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TMI Blog2021 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... had been filed by Respondent - State Bank of India through the Resolution Professional - Mr. Ram Ratan Kanoongo. 2. Company Appeal (AT) (Insolvency) No. 317 of 2021 is filed by the Appellant-Ajit Bhagwan Kulkarni, Personal Guarantor - 'Pratibha Industries Ltd.' against the impugned order passed by the Adjudicating Authority (National Company Law Tribunal) Court No. 5, Mumbai Bench in C.P. (IB) 1189/MB/2020 in application under Section 95 of IBC appointing Resolution Professional and calling report under Section 99 of the IBC. The application had been filed by Respondent - State Bank of India through the Resolution Professional - Mr. Ram Ratan Kanoongo. 3. Unless mentioned otherwise we will be referring to pleadings, documents and arguments as in Company Appeal (AT) (Insolvency) No. 316 of 2021 for the sake of convenience. The facts involved and arguments in both the Appeals are similar. The impugned orders are also similar. Company Appeal (AT) (Insolvency) No. 316 of 2021 4. The Appellant claims that the application filed by the Respondent was listed for hearing before the Adjudicating Authority on 15th January, 2021 but was adjourned for paucity of time to 4th February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various provisions of Companies Act and NCLT Rules to hold that the Adjudicating Authority needs to serve a copy of the application on the Respondent. Reliance is also place on the judgment in the matter of 'Innoventive Industries Ltd. v. ICICI Bank', (2018) 1 SCC 407 and referred Para 28 to submit that the Debtor would be within its rights to show that there is no default or that the debt in not due in the fact or in law. It is argued that such opportunity was not given to the Debtor before passing of the impugned orders. It is also argued that the Adjudicating Authority has already recorded finding to the effect that there was "default" and has already "allowed" the application filed by the Respondent. It is also argued that after such findings recorded, the Resolution Professional could not while giving report under Section 99 propose rejection when finding is already recorded. 7. It is argued by the Learned Counsel for the Appellant that when application was filed under Section 95 of IBC, the Respondent - Debtor did not get opportunity to seek replacement of the Resolution Professional. It is argued that the Resolution Professional has already given report under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been enforced at different times. The Hon'ble Supreme Court discussed (in Para 81) that it was evident that the method adopted by the Central Government to bring into force different provisions of IBC had a specific design which was to fulfill the objectives underlying the Code, having regard to its priorities. Provisions of Section 60 of IBC were also dealt with and it was found that the objective of the amendment in Section 60 was to ensure that Adjudicating Body dealing with insolvency of Corporate Debtors also had before it the insolvency proceedings of Personal Guarantors to such Corporate Debtors. Para 94 and 95 of the Judgment read as under: "94. The impugned notification operationalizes the Code so far as it relates to personal guarantors to corporate debtors: (1) Section 79 pertains to the definitional section for the purposes of insolvency resolution and bankruptcy for individuals before the Adjudicating Authority. (2) Section 94 to 187 outline the entire structure regarding initiation of the resolution process for individuals before the Adjudicating Authority. 95. The impugned notification authorises the Central Government and the Board to frame rules and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered in the provisions of Part II and the latter, by Part III. Section 179, which defines what the Adjudicating authority is for individuals is 'subject to' Section 60. Section 60(2) is without prejudice to Section 60(1) and notwithstanding anything to the contrary contained in the Code, thus giving overriding effect to Section 60(2) as far as it provides that the application relating to insolvency resolution, liquidation or bankruptcy of personal guarantors of such corporate debtors shall be filed before the NCLT where proceedings relating to corporate debtors are pending. Furthermore, Section 60(3) provides for transfer of proceedings relating to personal guarantors to that NCLT which is dealing with the proceedings against corporate debtors. After providing for a common adjudicating forum, Section 60(4) vests the NCLT "with all the powers of the DRT as contemplated under Part III of this Code for the purpose of sub-section (2)". Section 60(4) thus (a) vests all the powers of DRT with NCLT and (b) also vests NCLT with powers under Part III. Parliament therefore merged the provisions of Part III with the process undertaken against the corporate debtors under Part II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], is set aside." 108. