INITIATION OF INSOLVENCY RESOLUTION PROCESS AGAINST A CO-BORROWER UNDER SECTION 95(1) OF IBC CODE

[Mr. M. GOVINDARAJAN]

In M/S. INTEC CAPITAL LIMITED VERSUS MS. PARUL UPADHYAY AND MR. MANOJ KUMAR ANAND - 2024 (7) TMI 15 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI, the applicant is a non-banking financial company engaged inter alia in the business of providing financial facility. M/s IAP Company Private Limited, the Corporate Debtor, is an entity engaged in the business of software development. Ms. Parul Upadhyay, the Respondent, is the Director of Corporate Debtor.  She has signed the loan documents in the capacity of the Personal Guarantor/ Co-borrower in the financial facility availed by the Corporate Debtor from Financial Creditor.

The Corporate Debtor approached the Intec Capital Limited for getting loan facilities from it.  The applicant agreed to sanction and disburse loan/financial facility amounting to Rs. 85,00,000/- vide loan agreement dated 31.08.2016.  As per the Loan agreement ML-4336/LNGGN03316-170006891 dated 31.08.2016, the reference to the Borrower in the loan agreement includes the Co-Borrower/Guarantor.  the Corporate Debtor was required to repay the said loan in equal monthly instalments of Rs. 2,82,3233/- at 12% PA.

The corporate debtor did not repay the loan amount as agreed to in the agreement and the cheques issued by the corporate debtor to the applicant were dishonored.  The Respondent stood in the capacity of Personal Guarantor/ Co-borrower in Loan Agreement and various other transitional documents executed, including 'Demand Promissory Note' which states that 'jointly and severally and unconditionally promise to pay INTEC CAPITAL LIMITED at New Delhi or at such other place as INTEC CAPITAL LIMITED may designate or Order, the sum of Rs.85, 00, 000/-  with interest thereon from the date of agreement  onwards at a rate of Interest of 12% per annum or such other rate as may be determined by INTEC CAPITAL LIMITED from time to time compounding and payable with daily/ monthly/ Quarterly rests, for value received by the Corporate Debtor.

The Applicant recalled the Loan facility vide Loan Recall cum Arbitration Notice dated 09.01.2018 but neither the Corporate Debtor nor the Respondent has cleared the outstanding dues standing due till date.  The applicant had also preferred arbitration proceedings against the Corporate Debtor. The Arbitrator passed an Arbitral Award dated 28.12.2018.

The applicant also initiated corporate insolvency resolution process against the corporate debtor and the same was commenced from 28.02.2018.   The applicant also initiated criminal proceedings against the corporate debtor for dishonor of cheques.  Since no payment has been received the applicant, initiated insolvency resolution process under Section 95(1) of the Code against the respondent.  The Adjudicating Authority admitted the application.  The Adjudicating Authority appointed a Resolution Professional and directed him to submit a report as to the admissibility of the application by the Adjudicating Authority.  For this purpose, the Resolution Professional approached the respondent to furnish some information.  The Respondent sent an email dated 01.03.2022 to the Resolution Professional raising various objections with respect to the initiation of insolvency proceedings against him including the maintainability of the Petition on the ground that he is not personal guarantor.

The Resolution Professional submitted his report to the Adjudicating Authority.  The Resolution Professional recommended acceptance of application in the report as per Sec 99 (7) of the Code.  The Resolution Professional found that Debtor is not eligible for yet to be notified fresh start provisions under section 80 to 93 as per Chapter Il Part Ill of the Code.  The Resolution Professional recorded reasons for recommendation of acceptance of the application after examination in terms of sec 99 (7)

in compliance of Sec 99 (9) of the Code.

The respondent raised the following objections before the Adjudicating Authority on the report of the Resolution Professional-

• The Respondent to be co-borrower and not personal guarantor to the Company while entering into the Loan Agreement.
• The Sanction Letter refers to the Respondent as Co-Applicant for the Credit Facility and no where she has been referred to as personal guarantor of the Company.
• The Respondent has not signed any guarantee deed or other contract of guarantee or agreed to act as surety.
• Her liability, if any, is joint and several in his capacity as co-borrower which is also clear from clause 2.13 of the Loan Agreement and thus, he does not fall under the category of a 'personal guarantor' as envisaged under the Code.
• The arbitral award has been obtained by the Petitioner by fraud. The Respondent was provided no notice of the alleged arbitration proceedings, and he was kept in dark till the time final arbitral award was passed.
• The said arbitral award has been passed in violation of moratorium imposed on the Company under section 14 of the Code pursuant to initiation of corporate insolvency resolution process on 28.02.2018.
• the Resolution Professional has filed his Report without taking into consideration the submissions made by the Respondent in response to queries raised by Resolution Professional for preparation of the Report.
• The Resolution Professional has intentionally ignored the contentions of the Respondent with sole motive of initiating insolvency proceedings against the Respondent.
• The Respondent is a co-borrower for the same loan facility which was availed by the Company from the Petitioner. After the initiation of corporate insolvency resolution process of the Company, the Petitioner had submitted a claim of Rs. 98,04,050/- to the resolution professional of the Company. The resolution professional of the Company had admitted a claim of Rs. 51,19,260/- out of total claim of Rs.98,04,050/-.
• the Resolution Professioanl has ignored the fact that the Petitioner has recovered substantial amount of money pursuant to the liquidation proceedings of the Company. As per information available with the Respondent, more than Rs. 20,00,000/- have been recovered by the Petitioner. The Resolution Professional has also conveniently overlooked this aspect in its Report.

The ‘adjudicating Authority heard the submissions of the parties and also perused the records placed before it.  The Adjudicating Authority perused the loan agreement etc., and found that Ms. Parul Upadhyay, the Respondent/Personal Guarantor is not the Personal Guarantor.  Therefore, the Adjudicating Authority did not accept the submissions of the Resolution Professional as well as the Applicant that Ms. Parul Upadhyay, is a Personal Guarantor and the proceedings under Section 95 can be initiated against her.  The Respondent has not executed any guarantee deed or any other contract of guarantee or agreed to act as a surety. In the loan agreement, the Respondent has been shown as a Co-borrower.  The Respondent is not a Personal Guarantor in the present case and therefore, the present application under Section 95(1) of the Code is not maintainable and dismissed the application.

The Adjudicating Authority further observed that the applicant-initiated arbitration proceedings and also criminal proceedings under Section 138 of the Negotiable Instruments Act and therefore indulged in forum shopping for getting remedy.  The applicant has not approached the Adjudicating Authority with clean hands.

The Adjudicating Authority, therefore, rejected the application by the applicant for initiating insolvency resolution process against the co-borrower as personal guarantor.  The interim moratorium announced by the Adjudicating Authority also came to an end.