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2022 (9) TMI 952 - AT - Insolvency and BankruptcyLiquidation of Corporate Debtor - Section 33 of IBC - financial creditor of Guarantor company - Circular Loan transactions or not - applicability of section 7 of IBC - insufficient stamping of letter of guarantee - HELD THAT - Charge Certificate dated 09.03.2018 issued by Registrar of Companies, Mumbai has been brought on record, which certifies creation of Charge dated 29.12.2017 between G.C. Property Private Limited (First Party) and IL FS Financial Services Limited (Second Party). Charge having been registered by the Corporate Debtor himself, the Corporate Debtor cannot escape from its liability for payment of loan as per its own act of creating mortgage by deposit of Title Deed and registration of Charge. It is further relevant to notice that in the Offer Letter dated 27.12.2017, as extracted above in Security Package , where Primary Security was Flat No.6 and it was noticed in the Offer Letter itself that the valuation of Flat is Rs.300 million, i.e., equivalent to the Financial Facility, which was to be extended to the Principal Borrower - the Corporate Debtor cannot escape from its liability from repayment of the loan sanctioned to the Principal Borrower on the ground that Letter of Guarantee was insufficiently stamped. Whether IL FS can be treated as Financial Creditor of the Guarantor Company or not - HELD THAT - The submission raised by learned Counsel for the Appellant has to be rejected in view of the law laid down by the Hon ble Supreme Court in Laxmi Pat Surana vs. Union Bank of India and Another 2021 (3) TMI 1179 - SUPREME COURT . The Hon ble Supreme Court has laid down in the above case where an Application was filed under Section 7 by Financial Creditor against a Corporate Person who had offered guarantee to the two loans of Principal Borrower - It was held in the case that we find no substance in the argument advanced before us that since the loan was offered to a proprietary firm (not a corporate person), action under Section 7 IBC cannot be initiated against the corporate person even though it had offered guarantee in respect of that transaction. Whereas, upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor). Hence, the first question stands answered against the appellant. Transactions which was entered with the Borrower and IL FS was Circular Loan Transactions or not - HELD THAT - The Corporate Debtor cannot be heard in contending that it has no liability of repayment for the financial facility, which was extended by the IL FS to the Principal Borrower. The mere fact that Principal Borrower has further granted loan to M/s Vadraj Cement Ltd. out of the money received from loan sanctioned by IL FS, cannot be a ground to come to the conclusion that Corporate Debtor has no liability towards payment of loan and no debt is due on Corporate Debtor. We thus do not find any substance in this submission. Section 7 Application has malafidely initiated for purpose other than resolution of the Corporate Debtor or not - HELD THAT - The Corporate Debtor gave security to secure the loan of Rs.30 crores granted by IL FS to Principal Borrower. Primary security as noted above was residential Flat of the Corporate Debtor and the same was mortgaged by depositing the Title Deed of Flat No.6 on 29.12.2017, with regard to which Charge was also registered. We do not find any malafide in initiation of Section 7 proceedings by the Financial Creditor. There is no denial to default committed in repayment of the loan. When default was committed in the repayment of the loan and debt became due on both Principal Borrower and Corporate Debtor, no error can be said to be committed by the Financial Creditor in filing Application under Section 7 against the Corporate Debtor. Liquidation order - HELD THAT - Section 33, sub-section (2) clearly empowers the CoC to take the decision to liquidate the Corporate Debtor, any time after its constitution under sub-section (1) of Section 21 and before the confirmation of the resolution plan. In the facts of the present case, no infirmity is found in the Resolution passed by the CoC for liquidating the Corporate Debtor. The Adjudicating Authority after perusing the material on record and after perusing the 3rd CoC Meeting has allowed the Application filed by the Resolution Professional under Section 33. No infirmity is found in the order of the Adjudicating Authority directing for liquidation of the Corporate Debtor. There is no merit in any of the Appeals, both the Appeals are dismissed.
Issues Involved:
1. Validity of the Letter of Guarantee. 2. Status of IL&FS as a Financial Creditor. 3. Nature of the Loan Transaction. 4. Malafide Intent in Initiating Section 7 Application. 5. Decision to Liquidate the Corporate Debtor. Detailed Analysis: 1. Validity of the Letter of Guarantee: The appellant argued that the Letter of Guarantee dated 29.12.2017 was insufficiently stamped and thus should not be considered valid evidence. The respondent countered that the Letter of Guarantee included an E-stamp certificate, indicating that requisite stamp duty was paid. However, the tribunal proceeded on the premise that the Letter of Guarantee was not sufficiently stamped. Despite this, the tribunal held that other materials on record, such as the Corporate Debtor's actions in creating a mortgage and registering a charge, sufficiently proved the existence of debt and default. The tribunal referenced the case of *Koncentric Investment vs. Standard Chartered Bank London*, which allowed reliance on other evidence even if the facility document was not stamped. 2. Status of IL&FS as a Financial Creditor: The appellant contended that IL&FS did not qualify as a Financial Creditor under Section 5(7) read with Sections 5(8) and 5(5A) of the Insolvency and Bankruptcy Code (IBC), arguing that the Corporate Debtor was not a 'Corporate Person' since the borrower was an individual. The tribunal rejected this argument, citing the Supreme Court's decision in *Laxmi Pat Surana vs. Union Bank of India and Another*, which clarified that a financial creditor could initiate proceedings under Section 7 of the IBC against a corporate guarantor even if the principal borrower was not a corporate person. 3. Nature of the Loan Transaction: The appellant claimed that the loan transaction was a Circular Loan Transaction, as the borrower transferred the loan amount to M/s Vadraj Cement Ltd. on the same day. The tribunal dismissed this argument, noting that the disbursement of the loan to the principal borrower and the mortgage of the property by the Corporate Debtor were not in dispute. The tribunal emphasized that the Corporate Debtor could not evade liability for repayment based on the borrower's subsequent actions. 4. Malafide Intent in Initiating Section 7 Application: The appellant alleged that the Section 7 Application was initiated with malafide intent, solely to liquidate the Corporate Debtor's residential property. The tribunal found no merit in this claim, noting that the Corporate Debtor had provided security for the loan and that there was no denial of default. The tribunal reiterated that the initiation of Section 7 proceedings was legitimate under the circumstances, as established by the Supreme Court in *Laxmi Pat Surana*. 5. Decision to Liquidate the Corporate Debtor: The tribunal reviewed the Committee of Creditors (CoC) resolutions, which decided to liquidate the Corporate Debtor due to its lack of cash flows, office infrastructure, and records. The CoC's decision was made under Section 33(2) of the IBC, which allows for liquidation before the confirmation of a resolution plan. The tribunal found no infirmity in the CoC's resolution or the Adjudicating Authority's order directing liquidation. Conclusion: The tribunal dismissed both appeals, upholding the orders dated 11.03.2022 and 06.07.2022 passed by the Adjudicating Authority. The tribunal found no merit in the appellant's arguments and confirmed the decision to liquidate the Corporate Debtor.
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