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TMI Blog2024 (4) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and Bankruptcy (Application to Adjudicating Authority) Rules, 2016), passed by the 'Adjudicating Authority', 'National Company Law Tribunal', Division Bench - II, Chennai, in admitting the Section 7 Application of the 'Financial Creditor', appointing the 'Respondent No. 2' as 'Interim Resolution Professional' and declaring 'Moratorium', etc. Appellant's Contentions : 2. The Learned Counsel for the Appellant, submits that the 'Impugned Order', dated 15.06.2023, in CP / IB / 140 (CHE) 2022, passed by the 'Adjudicating Authority', 'National Company Law Tribunal', Division Bench, Chennai, suffers from 'Legal Infirmity', and that the 'Adjudicating Authority' / 'Tribunal', has over looked to consider the Judgment of this 'Tribunal', dated 08.01.2019, in the matter of Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd. (vide Comp. App (AT) (INS) No. 346 & 347 / 2018), wherein, it is observed and held that 'once for a same set of claim(s) an Application under Section 7 filed by a Financial Creditor is admitted against one of the Corporate Debtors be it, the 'Principal Borrower' or a 'Corporate Guarantor', a second Application, by the very same 'Financial Creditor', for the very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds, as under: '... 22. This Guarantee shall be a continuing one and shall be valid and in full force till the Debt to Equity Ratio is reduced to 80:20 (eighty to twenty). The liability of the Guarantor under this Guarantee shall not exceed the value of the land (1) admeasuring in aggregate approximately 300.52 acres situate at Dalavaypuram and Vellam villages, Ottapidaram Taluk, Tuticorin District, in the State of Tamilnadu (worth Rs.200,00,00,000/- as on date of this Guarantee); and (ii) admeasuring in aggregate approximately 200 acres situate at Kumarreddiapuram, Vallaram, Kutcheri Dalavaypuram and Eeppodum villages, Ottapidaram Taluk, Tuticorin District, in the State of Tamilnadu (worth Rs.153,00,00,000/- as on date of this Guarantee). ...' 8. According to the Appellant, the total Sum in 'Default', as on 20.09.2018 to the '1st Respondent / Bank / Financial Creditor', in the instant case, was Rs.2,932,69,53,916.57, that the 'Date of Default', was mentioned, in the main CP (IB) / 140 (CHE) / 2022, by the Bank, as 27.09.2018. Further the Accounts were classified as 'Non-performing Asset', on 31.03.2017. A 'Recall Notice', was issued on 20.09.2018, to the 'Coastal Energe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt', in repayment, is not a solution and will go against the 'intent' of the 'Code'. 13. The Learned Counsel for the Appellant, points out that the 'Adjudicating Authority' / 'Tribunal', is conferred with a 'Discretionary Power', either to 'Admit' or 'Reject', a 'Section 7 Application' (filed under the I & B Code, 2016), after appreciating all 'Question of Laws and Facts', involved in that particular case. 14. Added further, the Hon'ble Supreme Court of India, in 'Vidarbha Industries case', while examining the ambit of Section 7 (5) (a) of the I & B Code, 2016, had clarified that a 'Discretionary Power', is conferred upon the 'Tribunal', and stated that such 'Discretion', shall be used based on the facts and circumstances of a case, which warrants, such an exercise of 'Discretion'. 15. According to the Appellant, the 'Default', on the part of 'Coastal Energen', which has led to the filing of this 'Application', is primarily, because of the 'Defaults', on the part of 'TANGEDCO', in releasing 'Timely Payments', against the power supplied by 'Coastal Energen' and secondarily, because of the delay in sanction of the 'Loans', by the 'Consortium of Lenders', which resulted in the 'exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in terms of the 'Third Amended and Re-stated Common Loan Agreement', dated 05.07.2016, a Sum of Rs.1139 Crores, was sanctioned additionally by the 'Lender Consortium and the Guarantee', was provided by the Corporate Debtor in regard to the 'Additional Loans', availed by the 'Principal Borrower', Viz. Coastal Energen Private Limited. 21. The Learned Counsel for the Appellant, points out that the 'Second Respondent / Resolution Professional, has conducted '9 Committee of Creditors' Meetings, and the 'Committee of Creditors', are in the process of 'negotiating / deliberating on the 'Resolution Plans', and serious 'prejudice', will be caused, to the 'Corporate Debtor', if further action, is taken in the matter, through a 'Resolution Plan process' or if the 'Corporate Debtor', is forced to undergo 'Liquidation', for 'no Defaults', committed by it. 1st Respondent / Bank's Submissions : 22. The Learned Counsel for the 1st Respondent / Bank (Financial Creditor), contends that the Respondent / Corporate Debtor, (as per the 'Application', filed under Section 7 of the I & B Code, 2016), is liable to pay an 'amount of Rs.3292,35,84,386/-', together with 'Interest', and other 'Charges', p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upon the Judgment of this 'Tribunal', dated 16.05.2023 in Naresh Kumar Aggarwal v. CFM Asset Reconstruction Private Limited, reported in MANU / NL / 0458 / 2023 (Comp. App (AT) (INS) No. 470 / 2023), wherein, at Paragraph Nos. 14 to 16, it is observed as under: 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 'MANU/NL/0003/2019, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 non-payment 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).' 