2023 (4) TMI 266 - AT - Insolvency and Bankruptcy

Tribunal upholds jurisdiction based on asset size for insolvency cases.

Shapoorji Pallonji Finance Pvt. Ltd. Versus Rekha Singh, Shapoorji Pallonji Finance Pvt. Ltd. Versus Siddharth Singh And Shapoorji Pallonji Finance Pvt. Ltd. Versus Ajay Kumar Singh

Shapoorji Pallonji Finance Pvt. Ltd. Versus Rekha Singh, Shapoorji Pallonji Finance Pvt. Ltd. Versus Siddharth Singh And Shapoorji Pallonji Finance Pvt. ... Issues Involved:1. Maintainability of the application under Section 95 of the Insolvency and Bankruptcy Code (I&B Code) against Personal Guarantors.2. Definition and applicability of 'Corporate Person' and 'Financial Service Provider' under the I&B Code.3. Jurisdiction of the Adjudicating Authority based on the asset size of the Financial Service Provider.4. Impact of changes in asset size on the jurisdiction of the Adjudicating Authority.5. Requirement of pending insolvency proceedings against the Principal Borrower for filing an application against Personal Guarantors.Detailed Analysis:1. Maintainability of the Application under Section 95 of the I&B Code Against Personal Guarantors:The Appellant filed three Company Petitions under Section 95 of the I&B Code against Personal Guarantors. The Adjudicating Authority dismissed these petitions, stating that the principal borrower, Jumbo Finvest (India) Ltd. (JFIL), was not a 'Corporate Person' under the I&B Code. The Tribunal concluded that JFIL, being a Financial Service Provider with an asset size below Rs.500 Crores, did not qualify as a Corporate Debtor, making the applications against Personal Guarantors non-maintainable.2. Definition and Applicability of 'Corporate Person' and 'Financial Service Provider' under the I&B Code:The I&B Code defines 'Corporate Person' under Section 3(7) and excludes Financial Service Providers. Section 227 of the I&B Code, however, allows the Central Government to notify Financial Service Providers for insolvency proceedings. The Notification dated 18.11.2019 specifies that only Financial Service Providers with an asset size of Rs.500 Crores or more can be subjected to insolvency proceedings.3. Jurisdiction of the Adjudicating Authority Based on the Asset Size of the Financial Service Provider:The Adjudicating Authority relied on the Balance Sheet of JFIL as of 31.03.2020, which showed an asset size of Rs.487 Crores, and concluded that JFIL did not meet the threshold for insolvency proceedings under the Notification dated 18.11.2019. The Tribunal, however, found that the Adjudicating Authority erred by considering only loan receivables and not the total assets, which exceeded Rs.600 Crores, thus making JFIL eligible for insolvency proceedings.4. Impact of Changes in Asset Size on the Jurisdiction of the Adjudicating Authority:The Respondent argued that the Adjudicating Authority lost jurisdiction as the asset size of JFIL fell below Rs.500 Crores in the subsequent Balance Sheet as of 31.03.2021. The Tribunal rejected this argument, stating that jurisdiction must be determined based on the asset size at the time of filing the application. The Tribunal emphasized that the purpose of the I&B Code is to resolve insolvency swiftly to prevent asset devaluation, and a reduction in asset size during proceedings should not affect jurisdiction.5. Requirement of Pending Insolvency Proceedings Against the Principal Borrower for Filing an Application Against Personal Guarantors:The Adjudicating Authority had previously overruled the objection that no insolvency proceedings were pending against the Principal Borrower. The Tribunal upheld this view, citing its earlier judgment in 'State Bank of India vs. Mahendra Kumar Jajodia,' which clarified that applications under Section 95 can proceed independently of pending insolvency proceedings against the Corporate Debtor.Conclusion:The Tribunal concluded that the applications under Section 95 against the Personal Guarantors were maintainable, as JFIL's asset size at the time of filing met the threshold under the Notification dated 18.11.2019. The Tribunal set aside the Adjudicating Authority's order and revived the Company Petitions for further proceedings in accordance with the law.