NCLAT Cases – Limited Insolvency Examination w.e.f. 1st January, 2021

NCLAT Cases – Limited Insolvency Examination w.e.f. 1st January, 2021

 

1. Edelweiss Asset Reconstruction Co. Ltd. v Synergies Dooray Automotive Ltd. & Ors.

Case Citation: [2018] ibclaw.in 102 NCLAT

Facts of the Case

The CIRP was initiated against Synergies-Dooray Automotive Limited. After the submission of the Resolution Plan(s), a number of applications were preferred by the Applicant/Appellant under sub-section (5) (c) of Section 60 of the Code and related Rules. All the applications have been rejected by different orders all dated 2nd August, 2017 and the Resolution Plan submitted by Synergies Castings Ltd. as approved by the Committee of Creditors with 91.06% vote, has also been approved by the Adjudicating Authority in terms of Section 31(1) of the Code.

An application bearing C.A No. 43 of 2017 was filed by the Applicant/Appellant under sub-section (5) (c) of Section 60 of the Code read with Rules 14 & 34 of the NCLT Rules, 2016, inter alia seeking direction to direct the Resolution Professional to cancel and/or defer the first meeting of the Committee of Creditors. It was scheduled to be held on 22nd February, 2017. Such application was filed on the ground that IRP has failed to consider that the assignment agreements which were entered into as late as 24th November, 2016, by which the existing debt of the Corporate Debtor was suspiciously changed hands from a related party of the Corporate Debtor being Synergies Castings Limited to a third-party NBFC being Millennium Finance Limited. It was alleged that the same is invalid as it was entered into with the malafide ulterior motive of reducing the voting rights of the Applicant/Appellant in the meeting of the Committee of Creditors.

The Adjudicating Authority taking into consideration the revised claim made by the Appellant as was requested to the IRP and other facts held that the Adjudicating Authority cannot go into roving enquiry especially in the case where several issues have been settled by BIIFR\’ and several agreements have already been executed and approved. C.A No. 43 of 2017 preferred by the Applicant/Appellant was dismissed. 

Another application bearing CA No. 124 of 2017 was filed by the Applicant/Appellant seeking to declare all the decisions taken by the Committee of Creditors at the second meeting held on 24th June, 2017, as invalid and consequently to set aside and quashing of all the resolutions passed in the said meeting. The Adjudicating Authority, on hearing the parties, by another order dated 2nd August, 2017 observed that all the facts relating to related party considered in CA Nos. 43 and 57 of 2017 by adverting to fundamental objections raised by the Applicant/Appellant and subsequently, the Resolution Plan having approved by separate order dated 2nd August, 2017 passed in CA No. 123 of 2017, the application has become infructuous.

Questions before the Appellate Tribunal

The questions arise for consideration in these appeals are:

i. Whether the assignment(s) made by ‘Synergies Castings Limited’ on 24th November, 2016 in favour of ‘Millennium Finance Limited’ is legal?

ii. Whether the order dated 2nd August, 2017 passed by the Adjudicating Authority approving the ‘Resolution Plan’ submitted by ‘Synergies Castings Limited’ is legal?

Decision of the Appellate Tribunal

NCLAT holds that the Adjudicating Authority cannot enter into roving enquiry on mere apprehensions, baseless allegations. It is a settled law that whatever the rights the original assignor got it from the original lender will automatically accrues to subsequent assignees basing on executing appropriate legal documents in accordance with law. Here, in this case, ‘Millennium Finance Limited’ has got all the rights as per the assignment agreements all dated 24th November, 2016. Hence, the allegations/ apprehensions made by the Appellant being baseless and mere apprehensions, and based on conjuncture and surmised cannot be accepted, particularly when they have been executed in accordance with law and accepted by the Registrar of Companies. The Appellant doesn’t have any locus stand’ to question those documents in the insolvency proceedings initiated under Code on a farfetched argument that they are going to be effected if the rights of ‘Synergies Castings Limited’ and ‘Millennium Finance Limited’ are recognized basing on the Assignment Agreements in question and the Appellant cannot assume jurisdiction to question the documents in question basing on baseless allegations, apprehension etc. Therefore, the Adjudicating Authority summarily rejected the contentions/allegations of the Appellant with regard to documents in question.

In the result, we hereby declare that both ‘Synergies Castings Limited’ and ‘Millennium Finance Limited’ were eligible to execute the assignment agreements in question and all rights flow those agreements to ‘Millennium Finance Limited’. After getting assignment of rights, the ‘Millennium Finance Limited’ is fully competent to participate in ‘Committee of Creditors’ in question and it cannot be called a related party as explained.(p66)

The next question arises is whether the above documents were executed without making reference to ‘BIIFR’ is valid or not. Admittedly, the Appellant herein and the ‘Millennium Finance Limited’ are assignees of original lenders to ‘Synergies-Dooray Automotive Limited’. It is not the case of the Appellant that Assignors have no right to question the rights / interest to the assignee. It is the case of the Applicant that the Respondent No. 3 was assigned the rights / interest in question in order to deprive / reduce the interest of the Appellant herein in the ‘Committee of Creditors’. As long as the assignment agreement deeds are valid and legally enforceable, the Appellant has no locus stand’ to question its object, modus operandi behind its execution. The contentions of the Appellant that the ‘Millennium Finance Limited’ would become a related party by virtue of Section 5 (24) is not at all tenable.(p67)

The Appellant has alleged that the ‘Corporate Debtor’ had suppressed several material facts especially with regard to leasing out all its assets to ‘Synergies Castings Limited’ before ‘BIIFR’. The Appellant and its Assignor viz. ‘Export Import Bank of India’ (‘Exim Bank’) has filed various applications before ‘BIIFR’ / ‘AAIFR’ questioning the determination of the ‘Corporate Debtor’ as a sick industrial company, but such ground cannot be taken at the time of approval of the ‘Resolution Plan(s)’. The Assignment deeds of various Banks / Financial Institutions/ ARCs in favour of ‘Synergies Castings Limited’ happened way back in the years 2008-2011 and that too from ‘SBI’, ‘ICICI’ (ARCIL). Therefore, the Adjudicating Authority has not find any fault with these assignment deeds. With respect to the allegation of ‘Synergies Castings Limited’ assigning its debt to ‘Millennium Finance Limited’ on 24th November, 2016, the Adjudicating Authority rightly held that there is no merit in this argument.(p68-69)

