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2022 (11) TMI 297 - HC - Insolvency and BankruptcyCIRP - scope of interim moratorium - application to co-guarantors - Seeking recovery from the defendants no.1 and 2, the ex-promoters of Bhushan Steel Limited - HELD THAT - It is clear that Section 179(1), which provides the jurisdiction for the DRT with respect to insolvency matters of individuals and firms, is subject to Section 60 of the IBC. Sub-section (1) of Section 60 of the IBC provides that in relation to insolvency resolution for corporate persons, including corporate debtors and personal guarantors, the Adjudicating Authority shall be the NCLT. Sub-section (2) of Section 60 provides that where the CIRP of a corporate debtor is pending before an NCLT, an application relating to the insolvency of a personal guarantor of such corporate debtor shall be filed before the same NCLT. Sub-section (3) of Section 60 further provides that the insolvency resolution process in respect of a personal guarantor pending in any Court or Tribunal, shall stand transferred to the adjudicating authority dealing with the insolvency resolution process of the corporate debtor. The NCLT would be the appropriate adjudicating authority in respect of insolvency proceedings initiated against the defendants in their capacity as personal guarantors for the corporate debtor, Bhushan Steel - the insolvency proceedings against the defendant no.2 under Section 95 of the IBC were initiated before the NCLT on 4thMarch, 2020, before filing of the present suits and in view thereof, the interim moratorium under Section 96 would be operable insofar as the defendant no.2 is concerned. In the present case, the application against the defendant no.1 has been filed under Section 95 of the IBC by State Bank of India on 28th May, 2022, as a creditor of the corporate debtor/borrower for whom the defendant no.1 stood as a guarantor. Therefore, the relevant date on which the interim moratorium under Section 96 would kick in would be 28th May, 2022. This is not a case where the insolvency application has been filed with a mala fide intention by a debtor/guarantor himself so as to take the benefit of the interim moratorium under Section 96 of the IBC. The language of Section 96(1) of the IBC cannot be stretched so as to include all co-guarantors within the ambit of the interim moratorium. The reference to all the debts in Section 96(1)(a) has to be in respect of all debts of a particular debtor. This is clear from the language used in Section 96(1)(b)(ii) to the effect that the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. Therefore, the effect of the interim moratorium is only in respect of the debts of a particular debtor. By no stretch of imagination can it be said to include other independent guarantors in respect of the same debt of a corporate debtor. Merely because an interim moratorium under Section 96 is operable in respect of one of the co-guarantors, the same would not apply to the other co-guarantor(s). The interim moratorium under Section 96 in respect of one of the guarantors would not ipso facto apply against a co-guarantor - the clear statutory mandate under Section 96 of the IBC, the proceedings in the present suit are stayed against both the defendants. Application disposed off.
Issues Involved:
1. Whether the present suits can proceed against the defendants in view of applications filed under Section 95 of the Insolvency and Bankruptcy Code (IBC) against both defendants. Issue-wise Detailed Analysis: 1. Insolvency Proceedings Against Defendant No.2: - Defendants' Argument: Insolvency proceedings were initiated against Defendant No.2 by L&T Finance Limited before the NCLT on 4th March 2020. Under Section 96 of the IBC, this triggers an interim moratorium, making the suits against Defendant No.2 non-maintainable. The NCLT is the appropriate forum for adjudicating personal insolvency of the defendants, supported by Section 179 read with Section 60 of the IBC and the Supreme Court judgment in Embassy Property Development Pvt. Ltd. v. State of Karnataka & Ors. - Plaintiffs' Argument: The adjudicating authority for personal insolvency matters is the Debt Recovery Tribunal (DRT) as per Sections 78 and 79 of the IBC. Since the CIRP for Bhushan Steel has concluded, the insolvency proceedings against the defendants should be filed before the DRT, not the NCLT. Additionally, Defendant No.2 had previously objected to the NCLT's jurisdiction, which should estop him from claiming otherwise now. - Court's Analysis: The court referenced Sections 60 and 179 of the IBC, the Supreme Court judgment in Embassy Property Development, and the NCLAT judgment in State Bank of India v. Mahendra Kumar Jajodia. It concluded that the NCLT is the appropriate adjudicating authority for insolvency proceedings against personal guarantors of corporate debtors, regardless of whether the CIRP of the corporate debtor is pending. 2. Insolvency Proceedings Against Defendant No.1: - Defendants' Argument: An insolvency application was filed against Defendant No.1 by State Bank of India on 28th May 2022, and registered on 3rd October 2022. The interim moratorium under Section 96 of the IBC should apply from the filing date, staying the suits. - Plaintiffs' Argument: The relevant date for the interim moratorium should be the date of registration, not filing. Since the judgment was reserved before the registration date, the suits should proceed. - Court's Analysis: The court referred to the NCLAT judgment in Dinesh Kumar Basia v. State Bank of India, which clarified that the filing date, not the registration date, triggers the interim moratorium. Thus, the interim moratorium for Defendant No.1 began on 28th May 2022. The court also noted that subsequent developments can be considered before pronouncing judgment, as per the Supreme Court judgment in State Bank of India and Others v. S.N. Goyal. 3. Effect of Interim Moratorium on Co-Guarantors: - Defendants' Argument: The interim moratorium for one co-guarantor should apply to the other, as the debt is common and inseparable. - Plaintiffs' Argument: The interim moratorium applies only to the debts of the individual against whom insolvency proceedings are initiated, not to co-guarantors. - Court's Analysis: The court held that the interim moratorium under Section 96 applies only to the debts of the specific debtor. It does not extend to co-guarantors. Each guarantor has independent liability, and creditors can pursue either guarantor separately. Conclusion: - The court concluded that the NCLT is the appropriate adjudicating authority for insolvency proceedings against the defendants as personal guarantors of Bhushan Steel. - The interim moratorium under Section 96 of the IBC applies from the date of filing the insolvency application, staying the suits against both defendants. - The interim moratorium for one guarantor does not extend to co-guarantors. Disposition: - The proceedings in the present suits are stayed against both defendants. - Applications I.A. 5554/2021 and I.A. No.17487/2022 in CS(COMM) 8/2021, and I.A. 4996/2021, I.A. 5013/2021, and I.A. 5663/2021 in CS(COMM) 20/2021 are disposed of.
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