TaxTMI 
TaxTMI 
2026 (2) TMI 611
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....d by State Bank of India (SBI) against Harish Kumar Mittal Personal Insolvency Resolution Process (PIRP) has been initiated against the Appellant under Section 100 of the Code. This Appeal under Section 61 of the Code challenges the order in the above mentioned Company Petition. 3. The Appellant is one of the ex-directors of Mercator Limited (Corporate Debtor). Respondent No. 1 is the State Bank of India, the Petitioner in CP 798 of 2021, one of the financial creditors of the Corporate Debtor. Respondent No. 2 is the Resolution Professional (RP) appointed by the Hon'ble NCLT vide the Impugned Order. CP No. 798 of 2021 was filed by Respondent No. 1 to initiate insolvency resolution process against the Appellant under Section 95 of the IBC on the basis of Deed of Guarantee dated March 25, 2013 (Guarantee Deed). 4. Appellant contends it filed Affidavit in Reply dated March 1, 2024 (Reply) to CP 798 of 2021 on the website of the Hon'ble National Company Law Tribunal on March 1, 2024. Further, the Advocates for the Appellant served a copy of the Reply upon the respective Advocates for Respondent No. 1 and the resolution professional appointed by the Hon'ble NCLT. 5. On October ....
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....uarantors for recovery of debt amounting to INR 236,19,05,443,21/- 14.12.2023 Hon'ble bench of NCLT Mumbai directed the Appellant to file its reply within three weeks which was not complied with by the Appellant. 05.02.2024 Hon'ble bench of NCLT Mumbai gave the Appellant the last chance to file its reply, however even then the reply was not filed by the Appellant. 01.03.2024 Reply was e-filed by the Appellant with a delay, and the same was not on record. 09.12.2024 Due to failure of the Appellant to bring its reply on record the Hon'ble bench of NCLT Mumbai proceeded to adjudicate upon the issue without the reply directing initiation of insolvency resolution process against the personal guarantor i.e., the Appellant herein. RELIEFS SOUGHT 8. The Appellant had prayed for the following relief(s): a) Set aside the Order dated December 9, 2024 passed by the Hon'ble National Company Law Tribunal, Mumbai (Bench IV) in Company Petition (IB) No. 798 of 2021; b) Direct that Company Petition (IB) No. 798 of 2021 be heard afresh by the Hon'ble National Company Law Tribunal, Mumbai after considering the Affidavit in Reply dated March ....
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....legally unsustainable. Thus, the failure of the Hon'ble NCLT to deal with the Appellant's submissions vitiates the Impugned Order. The Impugned Order is contrary to these settled principles, as it proceeds on an incorrect premise and fails to consider the Appellant's contentions altogether. Appellant relies on Kranti Associates (P) Ltd. v. Masood Ahmed Khan, (2010) 9 SCC 496 (Para 12-15) to canvass this argument. 9.2. Appellant further argues that the Impugned Order is unreasoned and contrary to settled principles requiring application of judicial mind under Section 100 of the IBC and violates the principles of natural justice. The Impugned Order is a non-speaking order that fails to deal with any of the detailed objections raised by the Appellant in the Reply as well as at the final hearing of the Company Petition. Issues of insufficient stamping of the Guarantee Deed, defects in the recall Notice dated October 31, 2019 and Demand Notice dated June 1, 2021 under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to the Corporate Debtors) Rules, 2019 by SBI, failure to furnish co....