In so far as ‘Resolution Plan’ submitted by ‘Synergies Castings Limited’, it cannot be held to be violation of sub-section (2) of Section 30 or any of the provisions of the law on the ground of violation of Sections 230-232 of the Companies Act, 2013. Section 230 of the Companies Act, 2013 relates to ‘power to compromise or make arrangements with creditors and members’ whereas Section 232 relates to ‘merger and amalgamation of companies’. The question of filing an application before the National Company Law Tribunal under Sections 230-232, does not arise at the stage of filing of the ‘Resolution Plan’ as it is not known as to which of the ‘Resolution Plan’ will be approved. Once a plan is approved, one may argue that in terms of the provisions of the Companies Act, a formal order of amalgamation is required. No such argument can be advanced at the time of approval of the ‘Resolution Plan’ which merely proposes merger.(p70-71)

The ‘I&B Code’ is a code by itself and Section 238 provides over riding effect of it over the provisions of the other Acts, if any of the provisions of an Act is in conflict with the provisions of the ‘I&B Code’. Therefore, the arguments of the Appellant that merger and amalgamation of the companies cannot be proposed in the ‘Resolution Plan’ or such proposal is violative of clause (e) of sub-section (2) of Section 30 is fit to be rejected. In view of the aforesaid findings and in absence of any merit, we dismiss these appeals. No cost.(p72-73)

 

2. State Bank of India v Anuj Bajpai (Liquidator)

Case Citation:  (2019) ibclaw.in 423 NCLAT

Facts of the case & contentions of the parties

The question arises for consideration in this appeal is whether the Appellant, who is a Secured Financial Creditor, while opting out of liquidation process under Section 52(1)(b) of the IBC is barred from selling the secured assets to the Promoters or its related party or the persons who are ineligible in terms of Section 29A of the Code?

  • Learned counsel appearing on behalf of the Appellant submitted that once a secured creditor has opted out of the liquidation process under Section 52(1)(b) of the ‘I&B Code’ then such creditor is entitled to realize the security interest in terms of Section 52(4) of the ‘I&B Code’. Section 52(4) in turn states that a secured creditor may enforce, realize, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realized and to the secured creditor and apply the proceeds to recover the debts due to it.
  • Learned counsel appearing on behalf of the Appellant while relying on the decision of the Hon’ble Supreme Court in Pegasus Assets Reconstruction Private Ltd. v. Haryana Concast Limited – (2016) 4 SCC 47)’ and held that ‘SARFAESI Act’ leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but details procedure has also been prescribed to take care of various eventualities.’
  • It was submitted that in the cases of ‘S. C. Sekaran v. Amit Gupta & Ors.[2019] ibclaw.in 02 NCLAT’ and ‘Y. Shivram Prasad v. S. Dhanapal & Ors.[2019] ibclaw.in 03 NCLAT’ this Appellate Tribunal by its last judgment dated 27th February, 2019 left it open to the promoters to enter into a scheme of arrangement or compromise with the creditors. Therefore, according to the counsel for the Appellant the ‘Promoter’ is permitted even at the stage of liquidation to purchase the assets.
  • Learned counsel appearing on behalf of the ‘Liquidator’ submitted that in a situation if ‘Secured Creditor’ is allowed to sale the ‘Secured Assets’, after opting out of the liquidation process, to any person including a person who is disqualified under Section 29A of the ‘I&B Code’, then the entire purpose of Section 29A of the ‘I&B Code’ would get defeated. According to him, the objective of the restriction imposed upon the liquidator under the ‘Explanation given below to Section 35(1)(f) are in two-fold – (i) firstly, to ensure protection of public interest to keep the ‘not eligible person’ out of the process to ensure that the assets should not go back to the same management or defaulting parties, who have committed the default and (ii) secondly, to prevent the misuse and impose restriction in order to ensure that any cartel that may be formed by the defaulting parties hand in glove with the ‘Financial Creditor’, and if allowed will defeat the objective of the ‘I&B Code’ of maximization of value of stressed assets which has putting to ‘Liquidation’.

