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TMI Blog2019 (2) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to pay debt arose when the borrower defaulted in making payments and the creditor sent a demand/notice invoking the guarantee. Thus, it is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’. Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’. Initiation of the process against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default - Held that:- A ‘Financial Creditor’ has been defined under sub-section (7) of Section 5 means any person to whom a financial debt is owed and ‘financial debt’ is defined in sub-section (8) of Section 5 as a debt which is disbursed against the consideration for the time value of money. Admittedly, for same set of debt, claim cannot be filed by same ‘Financial Creditor’ in two separate ‘Corporate Insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls against the two different orders of initiation of Corporate Insolvency Resolution Process against the two Corporate Guarantors . As common questions of law are involved and are based on same set of facts, they were heard together and disposed of by this common judgment. 2. A Deed of Agreement was entered into by All India Society for Advance Education and Research (hereinafter referred to as Principal Borrower ) with M/s. Piramal Enterprises Ltd. (hereinafter referred to as Financial Creditor ) for grant of ₹ 38,00,00,000/- (Rupees Thirty-Eight Crores Only) which was guaranteed by two Corporate Guarantors namely- Sunrise Naturopathy and Resorts Pvt. Ltd. - ( Corporate Guarantor No.1 for short) and Sunsystem Institute of Information Technology Pvt. Ltd. - ( Corporate Guarantor No.2 for short). The loan amount was disbursed in two tranches by the Financial Creditor to the Principal Borrower which is as follows: DATE AMOUNT (IN RS.) 28th October, 2013 31,17,00,000 1st November, 2013 6,83,00,000 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( Corporate Guarantor No.2 ). 9. By another order dated 31st May, 2018, the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, admitted the application and initiated Corporate Insolvency Resolution Process against Sunrise Naturopathy and Resorts Pvt. Ltd. - ( Corporate Guarantor No.1 ). 10. On perusal of records, including the Form-1 filed by the Financial Creditor - ( M/s. Piramal Enterprises Ltd. ) against both the Corporate Guarantors No. 1 2 (shown as Corporate Debtors ) it is clear that same claim amount has been shown in both the Form-1, and reliance has been placed on same agreement. Debt amount and the amount of default, date of default etc. are also same which is in terms of the agreement dated 18th October, 2013. The Adjudicating Authority noticed the similarity in two separate impugned orders and used same language and reasoning though passed orders one on 24th May, 2018 and the other on 31st May, 2018. 11. In the aforesaid background, learned counsel for the Appellant raised question of maintainability of two Corporate Insolvency Resolution Processes against two Corporate Guarantors based on same sets of claim; deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sun Rise Naturopathy and Health Resorts Private Limited 2. IDENTIFICATION NUMBER OF THE CORPORATE DEBTOR CIN: U8511ORJ1999PTC015643 3. DATE OF INCORPORATION OF THE CORPORATE DEBTOR 25 May, 1999 4. NOMINAL SHARE CAPITAL AND THE PAID-UP SHARE CAPITAL OF THE CORPORATE DEBTOR AND/OR DETAIL OF GUARANTEE CLAUSE AS PER MEMORANDUM OF ASSOCIATION (AS APPLICABLE) AUTHORISED SHARE CAPITAL OF THE CORPORATE DEBTOR. Authorised Share Capital: ₹ 2,10,00,000 (Rupees Two Crores Ten Lakhs) Paid Up Share Capital: ₹ 2,09,04,000 (Rupees Two Crores Nine Lakhs Four Thousand) Copies of the Memorandum of Association, the Articles of Association Of the Corporate Debtor along with the extract of the master data for the Corporate Debtor as available on the website of the Ministry of Corporate Affairs 5. ADDRESS OF THE REGISTERED OFFICE OF THE CORPORATE DEBTOR P.O. Kalighati (SIR) Panchayat, Bilochi, Tehsil - Arner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as follows: Particulars Amount (in Rs.) Interest Payable 5,80,01,098 Principal Outstanding 28,53,44,965 Penal Interest payable 5,95,30,399 Total Outstanding 40,28,76,461 The Applicant reserves its rights to file an updated claim before the RP inclusive of the applicable interest post 31 September, 2017. * The Borrower originally defaulted in repayment of its obligations to the Financial Creditor on 30 April, 2014 and since then has persistently defaulted on its repayment obligations. The Financial Creditor has already commenced Civil Suit No. 46/40/2017 before the court of Additional District Judge-I, Alwar against the Borrower and the guarantors, including the Corporate Debtor herein on 15 September, 2017. * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor is not required to maintain a books of account in accordance with the Bankers Books Evidence Act, 1891. Furthermore, the Corporate Debtor is the guarantor for the Borrower and the Corporate Debtor was obliged to ensure repayment of loan amount to the Financial Creditor. 