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2021 (2) TMI 1196 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Corporate Guarantor - Principal Borrower is not a Corporate Debtor or Corporate Person - initiation of CIRP against two Corporate Guarantors simultaneously for the same set of debt and default - Pledge is a Bailment of goods for security for payment or performance of a promise - HELD THAT - Once the CIRP against the Premier Limited is initiated, CIRP against this Corporate Debtor in the capacity of Borrower/Pledgor who defaulted in repayment of debt due to the Petitioner. Infact, it can be said that the Corporate Debtor has accepted the additional liability of being a Borrower and a Pledgor. The tenure of Loan cum Pledge Agreement dated 04.05.2016 was extended by a period of 18 months up to 04.05.2018 through an addendum dated 06.10.2016. Under the Loan Agreement, the Corporate Debtor being the Co-borrower had pledged 53,01,000 shares of Corporate Debtor in favour of the Petitioner. In view of default of not servicing the loan/pledge Agreement by Premier Ltd. who is already under CIRP vide admission order dated 29.01.2021 and no recoveries were possible under the said pledge document, the debt and default are established and the ingredients of Section 7 of the Code are thus fulfilled. The definition of Pledge under Section 172 of the Indian Contract Act, 1872 states that Pledge is a Bailment of goods for security for payment or performance of a promise. The principles of promise of payment are akin to the principles of contract of Surety under Section 126 of the Contract Act, 1872. The facts of the present case, the Corporate Debtor as borrower No.1 and Pledgor. The entire Loan cum Pledge Agreement executed in favor of the Petitioner confirms the liability of borrower(s) is co-extensive/ joint and several as entailed in the terms conditions of payment/repayment, and even where the events of default is triggered under the contract - It is an undisputed fact that the default is proved and liability is established and that an order of admission is passed against the Borrower (Premier Limited) for the same set of loan. This Bench, on perusal of the documents filed by the Financial Creditor, is of the view that the Premier Limited and the Corporate Debtor defaulted in repaying the loan availed. In the light of facts and circumstances, the existence of debt and default is reasonably established by the Petitioner as a major constituent for admission of a Petition under Section 7 of the Code. Therefore, the Petition under sub-section (2) of Section 7 is taken as complete, accordingly this Bench hereby admits this Petition. Petition admitted - moratorium declared.
Issues Involved:
1. Whether the Corporate Debtor is liable for the financial debt claimed by the Petitioner. 2. Whether the Corporate Debtor's pledge of shares constitutes a financial debt under the Insolvency and Bankruptcy Code (IBC). 3. Whether the invocation of the pledged shares reduces the outstanding debt. 4. Whether the Corporate Insolvency Resolution Process (CIRP) can be initiated against the Corporate Debtor. Issue-Wise Detailed Analysis: 1. Liability of the Corporate Debtor for the Financial Debt: The Petitioner, a Non-Banking Financial Company, extended loans to Premier Limited and the Corporate Debtor under multiple Loan cum Pledge Agreements. The Corporate Debtor was a co-borrower and pledged shares to secure the loans. The Petitioner claimed that the Corporate Debtor defaulted in repaying ?8,35,25,398/-, including interest. The Corporate Debtor argued that it was not liable to pay the debt as the amounts were disbursed to Premier Limited and not to it. However, the Tribunal found that the Corporate Debtor, as a co-borrower/pledgee, had defaulted in repaying the loan, making it liable for the debt. 2. Pledge of Shares as Financial Debt: The Corporate Debtor contended that pledging shares does not constitute a financial debt under Sections 5(7) and 5(8) of the IBC. The Tribunal disagreed, stating that the Corporate Debtor's liability as a co-borrower/pledgor is co-extensive with the principal borrower under Section 128 of the Indian Contract Act, 1872. The Tribunal referred to the Hon'ble NCLAT's judgment in SBI vs. Athena Energy Ventures Pvt. Ltd., which held that CIRP can proceed against both the principal borrower and the guarantor. 3. Invocation of Pledged Shares and Reduction of Debt: The Corporate Debtor argued that the debt stood reduced upon the invocation of the pledged shares and that the Petitioner wrongfully chose not to sell the shares, claiming there were no buyers. The Tribunal noted that the Corporate Debtor's liability remains, and the invocation of the pledge does not absolve it from repaying the debt. The Tribunal emphasized that the liability is co-extensive and joint, and the default in repayment is established. 4. Initiation of CIRP Against the Corporate Debtor: The Tribunal found that the Petitioner had reasonably established the existence of debt and default, fulfilling the requirements of Section 7 of the IBC. The Tribunal admitted the Petition, initiating the CIRP against the Corporate Debtor and prohibiting certain actions against it during the moratorium period. The Tribunal appointed an Interim Resolution Professional to carry out the functions under the IBC. Conclusion: The Tribunal concluded that the Corporate Debtor, as a co-borrower/pledgor, defaulted in repaying the loan, making it liable for the debt. The pledge of shares constituted a financial debt, and the invocation of the pledge did not reduce the outstanding debt. Consequently, the Tribunal admitted the Petition and initiated the CIRP against the Corporate Debtor.
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