Decision of Appellate Tribunal

  • From the plain reading of the Section 35(1)(f), it is clear that the ‘Liquidator’ cannot sell the assets of the ‘Corporate Debtor’ to the persons who are ineligible in terms of Section 29A of the ‘I&B Code’.
  • In ‘Jindal Steel & Power Limited vs. Arun Kumar Jagatramka & Anr. [2019] ibclaw.in 04 NCLAT the Appellate Tribunal while noticed the decision of ‘S. C. Sekaran v. Amit Gupta & Ors.[2019] ibclaw.in 02 NCLAT’ and ‘Y. Shivram Prasad v. S. Dhanapal & Ors.[2019] ibclaw.in 03 NCLAT’’ held that :
    • “12. From the aforesaid provision, it is clear that the Promoter, if ineligible under Section 29A cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or actionable claims of the ‘Corporate Debtor’.
    • 13. The National Company Law Tribunal by impugned order dated 15th May, 2018, though ordered to proceed under Section 230 to 232 of the Companies Act, failed to notice that such application was not maintainable at the instance of 1st Respondent-Arun Kumar Jagatramka (Promoter), who was ineligible under Section 29A to be a ‘Resolution Applicant’.
  • Therefore, it is clear that a Member, Shareholder/Promoter whoever is ineligible under Section 29A cannot take over the ‘Corporate Debtor’ by way of arrangement and scheme under Section 230-232 of the Companies Act.
  • Section 52(1)(b) of the ‘I&B Code’ empowers as secured creditor and liquidation proceedings to relates its security interest in the manner as prescribed in the said Section and sub-section (4) of Section 52 a secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.
  • From sub-section (4) of Section 52, it is clear that secured creditor is entitled to enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.
  • In terms of ‘I&B Code’ the secured assets and the interest of the secured creditor to recover the proceeds of debts due to it has not been specifically prescribed, it does not make that the procedure prescribed under the ‘SARFAESI Act, 2002’ will be applicable to secured creditor to sale the proceeds.
  • The object of the ‘I&B Code’ is to maximize the assets of the ‘Corporate Debtor’ and then to balance the stakeholders including maximization of the assets of the ‘Financial Creditor’ and other creditors including secured creditors. In ‘Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors. [2018] ibclaw.in 31 SC”, the Hon’ble Supreme Court while interpreting Section 29A has reiterated that the person not eligible under Section 29A cannot be permitted to submit the ‘Resolution Plan’ if default still exists. The Hon’ble Supreme Court at para 34 therein observed that “it is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil.” The aforesaid principle is even applied to the group companies.
  • Even if Section 52(4) is silent relating to sale of secured assets to one or other persons, the Explanation below Section 35(1)(f) makes it clear that the assets cannot be sold who are ineligible under Section 29A,
  • If during the liquidation process assets cannot be sold to a person who is ineligible under Section 29A, the said provision only applicable to the ‘Liquidator’ but also to the ‘secured creditor’, who opt out of Section 53 to realise the claim in terms of Section 52(1)(b) read with Section 52(4) of the IBC.
  • Section 52 does not create any right in favour of one or other ‘secured creditor’ to realise its security interest in the manner specified in the said Section where the ‘secured creditor’ realises security interest under clause (b) of Section 52 is required to inform the liquidator of such security interest and identify the assets subject to such security interest (Section 52(2) of the I&B Code). Before security interest is realised by the ‘secured creditor’ under Section 52, the ‘Liquidator’ is required to verify security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either by the records of such security interest maintained by an information utility or by such other means as may be specified by the Board (See Section 52(3) of the I&B Code). If it comes to the notice of the ‘Liquidator’ that a secured creditor intends to sale the assets, the person who are ineligible person in terms of Section 29A, it is always open to reject the application under Section 52(1)(b) read with Section 52(2) and (3) of the ‘I&B Code’.
  • In such case, after obtaining the conditional permission from the competent authority that the ‘Liquidator’ to sale the assets under Section 52, secured creditor cannot challenge the said condition as imposed by the ‘Liquidator’ as affirmed by the Adjudicating Authority. We find no merit in this appeal. It is accordingly dismissed. No costs.

 

3. SKS Power Generation Chattisgarh Ltd. v Nagarajan (in the matter of M/s Cethar Ltd. & Ors.)

Case Citation: [2018] ibclaw.in 108 NCLAT

In the CIRP initiated against ‘M/s. Cethar Limited’ (‘Corporate Debtor’), the 1st Respondent- (‘Resolution Professional’) filed application being CA 38/IB/2018 in CP/511/(IB)/2017 under Sections 43, 45, 180 and 186 of the Code with following prayers: –

“(a) (i) That the transactions of investment set out as made by the ‘Corporate Debtor’ pursuant to the agreement dated 15.03.2011 amended by agreement dated 06.04.2016 and read with resolution of CD’s Board of Directors dated 17.06.2016 in shares of the 1st and the 4th Respondent together with the sale thereof to 5th Respondent and payments there from to 6th to 9th Respondents be declared as null and ab-initio void and consequently set aside.
(ii) That 1st – 4th Respondents be directed to make repayment to the CD of the sum of Rs. 228.60 Crores with interest at 12% p.a from date of receipt of the funds from the CD and its subsidiary.

(a) That pending the hearing and final disposal of this application.

(i) The 1st -4th Respondents be restrained from dealing with or disposing off or parting with or alienating their assets, including by way of hypothecation, mortgage or of any kind, in any manner.
(ii) That 1st -4th Respondents be directed to place before this Hon’ble Tribunal all records of movement of funds between themselves from 1.04.2010 onwards till date including funds received by them from CD and its subsidiary to the extent of Rs. 228.60 crores.
(iii) That the 1st-4th Respondents be directed to place adequate security by way of bank guarantee in respect of the amount due to the CD.
(iv) That the affairs of the 1st-4th Respondents be directed to be investigated by the Serious Fraud Investigation Office (SFIO) or any other investigation agency that the Hon’ble Tribunal may deem fit and appropriate in this regard.”

The ‘Resolution Professional’ thereafter filed Miscellaneous Application being MA No. 25/IB/2018 with following prayer:

(a) An order permitting the Applicant to amend CA/38/IB/2018 and thereby add the following as final relief a(i)(a), after Relief presently set out as a(i) as under:-

“a(i)(a) Direct R10 to repay to the Applicant a sum of Rs. 158.00 crores being the amount received by it from R1 whether as equity or loans or advances or whatever else limited to the maximum extent of funds provided by Applicant to R1.”

(b) An order restraining and injuncting Respondent No. 2 from in any manner realizing or seeking to realize the Bank Guarantee issued on behalf of the Corporate Debtor pending the final disposal of CA/38/IB/2018”

The Adjudicating Authority (NCLT), Single Bench, Chennai, on hearing the parties directed them to file reply to the application seeking amendment as sought for in MA 25/IB/2018. The 1st Respondent- ‘Resolution Professional’ then forwarded an e-mail to the Appellant intimating that the matter relating to the amendment was listed on 24th April, 2018. Thereafter, the Adjudicating Authority, Single Bench, Chennai, by impugned order dated 24th April, 2018, passed following interim order and directions:

“RP along with his Counsel present. Counsel for R1, R2, R10 and R11 present.
Heard both the sides. The Counsel for the RP has pressed hard for grant of interim prayers, citing the reasons that in case the interim prayer is not granted, there will be irreparable loss to the assets of the Corporate Debtor.

Therefore, R10 is directed to repay to the Appellant a sum of Rs. 158 crores, being the amount received by him from R1, whether as an equity or loan or advance or whatever as limited to the maximum extent of funds provided by the Applicant to the R1. R2 is restrained from seeking to release the bank guarantee issued on behalf of the Corporate Debtor, pending the final disposal of CA/38/IB/2018 filed in CP/511/IB/2017.

