AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 550
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....ty (National Company Law Tribunal, New Delhi, Bench-III) in CP (IB) 571/ND/2020. In the said petition, the Adjudicating Authority admitted the application filed by the Financial Creditor (SREI Infrastructure Finance Ltd) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') and initiated the Corporate Insolvency Resolution Process (hereinafter referred to as 'CIRP') against the Corporate Debtor. It is against the impugned order dated 18.11.2020 that the appellant 'BRS Ventures Investment Ltd.', the successful Resolution Applicant in a CIRP against the Corporate Guarantor, Assam Company India Ltd., (hereinafter referred to as ACIL) has filed an appeal being CA(AT) (Ins) No. 1109 of 2020. 2(a). In the present judgment the parties are referred in their original status i.e. SREI Infrastructure Finance Ltd., as Financial Creditor, Gujarat Hydrocarbons and Power SEZ Ltd. as the Corporate Debtor and Assam Company India Ltd. (ACIL) as the Corporate Guarantor, as well as BRS Ventures Investment Ltd. as the Resolution Applicant. 2(b). Brief and relevant facts for these appeals are that SREI Infrastructure Finance Ltd. (Financial Creditor) had ....
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....porate Guarantor of the Corporate Debtor has already taken place. 4. The Corporate Debtor resisted the application on the ground that the application is filed with ulterior motives to create undue pressure on the Corporate Debtor and the Application is barred by principle of estoppel, waiver and acquiescence. Moreover, the said Application is barred by law of limitation. 5 Ld. Adjudicating Authority found that the plea taken by the Corporate Debtor is devoid of merits, therefore, rejected the plea for the reasons which have been recorded in the impugned order dated 18.11.2020 and admitted the Application under Section 7 of the IBC along with initiation of CIRP. One Mr. Rakesh Kumar Agarwal was appointed as the IRP. 6. Being aggrieved with this order, the Ex-Director of the Corporate Debtor and the successful Resolution Applicant in the CIRP of Corporate Guarantor, ACIL have filed these appeals. CA (AT) (Ins.) 1096 of 2020 7. Ld. Counsel for the Appellant, Ex-Director of Corporate Debtor has submitted that the impugned order incorrectly treats the Debt Repayment Settlement Agreement (DRSA) dated 24.03.2015 and Cancellation Agreement dated 29.05.2017 as acknowledgement of debt b....
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....e first time on 15.04.2014. Undisputedly, Corporate Debtor acknowledged the debt within three years on 24.03.2020 in the Debt Repayment and Settlement Agreement. The period of limitation was further extended when the Debt Repayment and Settlement Agreement was cancelled on 29.05.2017. The Application was filed on 10.02.2020 i.e. within three years from the date of acknowledgment. Relianve was placed on the judgment rendered by the Hon'ble Supreme Court in the case of Jignesh Shah & Anr. Vs. Union of India (2019) 10 SCC 750 wherein it was held that any acknowledgment in writing will increase period of limitation for IBC. Further, reliance was also placed on a judgment of this Appellate Tribunal being MM Ramchandran Vs. South Indian Bank 2020 SCC Online NCLAT 503 wherein it was held that Section 18 of the Limitation Act, 1963 is applicable to Section 7 application of the IBC. Against the said judgment, the Hon'ble Supreme Court has dismissed the appeal under Section 62 of IBC vide order dated 17.11.2020 and thus, as per the doctrine of merger the impugned judgment of this Appellate Tribunal became absolute that Section 18 of the Limitation Act is applicable to Section 7 of IBC. The d....
