’) taken by the Respondent is not sustainable in view of Section 238 of the Code by virtue of which the provisions of the Code have over-riding effect over other legislations to the extent of repugnancy. Further, the learned Counsel for the Petitioner submits that the bar u/s 68 of TOPA applies only to debt recovery proceedings and not to the proceedings under the Code which is for initiation of insolvency resolution process against the Personal Guarantor to the Corporate Debtor. Therefore, there is no merit in this contention either.

c.) Counsel for the Petitioner submits that the Respondent’s contention that no guarantee exists as it stands discharged under the Indian Contract Act, 1872 is also incorrect. The learned Counsel for the Petitioner contends that until and unless the debt is discharged or the Creditor themselves absolve the Guarantor from his liability, the guarantee shall not stand extinguished. In the present case, since the auction sale was unsuccessful and no money could be recovered, the guarantee furnished by the Respondent is still valid, subsisting and binding.

a. Counsel for the Respondent stated that the cardinal rule of law is that no individual should be sued more than once for the same cause. Counsel for the Respondent/Personal Guarantor submits that the Petitioner is estopped u/s 68 of the TOPA from enforcing its claim under the captioned proceedings as it has already enforced its security interest qua two properties of the Respondent having market value of more than Rs. 25 crores, which is more than the value of the debt owed by the Corporate Debtor to the Creditor.

b. Counsel for the Respondent submits that in spite of being fully cognizant of the civil suit having been filed by the Corporate Debtor and a march of litigation before the Hon’ble Bombay High Court in W.P. (L) No. 5375 of 2021 to which the Petitioner Bank was a party, has surreptitiously proceeded with the captioned proceedings behind the back of the Personal Guarantor.

c. Counsel for the Respondent contends that the contract of guarantee stands discharged in terms of Section 133 of the Indian Contract Act, 1872 as the debt has been assigned by the Creditor to J.C. Flower Asset Reconstruction Company Private Limited behind the back of the Personal Guarantor without obtaining her consent.

We have heard the learned counsels for the Petitioner and the Respondent/Personal Guarantor and we have perused the records.

On perusal of records, we find that the Creditor had sanctioned a Cash Credit Facility of Rs. 25 crores and a Working Capital Demand Loan of Rs. 15 crores to the Corporate Debtor, in relation to which the personal guarantee was furnished by the Personal Guarantor herein along with other personal guarantors, namely, Mr. Kunal Jiwarajka and Ms. Laxmi Devi Jiwarajka, by executing the Deed of Guarantee dated 02^nd June, 2017 in favour of the Applicant/Creditor. Thus, existence of debt due by the Respondent to the Applicant is satisfactorily established from the records.

We further find that owing to the default by the Corporate Debtor in repaying the above-sanctioned loans, the Applicant/Creditor herein recalled the credit facilities vide Recall Notice dated June 18, 2019 calling upon the Corporate Debtor to pay the outstanding amount of INR 24,76,35,089.55/- due as on June 12, 2019. Simultaneously, the Applicant/Creditor also invoked the personal guarantee furnished by the Respondent herein by issuing the Notice for Invocation of Personal Guarantee dated June 18, 2019 to the Respondent/Personal Guarantor. The Respondent/Personal Guarantor has not denied the facts that the credit facilities were recalled and the personal guarantee was invoked by the Applicant on June 18, 2019. Thus, it is an admitted and undisputed fact that the credit facilities were recalled and the personal guarantee was invoked by the Applicant. By virtue of the Notice for Invocation of Personal Guarantee dated June 18, 2019, the Respondent/Personal Guarantor was called upon to pay the outstanding demand of INR 24,76,35,089.55/- to the Creditor within seven days from the date of receipt of the notice. Thus, we find that the default is committed by the Personal Guarantor in honouring her personal guarantee obligation towards the Creditor somewhere in or around the month of June, 2019.

