TaxTMI 
TaxTMI 
2023 (4) TMI 266
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....1 and I.A. No. 229/JPR/2021 filed by the Respondents in three separate Company Petitions filed by the Appellant. The I.As. filed by the Respondents who were Personal Guarantor have been allowed dismissing the Company Petitions filed by the Appellant under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B Code'). The Appellant challenging the order impugned has come up in these Appeals. For deciding these Appeals it shall be sufficient to refer to pleadings and materials in Company Appeal (AT) (Ins.) No. 397 of 2022. Brief facts of the case necessary to be noticed for deciding these Appeals are: (i) The Appellant - Shapoorji Pallonji Finance Pvt. Ltd. granted a facility in the amount of Rs.25 Crores to one Jumbo Finvest (India) Ltd. (JFIL). The facility was provided pursuant to an agreement dated 27.03.2018 executed between Jumbo Finvest (India) Ltd. (JFIL), a Financial Service Provider and the Appellant, a Non-banking Finance Company. The Facility Agreement provided for security. (ii) In pursuance of the Facility Agreement, the Respondents to these Appeals executed a Deed of Personal Guarantee dated 27.03.2018 in favour of the....
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....on, hence, Section 95 is not maintainable. It was further submitted that there is no ongoing insolvency process against JFIL, hence, petition filed by the Appellant under Section 95 is not maintainable. Referring to Section 60 of the I&B Code, it was contended that application for insolvency of the Personal Guarantor can be filed before the Adjudicating Authority only if either CIRP or Liquidation proceedings are pending against the Corporate Debtor before the NCLT. No insolvency application being pending against the JFIL, application under Section 95 is not maintainable. (vii) The applications filed by the Personal Guarantors was replied by the Appellant. In the reply, it was mentioned that pendency of insolvency resolution process against the Financial Service Providers is not a condition precedent for filing application under Section 95. Other pleas were also taken by the Appellant to oppose the application filed by the Personal Guarantors. (viii) Rejoinder affidavit was filed by the Personal Guarantors to the Reply of Appellant stating that as per Notification dated 18.11.2019 issued by Ministry of Corporate Affairs, CIRP can only be initiated by the Reserve B....
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....guarantee on 27.03.2018 in favour of the Financial Creditor/ Non-Applicant. The definition of Personal Guarantors under Section 5(22) of the IBC cogently implies that they can be recognised as Personal Guarantors under IBC, subject to the condition, and only if, that the or entity for whom they have given guarantee is a Corporate Debtor. Therefore, as it is amply clear that Jumbo Finvest (India) Limited is not a Corporate Debtor, the guarantors of the aforesaid company cannot be considered as Personal Guarantors under provisions of IBC. Since consequences of CIRP are drastic and almost penal for any entity, whether corporate or individual, definitions must be strictly construed." (x) In view of the aforesaid conclusions, the Adjudicating Authority allowed the applications filed by the Personal Guarantors and dismissed the three Company Petitions filed by the Appellant under Section 95. Aggrieved by the judgment and order passed by the Adjudicating Authority these Appeals have been filed. 2. Learned counsel for the Appellant challenging the order impugned submits that the Adjudicating Authority committed error in reading the last Balance Sheet of the JFIL. It is submitte....
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....application by the Adjudicating Authority should not only exist at the time of entertainment of the application but such jurisdiction should continue till the proceedings are decided. On the date of passing of the order i.e. 22.02.2022 asset size of JFIL as per last Balance Sheet being Rs.407 Crore it had lost jurisdiction, if any, to proceed further. Hence, on this ground also the order passed by the Adjudicating Authority needs no interference. Learned counsel for the Respondent in support of his submission has placed reliance on three judgments of Hon'ble Supreme Court and one judgment of this Tribunal which we shall notice hereinafter. 3. We have considered the submissions of learned counsel for the parties and perused the record. 4. Question which needs to be answered in these Appeals is as to whether the applications filed by the Appellant under Section 95 of the I&B Code against the Personal Guarantors - Respondents was maintainable or not maintainable. 5. Before we proceed to enter into the rival submissions of learned counsel for the parties, we may notice the relevant statutory provisions of the I&B Code pertaining to the issued which has arisen in these Appeals.....
