Ashok Mahindru & Anr. Vs. Vivek Parti - Thus, stay of proceedings under Section 19(2) and Section 66-67 is not contemplated under Section 96(1)(b) and the scheme of Code in no matter provide for stay of such applications.

NCLAT 29.11.2022) in Ashok Mahindru & Anr. Vs. Vivek Parti (Company Appeal (AT) (Insolvency) No.1324 of 2022) held that;

• Interim moratorium shall be for such proceedings which relate to a liability or obligation due i.e. due on date when interim moratorium has been declared. Section 96(1)(b) cannot be read to mean that any future liability or obligation is contemplated to be stayed.

• Thus, stay of proceedings under Section 19(2) and Section 66-67 is not contemplated under Section 96(1)(b) and the scheme of Code in no matter provide for stay of such applications.

• Section 66 of IBC empowered the Tribunal to pass appropriate orders when the suspended directors or insolvency professional of the Corporate Debtor carried on fraudulent trading or business during resolution process.

Excerpts of the order;

29.11.2022: Heard learned counsel for the Appellants as well as learned counsel for the Respondent. This appeal has been filed against the order dated 09.09.2022 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Court IV by which I.A. No. 4173/ND/2022 filed by the Applicants/Appellants has been rejected. 

# 2. Proceedings were initiated under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘I&B Code’) by order dated 05.09.2019 against the Corporate Debtor - ‘Advance Home and Personal Care Ltd.’. In the proceedings under Section 9, an application was filed by the IRP under Section 19 sub-section (2) on 04.12.2019 against the Appellants who were Suspended Directors of the Corporate Debtor. Another application was filed by the Resolution Professional on 23.07.2020 being I.A. No. 3504 of 2020 under Section 66 and 67 of the I&B Code. Proceedings under Section 95 were initiated against the Appellants as a Personal Guarantor for ‘Advance Surfactants India Ltd.’ by order dated 06.12.2021 and 07.12.2021. Consequently, the interim moratorium was kicked in the said proceedings. An application was filed by the Appellants in CP (IB) 1023/ND/2018, which was Section 9 application, for stay of proceeding under Section 19(2) as well as under Section 66 and 67, which has been rejected. Aggrieved by the said order this appeal has been filed. 

# 3. Learned counsel for the Appellants submits that in view of the triggering of the interim moratorium in proceedings under Section 95 by order dated 06.12.2021 and 07.12.2021 all proceedings have to be stayed. He submits that in proceedings under Section 19(2) and Section 66 and 67 there is possibility of any order against the Appellants in terms of monetary consideration, which may be paid by the Appellants ultimately, hence, proceedings are required to be stayed in view of the interim moratorium. It is further submitted that the Adjudicating Authority has rejected the application of the Appellants’ without giving any reason except observing that the application has been filed to halt all the proceedings against the Corporate Debtor. 

# 4. Learned counsel for the Respondent refuting the submissions of learned counsel for the Appellants contends that what is contemplated by Section 96 is stay of proceedings relating to the debt due. Section 96 never contemplated to stay the proceedings under Section 19(2) and Section 66 and 67, hence, the Adjudicating Authority has rightly rejected the application of the Appellants. 

# 5. We have considered the submissions of learned counsel for the parties and perused the record. 

# 6. Section 96 of the I&B Code which deals with interim moratorium provides: 

• “96. Interim-moratorium. — 

(1) When an application is filed under section 94 or section 95— 

(a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and 

(b) during the interim-moratorium period— 

(i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and 

(ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.” 

# 7. The expression used in Section 96(1)(b)(i) is “any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed”. 

# 8. The term ‘debt’ has been defined in the I&B Code in Section 3(11), which is to the following effect: 

• “3(11). “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;” 

# 9. When we read Section 96(1)(b) with the definition of ‘debt’ in Section 3(11), what is contemplated to be stayed is the proceeding relating to debt, which means a liability or obligation in respect of a claim which is due from any person. Interim moratorium shall be for such proceedings which relate to a liability or obligation due i.e. due on date when interim moratorium has been declared. Section 96(1)(b) cannot be read to mean that any future liability or obligation is contemplated to be stayed. Thus, stay of proceedings under Section 19(2) and Section 66-67 is not contemplated under Section 96(1)(b) and the scheme of Code in no matter provide for stay of such applications. The Adjudicating Authority did not commit any error in rejecting application of the Appellants praying for stay of proceedings under Section 19(2) and Section 66-67. Learned counsel for the Respondent has rightly placed reliance on judgment of this Tribunal in “Rakesh Kumar Jain, RP HBN Homes Colonizers Pvt. Ltd. vs. Jagdish Singh Nain, RP of HBN Foods Ltd. and Ors., Company Appeal (AT) (Ins.) No. 425 of 2022”, decided on 04.08.2022 where question arose with regard to Section 14(1)(a) and application under Section 66 and 67. This Tribunal in Para 14, 15, 16, 17 and 18 laid down following: 

• “14. The core contention of the appellant is that the prohibition under Section 14 (1) (a) is applicable to Section 66 of IBC also. This contention cannot be accepted for the reason that these two provisions are independent, incorporated for different purposes. Section 14 of IBC is intended to prevent fictitious claims by 3rd parties to realise the amount by execution of the orders decrees etc. whereas Section 66 of IBC is intended to prevent fraudulent trading or business by corporate debtor through its corporate insolvency resolution professional or suspended directors, during insolvency resolution process or liquidation process. These two provisions have to be read independently to achieve the object of the enactment. 

