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2017 (9) TMI 1638

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.... M/s. L.M.L. Limited, Kanpur, which was declared as 'Sick Industrial Company' by the Board of Industrial and Financial Reconstruction on 8.5.2007. The State Bank of India (in brevity, SBI) had filed the Original Application No. 238 of 2017 under Section 19(3) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short, the Act of 1993) before the Debt Recovery Tribunal (in brevity, DRT), Allahabad for recovery of Rs. 72,75,29,053.71 against the company (in liquidation) as the principal borrower and Deepak Singhania, Sanjeev Shreya and Anurag Kumar Singhania/the petitioners as the guarantors with following reliefs:- "(a) That a recovery certificate be issued against all the defendant Nos. 1 to 4 to pay jointly and severally to applicant the sum of Rs. 72,75,29,053.71 together with interest from 28.03.2017 @ 6.5% average annual yield on annual compounding basis on the sum of Rs. 72,75,29,053.71 till the actual realization with all cost, charges and expenses that may be incurred from the date of filing of application till payment/realisation by the applicant in respect of the said hypothecated goods and immovable properties mortgaged as aforesaid and ....

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....hearing on I.A. No. 1013/17. Ld. counsel for the bank submitted that order produced by defendants is binding upon only upon defendant No. 1 and bank has every right to proceed against guarantors and their personal properties as such proceedings cannot be stayed even in the light of orders passed by National Company Law Tribunal dt. 30.5.2017. Counsel for the defendants to rebut said contentions referred Section 238 of Insolvency and Bankruptcy Code, 2016 and submitted that this Act has overriding effect upon Recovery of Debts Due to Banks & Financial Institutions Act, 1993 and further it is a subsequent Act so even otherwise the provisions of Insolvency and Bankruptcy Code will prevail upon the Act, 1993. It is argued on behalf of defendants that in case creditors failed to adopt restructuring then company will go into litigation and bank will recover its dues as per orders of NCLT. He further submitted that as per Section 231 of Insolvency and Bankruptcy Code jurisdiction of civil court is barred in respect of matters pending before NCLT. He further referred proviso to Section 14 provides provision for restructuring and in view of said proviso O.A. of the bank is liable to be ....

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.... but this Tribunal is bound by the provisions of statute, but it is apparent that just to delay the recovery proceedings defendants have opted to file petition before Hon'ble NCLT taking advantage of provisions of said Act. I concur with the arguments advanced on behalf of defendants that provisions of Insolvency and Bankruptcy Code will prevail over. Recovery of Debts Due to Banks & Financial Institutions Act, 1993 but as far as corporate entity is concerned and certainly against other defendants there is neither any specific order by Hon'ble NCLT nor there is any restriction by the said Court to proceed against individual guarantors/mortgagors. The Ld. Counsel for defendants have referred various provisions of Insolvency and Bankruptcy Code, but that pertains to company only. Ld. Counsel for defendants have failed to quote and show any provision which may direct or suggest to discontinue proceedings against individual guarantors/mortgagors. I am of the considered opinion that order dt. 30.5.2017 passed by Hon'ble NCLT is qua proceedings against defendant No. 1 only which is a corporate entity and there is no order to restrain proceedings against individual guarantors....

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....as also been prayed by the SBI that the defendants may be restrained from disposing of the properties/assets while the proceeding is pending consideration. 6. Meanwhile, M/s. L.M.L. Limited approached to the NCLT, Allahabad by preferring a Company Petition under Section 10 of the IBC, 2016 being Company Petition No. IB(55)/Ald/2017 (In Re: LML Limited) seeking initiation of the Corporate Insolvency Resolution Procedure in terms of the IBC, 2016 and asked for following reliefs in terms of Section 13 of the IBC 2016:- "1. To admit the Application filed by the Corporate Applicant Company and pass an order for initiating a moratorium in terms of Section 14 of the Insolvency and Bankruptcy Code, 2016." 7. In the said proceeding, an order dated 30.5.2017 was passed by the NCLT in the Company Petition in question. The relevant portion of the order reads as under:- "6. In view of the above stated factual and legal position of the case, we find that the corporate debtor has complied with requirement of Section 10 of the Code. In view of the above the present Application deserved to be allowed hence is allowed. We admit the petition for declaring Moratorium with Consequential Directions....

