TaxTMI 
TaxTMI 
2021 (10) TMI 1086
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....The brief facts of the case are as follows: 2.1 The Appellant 'Intec Capital Ltd' for brevity 'Intec' filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Guarantor / Corporate Debtor 'Eastern Embroidery Collections Private Limited' (EECPL) for the sum borrowed by the partnership firm M/s Eastern Overseas. 2.2 The Appellant 'Intec Capital Ltd' is the Financial Creditor and is a non-banking Financial Company engaged inter-alia in the business of providing financial facilities. On the other hand, M/s 'Eastern Overseas' is a partnership firm engaged in embroidery and similar activities that approached 'Intec' for loan facilities and M/S' Eastern Embroidery Collection Private Limited' (Corporate Debtor) provided the Corporate Guarantee. As a result, the Corporate Guarantor 'EECPL' becomes the Corporate Debtor for the said loan facility provided by 'Intec'. 2.3 M/s 'Eastern Overseas' ("Borrower") on 07.10.2013 got sanctioned two loans Rs. 82,20,000/- on 09.10.2013 i.e., LNN0I01413-140002997 and Rs. 34,65,000/- on 18.02.2014 i....
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....nstant case. 2.9 Therefore, the Applicant/Appellant was required to submit the Application in 'Form C' under Section 95 (4) of the IBC, and that too after service of demand notice as required under Section 95 (4) (a) read with Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor's) Rules, 2019 and that too if the debt is not paid within 14 days from the date of service of demand notice. 2.10 The Adjudicating Authority has made the following observations; "20. A bare perusal of the provision shows that an application by the creditor against the personal Guarantor shall be filed under section 95 (1) of the IBC, and according to section 95 (4) IBC 2016 (i) an application under subsection (1) shall be accompanied with details and documents relating to the debts owed by the debtor to the creditor or creditors submitting the Application for insolvency resolution process as on the date of Application, (ii) it shall only be filed on failure by the debtor to pay the debt within a period of 14 days of the service of the notice of demand and (ii) supported with re....
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....uptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 instead of "The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016". 3.2 The Ld. Adjudicating Authority has curtailed the remedies available to the Appellant of making an Application for Resolution of Insolvency of Corporate Debtor, who qualifies under the definition of "Corporate Person" and "Corporate Debtor" stated under Sub-section (7) & (8) of Section 3 of the IBC. Accordingly, the Corporate Guarantor is a Corporate Debtor in terms of Section Sub-section (7) and (8) of Section 3 of IBC and not a "Personal Guarantor" in terms of Sub-section (22) of Section 5 of the I&B Code. 4. Statutory Provisions 4.1 Companies Act, 2013 Sec 2(20) "company" means a company incorporated under this Act or under any previous company law; 4. Insolvency and Bankruptcy Code, 2016 Sec 3(7) "corporate person" means a company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Lia....
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....2020, such Application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the Application shall be deemed to be withdrawn before its admission.] 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. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional 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....
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....In this Part, unless the context otherwise requires,- [(5-A) "corporate guarantor" means a corporate person who is the surety in a contract of Guarantee to a corporate debtor;] (7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount rai....
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....tting the Application for insolvency resolution process as on the date of Application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the Application made under sub-section (1) to the debtor. (6) The Application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified. 4.3 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [As amended up to GSR 583(E), dated 24-9-2020] [30 November, 2016] In exercise of the powers conferred by clauses (c), (d), (e) and (f) of sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby makes the following rules, namely- 1. Short title and commencement.- (1) These rules may be called the Insolvenc....
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....pplication is made jointly by financial creditors, they may nominate one amongst them to act on their behalf. 5. Demand notice by operational creditor.-(1) An operational creditor shall deliver to the corporate debtor, the following documents, namely- (a) a demand notice in Form, 3; or (b) a copy of an invoice attached with a notice in Form, 4. (2) The demand notice or the copy of the invoice demanding payment referred to in sub-section (2) of Section 8 of the Code, may be delivered to the corporate debtor, (a) at the registered office by hand, registered post or speed post with acknowledgement due; or (b) by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor. (3) A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any. 4.4 Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 [15 November, 2019] 1. Short title ....
