TaxTMI 
TaxTMI 
2021 (9) TMI 60
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....er Section 99 of the IBC. The application had been filed by Respondent - State Bank of India through the Resolution Professional - Mr. Ram Ratan Kanoongo. 2. Company Appeal (AT) (Insolvency) No. 317 of 2021 is filed by the Appellant-Ajit Bhagwan Kulkarni, Personal Guarantor - 'Pratibha Industries Ltd.' against the impugned order passed by the Adjudicating Authority (National Company Law Tribunal) Court No. 5, Mumbai Bench in C.P. (IB) 1189/MB/2020 in application under Section 95 of IBC appointing Resolution Professional and calling report under Section 99 of the IBC. The application had been filed by Respondent - State Bank of India through the Resolution Professional - Mr. Ram Ratan Kanoongo. 3. Unless mentioned otherwise we will be referring to pleadings, documents and arguments as in Company Appeal (AT) (Insolvency) No. 316 of 2021 for the sake of convenience. The facts involved and arguments in both the Appeals are similar. The impugned orders are also similar. Company Appeal (AT) (Insolvency) No. 316 of 2021 4. The Appellant claims that the application filed by the Respondent was listed for hearing before the Adjudicating Authority on 15th January, 2021 but....
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....a and Others', (2019) 4 SCC 17, which referred to the various provisions of Companies Act and NCLT Rules to hold that the Adjudicating Authority needs to serve a copy of the application on the Respondent. Reliance is also place on the judgment in the matter of 'Innoventive Industries Ltd. v. ICICI Bank', (2018) 1 SCC 407 and referred Para 28 to submit that the Debtor would be within its rights to show that there is no default or that the debt in not due in the fact or in law. It is argued that such opportunity was not given to the Debtor before passing of the impugned orders. It is also argued that the Adjudicating Authority has already recorded finding to the effect that there was "default" and has already "allowed" the application filed by the Respondent. It is also argued that after such findings recorded, the Resolution Professional could not while giving report under Section 99 propose rejection when finding is already recorded. 7. It is argued by the Learned Counsel for the Appellant that when application was filed under Section 95 of IBC, the Respondent - Debtor did not get opportunity to seek replacement of the Resolution Professional. It is argued that the R....
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....ble Supreme Court dealt with how different provisions of IBC had been enforced at different times. The Hon'ble Supreme Court discussed (in Para 81) that it was evident that the method adopted by the Central Government to bring into force different provisions of IBC had a specific design which was to fulfill the objectives underlying the Code, having regard to its priorities. Provisions of Section 60 of IBC were also dealt with and it was found that the objective of the amendment in Section 60 was to ensure that Adjudicating Body dealing with insolvency of Corporate Debtors also had before it the insolvency proceedings of Personal Guarantors to such Corporate Debtors. Para 94 and 95 of the Judgment read as under: "94. The impugned notification operationalizes the Code so far as it relates to personal guarantors to corporate debtors: (1) Section 79 pertains to the definitional section for the purposes of insolvency resolution and bankruptcy for individuals before the Adjudicating Authority. (2) Section 94 to 187 outline the entire structure regarding initiation of the resolution process for individuals before the Adjudicating Authority. 95. The....
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....cribed in Sections 2 [a] to [d] of the Code) is entirely different from those relating to individuals; the former is covered in the provisions of Part II and the latter, by Part III. Section 179, which defines what the Adjudicating authority is for individuals is 'subject to' Section 60. Section 60(2) is without prejudice to Section 60(1) and notwithstanding anything to the contrary contained in the Code, thus giving overriding effect to Section 60(2) as far as it provides that the application relating to insolvency resolution, liquidation or bankruptcy of personal guarantors of such corporate debtors shall be filed before the NCLT where proceedings relating to corporate debtors are pending. Furthermore, Section 60(3) provides for transfer of proceedings relating to personal guarantors to that NCLT which is dealing with the proceedings against corporate debtors. After providing for a common adjudicating forum, Section 60(4) vests the NCLT "with all the powers of the DRT as contemplated under Part III of this Code for the purpose of sub-section (2)". Section 60(4) thus (a) vests all the powers of DRT with NCLT and (b) also vests NCLT with powers under Part III. Parliament th....
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....akrishnan, (2018) 17 SCC 394], it is difficult to accept Shri Rohatgi's argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], is set aside." 108. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability o....
