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2023 (4) TMI 266 - AT - Insolvency and BankruptcyInitiation of CIRP - Corporate Debtor failed to make repayment of its dues - Personal Guarantor - existence of debt and dispute or not - whether the applications filed by the Appellant under Section 95 of the I B Code against the Personal Guarantors,Respondents was maintainable or not maintainable? - HELD THAT - The I B Code is founded on the premise that delay in the insolvency process shall diminish the value of the Corporate Debtor, hence, it should be done with fast speed to maximize the value and to protect the value of the Corporate Debtor. After noticing the above objective of the I B Code, if the submission of learned counsel for the Respondent is accepted, that after commencement of the insolvency process if the value of Corporate Debtor reduced down, the whole process will go out of the jurisdiction of the Adjudicating Authority, the said submission runs contrary to the whole object and purpose of the I B Code - The devaluation of assets of a Corporate Debtor by passing time is well accepted phenomena. The I B Code, thus, provide for strict timeline to resolve insolvency with speed. To accept the submission that Corporate Debtor who is in red and further deteriorate by passing of time be taken out of insolvency process is to completely act against the statutory scheme. Since the asset size of JFIL became less than Rs.500 Crore as on 31.03.2021, the Adjudicating Authority shall lose jurisdiction to proceed further and this Tribunal shall also have no jurisdiction to proceed in the matter, cannot be accepted. Jurisdiction will be there with the Adjudicating Authority, as per Notification dated 18.11.2019, which has to exercise on the date when application can be filed against the Financial Service Provider for insolvency. As a corollary, an application under section 95 can be filed against the Personal Guarantor only when on the same date insolvency can be commenced against the Financial Service Provider. On the date when application was filed under Section 95 by the Financial Creditor against the Personal Guarantor an application could have filed against the Financial Service Provider on the basis of last Balance Sheet which had asset size of more than Rs.500, the application filed by the Financial Creditor against the Personal Guarantor was fully maintainable - the Adjudicating Authority has committed error in allowing the applications filed by the Personal Guarantors and dismissing the Company Petitions. Appeal allowed.
Issues Involved:
1. Maintainability of the application under Section 95 of the Insolvency and Bankruptcy Code (I&B Code) against Personal Guarantors. 2. Definition and applicability of "Corporate Person" and "Financial Service Provider" under the I&B Code. 3. Jurisdiction of the Adjudicating Authority based on the asset size of the Financial Service Provider. 4. Impact of changes in asset size on the jurisdiction of the Adjudicating Authority. 5. Requirement of pending insolvency proceedings against the Principal Borrower for filing an application against Personal Guarantors. Detailed Analysis: 1. Maintainability of the Application under Section 95 of the I&B Code Against Personal Guarantors: The Appellant filed three Company Petitions under Section 95 of the I&B Code against Personal Guarantors. The Adjudicating Authority dismissed these petitions, stating that the principal borrower, Jumbo Finvest (India) Ltd. (JFIL), was not a "Corporate Person" under the I&B Code. The Tribunal concluded that JFIL, being a Financial Service Provider with an asset size below Rs.500 Crores, did not qualify as a Corporate Debtor, making the applications against Personal Guarantors non-maintainable. 2. Definition and Applicability of "Corporate Person" and "Financial Service Provider" under the I&B Code: The I&B Code defines "Corporate Person" under Section 3(7) and excludes Financial Service Providers. Section 227 of the I&B Code, however, allows the Central Government to notify Financial Service Providers for insolvency proceedings. The Notification dated 18.11.2019 specifies that only Financial Service Providers with an asset size of Rs.500 Crores or more can be subjected to insolvency proceedings. 3. Jurisdiction of the Adjudicating Authority Based on the Asset Size of the Financial Service Provider: The Adjudicating Authority relied on the Balance Sheet of JFIL as of 31.03.2020, which showed an asset size of Rs.487 Crores, and concluded that JFIL did not meet the threshold for insolvency proceedings under the Notification dated 18.11.2019. The Tribunal, however, found that the Adjudicating Authority erred by considering only loan receivables and not the total assets, which exceeded Rs.600 Crores, thus making JFIL eligible for insolvency proceedings. 4. Impact of Changes in Asset Size on the Jurisdiction of the Adjudicating Authority: The Respondent argued that the Adjudicating Authority lost jurisdiction as the asset size of JFIL fell below Rs.500 Crores in the subsequent Balance Sheet as of 31.03.2021. The Tribunal rejected this argument, stating that jurisdiction must be determined based on the asset size at the time of filing the application. The Tribunal emphasized that the purpose of the I&B Code is to resolve insolvency swiftly to prevent asset devaluation, and a reduction in asset size during proceedings should not affect jurisdiction. 5. Requirement of Pending Insolvency Proceedings Against the Principal Borrower for Filing an Application Against Personal Guarantors: The Adjudicating Authority had previously overruled the objection that no insolvency proceedings were pending against the Principal Borrower. The Tribunal upheld this view, citing its earlier judgment in "State Bank of India vs. Mahendra Kumar Jajodia," which clarified that applications under Section 95 can proceed independently of pending insolvency proceedings against the Corporate Debtor. Conclusion: The Tribunal concluded that the applications under Section 95 against the Personal Guarantors were maintainable, as JFIL's asset size at the time of filing met the threshold under the Notification dated 18.11.2019. The Tribunal set aside the Adjudicating Authority's order and revived the Company Petitions for further proceedings in accordance with the law.
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