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract." 14. The above Judgment of the Hon'ble Supreme Court in the matter of 'Lalit Kumar Jain' (supra) makes the context clear in which the provisions of Part III of IBC have to be acted upon against Personal Guarantor. It also makes clear as to aspects which cannot be agitated in such proceedings for Resolution relating to Personal Guarantors of Corporate Debtor. 15. Part III deals with Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms. The provisions applied, as is clear from judgment in the matter of 'Lalit Kumar Jain' (supra) are only with regard to Personal Guarantors to the Corporate Debtors under Section 2(e) of IBC. Chapter III of the Part III deals with Insolvency Resolution Process which we are concerned in the present matter. Section 94 deals with application by Debtor to initiate Insolvency Resolution Process. Debtor has been defined under Section 79(12) as under: "(12) "debtor" includes a judgment-debtor;" Debtor includes a judgment debtor. Thus, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period- (i) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 97. Appointment of resolution professional.- (1) If the application under section 94 or 95 is filed through a resolution professional, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that there are no disciplinary proceedings pending against resolution professional. (2) The Board shall within seven days of receipt of directions under sub-section (1) communicate to the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed resolution professional. (6) The Board shall send a communication within ten days of receipt of the direction under sub-section (5) either- (a) confirming appointment of the nominated resolution professional; or (b) rejecting appointment of the nominated resolution professional and recommend a new resolution professional. (7) On the basis of the communication of the Board under sub-section (3) or sub-section (6), the Adjudicating Authority shall pass an order appointing a new resolution professional. (8) The Adjudicating Authority may give directions to the resolution professional replaced under sub-section (7)- (a) to share all information with the new resolution professional in respect of the insolvency resolution process; and (b) to co-operate with the new resolution professional in such matters as may be required. 99. Submission of report by resolution professional.- (1) The resolution professional shall examine the application referred to in section 94 or section 95, as the case may be, within ten days of his appointment, and submit a report to the Adjudicating Authority recommending for approval or rejection of the application. (2) Where the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Where the Adjudicating Authority admits an application under sub-section (1), it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in section 94 or 95, as the case may be, to the creditors within seven days from the date of the said order. (4) If the application referred to in section 94 or 95, as the case may be, is rejected by the Adjudicating Authority on the basis of report submitted by the resolution professional or that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub-section (1) shall record that the creditor is entitled to file for a bankruptcy order under Chapter IV." [Emphasis supplied] 18. "Creditor" referred in Section 95 has not been defined in Part III. As such definition of Creditor at Section 3(10) may be referred, which is as under: ""creditor" means any person to whom a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency resolution process as on the date of application; and (b) the details and documents relating to failure by the debtor to pay the debt within a period of 14 days of service of notice of demand. The notice of demand as per Rule 7(1) has to be in Form C (supra). The service of notice has to be effected as per Rule 3(1)(g). "Service" has been defined in the Rules as follows: "(g) "serve" means sending any communication by any means, including registered post, speed post, courier or electronic means, which is capable of producing or generating an acknowledgement of receipt of such communication: Provided that where a document cannot be served in any of the modes, it shall be affixed at the outer door or some other conspicuous part of the house or building in which the addressee ordinarily resides or carries on business or personally works for gain." 23. Reverting again to Section 95(4), the application under sub-section (1) should be accompanied with details and documents disclosing "relevant evidence of the default or non-repayment of debt". 24. Section 95(5) requires the Creditor to provide copy of the application under sub-section (1) to the Debtor. This section nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of insolvency professional.? (1) For the purposes of sub-section (2) of section 97 and sub-section (5) of section 98, the Board may share the database of the insolvency professionals, including information about disciplinary proceedings against them, with the Adjudicating Authority from time to time. (2) For the purposes of sub-section (4) of section 97and sub-section (3) of section 98, the Board may share a panel of insolvency professionals, who may be appointed as resolution professionals, with the Adjudicating Authority." 