TaxTMI 
TaxTMI 
2025 (5) TMI 1842
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.... of the IBC filed against M/s L.R. Builders Pvt. Ltd. (Corporate Guarantor), and allowed I.A. No. 4749/2022 filed under Section 65 of the Code, wherein the Respondent had alleged that the Appellant had initiated insolvency proceedings with fraudulent and malicious intent. 2. Aggrieved by the findings and the dismissal of the Section 7 petition, the Appellant has approached this Appellate Tribunal. The Appellant does not seek revival of the CIRP or reversal of the dismissal of the Section 7 petition, especially in light of the final settlement having been reached with the borrower. Instead, the limited prayer in this Appeal is to seek expungement of adverse findings and remarks passed under Section 65 of the IBC, which, if allowed to stand, cause serious prejudice to the Bank's institutional reputation and lawful recovery efforts. Brief facts of the case: 3. The brief facts of the case are as under: i. The present Appeal has been filed by the State Bank of India (Appellant) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code'), against the impugned order dated 07.10.2024 passed by the National Company Law Tribunal, New Delhi Bench, in C.P. (IB) No. 612/....
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.... by 30.11.2015, which did not happen. viii. The borrower's accounts were declared Non-Performing Assets (NPA) by SBI on 31.12.2015, and by e-SBBJ on 31.03.2016, in line with RBI norms. This was prior to merger of e-SBBJ with SBI on 01.04.2017. ix. Post-NPA, certain book entries and credit transactions were recorded in the loan accounts: * Several amounts, including Rs.3.60 Cr (11.01.2016) Rs.4 Cr (29.01.2016) Rs.7.60 Cr (17.02.2016), and others, were entered as crystallisations or EPC conversions. * An EPC amount of Rs.1.70 Cr disbursed on 21.03.2016 was crystallised on 03.06.2016. * On 10.11.2016 Rs.22.10 Cr was transferred internally between accounts. x. In view of the borrower's default, the Appellant initiated recovery measures under the SARFAESI Act, 2002, by issuing demand notices under Section 13(2) to the borrower and the Respondent (guarantor), followed by symbolic possession under Section 13(4). xi. Simultaneously, the Appellant also instituted proceedings before the Debt Recovery Tribunal (DRT) by two separate proceedings: a) OA 634/2016 for Rs.60 Crores. b) OA 364/2016 for Rs.40 Crores. xii. On 15.01.2018, a composite One-Time Settlement (OTS) propos....
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...., we allow the application ie. IA-4749/2022 under Section 65 of the Code. No order as to costs. IB-612/ND/2022- In view of the order passed in IA-4749/2022, wherein the application filed under Section 65 of the Code by the Respondent/Lit Builders Pvt. Ltd. is allowed. Consequently, the main petition bearing IB-613/ND/2019 filed under Section 7 of the Code is dismissed." xx. Aggrieved, the Appellant filed Company Appeal (AT)(Insolvency) No. 2206/2024, challenging the dismissal of its Section 7 petition. However, the appeal was dismissed on 28.01.2025, as the borrower's account had already been settled through OTS. xxi. The Appellant has now filed the present appeal, limited to challenging the findings and observations made by the NCLT under Section 65 of the IBC, particularly the allegations of malafide intent and abuse of process. Submissions of the Appellant 4. Ld. Counsel for the Appellant submits that even if all the findings made by the Ld. NCLT regarding the issues raised by the Respondent are accepted without challenge, they still do not make out a valid case under Section 65 of the Insolvency and Bankruptcy Code. This provi....