The Counsel for the Applicant is directed to obtain a copy of this order and serve it on the Respondents with immediate effect. However, the Counsel for the Respondents is also directed to instruct the Respondents/clients to make compliance with this order in letter and spirit.
The Counsel for the Respondent is directed to file reply. Put up on 26.04.2018 at 10.30 A.M.”

The aforesaid order in under challenge in this appeal.

Learned Senior Counsel appearing on behalf of the Appellant submitted that the Adjudicating Authority in effect has allowed the main prayer as sought for in MA 25/IB/2018, though the main CA/38/IB/2018 is still pending. It was submitted that the impugned order amounts to final order purported to have been passed under Section 43 read with Section 45 of the ‘I&B Code’.

On 11th May, 2018, when we issued notice, raised the question of jurisdiction of the Adjudicating Authority to direct one or other third party by an interim order without impleading and hearing the third party. We stayed the operation of the impugned order dated 24th April, 2018 but allowed the CIRP to continue.

The Respondent- ‘Resolution Professional’ has appeared and filed reply affidavit and taken plea that the Appellant was the 10th Respondent who has been directed to repay a sum of Rs. 158 Crores as the amount was paid to it by the ‘Corporate Debtor’. However, it is accepted that the impugned order was passed by way of an interim order without deciding the question of maintainability of application under Sections 43 and 45 of the ‘I&B Code’.

NCLAT held that as we find that the impugned order dated 24th April, 2018 was passed by the Adjudicating Authority without deciding question as to whether the application under Sections 43 and 45 of the ‘I&B Code’ is maintainable or not and as impugned order is not a speaking/reasoned order, we set aside the impugned order and remit the matter to the Adjudicating Authority to decide the application on merit if not yet decided. The Appeal is allowed with aforesaid observations and directions. No cost.

 

4. Export Import Bank of India & Anr v Astonfield Solar (Gujarat) Pvt. Ltd & Anr

Case Citation: [2018] ibclaw.in 110 NCLAT

This appeal has been preferred by the ‘Export-Import Bank of India’ and ‘Power Finance Corporation Limited’ (Financial Creditors) jointly against the order dated 20th November, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench whereby the application under Section 10 preferred by M/s. Astonfield Solar (Gujarat) Private Limited and Anr. (Corporate Debtor and Corporate Applicant) has been admitted, order of moratorium has been passed and the ‘Resolution Professional’ has been appointed. Learned counsel appearing on behalf of the appellant submitted that the shareholders had no voting right to approve the decision of the Board of Directors for initiation of CIRP to the ‘Corporate Debtor’ under Section 10 of the I&B Code. He placed reliance on ‘Deed of Pledge of Securities’ dated 28th March, 2013 in support of his claim.

Mr. Gurpreet Singh, Interim Resolution Professional submitted that when processing the financial matrix the appellant was making hindrance on the ground that they have preferred the appeals.

On hearing the parties, the following facts emerges :

The ‘Deed of Pledge of Securities’ dated 28th March, 2013 was entered into between the ‘Corporate Debtor’ and the ‘Financial Creditors’ wherein the provision relating to voting rights was mentioned under clause 5.2. Relevant portion of which reads as follows :

“5.2 Voting Rights
“unless and until an Event of Default (howsoever described herein and in any of the finance Documents) shall have occurred, the pledgor shall be entitled to exercise any and all voting and other consequential rights pertaining to the Securities (except the right to sell, transfer, assign, charge, pledge or otherwise Encumber the Securities or any part thereof otherwise than in accordance with this Deed) for any purpose not in violation of or inconsistent with any of the terms of this Deed or any other agreement in respect of the Facilities, provided that the pledgor agree that it:

(a) shall not-vote or abstain from voting, in any manner that is inconsistent with the terms of this Deed or any other agreements in respect of the facilities, or which would give rise to an Event of Default or a potential Event of Default or lead to a Material Adverse Effect or result in a breach of any of the Transaction Documents or would otherwise prejudice the interests of any of the Lenders or Security Agent;
(b) shall not-vote or abstain from voting, in favour of any resolution which would have the effect of altering the rights of the Security Agent hereunder or under any of the agreements in respect of the Facilities or the terms of the Securities or any rights attaching to the Securities in any way; and
All such voting rights of the Pledgor shall cease forthwith upon the occurrence of an Event of Default.”

Learned counsel for the appellant also placed reliance on clause 5.2.2 whereunder the pledger authorized the Security Agent, upon the occurrence of an event of default, to attend the general meeting of the members or the meeting of any class of members or meeting of the creditors or debenture holders and to exercise the voting rights, as quoted below :

5.2.2. “The Pledgor hereby irrevocably authorizes the Security Agent, upon the occurrence of an Event of Default, to attend any general meeting of the members or meeting of any class of members or meeting of the creditors or debenture holders and to exercise the voting rights in respect of the Securities in any manner as it may deem fit or as the case may be, direct the exercise by the Pledgor of the voting and other rights attached to any of the Securities as it deems fit. To enable the Security Agent to exercise the Voting rights as aforesaid, the Pledgor shall register this Deed with the Borrower with irrevocable instructions that as and when any intimation is received from the Security Agent in this behalf in accordance with the terms of this Deed, the Security Agent shall be permitted to attend and exercise the voting rights in respect of the Securities on any matter at any meeting of the members of the Borrower, and the Borrower hereby acknowledges and agrees to the same. The Pledgor shall also arrange with the Borrower for forwarding copies of the notices of all such meetings to the Security Agent and and when such notices are issued to the shareholders, and the Borrower hereby acknowledges and agrees to the same. The Pledgor shall execute and deliver to the Security Agent all proxies and such other instruments as the Security Agent may require to exercise such voting and other rights as are granted by this Deed and or available under Applicable Law.”

NCLAT held that from the aforesaid ‘Deed of Pledge’ while we find that in case of default, the voting rights of the shareholders shall cease to exist upon the occurrence of an event of default, it will not deprive the shareholder to continue to be a shareholder and their shares do not stand transferred to the ‘Financial Creditor’ and thereby the shareholder, in terms of the ‘Deed of Pledge’ dated 28th March, 2013 may lose their right to vote but they continue to be shareholder even thereafter.