8. LIST Of OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND THE DATE OF DEFAULT. ( i ) Balance Confirmation Letter dated 6 January, 2015 as duly acknowledged by the Borrower; ( ii ) Legal notice dated 17 November, 2015 issued to the Borrower and inter alia the Corporate Debtor, on behalf of the Financial Creditor ( iii ) Letter dated 26 November, 2015 issued by the Borrower ( iv ) Letter dated 9 December, 2015 issued by the Borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Piramal Enterprises Limited, Piramal Tower, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400013 Sunsystem Institute of Information Technology Pvt. Ltd. -( Corporate Guarantor No.2 ) Relevant Extract of Form-1 PART - II PARTICULARS OFTHE CORPORATE DEBTOR 1. NAME OF THE CORPORATE DEBTOR Sunsystem Institute of Information Technology Private Limited 2. IDENTIFICATION NUMBER OF THE CORPORATE DEBTOR CTN: U16911RJ2001PTC016911 3. DATE OF INCORPORATION OF THE CORPORATE DEBTOR 8 March, 2001 4. NOMINAL SHARE CAPITAL AND THE PAID-UP SHARE CAPITAL OF THE CORPORATE DEBTOR AND/OR DETAIL OF GUARANTEE CLAUSE AS PER MEMORANDUM OF ASSOCIATION (AS APPLICABLE) AUTHORISED SHARE CAPITAL OF THE CORPORATE DEBTOR. Authorised Share Capital: ₹ 1,55,00,000 (Rupees One Crore Fifty Five Lakhs) Paid Up Share Capital: ₹ 1,50,00,000 (Rupees One Crore Fifty Lakhs) Copies of the Memorandum of Association, the Articles of Association of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Six Thousand Four Hundred and Sixty One). The default occurred on 11 November, 2017 where despite receipt of notice prescribed under the Deed Guarantee dated 18 October, 2013 calling upon the Corporate Debtor to make payments as outstanding on 30 September 2017, the Corporate Debtor failed to pay the due amount. The breakup of the outstanding amount as on 30 September, 2017 is as follows: Particulars Amount (in Rs.) Interest Payable 5,80,01,098 Principal Outstanding 28,53,44,965 Penal Interest payable 5,95,30.399 Total Outstanding 40,28,76,461 The Applicant reserves its rights to file an updated claim before the RP inclusive Of the applicable interest post 30 September, 2017. * The Borrower originally defaulted in repayment of its obligations to the Financial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N/A 7. COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 1891) The Financial Creditor is not required to maintain a books of account in accordance with the Bankers Books Evidence Act, 1891. Furthermore, the Corporate Debtor is the guarantor for the Borrower and the Corporate Debtor was obliged to ensure the repayment of loan amount to the Financial Creditor. 8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT. THE AMOUNT AND THE DATE OF DEFAULT. ( i ) Balance Confirmation Letter dated 6 January, 2015 as duly acknowledged by the Borrower; ( ii ) Legal notice dated 17 November, 2015 issued to the Borrower and inter alia the Corporate Debtor, on behalf of the Financial Creditor ( iii ) Letter dated 26 November, 2015 issued by the Borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Position with or in relation to the financial creditor Manager, Legal Address of person signing Piramal Enterprises Limited, Piramal Tower, Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013 17. If relevant portions of both Form-1 aforesaid are compared, it will be evident that the total amount of debt granted date(s) of disbursement (28th October, 2013 and 1st November, 2013); the amount claimed to be in default (Rs. 40,28,76,461/-) and the date of default occurred shown as on 11th November, 2017 and other details including the demand notice etc. are same. 18. We have heard the learned counsel for the parties and perused the record. The position of law is manifested in the I B Code including the definitions which require harmonious and purposeful reading and reasoning. 