• 15. While interpreting the provisions, the statute must be construed to make it effective and workable. The Courts/ Tribunals strongly lean against a construction which reduces the statute to a futility, vide judgment of Apex Court in M. Pentiah Vs. Veeramallappa Muddala1. A statute or any enacting provision therein must be so construed as to make it effective and operative “on the principle expressed in Case Citation: (2022) ibclaw.in 967 NCLAT IBC Laws| www.ibclaw.in -6- Company Appeal (AT) (Insolvency) No. 1324 of 2022 the maxim: ut res magis valeat quam pereat”, vide judgment of Apex Court in CIT Vs. S. Teja Singh2. On application of the principles that courts while pronouncing orders upon the constitutionality of a statute start with a presumption in favour of constitutionality and prefer a construction which keeps the statute within the competence of the Legislature, vide judgment of Apex Court in Corporation of Calcutta Vs. Liberty Cinema3. 

• 16. In view of the settled principle of law both the provisions referred above should be construed harmoniously to give effect to the intendment of the code and to make it workable. Even otherwise the Court must interpret the provisions harmoniously to avoid inconsistency or repugnancy. It has already been seen a statute must be read as a whole and one provision of the Act should be construed with reference to the other provisions in the same Act, so, as to make a consistent enactment, of the whole statue. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statue. It is the duty of the courts to avoid “a head on clash” vide Raj Krushna Vs. Binod Kanungo4, Sultana Begum Vs. Premchand Jain5, Kailash Chandra Vs. Mukundi Lal6. between two sections of the same Act and, “whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise” vide University of Allahabad Vs. Amritchand Tripathi 7 Accordingly, the provisions of the Maharashtra Regional and Town Planning Act, 1966, were read together by the Supreme Court after noting the purpose of the Act. The Act was held not to envisage a situation of conflict, and therefore, the edges were required to be ironed out to read those provisions of the Act which were slightly incongruous, so that all of them are read in consonance with the object of the Act, which is to bring about orderly and planned development vide Manohar Joshi Vs. State of Maharashtra and Ors.8 

• 17. Applying the principles laid down by the Apex court in the above judgments it is the duty of this Tribunal to construe Section 14 (1) (a) and Section 66 of IBC harmoniously to make the enactment effective and workable. 

• 18. In the present facts of the case there is absolutely no inconsistency or repugnancy between Section 14 (1) (a) and Section 66 of IBC. Section 14 of IBC is a bar against institution and prosecution of any suits or proceedings or execution of orders and decrees in other courts or Tribunals but not a bar to pass appropriate order in the pending proceedings against the resolution professional or suspended directors and related parties, before the Adjudicating Authority, during the insolvency resolution process or liquidation process. On the other hand, Section 66 of IBC empowered the Tribunal to pass appropriate orders when the suspended directors or insolvency professional of the Corporate Debtor carried on fraudulent trading or business during resolution process. Therefore, the Adjudicating Authority passed the impugned order only by exercising power that conferred on it by Section 66 of IBC. Hence, the contention that during moratorium, the Adjudicating authority shall not pass an order impugned in this appeal is unsustainable, without any merit. If such contention is accepted by this Tribunal, Section 66 of IBC would become otiose or redundant.” 

# 10. Learned counsel for the Appellant has also placed reliance on judgment of Hon’ble Supreme Court in “(2018) 17 SCC 394, State Bank of India vs. V. Ramakrishnan & Anr.”, where the Hon’ble Supreme Court had occasion to consider Section 96 and Section 101 with Section 14 and it was observed that Section 14 cannot be possibly apply to a personal guarantor. In para 26 following has been observed: 

• “26. We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor. When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due. First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these Sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed. The difference in language between Sections 14 and 101 is for a reason. 

• 26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and coextensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor – often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor.” 

# 11. The judgment of the Hon’ble Supreme Court in the above case does not support the submissions of the Appellants which has been raised in the facts of the present case that proceedings under Section 19(2) and Section 66-67 shall be deemed to have been stayed by virtue of interim moratorium under Section 96(1)(b). 

# 12. We, thus, are of the view that no error has been committed by the Adjudicating Authority in rejecting application of the Appellants. Appeal is dismissed 

 

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State Bank of India Vs Uppalapati Venkata Rama Rao & VMC Systems Ltd - Repayment plan submitted by the Personal Guarantor is rejected by the Creditor .

NCLT Hyderabad (10.10.2022) in State Bank of India Vs Uppalapati Venkata Rama Rao & VMC Systems Ltd  [IA (IBC) 1012/2022 in CP (IB) No. 397/95/HDB/2020] Repayment plan submitted by the Personal Guarantor is rejected by the Creditor.

Excerpts of the Order;

Ld. Counsel Shri. B Ravi for the applicant/RP and Ld. Counsel Shri. Nitish Bandary for the Personal Guarantor present. This is an application filed by the Resolution Professional to take on record the report of the RP wherein it is stated that the repayment plan submitted by the Personal Guarantor was rejected by the Creditor and also prayed to direct the Creditors to pay the RP fees. 

 

It is noted that the Personal Guarantor submitted the repayment plan to the Creditor and the same was rejected with a voting share of 74.32%. As per Section 111 of the Code, the repayment plan submitted by the Personal Guarantor shall be approved by majority of three-fourth in value of the Creditor. Hence, it is clear that the said repayment plan was rejected by the Creditors. 

 

In view of the report the Insolvency Resolution process ordered against the Personal Guarantor is concluded. The creditors are at liberty to move an Application u/s 121 of the IB Code. The creditors are directed to pay the fee and expenses incurred by the RP as per the provisions of law. Accordingly, IA is disposed of and CP is closed.  