However, since the default on the part of the Personal Guarantor persisted despite invocation of personal guarantee, the Applicant herein issued a Demand Notice dated December 30, 2021 in Form ‘B’ calling upon the Personal Guarantor to honour the personal guarantee furnished by her and make good the default within 14 days of the receipt of the notice, failing which the Applicant shall initiate the insolvency resolution process against the Personal Guarantor. The Personal Guarantor herein, through her advocates, replied to the aforesaid Demand Notice vide Reply dated January 10, 2022. Thus, the service of Demand Notice in Form ‘B’ by the Applicant on the Respondent stands proved on record. In her reply, the Respondent merely asked the Applicant to give inspection of the documents stated therein. However, despite the service of demand notice referred-to-above, the Personal Guarantor failed to honour her personal guarantee obligations towards the Creditor which led to filing of the above-captioned Petition by the Applicant/Creditor u/s 95 of the Code seeking initiation of insolvency resolution process against her.

1. As regards limitation, it has been observed that the default was committed by the Personal Guarantor somewhere in or around the month of June, 2019, the Petition u/s 95 of the Code ought to have been filed against her within 3 years from the date of default as per the provision of Article 137 of the Schedule to the Limitation Act, 1963. However, as per the orders of the Hon’ble Supreme Court of India dated January 10, 2022 in M.A. No. 21 of 2022 in Suo Motu Writ Petition (Civil) No. 3 of 2020, the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings and consequently, the balance period of limitation, if any, shall become available with effect from 01.03.2022.

In the present case, the period lapsed from 18.06.2019 to 14.03.2020 is 271 days and therefore, the balance period of limitation of 824 days (365days*3years-271 days) shall be available from 01.03.2022. Therefore, the period of limitation under Article 137 of the Schedule to the Limitation Act, 1963 read with the Apex Court orders dated 10.01.2022, expires on June 02, 2024. Since the captioned Petition u/s 95 of the Code was filed on 27^th July 2022, we hold that the captioned Petition is not barred by limitation.

Counsel for the Respondent submits that the Petitioner is estopped under section 68 of the Transfer of Property Act, 1882 from enforcing its claim under the captioned proceedings as it has already secured its claim under the SARFAESI Act, 2002 by enforcing its security interest in two properties (viz. Flat Nos. 701 and 801 situated on 10^th floor and 11^th floor respectively at Santacruz Satyashraya- Palazzo Landmark CHSL, West Avenue, Santacruz West, Mumbai-400054) having market value of more than Rs. 25 crores. Counsel for the Respondent places reliance on the provisions of Section 68 of the Transfer of Property Act, 1882 to contend that once a mortgagee has taken possession of the property undisturbed and undamaged, and where the security is not insufficient, the mortgagee cannot again sue for the mortgage money. However, we are unable to agree with the aforesaid contention for the reason that bar u/s 68 of the Transfer of Property Act, 1882 applies to suits or proceedings for mortgage money; whereas the proceedings under IBC cannot equated with a suit or a proceeding for recovering the mortgage money from the debtor. It is trite to say that proceedings under Section 95 of the Code is for insolvency resolution of the Personal Guarantor to the Corporate Debtor and not for mere recovery of debt by the creditor. Therefore, the bar u/s 68 which applies to suits for mortgage money, cannot be extended to proceedings u/s 95 of the Code as the debt recovery proceedings and the insolvency resolution process stand on totally different footing. Further, merely because a secured creditor has taken action to realise/enforce its security interest in the mortgaged property, the secured creditor is not precluded from initiating insolvency resolution process of the Personal Guarantor unless of course the debt is recovered in full. In the present matter, the learned Counsel for the Petitioner has submitted that the Applicant/Creditor has not been able to realise any amount from the auction of the two properties to which the Respondent is referring. Further, we observe that the Respondent/Personal Guarantor has not brought anything on record to show that after enforcing the security interest in the two mortgaged properties, it has recovered the debts due from the Corporate Debtor in full. Besides, as discussed above, mere initiation of proceedings under the SARFAESI Act, 2002 for enforcement of security interest would not preclude the Applicant/Creditor from filing an application u/s 95 of the Code seeking initiation of insolvency resolution process of the Personal Guarantor. Hence, we dismiss the aforesaid contentions of the Counsel for the Respondent.

Counsel for the Respondent contends that since the debt has been assigned to J.C. Flower Asset Reconstruction Pvt Ltd behind the back of the Personal Guarantor, this is a variance in terms of contract between the Creditor and the Principal Borrower (i.e. the Corporate Debtor) without obtaining the consent of the Surety (i.e. the Personal Guarantor), hence, the Surety/Personal Guarantor stands discharged u/s 133 of the Indian Contract Act, 1872. However, in our considered view, mere assignment of debt cannot be said to be a variance in the terms of the contract between the principal debtor and the creditor. After assignment of debt, the assignee steps into the shoes of the creditor and exercises the same rights under the contract which the assignor/erstwhile creditor had against the debtor. Even otherwise, in view of Section 5 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the aforesaid contention of the learned Counsel for the Respondent cannot be entertained.