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....of unencumbered personal ornaments under clause (c) of the said sub-section shall not exceed one lakh rupees; (b) the value of unencumbered single dwelling unit owned by the debtor under clause (e) of the said sub-section shall not exceed,- (i) in the case of dwelling unit in an urban area, twenty lakh rupees; (ii) in the case of dwelling unit in rural area, ten lakh rupees. Explanation.- For the purposes of this rule,- (a) "rural area" shall have the same meaning as assigned to it in clause (o) of section 2 of the National Rural Employment Guarantee Act, 2005 (42 of 2005); (b) "urban area" means any area other than rural area. 6. Application by Guarantor.- (1) The Application under sub-section (1) of section 94 shall be submitted in Form A, along with an application fee of two thousand rupees. (2) The Guarantor shall serve forthwith a copy of the Application referred to in sub-rule (1) to every financial creditor and the corporate debtor for whom the Guarantor is a personal guarantor. 7. Application by creditor.- (1) A demand notice under clause (b) of sub-section (4) of section 95 shall be served on ....
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....ided that till such facility 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. 5. Point in issue The questions that arise for our consideration is as under; 1. Is the Eastern Embroidery Collections Private Limited, for brevity 'EECPL', the Personal Guarantor of the Principal Borrower 'Eastern Overseas'? 2. Whether the 'EECPL' is the Corporate Guarantor and therefore 'Corporate Debtor' of the 'Eastern Overseas, in terms of Sub-section (7) and (8) of Sec 3 of I&B Code and the applicable Rules will be 'Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016'? 6. We have heard the arguments of the learned Counsel for the Appellant and perused the record. There is no appearance from the Respondent side despite service of notice. The Adjudicating Authority has rejected the Application filed U/S 7 of the Code with the following observations; "14. Ld. Counsel for the applicant submitted that since the Corporate Debt....
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.... 19. At this juncture, we would also like to refer Section 95 of the IBC 2016 and the same is quoted below:- Section 95-Application by creditor to initiate insolvency resolution process. (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for Initiating an insolvency resolution process against- (a) any one or more partners of the firm; or (b) the firm. (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned Application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with details and documents....
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....applicant is required to submit an application in Form C under Section 95(1) of the IBC and that too after service of demand notice as required under Section 95(4)(b) read with Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and if the debt is not paid within 14 days from the date of service of demand notice. 23. Herein the case in hand, the Application has not produced any document to show that the demand notice as required under Section 95(4)(b) of the IBC read with Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 was ever served upon the personal Guarantor. Therefore, in our considered view, the present Application is filed by the applicant is not maintainable. 24. Accordingly, the present Application stands dismissed. 25. However, the applicant is at liberty to file a fresh application in accordance with the provisions of law." (verbatim copy) 7. Analysis 7.1 The Adjudicating Authority has held that the ....
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.... Sec 3(7) "corporate person" means a company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; (8) "corporate debtor" means a corporate person who owes a debt to any person; (22) "personal guarantor" means an individual who is the surety in a contract of Guarantee to a corporate debtor; 7.7 The Appellant further contends that Respondent is falling under the definition of 'Corporate Person' and 'Corporate Debtor' and is entirely outside the purview of the definition of 'Personal Guarantor' under Section 5 Sub-section 22 of the Code. 7.8 Therefore, the Application against the Respondent Corporate Person is to be filed as per the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules, 2016, not as per "the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules for Bankruptcy Process for Personal Guara....
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....Court has held that; "1. Two central issues arise for our determination in this Appeal, as follows:- (i) Whether an action under Section 7 of the Insolvency and Bankruptcy Code, 20161 can be initiated by the financial creditor (Bank) against a corporate person (being a corporate debtor) concerning Guarantee offered by it in respect of a loan account of the principal Borrower, who had committed default and is not a "corporate person" within the meaning of the Code? (ii) Whether an application under Section 7 of the Code filed after three years from the date of declaration of the loan account as Non-performing Asset^2, being the date of default, is not barred by limitation? 31. A priori, we find no substance in the argument advanced before us that since the loan was offered to a proprietary firm (not a corporate person), action under Section 7 of the Code cannot be initiated against the corporate person even though it had offered Guarantee in respect of that transaction. Whereas, upon default committed by the principal Borrower, the liability of the company (corporate person), being the Guarantor, instantly triggers the right of the financial credi....