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.... 18.11.2019. It is useful to extract the entire Notification, which is to the following effect: "MINISTRY OF CORPORATE AFFAIRS NOTIFICATION New Delhi, the 18th November, 2019 S.O. 4139(E). - In exercise of the powers conferred by section 227 of the Insolvency and Bankruptcy Code. 2016 (31 of 2016), the Central Government in consultation with the Reserve Bank of India hereby notifies as under: The insolvency resolution and liquidation proceedings of the following categories of financial service providers shall be undertaken in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 read with the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (in this notification referred to as the 'Rules') and the applicable Regulations: Sl. No. Category of Financial Service Provider (rule 2 of the Rules) Appropriate Regulator [clause (a) of sub-rule (1) of rule 3 of the Rules] Dealing with third-party assets (rule 10 of the Rules) (1) (2) (3) (4) 1 Non-banking finance (which include housing finance com....
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....ding on 31.03.2020, the asset size is approx. Rs. 487 crores and as per unaudited figures for the year ending 31.03.2021, the total asset size of Jumbo Finvest (India) Limited is approx. Rs. 407 Crores. Therefore, the abovesaid NBFC i.e. Jumbo Finvest (India) Limited, is excluded from the ambit of the FSP Threshold Notification dated 18.11.2019, which as per Rule 2 of FSP Rules, 2019 classifies/ prescribes applicability of the said Rules for Insolvency and Liquidation of FSPs having an asset size of Rs. 500 crores or more." 10. The Adjudicating Authority has relied on the last audited Balance Sheet of JFIL for year ending 31.03.2020, which Balance Sheet has been brought on record alongwith the Appeal as Annexure A-7. It is useful to notice the first page of Annexure A-7 which contains the details of assets of JFIL which is to the following effect : 11. We may notice that under the heading 'current assets' in the above Balance Sheet there is reference of Note 17. Note 17 is part of the Balance Sheet, which is to the following effect: 12. In Note 17, when we add current and non-current assets, the total comes to Rs.487,80,22,601/-. The Adjudicating Authority has relied on th....
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....eet as on 31.03.2021 the asset size of the JFIL i.e. became Rs.407 Crores, the Adjudicating Authority who might have jurisdiction initially to pass order lost its jurisdiction and there was no jurisdiction in the Adjudicating Authority on 22.02.2022, when it passed the order to hold that JFIL can be Corporate Debtor. The Adjudicating Authority in para 28 has noticed the unaudited figures for the year ending 31.03.2021, where total assets are approx. Rs.407 Crores. 14. For argument sake, we proceed on the premise that on 31.03.2021 the asset size of the JFIL became Rs.407 Crores. The application under Section 95 was filed by Financial Creditor on 03.06.2021 on which date last audited Balance Sheet was only the Balance Sheet as on 31.03.2020. Last Balance Sheet referred to in the Notification dated 18.11.2019 has to be treated as last audited Balance Sheet from the date the application can be filed. In event, the Balance Sheet as on 31.03.2021 was audited after filing of the application and let us assume that the asset size is reduced to less than Rs.500 Crores, what will be the consequence, whether the Adjudicating Authority who has jurisdiction to proceed with the application, s....
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....mity in the order goes to lar root of the matter and makes it in law invalid or void (referred to in Illuri Subbayya Chetty case12 and approved in Dhulabhai case1). The matter may have to be considered in the light of the provisions of the particular statute in question and the fact-situation obtaining in each case. It is difficult to visualise all situations hypothetically and provide an answer. Be that as it may, the question that frequently arises for consideration, is, in what situation/cases the non-compliance or error or mistake, committed by the statutory authority or tribunal, makes the decision rendered ultra vires or a nullity or one without jurisdiction? If the decision is without jurisdiction, notwithstanding the provisions for obtaining reliefs contained in the Act and the "ouster clauses", the jurisdiction of the ordinary court is not excluded. So, the matter assumes significance. Since the landmark decision in Anisminic Ltd. v. Foreign Compensation Commission99 the legal world seems to have accepted that any "jurisdictional error" as understood in the liberal or modern approach, laid down therein, makes a decision ultra vires or a nullity or without jurisdiction and ....
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.... "Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive". 76. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction." 19. There can be no quarrel to the preposition laid down by Hon'ble Supreme Court in "Mafatlal" (supra) and "Arun Kumar" (supra). When there is statutory pre-condition for exercise of jurisdiction that precondition must be fulfilled before the jurisdiction is exercised by the Tribunal. We, thus, have to proceed on the premise that the Adjudicating Authority before whom the application under Section 95 was filed had to retain jurisdiction to decide the application till the application is finally decided. 20. As noted above, consequent to asset size going down during....