31. The Learned Counsel for the 1st Respondent / Bank, adverts to the Judgment of this 'Tribunal', dated 24.11.2020 (in the matter of State Bank of India v. Athena Energy Ventures Private Limited (vide Comp. App (AT) (INS) No. 633 of 2020), wherein, at Paragraph Nos. 15, 16 & 19, it is observed as under: 15. 'The learned Counsel for the Appellant is relying on the above observations of the ILC to argue that the Creditor cannot be restrained from initiating CIRP against both the Principal Borrower as well as the surety and also maintaining the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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.' 32. The Learned Counsel for the 1st Respondent / Bank, falls back upon the Judgment dated 26.03.2021 of the Hon'ble Supreme Court of India, in Laxmi Pat Surana v. Union Bank of India (vide Civil Appeal No. 2734 of 2020), reported in MANU / SC / 0221 / 2021, wherein, at Paragraph Nos. 18 to 20 & 41, it is observed as under: 18. 'The term 'financial creditor' has been defined in Section 5(7) read with expression 'Creditor' in Section 3(10) of the Code to mean a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. This means that the Applicant should be a person to whom a financial debt is owed. The expression 'financial debt' has been defined in Section 5(8). Amongst other categories specified therein, it could be a debt along with interest, which is disbursed against the consideration for the time value of money and would include the amount of any liability in respect of any of the guarantee or indemnity for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'corporate debtor', within the meaning of Section 3(8) of the Code. 41. .....The financial creditor has not only the right to recover the outstanding dues by filing a suit, but also has a right to initiate resolution process against the corporate person (being a corporate debtor) whose liability is coextensive with that of the principal borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability.' 33. The Learned Counsel for the 1st Respondent / Bank, seeks in aid of the Judgment, dated 18.08.2009 of the Hon'ble Supreme Court of India in Industrial Investment Bank of India Ltd. v. Bishwanath Jhunjhunwala (vide Civil Appeal No. 4613 of 2000), reported in 2009, 9 SCC 478, wherein, at Paragraph Nos. 14, 15, 18 & 20, it is observed as under: 14. 'Mr. Gupta, in support of his submission, placed reliance on a judgment of this Court in Bank of Bihar Ltd. v. Dr. Damodar Prasad & Another (1969) 1 SCR 620, AIR p. 298, Para 5, in that case, the court referred to a judgment in Lachhman Joharmal v. Bapu Khandu (1869) 6 Bom HCR 241, in which the Division Bench of the Bombay High Court, held as under (Lachhman case, Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) IBC. For, as aforesaid, the expression 'default' has also been defined in Section 3(12) IBC to mean non-payment 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.' 35. The Learned Counsel for the 1st Respondent / Bank, points out that in Clause 22 of the 'Deed of Guarantee' dated 05.07.2016 (vide Vol. I, Page 145 of the 'Appeal Paper Book'), executed by 'Fossil Logistics Private Limited' ('Guarantor'), to and in favour of 'SBICAP Trustee Company Ltd.', wherein, the 'Corporate Debtor', had 'unequivocally and unconditionally', guaranteed to discharge and fulfill the obligations of the 'Guarantee'. 36. The Learned Counsel for the 1st Respondent / Bank, adverts to Clause 3 & 5 of the 'Deed of Guarantee', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. 'It is submitted that the Applicant is well aware of the fact that the OTS has been obtained from 15 out of 17 banks in the Consortium. It is submitted that the Applicant is also aware of the fact that the OTS has been accepted by 93% of the Consortium and pursuant to the same, the Respondent herein was in the process of entering into a formal agreement for completion of OTS. It is submitted that when the Respondent was in the process of arranging funding from the two investors as mentioned in the earlier paragraphs. 19. It is submitted that as a well-known fact, the unprecedented COVID- 19 pandemic, has caused huge disruptions to the world economy and that the funding from the aforesaid investors were hugely affected as a result of the pandemic. It is submitted that the investors who have accepted to fund the OTS are foreign based investors and it would not be out of place to mention that the world economy has been severely affected by Covid 19 pandemic. It is submitted that one of the investors, Deutsche Bank, one of the leading banks in Europe has released their Interim Report as of Jan 2020, wherein the effect of Covid-19 pandemic on the global market and economy is expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined in Section 5(7) read with expression 'Creditor' in Section 3(10) of the Code to mean a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. This means that the applicant should be a person to whom a financial debt is owed. The expression 'financial debt' has been defined in Section 5(8). Amongst other categories specified therein, it could be a debt along with interest, which is disbursed against the consideration for the time value of money and would include 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 the same clause. It is so provided in sub− clause (i) of Section 5(8) of the Code to take within its ambit a liability in relation to a guarantee offered by the corporate person as a result of the default committed by the principal borrower. The expression 'debt' has been defined separately in the Code in Section 3(11) to mean a liability or obligation in respect of 'a claim' which is due from any person and includes a financial debt and operational debt. The expression 'claim' would certainly cover th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors', on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors', combinedly are joint venture Company.' 