2024 (4) TMI 477 - AT - Insolvency and Bankruptcy

Admission of petition under Section 7 of the IBC - initiation of CIRP of Corporate Debtor in its capacity as Corporate Guarantor - Allegations of forged mortgage deeds / contract of guarantee - Whether the instant Section 7 application filed by Shri Rahul Dodeja on behalf of Respondent No.1 suffered from any infirmity as it is the case of the Appellant that this instant petition has been filed by a person on the basis of Power of Attorney without any supporting Board Resolution of the Financial Creditor and hence not maintainable? - Doctrine of indoor management - HELD THAT - Noticing Rule 4(1), an application against the Corporate Debtor under Section 7 of the IBC requires to be made in Form 1 accompanied with relevant documents and records. In the present case, looking at the Form 1 of Section 7 in Part - I filled in by the Financial Creditor, it has been clearly stated at Sl. No.5 that A copy of the Power of Attorney dated July 8, 2019 authorising Mr. Rahul Dodeja to act on the behalf of the petitioner is annexed herewith and marked as Exhibit 2 as is placed at page 90 of the Appeal Paper Book ( APB in short). On looking at the Power of Attorney, it is noticed that the same has been issued pursuant to Board Resolution of 12.03.2019 empowering Mr. Rahul Dodeja to file the Section 7 application as is seen at page 103 of the APB. It is found that Mr. Rahul Dodeja had been provided general authorisation by the Yes Bank by way of Power of Attorney pursuant to a Board Resolution to file necessary applications for commencement of legal proceedings not only against the Borrower but also against their Hypothecators/Mortgagors/Guarantors. Given this position, it is clear that Section 7 application was filed in the present case by a duly authorised person on behalf of the Financial Creditor and thus objection raised by the Appellant in this regard are misconceived and hence not sustainable. Doctrine of indoor management - Tenability of the Deeds of Guarantee in question in the context of the allegation levelled by the Appellant that they were products of fraud and fabrication - HELD THAT - This doctrine proceeds on the premise that third parties who enter into a contract with any company is protected against any irregularities in the internal procedure of the company. Persons transacting with companies are entitled to assume that internal company rules have been complied with even if they are not. In other words, the company's indoor affairs are to be treated as the company's outlook - In extending this doctrine to the facts of the present case, it is found that the Adjudicating Authority held that there was clearly no requirement for Yes Bank to look into the company's internal workings. The Yes Bank enjoyed the right to infer that the Board Resolution authorizing the signing of the Deeds of Guarantee was legitimately passed and that the Corporate Debtor was consequently bound by the Deed of Guarantee even if the internal requirements and procedures had not been complied with by the Corporate Debtor. Thus, in the given circumstances, when there is no cognisance which has been taken by any court of law, civil or criminal, of the Deeds of Guarantee being forged and fabricated, in all fairness, the Respondent No. 1 is fully protected in proceeding on the assumption that the signing and execution of the Guarantee Deeds has taken place in good faith and is therefore a valid and legal document - As regards the alleged handwriting expert s opinion which has been adverted attention to by the Appellant to establish forgery, the Adjudicating Authority in exercise of summary jurisdiction is not expected to scrutinise such opinions and rely upon the assessment contained therein and more so when the opinion has been disputed as not being an independent third-party opinion. There are no error on the part of the Adjudicating Authority to have desisted from entering into the realm of contractual disputes as it would tantamount to judicial overreach. Deed of Guarantee was required to be obtained before the disbursement of loan in terms of Section 127 of The Indian Contract Act,1872 or not - HELD THAT - From a plain reading of the Section 127, the word done has a clear and unambiguous meaning denoting an act that has ended. Hence, when the legislature has actually used the word done , which in its ordinary sense denotes any act that has been completed, it must be assumed that the intention of the legislature is to include anything done by the lender for the benefit of the borrower in the past to be valid consideration. Hence, the only plain and natural meaning that could be deciphered would be that any act that has been completed for the benefit of the borrower would constitute consideration. In case of a conflict between the section and its illustration, the latter must give way to the former. It can thus be positively concluded that an act done for the benefit of the principal debtor in the past would constitute a valid consideration for an agreement of guarantee with the surety. The contention of the Appellant that Section 127 of the Contract Act necessitated the disbursement of loan to precede the Deed of Guarantee also does not hold good in view of a catena of judgements passed by the various Hon ble High Courts wherein it has been held that the language of Section 127 was clear and unambiguous to also cover past transactions and past promises prior to giving a guarantee or surety - thus, it is not necessary that grant of loan to the principal debtor by the creditor must be necessarily contemporaneous with the execution of Guarantee Deeds and hence the legality and subsistence of the present Deeds of Guarantee cannot be questioned on this ground. These Mortgage Deeds purportedly created a charge against the property located in Kerala and since an exclusive charge had already been created in respect of the charged property in favour of IFCI Ltd, it could not have been charged to Yes Bank without permission of IFCI. It is also the case of the Appellant that they had disputed and objected to the creation of charge in respect of the mortgage property and had sent an email in this regard to MCA on 21.09.2019. It is therefore the case of the Appellant that reliance by the Adjudicating Authority on the mortgage deeds is erroneous - It is significant to note that these Deeds of Mortgage were executed in furtherance of the Deed of Guarantee. Moreover, the Deeds of Mortgage contained the signature and the common seal of the Appellant besides bearing the stamp of registering authority thereby authenticating its execution. Since, neither the charge nor the modification thereof was disputed by the Appellant either with the MCA or before any appropriate legal forum at an earlier stage and the mortgage deeds were executed in furtherance of the Deed of Guarantee and the notice for invocation of the Corporate Guarantee was issued, there are no reasons to disagree with the findings of the AA that the liability of Corporate Debtor cannot be done away even if their irregularity in the execution of the mortgage deed or creation of mortgage without NOC from existing mortgagee i.e. IFCI pointed out by the Corporate Debtor is believed . Whether in the facts of the present case, Section 7 petition could have been admitted against the Appellant in their capacity as Corporate Guarantor? - HELD THAT - It has been contended by the Respondent that there is no bar on the Financial Creditor to proceed against the principal borrowers and the Corporate Guarantor simultaneously. It is their case that the liability of a Corporate Guarantor is coextensive with the principal borrower and therefore the Financial Creditor is at liberty to require the performance by the Guarantor to discharge its liability and obligations - This issue has been squarely covered by the judgement of the Hon ble Supreme Court in Laxmi Pat Surana vs UOI 2021 (3) TMI 1179 - SUPREME COURT . In terms of the Laxmi Pat Surana judgment of the Hon ble Supreme Court, when the Corporate Debtor gives a guarantee in respect of a loan transaction, the right of the Financial Creditor to initiate action against the Corporate Guarantor gets triggered the moment the principal borrower commits a default. In other words, when default is committed by the principal borrower, the amount becomes due against both the principal borrower and the Corporate Guarantor and hence both become liable to pay the amount when the default is committed. Thus, the default by the principal borrower and the guarantor arises on the same date, unless, the terms of contract of guarantee provides that the liability of the guarantor would arise in terms of the Deed of Guarantee. In the present facts of the case, the Yes Bank had invoked the guarantee vide notice dated 26.08.2019 and 20.11.2019, therefore, the defaults had arisen on the issue of the demand notice as contemplated in the Deeds of Guarantee. The company petition under Section 7 which was filed against the principal borrowers has already been admitted by the Adjudicating Authority and presently undergoing CIRP. In the present case, notice has been duly served upon the Corporate Guarantor demanding payment and there being a clear default on the part of the Corporate Guarantor to clear the outstanding due, the Adjudicating Authority has rightly admitted the Corporate Debtor in its capacity as Corporate Guarantor into CIRP. The Adjudicating Authority has rightly admitted the Section 7 application for initiation of the CIRP process after coming to the correct conclusion that Respondent No.1 has successfully proved the financial debt and default on part of the Corporate Debtor as Corporate Guarantor. There are no reason to interfere in the impugned order passed by the Adjudicating Authority. Appeal dismissed.

