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TMI Blog2021 (5) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... s, i.e on 24.03.2015, the Debt Repayment and Settlement Agreement was entered into by the parties (Diary no. 24049, Page 214-245, Appeal Paper Book). The Corporate Debtor failed to repay the debt as per Debt Repayment and Settlement Agreement. Therefore, Financial Creditor cancelled the said agreement (Diary no. 24049, Page 246-256, Appeal Paper Book) on 29.05.2017. In this agreement, the Corporate Debtor has specifically acknowledged the debt - Thereafter, within three years i.e on 10.02.2020, the Financial Creditor filed the Application under Section 7 of the IBC. It is apparent that the Application is filed within extended period and the Application is within limitation. There are no force in the arguments advanced by the Ld. Counsel for the appellant - the finding of Ld. Adjudicating Authority that the Application is within limitation is affirmed. Whether the second Application under Section 7 of IBC is not maintainable against the Corporate Debtor as for the same debt and default, CIRP has already been taken place against the Corporate Guarantor and the Financial Creditor has accepted the amount in full and final settlement of all its dues? - HELD THAT:- Application under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mar Jain] Member (Judicial) For the Appellant : Mr Abhijeet Sinha, Mr. Divij Kumar and Mr. Varun Tandon, Advocates For the Respondent : Ms Supriyo Gole, Mr. Rishav Banerjee, Advocates for R1. Ms Nattasha Garg, Mr Abhimanyu Bhandari and Mr. Arav Pandit, Advocates for R2 JUDGMENT Jarat Kumar Jain: J. The Appellant Kanwar Raj Bhagat , Ex-Director of Gujarat Hydrocarbons and Power SEZ Ltd. (Corporate Debtor) has filed a appeal being CA (AT) (Ins.) 1096 of 2020 against the order dated 18.11.2020 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench-III) in CP (IB) 571/ND/2020. In the said petition, the Adjudicating Authority admitted the application filed by the Financial Creditor (SREI Infrastructure Finance Ltd) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC ) and initiated the Corporate Insolvency Resolution Process (hereinafter referred to as CIRP ) against the Corporate Debtor. It is against the impugned order dated 18.11.2020 that the appellant BRS Ventures Investment Ltd. , the successful Resolution Applicant in a CIRP against the Corporate Guarantor, Assam Company India Ltd., (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Financial Creditor filed an Application under Section 60(5) of the IBC before the Adjudicating Authority, Guwahati. This Application was dismissed vide its order dated 23.07.2018. The resolution plan was duly approved by the Adjudicating Authority vide its order dated 20.09.2018. 3. On 10.02.2020, the Financial Creditor filed an Application under Section 7 of the IBC against the Corporate Debtor before the Adjudicating Authority (NCLT, Delhi) on the basis of the same set of debt and default against which a CIRP of the Corporate Guarantor of the Corporate Debtor has already taken place. 4. The Corporate Debtor resisted the application on the ground that the application is filed with ulterior motives to create undue pressure on the Corporate Debtor and the Application is barred by principle of estoppel, waiver and acquiescence. Moreover, the said Application is barred by law of limitation. 5 Ld. Adjudicating Authority found that the plea taken by the Corporate Debtor is devoid of merits, therefore, rejected the plea for the reasons which have been recorded in the impugned order dated 18.11.2020 and admitted the Application under Section 7 of the IBC along with initiation of CIRP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted ₹ 38.87 Crores against its claim of ₹ 648.81 crores as full and final settlement of its outstanding dues. After a period of two years from approval of the plan; admitting the subsequent application under section 7 of IBC would tantamount to defeating the Resolution Plan. Ld. Adjudicating authority erroneously admitted the application therefore, the impugned order is liable to be set aside. 10. Per contra, Ld. Counsel for the Respondent no 2, Financial Creditor submitted that the loan was defaulted for the first time on 15.04.2014. Undisputedly, Corporate Debtor acknowledged the debt within three years on 24.03.2020 in the Debt Repayment and Settlement Agreement. The period of limitation was further extended when the Debt Repayment and Settlement Agreement was cancelled on 29.05.2017. The Application was filed on 10.02.2020 i.e. within three years from the date of acknowledgment. Relianve was placed on the judgment rendered by the Hon ble Supreme Court in the case of Jignesh Shah Anr. Vs. Union of India (2019) 10 SCC 750 wherein it was held that any acknowledgment in writing will increase period of limitation for IBC. Further, reliance was also placed on a judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the second Application under Section 7 of IBC is not maintainable against the Corporate Debtor as for the same debt and default, CIRP has already been taken place against the Corporate Guarantor and the Financial Creditor has accepted the amount in full and final settlement of all its dues? Issue No. (i) 14. Ld. Counsel for the appellant, Ex-director of the Corporate Debtor argued that Section 18 of the Limitation Act, 1963 is not applicable to the IBC. For this purpose, he placed reliance on the Judgment of the Hon ble Supreme Court in the Case of B.K. Educational Services (supra.), Jignesh Shah (supra.), Babulal Vardharji (supra.) and an order passed by a five-member Bench of this Appellate Tribunal in the case of Bishal Jaiswal (supra). 