AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 579
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....wa, Mr. Ajay Bhargawa, Mr. Aseem Chaturvaedi, Ms. Wamika Trehan and Ms. Shweta Kabra, Advocates JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. As all these appeals have been preferred by the appellant(s) against the common impugned order dated 6th July, 2017 passed by the Adjudicating Authority (National Company Law Appellate Tribunal), Kolkata Bench, Kolkata, they were heard altogether and being disposed of by this common judgment. 2. An application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the 'I&B Code') was preferred by the 'Rural Electrification Corporation Limited' ('REC', for short) (Financial Creditor) against 'Ferro Alloys Corporation Ltd. (Corporate Guarantor - Corporate Debtor). The application having been admitted by the impugned order dated 6th July, 2017, the same is under challenge. 'Ferro Alloys Corporation Ltd.' 3. The appeal at the instance of 'Ferro Alloys Corporation Ltd.' (Corporate Debtor) through its (suspended) Board of Directors is not maintainable in view of the decision of the Hon'ble Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 (Civil Appeals Nos. 8337-38 of 2017)" w....
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....f Directors stands suspended, the (suspended) Board of Directors have no right to move an appeal on behalf of the 'Corporate Debtor' though it is open to the Director(s) or shareholder(s) to challenge the same. 6. Therefore, while we hold that the present appeal by 'Ferro Alloys Corporation Ltd.' through (suspended) Board of Directors is not maintainable, however, as the other appeal has been preferred by shareholders against the common order dated 6th July, 2017, we have noticed the submission by Dr. Abhishek Manu Singhvi, learned counsel for the 'Ferro Alloys Corporation Ltd.' 7. According to the learned Senior Counsel per se of the I&B Code does not use the concept or the phrase 'corporate guarantor'. This is in contradiction to specific inclusion of 'personal guarantor' in multiple provisions. 'Corporate Guarantor' is, therefore, conspicuous by its absence in the I&B Code. It was submitted that there is no definition of 'Corporate Guarantor' in Section 3 or 5, the two definitional provisions. However, Section 5(22) of the I&B Code defines 'personal guarantor' which means an individual who is a surety to a 'corporate debtor'. Use of the word 'individual' precludes any corp....
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....debtor' ('principal borrower'). If the 'principal debtor' ('principal borrower') therefore has a claim for set off or a counterclaim or a serious dispute regarding the quantification of the debt, then an insolvency process commenced only against the 'corporate guarantor' would be unjust. Reference has been placed in the decision of the Court of Appeals in England (John Rembelance v. Octagon Assets - [2009] EWCA Civ 581). According to the learned Senior Counsel the principle followed and applied by the English Court is the flip side of the co-extensive liability argument. If the guarantor has co-extensive liability then the least it should have to be allowed to have similar treatment as the 'principal debtor'. 10. It was submitted that simultaneously two applications under Section 7 of the I&B Code can be filed, one against the 'principal debtor' and the other against the 'corporate debtor'. According to the learned counsel there is no provision in the I&B Code for filing a simultaneous Section 7 of the I&B Code application against a 'principal debtor' as well as a 'corporate guarantor'. Thus, Section 7 application cannot be jointly filed against both the 'principal debtor' and t....
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....etailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occur....
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....e 'Rural Electrification Corporation Limited'. The other ground taken is that the 'Rural Electrification Corporation Limited' (Financial Creditor) had issued notice earlier on 27th October, 2015 for invocation of 'corporate guarantee' which is also the basis of approaching the Adjudicating Authority after two years. It is submitted that the 'financial creditor' approached the Adjudicating Authority resultant of failure before various other judicial forums where the amount has already been disputed by the 'corporate debtor' in pursuance to the revocation of the 'corporate guarantee' and 'financial creditor' has failed to provide the 'corporate debtor' relevant documents which were referred in their notice. 19. However, the aforesaid grounds cannot be considered at the time of an application under Section 7, in view of the decision of the Hon'ble Supreme Court in 'Innoventive Industries Ltd. (supra)' in paragraphs 28 and 29 etc. as referred to above as per which it is to be seen that there is a 'debt' or 'default' committed by the 'corporate debtor'. Mere dispute of quantum of amount cannot be a ground and that too can be taken at the stage of admission. If the 'debt' is more than....