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....e allegedly called upon the Corporate Debtor to pay an amount of [●], the demand on the Appellant was limited to an amount of Rs. 85,86,61,167.45 (Rupees Eighty Five Crores Eighty Six lakhs Sixty One Thousand One Hundred Sixty Seven and Forty Five Paise only). Thus, the debt payable by the Appellant was much less than the debt payable by the Corporate Debtor to SBI. However, the Company Petition filed by SBI against the Appellant proceeded on the basis that the entire debt claimed by SBI against the Corporate Debtor was payable by the Appellant under the alleged guarantee. The above inconsistency in the Recall Notice and the Company Petition goes to the very root of the debt which is alleged to be guaranteed and the contradiction in SBI's case in this regard cannot be glossed over as a mere issue of quantification. It is submitted that SBI has claimed guarantee over the debt which is in fact not even guaranteed by the Appellant. Thus, the Company Petition was liable to be dismissed. 9.4. Appellant contends that failure of SBI to provide NOC for Sale of M/T Nerissa creditor induced prejudice. It claims that Offshore Holding Company Pte. Ltd. (Offshore Holding), a subsid....
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.... issued the NOC permitting sale of the vessel on March 26, 2019. Appellant claims that solely due to the delayed grant of the NOC by SBI, Offshore Holding suffered a direct loss exceeding USD 3.3 million, being the difference between the contracted sale price and the reduced price ultimately realised. In addition, SBI levied penal interest at the rate of 17.5% p.a. on account of alleged delay in repayment, despite when delay was itself a direct consequence of SBI's refusal to issue the NOC in a timely manner. Appellant contends that this arbitrary and unjustified refusal by SBI to grant the NOC within time caused grave financial loss to the Corporate Debtor and its subsidiary and materially aggravated their financial distress. Appellant contends that it is a settled principle of law that a creditor cannot take advantage of a default which is caused or materially contributed to by its own acts or omissions. SBI, having assured issuance of the NOC and thereafter failed to honour such assurance, cannot be permitted to allege default or invoke insolvency proceedings based on consequences flowing directly from its own conduct. Appellant claims that in these circumstances, SBI is cle....
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....he Company Petition was admitted thereby commencing insolvency proceedings against the Appellant. Such a course of action has not only taken away the right of the Appellant to have these issues adjudicated but also foreclosed these issues against the Appellant. 9.7. Thus, the action of SBI in overcharging under the SBLC, withholding of NOCs for Prem Mala and Nerissa, delayed permissions, penal interest, and selective appropriation thereby caused massive financial loss, erosion of asset value, and ultimate business destruction of the Corporate Debtor. These facts unequivocally demonstrate that the alleged default was not independent or wilful, but was a direct consequence of SBI's sown mala fide, arbitrary, and malicious conduct. Appellant contends that in such circumstances, SBI cannot be permitted to invoke the Guarantee Deed or insolvency proceedings, having itself led to the event of default. 9.8. Appellant contends that R1-SBI has failed to produce complete statement of account. SBI has failed to place on record a complete and continuous statements of account from the date of inception of the facilities, as required under the IBC or the Rules thereunder. The Responden....
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....d vide Sanction and Revival Letters dated 02.04.2018 and 01.04.20219 and the Corporate Debtor acknowledged its debt and outstandings in respect of the account maintained by the Corporate Debtor with the Respondent. The Corporate Debtor failed to fulfil its obligations in relation to the aforementioned credit facilities and the account of the Corporate Debtor was classified as NPA on 23.04.2019. In furtherance, Respondent issued a Recall Notice dated 31.10.2019 for the amount payable by the Corporate Debtor however the same was of no avail and finally the Respondent issued a Demand Notice in Form-B, upon the personal guarantor i.e., the Appellant herein, however the Appellant failed to act upon it. Pursuant to the aforementioned Respondent filed a petition under Section 95(1), IBC 2016 titled as State Bank of India vs. Barish Kumar Mittal C.P. (IB) No. 798/MB/2021 against the Appellant for initiating insolvency resolution process for personal guarantor, for the recovery of debt amounting to INR 236,19,05,443,21/-. The Hon'ble bench of NCLT Mumbai directed the Appellant to file its reply, however the Appellant failed to do so during the course of hearing and due to this failure o....
