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2022 (10) TMI 66 - AT - Insolvency and BankruptcySeeking direction to respondent No.1 to abstain from proceeding with the public auction of properties belonging to the appellant on 11.11.2021 under Section 60 (5) of IBC read with Rule 11 of the NCLT Rules, 2016 in view of the liquidation order - forum shopping - Whether Section 60 (5) of IBC permits 3rd party to file an application and redress the grievance in the present appeal? - HELD THAT - Section 60(5)(c) of I.B.C permits all the Tribunals to decide any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person. The language employed in Clause (c) of Section 60(5) made it abundantly clear that the jurisdiction is conferred on the Tribunals or adjudicating authority only to decide the question of fact or law arising out or in relation to the insolvency resolution or liquidation proceedings. But, the proceedings under SARFAESI Act are independent against the personal guarantor of corporate debtor and they are purely recovery proceedings. Therefore, it is difficult to conclude that the dispute raised by the appellant would fall within the ambit of Section 60(5)(c) of I.B.C. The adjudicating authority rightly held that the application under Section 60(5) is not maintainable and even after re-appreciating the law laid down by the Courts and upon consideration of argument, there are no ground found to interfere with the finding recorded by the adjudicating authority about maintainability of the application under Section 60(5) of I.B.C. Thus, there are no ground, warranting interference with the finding recorded by the adjudicating authority as to the maintainability of the application under Section 60(5) of I.B.C. Accordingly, the finding recorded by the adjudicating authority is hereby confirmed, holding this point in favour of the respondents and against the appellant. Whether the Moratorium imposed under the provisions of IBC during liquidation process is a bar to proceed against the personal guarantor under the SARFAESI Act to recover the debt due by the Corporate Debtor? - HELD THAT - Both the provisions under Section 14 and Section 33(5) that the proceedings against corporate debtor alone are to be interdicted. There is subtle distinction between Section 14 and Section 33(5) - It is clear from Sub-section (3) of Section 14 that the Moratorium imposed under Section 14 will have no application to enforce the liability against a surety in a contract of guarantee to a corporate debtor. The exemption contained under Sub-section (3) is squarely applicable to the present facts of the case. However, Section 33(5) of I.B.C restricts filing of suit or other legal proceeding by or against the corporate debtor . But, the rider attached to it permits the liquidator to institute a suit or other legal proceeding on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. Thus, it restricts only filing of suits or other proceedings, but did not impose any restriction on the pending proceedings against corporate debtor. Moratorium under Section 14 or restriction under Section 33(5) of I.B.C is not a bar to proceed against this appellant herein under SARFAESI Act for recovery of debt based on mortgage created in favour of 1st Respondent executing agreement of guarantee. The imposition of Moratorium either in corporate insolvency process or liquidation process interdicts only the proceedings against corporate debtor, but not against third party like the appellant herein who is a personal guarantor of a corporate debtor. Therefore, the finding recorded by the adjudicating authority cannot be interfered by this Tribunal, while exercising jurisdiction under Section 61 of I.B.C. Accordingly, the point is answered against the appellant and in favour of the respondents. Whether respondent No.2 is under obligation to include the personal guarantor as a secured creditor in terms of Section 36 (4) of IBC? - Whether the provisions of IBC overrides the provisions of Indian Contract Act, more particularly, Section 140 of Contract Act? If not, whether the appellant is entitled to include himself as secured creditor in the list of creditors prepared under Section 36 of IBC by respondent No.2 herein so as to recover the amount he paid to the corporate debtor due to non-payment of debt due to respondent No.1 by the corporate debtor? - HELD THAT - The appellant being a Personal Guarantor discharged part of the loan payable by the Corporate Debtor, he is entitled to recover the amount under Section 140 of the Indian Contract Act, as if he is a creditor, but not a Secured Creditor as defined under Section 3(30) of the I.B.C, since no security interest was created in favour of the creditor - No doubt, when the assets of the corporate debtor is sold, he may not have any chance of recovery of amount proceeding against the Corporate Debtor , but, there are different modes of recovery of the debt due by the Corporate Debtor under the general law. Therefore, the appellant who stepped into the shoes of creditor in terms of Section 140 of the Indian Contract Act, is entitled to recover the debt irrespective of sale of assets of corporate debtor in liquidation process in any of the recognized modes. Therefore, he cannot be included in the list of secured creditors, as no security interest was created in favour of the guarantor and he would not fall within the definition of Secured Debtor as defined under Section 3(31) of I.B.C consequently, cannot be included in the list of secured creditors in the liquidation process, so as to claim share. There are no hesitation to hold that the provisions of IBC will prevail over the provision of Indian Contract Act, thereby surety may take appropriate steps to claim as creditor to recover the amount he discharged to the Creditor under the agreement of guarantee of Section 5(8) of IBC, but not as secured creditor, before the liquidator if the 2nd Respondent did not finalise the list of Creditor, subject to permissibility under Section 38, Chapter III of IBC and limitation. Accordingly, the point is held against the Appellant and in favour of Respondents. The Appeal fails as it is devoid of any merit and liable to be dismissed - Appeal dismissed.