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.... contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract." 14. The above Judgment of the Hon'ble Supreme Court in the matter of 'Lalit Kumar Jain' (supra) makes the context clear in which the provisions of Part III of IBC have to be acted upon against Personal Guarantor. It also makes clear as to aspects which cannot be agitated in such proceedings for Resolution relating to Personal Guarantors of Corporate Debtor. 15. Part III deals with Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms. The provisions applied, as is clear from judgment in the matter of 'Lalit Kumar Jain' (supra) are only with regard to Personal Guarantors to the Corporate Debtors under Section 2(e) of IBC. Chapter III of the Part III deals with Insolvency Resolution Process which we are concerned in the present matter. Section 94 deals with application by Debtor to initiate Insolv....
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....prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified. 96. Interim-moratorium.- (1) When an application is filed under section 94 or section 95- (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period- (i) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 97. Appointment of resolution professional.- (1) If the application under section 94 or 95....
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....ty for replacement of the resolution professional where it has been decided in the meeting of the creditors, to replace the resolution professional with a new resolution professional for implementation of the repayment plan. (5) Where the Adjudicating Authority admits an application made under sub-section (1) or sub-section (4), it shall direct the Board to confirm that there are no disciplinary proceedings pending against the proposed resolution professional. (6) The Board shall send a communication within ten days of receipt of the direction under sub-section (5) either- (a) confirming appointment of the nominated resolution professional; or (b) rejecting appointment of the nominated resolution professional and recommend a new resolution professional. (7) On the basis of the communication of the Board under sub-section (3) or sub-section (6), the Adjudicating Authority shall pass an order appointing a new resolution professional. (8) The Adjudicating Authority may give directions to the resolution professional replaced under sub-section (7)- (a) to share all information with the new resolution professional in respect ....
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....uthority. (9) The resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report under sub-section (7). (10) The resolution professional shall give a copy of the report under sub-section (7) to the debtor or the creditor, as the case may be. 100. Admission or rejection of application.- (1) The Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in section 94 or 95, as the case may be. (2) Where the Adjudicating Authority admits an application under sub-section (1), it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in section 94 or 95, as the case may be, to the creditors within seven days from the date of the said order. ....
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.... of default, in Form B. (2) The application under sub-section (1) of section 95 shall be submitted in Form C, along with a fee of two thousand rupees. (3) The creditor shall serve forthwith a copy of the application referred to in sub-rule (2) to the guarantor and the corporate debtor for whom the guarantor is a personal guarantor. (4) In case of a joint application, the creditors may nominate one amongst themselves to act on behalf of all the creditors." 22. Coming back to Section 95(4), the application under Section 95(1) needs to be accompanied with details and documents relating to (a) the debts owed by the Debtor to the Creditor or Creditors submitting the application for insolvency resolution process as on the date of application; and (b) the details and documents relating to failure by the debtor to pay the debt within a period of 14 days of service of notice of demand. The notice of demand as per Rule 7(1) has to be in Form C (supra). The service of notice has to be effected as per Rule 3(1)(g). "Service" has been defined in the Rules as follows: "(g) "serve" means sending any communication by any means, including registered post, spee....
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....e Resolution Professional. Sub-section (1) of Section 97 states that if the application under Section 95 is filed through the Resolution Professional, the Adjudicating Authority shall direct the Board within 7 days of the date of the application to confirm that there are no disciplinary proceedings pending against Resolution Professional and the Board has to communicate within 7 days of receipt of directions in writing either to confirm the appointment of the Resolution Professional or to reject the appointment of the Resolution Professional and to nominate another Resolution Professional in the insolvency resolution process. 27. In this context Rule 8 needs to be referred to, which reads as under: "8. Confirmation or nomination of insolvency professional.? (1) For the purposes of sub-section (2) of section 97 and sub-section (5) of section 98, the Board may share the database of the insolvency professionals, including information about disciplinary proceedings against them, with the Adjudicating Authority from time to time. (2) For the purposes of sub-section (4) of section 97and sub-section (3) of section 98, the Board may share a panel of insolvency professi....