 

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Amit Jain Vs. Siemens Financial Services Pvt. Ltd.- The provision of Section 10A is capable of only one meaning that is suspension of initiation of CIRP was only for a Corporate Debtor.

 NCLAT (23.08.2022) in Amit Jain Vs. Siemens Financial Services Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 292 of 2022 ] held that;

• The provision of Section 10A is capable of only one meaning that is suspension of initiation of CIRP was only for a Corporate Debtor.

 

Excerpts of the order;

This Appeal has been filed against the order dated 03.02.2022 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Bench IV in an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘I&B Code’) filed by the Respondent against the Appellant – the Personal Guarantor. By impugned order the Adjudicating Authority ordered to initiate interim moratorium under Section 96 and further appointed Mr. Amit Ojha as Resolution Professional. Notice was issued to the Appellant by the same order. Aggrieved by the order dated 03.02.2022 this Appeal has been filed.

 

# 2. Brief facts of the case necessary to be noticed for deciding this Appeal are:

• (a) The Respondent – Financial Creditor sanctioned loan cum hypothecation amounting to Rs.1,59,00,000/- and Rs.71,00,000/-, respectively to CMI Ltd. (Corporate Debtor/ Principal Borrower). The Appellant stood as Personal Guarantor to the said transaction. Two Master Finance Agreements dated 13.02.2020 were executed by and between the Corporate Debtor, the Appellant – Personal Guarantor and the Respondent – Financial Creditor.

• (b) The Corporate Debtor/Principal Borrower defaulted in paying the EMI in 2020.

• (c) A Company Petition (IB) No. 707/ND/2021 was filed under Section 95 of the I&B Code by the Respondent in November, 2021, where amount in default has been mentioned as Rs.2,44,57,796/-. The application mentions the date on which account was declared NPA as 11.09.2020. The application was relisted before the Adjudicating Authority on 03.02.2022 on which date impugned order was passed by the Adjudicating Authority issuing notice to the Appellant and appointing Resolution Professional.

 

# 3. Learned counsel for the Appellant challenging the impugned order raises following two submissions:

• i. It is submitted that in the I&B Code Section 10A was inserted by Ordinance which subsequently became Act 17 of 2020 providing that no application for initiation of Corporate Insolvency Resolution Process (CIRP) of a Corporate Debtor shall be filed for any default on or after 25.03.2020 for a period of six months, which was subsequently extended for further period till 24.03.2021. It is submitted that since there is bar from initiation of CIRP against the Corporate Debtor, no CIRP can be initiated against the Personal Guarantor also. Section 10A has to be given interpretation to protect the Personal Guarantor also, failing which the provision will become discriminatory. The condition precedent for invoking insolvency resolution process is default on part of the Principal Borrower. When the default of Principal Borrower is covered by Section 10A, no insolvency resolution process can be initiated against the Personal Guarantor. By necessary implication the protection which is provided to the Corporate Debtor must also be provided to the Personal Guarantor.

• ii. Secondly, it is submitted that the Adjudicating Authority did not follow the procedure established by law and no notice was issued before appointing the Resolution Professional. Learned counsel for the Appellant has also relied on the judgment of this Tribunal in “Ravi Ajit Kulkarni vs. State Bank of India, Company Appeal (AT) (Ins.) No. 316 of 2021”.

 

# 4. Learned counsel for the Respondent refuting the submissions of learned counsel for the Appellant contends that the Section 10A prohibited initiation of CIRP only against the Corporate Debtor. Section 10A cannot be extended to an application under Section 95(1) since provision of Section 10A is clear and unambiguous. Insofar as limited notice to the Appellant is concerned, demand notice in Form-B was also served on the Personal Guarantor before filing Section 95 Application and further by order dated 03.02.2022 notice has been issued to the Appellant and Appellant has appeared before the Adjudicating Authority on 29.03.2022 and prayed for 14 days’ time to file Reply.

 

# 5. We have considered submissions of learned counsel for the parties and perused the record.

 

# 6. The first question to be considered is as to whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021?

 

# 7. Section 10A is to the following effect:-

• “10A. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

• Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

• Explanation.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.”

 

# 8. Section 10A begins with non-obstante clause. The section contains a prohibition against initiation of CIRP of a Corporate Debtor for any default arising on or after 25.03.2020. Object of insertion of Section 10A is well known. The whole country was gripped with corona virus COVID- 19 and to extend the protection to Corporate Debtor and to ensure that insolvency resolution process may not be initiated against the Corporate Debtor for any default during the currency of the aforesaid period was with object to permit Corporate Debtor to carry on their activities and they be insulated from threat of insolvency resolution process.

 

# 9. When we look into the scheme of I&B Code, Chapter II of Part II deals with Corporate Insolvency Resolution Process. Section 6 of the Code provides as follows:-

• “6. Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter.”

 

# 10. Section 7 contains provision for initiation of CIRP by a Financial Creditor. Section 9 provides for an application for initiation of CIRP by an Operational Creditor. Section 10 provides for initiation of CIRP by Corporate Applicant.

 

# 11. Section 95 of the Code is in Part III of the Code which contains ‘Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms’. Under Part III, Chapter III deals with insolvency resolution process of which chapter Section 95 is part. Section 95(1) is as follows:-

• “95(1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application”

 

# 12. When Section 10A was inserted in Chapter II of Part I no corresponding amendment was made in Chapter III of Part III of the Code. Had the legislature intended to prohibit filing of application under Section 95(1) by a creditor against the Personal Guarantor for any default committed on or after 25.03.2020, a provision akin to Section 10A could have very well be inserted in Chapter III Part III of the Code.

