2019 (1) TMI 331 - AT - Insolvency and Bankruptcy

Validity of admission order dated 11th May, 2018 - ex-parte order - the notice was spent by Speed Post, which was never received by the Appellant - application under Section 7 of the I&B Code - Corporate debtor and financial debtor - Held that - Clause (i) of sub-section (8) of Section 5 shows that any liability in respect of any guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) comes within the meaning of Financial Debt . The Corporate Debtor having given guarantee on behalf of the principal borrower for the items referred to in sub-clause (a), guarantor company will also come within the meaning of Corporate Debtor qua the Financial Creditor in whose favour the guarantee has been given. Service of notice of admission - Held that - Even if it is accepted that it was not served, we are not inclined to remit the case on such ground as it will be mere formality, as admittedly debt is payable by the Corporate Debtor and the Corporate Debtor defaulted to pay. It is not the case of the Appellant that if the notice would have been served before admission of the application under Section 7, the Corporate Debtor would have cleared the debt amount. No relief can be granted - appeal dismissed.

Issues:
1. Appeal against the order admitting application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Validity of the admission order due to alleged lack of 'substituted service'.
3. Interpretation of the definition of 'Financial Creditor' under Section 5(7) and 5(8) of the I&B Code.
4. Inclusion of 'Corporate Guarantor' under the definition of 'Financial Creditor'.
5. Invocation of guarantee under the SARFAESI Act, 2002.
6. Consideration of notice service in the context of debt default by the Corporate Debtor.

Analysis:
1. The appeal was filed against the order admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Appellant contended that the admission order was invalid due to alleged lack of 'substituted service' by the Financial Creditor, who sent the notice by Speed Post, not received by the Appellant. The Appellant claimed the order was passed ex parte, misleading the Adjudicating Authority.

2. The Appellant argued that only 'Personal Guarantors' could be subject to an application under Section 7, not 'Corporate Guarantors'. However, the Tribunal rejected this argument, citing the definition of 'Financial Creditor' under Section 5(7) and 5(8) of the I&B Code, which includes any person to whom a financial debt is owed, covering situations where a debt has been legally assigned or transferred.

3. The Tribunal emphasized that under Section 5(8)(i) of the I&B Code, any liability in respect of a 'guarantee' or 'indemnity' for financial debts falls within the definition of 'Financial Debt'. Therefore, a Corporate Debtor providing a guarantee for the principal borrower's debt also qualifies as a Corporate Debtor concerning the Financial Creditor to whom the guarantee was given.

4. The Appellant referenced a notice issued under the SARFAESI Act, 2002, indicating that the Financial Creditor had invoked the guarantee against the Corporate Debtor. The Tribunal noted this invocation and rejected the argument that the guarantor did not fall under the definition of the Corporate Debtor.

5. Regarding the service of the admission notice, the Tribunal acknowledged the possibility that it was not served but declined to remit the case on this ground. The Tribunal reasoned that even if the notice had been served before admission, the Corporate Debtor had defaulted on the debt payment, indicating that the outcome would likely remain the same.

6. Ultimately, the Tribunal dismissed the appeal, stating that no relief could be granted due to the lack of merit in the arguments presented. The decision was made considering the facts and findings presented, with no costs awarded in the case.

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