AI Drafter 
TaxTMI 
TaxTMI 
2025 (11) TMI 1346
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....heir respective capacities as Personal Guarantors as well as Directors of M/s. JBM Homes Private Limited, the Corporate Debtor. 2. The precise facts pleaded in the instant Company Appeals by the Appellants, challenging the impugned order dated 21.03.2025 (a common date in all the appeals), are as follows: Company Petition C.P. (IB)/262/2021 is with respect to the Personal Guarantor, Mr. B. Nirmal Kumar. Another Company Petition, C.P. (IB)/260/2021, relates to Mr. B. Kamalesh Kumar, the Personal Guarantor/Director of the Corporate Debtor, who is a party in the proceedings of C.P. (IB)/260/2021. Yet another Company Petition, C.P. (IB)/259/2021, relates to Mr. B. Anand Kumar, also a Personal Guarantor/Director of the Corporate Debtor; and finally, Company Petition C.P. (IB)/261/2021 relates to Ms. N. Rekha, who likewise holds the status of Personal Guarantor/Director of the Corporate Debtor. The impugned orders have been passed in the above company petitions against the respective personal guarantors/appellants herein. 3. Before we proceed to deal with the factual aspects in each of these Company Appeals, arising from the order passed on 21.03.2025, which resulted in initiation ....
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.... application before the Ld. NCLT, invoking Section 95 of the I&B Code, 2016, against the Personal Guarantors. The Appellants contended that, the Respondents have claimed a total amount of Rs. 98,64,37,800/-, alleged to be due under Section 95(4)(a) of the I&B Code, 2016 and that there are no details in the application as to how the same was arrived at from the principal amount of Rs.18.40 crore. 7. The facts revealed from the records indicate that the amount extended by the Respondents in the form of OFCD fell due on 26.09.2018. It was further contended that, since the amount fell due on 26.09.2018 and the CD defaulted on repayment, the date of default is to be construed as 27.09.2018 onwards, as stated in the proceedings filed by Respondents 1 and 2 before the Ld. NCLT. 8. In the proceedings under Section 95 of the I&B Code, 2016, the Financial Creditors (Respondents 1 and 2) asserted that the records of default filed with the Information Utility confirmed the commission of default as of 27.09.2018. Respondent No. 1 is said to have issued a formal notice of default on 09.12.2019; however, the demand notice in consonance with Section 95(4)(b) was first issued on 01.03.2021. ....
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....board until June 2021, did not raise any issue regarding default until the event of issue of notice of default on 01.03.2021. Ultimately, the controversy now argued is whether there was a breach of the Subscription Agreement dated 23.03.2015, and whether a default occurred necessitating initiation of proceedings under Section 95 of the I&B Code, 2016. 11. Against this backdrop, proceedings were initiated under Section 95 of the I&B Code, 2016, before Ld. NCLT by Respondents 1 and 2. The Appellants were served with notice, and they entered an appearance; it is undisputed that, after appearing, the Appellants (Respondents in the Company Petitions) filed their counter-affidavits, to which rejoinders were filed by the Respondents. Thereafter, the matter was considered by the Ld. NCLT, culminating in the order dated 21.03.2025, which is impugned in these appeals. 12. Before dealing with the respective arguments raised by the Ld. Counsel for the Appellants on the propriety of initiating proceedings under Section 95 of the I&B Code, 2016, we note that, if Section 95 of the I&B Code, 2016 is read in its entirety, the notice issued under Section 95(4)(a) on 01.03.2021, based on a deta....
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....d and Twenty Eight) OCPS's would be automatically converted into equal number of Equity Shares of the Company and 1,84,262 (One Lakh Eighty Four Thousand Two Hundred and Sixty Two Only) OFCDs would be automatically converted into equal number of Equity Shares of the Company at par, so that upon such conversion, the Investor will hold 95.1% of the Equity Shares of the Company. It is however hereby agreed in the Company shall have a right to buy back the equity shares held by the Investor on conversion and provide an exit to the Investor by providing the exit valuation amount in terms of this Agreement." The Appellants argue that the manner of conversion in an event of default must be construed for purposes of justifying initiation of proceedings under Section 95 of the I&B Code, 2016. They submit that Clause 2.5 of the agreement dated 24.03.2018, dealing with conversion in the event of default, cannot be read in isolation and must be read with Clause 12.2 of the agreement dated 23.03.2015, of which Clause 2.5 forms a part. The relevant Clause 12.2 of the agreement dated 23.03.2015 is extracted below: "12.2 Conversion in the Event of Default: If an Event of Default oc....
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....e all necessary or incidental actions, including issuance of conversion share certificates to the Investors. 15. To substantiate the above, Ld. Counsel for the Appellants submits that decisions under Clause 12.1 of the agreement dated 23.03.2015 required satisfaction of Clause 16 (governing the constitution and composition of the Board). At this juncture, it is argued that conversion of OCPSs and OFCDs under Clause 12.1 could be undertaken only after approval of the Board/shareholders, with "Board" meaning the Board as referred to in Clause 16 of the agreement dated 23.03.2015; in the absence of such constitution, there could not have been any conversion that could be treated as the basis for holding default and for justifying initiation under Section 95 of the I&B Code, 2016. 16. We are of the view that the interpretation of Clause 12.1 must be read harmoniously with Clause 16 of the Share Subscription and Shareholders Agreement. If, as argued by Ld. Counsel for the Appellants, there was no validly constituted Board of Directors under Clause 16, the determination required under Clause 12.1 could not have been validly made. Even if that argument were accepted, the alleged wro....