1. It is also not out of place to state that in the present case, J.C. Flowers Asset Reconstruction Private Limited (i.e. the assignee) had filed an application vide I.A. No. 922/2023 in the captioned Petition seeking its substitution in place of the Petitioner herein. The aforesaid IA was allowed by this Bench vide Order dated 15.03.2023. Since no amendments were carried by the assignee despite the aforesaid order, the Petitioner continues to remain on record. However, on this technical ground alone, we are not inclined to dismiss this petition when debt and default on the part of the Personal Guarantor have been satisfactorily established from the records. In this regard, guidance may be taken from Order 22, Rule 10 of the Code of Civil Procedure, 1908 which are reproduced hereunder:

A bare reading of the provisions of Order 22 Rule 10 makes it clear that the legislature has not envisaged the penalty of dismissal of the suit or appeal on account of failure of the assignee to move an application for impleadment and to continue the proceedings. While interpreting Order 22, Rule 10, the Hon’ble Supreme Court of India in Sharadamma Vs. Mohammed Pyrejan (Dead) through Legal representatives and Another [2016(1) SCC 730] held as follows:

Though we are conscious of the settled position that the provisions of the Code of Civil Procedure, 1908 (‘CPC’) do not stricto sensu apply to the proceedings before the Adjudicating Authority under the Insolvency & Bankruptcy Code, 2016; however, when there is no specific provision in Part III of the Code, nothing precludes the Adjudicating Authority from being guided by the procedures and the principles laid down in CPC. The Hon’ble NCLAT too referred to the above-cited judgment of the Hon’ble Apex Court while disposing CA(AT)(Insolvency) No. 179/2023 in Surender Singh v. Yes Bank Ltd. & Anr. vide Order dated 16.02.2023.

Thus, in the given case, there cannot be dismissal of the insolvency proceedings initiated by the Petitioner herein merely on account of failure of the assignee to make necessary amendments to the cause title and the captioned Petition to continue to proceedings especially when the substitution application was already allowed by this Court. Therefore, now, it would be open to the assignor (i.e. the Applicant/Creditor herein) to continue the proceedings notwithstanding the fact that he ceased to have any interest in the subject-matter of dispute on account of assignment of debt. In view of the above discussions, we are of the firm view that the Petitioner/Applicant/Creditor herein can continue the proceedings for the benefit of assignee.

Counsel for the Respondent submits that the Applicant is guilty of suppressio veri as the Applicant has not disclosed the fact that a civil suit was filed against it by the Corporate Debtor in the Bombay City Civil Court vide S.C. Suit (Stamp) No. 3811 of 2020. However, we observe that the above-referred suit was filed by the Corporate Debtor and Mr. Kunal Jiwarajka against, inter-alia, the Original Petitioner (Financial Creditor) in CP(IB) No. 1545/MB/2019 and the Petitioner herein impugning the initiation of CIRP against the Corporate Debtor and the same has no relevance or impact on the merits of this case. Hence, we dismiss the plea of suppressio veri taken by the Respondent against the Applicant.

No other contentions have been raised on behalf of the Personal Guarantor/Respondent.

The learned RP has in his Report u/s 99 of the Code has recommended for the admission of the Personal Guarantor into the insolvency resolution process. The learned RP in his report has confirmed the service of demand notice and non-payment of debt by the Respondent despite the invocation of personal guarantee. The learned RP has further stated that the petition appears to have been filed within period of limitation.

In view of the foregoing findings, analysis and discussion, we are of the considered view that the debt and default on the part of the Personal Guarantor have been satisfactorily established from the records and also since the Petition is held to have been filed within period of limitation, we are inclined to allow the same and dismiss the captioned IA filed by the Personal Guarantor. Accordingly, we pass the following orders:

a. the information disclosed in the application filed by the Petitioner under Section 95 and

b. claims received by the Resolution Professional under Section 102 within 30 days from the date of the notice.