Thursday, 11 November 2021

PNB Housing Finance Ltd. Vs. Mr. Goldy Gupta - Where Application(s) in relation to the CD for initiation of CIRP is pending in NCLT then, initiation of CIRP of the CD is not a prerequisite for maintainability of an application under Section 95 filed for initiating IR Process against the Personal Guarantor of that CD before the NCLT.

NCLT New Delhi-II (20.10.2021) In PNB Housing Finance Ltd. Vs. Mr. Goldy Gupta   [Company Petition No. (IB)-375(ND)2021 ] held that;

  • in the matter of Lalit Kumar Jain Vs.  Union of India, wherein the Hon'ble Supreme Court in para 99 and 100  of the Judgement held that 

  • “……Section 179, which defines what the  Adjudicating Authority is for individuals is “subject to” Section 60. Section  60(2) is without prejudice to Section 60(1) and notwithstanding anything to  the contrary contained in the Code, thus giving overriding effect to Section  60(2) as far as it provides that the application relating to insolvency  resolution, liquidation or bankruptcy of personal guarantors of corporate  debtors shall be filed before the NCLT, where proceedings relating to  corporate debtors are pending…….” 

  • Hence, we conclude that in a situation where  Application(s) in relation to the Corporate Debtor for  initiation of CIRP is pending in National Company Law  Tribunal (NCLT) then, initiation of CIRP of the  Corporate Debtor is not a prerequisite for  maintainability of an application under Section 95 of  the IBC, 2016 filed for initiating IR Process against the  Personal Guarantor of that Corporate Debtor before the  NCLT.”


Excerpts of the order;

The present Application has been preferred by M/s PNB Housing  Finance Ltd. (the ‘Applicant/Financial Creditor’), under Section 95(1)  read with Rule 7(2) of the Insolvency and Bankruptcy (Application to  Adjudicating Authority for IRP for Personal Guarantors to Corporate  Debtor) Rules, 2019, for initiating the Insolvency Resolution Process (the  “IR Process") against Mr. Goldy Gupta (the “Personal Guarantor /Debtor”), who is the Partner of M/s Star Raison Landmarks and  Directors of Star Realcon Pvt. Ltd. (the ‘Corporate Debtor’). 

 

# 4. It is stated by the Applicant/Creditor that the Corporate Debtor  committed breach of the Loan Agreement dated 10.02.2017, by defaulting  payment of the EMI's due and payable. In the circumstances, the  Applicant/Creditor issued a Demand Notice dated 28.12.2020 calling  upon the guarantors as well as the Borrowers to pay the outstanding  amount of Rs.4,41,50,495.39 (Rupees Four Crores Forty One Lacs Fifty  Thousand Four Hundred Ninety Five and Thirty Nine Paisa) only due as  on 09.12.2020, but of no avail. 

 

# 5. It is further stated that the Financial Creditor terminated the loan facility No. B-WFH/CCF/0017/346647 vide Loan Recall Notice dated  27.01.2021 and called upon the Borrowers as well as the guarantors to  pay an amount of Rs.4,12,23,678/- due and payable as on 22.01.2021. 

 

# 6. It has been submitted that the Applicant/Creditor, vide notice  dated 25.02.2021, invoked the arbitration clause of the Loan Agreement.  Additionally, the Creditor presented the post-dated securities cheque(s)  for encashment. However, even the security cheques were dishonoured for which, proceedings under Section 138 of the Negotiable Instruments Act,  1881 have been initiated, which are pending adjudication before Court. 

 

# 7. It is further submitted by the Applicant that since the Guarantor  of the Borrowers having co-extensive liability along with the Borrowers are  liable to pay the dues towards both the loan facilities, it had invoked the  personal guarantee tendered by the Guarantor vide its Loan Recall Notice  dated 27.01.2021. 

 

# 8. It is added by the Applicant/Creditor that it had sent a Demand  Notice dated 22.06.2021, seeking payment of the outstanding /unpaid  debt of Rs.3,92,89,697/-. The Tracking Report of the Demand Notice  depicting successful delivery to the Personal Guarantor is annexed by the  Applicant on page no. 195 and 196 of the Petition.  : 

 

# 10. That during the course of hearing on 09.08.2021, the Ld. Counsel  for the Applicant informed this Bench that the Applicant has filed IB  Applications against the Borrowers/Corporate Debtors before this  Adjudicating Authority to initiate CIR Process against them. The cases are registered as CP. (IB)-408/2021 titled as M/s. PNB Housing Finance Ltd.  Vs. M/s. Star Realcon Pvt. Ltd. and CP. (IB)-407/2021 titled as M/s. PNB  Housing Finance Ltd. Vs. M/s. Pinnacle Housing Pvt. Ltd.  