46. The Learned Counsel for the 2nd Respondent, cites the Judgment dated 25.04.2022 of this 'Tribunal', in S. Elangovan v. ASREC (India) Ltd. & Anr. (Comp. App (AT) (CH) (INS) 102 / 2022), wherein at Paragraph Nos. 47 & 48, it is observed as under: 47. 'In the decision of Hon'ble Supreme Court in Central Bank of India and Others V C.L. Vimala and Others, etc., decided on 28.04.2015, reported in AIR (SCW) 3240, wherein it is observed that the 'liability' of the 'Guarantor' is coextensive with that of 'Principal Debtor', unless it is otherwise provided by the 'Contract'. It is the prerogative of the 'Creditor' alone to move against the 'Principal Debtor' or the 'Surety'. 'Clauses' in the 'Letter of Guarantee' are binding on the 'Guarantor'. Ignorance is not a valid ground. 48. It is relevantly pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Proceeding', under Section 7 of the I & B Code, 2016, is not deciding a 'Money Claim' or 'Suit'. For triggering the 'Insolvency Resolution Process', an 'Adjudicating Authority' / 'Tribunal', is not to decide the 'Claim' of 'Interest'. 57. The 'proceedings', under the I & B Code, 2016 are 'summary in character'. In fact, the said proceedings, are not like 'Civil Litigation', to be determined by a 'Competent Court of Law'. Ofcourse, the 'Corporate Debtor', is entitled to point out in a 'CIRP' proceedings, before the 'Adjudicating Authority' / 'Tribunal', that the 'Default', has not occurred. A 'Debt', may not be due, if it is 'not payable in Law' or 'on facts'. Proof of Debt & Default : 58. In order to maintain an 'Application', under Section 7 of the I & B Code, 2016, the Petitioner, before the 'Adjudicating Authority' / 'Tribunal', must be able to establish the 'Existence of Debt', which is due, from a 'Corporate Debtor'. 59. It is vital that the 'Stakeholders' / 'Parties', in IBC Proceedings, are not permitted, to abuse, the legal process, by indulging in dilatory tactics. No wonder, the 'Speed', is the essence of I & B Code, 2016. For an 'Admission' of an 'Application / Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present Comp. App (AT) (CH) (INS.) No. 284 of 2023, the Appellant is the 'Suspended Director' of 'Fossil Logistics Private Limited' ('Corporate Debtor'), being the 'Corporate Guarantor', for the 'Loans', availed by 'M/s. Coastal Energen Private Limited' ('Principal Borrower'). 68. A perusal of the contents of Application (filed by the 1st Respondent / Bank, under Section 7 of the I & B Code, 2016), against the 'Corporate Debtor' / 'Guarantor', the amount mentioned to be in 'Default', was Rs.2,932,69,53,916.57, as on 27.09.2018. 69. The 1st Respondent / Bank, in its Section 7 Application (before the 'Adjudicating Authority' / 'National Company Law Tribunal', Division Bench - II, Chennai), in CP / IB / 140 (CHE) 2022, had claimed a Sum of Rs.3292,35,84,386/- (Rupees Three Thousand Two Hundred Ninety Two Crores Thirty Five Lakhs Eighty Four Thousand Three Hundred and Eighty Six only), along with 'Interest' and other 'Charges', payable from 01.09.2021 till full realisation (vide Statement of Account of the Bank in Vol. V of the Appellant's Appeal Paper Book at Page 788). 70. It transpires that the Account of the 'Principal Borrower' ('M/s. Coastal Energen Private Limited') was class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s', under Section 7 of the I & B Code, 2016, by a 'Financial Creditor', against the 'Principal Borrower' and the 'Corporate Debtor' / 'Guarantor', in the considered opinion of this 'Tribunal'. 75. In terms of Section 7(4) of the I & B Code, 2016, an 'Adjudicating Authority' / 'Tribunal', is to ascertain an 'Existence of a Debt', within 14 days. In reality, as per Section 7(5) (a) of the Code, an 'Adjudicating Authority' / 'Tribunal', is either to admit an 'Application' or 'reject', the 'Application', as per Section 7(5)(b) of the 'Code'. 76. Ordinarily, the 'Adjudicating Authority' / 'Tribunal', is to exercise its 'Discretion', in admitting an 'Application', as per Section 7 and initiate 'Corporate Insolvency Resolution Process', on satisfaction of the existing 'Financial Debt and Default', on the part of 'Corporate Debtor', in payment of the 'Debt'. An 'Adjudicating Authority' / 'Tribunal', cannot exercise its 'Discretionary Power', as per Section 7(5)(a) of the 'Code', in an 'arbitrary' and 'whimsical' manner. 77. In view of the foregoing detailed qualitative and quantitative discussions, this 'Tribunal', on a careful consideration of respective contentions, advanced on either ..... X X X X Extracts X X X X X X X X Extracts X X X X
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