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.... of the Hon'ble Supreme Court in the Case of B.K. Educational Services (supra.), Jignesh Shah (supra.), Babulal Vardharji (supra.) and an order passed by a five-member Bench of this Appellate Tribunal in the case of Bishal Jaiswal (supra). 15. Against the order of Bishal Jaiswal, Asset Reconstruction Company (India) Ltd. filed an appeal being Civil Appeal No. 323 of 2021 before the Hon'ble Supreme Court. The Hon'ble Supreme Court in its judgment dated 15.04.2021 considered all earlier judgments i.e. B.K. Educational Services(supra.), Jignesh Shah (supra.), Babulal Vardharji (supra.) on the subject and held as under: - "8. The aforesaid question is no longer res integra as two recent judgments of this Court have applied the provisions of Section 14 and Section 18 of the Limitation Act to the IBC. Thus, in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd., Civil Appeal No. 9198 of 2019 (decided on 22.03.2021), after setting out the issues that arose in that case in paragraph 57, and after referring to Section 238A of IBC, held: "66. Similarly under Section 18 of the Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of a....
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....ovisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of Section 238A of the Code on 06.06.2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act and extension of prescribed period in certain cases could be only under Section 5 of the Limitation Act. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code. Section 18 of the Limitation Act reads thus: "18. Effect of acknowledgement in writing.- (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property ....
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....ate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgement in writing signed by the party against whom such right to initiate resolution process under Section 7 of the Code ensures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgement, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgement of the debt, from time to time, for institution of the proceedings under Section 7 of the Code. Further, the acknowledgement must be of a liability in respect of which the financial creditor can initiate action under Section 7 of the Code." 16. With the aforesaid preposition, the question is no longer res integra that the provisions of Section 18 of the Limitation Act, 1963 are applicable to Section 7 and Section 9 of IBC. 17. In the present case, admittedly the date of default is 15.04.2012. Within three years, i.e on 2....
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....tment Advisors Pvt. Ltd. (supra.) 19. This Appellate Tribunal in the judgment of SEW Infrastructure Ltd.(supra.) has relied on its earlier judgment in Dr. Vishnu Kumar Agarwal (supra.) 20. Further, this Appellate Tribunal in the case of State Bank of India Vs. Athena Energy Ventures Pvt. Ltd. CA (AT) (Ins) No. 633 of 2020 considered the earlier judgment of Dr. Vishnu Kumar Agarwal (supra.) and after interpreting the law held that the Financial Creditor can simultaneously or one after another initiate CIRP against the Corporate Debtor as well as Corporate Guarantor. It is useful to refer the relevant paragraphs which are reproduced below: - "13. Apart from this, the observations in the Judgement in the matter of Piramal do not appear to have noticed Sub-Sections 2 and 3 of Section 60 of IBC. It would be appropriate to reproduce Section 60(1) to (3) which reads as under:- "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 ....
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....sions, the Applications can also be maintained. It is for such reason that Sub-Section (3) of Section 60 provides that if insolvency resolution process or liquidation or bankruptcy proceedings of a Corporate Guarantor or Personal Guarantor as the case may be of the Corporate Debtor is pending in any Court or Tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such Corporate Debtor. Apparently and for obvious reasons, the law requires that both the proceedings should be before same Adjudicating Authority. 14. It would be appropriate now to refer to the observations made by the Insolvency Law Committee in its Report of February, 2020. Relevant part of the Report has been filed by the Appellant as Annexure - C (Diary No.23383). Para 7 of the Report is as follows:- 7. ISSUES RELATED TO GUARANTORS 7.1. Under Section 128 of the Indian Contract Act, 1872, the liability of a surety towards a creditor is coextensive with that of the principal borrower. When a default is committed, the principal borrower and the surety are jointly and severally liable to the creditor, and the creditor has the right t....
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....iquidation process of the corporate debtor. Therefore, as the Code does require proceedings against a corporate debtor and its guarantors to be simultaneously heard by the same Adjudicating Authority, the Committee was of the view that the Code in fact, envisages initiation of concurrent proceedings against both a corporate debtor and its sureties. Given this, the Committee recommended that a creditor should not be prevented from proceeding against both the corporate debtor and its sureties under the Code. 7.5. However, the Committee noted that the Appellate Authority has, in certain cases, taken a view contrary to its decision taken in the Piramal Enterprises Ltd.31 case. For example, in Edelweiss Asset Reconstruction Company Limited v Sachet Infrastructure Pvt. Ltd. & Ors.,32 the Appellate Authority has permitted simultaneous initiation of CIRP against the principal borrower and its corporate guarantors. Further, the Appellate Authority has also admitted a petition to review its aforesaid judgement in the Piramal Enterprises Ltd. case.33 Given this, the Committee decided that no legal changes may be required at the moment, and this issue may be left to judicial determination. ....