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....ing Authority under Section 97(5), that step under Section 98 is contemplated. 32. Section 99 require the Resolution Professional to "examine the application" and to "submit the report" to the Adjudicating Authority "recommending for approval or rejection of the application". What the Resolution Professional does under Section 99(2) is to "require the Debtor to prove repayment of the debt claimed as unpaid by the Creditor" by furnishing (a) evidence of electronic transfer of the unpaid amount from the bank account of the Debtor; (b) evidence of encashment of a cheque issued by the Debtor; or (c) a signed acknowledgement by the Creditor accepting receipt of dues. This is mere collection of evidence. These provisions give opportunity to the Debtor to submit material in his favour. Section 99(3) provides that where the debt for which an application has been filed by a Creditor is registered with the information utility, "the Debtor shall not be entitled to dispute the validity of such debt". Thus, where debt concerned is registered with information utility is established, it would be conclusive evidence of valid debt and Personal Guarantor is not entitle to raise dispute regarding ....
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....ayment plan. Under Section 100(3) copy of the order admitting or rejecting the application is required to be provided along with the report to the Creditors within 7 days from the date of order. Sub-section (4) of Section 100 provides for contingency where Creditors would be entitle for Bankruptcy Order under Chapter IV. 35. Form B under Rule 7(1) deals with demand notice to be served on the Guarantor demanding payment of the amount of default. 'Form C' relates to Rule 7(2) which gives a format of application to be submitted by the Creditor to initiate Insolvency Resolution Process. 'Form C' may be reproduced as inter-alia it relates to declaration to be given by the Insolvency Professional including declaration of no disciplinary proceeding pending. It is material as the Creditor can file application through Insolvency Professional. The 'Form C' reads as follows: FORM C [See rule 7(2)] APPLICATION BY CREDITOR TO INITIATE INSOLVENCY RESOLUTION PROCESS [Under rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Ru....
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.... as follows: "4. Eligibility of resolution professional. - (1) An insolvency professional shall be eligible to be appointed as a resolution professional for a resolution process, if- (a) he, the insolvency professional entity of which he is a partner or a director, and all the partners and directors of the said insolvency professional entity are independent of the guarantor; (b) he is not subject to any ongoing disciplinary proceeding or a restraint order of the Board or of the insolvency professional agency of which he is a professional member; and (c) the insolvency professional entity of which he is a partner or a director, or any other partner or director of such insolvency professional entity does not represent any party in the resolution process. Explanation.-For the purposes of this sub-regulation,- (i) a person shall be considered independent of the guarantor, if he- (a) is not an associate of the guarantor; (b) is not a related party of the corporate debtor; and (c) has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corpor....
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....ility is made available, the applicant may submit accompanying documents, and wherever they are bulky, in electronic form, in scanned, legible portable document format in a data storage device such as compact disc or a USB flash drive acceptable to the Adjudicating Authority." [Emphasis supplied] 39. This takes us to Rule 20 to 24 and 26 of Part III of NCLT Rules which deals with institution of proceedings, petition, appeals etc. and procedure and particulars to be set out in the address for service and presentation of petition or appeal, etc. Once the application has been "filed" and treated so by numbering the application by the Adjudicating Authority, the next stage contemplated for the Adjudicating Authority is to only appoint the Resolution Professional under the provisions of Section 97 and the Resolution Professional is to then "examine" the application as per requirements laid down in Section 99 where the Resolution Professional has to also give opportunity to the Debtor/Personal Guarantor and submit the report. It has been argued by Learned Counsel for the Appellant that the Respondent - State Bank of India filed the application through Resolution Profession....
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.... 2013 states as follows: "420. Orders of Tribunal.--(1) The Tribunal may, after giving the parties to any proceeding before it, a reasonable opportunity of being heard, pass such orders thereon as it thinks fit. (2) The Tribunal may, at any time within two years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it, and shall make such amendment, if the mistake is brought to its notice by the parties: Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred under this Act. (3) The Tribunal shall send a copy of every order passed under this section to all the parties concerned. 58. Rules 11, 34 and 37 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) state as follows: "11. Inherent powers.--Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal. x xxx 34. General procedure.--(1) In a situation not provided for ....
