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TMI Blog2022 (9) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... It is the case of the Respondent No.1-bank/applicant that the Appellant-Zee is the guarantor to the loan availed by the Respondent No.2 from Respondent No.1-bank in terms of the Debt Service Reserve Account Guarantee Agreement dated 29th August, 2018 (for short 'DSRA Guarantee Agreement'), which provides that in case of default of Respondent No.2, Respondent No.1-bank can invoke the DSRA Guarantee Agreement and recover the amount that is due from Respondent No.2, from Appellant-Zee. On 1st October, 2020, Respondent No.1bank issued notice to Appellant-Zee invoking the DSRA Guarantee Agreement and calling upon the Appellant-Zee to pay the amount of Rs.83,70,14,289/-. PROCEEDINGS BEFORE THE LEARNED SINGLE JUDGE AND DIVISION BENCH 3. The Appellant-Zee filed a civil Suit being CS(OS)(COMM) No. 500/2020, along with an application being I.A.10556/2020 seeking the interim relief that the Respondent No.1-bank be restrained from seeking recovery of any amount under the DSRA Guarantee Agreement in terms of the Respondent No.1-bank's notice dated 01st October, 2020. The reliefs sought for in the interim application being I.A. 10556/2020 are reproduced hereinbelow:- "i. staying the effect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee tests i.e. prima facie case, balance of convenience and irreparable harm and injury." 5. Appellant-Zee filed the present appeal being FAO(OS)(COMM) No.15/2021 challenging the order passed by the learned Single Judge. Along with the present appeal, the Appellant-Zee filed an application for stay. The reliefs sought for in the said application are reproduced hereinbelow:- "(a) stay the effect and implementation of the demand raised by Respondent No.1 under its letter dated 01.10.2020; (b) direct Respondent No.2 to replenish the DSRA Account with amount equivalent to one quarter's interest and directing Respondent No.1 to accept the same; (c) restrain Respondent No.1 and / or its agents/associates/employees from seeking recovery of the demand under the communication dated 01.10.2020 and/or recovering any amount beyond the scope of guarantee provided by the Appellant in terms of the DSRA Guarantee Agreement dated 29.08.2018; (d) restrain Respondent No.1 and/or its agents/associates/employees from addressing any communication, whether formal or informal, to the stock exchanges, credit information companies and credit rating agencies in relation to the Appellant arising from/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt against the Respondent. As such, the captioned Company Petition ought to be dismissed by this Hon'ble Tribunal. .... 5.11...After considering the issues, vide its Order of 25th February 2021, the Ld. Division Bench was pleased to direct that no coercive actions shall be taken by the Respondent against the Applicant insofar as the dispute in question is concerned. The reason was obvious. Since the Hon'ble High was seized of the matter, it would be futile for the same issue to be raised before any other Court or Tribunal or allow the Respondent to continue to take steps which were prejudicial to the interest of the Applicant. 5.12 Several months later, at the further hearing of the Appeal on 3rd December 2021, the Respondent requested for modification of the aforesaid Order dated 25th February 2021 to the extent that the respondent be permitted to take resort to appropriate proceedings for recovery of amounts allegedly due from the Applicant. On hearing the parties, the Ld. Division Bench modified its earlier Order by permitting the Respondent "to take recourse to the legal remedies for recovery of the outstanding loan amounts" which may be due from the Applicant with a cave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings under IBC. 11. On 11th March, 2022, a Contempt Petition (CC No. 286 of 2022) was filed by Appellant-Zee before this Court stating that filing of the application under Section 7 of IBC by Respondent No.1-bank amounted to violation of orders dated 25th February, 2021 and 03rd December, 2021. 12. On 17th March, 2022, the Appellant-Zee filed an application before NCLT seeking rectification of the order dated 1st March, 2022 by deleting the portion recording that the Appellant-Zee had undertaken to file a reply. 13. On 21st April, 2022, this Court issued notice in the present application and directed Appellant-Zee to file its reply. Further, the Court directed that the Contempt Petition 'is transferred to this Court and directed to be listed along with the present Appeal...' 14. Thereafter arguments in CM Appl. 12152/2022 and Contempt Petition (CC No.286 of 2022) were heard by this Court. ARGUMENTS ON BEHALF OF RESPONDENT NO.1-BANK/APPLICANT 15. Dr. Abhishek Manu Singhvi, learned Senior Advocate on behalf of Respondent No.1-bank stated that this Court vide order dated 3rd December, 2021, after extensively hearing the parties to the lis, modified the order dated 25th Feb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f IBC provides that no injunction shall be granted by any Court, Tribunal or Authority, in respect of any action taken or to be taken in pursuance of any power conferred on the NCLT. He stated that in terms of Section 238 of IBC, provisions of IBC have an overriding effect over other laws in force. He pointed out that the Bombay High Court in the case of Jotun India Private Limited v. PSL Limited, 2018 SCC OnLine Bom 1952, in the context of Section 41(b) SRA and Section 64(2) IBC has held that NCLT is not a Court subordinate to the High Court and hence as prohibited by provisions of Section 41(b) of SRA, no injunction can be granted by the High Court restraining institution of proceedings in NCLT against a Corporate Debtor. 