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.... simultaneous remedy is central to a contract of guarantee, the Committee suggested that in cases where both the principal borrower and the surety are undergoing CIRP, the creditor should be permitted to file claims in the CIRP of both of them. Since, as the Code does not prevent this, the Committee recommended that no amendments were necessary in this regard. 7.10. It was brought to the Committee that this right may be misused by a creditor to unjustly enrich herself by recovering an amount greater that what is owed to her. However, the right to simultaneous remedy under a contract of guarantee does not entitle a creditor to recover more than what is due to her, and the Committee agreed that upon recovery of any portion of the claims of a creditor in one of the proceedings, there should be a corresponding revision of the claim amount recoverable by that creditor from the other proceedings. 15. The learned Counsel for the Appellant is relying on the above observations of the ILC to argue that the Creditor cannot be restrained from initiating CIRP against both the Principal Borrower as well as the surety and also maintaining the same. The learned Counsel submitted that when reme....
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....e National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal. However, the Tribunal is to decide such proceedings only in accordance with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be. It is clear that sub-section (4), which states that the Tribunal shall be vested with all the powers of the Debt Recovery Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debt Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential amendment of the Recovery of Debts Act to empower Debt Recovery Tribunals to try such proceedings, has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23.11.2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpo....
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....er as well as Guarantor. The law as laid down by the Hon'ble High Courts for the respective jurisdictions, and law as laid down by the Hon'ble Supreme Court for the whole country is binding. In the matter of Piramal, the Bench of this Appellate Tribunal "interpreted" the law. Ordinarily, we would respect and adopt the interpretation but for the reasons discussed above, we are unable to interpret the law in the manner it was interpreted in the matter of Piramal. For such reasons, we are unable to uphold the Judgement as passed by the Adjudicating Authority." 21. We are of the view that Application under Section 7 of the IBC against the Corporate Debtor for the same debt and default is maintainable in the light of judgment of Athena Energy Ventures (supra.) 22. Now we have considered whether the Financial Creditor had accepted the amount in the resolution plan as full and final settlement of all its dues. 23. For this purpose, it is useful to refer to Clause 12.3 and Clause 13.3 of the Revised Resolution Plan (dated 05.08.2018) in relation to ACIL Corporate Guarantor submitted by Resolution Applicant (Page no. 325 and 328 of the Appeal Paper Book; Diary No. 24049). "12.3. Treatm....
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....principal debtor, unless it is otherwise provided by the contract. The onus is on the petitioner to establish that, the contract of guarantee provided anything to diminish the liability of the petitioner under the contract of guarantee excepting the liability of the petitioner being coextensive as that of the company. The petitioner, as noted above, has not produced the contract of guarantee and therefore, has failed to establish that, the contract of guarantee contain any stipulation contrary to the liability of the petitioner being coextensive with that of the company. ...................................................................................................................... 25. When a financial creditor approaches the Adjudicating Authority under the provisions of the Code of 2016 and applies under section 7 thereof for initiation of Corporate Insolvency Resolution process in respect of a corporate debtor, the financial creditor is trying to recover the defaulted amount from the corporate debtor. It cannot be said that, the financial creditor when it applies under section 7 of the Code of 2016, does so with the view to enter into any compromise or composition with....