 

# 13. The principles of statutory interpretations are well established. The basic principle of statutory interpretation is that when a word of statute is clear, plain and unambiguous the courts are bound to give effect to that meaning irrespective of consequences. Justice S. R. Das in “Commissioner of Agricultural Income Tax, West Bengal vs. Keshab Chandra Mandal, AIR 1950 SC 265” observed:-

• “Hardship or inconvenience cannot alter the meaning of the language employed by the Legislature if such meaning is clear on the face of the statute or the rules.”

 

# 14. Hon’ble Supreme Court in “Lalu Prasad Yadav & Anr vs. State of Bihar & Anr., (2010) 5 SCC 1” reiterated the same basic principle of statutory interpretation in Paras 23 and 24:-

• “23. In Sussex Peerage6, the House of Lords, through Lord Chief Justice Tindal, stated the rule for the construction of Acts of Parliament that they should be construed according to the intent of the Parliament which passed the Act. If the words of the statute are of themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves do, in such case, best declare the intention of the Legislature.

• 24. A Constitution Bench of this Court in Union of India & Anr. v. Hansoli Devi and Others7, approved the rule exposited by Lord Chief Justice Tindal in The Sussex Peerage’s case6 and stated the legal position thus: (Hansoli Devi case7, SCC p.281, para 9)

• “9. … It is a cardinal principle of construction of a statute that when the language of the statute is plain and unambiguous, then the court must give effect to the words used in the statute and it would not be open to the courts to adopt a hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. In Kirkness v. John Hudson & Co. Ltd.8 Lord Reid pointed out as to what is the meaning of “ambiguous” and held that: (AC p.735)

• ‘A provision is not ambiguous merely because it contains a word which in different contexts is capable of different meanings. It would be hard to find anywhere a sentence of any length which does not contain such a word. A provision is, in my judgment, ambiguous only if it contains a word or phrase which in that particular context is capable of having more than one meaning.”

• It is no doubt true that if on going through the plain meaning of the language of statutes, it leads to anomalies, injustices and absurdities, then the court may look into the purpose for which the statute has been brought and would try to give a meaning, which would adhere to the purpose of the statute. Patanjali Sastri, C.J. in the case of Aswini Kumar Ghose v. Arabinda Bose9, had held that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. In Quebec Railway, Light Heat & Power Co. Ltd. v. Vandry10 it had been observed that the legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the legislature will not be accepted except for compelling reasons. Similarly, it is not permissible to add words to a statute which are not there unless on a literal construction being given a part of the statute becomes meaningless. But before any words are read to repair an omission in the Act, it should be possible to state with certainty that these words would have been inserted by the draftsman and approved by the legislature had their attention been drawn to the omission before the Bill had passed into a law. At times, the intention of the legislature is found to be clear but the unskilfulness of the draftsman in introducing certain words in the statute results in apparent ineffectiveness of the language and in such a situation, it may be permissible for the court to reject the surplus words, so as to make the statute effective……”

 

# 15. Hon’ble Supreme Court in “Nemai Chandra Kumar & Others vs. Mani Square Ltd. & Others, (2015)14 SCC 203” in paras 32 and 33 laid down following:-

• “32. Ordinarily, the Court resorts to the plain meaning rule (also Known as literal rule) for statutory interpretation. The said rule emphasis that the starting point in the statutory interpretation is statute itself and if the language of statute is Clear and unambiguous there is no need to look outside the statue.

• 33. The intention of the legislature is primarily to be gathered from the language used in the statute, “thus paying attention to what has been said as also to what has not been said” as observed by his Court in Dental Council of India v. Hari Prakash7. Relevant part of which is quoted hereunder:

• “7. The intention of the legislature is primarily to be gathered from the language used in the statute, thus paying attention to what has been said as also to what has not been said. When the words used are not ambiguous, literal meaning has to be applied, which is the golden rule of interpretation.””

 

# 16. On the basic principle of statutory interpretation, the provision of Section 10A is capable of only one meaning that is suspension of initiation of CIRP was only for a Corporate Debtor. Had the legislature intended suspension of initiation of CIRP against the Personal Guarantor also, similar amendment was also required to be made in Chapter III of Part III of the Code. The legislature is presumed to be aware of consequences of statutory provision especially consequences of amendment made in the statute. Whether the suspension of insolvency resolution process has to be for Corporate Debtor and also for individuals including Personal Guarantor is the legislative policy which policy has to be looked into from the amendment brought in the Code by insertion of Section 10A.

 

# 17. We are, thus, unable to accept the submission of learned counsel for the Appellant that suspension of CIRP shall also to be accepted for Personal Guarantor as was provided for Corporate Debtor. The statutory scheme does not contain any indication that CIRP shall also remain suspended for Personal Guarantor for any default between 25.03.2020 to 24.03.2021, therefore, submission of learned counsel for the Appellant cannot be accepted.

 

# 18. Now, we come to the second submission of the learned counsel for the Appellant that no notice was issued to the Appellant by the Adjudicating Authority. Application under Section 95(1) was filed by serving advance notice to the Appellant in Form-B and the Adjudicating Authority issued notice by order dated 03.02.2022 to the Personal Guarantor. The Personal Guarantor also appeared on 29.03.2022 on which date the Adjudicating Authority passed following order:-

“ORDER

Learned Counsel for the Respondent Mr. Amit Jain Advocate appeared and stated that he wants to file a reply. Let the same be filed within 14 days.

List the matter for 20.04.2022.”