15. Against the order of Bishal Jaiswal, Asset Reconstruction Company (India) Ltd. filed an appeal being Civil Appeal No. 323 of 2021 before the Hon ble Supreme Court. The Hon ble Supreme Court in its judgment dated 15.04.2021 considered all earlier judgments i.e. B.K. Educational Services(supra.), Jignesh Shah (supra.), Babulal Vardharji (supra.) on the subject and held as under: - 8. The aforesaid question is no longer res integra as two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en retrospective effect; which included application of the provisions of the Limitation Act on case-to-case basis. Indeed, the purport of amendment in the Code was not to reopen or revive the time barred debts under the Limitation Act. At the same time, accrual of fresh period of limitation in terms of Section 18 of the Limitation Act is on its own under that Act. It will not be a case of giving new lease to time barred debts under the existing law (Limitation Act) as such. 36. Notably, the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of Section 238A of the Code on 06.06.2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act and extension of prescribed period in certain cases could be only under Section 5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgements, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgement in writing signed by the party against whom such right to initiate resolution process under Section 7 of the Code ensures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgement, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgement of the debt, from time to time, for institution of the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. Ld. Counsel for the appellant, Ex-Director of the Corporate Debtor raised a plea that Financial Creditor has initiated CIRP against the Corporate Guarantor, therefore, after two years, for the same debt and default, CIRP cannot be initiated against the Corporate Debtor. For this purpose, he placed reliance on the judgment of this Appellate Tribunal in the case of Dr. Vishnu Kumar Agarwal (supra.) and SEW Infrastructure Ltd. Vs. Mehendra Investment Advisors Pvt. Ltd. (supra.) 19. This Appellate Tribunal in the judgment of SEW Infrastructure Ltd.(supra.) has relied on its earlier judgment in Dr. Vishnu Kumar Agarwal (supra.) 20. Further, this Appellate Tribunal in the case of State Bank of India Vs. Athena Energy Ventures Pvt. Ltd. CA (AT) (Ins) No. 633 of 2020 considered the earlier judgment of Dr. Vishnu Kumar Agarwal (supra.) and after interpreting the law held that the Financial Creditor can simultaneously or one after another initiate CIRP against the Corporate Debtor as well as Corporate Guarantor. It is useful to refer the relevant paragraphs which are reproduced below: - 13. Apart from this, the observations in the Judgement in the matter of Piramal do not appear to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgement in the matter of Piramal which was passed on 8th January, 2019 did not notice the above amendment. If the above provisions of Section 60(2) and (3) are kept in view, it can be said that IBC has no aversion to simultaneously proceeding against the Corporate Debtor and Corporate Guarantor. If two Applications can be filed, for the same amount against Principal Borrower and Guarantor keeping in view the above provisions, the Applications can also be maintained. It is for such reason that Sub-Section (3) of Section 60 provides that if insolvency resolution process or liquidation or bankruptcy proceedings of a Corporate Guarantor or Personal Guarantor as the case may be of the Corporate Debtor is pending in any Court or Tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such Corporate Debtor. Apparently and for obvious reasons, the law requires that both the proceedings should be before same Adjudicating Authority. 