2019 (11) TMI 1679 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Guarantor/ Corporate Debtor failed to make repayment of its dues - recovery of entire alleged dues of the Principal borrower by way of sale of immovable and movable properties - time limitation - application complete or not as mandated under Section 7(3) of I B Code - HELD THAT - In the present application, South Indian Bank had granted credit facility amounting to ₹ 237 Crore in favour of the principal borrower and in pursuance of the sanction letter issued by the Bank, the Corporate Debtor herein, had executed various documents, including a guarantee agreement and letter confirming deposit of Title Deeds. Thereafter, the principal borrower defaulted in payment of the loan. The recovery proceedings under DRT was initiated by the financial creditor in Debt Recovery Tribunal II, Kerala Lakshadweep, for recovery of dues are well within the period of limitation. The notice of invocation of guarantee was issued by the Financial Creditor on 01.01.2016 to the Corporate Debtor. This application was considered under a question of Limitation as the application was placed before the Tribunal after 3 years on 10.04.2019. In the guarantee agreement, which boils down to whether the principal borrower has furnished any acknowledgement of debt or revival letter regarding his loan amount - the principal borrower has admitted his liability as well as default to the Financial Creditor in the Writ Petition filed by him in the Hon'ble High Court of Kerala. A Financial Creditor falls under section 5(7) can file an application for Initiating Corporate Insolvency Resolution Process against a Corporate Debtor before this Adjudicating Authority when the default has occurred. No doubt the debt claimed is a financial debt as defined under section 5(8) of I B Code - Financial Creditor also produced statement of accounts and computation statement to show that amount claimed in the application is due from the Corporate Debtor. The same can be considered as such other record or evidence of default under Section 7 (3) of I B Code as proof for the due amount. The existence of default is, therefore, stand proved by the Financial Creditor. The Financial Creditor succeeded in establishing that the application is complete in all respects - Petition admitted - moratorium declared.

Summary

Issues Involved:

1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Grounds of limitation.
3. Completeness of the application under Section 7(3) of the I&B Code.
4. Validity of the guarantee agreement and invocation.
5. Existence of default and evidence required.

Detailed Analysis:

1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The South Indian Bank Limited filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, against M/s. Atlas Gold Township Pvt. Ltd., treating it as a 'Corporate Guarantor/Corporate Debtor' to initiate the Corporate Insolvency Resolution Process (CIRP).

2. Grounds of Limitation:
The Corporate Debtor opposed the application, claiming it was barred by limitation. The Financial Creditor had invoked the guarantee on 01.01.2016, and the application was filed in April 2019, beyond the three-year limitation period prescribed under Article 137 of the Limitation Act. The Corporate Debtor relied on the Supreme Court judgment in Gauravindhbai Dave v. Asset Reconstruction Company India Ltd. to support their claim.

3. Completeness of the Application under Section 7(3) of the I&B Code:
The Corporate Debtor argued that the application was incomplete as it did not include any record of default from the information utility, as mandated by Section 7(3)(a) of the I&B Code. The Corporate Debtor contended that only records authenticated by the National E-Governance Service Limited (NeSL) were acceptable, and no alternative records/evidence were specified by the Insolvency and Bankruptcy Board of India (IBBI).

4. Validity of the Guarantee Agreement and Invocation:
The Corporate Debtor claimed that the guarantee agreement became void as the Bank had sold all securities without serving notice to the guarantor. The Financial Creditor, however, argued that the guarantee agreement was valid, and the invocation of the guarantee was proper. The Financial Creditor also pointed out that the principal borrower had acknowledged the debt in a writ petition filed before the Hon'ble High Court of Kerala, which should bind the guarantor.

5. Existence of Default and Evidence Required:
The Tribunal referred to the Supreme Court judgment in Innoventive Industries Ltd. v. ICICI Bank & Anr., which stated that the adjudicating authority only needs to see the records of the information utility or other evidence produced by the Financial Creditor to satisfy itself that a default has occurred. The Financial Creditor provided various documents, including the guarantee agreement, notice of invocation, and statements of accounts, to prove the existence of default. The Tribunal found these documents sufficient to establish the default.

Findings:

Limitation:
The Tribunal considered the writ petition filed by the principal borrower in August 2018, which acknowledged the debt, thereby extending the limitation period. The Tribunal also referred to clause 6 of the guarantee agreement, which stated that any acknowledgment of debt by the borrower would bind the guarantor. Thus, the application was deemed within the limitation period.

Completeness of Application:
The Tribunal held that the documents provided by the Financial Creditor, including statements of accounts and computation statements, were sufficient to prove the default. The Tribunal stated that the application was complete in all respects.

Existence of Default:
The Tribunal found that the Financial Creditor had successfully proved the existence of default through the provided documents. The Tribunal also noted that the Financial Creditor's claim was a financial debt as defined under Section 5(8) of the I&B Code, and the guarantee agreement entitled the Financial Creditor to claim the due amount from the guarantor.

Order:
The Tribunal admitted the application under Section 7 of the I&B Code, declaring a moratorium as per Section 14 of the I&B Code. The Tribunal appointed Shri Manivannan J. as the Interim Resolution Professional (IRP) and directed necessary public announcements as per Section 15 of the I&B Code. The Tribunal disposed of the application with no order as to costs.

Conclusion:
The Tribunal admitted the application for initiating CIRP against the Corporate Debtor, finding that the application was within the limitation period, complete in all respects, and that the Financial Creditor had successfully proved the existence of default.