 

# 19. In so far as interim moratorium under Section 96 is concerned, the same shall automatically commence on the date of application filed under Section 95. The purpose of limited notice as has been laid down by this Tribunal in “Ravi Ajit Kulkarni” (Supra) is to give opportunity to the Personal Guarantor to participate in the proceedings under Section 95 to object the application filed under Section 95(1) including report of the Resolution Professional. Personal Guarantor is entitled to raise all his pleas for opposing admission of Section 95 application at the time the Adjudicating Authority passes order under Section 100. In the present case, stage of Section 100 has not yet arisen. We by our order dated 31.03.2022 has directed that “the Adjudicating Authority may proceed with the proceedings, however, no orders as contemplated under Section 100 be passed till the next date”. The Appellant still have opportunity to file his reply opposing the Section 95 application as well as of filing objection to the report filed by the Resolution Professional, if not already filed.

 

# 20. In view of the foregoing discussion, we do not find any ground to interfere with the order dated 03.02.2022. The Appeal is dismissed subject to the observations as made above.

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Central Bank Of India vs Virudhunagar Steel Rolling Mills - That a creditor is not bound to volunteer to a surety information as to the state of the principal debtor’s account; and that a creditor is entitled to appropriate payments received subsequent to the execution of a guarantee bond, even so far as a pre-existing debt of which the surety had no knowledge.

Supreme Court (29.12.2015) in Central Bank Of India vs Virudhunagar Steel Rolling Mills [ Civil Appeal No. 3654 of 2006  ] held that;

• That a creditor is not bound to volunteer to a surety information as to the state of the principal debtor’s account; and that a creditor is entitled to appropriate payments received subsequent to the execution of a guarantee bond, even so far as a pre-existing debt of which the surety had no knowledge.

Excerpts of the order;

# 1 This Appeal assails the concurrent findings of the Trial Court as well as the High Court absolving the Respondents, other than Respondent No.1 which is the company which received various credit facilities from the Appellant Bank, of a total amount of Rs.12 lacs against security of moveable as well as raw materials. These facilities were subsequently secured in favour of the Appellant Bank by means of continuing guarantee by the Directors of the Respondent Company, who are Respondent Nos. 2 to 4 herein, in terms of Promissory Notes, Letters of Guarantee, Letters of Hypothecation and Letters of Continuity all dated 30.8.1974. On 30.6.1977 and again on 31.12.1977, by means of separate letters from the Respondent Company to the Appellant Bank, the entire balance due, stood confirmed. Eventually, the Appellant filed a suit on 2.5.1980 for recovery of Rs.3,94,805.42 with future interest at the rate of 14 per cent per annum. In the interregnum another creditor of the Respondent Company, namely Respondent No. 5, had already initiated recovery proceedings in the Court in the course of which the properties of Respondent Company came to be auctioned and were purchased by Respondent No. 6 on 26.10.1979. 

 

# 2 As many as ten issues were framed by the Trial Court which went on to decree the suit against the Respondent Company, but dismissed it as against Respondent Nos. 2 to 4. The conclusions of the Trial Court so far as they are germane to decision in this Appeal were that the liabilities incurred by the Respondent Company prior to the execution of the personal guarantees by Defendant Nos. 2 to 4 were not recoverable from the latter. The Trial Court placed reliance on two judgments of the Madras High Court, namely J.J. Harigopal Agarwal v. State Bank of India AIR 1976 MAD 211 and D. K. Mohammed Ehiya Sahib v. R.M.P.V. Valliappa Chettiar AIR 1976 MAD 536. In the latter case it was held that if there is any variation in the original contract the legal consequence would be that the surety stood absolved. 

 

# 3 The impugned Judgment notes that the main submission on behalf of the Appellant Bank was that all the documents executed by the Respondent Company, including those dated 30.8.1974 and the acknowledgement of liability dated 30.6.1977 and 31.12.1977 had to be taken together in fastening the liability of the Directors of the Company with regard to their personal guarantees. It also noted that in none of the documents relied upon by the Respondent Company had Respondent Nos. 2 to 4 acknowledged or undertaken their personal liability and/or stood guarantee for repayment of any specific and liquidated amounts already advanced by the Appellant Bank to the Respondent Company prior to 30.8.1974. The High Court also returned the finding that there was no cogent evidence to establish that the claims raised in the suit pertained to advance or credits made subsequent to 30.8.1974, the date on which Respondent Nos. 2 to 4 had executed the documents relied upon by the Appellant Bank. 

 

# 4 The learned Counsel appearing for the Appellant Bank had raised arguments, firstly to the question of limitation, secondly to the discharge of surety by variance and thirdly on priority claims in respect of Rollers. Since the question which engaged the attention of the High Court in the impugned Judgment revolved around the fastening of the liability on the Respondent Nos.2 to 4 in respect of transactions prior to the date of the execution of those documents, i.e. 30.8.1974, we shall restrict our attention only to this point. It will be a relevant reiteration that the entire claim of the Appellant Bank had been decreed against the Respondent Company.