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....ants fails. 18. The second limb of the Appellants' argument is that the notice issued in Form B under the I&B Code, expressing intention to initiate proceedings under Section 95 of the I&B Code, 2016, did not mention the date of default; therefore, the notice is bad. This contention can be answered in two ways. First, proceedings under Section 7 of the I&B Code, 2016, initiated by the Financial Creditor, culminated in the initiation of CIRP by order dated 07.09.2021. This order was not challenged by the Appellants and is undisputed. Under Section 7, the basic mandatory element is proof of default; only upon such satisfaction can CIRP be initiated. Therefore, the aspect of default now sought to be agitated on the ground that the Form B notice lacked a specific date cannot be accepted, as default has already been considered and attained finality in the Section 7 proceedings. Second, if the notice dated 01.03.2021 (Annexure M, Volume III of the appeal records) is considered, Column IV sets out the date of default as 27.09.2018. Hence, it cannot be said that the notice lacked a default date. The records reveal that the date of default was settled and accepted by the Ld. NCLT i....
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....fault, service of notice, and status as Personal Guarantors of M/s. JBM Homes Private Limited need not be examined by this Appellate Tribunal at this stage, particularly because: (i) such issues were never raised before the Adjudicating Authority; and (ii) these are basic ingredients required to be satisfied in a Section 7 proceeding, which has already been decided against the Appellants by order dated 07.09.2021 and has attained finality. Accordingly, the twin aspects of default and service of notice are deemed to be within the Appellants' knowledge and cannot now be agitated in appeal. This is especially so because, although the liquidation order dated 12.09.2023 was appealed in CA (AT) (CH) (Ins) No. 446/2023 under Section 61 of the I&B Code, 2016, the appeal was later dismissed as withdrawn. 22. Reverting to the Appellants' contention regarding non-service of notice (based on Rule 3(g)), this controversy cannot be considered at this stage because, by the Appellants' own case after initiation under Section 95 of the I&B Code, 2016, there were settlement proposals from 30.09.2021 through 20.02.2023 (about seven attempts). This itself shows that there was a demand, a default, a....
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....erm Borrowings Particulars As at March 31, 2021 As at March 31, 2020 Secured Borrowings Reliance Home Finance Ltd Less: Current maturities of long term debt 4,54,39,739 (4,54,39,739) 4,24,59,965 (4,24,59,965) Note: Terms of repayment: Repayable in 24 Equal monthly Instalments starting from February 2019 along with interest rate 17.35% per annum. The amount mentioned as payable above, includes overdue charges for the FY 2020-21, but not overdue charges for the FY 2019-20, as these charges are disputed according to the management. The net payable amount (including Principal, Interest and other charges) is Rs. 6,10,06,825.59/- as per Statement provided by Reliance Home Finance Ltd. However based on negotiations and verbal agreement with Reliance Home Finance Ltd, the management is confident the revised payable amount is significantly lower than the amount mentioned in the current Loan Statement issued by Reliance Home Finance Ltd. Nature of Security: 1) Exclusive charge on developer's share of unsold and booked units in the project. 2) Exclusive charge on the scheduled receivables under the documents entere....
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.... The "final exit put option" amount shall be an amount equal to: • 38% of the IRR on the investment amount. 6.2. The Optionally Fully Convertible Debentures are secured by mortgage of Immovable property developed and situated at Pammal, Anakaputur and Vandalur. The Debenture carries an interest rate of 22% and repayable in 3 years from 27 March 2015. LICHFL has, for each of the year including for the year ended 31 March, 2019 waived the annual interest due on the outstanding value of debentures. subject to the conditions that the net returns as per clause 9 of the Debenture Agreement will not be affected by the such waiver and internal rate 30% of return will remain intact. Negotiations are ongoing for the waiver of interest for the year ended 31 March, 2021. LICHFL has initiated corporate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 and the same has been admitted by the NCLT vide Order No IBA/812/2020 dated September 7th, 2021 and Resolution Professional has been appointed." 24. Another important feature that would have a vital bearing, particularly as argued by the Ld. Counsel for the Appellant, is that no plea was ever taken by ....
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....ceedings against the Personal Guarantors/Respondents, who fall within the class of Corporate Debtors in view of the amendments to the I&B Code, 2016 discussed above. 27. The learned Tribunal, after considering the rival submissions, also examined the issue of limitation and accordingly addressed it in Para 12.5 of the Impugned Judgment. However, we make it clear that during the hearing of this Company Appeal, the learned counsel for the Appellant expressly waived the right to address the Appellate Tribunal on the issue of limitation, which had been considered by the Ld. Adjudicating Authority in Para 12.5. 28. The learned Tribunal rightly observed that, in light of Section 128 of the Contract Act, since default stood established in view of the report submitted by the Resolution Professional under Section 99 of the I&B Code, 2016, and since issuance and service of notice were not disputed, the liability under Section 128 of the Contract Act, arising from the agreement, is co- extensive with that of the principal debtor. Hence, the initiation of proceedings under Section 95 of the I&B Code, 2016 was correctly held to be within the ambit of the provisions of the I&B Code and the....