2017 (11) TMI 705 - Tri - Insolvency and Bankruptcy

Corporate insolvency process - whether the Axis Bank Ltd.-applicant is entitled to make a claim by invoking the corporate guarantee after the date of commencement of the insolvency process - Held that - A claim would mean a right to payment whether reduced to any judgment etc. It also includes right to remedy for breach of contract under any law for the time being in force. The Corporate Debtor has been defined to mean a corporate person, who owes a debt to any person and creditor has been defined to whom a debt is owed and includes all types of creditors, like a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. The emphasis appears to be on the expression payment and the debt, claim and the debt which is due from any person and includes financial debt and operational debt. Going by the aforesaid provisions, debt has not become due from the Corporate Debtor on the insolvency commencement date, i.e. 27.06.2017. It became due only when the corporate guarantee was invoked by the Axis Bank Ltd.-the Corporate Debtor-applicant on 21.07.2017. Therefore, we are unable to persuade ourselves to accept the submissions made by the applicant-Axis Bank Ltd. A careful perusal of Regulation 12 read with Regulation 13 would show that the Resolution Professional has to verify every claim as on the insolvency commencement date and maintain a list of creditors containing names of all such creditors alongwith the amount claimed. Therefore, the applicant- Axis Bank Ltd. would not qualify to the consideration of its claim as it has become due and payable after the insolvency commencement date. The provisions of Regulations 12 and 13 would not come to the rescue of the applicant-Axis Bank Ltd. An ancillary submission is that there was no intention to conceal the claim made in the CIRP initiated against the Educomp Solutions Ltd.-principal borrower would also not require any detailed consideration as we are not proceeding to decide the application on the aforesaid issue. An ancillary argument is that in any case there is no provision in the Code declaring the insolvency commencement date as the date to determine the claims of the parties. A perusal of Section 22(3) of the SIC Act would reveal that it is not different in sum and substance than the provision of Section 14 of the Code. In our view, Section 14 would clearly cover the invocation of guarantee after the insolvency commencement date. There would be moratorium prohibiting any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property. It appears to us that invocation of corporate guarantee against the Corporate Debtor-respondent would result in enforcing of security interest and it would thus be in violation of the moratorium provision of Section 14(l)(c) of the Code, Therefore, we do not find any substance in the submission.

Issues Involved:
1. Rejection of Axis Bank's claim by the Resolution Professional.
2. Invocation of corporate guarantee after the commencement of insolvency process.
3. Verification of claims as per the Insolvency and Bankruptcy Code, 2016.
4. Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.
5. Suppression of material facts by Axis Bank.
6. Joint and several liability under Section 128 of the Indian Contract Act, 1872.
7. Claims against principal borrower and corporate guarantor simultaneously.
8. Validity of claims post-insolvency commencement date.
9. Regulations 12 and 13 of the IBBI Regulations.

Detailed Analysis:

1. Rejection of Axis Bank's Claim by the Resolution Professional:
The application by Axis Bank Limited was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking to set aside the Resolution Professional's decisions dated 20.07.2017 and 06.09.2017, which rejected Axis Bank's claim. The claim was based on a corporate guarantee provided by the Corporate Debtor in favor of Educomp Solutions Ltd. The Resolution Professional rejected the claim stating that the corporate guarantee had not been invoked, making the liability contingent.

2. Invocation of Corporate Guarantee After the Commencement of Insolvency Process:
Axis Bank invoked the corporate guarantee on 21.07.2017, after the insolvency commencement date of 27.06.2017. The Tribunal noted that the corporate guarantee must be invoked before the insolvency commencement date to be considered a valid claim. Since the invocation occurred post-commencement, the claim could not be verified by the Resolution Professional.

3. Verification of Claims as per the Insolvency and Bankruptcy Code, 2016:
Regulations 12 and 13 of the IBBI Regulations require claims to be submitted and verified as on the insolvency commencement date. The Resolution Professional is obligated to verify claims within seven days from the last date of receipt of claims and maintain a list of creditors. Axis Bank's claim, being invoked after the commencement date, could not be verified as it was not reflected in the Books of Accounts as of 27.06.2017.

4. Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016:
The moratorium imposed under Section 14 prohibits any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor. The Tribunal held that the invocation of the corporate guarantee by Axis Bank would amount to enforcing a security interest, which is prohibited during the moratorium period.

5. Suppression of Material Facts by Axis Bank:
The Resolution Professional argued that Axis Bank suppressed material facts by not disclosing its claim in the insolvency resolution process of the principal borrower, Educomp Solutions Ltd. The Tribunal noted that this non-disclosure had a substantial bearing on the adjudication of the present application.

6. Joint and Several Liability under Section 128 of the Indian Contract Act, 1872:
Axis Bank argued that the liability of the guarantor is joint and several, allowing it to invoke the guarantee against either the principal borrower or the Corporate Debtor. The Tribunal acknowledged this legal principle but emphasized that the debt must be crystallized and due on the insolvency commencement date, which was not the case here.

7. Claims Against Principal Borrower and Corporate Guarantor Simultaneously:
The Resolution Professional contended that Axis Bank could not claim the same debt simultaneously against the principal borrower and the corporate guarantor in two different CIRPs. Accepting such claims would lead to unjust enrichment and an anomalous situation. The Tribunal agreed, stating that Axis Bank should wait for the CIRP of the principal borrower to conclude before filing a claim against the guarantor.

8. Validity of Claims Post-Insolvency Commencement Date:
The Tribunal held that only claims existing as of the insolvency commencement date could be verified and admitted. Since Axis Bank's claim arose after 27.06.2017, it could not be considered a valid claim under the insolvency process.

9. Regulations 12 and 13 of the IBBI Regulations:
Axis Bank argued that Regulations 12 and 13 allowed for the submission of claims even after the stipulated date, provided it was before the approval of the resolution plan. The Tribunal clarified that these regulations require the Resolution Professional to verify claims as on the insolvency commencement date, and any claim arising thereafter could not be admitted.

Conclusion:
The Tribunal dismissed Axis Bank's application, stating that the claim could not be verified as it was invoked after the insolvency commencement date and was thus not due and payable on that date. The moratorium under Section 14 also prohibited the invocation of the corporate guarantee. The application was dismissed with no order as to costs.

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