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....use 6: enforceable against all guarantors jointly and severally. Clause 8: the guarantee is continuing in nature. Clause 9: the Bank may at its discretion demand the principal and interest from the guarantors. Clause 11: guarantee is irrevocable. Clause 12 & 19: acknowledgments by borrower bind the guarantor. Clause 18: guarantee is independent of borrower liability. 10. The appellant in support of his contention has relied on the following Judgments: i. The Judgment of Hon'ble Supreme Court in SBI v. Indexport Registered & Ors., [(1992) 3 SCC 159 (Paras 11, 14-19)]. ii. The Judgment of Hon'ble Supreme Court in Sita Ram Gupta v. Punjab National Bank & Ors., [(2008) 5 SCC 711 (Paras 3-8)]. iii. The Judgment of Hon'ble Karnataka High Court in Raju Shetty v. Bank of Baroda, I.L.R. [1991 KAR 3303 (Paras 9-12)]. 11. It is the submission of the Ld. Counsel that the findings in para 18 & 20 of the Impugned Order are factually wrong. In paragraph 18 & 20 of the Impugned Order, the Hon'ble NCLT held that the Appellant relied upon an unsigned sanction letter dated 16.04.2015, which was not even acted upon. The Appellant respectfully submits that this finding is factually in....
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....these emails were not considered at all in the Impugned Order. 17. RBI Export Credit Circular and findings in para 26 of the Impugned Order are irrelevant to Section 65. The Appellant respectfully submits that the Hon'ble NCLT, in paragraph 26 of the Impugned Order, wrongly interpreted the RBI Circular on Export Credit and held that disbursals made after the sanction period were irregular. It is submitted that RBI's Export Credit Guidelines govern classification of export loans but do not restrict a bank's power to disburse credit under sanctioned facilities. Further, even if there were any alleged irregularity in disbursal, that would not mean that the proceedings under Section 7 were fraudulent or malicious in nature. At best, these are matters of internal banking policy or regulatory compliance and have no bearing on the maintainability of a Section 7 application. The invocation of Section 65 based on such reasoning is unjustified. 18. The Appellant respectfully submits that the Hon'ble NCLT, in paragraph 27 of the Impugned Order, wrongly concluded that an amount of Rs.22.10 Crores was disbursed after the borrower's account became NPA. This finding is factually incorrect. The ....
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.... mean that the earlier proceedings under Section 7 were fraudulent. Allegations such as improper disbursal, failure to auction mortgaged property, or use of alternate remedies - even if assumed correct - relate to internal banking decisions or commercial conduct. They do not equate to fraudulent or malicious initiation of IBC proceedings. The Appellant submits that these are civil disputes, not matters falling under the purview of Section 65, and therefore the Impugned Order invoking this provision is entirely misplaced. Submissions of Respondent: 21. The Counsel for the Respondent respectfully submits that this appeal by the State Bank of India (SBI) has no merit. The Hon'ble NCLT, in its order dated 07.10.2024, rightly dismissed the Section 7 application filed by SBI against L.R. Builders Pvt. Ltd. (LRB). The Tribunal also allowed I.A No. 4749 of 2022 under Section 65 of the Code, because SBI had wrongly and dishonestly started insolvency proceedings against LRB, pretending that LRB was a "Corporate Guarantor" for loans actually given to a different firm - P.P. Jewellers (Delhi). The loan of P.P. Jewellers has already been paid off, and SBI has returned both the guarantees and ....
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.... document, as otherwise, its case would have been time-barred. SBI now cannot say the letter was never acted upon, just to avoid responsibility. 26. SBI first claimed that the 16.04.2015 letter was a simple renewal. Later, it admitted it was a fresh loan that was never signed. As per law, an agreement that is not signed by the parties is not legally valid. In this regard, Ld. Counsel referred to This has been held in several judgments: Shubhmangal Mercantile (P) Ltd. v. Tricon Restaurants (India) (P) Ltd. ACE Printing and Pack Pvt. Ltd. v. Modern Food Industries (I) Ahaar International (India) Ltd. v. Sifter Project Services Rohit A. Kapadia v. Perviz J. Modi Also, SBI used this sanction letter in Form IV and now they cannot say it doesn't matter. 27. The old loan agreement and the guarantee only refer to the 20.12.2011 sanction, which was valid for just 12 months. When SBI realized this, they tried to rely on the 16.04.2015 letter - under which large amounts were disbursed: Date Amount 11.01.2016 Rs.3.60 Crores 29.01.2016 Rs.4.00 Crores 17.02.2016 Rs.7.60 Crores 24.02.2016 Rs.1.85 Crores 21.03.2016 Rs.1.70 Crores 25.05.2016 Rs.2.79 Crores 10.11.2016....
