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TMI Blog2023 (9) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... B) No.108(PB)/2022. By the impugned order, the Adjudicating Authority has admitted the application under Section 7 of the IBC filed by CFM Asset Reconstruction Pvt. Ltd. - Respondent No.1 and initiated Corporate Insolvency Resolution Process ("CIRP" in short) of the Corporate Debtor- M/s Micro Stock Holdings Pvt. Ltd. Aggrieved by this impugned order, the present appeal has been filed by share- holder of the Corporate Debtor. 2. The brief facts to be noted for deciding this appeal are as follows: A consortium of banks including State Bank of India sanctioned multiple credit facilities to M/s Action Ispat and Power Private Ltd.-Principal Borrower from 2007-2012. Unable to repay debts, the principal borrower requested for debt restructuring following which a Master Restructuring Agreement ("MRA" in short) was executed between the principal borrower and lenders with SBI as the Lead Bank. In terms of the MRA, a Deed of Guarantee was executed on 30.09.2013 by the Corporate Debtor in favour of SBICAP Trustee Company Ltd. ("SBICAP" in short) which secured the loans availed by the Corporate Debtor. This was followed by a second Supplemental and Amendatory MRA on 12.06.2015 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No.1 had made a malafide attempt to file duplicate claims with respect to the same debt and for the same default. The Adjudicating Authority had already admitted the principal borrower into CIRP vide order dated 23.03.2022 in CP(IB)-1096/PB/2018. It was contended that for the same set of claim amount and default, two applications under Section 7 cannot be initiated simultaneously. 7. The Learned Counsel for the Respondent No.1 refuting the submissions made by the Appellant contended that there was no substance in their contention of breach of principles of natural justice since notice of the company petition had been duly served on the Corporate Debtor on their registered email ID and affidavit of service to this effect had also been filed before the Adjudicating Authority. It was further submitted that the agreement executed by SBI being in accordance with the statutory scheme under Section 5 of the SARFAESI Act, there was no need for the Assignment Agreement to be registered. Moreover, Respondent No.1 having been registered as a Securitization and Asset Reconstruction Company under Section 3 of the SARFAESI Act, acquisition by Respondent No.1 was complete immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the case of the Appellant that the service of notice was not proper since it was sent only by email and not by dasti which was in violation of the order of the Adjudicating Authority dated 22.02.2022. It is also submitted by the Appellant that the Adjudicating Authority without recording reasons for proceeding ex-parte decided the matter against the Corporate Debtor without giving them an opportunity for hearing thereby violating the principles of natural justice. 12. The above contention of the Appellant was strenuously opposed by Respondent No.1. It was submitted that the Corporate Debtor had been served an advance copy of the company petition on 03.02.2022 on their email address '[email protected]' which is the registered email ID of the Corporate Debtor. Subsequently, the entire company petition was sent at the registered email ID of the Corporate Debtor on 28.02.2022. In the said email of 28.02.2022, it was also intimated to the Corporate Debtor that the Adjudicating Authority had on 22.02.2022 ordered that notice be issued to the Corporate Debtor for further consideration of the matter on 02.03.2022. Thereafter, an affidavit of service was filed before the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent No.1 cannot be held responsible for not having sent proper notice. That being so, we are of the considered view that 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, we 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. 15. Next, we come to the contention of the Appellant that the Respondent No.1 does not fall within the definition of "Financial Creditor" as envisaged under Section 5(7) of the IBC since the Assignment Agreement in question is an unregistered document in terms of Section 17 of the Registration Act, 1908. It is noticed that the same contention qua the same Assignment Agreement was raised before this Appellate Tribunal in a connected matter in CA(AT)(Ins.) No.470 of 2023 in Naresh Kumar Aggarwal v. CFM Asset Reconstruction Pvt. Ltd. & Ors. wherein it has been held that since the Assignment Agreement was in accordance with Section 5 of the SARFAESI Act, the Asset Reconstruction Company has to be dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the asset reconstruction company on acquisition of such assets under sub-section (1).]" 