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....e Personal Guarantor to bring the reply on record or to confirm/ensure that the reply was on record. Moreover, none of the orders passed by the Adjudicating Authority after 01.03.2024 records that the reply had been filed and was on record. The Appellant has annexed a copy of order dated 06.03.2024 and he contends that the counsels of the Appellant was present, however their appearance was not marked. The said contention of the Appellant appears to be dubious in nature, because, if the counsels of the Appellant were present, they could have made a submission about reply being filed, however the order records no such submission on that note and as such the presence of counsels of the Appellant on the said that remains questionable attributable to their failure to not appear when the Hon'ble Adjudicating Authority rightly recorded the presence of other counsels who were present. The contention of the Appellant that the counsel for the Appellant furnished the physical copy of the reply to the Hon'ble Adjudicating Authority for the convenience of the Tribunal and that the same was taken on record. However, the Appellant has failed to produce any documentary proof regarding tend....
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....lity of goods or service; or (c) the breach of a representation or warranty; xxx" It is pertinent to mention here that the commercial suit filed by the corporate debtor along with the Appellant herein pertains to seeking of alleged damages suffered by the corporate debtor which does not fall within the ambit of Clause 6 of Section 5 IBC, 2016. 17. R1 - SBI that this Hon'ble Tribunal while dealing with issue of pre- existing dispute in the case of Karan Goel v Pashupati Jewellers 2019 SCC OnLine NCLAT 934 has held as under: "7. From the aforesaid finding of the Hon'ble Supreme Court, it is clear that once the Adjudicating Authority is satisfied on the basis of records that the debt is payable and there is default, the Adjudicating Authority is required to admit the application. The Respondent - Mis Pashupati Jewellers having enclosed the copy of the 'Corporate Guarantee and Undertaking' Agreement dated 7th April, 2017 instituted on e-Stamp, issued by Government of National Capital Territory of Delhi, it was not open to the Adjudicating Authority to deliberate on the issue whether e-Stamp is a forged document or not. Merely because a suit has b....
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....roceedings, which is preexisting- i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 21. R1 - SBI that in view of the abovementioned settled position of law, the frivolous and baseless contention of the Appellant with regard to invalid deed of guarantee is not sustainable and as such cannot be accepted to be a determining factor for initiating the CIRP against him. 22. On the issue of the de....
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.... Company Petition. Issues of insufficient stamping of the Guarantee Deed, defects in the recall Notice dated October 31, 2019 and Demand Notice dated June 1, 2021 under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to the Corporate Debtors) Rules, 2019 by SBI, failure to furnish complete statements of account to the Appellant, and SBI's arbitrary conduct were specifically raised but wholly ignored by the Hon'ble NCLT. Appellant contends that these issues strike at the root of admissibility and enforceability of the creditor's claim. 25. On the other hand, Respondent claims that the appeal filed by the appellant is not maintainable under Section 61 IBC, 2016. The relevant portion of Section 61 is reproduced herein as under: "61. Appeals and Appellate Authority (1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal." R1-SBI contends that in view of the provisions of Se....
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....y. On the other hand, from the materials placed on record we observe that the reply was e-filed on 01.03.2024, but was never brought on record. Respondent claims it was not filed in accordance with the definition of the term 'filed' as defined under Rule 2(14), NCLT Rules, 2016 which is reproduced herein under: "(14) "filed'' means filed in the office of the Registry of the Tribunal" 28. Appellant contends that the reply was also tendered to the bench on 15.10.2024 and detail submissions were also made based on that. But the impugned order incorrectly records that the Appellant's (Respondents before Adjudicating Authority) had chosen not to file their reply and the Tribunal was constrained to adjudicate the petition apropos the materials on records. 29. Stoutly refuting, R1-SBI brings to our notice that affidavit in reply filed by the appellant was never brought on record. Vide order dated 05.02.2024, Appellant was granted two weeks' time to file reply. However, despite the said direction, the reply was e-filed only on 01.03.2024. Later on the matter was listed before the Adjudicating Authority nine times i.e.; on 06.03.2024, 12.04.2024, 01.05.202....