 

# 5 So far as the factual matrix is concerned, the Respondent Company was a constituent of the Appellant Bank for a considerably long period and had availed of various facilities including cash credit, etc. It is not in dispute that of the limit of Rs.12 lacs sanctioned by the Appellant Bank in favour of the Respondent Company, the balance on the close of the business on 29.08.1974 was Rs.7,68,853.39, and the latter stood indebted to the former for the aforesaid sum. Learned counsel for the Appellant Bank had sought to rely on Montosh Kumar Chatterjee v. Central Calcutta Bank Ltd. (1952-53) 57 CWN 852, the ratio of which appears to be that a creditor is not bound to volunteer to a surety information as to the state of the principal debtor’s account; and that a creditor is entitled to appropriate payments received subsequent to the execution of a guarantee bond, even so far as a pre-existing debt of which the surety had no knowledge; that there can be no presumption that the surety will be efficacious for prior as well as current and future debts. We note that in the case in hand, the Letter of Guarantee signed on 30.08.1974 by Respondent Nos. 2 to 4 makes no mention of any old transactions, although it specifically records that the liability of the guarantors cannot exceed Rs. 12 lacs. The Letters of Guarantee could easily have recorded the liabilities outstanding against the Respondent Company on 30.8.1974 with an affirmation from Respondent Nos. 2 to 4 that they were guaranteeing these outstandings. Woefully for the Appellant Bank, there is no such acknowledgment or assumption of liability in the subject Guarantee. The High Court has pithily noted the statement of P.W.1, Accountant of the Appellant Bank, who has deposed to the effect that the Deed of Guarantee made no mention of any prior transactions. It appears to us that if any doubts in this regard still persisted, they stood dispelled by the testimony of D.W.1, who has stated in his cross-examination that the Appellant Bank obtained the Guarantee Deed on the understanding that it would be effective and relevant only with regard to debts subsequent to 30.08.1974. This very witness had also clarified that the Guarantee arrangements made no mention whatsoever that they were effective in respect of prior debts.

 

# 6 The decision in Sita Ram Gupta v. Punjab National Bank (2008) 5 SCC 711 is of no advantage to the Appellant Bank. That decision concerns the possibility of a guarantor revoking his continuing guarantee, with the objective of escaping his liability. This is not the case before us in as much as the defence of Respondent Nos. 2 to 4 is that they had agreed to stand surety only for transactions after 30.08.1974. Our attention was also drawn to B. G. Vasantha v. Corporation Bank, Mangalore (2005) 10 SCC 215 as also M.S. Anirudhan v. Thomco’s Bank Ltd. AIR 1963 SC 746 but these decisions do not call for a detailed analysis. It is the Appellant Bank which drafted the Guarantee Deed, and in case of doubt, the document would be read against it. This is the contra proferentem rule, which is of a vintage which brooks no contradiction.

 

# 7 In view of the foregoing discussion, there appears to be no controversy as to the fact that the Guarantee Deeds executed by Respondent Nos. 2 to 4 on 30.08.1974 rendered them personally liable for any transactions or advances made by the Appellant Bank to the Respondent Company after 30.08.1974. There is also no controversy whatsoever that the Bank account lay dormant after this date, all dealings having been transacted much prior thereto. Such being the position, it is not open to the Appellant Bank to pursue Respondent Nos. 2 to 4 for recovery of debts incurred by the Respondent Company in favour of the Appellant Bank. We may clarify that our decision is founded on the evidence that has been recorded in this suit. We should not be misunderstood to have held that a guarantor can, in no circumstances be fastened with liabilities which had been incurred in the past which the guarantor assumed liability for. 

 

# 8 We accordingly dismiss the Appeal by affirming the concurrent findings arrived at by both the Courts below. There shall however be no order as to costs.

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KEB Hana Bank, Vs. Mr. Rohit Nath @ Mr. Rohit Rabindra Nath - However, this Tribunal (DRT) after hearing the parties passed a detailed order on 08.07.2022 and rejected the objection as raised by the respondent and found that the proceeding for bankruptcy in respect of personal guarantor is maintainable before this Tribunal (DRT).

 DRT Chennai-II (08.08.2022) in KEB Hana Bank, Vs. Mr. Rohit Nath @ Mr. Rohit Rabindra Nath [IBC No.1 of 2022] held that;

• A memo was filed on behalf of the Respondent (‘the personal guarantor’) in the present case to the effect that an application for Bankruptcy Process against the Personal Guarantor to the Corporate Debtor would not be maintainable before this Tribunal. 

• However, this Tribunal after hearing the parties passed a detailed order on 08.07.2022 and rejected the objection as raised by the respondent and found that the proceeding for bankruptcy in respect of personal guarantor is maintainable before this Tribunal.

Excerpts of the order;

This Application is filed by the creditor under Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 to initiate Insolvency Resolution Processas against the personal guarantor to the Corporate Debtor “Alectrona Energy Private Ltd” in regard to the unsecured part of debt as envisaged u/s 115(2) of the Insolvency and Bankruptcy Code, 2016.

# 2. Part-I of the Application sets out the details of the Financial Creditor, from which it is evident that the Financial Creditor is a Bank at No.29, Bannari Amman Towers, 4th Floor, Dr. Radhakrishnan Salai, Mylapore, Chennai – 600 004. Further, Part-I evidences that the Authorised Signatory of the Financial Creditor to be one Mr. DAE KI HONG and duly authorised by the bank.

# 3. Part-II of the Application sets out the details of the Guarantor from which it is evident that Mr. Rohit Nath is the personal guarantor and Managing Director of Alectrona Energy Private Limited, the Corporate Debtor in the case on hand and presently residing at No.26, 1st Floor, Poes Garden, Gopalapuram, Chennai – 600 086 with his permanent address as No.4/235, MGR Road, Palavakkam, Chennai – 600 041 and having business at No.3B (Western Side, Old No.4 / New No.7, LVR Centre, Seshadri Road, Alwarpet, Chennai – 600 004. Further, Part-II clearly sets out the details of the assets of the guarantor and the companies in which he holds the capacity of Director. Further at Srl No.14, details regarding guarantee given by the guarantor is also set out.