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....t by 13.6.2017. The same was also published in daily newspapers "Financial Express" and "Amar Ujala". It was also intimated to the Bombay Stock Exchange and the National Stock Exchange. The Insolvency Professional had also issued notice for meeting of the creditors of the company inter alia containing the agenda for the meeting of the Committee of Creditors of the first respondent. The said notice alongwith the agenda was also sent to the first respondent. It is also relevant to indicate that the Insolvency Professional in the said notice had acknowledged that as many as 1000 claims have been received from various creditors of the second respondent. Even the first respondent had also filed claim before the Insolvency Professional and had participated in the said meeting, which was held on 29.6.2017. The DRT issued notice on the application being I.A. No. 1013/2017 on 29.6.2017 and passed the impugned order dated 6.7.2017 whereby it has kept the proceedings against the first petitioner in abeyance but simultaneously it has proceeded against the petitioners as guarantors. 9. In this backdrop, Shri Navin Sinha, Senior Advocate assisted by Ms. Anandava Handa appearing for the petition....

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....tion of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. Much emphasis has been placed on the provisions contained under Section 2(e), 3(2), 3(7), 3(8), 3(11), 3(12), 5(8) and on the basis of aforesaid provisions he has tried to submit that the said provisions would also attract in the case of guarantor. 11. It has been submitted that Section 6 in Chapter II (Corporate Insolvency Resolution Process) of the IBC 2016 deals with persons who may initiate corporate insolvency resolution process. Section 7 deals with initiation of corporate insolvency resolution process by financial creditor and Section 8 deals with insolvency resolution by operational creditor. Sections 10 deals with initiation of corporate insolvency resolution process by corporate application. Section 12 relates to time limit for completion of insolvency resolution process. Section 14 relates to Moratorium and provides that on the insolvenc....

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....orporate persons. Section 60(1) provides that 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 the corporate person is located. There is great deterrence provided under the IBC 2016 against the corporate debtors and even the punishment for contravention of moratorium or the resolution plan has also been provided in Section 74 of the IBC 2016. After giving a glance to the legislative provisions of the IBC, 2016 he has placed reliance on the array of parties, which have been made by the SBI before the Debt Recovery Tribunal, Allahabad in Original Application in question wherein M/s. L.M.L. Limited, a Public Limited Company (borrower) has been arrayed as first respondent; Shri Sanjeev Shriya (the petitioner in Writ C No. 30285 of 2017) has been arrayed as third respondent (director/guarantor) and Shri Deepak Singhania as well as Shri Anurag Kumar Singhania (the petitioners in the connected Writ C No. 30033 of 2017) have been arrayed as second and fourth ....

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....that even though learned DRT was of the view that the IBC, 2016 will prevail over the Act of 1993 as far as corporate entity is concerned but contrarily, it has proceeded against the other guarantors/defendants. Learned DRT has also erred in law while interpreting the order passed by the NCLT that there is neither any specific order by the NCLT nor there is any restriction by the said Court not to proceed against individual guarantors/mortgagors. He has also placed reliance on various provisions of IBC, 2016, which pertain not only to the company but also to the individual guarantors/mortgagors. While making submission, learned counsel for the petitioners has vehemently contended that learned DRT has failed to consider that there are already various safeguards in the IBC, 2016 wherein the interest of creditors are protected. In this backdrop, he submitted that there was no deliberate attempt by the respondents/petitioners to delay the proceeding and once the amount/debt is not crystallized as yet, then there was no occasion for the Tribunal to proceed in the matter. 16. On the other hand, Shri Satish Chaturvedi, learned counsel appearing for the respondent bank has vehemently oppo....

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.... agreement provides that the guarantors shall also indemnify and keep the lender indemnified against all losses, damages, costs, claims and expenses whatsoever, which the lender may suffer, pay or incur by reason of or in connection with any such default on the part of the borrower including legal proceedings taken against the borrower and/or the guarantors for recovery of the monies referred to in Clause 1 above. The proceeding can go on simultaneously and the Tribunal cannot be restrained not to proceed in the matter against the guarantors. He has placed reliance on the judgments of Apex Court in Allahabad Bank vs. Canara Bank and another (2000) 4 SCC 406; Kailash Nath Agarwal and Ors. vs. Pradeshiya Industrial & investment Corporation of U.P. Ltd. and another (2003) 4 SCC 305; Eureka Forbes Limited vs. Allahabad Bank: 2010 LawSuit (SC) 261; Commercial Tax Officer, Rajasthan vs. M/s. Binani Cements Ltd. & another JT 2014 (3) SC 378; Madras Petrochem Limited and another vs. Board for Industrial and Financial Reconstruction and others (2016) 4 SCC 1; Pegasus Assets Reconstruction Private Limited vs. Haryana Concast Limited and another (2016) 4 SCC 47 in support of his submission. ....