Summary

Issues Involved:

1. Maintainability of Section 7 application filed by a person based on Power of Attorney without supporting Board Resolution.
2. Validity of Deeds of Guarantee alleged to be forged and fabricated.
3. Requirement of obtaining Deed of Guarantee before disbursement of loan u/s 127 of The Indian Contract Act, 1872.
4. Alleged forgery of Deeds of Mortgage.
5. Admissibility of Section 7 petition against the Corporate Guarantor.

Summary:

1. Maintainability of Section 7 application:
The Appellant contended that the Section 7 application filed by Mr. Rahul Dodeja on behalf of Respondent No. 1 was not maintainable as it was based on a Power of Attorney without a supporting Board Resolution. The Tribunal referred to Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and the judgment in Sameer Bansal vs Canara Bank & Ors, concluding that the Power of Attorney pursuant to a Board Resolution was sufficient authorization. Thus, the Section 7 application was held to be maintainable.

2. Validity of Deeds of Guarantee:
The Appellant argued that the Deeds of Guarantee were forged and fabricated, lacking proper Board Resolution authorization. The Tribunal noted the Board Resolution dated 26.03.2019 authorizing the execution of the Deeds of Guarantee and applied the Doctrine of Indoor Management, which protects third parties dealing with the company from internal procedural irregularities. The Tribunal found no conclusive evidence of forgery and held that the Deeds of Guarantee were valid.

3. Requirement of obtaining Deed of Guarantee before disbursement of loan:
The Appellant claimed that the Deed of Guarantee should have been obtained before the loan disbursement u/s 127 of The Indian Contract Act, 1872. The Tribunal referred to judicial precedents and concluded that past consideration is sufficient for a contract of guarantee to be valid. Therefore, the timing of the Deed of Guarantee did not invalidate it.

4. Alleged forgery of Deeds of Mortgage:
The Appellant alleged that the Deeds of Mortgage were forged and unauthorized. The Tribunal noted that the charges created by the Deeds of Mortgage were registered with MCA and not disputed by the Corporate Debtor. The Tribunal held that the liability of the Corporate Debtor could not be negated even if there were irregularities in the execution of the mortgage deeds.

5. Admissibility of Section 7 petition against the Corporate Guarantor:
The Tribunal referred to the judgment in Laxmi Pat Surana vs UOI, which established that the liability of a Corporate Guarantor is coextensive with that of the principal borrower. The Tribunal found that the Corporate Guarantor was liable upon the principal borrower's default and upheld the Adjudicating Authority's decision to admit the Corporate Debtor into CIRP.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's order to admit the Corporate Debtor into CIRP, finding no merit in the Appellant's contentions.