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.... and they clearly noted these facts. According to RBI's rule, if an account is overdue for 90 days, it becomes an NPA. Still, the Bank ignored this and acted against the rules. 33. Counsel for the Respondent submits that while explaining the alleged disbursal of Rs.22.10 Crores on 10.11.2016, SBI misled the Ld. Tribunal. SBI referred to additional affidavit filed before NCLT and bank statement of Account No. 32234455739 to claim that Rs.22.10 Crores were disbursed. But this is not true. The documents show that Rs.22.10 Crores were repaid by P.P. Jewellers (Delhi) - not disbursed. The disbursal mentioned in the Impugned Order actually relates to Account No. 36244019723, as shown at Pg. 456 of CP IB 612/2022. 34. That account shows that the Bank received Rs.22.10 Crores and the account balance became zero. So, the question arises - how can insolvency be filed for an account that has zero balance? Also, Form IV does not mention Account No. 32234455739 at all. This is clearly a suppression of facts by the Bank. Even this account had disbursals after the NPA date: i. Rs.2.80 Crores on 25.05.2016 ii. Rs.9.35 Lakhs on 03.06.2016 35. The counsel further stated that since these issue....
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....ting maliciously and did not want to recover its dues fairly. 41. Counsel for the Respondent submits that this isn't just an allegation. The Chief Metropolitan Magistrate (CMM) has clearly recorded findings in two separate orders dated 19.08.2020 and 04.06.2022 showing that some SBI officials were working hand-in-glove with Kamal Gupta, the partner of the main borrower. 42. After the Respondent brought these findings before the NCLT, the Bank hurriedly filed two Writ Petitions - WP(C) 6991/2024 and WP(C) 7017/2024 - before the Hon'ble Delhi High Court, asking that the adverse remarks be removed. Analysis and findings 43. We have heard the parties in detail, examined the record, and considered the documents presented and have gone through the written submissions of both the parties. 44. The Respondent, L.R. Builders Pvt. Ltd., filed a petition I.A. No. 4749/2022 under Section 65 of IBC in C.P. (IB) No. 612/2022 before the Adjudicating Authority (NCLT) alleging that the State Bank of India had initiated CIRP proceedings with mala-fide intent, fraudulently misrepresenting facts, and abusing the insolvency process. These allegations formed the foundation for the NCLT's impugned or....
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.... independently securing this second facility. 49. Respondent stated that SBI had relied on the Sanction Letter dated 16.04.2015 in its Section 7 application and arguments before NCLT. SBI had used it to show that the original loan from 31.12.2011 was renewed. But this letter is false and invalid as it is not signed by anyone - neither by the borrower nor by LRB. It clearly mentions that it needs to be signed but was not. Secondly, this was not a renewal, but a fresh sanction, which needed new loan and guarantee agreements. Accordingly, he pleaded that there is Novation of Contract which would have required separate Guarantee Agreements and existing guarantee would become void. 50. We have gone through the records. Part IV of the Form - filed under section 7 mentions the Agreement dated 16.04.2015 also as one of the documents in addition to other loan agreements. It is the submission of the Appellant that it's a clerical error. The aforesaid agreement was never signed and implemented by the Appellant. So, the question of Novation of Guarantee Agreement does not arise at all. 51. The record contains several documents that reaffirmed the Respondent's liability. The facilities were ....