# 4. Part-III of the Application sets out the particulars of debt, from which it is clear that the total debt (including any interest or penalties) is Rs.60,61,13,173.26p as on 16.2.2022 and in support of the said claim the applicant had enclosed the certificate on outstanding dues along with detailed calculation. It is also seen that out of the total debt, the secured debt is Rs.39,37,90,400/- as on 16.2.2022 and the unsecured portion of the debt is Rs.21,23,22,773.26p. At S. No.13, the provision of law, contract or other documents under which the debt has become due is mentioned, which are as follows: -

(a) Section 123 of Insolvency and Bankruptcy Code, 2015 read with Indian Contract Act, 1872.

(b) Guarantee demand notice dated 18.2.2020.

(c) Working Capital Agreement dated 28.6.2016

(d) Working Capital Agreement dated 27.7.2016

(e) Sanction Letters of the applicant dated 28.6.2016, 26.7.2016, 25.10.2016, 21.2.2017, 5.6.2017 and 27.6.2017.

(f) Orders of this Tribunal dated 24.11.2021 in SR. No.2643 of 2020

# 5. At Srl. No.15 of Part-II the applicant had set out the list of documents attached to the application in order to prove the existence of debt and the amount of default, which are as follows: -

(a) Letter of Personal Guarantee dated 27.7.2016, 26.10.2016, 21.2.2017 and 5.6.2017.

(b) Demand Promissory Notes along with Letter of Continuity dated 28.6.2016, 27.7.2016 and 27.6.2017.

(c) Deed of indemnity dated 27.7.2016.

(d) General Indemnity deeds for letter of credit dated 25.10.2016, 21.2.2017 and 5.6.2017.

(e) Communications and letters exchanged between the Corporate Debtor and the applicant herein in relation to the debt.

(f) Application filed in SR No.2643 of 2020.

(g) Counter / Objection filed in SR No.2643 of 2020

(h) Final Repayment Plan dated 4.9.2021

(i) Report of the Interim Resolution Professional (IRP)

(j) Order dated 24.11.2021 passed by this Tribunal in SR. No.2543 of 2020.

(k) Other orders passed by this Tribunal in SR No.2643 of 2020

(l) Other documents relating to SR No.2643 of 2020.

(m) Notarized asset declaration affidavit dated 5.6.2017 given by the Personal Guarantor.

(n) Net worth certificate dated 21.7.2016 issued by Personal Guarantor’s auditor.

(o) KYC documents of the Personal Guarantor.

(p) Master data of the Corporate Debtor

(q) Mortgage deeds executed by the personal guarantor to secure the dues.

(r) Board Resolutions passed by the Corporate Debtor in relation to the loan transaction.

# 6. Part-III sets out at S. Nos. 16 and 17, the statement by the secured creditor under Section 123(2) of the Code and Statement by creditor in respect of excluded debts.

# 7. Part–IV which pertains to the Particulars and Declaration by Insolvency Professional (if proposed to act as Bankruptcy Trustee) is blank as no specific proposal is made by the applicant.

# 8. The application is accompanied by Affidavit Verifying Application and Affidavit on Insolvency Resolution / Liquidation Process against the Corporate Debtor, wherein it is stated that the application has been filed for bankruptcy process of the defendant, who is the personal guarantor to the principal borrower / corporate debtor viz., Alectrona Energy Private Limited and further that as on date no Corporate Insolvency Resolution Process or Liquidation proceedings pending before NCLT, Chennai under Insolvency and Bankruptcy Code, 2016 against the said corporate debtor, to the best of information, knowledge and belief.

# 9. Heard the submissions made by the Learned Counsel for both the parties and perused the records including the pleadings placed on record.

# 10. The applicant had earlier initiated Insolvency Resolution Process against the guarantor to the Corporate Debtor vide application SR No.2643 of 2020, before this Tribunal, wherein a Resolution Professional was appointed and pursuant to his Report this Tribunal by its order dated 22.10.2020 admitted the application under Section 95 of the Act. The IRP had filed a report dated 11.11.2021, and this Tribunal by its order dated 24.11.2021 rejected the Resolution Plan as submitted by the Resolution Professional u/s 114(1) of the Insolvency and Bankruptcy Code, 2016 and sequel to the above facts, the present proceedings are initiated.

# 11. On filing of the instant application by the secured creditor, as a memo was filed on behalf of the Respondent (‘the personal guarantor’) in the present case to the effect that an application for Bankruptcy Process against the Personal Guarantor to the Corporate Debtor would not be maintainable before this Tribunal. However, this Tribunal after hearing the parties passed a detailed order on 08.07.2022 and rejected the objection as raised by the respondent and found that the proceeding for bankruptcy in respect of personal guarantor is maintainable before this Tribunal.

# 12. The relevant provision of the Insolvency and Bankruptcy Code, 2016 for filing an Application for bankruptcy is 121 of the Code, which is as follows: - “Section 121. Application for bankruptcy. – (1) An application for bankruptcy of a debtor may be made, by a creditor individually or jointly with other creditors or by a debtor, to the Adjudicating Authority in the following circumstances, namely; – (a) where an order has been passed by an Adjudicating Authority under sub-section 4 of section 100; or (b) where an order has been passed by an Adjudicating Authority under sub-section 2 of section 115; or (c) where an order has been passed by an Adjudicating Authority under sub-section 3 of section 118. (2) An application for bankruptcy shall be filed within a period of three months of the date of the order passed by the Adjudicating Authority under the sections referred to in sub-section (1). (3) Where the debtor is a firm, the application under sub-section (1) may be filed by any of its partners.”

