Tribunal rejects application under Section 7, Corporate Debtor freed from constraints

The Tribunal held that the application under Section 7 of the I&B Code against the Corporate Debtor was not maintainable. The order of the Adjudicating Authority, appointing the Interim Resolution Professional and declaring a moratorium, was set aside. The Corporate Debtor was released from legal constraints and allowed to operate freely. The Tribunal instructed the Adjudicating Authority to conclude the proceedings and determine the Interim Resolution Professional's fee, to be paid by the Financial Creditor. The appeal was allowed without costs, and the Appellant was directed to submit a certified copy of the Adjudicating Authority's order within a week.

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Issues Involved:
1. Validity of the Application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code) against the Corporate Guarantor.
2. Co-extensive liability of the Principal Borrower and the Corporate Guarantor.
3. Applicability of Limitation Act to the proceedings under I&B Code.
4. Relevance of RBI Circulars and Supreme Court judgments cited by the Corporate Debtor.

Issue-Wise Detailed Analysis:

1. Validity of the Application under Section 7 of the I&B Code against the Corporate Guarantor:

The Appellant, Ex-Director of M/s. Genegrow Commercial Pvt. Ltd., challenged the order of the National Company Law Tribunal (NCLT) Kolkata, which admitted the application filed by the Financial Creditor under Section 7 of the I&B Code against the Corporate Guarantor. The NCLT Kolkata had observed that the Financial Creditor rightly filed the petition under Section 7 against the Corporate Guarantor, who had executed an irrevocable and unconditional deed of guarantee ensuring the repayment of the loan facilities outstanding against the Principal Borrower, Gee Pee Infotech Pvt. Ltd.

2. Co-extensive liability of the Principal Borrower and the Corporate Guarantor:

The Appellant argued that the liability of the Principal Borrower and the Guarantor is co-extensive for the purpose of recovery, and the I&B proceedings are not recovery proceedings. The Financial Creditor countered that the liability of the Principal Debtor and Guarantor is co-extensive as per Section 128 of the Indian Contract Act, 1872. The Tribunal noted that a Financial Creditor can commence proceedings under Section 7 of the I&B Code against the Guarantor for failure to repay the sum borrowed by the Principal Borrower.

3. Applicability of Limitation Act to the proceedings under I&B Code:

The Appellant contended that the application under Section 7 of the I&B Code was barred by limitation, citing the Supreme Court's decision in B.K. Educational Services Private Limited vs. Parag Gupta and Associates, which held that Article 137 of the Limitation Act applies to applications filed under Sections 7 and 9 of the I&B Code. The Financial Creditor argued that the issue of limitation was not raised before the Adjudicating Authority and thus could not be raised before the Tribunal. The Tribunal did not delve into the aspect of limitation, as it found the application by the Financial Creditor not maintainable against the Appellant.

4. Relevance of RBI Circulars and Supreme Court judgments cited by the Corporate Debtor:

The Appellant cited the Supreme Court's decision in Dharam Sugars and Chemicals Limited vs. Union of India, arguing that the RBI Circular dated 12th February 2018 was declared non-est by the Supreme Court. The Adjudicating Authority found that the Circular and the cited judgment had no relevance to the present case. The Tribunal concurred with this view, noting that the facts of the case were distinguishable from those of Dharani Sugars and Chemicals Limited vs. Union of India.

Conclusion:

The Tribunal concluded that the application under Section 7 of the I&B Code filed by the Financial Creditor against the Corporate Debtor was not maintainable in law. Consequently, the order passed by the Adjudicating Authority, including the appointment of the Interim Resolution Professional and the declaration of the moratorium, was set aside. The Corporate Debtor was released from all the rigour of law and permitted to function independently. The Tribunal directed the Adjudicating Authority to close the proceedings and determine the fee of the Interim Resolution Professional, to be paid by the Financial Creditor.

Final Observations:

The Tribunal clarified that it had not examined the aspect of limitation since it found the application filed by the Financial Creditor not maintainable against the Appellant. The appeal was allowed without costs, and the Appellant was directed to file a certified copy of the impugned order of the Adjudicating Authority within a week.

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