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....d debiting the same amount in another account of the Borrower (A/c No. 00000036244019723), as seen in both accounts. 55. Despite this clear documentary explanation submitted in the rejoinder and written submissions, the NCLT failed to pay attention to this material evidence. The NCLT thus wrongly concluded that an amount of Rs.22.10 Crores was disbursed after the loan account turned Non-Performing Asset (NPA). We observe that disbursal post declaration of account as NPA was one of the reasons cited by AA for allowing the Section 65 petition. This finding was not based correct understanding of nature of entries in the bank account of borrower maintained in e-SBBJ. 56. The Respondent has further submitted that the period of original sanction of loan was for one year from 31.12.2011 and the guarantee was valid for the same period. In such a situation, the respondent cannot be liable for the outstanding loan amount. 57. The liability of the guarantor in this case is governed by clauses of the guarantee agreement and admission if any by the respondent. We now have a look at relevant clauses Nos. 1, 3, 6, 8, 9, 11, 14, 18 and 19 Deed of Guarantee dated 31.12.2011 executed by responden....
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....nder and shall not be determined or in any way be affected by any account or accounts opened or to be opened by the bank becoming nil or coming into credit at any time or from time to time or by reason of the said account or accounts being closed and fresh account or accounts being opened in respect of fresh facilities being granted within the overall limit sanctioned to the borrower. 9. Notwithstanding the Bank's rights under any security which the Bank may have obtained or may obtain the Bank shall have fullest liberty to call upon the Guarantors to pay the principal sum not exceeding Rs. 60,00,00,000/- (Rupees Sixty Crores only) together with interest as well as the costs (as between advocate and client) charges and expenses, and/or other monies for the time being due to the Bank in respect of or under the above-mentioned credit facilities or any of them without requiring the Bank to realize from the Borrower the amount due to the Bank in respect of the above- mentioned credit facilities and/or requiring the Bank to enforce any remedies or securities available to the Bank. 11. The guarantee shall be irrevocable and enforceable against the Guarantors notwithstanding any d....
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....ade by the Borrower towards the Principal, sum hereby guaranteed or any judgement, award or order obtained by the Bank against the Borrower shall be binding on the Guarantors and the Guarantors accept the correctness of any statement of account that may be served on the Borrower which is duly certified by any officer of the Bank and the same shall be binding and conclusive as against the Guarantors also and the Guarantors further agree that in the Borrower making an acknowledgment or making a payment the Borrower shall in addition to his personal capacity be deemed to act as the Guarantors duly authorised agent in that behalf for the purposes of Sections 18 and 19 of the Limitation Act of 1963." ( Emphasis supplied ) 58. We can see from the above Clause 1 specifies that liability is payable on demand. Clause 3 gives the freedom to Bank to change the borrowing limits and such changes would not have effect of releasing the guarantee provided under this agreement. Clause 6 makes the guarantee enforceable against all guarantors jointly and severally. Clause 8 mandates that the guarantee is continuing in nature. Clause 9 states that the Bank may at its discretion demand the principa....
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....tation period. Legally, a party cannot on one hand plead that the debt is barred by limitation based on an earlier default, and on the other hand engage in subsequent acknowledgments and communications that reaffirm its liability. The conduct of the Respondent shows that the guarantee obligation was treated as ongoing and enforceable after the first disbursal. 64. We also note that the NCLT, in the impugned order, did not examine this contradiction or consider the legal effect of these differing statements. It simply proceeded to record adverse findings against SBI without resolving this material inconsistency in the Respondent's own pleadings. 65. In view of this, the Tribunal finds that the Respondent's own conduct - in continuing to acknowledge the debt while giving conflicting dates of default - further supports the Appellant's case. It shows that the guarantee obligation was alive and continuing, and that the application under Section 7 was based on a valid and enforceable claim. 66. The AA referred to L.A. No. 752 of 2020 filed before the Debt Recovery Tribunal (DRT) in O.A. No. 298 of 2017 against PP Jewellers (Exports). That application was filed by the Respondent to req....
