2023 (9) TMI 965 - AT - Insolvency and Bankruptcy

Maintainability of application u/s 7 of IBC - application made on the basis of an Assignment Deed - not legally enforceable document being and unregistered agreement - privity of contract between the Corporate Debtor and Respondent No.1 - making malafide attempt to file duplicate claims - non-service of notice of the company petition on the Corporate Debtor - existence of debt and dispute - HELD THAT - At this stage, no contentions have been raised by either party regarding debt and default committed thereto. On perusing the impugned order, it is found that the Adjudicating Authority has recorded that there exists financial debt and default and admitted Section 7 application. Debt and default on the part of the Corporate Debtor not having been contested, there are no error on the part of the Adjudicating Authority in admitting the Section 7 application. Non-service of notice of the company petition on the Corporate Debtor - HELD THAT - The Adjudicating Authority had taken cognizance of the Affidavit of Service which had been filed by the Respondent No.1. From the totality of above cited circumstances, we have sufficient reason to believe that notice was properly served upon the Corporate Debtor at their valid email address on three separate occasions and an affidavit of service to this effect was also filed as placed on record at pages 25-29 of Reply Affidavit. However, after service of notice, if the Corporate Debtor did not appear before the Adjudicating Authority, the Respondent No.1 cannot be held responsible for not having sent proper notice - the Appellant cannot rightfully claim that they were deprived of reasonable opportunity of hearing due to non-service of notice. While it is axiomatic that principles of natural justice are not an empty formality, it cannot be unmindful of the fact that this cannot be resorted to by a litigant to cover up their own shortcoming and derail the judicial process. The SBI vide the Assignment Agreement had assigned and transferred all its rights in the credit facilities extended to the principal borrower along with all underlying security interests to Respondent No.1. Hence, the Respondent No.1 having clearly stepped into the shoes of SBI and on having acquired the assets under the Assignment Agreement in the capacity of an Asset Reconstruction Company in the manner and procedure laid down by the SARFAESI Act, it had become the deemed lender and therefore entitled to exercise its right to initiate proceedings under Section 7 of IBC. The issue of debt and default on the part of the Corporate Debtor is not in contention and no submissions have been made in this regard by the Appellant. In result, there are no error in the impugned order admitting the Section 7 application - appeal dismissed.

Issues Involved:
1. Proper service of notice on the Corporate Debtor.
2. Legal enforceability of the Assignment Deed.
3. Privity of contract between the Corporate Debtor and Respondent No.1.
4. Allegation of duplicate claims for the same debt.
5. Simultaneous CIRP against the principal borrower and the corporate guarantor.

Summary:

1. Proper Service of Notice:
The Appellant contended that Respondent No.1 did not properly serve notice on the Corporate Debtor as directed by the Adjudicating Authority, violating principles of natural justice. The Tribunal found that Respondent No.1 had complied with the service requirements by sending the notice to the registered email address of the Corporate Debtor, fulfilling the Adjudicating Authority's directions. The Tribunal concluded that the Appellant could not claim deprivation of a reasonable opportunity for a hearing due to non-service of notice.

2. Legal Enforceability of the Assignment Deed:
The Appellant argued that the Assignment Deed dated 18.01.2021 was not legally enforceable as it was unregistered. The Tribunal referred to a connected matter (Naresh Kumar Aggarwal v. CFM Asset Reconstruction Pvt. Ltd.) and held that the Assignment Agreement was in accordance with Section 5 of the SARFAESI Act, making Respondent No.1 a deemed lender entitled to initiate Section 7 proceedings. The Tribunal dismissed the Appellant's contention, stating that the Registration Act, 1908, does not apply to the Assignment Agreement in this context.

3. Privity of Contract:
The Appellant contended that there was no privity of contract between the Corporate Debtor and Respondent No.1, as the Deed of Guarantee was executed in favor of SBICAP. The Tribunal found that SBI had assigned all its rights, including the Deed of Guarantee, to Respondent No.1, making Respondent No.1 the deemed lender. The Tribunal concluded that Respondent No.1 was entitled to initiate Section 7 proceedings.

4. Allegation of Duplicate Claims:
The Appellant alleged that Respondent No.1 made a malafide attempt to file duplicate claims for the same debt, as the Adjudicating Authority had already admitted the principal borrower into CIRP. The Tribunal held that the liability of the guarantor is co-extensive with that of the principal borrower, allowing the financial creditor to initiate Section 7 proceedings against both simultaneously.

5. Simultaneous CIRP:
The Appellant argued that two applications under Section 7 could not be admitted simultaneously for the same claim and default against both the principal borrower and the corporate guarantor. The Tribunal referred to the Supreme Court judgment in Laxmi Pat Surana v. Union of India, which allows simultaneous proceedings against both, and dismissed the Appellant's contention.

Conclusion:
The Tribunal found no error in the Adjudicating Authority's order admitting the Section 7 application and dismissed the appeal, allowing the IRP to continue with the CIRP proceedings.

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