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....ply which has been placed on record and decide the issues involved in this Appeal. 32. We note that the affidavit in reply filed by the Appellant before the Adjudicating Authority is on record at pages 424 to 541 APB. We observe that this affidavit in reply contains almost similar defense as was that of the Corporate Debtor i.e. the principal borrower, opposing the CIRP, during the initiation of Section 7 petition. And the grounds raised in the appeal by the personal guarantor to the Corporate Debtor are also very similar ones, apart from adding new grounds of violation of principles of natural justice, insufficient stamping on guarantee deed and the non-submission of the complete financial statements and also defects in the recall Notice dated October 31, 2019 and Demand Notice dated June 1, 2021 under Rule 7(1) of the Code. 33. We find that even if the reply affidavit of the Appellant was to be considered by the Adjudicating Authority the same does not raise any ground which shows that debt and default do not exist. We find that the Appellant has contested the application filed before the Adjudicating Authority manly on the aspects of pre-existing dispute, the deed of Guara....
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....the Financial Creditor and all interests and such sums as may remain unpaid and outstanding under the facilities advanced by the Financial Creditor. Further, any variance to the terms of the facility or security by the Financial Creditor and the Corporate Debtor shall not release or discharge the Guarantor of his obligations under the Guarantee. d. The Corporate Debtor has, by virtue of various letters from 2013 to 2019, has confirmed and acknowledged its debt and outstanding in respect of the account maintained by the Corporate Debtor with the Financial Creditor. e. Additionally, upon failure on the part of the Corporate Debtor to repay the amounts due to the Financial Creditor, the account of the Corporate Debtor was classified as a non-performing asset and subsequently the Financial Creditor issued a recall notice dated October 31, 2019 to the Corporate Debtor and the guarantors, including the Guarantor, The Guarantor, being liable to repay the outstanding pursuant to the Guarantee Deed failed to repay the amounts owed to the Financial Creditor by the Guarantor. f. The Corporate Debtor has defaulted on 31.10.2019 and the Creditor Applicant had issued t....
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....bed Fee of Rs. 2000/-. n. That the said application filed by the Creditor satisfies the requirements prescribed under section 95 of the Code. The Creditor/ Applicant has given proper Demand Notice along with relevant evidence of default for non- payment of the debts within 14 days of the service of the Notice of Demand, therefore, the first requirement as set out under section 95(1) of the Code is satisfied." 35. Perusal of the report of the resolution professional shows that it clearly establishes the liability of the personal guarantor. Further the defense which has been taken by the personal guarantor is almost similar to that by the CD against the initiation of Section 7 petition, which briefly is that there are pre- existing disputes regarding the debts claimed by the State Bank of India and a Commercial Suit no. 315 of 2020 has been filed in the Bombay High Court seeking damages to the tune of Rs. 418.43 Crores against State Bank of India and therefore no amount is payable by him. We find the personal guarantor, while replying to the RP, had not raised the issues of the insufficient stamping of the guarantee deed, non-provision of complete accounts and also the gr....
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....r judicial precedents proceeded to provide the debtor a chance to be heard before arriving at a final decision. 38. We find that as per Section 100 of the Code strict timeline has been prescribed for the Adjudicating Authority to either admit or reject the application bases the report under Section 99 within 14 days. But in this case the matter lingered on for very long time as noted by us herein. The reply was only e-filed and never physically filed or never brought to the notice of the Adjudicating authority that it has been e-filed. In any case the personal guarantor was heard by the Adjudicating Authority and basis that only the order has been passed. The noting of the Adjudicating Authority in the impugned order to the extent that Appellant's reply has not been filed doesn't give any ground for the Appellant to claim that natural justice has been denied to him, particularly in the background that he was personally heard, all the grounds raised by him as personal guarantor are same as that of the Corporate Debtor and furthermore the same reply had been noted by us at Appellate stage and we don't find merit in that. We find these are dilatory tactics and should be discouraged....