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....case of the 'financial creditor' was that M/s. FACOR Power Limited (principal borrower) defaulted in making repayment of dues and the account of M/s. FACOR Power Limited has since been classified as Non-Performing Asset (NPA). In view of the defaults committed in the repayment of loan, as per the terms and conditions of the 'Loan Agreement' and other financing documents, the 'financial creditor' recalled the facilities on 1st October, 2015 and demanded the entire amount of loan, interest and all other amounts due in respect thereof. Despite receipt of the same, no payment was made to the 'financial creditor'. M/s. FACOR Power Limited (principal borrower) has admitted its liability to the extent of Rs. 604,99,91,539/- as on 31st March, 2016 in the audited balance-sheet for the financial year 2015-16. The 'corporate guarantor' - Ferro Alloys Corporation Limited in its audited balance-sheet for the financial year 2015-16 has acknowledged the debt to the tune of Rs. 517.90 crores. The copy of the audited balance-sheet of the 'Ferro Alloys Corporation Limited' was also enclosed along with the application under Section 7 of the I&B Code (Form-1). 24. On being default in making the pay....
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.... debtor' by satisfying the ingredients of the terms as defined under Section 3(8). The term of 'corporate debtor' which is defined under Section 3(8) means a 'corporate person' who owes a debt to any person, as quoted below: "(8) "corporate debtor" means a corporate person who owes a debt to any person;" The term 'debt', as used in Section 3(8) is defined under Section 3(11) of the Code, is as under: "(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;" As per Section 3(8), the term 'corporate debtor' can be a debtor who may be any person. The term 'person', defined under Section 3(23), is as under: (23) "person" includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India;" Thus, a 'corporate debtor' must be a 'corporate person', [Section 3(7)] who owes a 'debt' [Section 3(11)], to any person....
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....sub-clauses (a) to (h) of this clause; (21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; 'Corporate Insolvency Resolution Process' under Section 7 of the I&B Code can be initiated by a 'financial creditor'. Section 7(1) reads as under: 7.(1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.- For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor." Section 3(10) defines 'creditor' as under : (10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured ....
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....hereby invoking the guarantee. 31. The relevant clauses of the contract of the guarantee are clause 1.2 to 1.5, clause 6, clause 7 and clauses 10 and 11. 32. Admittedly, the guarantee was invoked by 'Rural Electrification Corporation Limited' against 'Ferro Alloys Corporation Ltd.' and demand was raised on 27th October, 2015 calling upon 'Ferro Alloys Corporation Ltd.' to pay the amount due within 21 days. Since then, Ferro Alloys Corporation Ltd. (Corporate Guarantor) became a 'corporate debtor' of 'Rural Electrification Corporation Limited' (Financial Creditor). 33. In its Annual Report for the year ending 2016-17, 'Ferro Alloys Corporation Ltd.' has shown a sum of Rs. 517.90 crores payable to the 'financial creditor'. Therefore, it is clear that 'Ferro Alloys Corporation Ltd.' admitted the 'debt' and in absence of payment, we hold that there is a 'default'. 34. The provision of the I&B Code do not bar a 'financial creditor' from initiating 'corporate insolvency resolution process' against the 'guarantor', who comes within the meaning of 'corporate debtor'. The aforesaid matter can be noticed from the statutory inter-se rights, obligations and liabilities of : ....
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....te decree, as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier. There is nothing in law which provides such a composite decree to be first executed only against the property." xx xx xx "13 In the present case before us the decree does not postpone the execution. The decree is simultaneous and it is jointly and severally against all the defendants including the guarantor. It is the right of ....