2021 (7) TMI 268 - AT - Insolvency and Bankruptcy

Seeking stay on admitted CIRP proceedings - proceedings against both principal borrower and Appellant initiated under SARFAESI Act - overriding effect of IBC - Respondent No. 1/Bank vehemently opposed grant of any interim relief including stay of formation of CoC as it will hamper the 'CIRP' - HELD THAT - The CIRP proceedings cannot be stayed at this stage - Let the matter be fixed 'For Admission (After Notice) on 15th July, 2021.

Summary

Issues Involved: Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 against the order admitting the application under Section 7 of the Code.

Detailed Analysis:

1. Admission under Section 7 of the Code: The case involves the admission under Section 7 of the Insolvency and Bankruptcy Code, 2016, due to an alleged due amount. The Respondent Bank issued a sanction letter to the principal borrower, and subsequent amendments were made to the credit facilities, leading to the execution of Guarantee Agreements between the Appellant and the Bank. The Bank classified the principal borrower's account as 'NPA,' recalled financial assistance, and invoked the Corporate Guarantee of the Appellant after the borrower defaulted.

2. Initiation of Proceedings: The Respondent Bank initiated proceedings against both the principal borrower and the Appellant under the SARFAESI Act, following which possession of properties was secured under the SARFAESI Act. The Bank also initiated the Corporate Insolvency Resolution Process against the corporate guarantor, the Appellant, without the Appellant's consent.

3. Interim Relief and Compliance Issues: The Appellant sought a stay on the formation of the Committee of Creditors (CoC) citing non-compliance with the Indian Contract Act, 1872, and the Limitation Act, 1963. The Respondent Bank opposed the grant of interim relief, emphasizing the importance of the CIRP process and the need for debt recovery. The Respondent highlighted that the liability of the surety is co-extensive with that of the principal debtor as per Section 128 of the Indian Contract Act, 1872.

4. Legal Proceedings and Claims: The Appellant engaged in negotiations with the Bank and approached the High Court seeking relief. The Respondent Bank argued that the Code allows for the withdrawal of applications at any stage, indicating a possible resolution through negotiation. The Respondent's Resolution Professional clarified receiving claims from multiple banks, including IDBI and Bank of Baroda, and provided a status report.

5. Decision and Directions: After considering the submissions, the Tribunal declined to stay the CIRP proceedings. The Respondent Bank was directed to file a Reply Affidavit, and the Resolution Professional was instructed to file a status report within specified timelines. The matter was scheduled for admission on a future date, allowing for further proceedings.

This detailed analysis outlines the key legal issues, procedural steps, arguments presented by both parties, and the Tribunal's decision, providing a comprehensive overview of the judgment.