Even if it is presumed that the shareholder ceased to exercise their right to vote with regard to the company, their right under clause (c) of sub-section (3) of Section 7 does not stand superseded by the aforesaid provision. NCLAT has held that the shareholder has a right to decide whether approving or disapproving the decision be proceeded with the corporate insolvency resolution process under Section 10 of the I&B Code. Such right does not stand curtailed by Deed of Pledge dated 28th March, 2013.

 

5. State Bank of India v Moser Baer Karamchari Union & Anr.

Case Citation: [2020] ibclaw.in 206 NCLAT

Facts

On 14.11.2017, pursuant to an application under Section 7 of the Code, the CIRP was initiated against the Corporate Debtor, wherein finally on 20.09.2018, the order of liquidation was passed by the Adjudicating Authority and the workmen stood discharged under Section 33(7) of the Code. According to the Liquidator, he categorically denied the payment of the gratuity fund, the provident fund and the pension fund preferentially and included the same for the payments under the waterfall mechanism under Section 53 of the Code.

 In January 2019, the Moser Baer Karamchari Union filed CA No. 19(PB)/ 2019 with prayer that the directions be issued to the Liquidator to exclude the amount due to them towards ‘Provident Fund’, ‘Pension Fund’ and Gratuity Trust Fund’ from the waterfall mechanism envisaged under Section 53 of the Code and pay them the ‘Provident Fund Dues’, ‘Pension Fund Dues’ and ‘Gratuity Fund Dues’ as these will not constitute part of the liquidation estate.

NCLT decision

The Adjudicating Authority by impugned order dated 19.03.2019, allowed the CA No. 19(PB)/ 2019 and held that the ‘Provident Fund Dues’, ‘Pension Fund Dues’ and ‘Gratuity Fund Dues’ cannot be part of Section 53 of the Code. The ‘State Bank of India’, a ‘Secured Creditor’, has challenged the order in this appeal.

Question before NCLAT

Whether the provident fund, pension fund and gratuity fund come within the meaning of assets of the ‘Corporate Debtor’ for distribution under Section 53 of the  Code.

Contentions before NCLAT

Learned counsel appearing on behalf of the Appellant- ‘State Bank of India’ submitted that for the purpose of distribution of assets of the ‘Corporate Debtor’ under Section 53 of the Code, dues of employees as mentioned in sub-clause (c) of sub-section (1) therein includes the contribution of ‘Provident Fund’. It placed reliance on Explanation below Section 53 to suggest that the ‘workmen’s dues’ shall have the same meaning as assigned to it in Section 326 of the Companies Act, 2013. Reliance has been placed on Explanation (iv) below Section 326 of the Companies Act, 2013, which relates to ‘Overriding Preferential Payments’ and Explanation (iv) below Section 326, it is mentioned that all sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare of the workmen, maintained by the Company is covered by term “workmen’s dues”. Learned counsel for the Appellant- ‘State Bank of India’ also relied on Section 327 of the Companies Act, 2013 which related to ‘Preferential Payments’ and submitted that the sums due to the workman from the provident fund or any other fund for the welfare of the workmen, maintained by the Company, be treated as ‘workmen dues’.

Learned counsel appearing on behalf of the ‘Resolution Professional’ submitted that Section 36 (3) of the Code defines the components of the liquidation estate and also lays down what forms the liquidation estate. Sub-section (3) therein is subject to sub-section (4). Sub-section (4) (a) (iii) specifically excludes from the liquidation estate or all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund. Therefore, it is submitted that the workmen have the first charge on the aforesaid funds.

NCLAT decision

Section 36 of the Code deals with ‘Liquidation Estate’ for the purpose of liquidation. As per sub-section (1) of Section 36, for the purpose of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the ‘Corporate Debtor’. From sub-section (4) (a) (iii) of Section 36, it is clear that all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund, shall not be included in the liquidation estate assets and cannot be used for recovery in the liquidation. From sub-section (1) of Section 53, it is clear that the proceeds from the sale of the liquidation assets of the ‘Corporate Debtor’, the distribution is to be made in order of priority and within such period and in such manner as provided thereunder.

In terms of sub-section (4) (a) (iii) of Section 36, as all sums due to any workman or employees from the provident fund, the pension fund and the gratuity fund, do not form part of the liquidation estate/ liquidation assets of the ‘Corporate Debtor’, the question of distribution of the provident fund or the pension fund or the gratuity fund in order of priority and within such period as prescribed under Section 53(1), does not arise. The ‘workmen’s dues’ is mentioned in clause (b) (i) of Section 53(1), which are the dues for the period of twenty-four months preceding the liquidation commencement date. In view of the aforesaid specific provisions, the Explanation (iii) below Section 53, for the purpose of meaning of ‘workmen’s dues’, the Appellant cannot derive the meaning as assigned to it in Section 326 of the Companies Act, 2013, including the Explanation below it. There is  a  difference  between  the  distribution  of  assets  and preference/ priority of workmen’s dues as mentioned under Section 53(1) (b) of the ‘I&B Code’ and Section 326(1) (a) of the Companies Act, 2013. It has also been noticed that Section 53(1) (b) (i) which relates to distribution of assets, workmen’s dues is confined to a period of twenty-four months preceding the liquidation commencement date.

While applying Section 53 of the Code, Section 326 of the Companies Act, 2013 is relevant for the limited purpose of understanding ‘workmen’s dues” which can be more than provident fund, pension fund and the gratuity fund kept aside and protected under Section 36(4) (iii). On the other hand, the workmen’s dues as mentioned in Section 326(1)(a) is not confined to a period like twenty-four months preceding the liquidation commencement date and, therefore, the Appellant for the purpose of determining the workmen’s dues as mentioned in Section 53(1) (b), cannot derive any advantage of Explanation (iv) of Section 326 of the Companies Act, 2013. This apart, as the provisions of the Code have overriding effect in case of consistency in any other law for the time being enforced, we hold that Section 53(1) (b) read with Section 36(4) will have overriding effect on Section 326(1) (a), including the Explanation (iv) mentioned below Section 326 of the Companies Act, 2013.