# 13. From the above provision it is clear that an application for bankruptcy of a debtor may be made by a creditor individually or jointly with other creditors or by a debtor, to the Adjudicating Authority under certain circumstances. In the case on hand the secured creditor has filed the application for bankruptcy under Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 to initiate Insolvency Resolution Process as against the Persona guarantor to the Corporate debtors. Further, it is not in dispute that the earlier proceedings initiated by the secured creditor had ended up with this Tribunal rejecting the Resolution Plan submitted by the Resolution Professional under Section 114(1) of the Insolvency and Bankruptcy Code, 2016. Therefore, as this Tribunal being the Adjudicating Authority had rejected the repayment plan under Section 114, the debtor and the creditors are entitled to file an application for bankruptcy under Chapter IV and therefore the present application of the applicant is maintainable and the secured creditor is entitled to file the application for bankruptcy under Section 123 of the Code.

# 14. Further, as there was no proposal that is made by the parties with regard to the appointment of Bankruptcy Trustee, this Tribunal in accordance with Section 125(3) of the Code, 2016 gave a direction was given to the registry to communicate to the Insolvency and Bankruptcy Board of India to nominate a Bankruptcy Trustee for initiating bankruptcy process. Accordingly, on a communication sent by this Tribunal dated 29.07.2022 to the Board, the Insolvency and Bankruptcy Board of India, by letter dated 03.08.2022 had informed this Tribunal to the following effect that:-

• “It is, however, confirmed that, as per records there is nothing adverse against the proposed Insolvency Professional, namely, Ms. S. Yoshoda (IP Registration No.IBBI-001/1P-P01036/2017-2018/111709). The authorisation for assignment (AFA) issued to said IP is valid up to December 31, 2022 “

# 15. Thus, taking into consideration the facts and circumstances of the case as well as the position of Law, this Tribunal is of the considered view that this Application, as filed by the Financial Creditor is required to be admitted under Section 126 (1) of the Insolvency and Bankruptcy Code, 2016

# 16. In view of the above communication from the Insolvency and Bankruptcy Board of India, Ms. S. Yashoda (IP Registration No.IBBI-001/1P-P01036/2017-2018/111709)is hereby appointed as the bankruptcy trustee in the present case. The Bankruptcy Trustee shall convey her written consent as per Regulation 3(3) of the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 and shall be governed by the said Regulations. It is made clear that the Fees of Bankruptcy Trustee shall be in accordance with Regulation 4 of the said Regulations.

# 17. As a consequence of the Application being admitted in terms of Section 126(1) of the Insolvency and Bankruptcy Code, 2016, this Tribunal finds it fit to pass the bankruptcy order against the respondent, where by the provisions of Section 128 of the Insolvency and Bankruptcy Code, 2016 extracted hereunder shall come into effect: - 

• “Section 128. Effect of bankruptcy order. – 

• (1) On the passing of the bankruptcy order under section 126, –

• (a) the estate of the bankrupt shall vest in the bankruptcy trustee as provided in section 154; 

• (b) the estate of the bankrupt shall be divided among his creditors; (c) subject to provisions of sub-section 

• (2), a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not– 

• (i) initiate any action against the property of the bankrupt in respect of such debt; or

• (ii) commence any suit or other legal proceedings except with the leave of the Adjudicating Authority and on such terms as the Adjudicating Authority may impose. (2) Subject to the provisions of section 123, the bankruptcy order shall not affect the right of any secured creditor to realize or otherwise deal with his security interest in the same manner as he would have been entitled if the bankruptcy order had not been passed: Provided that no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy commencement date if he does not take any action to realise his security within thirty days from the said date. 

• (3) Where a bankruptcy order under section 126 has been passed against a firm, the order shall operate as if it were a bankruptcy order made against each of the individuals who, on the date of the order, is a partner in the firm. 

• (4) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

# 18. The Bankruptcy Trustee is directed to take forward the process of Bankruptcy and shall take in this regard such other and further steps are required under the Statute, more particularly, in terms of Section 129, 130, 136, and 137 of the Insolvency and Bankruptcy Code.

# 19. Registry is directed to furnish a copy of the application for bankruptcy filed by the creditor and a copy of this order to the Bankruptcy Trustee. The bankrupt is directed to submit his statement of financial position to the Bankruptcy Trustee in such form and manner as prescribed within seven days from the bankruptcy commencement date. The bankruptcy trustee may require the bankrupt or any other person to submit in writing further information explaining or modifying any matter contained in the statement of financial position.

# 20. The Bankruptcy Trustee shall proceed further in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 and shall perform the following functions in accordance with the provisions of Chapter V – Administration and Distribution of the Estate of the Bankrupt i.e., investigate the affairs of the bankrupt, realise the estate of the bankrupt and distribute the estate of the bankrupt.

# 21. The bankruptcy Trustee shall submit a preliminary report within ninety days of the bankruptcy commencement date and further reports as stipulated in Regulations 7 and 8 of the IBBI (Bankruptcy Process) Regulations, 2019.

# 22. Post this matter on 07.11.2022 for the preliminary report of the Bankruptcy Trustee.

# 23. A copy of the order shall be communicated to the applicant as well as the defendant. In addition a copy of the order shall also be forwarded to the IBBI for its records. Further, the Bankruptcy Trustee above named be also furnished with a copy of this order forthwith by the Registry.

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Insolvency and Bankruptcy Code, 2016.

# Section 60. Adjudicating Authority for corporate persons. -

(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of a corporate person is located.

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before the National Company Law Tribunal.

(3) An insolvency resolution process or 2[liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.

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