14. It would be appropriate now to refer to the observations made by the Insolvency Law Committee in its Report of February, 2020. Relevant part of the Report has been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pending before an Adjudicating Authority, any insolvency resolution, liquidation or bankruptcy proceeding against any guarantor of that corporate debtor should also be initiated before the same Adjudicating Authority. Similarly, Section 60(3) requires transfer of any such proceeding which may be pending before any court or tribunal to the Adjudicating Authority dealing with the CIRP or liquidation process of the corporate debtor. Therefore, as the Code does require proceedings against a corporate debtor and its guarantors to be simultaneously heard by the same Adjudicating Authority, the Committee was of the view that the Code in fact, envisages initiation of concurrent proceedings against both a corporate debtor and its sureties. Given this, the Committee recommended that a creditor should not be prevented from proceeding against both the corporate debtor and its sureties under the Code. 7.5. However, the Committee noted that the Appellate Authority has, in certain cases, taken a view contrary to its decision taken in the Piramal Enterprises Ltd.31 case. For example, in Edelweiss Asset Reconstruction Company Limited v Sachet Infrastructure Pvt. Ltd. Ors.,32 the Appellate Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is the hallmark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended. 36 If a creditor is denied the contractual right to proceed simultaneously against the corporate debtor and the surety, the ability of the creditor to recover its debt may be seriously impaired. 7.9. As the right to simultaneous remedy is central to a contract of guarantee, the Committee suggested that in cases where both the principal borrower and the surety are undergoing CIRP, the creditor should be permitted to file claims in the CIRP of both of them. Since, as the Code does not prevent this, the Committee recommended that no amendments were necessary in this regard. 7.10. It was brought to the Committee that this right may be misused by a creditor to unjustly enrich herself by recovering an amount greater that what is owed to her. However, the right to simultaneous remedy under a contract of guarantee does not entitle a creditor to recover more than what is due to her, and the Committee agreed that upon recovery of any portion of the claims of a creditor in one of the proceedings, there should be a corresponding revision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court observed as under:- 24. The scheme of Sections 60(2) and (3) is thus clear the moment there is a proceeding against the corporate debtor pending under the 2016 Code, any bankruptcy proceeding against the individual personal guarantor will, if already initiated before the proceeding against the corporate debtor, be transferred to the National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal. However, the Tribunal is to decide such proceedings only in accordance with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be. It is clear that sub-section (4), which states that the Tribunal shall be vested with all the powers of the Debt Recovery Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debt Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld the same apply to Personal Guarantor of a Corporate Debtor. The issue was answered in negative by the Hon ble Supreme Court. The Hon ble Supreme Court in such context made observations as above in Paragraphs 24 and 25 of the Judgement. 19. It is clear that in the matter of guarantee, CIRP can proceed against Principal Borrower as well as Guarantor. The law as laid down by the Hon ble High Courts for the respective jurisdictions, and law as laid down by the Hon ble Supreme Court for the whole country is binding. In the matter of Piramal, the Bench of this Appellate Tribunal interpreted the law. Ordinarily, we would respect and adopt the interpretation but for the reasons discussed above, we are unable to interpret the law in the manner it was interpreted in the matter of Piramal. For such reasons, we are unable to uphold the Judgement as passed by the Adjudicating Authority. 21. We are of the view that Application under Section 7 of the IBC against the Corporate Debtor for the same debt and default is maintainable in the light of judgment of Athena Energy Ventures (supra.) 22. Now we have considered whether the Financial Creditor had accepted the amount in the resolution plan as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment passed by the Hon ble High Court of Calcutta in the case of Gouri Shankar Jain Vs. Punjab National Bank Anr. 2019 SCC Online Calcutta 7288 wherein it was held that: 19. Section 128 of the Act of 1872 stipulates that, the liability of the surety is coextensive with the of the principal debtor, unless it is otherwise provided by the contract. The onus is on the petitioner to establish that, the contract of guarantee provided anything to diminish the liability of the petitioner under the contract of guarantee excepting the liability of the petitioner being coextensive as that of the company. The petitioner, as noted above, has not produced the contract of guarantee and therefore, has failed to establish that, the contract of guarantee contain any stipulation contrary to the liability of the petitioner being coextensive with that of the company. ...................................................................................................................... 