19. He further submitted that it is an equally well settled proposition of law that in view of Section 128 of Indian Contract Act, 1872 a lender is at liberty to proceed against a Guarantor without proceeding against the principal borrower. He submitted that the said principle has been reiterated in the context of IBC proceedings by the NCLAT in the case of Ferro Alloys Corporation Ltd. v. Rural Electrification Corporation Limited, 2018 SCC OnLine NCLAT 71, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the December 3, 2021 order did not include nor can be interpreted to include an action under IBC. CIRP under IBC is principally and procedurally different from debt recovery actions and cannot come within the contours of the permission granted by this Court in December 3, 2021 order. According to him, CIRP/IBC proceedings are not proceedings for recovery of any dues but are rather intended to be solely for reorganization and insolvency resolution of the corporate person. In support of his submissions, he relied upon the judgment of the Supreme Court in Dena Bank vs. C. Shivakumar Reddy, (2021) 10 SCC 330. 24. He submitted that reliance of the Respondent No.1-bank upon Section 64(2) of IBC and Section 41(b) of the SRA were misplaced inasmuch as the same cannot be read in isolation ignoring their intent and purpose. He submitted that Section 64(2) is a procedural Section and comes into play only once an application has been made before the NCLT after the initiation of CIRP proceedings, and not at a pre-admission stage, for which there are different procedures contemplated under Sections 7, 9 and 10 of the IBC. He submitted that the matter before NCLT Mumbai is at a pre-admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired in recital 2, the Guarantor guaranteed to replenish the DSRA immediately so as to ensure that the balance requirement is maintained at all times. According to him, the Guarantor also confirmed and agreed that in the event of failure of the Borrower the lender shall be at liberty to invoke the guarantee and recover the amount due from the Borrower, from the Guarantor. He stated that in view of the aforesaid clauses, Appellant-Zee had expressly undertaken to bear the financial risk of maintaining the DSRA Account till the entire amount of loan was repaid by Respondent No.2 as well as to pay the entire amount in case of default by Respondent No.2. He also pointed out that by communications dated 02nd March, 2020, 05th March, 2020 and 01st April, 2020, Appellant-Zee was forewarned that in case the default of Respondent No.2 continues, the balance required to be maintained in the DSRA Account shall stand enhanced. COURT'S REASONING PRELIMINARY OBJECTION RAISED BY THE APPELLATE-ZEE IS UNTENABLE IN LAW. 28. Having heard learned senior counsel for the parties, this Court is of the view that the clarification application as to whether the order dated 03rd December, 2021 intended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." (emphasis supplied) 33. In Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy & Anr (supra) the Supreme Court has held as under:- "83. Unlike coercive recovery litigation, the corporate insolvency resolution process under the IBC is not adversarial to the interests of the corporate debtor, as observed by this Court in Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India]. 84. On the other hand, the IB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to restraining any person from instituting or prosecuting any proceeding and this is subject to one exception enacted in larger public interest, namely, a superior court can injunct a person from instituting or prosecuting an action in a subordinate court with a view to regulating the proceeding before the subordinate courts. At any rate the court is precluded by a statutory provision from granting an injunction restraining a person from instituting or prosecuting a proceeding in a Court of coordinate jurisdiction or superior jurisdiction. There is an unresolved controversy whether a court can grant an injunction against a person from instituting or prosecuting a proceeding before itself but that is not relevant in the present circumstances and we do not propose to enlarge the area of controversy." (emphasis supplied) 37. Consequently, this Court in view of section 41(b) of SRA has grave doubts with regard to maintainability of the suit filed by the Appellant-Zee. 38. Further, it is a settled proposition of law that no interim injunction can be granted where permanent injunction cannot be granted. Accordingly, this Court is of the prima facie opinion that the learned Single J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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