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....porate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development." 22. The Insolvency and Bankruptcy Law Report has also been noticed wherein it is stated that delays cause value destruction. BLRC Report has been quoted in Para 15 of the judgment which is to the following effect: "15. The BLRC went on to state: "[.....] India is one of the youngest republics in the world, with a high concentration of the most dynamic entrepreneurs. Yet these game changers and growth drivers are crippled by an environment that takes some of the longest times and highest....
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....und that the Adjudicating Authority has now lost jurisdiction to proceed further, since it is natural phenomena that by delay value of assets is reduced and proceedings are initiated to resolve the insolvency of the Corporate Debtor and to protect its assets and their value. Thus, acceptance of submission of learned counsel for the Respondent that subsequent devaluation of the assets shall take away jurisdiction of the Adjudicating Authority will be contrary to whole purpose of insolvency. 24. The devaluation of assets of a Corporate Debtor by passing time is well accepted phenomena. The I&B Code, thus, provide for strict timeline to resolve insolvency with speed. To accept the submission that Corporate Debtor who is in red and further deteriorate by passing of time be taken out of insolvency process is to completely act against the statutory scheme. 25. Learned counsel for the Respondent has also relied on judgment of Hon'ble Supreme Court in "Embassy Property Developments Pvt. Ltd. vs. State of Karnataka & Ors., (2020) 13 SCC 308". In the above case the Hon'ble Supreme Court was considering the jurisdiction of NCLT qua an order passed by Government of Karnataka under the MM....
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....ent the dues to the Government are crystalised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the Adjudicating Authority, namely the NCLT.]" "41. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right." 26. The above judgment has absolutely no application in the present case. Present is a case where question of jurisdiction to initiate insolvency proceeding against Financial Service Provider as per Section 227 and Notification dated 18.11.2019 as well of maintainability of Section 95 application was under consideration, which is very well within the jurisdiction of the Adjudicating Authority. 27. Learned counsel for the Respondent has also placed reliance on recent judgment of this Tribunal being judgment in "Company Appeal (AT) ....
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.... institution. It has to be called a non-banking financial institution and in such scenario the application filed under Section 7 of the Code on 08.06.2018 was not maintainable on that date and therefore, the Adjudicating Authority had no jurisdiction to invoke its power for the purpose of initiation of CIRP proceedings. Similar situation arises in the case of Randhiraj Thakur (Supra) as well as Housing Development Finance Corporation Ltd. (Supra). Thus, looking from any angle, it is a case in which the Adjudicating Authority has committed an error in initiating the proceedings under Section 7 of the Code though it was not apprised of the facts that Sungrowth (Corporate Guarantor) was a financial service provider." 28. In the above case this Tribunal held that the application filed under Section 7 is not maintainable since the Sungrowth Share and Stocks Limited was registered as Financial Service Provider on date when application was filed. The above case has no application in the present case since in the case before us, the issue is applicability of the Notification dated 18.11.2019 which was issued under Section 227. No question pertaining to Notification dated 18.11.2019 was ....
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....n (1) of Section 60. 10. Sub-Section 1 of Section 60 provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person is located. The substantive provision for an Adjudicating Authority is Section 60, sub-Section (1), when a particular case is not covered under Section 60(2) the Application as referred to in subsection (1) of Section 60 can be very well filed in the NCLT having territorial jurisdiction over the place where the Registered Office of corporate Person is located. 11. The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no C....
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.... and Provisions Sub Total Current Liabilities Short-Term Borrowings Other Current Liabilities Short-Term Provisions Sub Total TOTAL ASSETS Non-Current Assets Note No. As at 31st March 2020 2 41,12,60,550 3 (9,02,41,308) 32,10,39,242 +56 739 2,26,49,06,852 in Rs. As at 31st March 2019 35,76,89,130 1,13,97,20,517 1,49,74,09,647 3,82,03,97,539 46,84,997 2,93,15,575 93,99,365 2,27,43,06,217 3,85,45,98,111 95,91,92,605 1,97,58,30,870 50,88,79,104 3,44,39,02,579 80,84,78,252 3,05,54,96,725 6,95,79,525 3,93,35,54,502 6,03,92,28,038 9,28,55,62,260 Fixed Assets Tangible Assets 10 Intangible Assets 10 33,83,39,291 6,71,740 40,79,18,929 12,23,917 Capital work in Process 10 Non-Current Investments 11 100 Deferred Tax Assets 12 11,26,58,632 Security Deposits 13 50,86,505 Other Non-Current Assets 14 4,08,16,67,503 Sub Total 4,53,84,23,791 100 54,40,333 5,21,53,74,430 5,62,99,87,709 Current Assets Current Investments 15 20,92,175 Inventories 16 20,97,173 8,60,23,4....