19. Section 3 of the I B Code defines various terms as follows: Sec. 3(6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause 21. From clause (h) of Section 5 (8) of the I B Code , it is clear that counter-indemnity obligation in respect of a guarantee comes within the meaning of financial debt and, therefore, there is no dispute that M/s. Piramal Enterprises Ltd. is a Financial Creditor of both Sunrise Naturopathy and Resorts Pvt. Ltd. - ( Corporate Guarantor No.1 ) and Sunsystem Institute of Information Technology Pvt. Ltd. - ( Corporate Guarantor No.2 ). 22. In Bank of Bihar v. Damodar Prasad and Anr. (1969) 1 SCR 620 the Hon ble Supreme Court held: 3. The demand for payment of the liability of the principal debtor was the only condition for the enforcement of the bond. That condition was fulfilled. Neither the principal debtor nor the surety discharged the admitted liability of the principal debtor in sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deed of guarantee the liability of the company to pay debt arose when the borrower defaulted in making payments and the creditor sent a demand/notice invoking the guarantee. 24. In State Bank of India v. Indexport Registered and Ors. (1992) 3 SCC 159 , the Hon ble Supreme Court held that the decree holder bank can execute the decree first against the guarantor without proceeding against the Principal Borrower . Guarantor s liability is co-extensive with that of the principal debtor under the Contract Act, 1872 (Section 128), relevant of which is quoted hereunder: 10. The decree does not put any fetter on the right of the decree-holder to execute it against any party, whether as a money decree or as a mortgage decree. The execution of the money decree is not made dependent on first applying for execution of the mortgage decree. The choice is left entirely with the decree-holder. The question arises whether a decree which is framed as a composite decree, as a matter of law, must be executed against the mortgage property first or can a money decree, which covers whole or part of decretal amount covering mortgage decree can be executed earlier. There is nothing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor to initiate Corporate Insolvency Resolution Process under Section 7 against the Corporate Guarantors , as the creditor is also the Financial Creditor qua Corporate Guarantor . The first question is thus answered against the Appellant. 26. We have noticed that with regard to the claim amount of debt and date of default etc. two separate applications under Section 7 has been preferred by same Financial Creditor against two Corporate Guarantors namely- Sunrise Naturopathy and Resorts Pvt. Ltd. - ( Corporate Guarantor No.1 ) and Sunsystem Institute of Information Technology Pvt. Ltd. - ( Corporate Guarantor No.2 ). Both the applications under Section 7 are same in verbatim, as noticed and referred in the preceding paragraphs. 27. In Innoventive Industries Ltd. v. ICICI Bank and Ors.─ (2018) 1 SCC 407 , the Hon ble Supreme Court observed and held as follows: 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning nonpayment of a debt once it becomes due and payable, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 28. A Financial Creditor has been defined under sub-section (7) of Section 5 means any person to whom a financial debt is owed and financial debt is defined in sub-section (8) of Section 5 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed from Resolution Professionals of separate Corporate Insolvency Resolution Processes , for same claim amount and default, two applications under Section 7 cannot be admitted simultaneously. Once for same claim the Corporate Insolvency Resolution Process is initiated against one of the Corporate Debtor after such initiation, the Financial Creditor cannot trigger Corporate Insolvency Resolution Process against the other Corporate Debtor(s) , for the same claim amount (debt). 32. There is no bar in the I B Code for filing simultaneously two applications under Section 7 against the Principal Borrower as well as the Corporate Guarantor(s) or against both the Guarantors . However, once for same set of claim application under Section 7 filed by the Financial Creditor is admitted against one of the Corporate Debtor ( Principal Borrower or Corporate Guarantor(s) ), second application by the same Financial Creditor for same set of claim and default cannot be admitted against the other Corporate Debtor (the Corporate Guarantor(s) or the Principal Borrower ). Further, though there is a provision to file joint application under Section 7 by the Fina ..... 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