Once the liquidation estate/ assets of the ‘Corporate Debtor’ under Section 36(1) read with Section 36(3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included. The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets under Section 53, we find no ground to interfere with the impugned order dated 19th March, 2019.

 

6. Gammon India Limited v Neelkanth Mansions and Infrastructure Pvt. Ltd.

Case Citation: [2018] ibclaw.in 103 NCLAT

Facts of the Case

  • The case of the Appellant is that by an agreement dated 17th June, 2005, they entered into partnership to be known as ‘M/s. Gammon Neelkanth Realty Corporation’ between the ‘Neelkanth Mansions and Infrastructure Pvt. Ltd.’ and two other entities namely— ‘M/s. Neelkanth Realtors Pvt. Ltd.’, a company under the Companies Act, and ‘Gammon Housing and Estates Developers Ltd.’, a group company of the Appellant.
  • Subsequently, a contract was entered between the partnership firm and ‘Gammon Neelkanth Realty Corporation’ and the Appellant herein for completing construction of seven residential buildings with facilities and amenities (being Phase-I of the ‘Neelkanth Kingdom Project’ of ‘Gammon Neelkanth Realty Corporation’) for a tender price of Rs. 88.75 crores stating completion date as 31st December, 2007. Thereafter, on 23rd April, 2008, another supplementary agreement was entered into mentioning that the Appellant completed work of the value of Rs. 29,76,08,230. Subsequently, on 1st April, 2009, another supplementary agreement was arrived at determining increase of rates mentioning the timeline of 12 months within which that work should be completed. While this work was in progress, the ‘Neelkanth Mansions and Infrastructure Pvt. Ltd.’ filed Suit No. 830/2010 on 17th March, 2010 before the Hon’ble High Court of Bombay against various persons including the Appellant as Defendant No-10 seeking reliefagainst the Appellant in respect to 22 flats wrongly transferred by ‘Treetop’(the company belonging to the Appellant).
  • Further, the case of the Appellant was that during the suit was pending, these three partners i.e. ‘Neelkanth Mansions and InfrastructurePvt. Ltd.’ and other two partners including the company belonging to the Appellant on 2nd and 18th July, 2011 entered into consent terms with a covenant that balance work to be executed is podium, club house,swimming pool, etc. valued at Rs. 41.49 crores. However, according to the Respondent, the Appellant abandoned the work incomplete.
  • The Appellant- ‘Gammon India Ltd.’ filed petition under Section 433 (e) & (f) read with Section 434 of the Companies Act, 1956 before the Hon’ble High Court of Bombay for winding up of ‘Neelkanth Mansions and Infrastructure Pvt. Ltd.’- (‘Corporate Debtor’) on the ground that the  ‘Corporate Debtor’ defaulted in making repayment of Rs. 54,86,09,635 with interest @ 15% p.a. as on 15th August, 2016 till its realization.
  • After the enactment of the Insolvency and Bankruptcy Code, 2016 (‘I&B Code’), the case was transferred from the Hon’ble High Court of Bombay to the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai, pursuant to Rule 5 which relates to “Transfer of pending proceedings of Winding up on the ground of inability to pay debts”. The Appellant thereafter, filed Form-5 under Section 9 of the ‘I&BCode’ for initiation of ‘Corporate Insolvency Resolution Process’ against the ‘Neelkanth Mansions and Infrastructure Pvt. Ltd.’, the Adjudicating Authority by impugned order dated 23rd August, 2018, dismissed the application under Section 9 on the ground that the application under Section 9 is not maintainable against the partnership firm.

Decision of the Appellate Tribunal

  • As noticed, the Adjudicating Authority on going through the record held that the Respondent is a partnership firm by associated companies of the Appellant of which the Respondent is one of the partner. Therefore, it was held that the application under Section 9 of the ‘I&B Code’ against the Respondent, one of the partner of the partnership firm is not maintainable.
  • Learned counsel appearing on behalf of the Appellant relied on definition of firm under Section 79 (16) of the ‘I&B Code’ and submitted that the firm means a body of individuals carrying on business in partnership whether or not registered under Section 59 of the Indian Partnership Act, 1932, therefore, according to him, a definition make it abundantly clear that only when a firm is comprised of individuals, that is to say natural persons only, the provisions of Part III of the ‘I&B Code’ will get attracted. In case, two or more persons (whether artificial or legal) and who are not individuals, are carrying on a business in partnership, then application for insolvency resolution against such partnership cannot be entertained by the Adjudicating Authority due to lack of jurisdiction. In that view of the matter, the application under Section 9 was filed against one of the partner which is a legal entity (corporate body) and not an individual.
  • It is not in dispute that the amount due to the Appellant is from ‘M/s. Gammon Neelkanth Realty Corporation’. The bill was raised against the said partnership firm namely— ‘M/s. Gammon Neelkanth Realty Corporation’. ‘M/s. Neelkanth Realtors Pvt. Ltd.’, ‘Gammon Housing and Estates Developers Ltd.’ and ‘Neelkanth Mansions and Infrastructure Pvt. Ltd.’ are the partners, therefore, even if one of the partners or more than one partner is the ‘Corporate Debtor’ as the amount is due from the partnership firm, the application under Section 9 of the ‘I&B Code’ against one of the partners of such partnership firm will not be maintainable.
  • In view of the aforesaid position of law, we hold that the Adjudicating Authority has rightly held that the application under Section 9 was not maintainable against one of the members of the partnership firm (Respondent herein) and rightly rejected the said application. We find no merit in this appeal. It is accordingly dismissed. No cost.

 

7. S. C. Sekaran v Amit Gupta & Ors.

Case Citation: [2019] ibclaw.in 02 NCLAT

These appeals have been preferred by the management of ‘Hindustan Dorr-Oliver Limited’ (Corporate Debtor) and ‘HDO Technologies Limited’ (the other Corporate Debtor) against orders both dated 25th June, 2018 whereby and whereunder the Adjudicating Authority (National Company Law Tribunal) Mumbai Bench passed order(s) of liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the I&B Code’) of both the companies with certain directions to the liquidator.