28. It is argued by the Learned Counsel for the Respondent that the IBBI from time to time puts on its database particulars regarding the Insolvency Professionals including information regarding disciplinary proceedings against them and that the panel of the insolvency professionals is shared with the Adjudicating Authorities and such procedure helps the Adjudicating Authorities take timely action in the proceedings and the Adjudicating Authority in the present matters could appoint the Resolution Professional through whom the application under Section 95 had been filed. 29. Under Section 97(3), where an application under Section 95 is filed by the Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmit material in his favour. Section 99(3) provides that where the debt for which an application has been filed by a Creditor is registered with the information utility, "the Debtor shall not be entitled to dispute the validity of such debt". Thus, where debt concerned is registered with information utility is established, it would be conclusive evidence of valid debt and Personal Guarantor is not entitle to raise dispute regarding validity of the debt. Thus, where the debt is registered as mentioned, dispute of validity of debt cannot be raised and thus Adjudicating Authority need not adjudicate on it. Section 99(4) shows that purpose of "examining" the application, is that Resolution Professional may seek such further information or explanation in connection with the application as may be required from the Debtor or the Creditor or any other person who in the opinion of the Resolution Professional may provide such information. Thus, Resolution Professional has option to call for information from different sources. Sub-section (5) of 99 makes provision that the person from whom information or explanation is sought "shall" furnish the same within seven days of receipt of request. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending. It is material as the Creditor can file application through Insolvency Professional. The 'Form C' reads as follows: FORM C [See rule 7(2)] APPLICATION BY CREDITOR TO INITIATE INSOLVENCY RESOLUTION PROCESS [Under rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019] [Date] To The Adjudicating Authority [Address] From [Name and address of the creditor] In the matter of [name of the guarantor] Subject: Application to initiate insolvency resolution process in respect of [name of the guarantor] under the Code. Madam/Sir, [Name of the creditor], hereby submits this application to initiate an insolvency resolution process in the case of [name of guarantor]. The details for the purpose of this application are set out below: Part - I PARTICULARS OF APPLICANT Part - II PARTICULARS OF THE GUARANTOR Part-III PARTICULARS OF DEBT Part-IV PARTICULARS OF & DECLARATION BY INSOLVENCY PROFESSIONAL (IF APPLICATION FILED THROUGH INSOLVENCY PROFESSIONAL) [Name of the creditor] has paid the requisite fee for this applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor; (ii) the expression 'related party' shall have the meaning assigned to it in sub-section (24) of section 5. (2) An insolvency professional, other than who has filed an application under section 94 or 95on behalf of a guarantor or a creditor, as the case may be, shall provide a written consent in Form A to the Adjudicating Authority before his appointment as resolution professional in are solution process." 37. Form A referred in Regulation 4(2) is part of the Forms under the Regulations and provides for particulars required to be given by the Resolution Professional while giving written consent to act as Resolution Professional. These are protective measures. The procedures are time bound and legislature has expressed faith in the Resolution Professionals empanelled. Section 97(2)(a) does not bar the same Resolution Professional from being appointed who may have filed the application for Creditor under Section 95(1). 38. Going through the above Sections, Rules and Regulations, the scheme which appears to be provided by the legislature appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia filed the application through Resolution Professional and such Resolution Professional cannot himself propose rejection of the application. We have already referred to the declaration which is sought from the Resolution Professional under the Regulations while giving consent and the statement required to be made in 'Form C' provided in the Rules. The Rules show that the IBBI follows a procedure of maintaining a panel of Insolvency Professionals with information about disciplinary proceedings against them from time to time. Under the Regulations relating to Resolution Professionals various safeguards have been provided and the Resolution Professionals are creatures of IBC read with Rules and Regulations and subject to discipline through IBBI. As mentioned the legislature has confidence in the Resolution Professionals under the system that they will act as Professionals in terms of IBC, its Rules and Regulations. IBC provides that the Creditor may, himself or through Resolution Professional file application under Section 95. Section 97 of IBC does not bar the same Resolution Professional from being appointed as Resolution Professional by the Adjudicating Authority. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, the Tribunal may, for reasons to be recorded in writing, determine the procedure in a particular case in accordance with the principles of natural justice. (2) The general heading in all proceedings before the Tribunal, in all advertisements and notices shall be in Form No. NCLT 4. (3) Every petition or application or reference shall be filed in form as provided in Form No. NCLT 1 with attachments thereto accompanied by Form No. NCLT 2 and in case of an interlocutory application, the same shall be filed in Form No. NCLT 1 accompanied by such attachments thereto along with Form No. NCLT 3. (4) Every petition or application including interlocutory application shall be verified by an affidavit in Form No. NCLT 6. Notice to be issued by the Tribunal to the opposite party shall be in Form NCLT 5. x x x x 37. Notice to Opposite Party.--(1) The Tribunal shall issue notice to the respondent to show cause against the application or petition on a date of hearing to be specified in the notice. Such notice in Form No. NCLT 5 shall be accompanied by a copy of the application with supporting documents. (2) If the respondent does not appear on the date specified in the notice in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Corporate Debtors. The limited notice has to be only to secure presence of the Personal Guarantor referring to the Interim Moratorium which has commenced. Before appointment of the Resolution Professional no hearing as such is contemplated and before appointment of the Resolution Professional the Debtor cannot be allowed to raise disputes for which the stage would be Section 100. Under NCLT Rule 11, Adjudicating Authority is duty bound to pass orders to prevent abuse of process. As such, limited notice to appear may be given to the Personal Guarantors so that when Resolution Professional is appointed, he may provide material as per Section 99(2) of IBC. Till the stage of Section 100, the process is of collecting necessary evidence. 43. The Appellant is himself criticizing the impugned order claiming that the Adjudicating Authority has already recorded finding that the Personal Guarantor has committed a default and thus the Resolution Professional cannot while examining the application under Section 99 give a contrary opinion. At the same time, the Learned Senior Counsel for the Appellant has tried to submit that before appointment of Resolution Professional the Personal Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 10.03.2017. 11. This Bench "Allows" the Application filed by Mr. Ram Ratan Kanungo, Insolvency Resolution Professional on behalf of State Bank of India, the Financial Creditor, under Section 95 of the Insolvency & Bankruptcy Code, 2016 read with Rule 7 of the IBC Rules 2019 against Mr. Ravi Ajit Kulkarni, the Personal Guarantor of the Corporate Debtor, M/s. Pratibha Industries Limited in CP No. 1192/2020. The Interim Moratorium as per Section 96(1) of the Code has commenced from the date of filing of Application by the Financial Creditor, i.e., 25.01.2021. 12. The Bench makes it clear that from the date of filing this Application i.e. 25.01.2021 by the Petitioner, Interim Moratorium commences as stipulated under Section 96(1) of the Code in relation to all the debts of the Personal Guarantor. During the Interim Moratorium period: (i) any pending legal action or proceedings in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. As per Section 96(3) of the Code, the provisions of sub-section 96(1) shall not apply to such transactions as may be notified by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efault would arrive when the matter is taken up under Section 100 of IBC. The Appellant is right when the Appellant submits that if the Adjudicating Authority gives such finding in advance, the report under Section 99 could not be in the negative. Again the Adjudicating Authority mentioned in Para 11 of the impugned order that it was "allowing" the application under Section 95. At the stage of Section 95 Adjudicating Authority is to act upon the application to take further steps. The stage for "allowing" Application to admit or reject the application would be under Section 100. At the stage of appointment of Resolution Professional, such allowing is not contemplated. In Section 97 no adjudication as such is involved. 48. The Personal Guarantor of Corporate Debtor can express "opinion" that Resolution Professional "appointed" under Section 97 is required to be replaced under Section 98 only after Resolution Professional has been appointed. No concurrence of such Personal Guarantor is required to be taken before appointment. Apparently, the "opinion" contemplated is limited to say "X" Resolution Professional should be replaced. Reading Section 98(1) with Section 98(3) what appears r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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