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....rate person who owes a debt to any person; (9) "core services" means services rendered by an information utility for--  (a) accepting electronic submission of financial information in such form and manner as may be specified;  (b) safe and accurate recording of financial information;  (c) authenticating and verifying the financial information submitted by a person; and  (d) providing access to information stored with the information utility to persons as may be specified;  (10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder;  (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;  (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be" 5. Definitions In this Part, unless the context otherwise requires,--  (1) "Adjudicating Authority", for the purposes of this Part, means Na....

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.... proposed to act as an interim resolution professional; and  (c) any other information as may be specified by the Board.  (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).  (5) Where the Adjudicating Authority is satisfied that--  (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or  (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Autho....

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....ch period as may be specified; and  (b) the resolution professional proposed to be appointed as an interim resolution professional.  (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order--  (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.  (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section. 12. Time-limit for completion of insolvency resolution process  (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.  (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency reso....

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....ity approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 31. Approval of resolution plan  (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.  (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.  (3) After the order of approval under sub-section (1),--  (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and  (b) the resolution professional shall forward all records relating to the conduct of the corp....

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....or approval of the Adjudicating Authority.  (6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.  (7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator. CHAPTER VI ADJUDICATING AUTHORITY FOR CORPORATE PERSONS 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 the 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 Comp....

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....of accounts and such other documents. The adjudicating authority shall admit the application within fourteen days from the date of receipt of the application, if it is complete or reject the application, if it is incomplete. Section 10(5) clearly proceeds to mention that the corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this Section. Section 12 relates to time limit for completion of insolvency resolution process. This Section prescribes a time limit of 180 days, extendable by a further 90 days, for the completion of corporate insolvency resolution process. The application for the extension can only be made by the resolution professional and has to be supported by a resolution passed at a meeting of the committee of creditors by a majority of 75% of the voting shares. Section 14 provides that on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following namely the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law....

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....g the territorial jurisdiction of the Tribunal. The insolvency resolution or bankruptcy proceedings relating to a personal guarantor of a corporate debtor shall also be filed before the National Company Law Tribunal. 22. It is relevant to indicate at this stage that in exercise of the powers conferred under Sections 5, 7, 9, 14, 15, 17, 18, 21, 24, 25, 29, 30, 196 and 208 read with Section 240 of the IBC, 2016 the Insolvency and Bankruptcy Board of India has made 'Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016' (in short, Regulations of 2016) on 30th November, 2016. Regulation 3 under Chapter-II provides the eligibility for resolution professional and Regulation 10 under Chapter-IV deals with substantiation of claims. Regulation 35 under Chapter IX (Insolvency Resolution Process Costs) deals with liquidation value. Regulation 36 provides the information memorandum. Regulation 36(f) provides details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party. 23. After respective arguments have been advanced, the ....

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....al, arbitration panel or other authority, transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein, any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act, 2002, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. 26. In Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. (1998) 8 SCC 1, Hon'ble Supreme Court has observed that the power to issue prerogative writs under Section (sic Article) 226 of Constitution of India is plenary in nature and is not limited by any other provision of the Constitution of India. Under Article 226 of Constitution of India, the High Court, having regard to the facts of the case, has discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions, one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. 27. In Punjab Na....

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....ay be possible to proceed against the guarantors, if the decree is obtained against the company which is going to be executed. Therefore, in such a situation when a composite suit has been filed and when leave of the Company Court is required for proceeding against the company then the conclusion is inescapable that the suit cannot proceed unless and until the leave of the Company Court is obtained. 29. In the present matter, it has been urged that while passing the impugned order the DRT has failed to take notice of Part-III of IBC, 2016, which prevails over the provisions of the Act of 1993. It has also been urged that the entire proceeding before the DRT is completely without jurisdiction precisely in the backdrop that once the proceeding has already been commenced under IBC, 2016 and Moratorium under Section 14 of IBC, 2016 has already been issued and even in the said proceeding the parties have put their appearance before the insolvency professionals, then the impugned proceeding against the guarantors of principal debtor is per se bad. The argument advanced by Shri Navin Sinah is also fortified on the ground that once the liability is still in fluid situation and the same ha....