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....application also after it was filed to the Appellant but the notice through Court was not served. We find from the scheme, as discussed above, the requirement is only to the extent that the application will be filed after serving a notice in terms of 'Form B' of the Rules and when the application is filed in Form C the same would be served on the Personal Guarantor. This acts as a notice to the Personal Guarantor who would be given opportunity by the Resolution Professional while examining the application in terms of Section 99 of IBC to submit material as mentioned. Before the stage of appointment of the Resolution Professional, the Code or Rules and Regulations do not provide for any hearing as such to be given to the Debtor. Undertone of Section 97(5) also is to bind Adjudicating Authority to appoint Resolution Professional as nominated by the Board. Thus, once application under Section 95 is "filed" the next step for Adjudicating Authority is to appoint the Resolution Professional. 42. However, considering the judgment of the Hon'ble Supreme Court in the matter of 'Swiss Ribbons', it appears to us that keeping principles of natural justice in view, limite....
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....essional as per Section 97 read with Rules and Regulations. Third stage will be Resolution Professional acting in terms of Section 99 and submitting Report. At the fourth stage comes in adjudication of the application under Section 100 which ought to be decided by giving hearing to parties keeping in view Application, evidence collected and report under Section 99. 45. Coming to the present matter and impugned order, we find that the Adjudicating Authority took note of the steps taken for filing of the application, sending of demand notice and filing application in 'Form C It has been then observed in Para 9 to 15 as under: "9. The Bench, after hearing the Petitioner, notes that the Corporate Guarantor has not filed any submissions and on the date of hearing there was no representation from the side of the Respondent, i.e., the Personal Guarantor. 10. Based on the submissions made by the Applicant and the documents produced and placed on record before this Bench, the Bench has no doubt in its mind that there is a 'default' on the part of the Personal Guarantor by not fulfilling the debt owed to the Corporate Debtor, i.e., Pratibha Industries Limited....
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....e same is filed before this Authority. 15. List the matter for further proceedings in the case on 15.04.2021." [Emphasis supplied] 46. The observations have been made by the Adjudicating Authority that the Corporate Guarantor (should have been only 'Guarantor') has not filed any submission and on date of hearing there was no representation. It appears that the Adjudicating Authority was of the view that service of 'Form C on 29th August, 2020 and 'Amended Form C' on 28th January, 2021 was the notice. Having gone through the Form and Rules and Regulations, we do not find that anywhere it is provided that when the Form is submitted it would also contain notice of date as to when the matter is coming up before the Adjudicating Authority. In the absence of any such requirement, we find, as above, that there has to be limited notice for presence conveying the "filing" of application and commencing of Interim Moratorium under Section 96 from date of filing (to be mentioned). 47. We also find that it was an error on the part of Adjudicating Authority to observe in Para 10 as reproduced above and hold that there is a "default" when matter was at ....
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.... Company Appeal (AT) (Insolvency) No. 317 of 2021 50. For reasons mentioned above, in this appeal also, we pass the following order: Company Appeal (AT) (Insolvency) No. 317 of 2021 is partly allowed. The findings and observations made by the Adjudicating Authority in Para 9 to 11 of impugned order are set aside. The appointment of Mr. Ram Ratan Kanoongo as Resolution Professional is not disturbed. It is stated that he has already given report. As we have set aside the premature observations made, with regard to default, by the Adjudicating Authority, we set aside the report given in consequence to such order. We remit back the matter to the Adjudicating Authority. Parties to appear before Adjudicating Authority on 20th August, 2021. The Resolution Professional will give opportunity to the Appellant in terms of Section 99 and give fresh report. The Adjudicating Authority will then proceed further with the matter as per law in the light of our observations and findings. With these observations the appeal is disposed of. ============= Document 1 1. Title and full name 2. Date of birth and e-mail address 3. Contact number(s) Home Mobile Business ....
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....ecree (as may be applicable), under the Indian Succession Act, 1925 (10 of 1925) (attach a copy) Provision of law, contract or other document under which debt has become due (attach a copy) A statement of bank account where deposits are made or credits received normally by the creditor in respect of the debt of the corporate debtor, from the date on which the debt was incurred (attach a copy) 15. List of documents attached to this application in order to prove the existence of debt and the amount in default 16. Statement by creditor in respect of excluded debts 17. If you are a secured creditor, tick the applicable box in the right column relating to forfeiture of right to enforce security during the period of the repayment plan, which will determine the voting share as per section 110 of the Code I [creditor] hereby state that the debt(s) for which the insolvency resolution process application is filed does not include any- (i) liability to pay fine imposed by a court or tribunal; (ii) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligati....