TaxTMI 
TaxTMI 
2025 (7) TMI 417
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....ing (India) Private Limited. By the said impugned order, the Adjudicating Authority admitted the application filed by the Jammu & Kashmir Bank Ltd./Financial Creditor under Section 7 of the Code and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s Ace Engineering (India) Private Limited. 2. The Appellant, Mr. Puneet Resutra, who is the erstwhile Director and Shareholder of the said Corporate Debtor, has contended that the said order is legally unsustainable, as the financial debt, which formed the basis of the Section 7 application, stood fully discharged through a one-time settlement with the guarantors in the year 2017-2018. Despite the Appellant's assertion that the loan account stood settled and the property mortgaged for securing the loan had already been released by the Bank, the Adjudicating Authority failed to consider these facts and proceeded to admit the Section 7 petition, thereby giving rise to the present appeal. Brief facts of the Case : 3. Brief facts of the case are given below : (i) The Corporate Debtor, M/s Ace Engineering (India) Private Limited, had availed two separate credit facilities from the R....
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....ime Settlement (OTS) offer of Rs.10,00,00,000 (Ten Crores) and issued a formal letter addressed to the guarantors, recording the terms of settlement and absolving them from any further liability, subject to payment of the said amount. It was further recorded that the property mortgaged as security would be released upon completion of payment. (viii) The Respondent Bank issued a possession notice on 18.08.2017 under Section 13(4) of the SARFAESI Act, purporting to take symbolic possession of the mortgaged properties, including those which were already agreed to be released under the OTS. (ix) The Corporate Debtor on 23.11.2017 filed an application under Section 17-A of the SARFAESI Act before the Learned Court of 1st Additional District Judge, Jammu, which passed an order restraining the Respondent Bank from selling or auctioning the mortgaged property of the Corporate Debtor, noting the pending civil dispute and the claim of full settlement. (x) On 05.01.2018, the entire OTS amount of Rs.10 Crores was paid by the guarantors, and the Respondent Bank, which accepted full and final settlement of the Guarantors. The Bank also released the mortgaged property o....
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....rores and a Secured Overdraft facility of Rs.4 Crores, had already been fully and finally settled much before the filing of the Section 7 application. The Appellant states that the Bank had received a total of more than Rs.11.30 Crores under the One-Time Settlement (OTS), yet this was not disclosed to the Hon'ble Tribunal. 5. Ld. Counsel for the Appellant also submitted that both loan accounts had been declared Non-Performing Assets (NPAs) and were secured by personal guarantees executed by Shri Siddharth Bhatia and Shri Munish Bhatia, who had also mortgaged their immovable property in favour of the Bank. On 20.04.2016, an Agreement to Sell and Power of Attorney was executed, through which the Corporate Debtor transferred its land measuring 175 Kanals at Village Ghaink to the said guarantors. This was done as part of an internal arrangement, whereby the guarantors agreed to take full responsibility for repaying the Bank's dues. The terms of the agreement clearly show that the loan repayment obligation was undertaken entirely by the guarantors. This arrangement was made with full knowledge of the Bank. 6. On 10.04.2017, the Bank issued a notice under Section 13(2) of the SARFA....
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.... 22.03.2013 makes it evident that the guarantors were not only liable but also directly involved in the utilisation of the loan. Therefore, the Bank could not have settled the loan with just the guarantors while leaving the borrower out, especially when all three parties were part of the security and mortgage structure. 11. It was the submission of the Ld. Counsel that the instrument of mortgage also shows that the mortgage arrangement was tripartite in nature. The mortgaged property was pledged to secure repayment of the entire loan- not merely the guarantors' part. The property could not have been released unless the entire loan account was fully settled. This issue too is currently pending in the civil suit filed by the Bank. 12. Ld. Counsel for the Appellant further submitted that the Corporate Debtor is a fully operational and running company. It is carrying out several important government projects, including construction of a military hospital in Kargil and Army accommodation in various districts of Ladakh. Around seven government contracts worth Rs.38 Crores are presently ongoing. The Corporate Debtor is fully capable of discharging its liabilities and is awaiting cle....
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....(NPA) on 31.03.2016, in compliance with RBI guidelines pertaining to Income Recognition and Asset Classification. The date of NPA, i.e., 31.03.2016, therefore stands as the legally recognized "date of default" for purposes of Section 7 of the IBC. 17. The Respondent further submitted that the law on this point is now settled, and the classification of an account as NPA constitutes default under the IBC. He placed reliance on the judgment of the Hon'ble NCLAT in Jagdish Prasad Sarada v. Allahabad Bank [Company Appeal (AT)(Insolvency) No. 183 of 2020], which held that the limitation for filing a Section 7 application begins from the date of default, i.e., the NPA date. Similar view has been taken by the Hon'ble Tribunal in Rajendra Kumar Tekriwal v. Bank of Baroda and Milind Kashiram Jadhav v. State Bank of India [Company Appeal (AT)(Insolvency) No. 1589 of 2023], wherein it was held that the NPA date is decisive even if partial payments were made thereafter. 18. It is further submitted that the application under Section 7 was filed by the Bank on 07.01.2019, well within three years from the date of NPA. Additionally, the Corporate Debtor, in its balance sheet for FY 2017-2018,....
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....s)." Thus, the Corporate Debtor remained liable, and this letter was incorrectly interpreted by the Appellant as implying full and final settlement. 24. The Respondent further submitted that the property mortgaged by the Corporate Debtor situated at SIDCO Industrial Complex, Samba, was never released by the Bank. In fact, that property was sold by the Bank under the SARFAESI Act for recovery of dues. The only property released was that of the guarantors. 25. The Respondent further stated that the alleged Agreement to Sell dated 20.04.2016 executed between the Corporate Debtor and the guarantors was entirely an inter se transaction to which the Bank was not a party and had no knowledge or consent. The Bank was not privy to the said agreement and is therefore not bound by its terms. Any arrangement between the Corporate Debtor and its directors/guarantors cannot bind the Financial Creditor. 26. The Respondent submitted that the Appellant's reliance on an OTS proposal dated 25.10.2019 is misplaced. In fact, it further demonstrates that the Corporate Debtor itself admitted that its dues were never fully settled and continued to make attempts to arrive at a fresh settlement wit....
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....partial recovery from the guarantors. The Corporate Debtor committed a continuing default and no legal bar existed for the initiation of insolvency proceedings. Therefore, the present appeal filed by the Appellant is frivolous and misconceived. The impugned order dated 06.03.2023 was passed after full consideration of material on record and is in consonance with the IBC. The Respondent sought the dismissal of appeal with costs. Analysis and Findings 32. We have heard learned counsel for both parties and carefully perused the documents placed on record. On a comprehensive examination of the matter, the following three consolidated issues arise for our consideration: i. Whether a legally enforceable financial debt was due and payable by the Corporate Debtor on the date of filing of the Section 7 application, in light of the One-Time Settlement (OTS) executed with the guarantors? ii. Whether the application filed by the Bank under Section 7 of the IBC was within the limitation period? iii. Whether the Adjudicating Authority rightly exercised its discretion under Section 7(5)(a) of the IBC in admitting the application? We now examine these issues in ....
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....e letter contained the condition that upon full payment of the settled amount, the guarantors would be absolved of their personal liability. Thereafter, the guarantors remitted a total sum of Rs.11,30,00,000/- (i.e. Rs.1.30 Crores more than the settled amount) to the Bank by January 2018. On 05.01.2018, the Bank issued a formal letter releasing the mortgaged property of the guarantors. 39. The Appellant argues that this sequence of events constitutes full and final satisfaction of the debt and that the Bank was legally barred from initiating insolvency proceedings thereafter. The OTS approval letter dated 14.06.2017 is extracted below : 40. We have also examined the Bank's release letter dated 05.01.2018, which forms the core of this controversy. The contents of this letter are of critical importance. The same is extracted below : 41. From the above two letters, the following comes out very clearly: i. The OTS dated 15.06.2017 was only between the Bank and the guarantors; ii. The Corporate Debtor was not a party to the settlement and was never released from its obligations; iii. The Bank expressly retained its right to recover the balance amount ....
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....ity and never treated the debt as fully discharged. 47. This is relevant because under the law, an admission of liability, whether express or implied, can support the inference that debt continues to exist. The voluntary conduct of submitting multiple OTS proposals undermines the case that the loan stood extinguished. 48. We have also considered the relevant legal principles. Under Section 128 of the Indian Contract Act, 1872, the liability of the guarantor is co- extensive with that of the principal debtor unless otherwise agreed. However, the co-extensive nature does not imply automatic release of one upon settlement with the other. 49. In 'State Bank of India v. Indexport Registered, [(1992) 3 SCC 159], the Hon'ble Supreme Court held the decree-holder bank can execute the decree against the guarantor without proceeding against the principal borrower. The guarantor's liability is coextensive with that of the principal debtor. 50. Further, in 'Laxmi Pat Surana v. Union Bank of India, [(2021) 8 SCC 481], it was reaffirmed that the financial creditor may proceed against either the guarantor or the principal borrower unless there is an express waiver of rights. 51.....
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....Bank v. C. Shivakumar Reddy', [(2021) 10 SCC 330] has clarified that such acknowledgment extends the limitation. 58. The Appellant has not placed on record any document showing that the Bank issued a No Dues Certificate or closed the loan account. On the contrary, the record reflects that the Corporate Debtor was still seeking restructuring and settlement as late as 2022. 59. In view of the above findings, we hold that the application under Section of the Code was filed within limitation and it complied with all procedural requirements. Issue 3 : Whether the Adjudicating Authority rightly exercised its discretion under Section 7(5)(a) of the IBC in admitting the application? 60. Section 7(5)(a) of the IBC provides that the Adjudicating Authority "may" admit an application if default is established. The issue is whether the Adjudicating Authority should have refused admission in view of the ongoing government contracts and claimed viability of the Corporate Debtor. 61. The Appellant relies on Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (supra) to argue that the NCLT was not bound to admit the application mechanically and should have considered that the company wa....
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[email protected] W www.jkbank.net Corporate Headquarters M A Road, Srinagar 190001 The Jammu 2 Kashmir Bank Limited J&K Bank IMPAIRED ASSET PORTFOLIO MANAGEMENT DEPARTMENT Ref: JKB/IAPMD/2017-200 June 14, 2017 2 e Vice President, IAPM, Zonal Office Jammu Central I. Reg :- Release of property in case of NPA account of M/s Ace Engineering Infratech P ltd BU Trikuta Nagar Jammu. Sir, This has reference to your note dated 25.05.2017 regarding the captioned account. In this context as recommended & approved by the competent authority, sanction is hereby accorded to accept an amount of Rs 1000.00 lacs towards release of one of the mortgaged property besides absolving Mr. Sidharth Bhatia and Mr. Munish Bhatia as mortgagors/guarantors in the account. However the approval shall be on the following terms & conditions :- That the mortgaged property being residential house over land measuring 65' x 45' bearing no. 292/A situated at Gandhi Nagar, Jammu standing jointly in the name of Mr. Sidharth Bhatia and Mr. Munish Bhatia, is released only after full payment of Rs 1000.00 lacs is received by the BU. That BU shall ensure that the said property is no....