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....ger. Respondent No.2/LR Builders Pvt. Ltd. is the guarantor in the loans advanced by SBI to two Partnership concerns M/s. P.P. Jewellers (Exports) and M/s. P.P. Jewellers (Delhi). Both the Partnership Firms belong to the family of Kamal Kumar Gupta. In M/s. P.P. Jewellers (Exports), Kamal Kumar Gupta is a Partner with his wife Veena Gupta and in M/s. P.P. Jewellers (Delhi), Kamal Kumar Gupta is a Partner with his relative Mukesh Gupta. Respondent No.2 is promoted and managed by the family of Kamal Kumar Gupta. Rahul Gupta/Respondent No.3 is one of the Directors of Respondent No.2 and is the person who filed the criminal complaint as well as the application under Section 156(3) Cr.P.C. on behalf of Respondent No.2. 35. There is thus wealth of judicial precedent which fortifies the stand of the Petitioners that in the mercantile system, Banks have a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customers in the ordinary course of banking business and the general lien is a valuable right of the banker judicially recognized and in the absence of an agreement to the contrary, Banker has a general lien over such securities or hills....
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.... Gupta who is the paternal uncle of Rahul Gupta is also a Director of Respondent No.2 and Kamal Kumar Gupta, Veena Gupta and Pawan Gupta as well as Respondent No.2 are guarantors in the account of M/s. P.P. Jewellers (Delhi). Therefore, initiating criminal proceedings against the Petitioners through the mode of an FIR is nothing but a desperate attempt to seek release of title deeds of the mortgaged subject property, which Respondent No.2 and the borrowers have been unable to achieve despite several attempts before the MM, this Court and the DRT/DRAT and for the sake of completeness, it would be useful to refer to the litigation in this context hereinafter. 41. Petitioners have also contended and in my view rightly so, that the issues arising inter se the parties are essentially civil in nature and various OAs in this regard are pending before the DRTs and thus criminal proceedings are an abuse of process of law. SBI has stay orders in its favour in respect of the subject property in both the OAs filed against M/s. P.P. Jewellers (Delhi). In this light, the contention is well founded that this Court ought to exercise its inherent power under Section 482 Cr.P.C. and quash the FIR ....
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....Respondent No.2 through Respondent No.3 maliciously chose to resort to criminal proceedings and the police also registered the FIR entering into the arena of a civil dispute which is beyond their domain and jurisdiction. In my view, the disputes being essentially of a civil nature and being sub-judice before the DRTs, it would be an abuse of the process of law if the criminal proceedings continue against the Petitioners. 46. In the instant case, the essential ingredients of Section 405 IPC are not made out. Petitioners are merely acting as officials of the Bank in their official capacity. Bank has retained the title deeds in exercise of its right of lien, which it is entitled to do in law. Even going by the contents of the FIR. it is not the case of Respondent No.2 that Petitioners have misappropriated the title deeds in any manner. The subject property has not been sold by the Bank and title deeds are simply retained. Petitioners are not accused of selling away the property and taking away the sale proceeds or putting the property to any personal use or for any personal gain. Therefore, applying the principles laid down by the Supreme Court, there is no misappropriation of the p....
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....lished jurisprudence, including the protection afforded under Section 197 CrPC, which requires sanction before prosecuting public officials for acts done in the discharge of official duties. 74. The Hon'ble Supreme Court, in Union of India v. P. Venugopal (2008) 5 SCC 1, held that remarks against public servants must not be made lightly, especially when they affect public confidence in the system. 75. We note that the aforesaid Judgment of Hon'ble Delhi High Court was brought to the notice of NCLT by the Appellants, but the same has not been considered by the AA while passing their impugned order. By continuing to draw adverse inferences based on a criminal proceeding that had been judicially annulled, the AA committed a grave legal error. 76. We further note that the Respondent, L.R. Builders Pvt. Ltd., has admitted before the Hon'ble Delhi High Court that it has no grievance against the State Bank of India or its officers. This statement was made during the hearing of LPA No. 236/2024, and was recorded in the Court's order dated 10.12.2024. The aforesaid order of Hon'ble Court is extracted below : ANNEXURE - 5 IN THE HIGH COURT OF DELHI AT NEW DELHI + LPA 236/2024, CM Nos....