Learned counsel appearing on behalf of the Management (Appellant) submitted that the ‘Liquidator’ is supposed to keep the companies as ‘going concern’ even during the period of liquidation. If so necessary, the ‘Liquidator’ can take steps under Section 230 of the Companies Act, 2013 after consultation with the ‘members’ or ‘the creditors’ of the Companies for making arrangement with the third party and thereafter take approval of the ‘National Company Law Tribunal, Mumbai Bench’. It is further submitted that it is also open to the ‘Liquidator’ to sell the companies to third parties before selling the moveable or immovable assets of the company separately.

NCLAT held that in view of the provision of Section 230 and the decision of the Hon’ble Supreme Court in ‘Meghal Homes Pvt. Ltd. vs. Shree Niwas Girni K.K. Samiti & Ors. – (2007) 7 SCC 753’ and ‘Swiss Ribbons Pvt. Ltd.’, we direct the ‘Liquidator’ to proceed in accordance with law. He will verify claims of all the creditors; take into custody and control of all the assets, property, effects and actionable claims of the ‘corporate debtor’, carry on the business of the ‘corporate debtor’ for its beneficial liquidation etc. as prescribed under Section 35 of the I&B Code. The Liquidator will access information under Section 33 and will consolidate the claim under Section 38 and after verification of claim in terms of Section 39 will either admit or reject the claim, as required under Section 40. Before taking steps to sell the assets of the ‘corporate debtor(s)’ (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company’s assets wholly and thereafter, if not possible to sell the company in part and in accordance with law. The ‘Liquidator’ if initiates, will complete the process under Section 230 of the Companies Act within 90 days. For the purpose of counting the period of liquidation, the pendency of the appeal(s) preferred by the ‘Eight Finance Pvt. Ltd.’ that is from 12th July, 2018 and till date should be excluded. In the circumstances, while we are not inclined to interfere with the impugned order(s) both dated 25th June, 2018 direct the Liquidator to act in accordance with law and as observe above. Both the appeal(s) stand disposed of with the aforesaid observations and directions. No costs.

 

8. M/s Era Infra Engineering Ltd. v Prideco Commercial Projects Pvt. Ltd.

Case Citation: (2017) ibclaw.in 214 NCLAT

The application for initiation of CIRP, thereafter can be filed by Operational Creditor after expiry of period of 10 days from the date of delivery of the notice or invoice demanding payment, as provided under sub-section (1) of section 9. Only thereafter, in terms of sub-section (5) of Section 9, the Adjudicating Authority, within 14 days of receipt of the application, by an order is required to either admit the application, if complete or to reject the application if incomplete, provided seven days time is granted for completion of the application if incomplete. As per clause (ii) (c) & (d) of sub-section (5) of section 9, the adjudicating authority is required to reject the application, in absence of affidavit that the Operational Creditor in absence of delivery of demand of notice or invoice demanding payment to the Corporate Debtor.

Admittedly, no notice was issued by Operational Creditor under section 8 of the Code,2016. Demand notice by Operational Creditor stipulated under Rule 5 in Form 3 has not been served. Therefore, in absence of any expiry period of tenure of 10 days there was no question of preferring an application under section 9 of Code, 2016.

The Adjudicating Authority has failed to notice the aforesaid facts and the mandatory provisions of law as discussed above. Though the application was not complete and there was no other way to cure the defect, the impugned order cannot be upheld. For the reasons aforesaid, we set aside the order dated 12th April 2014 passed by the Adjudicating Authority. The application preferred by Operational Creditor under section 9 stands dismissed being incomplete. (p6-9)

 

9. Ferro Alloys Corp Ltd. v Rural Electrification Corp Ltd.

Case Citation: [2019] ibclaw.in 17 NCLAT

1. The appeal at the instance of the Corporate Debtor through its (suspended) Board of Directors is not maintainable in view of the decision of the Hon’ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 (Civil Appeals Nos. 8337-38 of 2017)“-

After admission of an application under Section 7 or 9 or 10, as ‘Interim Resolution Professional’ is appointed and the Board of Directors stands suspended, the (suspended) Board of Directors have no right to move an appeal on behalf of the ‘Corporate Debtor’ though it is open to the Director(s) or shareholder(s) to challenge the same.

2. The consortium of banks have no role to play at the time of admission of application u/s 7-

It is clear that if the Adjudicating Authority is satisfied that there is a ‘debt’ and ‘default’ and otherwise if the application is in order is bound to admit the application. It is a ‘corporate debtor’ who can only point out that it does not owe any debt either in law or in fact, which is not the case of the ‘corporate debtor’. ‘Corporate debtor’ can also take a plea that the application has been filed by a person who is not a ‘financial creditor’ but such issue having not raised, the consortium of banks have no role to play at the time of admission of application under Section 7 of the I&B Code. The role of banks comes if they file claim after the admission of an application and when they are accepted as a ‘financial creditors’ and made members of the ‘Committee of Creditors’ in terms of Sections 27 and 28 of the I&B Code.

Such claims are looked into by the ‘Resolution Professional’ only after admission of the application under Section 7 or 9 or 10 and the order of moratorium was passed by the Adjudicating Authority.

3. Mere dispute of quantum of amount cannot be a ground and that too can be taken at the stage of admission-

If the ‘debt’ is more than one lakh and there is a ‘default’, the application to be admitted. The Adjudicating Authority not being a court of law or Tribunal and ‘corporate insolvency resolution process’ being not a litigation as held by this Appellate Tribunal in Binani Industries Limited vs. Bank of Baroda & Anr. etc. – Company Appeal (AT)(Insolvency) No. 82 of 2018 etc., we hold that the Adjudicating Authority has no jurisdiction to decide any disputed question or claim based on evidence and at the stage of admission is only required to satisfy itself about existence of debt or not and if it is more than Rupees One Lakh and party has defaulted, and otherwise the application is complete, the Adjudicating Authority is required to admit the application.

4. Whether the application under Section 7 of the I&B Code is maintainable against the corporate guarantor without initiation of corporate insolvency resolution process against the principal borrower (principal debtor)-

NCLAT has held that it is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’. Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’.