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.... Section 7 of the Code of 2016 it is exercising a statutory right. The exercise of such statutory right does not depend upon the contractual obligations of the parties bound by the respective contracts between the creditor, principal debtor and the surety. Such contracts cannot be said to have rescinded, novated, frustrated, modified, altered or affected in any manner, on an application under Section 7 of the Code of 2016 being filed. After its admission under Section 7(5) of the Code of 2016, when an order under Section 14 is passed, then also only the statutory right of a financial institution to proceed under the SARFAESI Act, 2002 remains suspended for a limited period. The existing contracts between the surety, principal debtor and the creditor remains unaffected. 25. With the aforesaid discussion, we are not convinced with the argument made by the Ld. Counsel of the appellant that CIRP has already taken place against the Corporate Guarantor therefore, the second application against the Corporate Debtor is not maintainable. It cannot be held that the Financial Creditor accepted the amount in full and final settlement of all its dues. We are therefore of the considered view th....
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....ked a substantial amount towards the share of Corporate Debtor held by ACIL. 29. Ld. Counsel for the Appellant, Resolution Applicant also submitted that the claim of Financial Creditor falls under the definition of unsecured Financial Creditor. The total claim of the unsecured Financial Creditors is Rs. 290.22 crores which includes the claim of Financial Creditor of Rs. 241.27 crores. The Resolution Applicant proposed to pay unsecured Financial Creditors an amount of Rs. 50 Crores which includes Rs. 38.87 crores payable to the Financial Creditor in full and final settlement of all its dues. Thus, the Financial Creditor could have not claim any further amount from the Corporate Debtors. The settled amount of Rs. 38.87 crores is compete discharged of debt of the Financial Creditor against the Corporate Debtor. The Financial Creditor in its reply has taken an incorrect stand that the amount settled was only towards the discharged of the liability of ACIL and not for Corporate Debtor. Thus, the impugned order is liable to be set aside. 30. Per contra, Ld. Counsel for the Respondent (Financial Creditor) submitted that the Financial Creditor after exhaustion of its remedy against the C....
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.... for the Respondent further submitted that the reliance placed by the Appellant on the Judgment of Facor Alloys Ltd. (supra.) is completely misplaced because the facts of this judgment are quite different from those of the present case. In the case of Facor Alloys Ltd. (supra.), the Corporate Debtor held 89% of the share of the subsidiaries and separate valuation of the subsidiaries was conducted and mentioned in the resolution plan, which is unlike the facts of the present case. Thus, there is no merit in this Appeal. Therefore, the Appeal is liable to be dismissed. 35. The following issues arise in this Appeal for our consideration: (i) Whether the Resolution Applicant is entitled to exercise its right over the subsidiaries company of ACIL (Corporate Guarantor)? (ii) Whether the approved resolution plan has included the SEZ business of the Corporate Debtor? Issue No. (i) 36. The 4th Meeting of CoC of ACIL held on 12.02.2018 has resolved as under:- (Page 255-256 Appeal Paper Book Vol. II) "In dealing with subsidiaries of CD, the RP and CoC have many options depending on situation in each case. Some actions/options are: 1. RP must collect all constitutional documents and....
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....on Applicant (Appellant). Issue No. (ii) 39. Ld. Counsel for the Resolution Applicant tried to convince us that SEZ Business of the Corporate Debtor is included in the Resolution Plan. We have minutely examined the resolution plan it is nowhere mentioned that SEZ Business of the Corporate Debtor included in the Resolution plan. We have already noted in the aforesaid paragraph that the RP can only take care of the investments in the subsidiaries and not the assets of the subsidiaries. The resolution plan in regard to SEZ Business of the Corporate Debtor states as under:- "(c) SEZ Business ACIL through its subsidiary Gujarat Hydrocarbons and Power SEZ Ltd. (GHPSL) has acquired 296 hecters of land from Gujarat Industrial Development Corporation (GIDC) in Vilayat Vagra Industrial Estate in the Bharuch District in Gujarat for setting up a sector specific Hydrocarbon SEZ for providing services to the Oil & Gas and Energy Sector. The subject site is within the proposed Petroleum, Chemical & Petrochemical Investment region (PLPIR). The entire up to date project cost which in inclusive of land acquisition and preliminary project expenses was financed to equity and unsecured loan contr....