25. When a financial creditor approaches the Adjudicating Authority under the provisions of the Code of 2016 and applies under section 7 thereof for initiation of Corporate Insolvency Resolution process in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an application under Section 7 once it is admitted under Section 7(5). The terminal points are, firstly, the approval of a Resolution Plan and secondly, the initiation of liquidation proceeding on a Resolution Plan not being approved. When a financial creditor applies under Section 7 of the Code of 2016 it is exercising a statutory right. The exercise of such statutory right does not depend upon the contractual obligations of the parties bound by the respective contracts between the creditor, principal debtor and the surety. Such contracts cannot be said to have rescinded, novated, frustrated, modified, altered or affected in any manner, on an application under Section 7 of the Code of 2016 being filed. After its admission under Section 7(5) of the Code of 2016, when an order under Section 14 is passed, then also only the statutory right of a financial institution to proceed under the SARFAESI Act, 2002 remains suspended for a limited period. The existing contracts between the surety, principal debtor and the creditor remains unaffected. 25. With the aforesaid discussion, we are not convinced with the argument made by the Ld. Counsel of the appellant that CIRP has already taken p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an but the Resolution Applicant shall lose a substantial amount towards the valuation of shares of the Corporate Debtor held by ACIL, which shall practically have no value as a consequence thereof. The Resolution Applicant while valuing ACIL alongwith subsidiaries had earmarked a substantial amount towards the share of Corporate Debtor held by ACIL. 29. Ld. Counsel for the Appellant, Resolution Applicant also submitted that the claim of Financial Creditor falls under the definition of unsecured Financial Creditor. The total claim of the unsecured Financial Creditors is ₹ 290.22 crores which includes the claim of Financial Creditor of ₹ 241.27 crores. The Resolution Applicant proposed to pay unsecured Financial Creditors an amount of ₹ 50 Crores which includes ₹ 38.87 crores payable to the Financial Creditor in full and final settlement of all its dues. Thus, the Financial Creditor could have not claim any further amount from the Corporate Debtors. The settled amount of ₹ 38.87 crores is compete discharged of debt of the Financial Creditor against the Corporate Debtor. The Financial Creditor in its reply has taken an incorrect stand that the amount sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, he can take necessary avoidance of transactions undertaken by the ACIL in the past, depending on the report of forensic audit. However, there is no such audit report, therefore, the approved resolution plan cannot include the SEZ Business of the Corporate Debtor. 34. Ld. Counsel for the Respondent further submitted that the reliance placed by the Appellant on the Judgment of Facor Alloys Ltd. (supra.) is completely misplaced because the facts of this judgment are quite different from those of the present case. In the case of Facor Alloys Ltd. (supra.), the Corporate Debtor held 89% of the share of the subsidiaries and separate valuation of the subsidiaries was conducted and mentioned in the resolution plan, which is unlike the facts of the present case. Thus, there is no merit in this Appeal. Therefore, the Appeal is liable to be dismissed. 35. The following issues arise in this Appeal for our consideration: (i) Whether the Resolution Applicant is entitled to exercise its right over the subsidiaries company of ACIL (Corporate Guarantor)? (ii) Whether the approved resolution plan has included the SEZ business of the Corporate Debtor? Issue No. (i) 36. The 4th Meeting of CoC of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port place on record to prove that the ACIL fraudulently made investments in its subsidiaries i.e. Corporate Debtor. Therefore, the assets of the subsidiaries cannot be included in the resolution plan in relation to ACIL submitted by Resolution Applicant (Appellant). Issue No. (ii) 39. Ld. Counsel for the Resolution Applicant tried to convince us that SEZ Business of the Corporate Debtor is included in the Resolution Plan. We have minutely examined the resolution plan it is nowhere mentioned that SEZ Business of the Corporate Debtor included in the Resolution plan. We have already noted in the aforesaid paragraph that the RP can only take care of the investments in the subsidiaries and not the assets of the subsidiaries. The resolution plan in regard to SEZ Business of the Corporate Debtor states as under:- (c) SEZ Business ACIL through its subsidiary Gujarat Hydrocarbons and Power SEZ Ltd. (GHPSL) has acquired 296 hecters of land from Gujarat Industrial Development Corporation (GIDC) in Vilayat Vagra Industrial Estate in the Bharuch District in Gujarat for setting up a sector specific Hydrocarbon SEZ for providing services to the Oil Gas and Energy Sector. The subject site is with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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