 

# 11. That the Ld. Counsel for the Personal Guarantor appeared on the  advance notice and opposed the prayer made by the Applicant on the  ground of the maintainability of the present petition. Both the parties have  also filed their written submissions with regard to maintainability of the  present petition. 

 

# 12. It is averred by the Respondent in its written submissions that : 

  • “1. As per Section 179(1) and Section 179(2) of the IBC,  2016 the adjudicating authority for initiation of  insolvency proceedings against individuals and firms is  conferred upon the Debt Recovery Tribunal. Therefore,  the present petition filed under Section 95 of the  Insolvency and Bankruptcy Code ought to have been filed  before the Debt Recovery Tribunal. 

  • 2. Section 60(2) provides jurisdiction to National  Company Law Tribunal to entertain petitions against  personal guarantors who have extended guarantee to the  Corporate Debtor and where the CIRP or the liquidation  proceedings have been admitted against the Corporate  Debtor. It is submitted that though S. 7 petitions have  been filed against the co-borrowers who are the  Corporate Debtors in the present case, no order of  admission has yet been passed by this Hon’ble  Tribunal and therefore, the petitions filed by the 2 5-12  Financial Creditor under Section 95 are not maintainable  before this Tribunal as being premature.  

  • C. The judgment of the Hon’ble National Company Law  Appellate Tribunal in the case of Ferro Alloys Corporation  Ltd. [Company Appeal (AT) (Insolvency) No. 92 of 2017]  is inapplicable in as much as, firstly, the judgment  pertained to a regime prior to the notification of the  provisions against the personal guarantor on  15.11.20219 and secondly, the issue involved in that  litigation related to corporate guarantors and not  personal guarantors.  

  • D. It is submitted that the notification dated 15.11.2019  has notified all the provisions relating to individuals who  have extended personal guarantee to Corporate Debtor.  The legislative intent as evidenced by the judgment of the  Hon’ble Supreme Court in Lalit Kumar Vs. UOI (para 99)  is that under Section 60(2) the NCLT would get  jurisdiction only in case where the CIRP or the  liquidation proceedings are pending against the  Corporate Debtor.” 

 

# 13. Further, the Personal Guarantor has placed reliance on the  decision of Mumbai Bench of NCLT dated 09.07.2021 passed in the matter  of Altico Capital India Ltd. Vs. Rajesh Patel & Ors. I.A 1062/2021 in C.P.  293/2020. The order dated 09.07.2021 is reproduced below: 

  • “IA-1062/2021 The above I.A. is filed by the Financial Creditor under  section 95 of IBC against the personal guarantor.  However, on an enquiry from the Bench it came out  that the Corporate Debtor for which the personal  guarantee has been given is not under CIRP. In view  of the above, the present I.A. cannot be prosecuted  and therefore the above I.A. 1062/2021 is disposed  of and CP 293/2020 is also dismissed.” 

 

# 14. That the Personal Guarantor has also place reliance on the  Judgment of NCLT Chennai in CP/713/IB/CB/2018 titled as SBI v.  Vijaraj Surana. The relevant extracts of the order are reproduced below :  

  • “17. Let us contemplate a converse situation, if no  CIRP is initiated against principal borrower, in such  situation, can NCLT as Adjudicating Authority will  have jurisdiction to proceed independently against  personal guarantor in the absence of CIRP against the  principal borrower, certainly not because personal  guarantor being an individual, proceedings lie  against him before DRT as Adjudicating Authority.  This jurisdiction to proceed against personal  guarantors before NCLT is contingent upon CIRP  proceeding pending before NCLT….” 

 

# 15. That in response to the contentions of the Personal Guarantor, it  is argued by the Applicant/Creditor that the Adjudicating Authority for  individuals (Personal Guarantor) shall be, what has been provided under  Section 60 of the Code [as amended vide the Insolvency and Bankruptcy  Code (Second Amendment) Act, 2018] [effective from 06.06.2018]. The  Applicant has submitted that a bare perusal of Section 60 of the Code  shows that this Section has following three limbs/situations, under which  an Application can be entertained before this Adjudicating Authority : 

  • “A) Section 60(1) deals with the situation where the  Adjudicating Authority will be NCLT having territorial  jurisdiction over the place where the registered office of  the corporate person is located. {fresh filing} 

  • B) Whereas Section 60(2) deals with a situation where,  the Adjudicating Authority would be NCLT where CIRP or  liquidation proceedings of a Corporate Debtor is pending.  {pending CIRP against CD} 

