2020 (3) TMI 1132 - AT - Insolvency and Bankruptcy

Maintainability of application - Appellant submits that the Deed of Guarantee for overall limit was executed by M/s. Genegrow Commercial Pvt. Ltd. on 05.10.2009 as Guarantor and that the account of the Corporate Debtor Gee Pee Infotech Pvt. Ltd. (Principal Borrower) was declared Non Performing Asset - scope of Claim and Default primarily committed by the Principal Borrower - section 7 of the I B Code - HELD THAT - It is not in dispute that the Corporate Debtor (Being Corporate Guarantor of the Principal Borrower Gee Pee Infotech Pvt. Ltd.) had executed the Guarantee Deed on 05.10.2011 in respect of overall Limit and sanctioned in favour of the Financial Creditor . Also that a supplementary Guarantee Deed was executed between Corporate Guarantor and the Financial Creditor - As per Section 145 of the Indian Contract Act, 1872 in every contract of Guarantee , there is an implied promise by the Principal Debtor to indemnify the Surety . This court pertinently points out that a Financial Debtor includes Debt owed to the Creditor by both the Principal and the Guarantor. Section 3(11) of I B Code refers to a sum that it is due from any person including Corporate Debtor . A mere failure of the Guarantor to pay the Financial Creditor when the principal sum is demanded will come within the purview of default u/s 3(12) of the Code. A Financial Creditor who has a Guarantee on the Debt due can commence proceedings u/s 7 of I B Code against the Guarantor for failure to repay the sum borrowed by the Principal Borrower. It is to be remembered that if the Contract of Guarantee itself mentions that the liability of a Guarantor will be independent and separate than that of Principal Debtor s liability, then an application against the Guarantor as per Section 7 is maintainable. The only rider will be that a Creditor is not permitted to do the same, sue the principal Debtor and claim in the Guarantor s Insolvency at the same time. The Learned Adjudicating Authority had admitted the application u/s 7 of the I B filed by the Principal Borrower on 02.08.2019 in CP(IB)No.353/KB/2018. Also, on 02.08.2019 itself, the Learned Adjudicating Authority had admitted an application filed u/s 7 of the I B Code filed by the Financial Creditor against the Corporate Debtor Gengrow Commercial Pvt. Ltd. being the Corporate Guarantor of the Principal Borrower viz. Gee Pee Infotech Pvt. Ltd. for the very same debt/claim it is impermissible. Viewed in that perspective, this Tribunal comes to a consequent conclusion that the Application u/s 7 of the I B Code filed by the 1st Respondent/Bank/ Financial Creditor against the Corporate Debtor Gengrow Commercial Pvt. Ltd. is not maintainable in law and the same is accordingly dismissed but without costs.

Summary

Issues Involved:
1. Validity of the Application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code) against the Corporate Guarantor.
2. Co-extensive liability of the Principal Borrower and the Corporate Guarantor.
3. Applicability of Limitation Act to the proceedings under I&B Code.
4. Relevance of RBI Circulars and Supreme Court judgments cited by the Corporate Debtor.

Issue-Wise Detailed Analysis:

1. Validity of the Application under Section 7 of the I&B Code against the Corporate Guarantor:

The Appellant, Ex-Director of M/s. Genegrow Commercial Pvt. Ltd., challenged the order of the National Company Law Tribunal (NCLT) Kolkata, which admitted the application filed by the Financial Creditor under Section 7 of the I&B Code against the Corporate Guarantor. The NCLT Kolkata had observed that the Financial Creditor rightly filed the petition under Section 7 against the Corporate Guarantor, who had executed an irrevocable and unconditional deed of guarantee ensuring the repayment of the loan facilities outstanding against the Principal Borrower, Gee Pee Infotech Pvt. Ltd.

2. Co-extensive liability of the Principal Borrower and the Corporate Guarantor:

The Appellant argued that the liability of the Principal Borrower and the Guarantor is co-extensive for the purpose of recovery, and the I&B proceedings are not recovery proceedings. The Financial Creditor countered that the liability of the Principal Debtor and Guarantor is co-extensive as per Section 128 of the Indian Contract Act, 1872. The Tribunal noted that a Financial Creditor can commence proceedings under Section 7 of the I&B Code against the Guarantor for failure to repay the sum borrowed by the Principal Borrower.

3. Applicability of Limitation Act to the proceedings under I&B Code:

The Appellant contended that the application under Section 7 of the I&B Code was barred by limitation, citing the Supreme Court's decision in B.K. Educational Services Private Limited vs. Parag Gupta and Associates, which held that Article 137 of the Limitation Act applies to applications filed under Sections 7 and 9 of the I&B Code. The Financial Creditor argued that the issue of limitation was not raised before the Adjudicating Authority and thus could not be raised before the Tribunal. The Tribunal did not delve into the aspect of limitation, as it found the application by the Financial Creditor not maintainable against the Appellant.

4. Relevance of RBI Circulars and Supreme Court judgments cited by the Corporate Debtor:

The Appellant cited the Supreme Court's decision in Dharam Sugars and Chemicals Limited vs. Union of India, arguing that the RBI Circular dated 12th February 2018 was declared non-est by the Supreme Court. The Adjudicating Authority found that the Circular and the cited judgment had no relevance to the present case. The Tribunal concurred with this view, noting that the facts of the case were distinguishable from those of Dharani Sugars and Chemicals Limited vs. Union of India.

Conclusion:

The Tribunal concluded that the application under Section 7 of the I&B Code filed by the Financial Creditor against the Corporate Debtor was not maintainable in law. Consequently, the order passed by the Adjudicating Authority, including the appointment of the Interim Resolution Professional and the declaration of the moratorium, was set aside. The Corporate Debtor was released from all the rigour of law and permitted to function independently. The Tribunal directed the Adjudicating Authority to close the proceedings and determine the fee of the Interim Resolution Professional, to be paid by the Financial Creditor.

Final Observations:

The Tribunal clarified that it had not examined the aspect of limitation since it found the application filed by the Financial Creditor not maintainable against the Appellant. The appeal was allowed without costs, and the Appellant was directed to file a certified copy of the impugned order of the Adjudicating Authority within a week.