Facts of the case

Rural Electrification Corporation Limited (financial creditor) sanctioned loan aggregating Rs.517.90 crores to FACOR Power Limited (principal borrower). For securing the above mentioned loan facility extended by the ‘financial creditor’ to ‘FACOR Power Limited’ (‘corporate debtor’ – ‘corporate guarantor’) a ‘Corporate Guarantee Agreement’ was signed and executed guarantee documents in favour of the ‘financial creditor.

Ferro Alloys Corporation Limited’ (‘corporate guarantor’ – ‘corporate debtor’) as also borrower pledged physical shares and Demat shares of ‘FACOR Power Limited’ through various deeds in favour of the ‘financial creditor’. 

The case of the ‘financial creditor’ was that M/s. FACOR Power Limited (principal borrower) defaulted in making repayment of dues and the account of M/s. FACOR Power Limited has since been classified as NPA. On being default in making the payment of the debt amount by the ‘principal borrower’, the ‘financial creditor’ invoked the corporate guarantee of the ‘Ferro Allows Corporation Limited’ and called upon the ‘Ferro Alloys Corporation Limited’ (‘corporate guarantor’) to pay forthwith the amount due and payable by the ‘M/s. FACOR Power Limited’ (principal borrower’) amounting to Rs.564,63,50,544/- as on 30th September, 2015 along with future interest within 17 a period of 21 days.

The Adjudicating Authority taking into consideration the fact that there is a ‘debt’ and ‘default’ and the application under Section 7 against Ferro Alloys Corporation Limited (corporate guarantee) being complete admitted the application by the impugned order dated 6th July, 2017.

Important points

1. a ‘corporate debtor’ must be a ‘corporate person’, [Section 3(7)] who owes a ‘debt’ [Section 3(11)], to any person [Section 3(23)]. The ‘debt’ as used in Section 3(8) has to be a ‘debt’ defined under Section 3(11). It must be the ‘liability’ or ‘obligation’ in respect of a ‘claim’ [Section 3(6)] which is due from any person [Section 3(23)] – which means even a corporate entity and shall include ‘financial debt’ and ‘operational debt’ as defined under section 5(8) and 5(21).

2. A guarantee becomes a debt or as soon as the guarantee is invoked against it whereinafter a guarantor (‘corporate guarantor’) becomes a ‘corporate debtor’ in terms of the I&B Code.

3. In ‘Bank of Bihar Ltd. vs. Dr. Damodar Prasad & Anr. – (1969) 1 SCR 620’, the Apex Court held :

“3. The demand for payment of the liability of the principal debtor was the only condition for the enforcement of the bond. That condition was fulfilled. Neither the principal debtor nor the surety discharged the admitted liability of the principal debtor in spite of demands. Under Section 128 of the Indian Contract Act, save as provided in the contract, the liability of the surety is coextensive with that of the principal debtor. The surety became thus liable to pay the entire amount. His liability was immediate. It was not deferred until the creditor exhausted his remedies against the principal debtor.”

4. In “Bank of Bihar v. Damodar Prasad and Anr.− (1969) 1 SCR 620” the Hon’ble Supreme Court referred to a judgment of Hon’ble Bombay High Court in “Lachhman Joharimal v. Bapu Khandu and Tukaram Khandoji− (1869) 6 Bom HCR 241”, in which the Division Bench of the Hon’ble Bombay High Court held as under:

“The court is of opinion that a creditor is not bound to exhaust his remedy against the principal debtor before suing the surety and that when a decree is obtained against a surety, it may be enforced in the same manner as a decree for any other debt.”

The Hon’ble Supreme Court while approving the said judgment, observed that, “the very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is a banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down.

5. In ‘Ram Bahadur Thakur vs. Sabu Jain Limited – [1981 (51) Comp Cas 301]’, the Hon’ble High Court of Delhi relying on the decision of Hon’ble Supreme Court in ‘Kesoram Mills Case – [(1966) 59 ITR 767]’, held that under the ‘deed of guarantee’ the liability of the company to pay debt arose when the borrower defaulted in making payments and the creditor sent a demand/notice invoking the guarantee.

6. In “State Bank of India v. Indexport Registered and Ors.− (1992) 3 SCC 159”, the Hon’ble Supreme Court held that the decree holder bank can execute the decree first against the guarantor without proceeding against the ‘Principal Borrower’. Guarantor’s liability is co-extensive with that of the principal debtor under the ‘Contract Act, 1872’ (Section 128).

NCLAT verdict

The provision of the I&B Code do not bar a ‘financial creditor’ from initiating ‘corporate insolvency resolution process’ against the ‘guarantor’, who comes within the meaning of ‘corporate debtor’. The aforesaid matter can be noticed from the statutory inter-se rights, obligations and liabilities of :

(i) A surety qua the creditor (the relationship as defined under the Indian Contract Act); or

(ii) Guarantor qua financial creditor.

The I&B Code does not exclusively delineates and/or prescribes any inter-se rights, obligation and liabilities of a guarantor qua ‘financial creditor’. Thus, in absence of any express provision providing for inter-se rights, obligation and liabilities of guarantor qua ‘financial creditor’ under the Code, the same will have to be noticed from the provisions of the Indian Contract Act, which exclusively and elaborately deals with the same.

NCLAT has held that it is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’. Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’. The first question is thus answered against the Appellant.

There is nothing on record to suggest that simultaneously two proceedings of ‘corporate insolvency resolution process’ has been initiated one against principal borrower and another against ‘Ferro Alloys Corporation Limited’ (Corporate Debtor) in respect of the same claim amount and default. Therefore, we are not deliberating the issue in respect to ‘corporate insolvency resolution process’ against ‘principal borrower’ in the present appeal particularly when no order of initiating the corporate insolvency resolution proceedings against the principal borrower has been brought to our notice nor is under challenge. 

 

10. Dr. Vishnu Kumar Agarwal v M/s Piramal Enterprise Ltd.

Case Citation: [2019] ibclaw.in 16 NCLAT

Facts of the case

  • Notices were issued individually to the respective Corporate Guarantors, Sunrise Naturopathy and Resorts Pvt. Ltd.- (Corporate Guarantor No.1) and Sunsyste