  • C) Section 60(3) which deals with the situation where the  Adjudicating Authority would be NCLT which has seized  of the matter against the Corporate Debtor and the  insolvency resolution process or liquidation or  bankruptcy proceeding is already pending against the  Corporate Guarantor or Personal Guarantor in any Court  or Tribunal shall be transferred to such NCLT dealing  with CIRP or liquidation process of such Corporate  Debtor. {Transfer}” 

 

# 16. It is further submitted by the Applicant that all the aforesaid three sub-sections of Section 60 are independent of each other and come into effect in three different situations. This can also be deduced from  perusal of the judgment passed by the Hon'ble Supreme Court in the  matter of Lalit Kumar Jain Vs UOI (Transferred Case (Civil) No.  245/2020). The aforesaid interpretation of Sub-section (1), (2) and (3) of  Section 60 can also be drawn from a bare perusal of the judgment passed  by the Hon'ble NCLAT on 08.01.2019 in the matter of Ferro Alloys Corporation Limited vs. Rural Electrification Corporation Limited, [Company Appeal (AT) (Insolvency) No. 92 of 2017) which was upheld by  the Hon'ble Supreme Court vide order dated 11.02.2019, wherein the  Hon'ble NCLAT has categorically held that it is not necessary to initiate  CIRP process against the principal borrower before initiating CIRP against  the Corporate Guarantor.  

 

# 17. It is added by the Applicant that the Hon'ble NCLAT, while  passing the aforesaid Judgment relied upon the landmark judgment in the  matter of Bank of Bihar Limited vs. Dr. Damodar Prasad & Anr. (1969)  1 SCR 620, wherein the Hon'ble Supreme Court held that “under Section  128 of the Indian Contract Act, save as provided in the contract, the  liability of the surety is co-extensive with that of the principal debtor. The  surety became thus liable to pay the entire amount. His liability is  immediate. It cannot be deferred until the creditor exhausted his remedies  against the principal debtor. Further the Hon'ble Supreme Court held that  the Financial Creditor has not only right to recover the outstanding dues  by filing a suit, but also has a right to initiate resolution process against  the corporate person, whose liability is co-extensive with that of the  principal borrower. 

 

# 18. That it is submitted further by the Applicant that the notification  relating to Part III was challenged in the matter of Lalit Kumar Jain Vs.  Union of India, wherein the Hon'ble Supreme Court in para 99 and 100  of the Judgement held that 

  • “……Section 179, which defines what the  Adjudicating Authority is for individuals is “subject to” Section 60. Section  60(2) is without prejudice to Section 60(1) and notwithstanding anything to  the contrary contained in the Code, thus giving overriding effect to Section  60(2) as far as it provides that the application relating to insolvency  resolution, liquidation or bankruptcy of personal guarantors of corporate  debtors shall be filed before the NCLT, where proceedings relating to  corporate debtors are pending…….” 

It is contended by the Applicant that it  is clear from the aforesaid analysis that the Parliamentary intent was to  treat the personal guarantor differently from other categories of  individuals. 

 

# 19. After hearing submissions of both the parties, perusing the  documents placed on record and written submissions of the parties, we  observe that in the present case, though the CIRP has not been initiated  against the Corporate Debtor, as revealed by the parties, the  Applicant/Creditor has filed Applications No. CP. (IB)-408/2021 titled as  M/s. PNB Housing Finance Ltd. Vs. M/s. Star Realcon Pvt. Ltd. and CP. No. (IB)-407/2021 titled as M/s. PNB Housing Finance Ltd. Vs. M/s.  Pinnacle Housing Pvt. Ltd against the Borrowers/Corporate Debtors  before this Adjudicating Authority to initiate CIR Process against them. Hence, we find that the facts of the present case and issues raised herein  are akin to the facts of the Company Petition No. (IB)-395(ND)/2021- PNB Housing Finance Ltd. Vs. Mr. Mohit Arora, decided by this Bench  recently vide Order dated 29.09.2021 and the issues raised therein. In the  aforesaid case, we have held that : 

  • “31. While going through the Section 60(1), we have seen that  the Adjudicating Authority, in relation to the insolvency  resolution and liquidation for corporate persons including  corporate debtors and personal guarantors thereof shall be  the NCLT having territorial jurisdiction over the place where   the registered office of a corporate person is located. Hence,  in the case herein, there is a situation where various IB  applications for initiation of CIR process against the  Corporate Debtor are pending, though the CIR Process is yet  to be initiated. In our considered view, the moment the IB  applications in relations to Insolvency resolution of the  Corporate Debtor are pending before this Adjudicating  Authority, the provisions of Section 60(1) get attracted and  the jurisdiction to entertain insolvency process against the  personal guarantor would, therefore, lie with the NCLT. 