Issues Involved:
1. Maintainability of the application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC). 2. Whether the moratorium imposed during the liquidation process bars proceedings against a personal guarantor under the SARFAESI Act. 3. Obligation of the liquidator to include the personal guarantor as a secured creditor. 4. Whether the provisions of IBC override the provisions of the Indian Contract Act. Issue-wise Analysis: 1. Maintainability of the Application under Section 60(5) of IBC: The Tribunal held that the application under Section 60(5) of IBC was not maintainable. The appellant, a personal guarantor, filed the application claiming various reliefs. The Tribunal referred to the Supreme Court's decision in "Gujarat Urja Vikas Nigam Limited Vs. Amit Gupta," which clarified that the jurisdiction of NCLT under Section 60(5)(c) of the IBC cannot be invoked in matters unrelated to the insolvency of the corporate debtor. The proceedings under SARFAESI Act against the personal guarantor were deemed independent and not related to the insolvency of the corporate debtor. Therefore, the Tribunal concluded that the application under Section 60(5) was not maintainable. 2. Moratorium Imposed During Liquidation Process: The Tribunal addressed the appellant's contention that the moratorium imposed under Section 14 and Section 33(5) of IBC bars proceedings against the personal guarantor. The Tribunal noted that Section 14(3) explicitly excludes sureties in a contract of guarantee from the moratorium. The Tribunal also referred to the Delhi High Court's decision in "Kiran Gupta Vs. State Bank of India," which held that the moratorium does not prevent creditors from proceeding against guarantors. The Tribunal concluded that the moratorium under IBC does not bar proceedings against the personal guarantor under the SARFAESI Act. 3. Obligation to Include Personal Guarantor as a Secured Creditor: The Tribunal examined whether the personal guarantor could be included as a secured creditor in the list of creditors prepared under Section 38 of IBC. The Tribunal noted that the appellant did not raise this specific contention before the adjudicating authority. The Tribunal referred to Sections 128 and 140 of the Indian Contract Act, which state that a surety's liability is co-extensive with that of the principal debtor. However, the Tribunal emphasized that the appellant could not be considered a secured creditor under IBC as no security interest was created in his favor. Therefore, the appellant could not be included in the list of secured creditors. 4. Provisions of IBC vs. Indian Contract Act: The Tribunal discussed the interplay between IBC and the Indian Contract Act. It referred to the Supreme Court's decision in "Lalit Kumar Jain vs. Union of India," which held that the approval of a resolution plan does not discharge a personal guarantor's liabilities under the contract of guarantee. The Tribunal concluded that the provisions of IBC override the provisions of the Indian Contract Act. Consequently, the appellant could not claim to be a secured creditor under IBC despite having rights under Section 140 of the Indian Contract Act. Summary of Findings: 1. The application under Section 60(5) of IBC is not maintainable as the proceedings under SARFAESI Act against the personal guarantor are independent and unrelated to the insolvency of the corporate debtor. 2. The moratorium imposed under IBC does not bar proceedings against the personal guarantor under the SARFAESI Act. 3. The appellant, as a personal guarantor, cannot be included as a secured creditor in the list of creditors under IBC as no security interest was created in his favor. 4. The provisions of IBC override the provisions of the Indian Contract Act, and the appellant cannot claim to be a secured creditor under IBC. Conclusion: The Tribunal dismissed the appeal, holding that the appellant is not entitled to any relief under Section 60(5) of IBC, the moratorium does not bar proceedings against the guarantor under SARFAESI Act, and the appellant cannot be included as a secured creditor under IBC. The provisions of IBC override the provisions of the Indian Contract Act.
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