7. Section 5 Sub-section (1) begins with non-obstante clause with the words "Notwithstanding anything contained in any agreement or any other law for the time being in force...". Section 5 is an enabling provision to empower the Asset Reconstruction Company to acquire financial assets in the manner provided in Sub-section (1). The Assignment Agreement dated 18.01.2021 was in accordance with Section 5(1)(b) i.e. by entering agreement with State Bank of India. Sub-section (2) of Section 5 contains a deeming clause. Sub-section (2) provides that Asset Reconstruction Company on such acquisition be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company. When the legislature uses the deeming fiction it is always for purpose and object. 8. Hon'ble Supreme Court had occasion to consider provision of Section 43 of the Indian Contract Act, 1872 which contains the deeming provision and on fulfilling the ingredients as provided in the statute, legal fiction will come into play, irrespective whether the transaction was in fact intended or even ant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indisputable conclusion." 22.2.2. In Pioneer Urban, this Court further extracted extensively from the decision in Hindustan Cooperative Housing Building Society Limited v. Registrar, Cooperative Societies and Anr.: (2009) 14 SCC 302 on various features of the processes of construction of different deeming provisions in different contexts. Some of the relevant parts of such extraction (as occurring in paragraph 95 of Pioneer Urban) read as follows (in SCC at pp. 524): " '... The word "deemed" is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.' (Per Lord Radcliffe in St. Aubyn v. Attorney General:1952 AC 15 (HL), AC p. 53) 14. 'Deemed', as used in statutory definitions [is meant] 'to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -sections (4) and (2) are deeming provisions, upon existence of the ingredients stated therein, the legal fiction would come into play; and such transaction entered into by a corporate debtor would be regarded as preferential transaction with the attendant consequences as per Section 44 of the Code, irrespective whether the transaction was in fact intended or even anticipated to be so." 9. Following the law laid down by the Hon'ble Supreme Court in the above case, when acquisition of assets by Asset Reconstruction Company is made as per Section 5(1), deeming provision contained in Sub-section (2) of Section 5 shall come into play and the Asset Reconstruction Company shall be deemed to be Lender for all purposes. As a Lender, the Respondent No.1 was fully entitled to exercise its right to initiate proceeding under Section 7." 17. It is pertinent to add here that two case citations, namely, Palm Products Pvt. Ltd. v. T.V.L. Narsimha Rao and Anr., 2021 SCC OnLine NCLAT 37 and Citi Securities & Financial Services Pvt. Ltd. v. Sudip Bhatacharya referred to by the present Appellant in the present matter in support of their contention that assignment of financial debt has to be by regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue has also been dealt at length by this Tribunal in the Naresh Kumar Aggarwal (supra) and held that the lender can proceed against the principal borrower as well as the corporate guarantor in equal measure by relying upon the judgment of Hon'ble Supreme Court in Laxmi Pat Surana v. Union of India & Anr., (2021) 8 SCC 481. The above finding of this Tribunal in Naresh Kumar Aggarwal (supra) is squarely applicable in the present facts of the case and the relevant portion of the above judgment is reproduced below:" "14. Now, we come to last submission of learned counsel for the Appellant that application under Section 7 having admitted against the Principal Borrower, it was not open for the Respondent No.1 to file application against the Corporate Guarantor since two simultaneous proceedings under Section 7 cannot be proceeded with. Learned counsel for the Appellant has placed reliance on judgment of this Tribunal in "2019 SCC OnLine NCLAT 542, Dr. Vishnu Kumar Agarwal vs. Piramal Enterprises Ltd.", where in Para 32 following observations have been made by this Tribunal: "32. There is no bar in the 'I&B Code' for filing simultaneously two applications under Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. For, as aforesaid, expression "default" has also been defined in Section 3(12) of the Code to mean nonpayment of debt when whole or any part or instalment of the amount of debt has become due or payable and is not paid by the debtor or the corporate debtor, as the case may be." 16. The scheme of I&B Code, in view of law laid down by the Hon'ble Supreme Court in "Laxmi Pat Surana vs. Union of India & Anr.", we are not persuaded to follow judgment of this Tribunal in Dr. Vishnu Kumar Agarwal (Supra)." 20. It may not be out of place to mention here that the decision of this Tribunal in Naresh Kumar Aggarwal (supra) has been challenged in the Hon'ble Supreme Court. However, since the matter is pending adjudication before the Hon'ble Apex Court and has not been stayed, the judgment of this Tribunal contin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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