  • 32. In the light of the aforesaid facts, we would like to  summarise in relation to that

  •  i) there are pending IB cases in  relation to initiation of insolvency resolution of the Corporate  Debtor;

  •  ii) Section 60(2) of IBC 2016 is without prejudice to  Section 60(1) as held by the Hon’ble Supreme Court in the  matter of Lalit Kumar Jain V. Union of India; and 

  • iii)  Section 179(1) of IBC 2016 is subject to Section 60 of IBC  2016, which includes Sub-Section (1), therefore, in our  considered view, the jurisdiction in relation to the  insolvency resolution and liquidation for corporate persons  including corporate debtors and personal guarantors thereof  shall be the National Company Law Tribunal in terms of  Section 60(1) of IBC 2016.  

  • 33. Hence, we conclude that in a situation where  Application(s) in relation to the Corporate Debtor for  initiation of CIRP is pending in National Company Law  Tribunal (NCLT) then, initiation of CIRP of the  Corporate Debtor is not a prerequisite for  maintainability of an application under Section 95 of  the IBC, 2016 filed for initiating IR Process against the  Personal Guarantor of that Corporate Debtor before the  NCLT.” 

 

# 20. Therefore, in the present case having the similar facts and issues,  we would like to reiterate that in the event of the Application(s) for  Insolvency and Bankruptcy (IB) being pending for initiation of CIR Process  before this Adjudicating Authority, commencement of CIRP against the  Corporate Debtor is not a condition precedent for maintaining an  application under Section 95 of the IBC, 2016 filed for initiating IR Process  against the Personal Guarantor of the Corporate Debtor before the NCLT. 

 

# 21. The Applicant has averred in its application that the Personal  Guarantor has committed, prima facie, default in making repayment of the  loan, for which he has given the personal guarantee to the Applicant/  Creditor on behalf of the Corporate Debtors/Borrowers. Hence, we are  inclined to proceed in the matter in accordance with the law. As  regards, the issue of limited notice to the personal guarantor as held by  the Hon’ble NCLAT in the matter of Ravi Ajit Kulkarni V. State Bank of  India in Company Appeal (AT) (Insolvency) No. 316 of 2021 vide its  judgement dated 12.08.2021, since the Personal Guarantor has already  caused appearance on the advance notice, we do not see any need for  issuing further notice. 

 

# 22. It is, therefore, made known to everyone that on filing this  Application by the Applicant/Creditor, the interim-moratorium  commences as stipulated under Section 96 (1) (a) in relation to all the debts  of the personal guarantor and shall cease to have effect on the date of  admission of this Application and during the interim- moratorium period, the following are prohibited: 

  • (a) Any pending legal action or proceeding in respect of any debt  of the personal guarantor shall be deemed to have been  stayed; and 

  • (b) The Creditors of the personal guarantor shall not initiate any  legal action or proceedings in respect of any debt. 

This shall, however, not apply to such transactions as may be notified by  the Central Government in consultation with any financial sector  regulator. 

 

# 23. The Applicant/Creditor has not proposed the name of any,  Insolvency Professional, for appointment as Resolution Professional.  Therefore, this Bench from the suggested panel of the IBBI appoints Mr.  Brijesh Kumar Tamber, as the Resolution Professional in exercise of the  powers conferred under Section 97 of the IBC, 2016 on this Authority  subject to the Regulation 4 (1) and (2) of the Insolvency and bankruptcy  Board of India (Insolvency Resolution Process for Personal Guarantors to  Corporate Debtors) Regulations, 2019. The details of the Resolution  Professional are as under: 

 

Name : Mr. Brijesh Kumar Tamber 

Registration No. : IBBI/IPA-002/IP-N00523/2017-18/11593 E-mail : officeofbrijeshktamber@gmail.com 

 

# 24. The Resolution Professional shall exercise all the powers as  enumerated under Section 99 of the IBC, 2016 read with the Rules made  thereunder. He is directed to examine the Application and make  recommendations along with the reasons in writing for acceptance or  rejection of this Application within the stipulated time as envisaged  under the provisions of Section 99 of the IBC, 2016. The RP shall give  a copy of the report under Sub-Section (7) of Section 99 to the  Applicant/Creditor, as soon as the same is filed before this Authority. Nothing expressed herein shall be constructed as an opinion before the RP  before filing his report. 

 

# 25. For the purpose of making report/recommendations, nothing  expressed herein shall be construed as an opinion/observation on the  reported default of the personal guarantor.  

 

# 26. The Applicant or his Counsel and the Registrar/Court Officer are  directed to serve the copy of this Order along with copy of the Application  and documents immediately on the Resolution Professional so appointed  by all modes for information and compliance. 

 

# 27. List the matter on 08.11.2021. 

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.